American Greetings Issues Detailed Response To
Wall Street Journal Article
CLEVELAND, July 3 /PRNewswire-FirstCall/ -- As a follow-up statement
to its earlier release, American Greetings Corporation (NYSE: AM)
today issued the following response to an article in today's Wall
Street Journal about reserve accounts.
The Corporation believes that the analysis of the facts pertaining
to American Greetings is incomplete and that the implications of
the article are misleading. American Greetings had discussed the
reasons for the decline in -- as well as the adequacy of -- its
sales returns reserves during its first quarter conference call
on June 27; a summary of these and other points not taken into account
by the article follows below:
The Wall Street Journal article referenced the Corporation's lower
year- over-year first quarter reserve for seasonal card returns.
While the statement that the Corporation's first-quarter reserve
is lower compared to the prior year first-quarter reserve is correct,
the article compares quarterly reserve figures to annual sales figures,
a misleading and inappropriate comparison, due in part to the quarterly
fluctuations associated with the seasonal nature of the Corporation's
business. Furthermore, the article also attempts to analyze the
accounts receivable reserve without considering the gross and net
receivables movements. The implication of the analysis in the article
is that the entire decrease in the reserve artificially inflated
net income, which is inaccurate.
The following points are important in order to comprehend the decline
in the reserve:
- The reserve for seasonal returns is specifically assigned
to each season and closed out at the end of each season. The
Corporation utilizes both quantitative and qualitative methods
to establish this reserve, and historically has had no major
adjustments affecting net income at the end of any given season.
- The reserve mentioned actually includes reserves for sales
returns and the allowance for doubtful accounts.
- American Greetings has not changed its method of accounting
for returns and doubtful accounts; any such change would be
disclosed in the Company's notes to its financial statements.
- The Corporation's year-over-year net receivables position at
May 31 decreased by 5 percent, despite a significant sales increase
in the first quarter of this year, which reflects improved collections
and a reduction in past due accounts.
The Corporation's reserve declined for three primary reasons. First,
as the article cites, two major accounts of American Greetings converted
to a scan-based trading business model in which returns reserves
are not required because the Corporation owns the inventory in the
retail stores. The change to a scan-based trading business model
at these two retailers also had the effect
of increasing the prior year's first-quarter reserve to reflect
the commitment to buy back inventory due to the conversion to the
new business model.
The second reason for the decline is that American Greetings over
the past year has reduced its overall seasonal shipments, which
has successfully reduced its seasonal return rates, thus reducing
the reserve.
The third reason relates to the allowance for doubtful accounts,
which reflects the resolution of past due accounts against the reserve,
resulting in lower reserve requirements with no net effect on the
income statement or net accounts receivable.
These three reasons fully explain virtually all the change in the
reserve. The net reduction in the reserve had virtually no impact
on the Corporation's first quarter net income.
At all times, American Greetings maintains adequate reserves and
allowances in accordance with accounting principles generally accepted
in the United States, including seasonal returns and allowance for
doubtful accounts. The "Management's Discussion and Analysis" and
the "Notes to Consolidated Financial Statements" sections of the
Corporation's 10K details the policy for
establishing reserves.
About American Greetings
American Greetings Corporation (NYSE: AM)
is the world's largest publicly held creator, manufacturer and distributor
of greeting cards and social expression products. Its staff of artists,
designers and writers comprises one of the largest creative departments
in the world and helps consumers "say it best" by supplying more
than 15,000 greeting card designs to retail outlets in nearly every
English-speaking country. Located in Cleveland, Ohio, American Greetings
generates annual net sales of approximately $2 billion. For more
information on the Corporation, visit http://corporate.americangreetings.com/
on the World Wide Web.
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