American Grettings

Title Page

	This spreadsheet supports STUDENT analysis of the case “American Greetings” (UVA-F-1693).
This spreadsheet was prepared by Michael J. Schill, Associate Professor of Business Administration. Copyright © 2013 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. For customer service inquiries, send an e-mail [email protected]. No part of this publication may be reproduced, stored in a retrieval system, posted to the Internet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
Rev. Feb. 6, 2014

Exh 1

Exhibit 1
AMERICAN GREETINGS
American Greetings Share Price
(monthly close)
	Closing Adjusted Price for American Greetings Shares
Dec-09	$21
Jan-10	$17
Feb-10	$18
Mar-10	$20
Apr-10	$23
May-10	$22
Jun-10	$18
Jul-10	$20
Aug-10	$18
Sep-10	$18
Oct-10	$19
Nov-10	$19
Dec-10	$22
Jan-11	$21
Feb-11	$21
Mar-11	$23
Apr-11	$24
May-11	$23
Jun-11	$23
Jul-11	$22
Aug-11	$21
Sep-11	$18
Oct-11	$16
Nov-11	$17
Dec-11	$13

Closing Adjusted Price for American Greetings Shares 40148 40182 40210 40238 40269 40301 40330 40360 40392 40422 40452 40483 40513 40546 40575 40603 40634 40665 40695 40725 40756 40787 40819 40848 40878 20.57 17.45 18 19.8 23.33 22.4 17.95 19.600000000000001 18.46 17.920000000000002 18.670000000000002 19.34 21.5 21.08 21 22.89 24.01 23.43 23.46 21.78 20.85 18.170000000000002 15.87 16.84 12.51

Exh 2

	Exhibit 2
	AMERICAN GREETINGS
	American Greetings Income Statement, December 2011 (in millions of dollars)
	2008	2009	2010	2011E
	(Feb 2009)	(Feb 2010)	(Feb 2011)	(Feb 2012)
Total American Greetings Figures
Total Revenue	1,691	1,636	1,593	1,677
Material, Labor, and Other Pruduction Costs	810	713	682	743
Selling, Distribution, and Marketing Expenses	619	508	478	526
Administrative and General Expenses	226	276	261	258
Goodwill and Other Intangible Asset Impairments	290	0	0	0
Other Operating Expenses	1	0	3	(6)
Operating Income	(253)	139	175	157
Net Interest and Other Nonoperating Expenses	22	18	19	28
Income Before Income Tax Expense	(275)	121	156	129
Income Tax Expense	(47)	39	69	47
Net Income	(228)	82	87	82
Earnings Per Share (Basic)	(4.89)	2.07	2.18	2.22
Dividends per Share	0.60	0.36	0.56	0.60
By Business Unit
Operating Segment Net Sales
North American Social Expression Products	1,095	1,235	1,191	1,215
International Social Expression Products	271	254	262	344
Retail Operations	179	12
AG Interactive	83	80	78	68
Operating Segment Earnings
North American Social Expression Products	70	236	218	148
International Social Expression Products	(78)	17	20	20
Retail Operations	(19)	(35)
AG Interactive	(162)	11	14	14
Total Revenue by Product Category
Everyday Greeting Cards	704	764	753	823
Seasonal Greeting Cards	357	369	377	408
Gift Packaging	240	221	223	239
Other Revenue	44	38	32	32
All Other Products	345	244	207	176
Note: Fiscal year ends February of subsequent year.
Source: Company accounts; management and case writer estimates

Exh 3

	Exhibit 3
	AMERICAN GREETINGS
	American Greetings Balance Sheet (in millions of dollars)
		2009	2010	2011E
		(Feb 2010)	(Feb 2011)	(Feb 2012)
Cash and Cash Equivalents		138	216	172
Trade Accounts Receivable		136	120	130
Inventories		164	180	190
Prepaid Expenses		148	128	131
Other Current Assets		94	72	54
Total Current Assets		679	716	677
Net Property, Plant, and Equipment and Other Assets		850	832	859
Total Assets		1,529	1,547	1,536
Debt Due within One Year		1	0	0
Accounts Payable		95	87	87
Other Current Liabilities		272	245	255
Current Liabilities		369	332	343
Long-Term Debt		329	233	235
Other Liabilities		196	219	206
Shareholders’ Equity		636	763	752
Total Liabilities and Shareholders’ Equity		1,529	1,547	1,536
Note: Fiscal year ends February of subsequent year.
Data source: Company accounts; management and case writer estimates.

Exh 4

		Exhibit 4
		AMERICAN GREETINGS
		Total U.S. Greeting Cards Sales (Actual and Forecast)
		Sales at current prices
		in millions of dollars	% annual change
	2005	6,537
	2006	6,420	-1.8
	2007	6,285	-2.1
	2008	6,266	-0.3
	2009	6,149	-1.9
	2010	5,935	-3.5
	2011 (est.)	5,838	-1.6
	2012 (est.)	5,711	-2.2
	2013 (est.)	5,596	-2.0
	2014 (est.)	5,478	-2.1
	2015 (est.)	5,359	-2.2
Data source: Mintel, based on U.S. Census Bureau, Economic Census.

Exh 5

			Exhibit 5
			AMERICAN GREETINGS
			Feelings About e-Cards: Usage Change among 2,000 Respondents, October 2010
					By Age Category
		All	18-24	25-34	35-44	45-54	55-64	65+
	In the last year, I have sent more e-cards than I used to.	22%	17%	26%	20%	22%	21%	24%
	In the last year, I have sent fewer e-cards than I used to because I send greetings over social networking sites such as Facebook.	20%	26%	27%	21%	19%	15%	13%
	Data source: Mintel.

Exh 6

			Exhibit 6
			AMERICAN GREETINGS
			Comparable Firms, End of 2011 (in millions of dollars except share price)
	Share Price	Shares Outstanding	Total Cash	Total Debt	Enterprise Value	Revenue	EBITDA	EBITDA Multiple*
American Greetings	12.51	38.3	86	235	714	1,660	204	3.5
Blyth	56.80	8.2	182	101	568	984	48	11.7
Consolidated Graphics	48.28	10.2	7	197	692	1,050	122	5.6
CSS Industries	19.92	9.7	10	0	194	453	30	6.5
Deluxe	22.76	50.9	31	742	1,901	1,420	359	5.3
Hallmark	NA	NA	NA	NA	NA	4,100	NA	NA
Lancaster Colony	69.34	27.3	162	0	1,890	1,090	156	12.2
Meredith	32.65	44.8	26	250	1,712	1,350	240	7.1
Scholastic	29.97	31.1	114	215	1,145	1,950	189	6.0
	ROA	ROE	Beta	Bond Rating**
American Greetings	7%	11%	1.63	BB+
Blyth	4%	9%	1.60	B
Consolidated Graphics	5%	10%	1.45	BB
CSS Industries	4%	2%	1.36
Deluxe	13%	55%	1.85	B
Hallmark	NA	NA	NA
Lancaster Colony	14%	19%	0.42
Meredith	7%	15%	1.75	BB
Scholastic	6%	8%	1.04	BB-
* EBITDA miltiple is defined as Enterprise Value divided by EBITDA
** The ratings for Cons. Graphics and Meredith are estimated by case writer.
Data source: Yahoo! Finance, Standard & Poor’s, Mergeant.

Exh 6 (Continued)

	Exhibit 6 (Continued)
	AMERICAN GREETINGS
	Comparable Firms
Blyth	Global marketer of candles, gourmet foods, weight management products, holiday cards, photo albums, and houseware products
Consolidated Graphics	Provides commercial printing services in North America, including brochures, shareholder communications, trading cards, calendars, catalogs, and greeting cards
CSS Industries	Designs, produces, and sells social expression products in North America, including greeting cards, gift wrapping, Valentines cards, Halloween costumes, and stationery
Deluxe	Provides printed products to financial institutions and small businesses worldwide, including forms, checks, envelopes, and greeting cards
Lancaster Colony	Manufactures and markets specialty foods, glassware, and candles in the United States
Meredith	Licenses brands and publishes magazines (e.g., Better Homes and Gardens, Ladies’ Home Journal, FamilyFun) in the United States
Scholastic	Publishes and distributes children’s books and other media in the United States
Data source: Case writer descriptions.

Exh 7

			Exhibit 7
			AMERICAN GREETINGS
			American Greetings Operating Performance
	2005	2006	2007	2008	2009	2010	2011
Revenue Growth	0%	-7%	-1%	-5%	-3%	-2%	7%
Operating Margin	8%	2%	5%	-1%	6%	9%	9%
Note: Fiscal year ends February of subsequent year.
Data source: Company financial statements.

Revenue Growth 2005 2006 2007 2008 2009 2010 2011 2.0842240273619694E-3 -6.9596288197962819E-2 -7.9101226642209754E-3 -4.8763577536399261E-2 -2.921525753158416E-2 -2.3837827691922664E-2 7.4926291501089537E-2 Operating Margin 2005 2006 2007 2008 2009 2010 2011 8.1888965921817478E-2 2.2245786999885331E-2 4.7278715045065825E-2 -5.3206997084548043E-3 6.3342301195019712E-2 8.9155236508140071E-2 8.9982708246377732E-2

Exh 8

		Exhibit 8
		AMERICAN GREETINGS
		Financial Forecast Assumptions
	Actual	*********** Forecast ***********
	2011	2012	2013	2014	2015
Bullish Scenario
Revenue Growth	5.3%	1.0%	1.5%	2.0%	2.5%
Operating Margin	9.4%	9.0%	9.0%	9.0%	9.0%
Net Working Capital Turnover	5.02	6.00	6.50	7.00	7.50
Fixed Asset Turnover	1.95	1.95	1.95	1.95	1.95
Bearish Scenario
Revenue Growth	5.3%	0.0%	0.0%	0.0%	0.0%
Operating Margin	9.4%	8.0%	7.0%	6.0%	5.0%
Net Working Capital Turnover	5.02	6.00	6.50	7.00	7.50
Fixed Asset Turnover	1.95	1.95	1.95	1.95	1.95
Note: The ratios are defined in the following manner:
Revenue Growth is the annual percentage change in total revenue
Operating Margin is operating income divided by total revenue
Net Working Capital Turnover is total revenue divided by net working capital
where net working capital is current assets less current liabilities
Fixed Asset Turnover is total revenue divided by net PP&E and other assets
Data source: Case writer estimates.

Exh 9

	Exhibit 9
	AMERICAN GREETINGS
	Capital Market Data
		Yield
	30-Day Treasury Bill	0.1%
	10-Year Treasury Bond	2.8%
	10-Year Corporate Bonds of Industrial Companies
	AAA	2.8%
	AA	2.9%
	A+	3.2%
	A	3.3%
	A-	3.5%
	BBB+	3.8%
	BBB	4.1%
	BBB-	4.6%
	BB+	5.8%
	BB	6.5%
	BB-	6.5%
	B+	6.8%
	B	8.4%
	B-	9.0%
	Historical Market Risk Premium
	Equity Market Index Less Government Debt	5.5%
		5-Year Forecast
	U.S. Real GDP Annual Growth Rate	3.3%
	U.S. GDP Annual Deflator Rate	1.8%
	Consumer Price Index Annual Rate	2.2%
Data source: Bloomberg, Value Line Investment Survey, and case writer estimates.