##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto Commission file
number      1-13859 AMERICAN GREETINGS
CORPORATION   Ohio
    
    34-0065325(State or other jurisdiction of
    
    (I.R.S Employer Identification No.)incorporation or organization)
 One American Road, Cleveland, Ohio
    
    44144(Address of principal executive offices)
    
    (Zip Code)
 (216) 252-7300   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes  x     No  o As of September 24, 2004, the number of shares outstanding of each of the
issuers classes of common stock was: Class A Common 64,116,617
Class B Common 4,398,357




---



AMERICAN GREETINGS CORPORATION
INDEX PageNumberPART I - FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART
II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBITS
    
    
    35Certification of CEOCertification of CFOCertification Pursuant to Section 906 of Sarbanes-Oxley of 2002




---



##### Table of Contents



PART I - FINANCIAL INFORMATION 
 Item 1. Financial Statements AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Thousands of dollars except share and per share amounts) (Unaudited)Three Months Ended
    
    Six Months EndedAugust 31,
    
    August 31,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    391,893
    
    
    $
    390,937
    
    
    $
    824,929
    
    
    $
    831,692Costs and expenses:Material, labor and other production costs
    
    
    186,717
    
    
    
    195,972
    
    
    
    368,332
    
    
    
    374,717Selling, distribution and marketing
    
    
    146,303
    
    
    
    150,221
    
    
    
    292,955
    
    
    
    296,411Administrative and general
    
    
    57,505
    
    
    
    54,427
    
    
    
    121,642
    
    
    
    118,947Interest expense
    
    
    9,163
    
    
    
    17,537
    
    
    
    61,857
    
    
    
    40,337Other (income)  net
    
    
    (17,421
    )
    
    
    (9,627
    )
    
    
    (34,272
    )
    
    
    (12,213
    )Total costs and expenses
    
    
    382,267
    
    
    
    408,530
    
    
    
    810,514
    
    
    
    818,199Income (loss) from continuing operations
before income tax expense
    
    
    9,626
    
    
    
    (17,593
    )
    
    
    14,415
    
    
    
    13,493Income tax expense (benefit)
    
    
    3,726
    
    
    
    (6,984
    )
    
    
    5,579
    
    
    
    5,357Income (loss) from continuing operations
    
    
    5,900
    
    
    
    (10,609
    )
    
    
    8,836
    
    
    
    8,136Income from discontinued operations, net of
tax
    
    
    1,010
    
    
    
    914
    
    
    
    2,312
    
    
    
    1,874Net income (loss)
    
    $
    6,910
    
    
    $
    (9,695
    )
    
    $
    11,148
    
    
    $
    10,010Earnings (loss) per share  basic:Income (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.16
    )
    
    $
    0.13
    
    
    $
    0.12Income from discontinued operations
    
    
    0.01
    
    
    
    0.01

    
    
    
    0.03
    
    
    
    0.03Net income (loss)
    
    $
    0.10
    
    
    $
    (0.15
    )
    
    $
    0.16
    
    
    $
    0.15Earnings (loss) per share 
assuming dilution:Income (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.16
    )
    
    $
    0.13
    
    
    $
    0.12Income from discontinued operations
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.03
    
    
    
    0.03Net income (loss)
    
    $
    0.10
    
    
    $
    (0.15
    )
    
    $
    0.16
    
    
    $
    0.15Average number of shares outstanding
    
    
    68,418,773
    
    
    
    66,315,954
    
    
    
    68,209,732
    
    
    
    66,114,817Average number of shares outstanding 
assuming dilution
    
    
    69,265,799
    
    
    
    66,315,954
    
    
    
    69,057,063
    
    
    
    66,872,327
 See notes to condensed consolidated financial statements (unaudited). 3




---



##### Table of Contents



AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION(Thousands of dollars) (Unaudited)
    
    (Note 1)
    
    (Unaudited)August 31, 2004
    
    February 29, 2004
    
    August 31, 2003ASSETSCurrent assetsCash and cash equivalents
    
    $
    152,763
    
    
    $
    285,450
    
    
    $
    40,494Trade accounts receivable, less allowances for sales
returns of $39,329, $85,638 and $40,812,
respectively, and for doubtful accounts of $17,398
$17,871 and $23,987, respectively
    
    
    240,684
    
    
    
    238,473
    
    
    
    277,909Inventories
    
    
    308,977
    
    
    
    238,612
    
    
    
    362,946Deferred and refundable income taxes
    
    
    152,143
    
    
    
    157,886
    
    
    
    157,284Assets of businesses held for sale
    
    
    40,390
    
    
    
    40,815
    
    
    
    41,467Prepaid expenses and other
    
    
    218,930
    
    
    
    234,392
    
    
    
    238,150Total current assets
    
    
    1,113,887
    
    
    
    1,195,628
    
    
    
    1,118,250Goodwill
    
    
    231,886
    
    
    
    223,697
    
    
    
    209,166Other assets
    
    
    628,620
    
    
    
    706,898
    
    
    
    726,891Property, plant and equipment  at cost
    
    
    992,348
    
    
    
    993,024
    
    
    
    1,024,684Less accumulated depreciation
    
    
    652,049
    
    
    
    635,234
    
    
    
    660,802Property, plant and equipment  net
    
    
    340,299
    
    
    
    357,790
    
    
    
    363,882$
    2,314,692
    
    
    $
    2,484,013
    
    
    $
    2,418,189LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesDebt due within one year
    
    $
    
    
    
    $
    
    
    
    $
    13,082Accounts payable
    
    
    150,513
    
    
    
    125,816
    
    
    
    142,979Accrued liabilities
    
    
    101,951
    
    
    
    129,773
    
    
    
    136,329Accrued compensation and benefits
    
    
    65,891
    
    
    
    70,896
    
    
    
    62,357Income taxes
    
    
    15,012
    
    
    
    14,513
    
    
    
    9,288Liabilities of businesses held for sale
    
    
    4,462
    
    
    
    5,338
    
    
    
    4,456Other current liabilities
    
    

    76,831
    
    
    
    78,243
    
    
    
    95,358Total current liabilities
    
    
    414,660
    
    
    
    424,579
    
    
    
    463,849Long-term debt
    
    
    483,876
    
    
    
    665,874
    
    
    
    727,331Other liabilities
    
    
    105,480
    
    
    
    96,325
    
    
    
    111,336Deferred income taxes
    
    
    27,427
    
    
    
    29,695
    
    
    
    9,566Shareholders equity
    
    
    1,283,249
    
    
    
    1,267,540
    
    
    
    1,106,107$
    2,314,692
    
    
    $
    2,484,013
    
    
    $
    2,418,189
 See notes to condensed consolidated financial statements (unaudited). 4




---



##### Table of Contents



AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of dollars) (Unaudited)Six Months EndedAugust 31,2004
    
    2003OPERATING ACTIVITIES:Net income
    
    $
    11,148
    
    
    $
    10,010Income from discontinued operations
    
    
    2,312
    
    
    
    1,874Income from continuing operations
    
    
    8,836
    
    
    
    8,136Adjustments to reconcile to net cash provided (used)
by operating activities:Restructuring
    
    
    (384
    )
    
    
    (1,547
    )Gain on sale of investment
    
    
    (3,095
    )
    
    
    Loss (gain) on sale of fixed assets
    
    
    1,127
    
    
    
    (1,173
    )Loss on extinguishment of debt
    
    
    39,056
    
    
    
    4,639Depreciation and amortization
    
    
    28,321
    
    
    
    29,911Deferred income taxes
    
    
    (5,787
    )
    
    
    15,097Changes in operating assets and liabilities:(Increase) decrease in trade accounts receivable
    
    
    (390
    )
    
    
    16,940Increase in inventories
    
    
    (72,229
    )
    
    
    (89,192
    )Decrease in other current assets
    
    
    6,734
    
    
    
    34,594Decrease in deferred costs  net
    
    
    71,006
    
    
    
    21,625Decrease in accounts payable and other liabilities
    
    
    (968
    )
    
    
    (75,023
    )Other  net
    
    
    (3,876
    )
    
    
    562Cash Provided (Used) by Operating Activities
    
    
    68,351
    
    
    
    (35,431
    )INVESTING ACTIVITIES:Property, plant & equipment additions
    
    
    (15,019
    )
    
    
    (17,123
    )Proceeds from sale of fixed assets
    
    
    115
    
    
    
    2,106Investment in corporate-owned life insurance
    
    
    (1,005
    )
    
    
    6,072Other  net
    
    
    27,337
    
    
    
    (2,787
    )Cash Provided (Used) by Investing Activities
    
    
    11,428
    
    
    
    (11,732
    )FINANCING ACTIVITIES:Reduction of long-term debt
    
    
    (216,417
    )
    
    
    (3,313
    )Decrease in short-term debt
    
    
    
    
    
    
    (118,233
    )Sale of stock under benefit plans
    
    
    18,739
    
    
    
    6,106Purchase of treasury shares
    
    
    (9,363
    )
    
    
    (266
    )Cash Used by Financing Activities
    
    
    (207,041
    )
    
    
    (115,706
    )CASH USED BY DISCONTINUED OPERATIONS
    
    
    (2,789
    )
    
    
    (6,363
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    (2,636
    )
    
    
    1,263DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (132,687
    )
    
    
    (167,969
    )Cash and Cash Equivalents at Beginning of Year
    
    
    285,450
    
    
    
    208,463Cash and Cash Equivalents at End of Period
    
    $
    152,763
    
    
    $
    40,494
 See notes to condensed consolidated financial statements (unaudited). 5




---



##### Table of Contents



AMERICAN GREETINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) Three and Six Months Ended August 31, 2004 and 2003 Note 1  Basis of Presentation The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary to fairly present financial position, results
of operations and cash flows for the period have been included. These interim statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K for the
year ended February 29, 2004 of American Greetings Corporation
(the Corporation), from which the
Condensed Consolidated Statement of Financial Position at February 29, 2004,
presented herein, has been derived. Certain amounts in the prior year
financial statements have been reclassified to conform to the 2005
presentation. The Corporations fiscal year ends on February 28 or 29. References to a
particular year refer to the fiscal year ending in February of that year. For
example, 2004 refers to the year ended February 29, 2004. The Corporations
subsidiary, AG Interactive (formerly AmericanGreetings.com), is consolidated on
a two-month lag corresponding with its fiscal year-end of December 31. Note 2  Seasonal Nature of Business A significant portion of the Corporations business is seasonal in nature.
Therefore, the results of operations for interim periods are not necessarily
indicative of the results for the fiscal year taken as a whole. Note 3  Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. FIN 46 provides guidance for identifying a controlling interest in
a Variable Interest Entity (VIE) established by means other than voting
interests. FIN 46 also requires consolidation of a VIE by an enterprise that
holds such a controlling interest. On December 17, 2003, the FASB completed
deliberations of the proposed modifications to FIN 46 (Revised
Interpretation); the decisions reached include: 6




---



##### Table of Contents



(1)
    
    Deferral of the effective date;(2)
    
    Provisions for additional scope exceptions for certain other
variable interests; and(3)
    
    Clarification of the impact of troubled debt restructurings
on the requirement with respect to VIEs. Based on the FASBs decisions, all public companies must apply the provisions
of the Interpretation or the Revised Interpretation to variable interests in a
special purpose entity (SPE) created before February 1, 2003 no later than
periods ending after December 15, 2003. Companies are required to apply the
revised provisions to variable interests in non-SPEs held in the entity no
later than the end of the first interim or annual reporting period ending after
March 15, 2004. The Statement had no material impact on the consolidated
financial statements of the Corporation relative to SPEs or non-SPEs. On May 19, 2004, the FASB issued FASB Staff Position 106-2 (FSP 106-2),
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. FSP 106-2, which requires
measures of the Accumulated Postretirement Benefit Obligation (APBO) and net
periodic postretirement benefit cost to reflect the effects of The Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act),
supersedes FSP 106-1, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003. FSP
106-2 is effective for interim or annual periods beginning after June 15, 2004.
The Corporation is currently unable to determine the impact of FSP 106-2 on
its consolidated financial statements. See Note 11 for further discussion. Note 4  Other (Income)  Net During the three months ended August 31, 2004, Other (income)  net included
a one-time receipt of $10.0 million as a result of the
Corporation substantially modifying certain agreements related to its licensing
activities, $1.5 million of interest income and $1.4 million of royalty
revenue. In the prior year second quarter, Other (income)  net included
$3.8 million of royalty revenue and $3.5 million of foreign exchange gain. During the six months ended August 31, 2004, Other (income)  net included
$11.9 million of royalty revenue, the $10.0 million one-time receipt related to
licensing activities discussed above and $3.1 million of income on the sale of
an equity investment. In the prior year six months, Other (income)  net
included $6.3 million of royalty revenue and $1.4 million of interest income.
The proceeds received from the sale of the investment totaling $19.1 million
are included in Other  net investing activities in the Condensed
Consolidated Statement of Cash Flows for the period. The
agency fee expenses related to the royalty revenue are included in Selling,
distribution and marketing on the Condensed Consolidated Statement of
Operations. The agency fee expenses
totaled $4.8 million and $3.4 million in the six months ended August 31, 2004
and 2003, respectively. 7




---



##### Table of Contents



Note 5  Restructure Reserves In Fiscal 2002, the Corporation undertook a restructure of the Corporations
domestic and foreign manufacturing and distribution operations and recorded a
charge of $56.7 million. All activities required to complete the restructure
were substantially completed by February 28, 2002, with the exception of
ongoing termination benefit payments, which will not be completed until 2007.
The following table summarizes the remaining reserve associated with the 2002
restructure charge: Termination(In thousands)
    
    BenefitsBalance at March 1, 2004
    
    $
    1,504Cash expenditures
    
    
    (384
    )Balance at August 31, 2004
    
    $
    1,120
 Included in Accrued liabilities at August 31, 2004 is $1.1 million
representing the portion of severance costs not yet disbursed. Note 6  Earnings Per Share The following table sets forth the computation of earnings (loss) per share and
earnings (loss) per share - assuming dilution: Three Months Ended
    
    Six Months EndedAugust 31,
    
    August 31,2004
    
    2003
    
    2004
    
    2003Numerator (in thousands):Income (loss) from continuing operations
    
    $
    5,900
    
    
    $
    (10,609
    )
    
    $
    8,836
    
    
    $
    8,136Denominator (in thousands):Weighted average shares outstanding
    
    
    68,419
    
    
    
    66,316
    
    
    
    68,210
    
    
    
    66,115Effect of dilutive securities:Stock options
    
    
    847
    
    
    
    
    
    
    
    847
    
    
    
    757Weighted average shares outstanding 
assuming dilution
    
    
    69,266
    
    
    
    66,316
    
    
    
    69,057
    
    
    
    66,872Income (loss) from continuing operations per share
    
    $
    0.09
    
    
    $
    (0.16
    )
    
    $
    0.13
    
    
    $
    0.12Income (loss) from continuing operations
per share  assuming dilution
    
    $
    0.09
    
    
    $
    (0.16
    )
    
    $
    0.13
    
    
    $
    0.12
 Certain stock options have been excluded for the periods presented because the
effect would have been antidilutive. In addition, the effect of the
convertible subordinated notes has been excluded for all periods presented
because the effect would have been antidilutive. 8




---



##### Table of Contents



Note 7  Comprehensive Income (Loss) The Corporations total comprehensive income (loss) is as follows: Three Months Ended
    
    Six Months EndedAugust 31,
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    6,910
    
    
    $
    (9,695
    )
    
    $
    11,148
    
    
    $
    10,010Other comprehensive (loss) income:Foreign currency translation adjustments
    
    
    (3,519
    )
    
    
    (10,299
    )
    
    
    (10,566
    )
    
    
    11,356Unrealized gains on securities
    
    
    253
    
    
    
    
    
    
    
    253
    
    
    
    Total comprehensive income (loss)
    
    $
    3,644
    
    
    $
    (19,994
    )
    
    $
    835
    
    
    $
    21,366
 Note 8  Inventories (In thousands)
    
    August 31, 2004
    
    February 29, 2004
    
    August 31, 2003Raw materials
    
    $
    38,142
    
    
    $
    37,514
    
    
    $
    50,444Work in process
    
    
    25,792
    
    
    
    30,047
    
    
    
    35,484Finished products
    
    
    286,454
    
    
    
    212,252
    
    
    
    317,718350,388
    
    
    
    279,813
    
    
    
    403,646Less LIFO reserve
    
    
    70,606
    
    
    
    73,213
    
    
    
    78,208279,782
    
    
    
    206,600
    
    
    
    325,438Display materials and
factory supplies
    
    
    29,195
    
    
    
    32,012
    
    
    
    37,508Inventories
    
    $
    308,977
    
    
    $
    238,612
    
    
    $
    362,946
 The valuation of inventory under the Last-In, First-Out (LIFO) method is made
at the end of each fiscal year based on inventory levels and costs at that
time. Accordingly, interim LIFO calculations, by necessity, are based on
estimates of expected fiscal year-end inventory levels and costs and are
subject to final fiscal year-end LIFO inventory calculations. Note 9  Deferred Costs In the normal course of its business, the Corporation enters into agreements
with certain customers for the supply of greeting cards and related products.
Under these agreements, the customer typically receives from the Corporation a
combination of cash payments, credits, discounts, allowances and other
incentive considerations to be earned by the customer as product is purchased
from the Corporation over the effective time period of the agreement to meet a
minimum purchase volume commitment. The Corporation periodically reviews the
progress toward the commitment and adjusts the estimated amortization period
accordingly to match the costs with the revenue associated with the agreement.
In the event a contract is not completed, the Corporation has a claim for
unearned advances under the agreement. The agreements may or may not specify
the Corporation as the sole supplier of social expression products to the
customer. 9




---



##### Table of Contents



The Corporation classifies the total contractual amount of the incentive
consideration committed to the customer but not yet earned as a deferred cost
asset at the inception of an agreement, or any future amendments. Deferred
costs estimated to be earned by the customer and charged to operations during
the next twelve months are classified as Prepaid expenses and other in the
Condensed Consolidated Statement of Financial Position, and the remaining
amounts to be charged beyond the next twelve months are classified as Other
assets. A portion of the total consideration may be payable by the Corporation at the
time the agreement is consummated. All future payment commitments are
classified as liabilities at inception until paid. The payments that are
expected to be made in the next twelve months are classified as Other current
liabilities in the Condensed Consolidated Statement of Financial Position, and
the remaining payment commitments beyond the next twelve months are classified
as Other liabilities. The Corporation maintains adequate reserves for
deferred costs related to supply agreements and does not expect that the
non-completion of any particular contract would result in a material loss. As of August 31, 2004, February 29, 2004 and August 31, 2003, deferred costs
and future payment commitments are included in the following financial
statement captions: (In thousands)
    
    August 31, 2004
    
    February 29, 2004
    
    August 31, 2003Prepaid expenses and other
    
    $
    169,770
    
    
    $
    187,844
    
    
    $
    195,793Other assets
    
    
    568,247
    
    
    
    630,445
    
    
    
    655,204Deferred cost assets
    
    
    738,017
    
    
    
    818,289
    
    
    
    850,997Other current liabilities
    
    
    (52,621
    )
    
    
    (58,047
    )
    
    
    (71,867
    )Other liabilities
    
    
    (67,549
    )
    
    
    (69,493
    )
    
    
    (81,030
    )Deferred cost liabilities
    
    
    (120,170
    )
    
    
    (127,540
    )
    
    
    (152,897
    )Net deferred costs
    
    $
    617,847
    
    
    $
    690,749
    
    
    $
    698,100
 Note 10  Debt On May 11, 2004, the Corporation amended and restated its senior secured credit
facility. This facility was originally entered into on August 9, 2001, as a
$350 million facility and was amended on July 22, 2002 to a $320 million
facility. With the repayment of the term loan on April 7, 2003, the facility
had a borrowing capacity of $195 million. At that date, the Corporation
recorded a charge of $4.6 million for the write-off of the related deferred
financing costs and a premium payment associated with the repayment of the term
loan. The amended and restated senior secured credit facility consists of a
$200 million revolving facility maturing on May 10, 2008. At August 31, 2004,
there were no outstanding balances under this facility. 10




---



##### Table of Contents



The amended facility is secured by the domestic assets of the Corporation and a
65% interest in the common stock of its foreign subsidiaries. The facility
contains various restrictive covenants. Some of these restrictions require that
the Corporation meet specified periodic financial ratios, minimum net worth,
maximum leverage, and interest coverage. The credit facility places certain
restrictions on the Corporations ability to incur additional indebtedness, to
engage in acquisitions of other businesses, to repurchase its own capital stock
and allows payments of shareholder dividends up to a maximum of $20 million per
year. These covenants are less restrictive than the covenants previously in
place. The Corporation is also party to a three-year Accounts Receivable
Securitization Financing agreement that provides for financing up to $200
million and is secured by certain trade accounts receivable. Under the terms
of the agreement, the Corporation transfers receivables to a wholly-owned
consolidated subsidiary that in turn utilizes the receivables to secure
borrowings through a credit facility with a financial institution. On August
2, 2004, the agreement was amended to extend the maturity date to August 1,
2007. At August 31, 2004, there were no outstanding balances under this
agreement. During the three months ended May 31, 2004, the Corporation commenced a cash
tender offer for all of its outstanding 11.75% senior subordinated notes due
July 15, 2008. As a result of this tender offer, a total of $186.2 million of
these senior subordinated notes were repurchased and the Corporation recorded a
charge of $39.1 million, included in interest expense on the Condensed
Consolidated Statement of Operations, for the payment of the premium and other
fees associated with the notes repurchased as well as for the write-off of
related deferred financing costs. At August 31, 2004, approximately $10
million of these notes remained outstanding. As part of this transaction,
substantially all restrictive covenants were eliminated from the remaining
outstanding notes. At August 31, 2004, the Corporation was in compliance with its debt covenants. At August 31, 2004, February 29, 2004 and August 31, 2003, debt due within one
year consisted of the following: (In thousands)
    
    August 31, 2004
    
    February 29, 2004
    
    August 31, 2003Current maturities of
long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    2,914Other short-term debt
    
    
    
    
    
    
    
    
    
    
    10,168$
    
    
    
    $
    
    
    
    $
    13,082
 11




---



##### Table of Contents



At August 31, 2004, February 29, 2004 and August 31, 2003, long-term debt
consisted of the following: (In thousands)
    
    August 31, 2004
    
    February 29, 2004
    
    August 31, 20036.10% Senior Notes,
due July 2028
    
    $
    298,310
    
    
    $
    298,122
    
    
    $
    297,94011.75% Senior Subordinated
Notes, due July 2008
    
    
    9,990
    
    
    
    192,162
    
    
    
    253,7857.00% Convertible
Subordinated
Notes, due July 2006
    
    
    175,000
    
    
    
    175,000
    
    
    
    175,000Other
    
    
    576
    
    
    
    590
    
    
    
    3,520$
    483,876
    
    
    $
    665,874
    
    
    $
    730,245Less Current Maturities
    
    
    
    
    
    
    
    
    
    
    2,914$
    483,876
    
    
    $
    665,874
    
    
    $
    727,331
 The 7.00% convertible subordinated notes are convertible at the option of the
holders into shares of the Corporations common stock at any time before the
close of business on July 15, 2006, at a conversion rate of 71.9466 common
shares per $1 thousand principal amount of notes. Note 11  Retirement Benefits The components of periodic benefit cost for the Corporations defined benefit
pension and postretirement benefit plans are as follows: Defined Benefit PensionThree Months Ended
    
    Six Months EndedAugust 31,
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    112
    
    
    $
    97
    
    
    $
    224
    
    
    $
    195Interest cost
    
    
    1,851
    
    
    
    1,705
    
    
    
    3,692
    
    
    
    3,410Expected return on plan assets
    
    
    (1,428
    )
    
    
    (1,320
    )
    
    
    (2,843
    )
    
    
    (2,640
    )Amortization of actuarial loss
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    $
    557
    
    
    $
    482
    
    
    $
    1,095
    
    
    $
    965
 Postretirement BenefitThree Months Ended
    
    Six Months EndedAugust 31,
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    628
    
    
    $
    475
    
    
    $
    1,256
    
    
    $
    950Interest cost
    
    
    2,221
    
    
    
    1,775
    
    
    
    4,442
    
    
    
    3,550Expected return on plan assets
    
    
    (1,336
    )
    
    
    (1,125
    )
    
    
    (2,672
    )
    
    
    (2,250
    )Amortization of prior service cost
    
    
    (1,559
    )
    
    
    (1,400
    )
    
    
    (3,118
    )
    
    
    (2,800
    )Amortization of actuarial loss
    
    
    1,546
    
    
    
    1,525
    
    
    
    3,092
    
    
    
    3,050$
    1,500
    
    
    $
    1,250
    
    
    $
    3,000
    
    
    $
    2,500
 12




---



##### Table of Contents



The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act) was signed into law on December 8, 2003. The Act will provide plan
sponsors a federal subsidy for certain qualifying prescription drug benefits
covered under the sponsors postretirement health care plans. Under FASB Staff
Position 106-1 (FSP 106-1), Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,
issued on January 12, 2004, the Corporation elected to defer accounting for the
effects of the Act until further authoritative guidance was issued. On May 19,
2004, the FASB issued FSP 106-2, (FSP 106-2), Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. FSP 106-2, which requires measures of the APBO
and net periodic postretirement benefit cost to reflect the effects of the Act,
supersedes FSP 106-1. FSP 106-2 is effective for interim or annual periods
beginning after June 15, 2004. As a result, the reported postretirement
benefit cost for the quarter and six months ended August 31, 2004, does not
reflect the effects of the Act on the Corporations postretirement benefit
plan. The Corporation has a non-contributory profit-sharing plan with a contributory
401(k) provision covering most of its United States employees. The
profit-sharing plan expense for the six months ended August 31, 2004 was $2.5
million, compared to zero in the prior year period. The profit-sharing plan
expense for the six month periods are estimates as actual contributions to the
profit-sharing plan will be made after fiscal year end and are contingent upon
final year end results. The Corporation matches a portion of 401(k) employee
contributions contingent upon meeting specified annual operating results goals.
The expenses recognized for the three and six month periods ended August 31,
2004 were $1.0 million and $2.3 million ($1.3 million and $2.6 million for the
three and six month periods ended August 31, 2003), respectively. Note 12  Stock-Based Compensation The Corporation has elected to continue to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations in accounting for its stock options granted to employees and
directors. Because the exercise price of the Corporations employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized. The Corporation has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure. 13




---



##### Table of Contents



The following illustrates the pro forma effect on net income (loss) and
earnings (loss) per share if the Corporation had applied the fair value
recognition provisions of SFAS 123: Three Months ended
    
    Six Months endedAugust 31,
    
    August 31,(In thousands, except per share amounts)
    
    2004
    
    2003
    
    2004
    
    2003Net income (loss) as reported
    
    $
    6,910
    
    
    $
    (9,695
    )
    
    $
    11,148
    
    
    $
    10,010Employee stock-based compensation
expense determined under fair value
based method, net of tax
    
    
    1,735
    
    
    
    1,464
    
    
    
    3,065
    
    
    
    2,927Pro forma net income (loss)
    
    $
    5,175
    
    
    $
    (11,159
    )
    
    $
    8,083
    
    
    $
    7,083Earnings (loss) per share:As reported
    
    $
    0.10
    
    
    $
    (0.15
    )
    
    $
    0.16
    
    
    $
    0.15Pro forma
    
    
    0.08
    
    
    
    (0.17
    )
    
    
    0.12
    
    
    
    0.11Earnings (loss) per share  assuming
dilution:As reported
    
    $
    0.10
    
    
    $
    (0.15
    )
    
    $
    0.16
    
    
    $
    0.15Pro forma
    
    
    0.07
    
    
    
    (0.17
    )
    
    
    0.12
    
    
    
    0.11
 During the first quarter of fiscal 2005, shares held in trust related to a
deferred compensation plan were withdrawn from the trust. This transaction had
no impact on the Corporations results of operations during the six months
ended August 31, 2004. Note 13  Business Segment Information The Social Expression Products segment primarily designs, manufactures and
sells greeting cards and other related products through various channels of
distribution, with mass retailers as the primary channel, and is managed by
geographic location. The Corporation owns and operates 584 card and gift retail stores in the United
States and Canada through its Retail Operations segment. The stores are
primarily located in malls and strip shopping centers. The stores sell
products purchased from the Social Expression Products segment and products
purchased from other vendors. AG Interactive is an electronic provider of social expression content through
the Internet and wireless platforms. Non-reportable operating segments include the design, manufacture and sale of
display fixtures. Segment results are reported and evaluated at consistent exchange rates between
years to isolate the impact of foreign currency fluctuations. An exchange rate
adjustment is included in the reconciliation of the segment results to the
consolidated results; this adjustment represents the impact on the segment
results of the difference between the constant exchange rates used for segment
reporting and evaluation and the actual exchange rates for the periods
presented. 14




---



##### Table of Contents



Centrally-incurred and managed costs are not allocated to the operating
segments. The unallocated items include interest expense on centrally-incurred
debt and domestic profit-sharing expense. In addition, the costs associated
with corporate operations including the senior management, corporate finance,
legal and human resource functions, among other costs, are included in the
unallocated items. Three Months Ended
    
    Six Months EndedAugust 31,
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net Sales:Social Expression Products
    
    $
    335,011
    
    
    $
    339,149
    
    
    $
    710,726
    
    
    $
    725,807Intersegment items
    
    
    (17,323
    )
    
    
    (23,207
    )
    
    
    (32,148
    )
    
    
    (40,281
    )Exchange rate adjustment
    
    
    5,558
    
    
    
    (1,357
    )
    
    
    11,783
    
    
    
    (5,965
    )Net
    
    
    323,246
    
    
    
    314,585
    
    
    
    690,361
    
    
    
    679,561Retail Operations
    
    
    48,048
    
    
    
    54,141
    
    
    
    98,866
    
    
    
    110,366Exchange rate adjustment
    
    
    400
    
    
    
    (114
    )
    
    
    617
    
    
    
    (929
    )Net
    
    
    48,448
    
    
    
    54,027
    
    
    
    99,483
    
    
    
    109,437AG Interactive
    
    
    12,959

    
    
    
    8,699
    
    
    
    22,404
    
    
    
    16,947Non-reportable segments
    
    
    8,188
    
    
    
    13,173
    
    
    
    13,578
    
    
    
    26,750Unallocated
items - net
    
    
    (948
    )
    
    
    453
    
    
    
    (897
    )
    
    
    (1,003
    )Consolidated
    
    $
    391,893
    
    
    $
    390,937
    
    
    $
    824,929
    
    
    $
    831,692Segment Earnings:Social Expression Products
    
    $
    60,270
    
    
    $
    34,013
    
    
    $
    154,559
    
    
    $
    126,624Intersegment items
    
    
    (12,294
    )
    
    
    (16,257
    )
    
    
    (23,231
    )
    
    
    (29,059
    )Exchange rate adjustment
    
    
    726
    
    
    
    (174
    )
    
    
    1,557
    
    
    
    (816
    )Net
    
    
    48,702
    
    
    
    17,582
    
    
    
    132,885
    
    
    
    96,749Retail Operations
    
    
    (11,376
    )
    
    
    (8,602
    )
    
    
    (15,520
    )
    
    
    (9,516
    )Exchange rate adjustment
    
    
    (4
    )
    
    
    33
    
    
    
    11
    
    
    
    (30
    )Net
    
    
    (11,380
    )
    
    
    (8,569
    )
    
    
    (15,509
    )
    
    
    (9,546
    )AG Interactive
    
    
    (2,046
    )
    
    
    1,737
    
    
    
    (1,683
    )
    
    
    2,130Non-reportable segments
    
    
    (2,143
    )
    
    
    (3,776
    )
    
    
    (9,049
    )
    
    
    (1,998
    )Unallocated
items - net
    
    
    (23,519
    )
    
    
    (24,577
    )
    
    
    (92,244
    )
    
    
    (73,755
    )Exchange rate adjustment
    
    
    12
    
    
    
    10
    
    
    
    15
    
    
    
    (87
    )Net
    
    
    (23,507
    )
    
    
    (24,567
    )
    
    
    (92,229
    )
    
    
    (73,842
    )Consolidated
    
    $
    9,626
    
    
    $
    (17,593
    )
    
    $
    14,415
    
    
    $
    13,493
 15




---



##### Table of Contents



During the second quarter of 2005, the AG Interactive segment acquired 100% of
the equity interests of MIDIRingTones, LLC and K-MOBILE S.A. MIDIRingTones is
a mobile entertainment company that creates, licenses and sells mobile content
for cellular phones including polyphonic ringtones and color graphics. AG
Interactive acquired the net assets of MIDIRingTones valued at approximately $1
million and recorded goodwill of approximately $3 million. K-MOBILE is an
established European mobile content provider. AG Interactive issued shares to
acquire the net assets of K-MOBILE valued at approximately $2 million and
recorded goodwill of approximately $10 million. As the K-MOBILE acquisition
was a non-cash transaction, it is not reflected in the Condensed Consolidated
Statement of Cash Flows. As a result of AG Interactives acquisition of
K-MOBILE, the Corporations ownership interest in AG Interactive decreased from
92% to 83%. The financial results of these two acquisitions are included in
the Corporations consolidated results from their respective dates of
acquisition. The pro forma results of operations have not been
presented because the effects of these acquisitions were not deemed
material. Note 14  Discontinued Operations On July 30, 2004, the Corporation announced it had signed a letter of agreement
to sell its Magnivision nonprescription reading glasses business to
AAiFosterGrant, a unit of sunglasses maker Foster Grant. The sale reflects the
Corporations strategy to focus on resources closely related to its core social
expression business. The sale is expected to be completed early in the third
quarter of fiscal 2005. The expected disposition of Magnivision in the third quarter qualifies it as a
component of an entity as defined in SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Accordingly, the Corporations
condensed consolidated financial statements and related notes have been
presented to reflect Magnivision as a discontinued operation for all periods.
Magnivision was previously included within the Corporations non-reportable
segments. The following summarizes the results of discontinued operations for the periods
presented: Three Months Ended
    
    Six Months Ended(In thousands)
    
    August 31,
    
    August 31,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    13,024
    
    
    $
    12,608
    
    
    $
    25,658
    
    
    $
    26,159Pretax income from operations
    
    
    1,647
    
    
    
    1,516
    
    
    
    3,771
    
    
    
    3,108Income tax expense
    
    
    637
    
    
    
    602
    
    
    
    1,459
    
    
    
    1,234Income from discontinued operations
    
    $
    1,010
    
    
    $
    914
    
    
    $
    2,312
    
    
    $
    1,874
 16




---



##### Table of Contents



Assets of businesses held for sale and Liabilities of businesses held for sale
include the following: (In thousands)
    
    August 31, 2004
    

    February 29, 2004
    
    August 31, 2003Assets of businesses held for sale:Current assets
    
    $
    23,077
    
    
    $
    22,154
    
    
    $
    20,972Other assets
    
    
    6,566
    
    
    
    7,318
    
    
    
    7,797Fixed assets
    
    
    10,747
    
    
    
    11,343
    
    
    
    12,698$
    40,390
    
    
    $
    40,815
    
    
    $
    41,467Liabilities of businesses held for sale:Current liabilities
    
    $
    2,844
    
    
    $
    3,722
    

    
    $
    2,997Noncurrent liabilities
    
    
    1,618
    
    
    
    1,616
    
    
    
    1,459$
    4,462
    
    
    $
    5,338
    
    
    $
    4,456
 17




---



##### Table of Contents



Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Overview During the three months ended August 31, 2004, the Corporation recognized net
income of $6.9 million compared to a loss of $9.7 million in the prior year
quarter. Compared to the prior year, the current quarter results were
favorably impacted by improved gross margins as a result of supply chain
improvements, lower interest expense as a result of early debt retirements
during the past several quarters and a pretax gain of $10.0 million as a result
of the modification of certain agreements relating to its licensing activities. Cash flow generation remained strong during the second quarter with operating
and investing activities providing $26.5 million. During the six months ended
August 31, 2004, cash flow provided by operating and investing activities was
$79.8 million compared to a usage of $47.2 million in the prior year six month
period. The Corporation has reduced its ratio of debt to total capital from
34.4% to 27.4% during the current fiscal year. During the second quarter, the Corporation announced it has signed a letter of
agreement to sell its Magnivision nonprescription reading glasses business.
This transaction reflects the Corporations strategy to focus on resources
closely related to its core social expression business. Accordingly, the
results of Magnivision are presented as a discontinued operation for all
periods presented in the Corporations condensed consolidated financial
statements. The sale is expected to be completed early in the third quarter of
fiscal 2005. For further information on the discontinued operations, refer to
the notes to the condensed consolidated financial statements No.14,
Discontinued Operations. 18




---



##### Table of Contents



Results of Operations Three months ended August 31, 2004 Net income was $6.9 million, or $0.10 per share, in the quarter compared to net
loss of $9.7 million, or $0.15 per share, in the prior year second quarter (all
per-share amounts assume dilution). The Corporations results for the three months ended August 31, 2004 and 2003
are summarized below: % Net
    
    
    
    
    
    % Net
    
    Fav(In thousands)
    
    2004
    
    Sales
    
    2003
    
    Sales
    
    (Unfav)Net sales
    
    $
    391,893
    
    
    
    100.0
    %
    
    $
    390,937
    
    
    
    100.0
    %
    
    
    0.2
    %Material, labor and other
production costs
    
    
    186,717
    
    
    
    47.6
    %
    
    
    195,972
    
    
    
    50.1
    %
    
    
    4.7
    %Selling, distribution and marketing
    
    
    146,303
    
    
    
    37.3
    %
    
    
    150,221
    
    
    
    38.4
    %
    
    
    2.6
    %Administrative and general
    
    
    57,505
    
    
    
    14.7
    %
    
    
    54,427
    
    
    
    13.9
    %
    
    
    (5.7
    %)Interest expense
    
    
    9,163
    
    
    
    2.3
    %
    
    
    17,537
    
    
    
    4.5
    %
    
    
    47.8
    %Other
(income) - net
    
    
    (17,421
    )
    
    
    (4.4
    %)
    
    
    (9,627
    )
    
    
    (2.4
    %)
    
    
    81.0
    %Total deductions
    
    
    382,267
    
    
    
    97.5
    %
    
    
    408,530
    
    
    
    104.5
    %
    
    
    6.4
    %Income (loss) from continuing
operations before tax expense
(benefit)
    
    
    9,626
    
    
    
    2.5
    %
    
    
    (17,593
    )
    
    
    (4.5
    %)
    
    
    154.7
    %Income tax expense (benefit)
    
    
    3,726
    
    
    
    1.0
    %
    
    

    (6,984
    )
    
    
    (1.8
    %)
    
    
    (153.4
    %)Income (loss) from continuing
operations
    
    
    5,900
    
    
    
    1.5
    %
    
    
    (10,609
    )
    
    
    (2.7
    %)
    
    
    155.6
    %Income from discontinued
operations, net of tax
    
    
    1,010
    
    
    
    0.3
    %
    
    
    914
    
    
    
    0.2
    %
    
    
    10.5
    %Net income (loss)
    
    $
    6,910
    
    
    
    1.8
    %
    
    $
    (9,695
    )
    
    
    (2.5
    %)
    
    
    171.3
    %
 For the three months ended August 31, 2004, consolidated net sales were $391.9
million, up from $390.9 million in the prior year second quarter. This 0.2%
increase was the result of a 1.5% decline in net sales from ongoing operations
at constant exchange rates offset by foreign currency exchange fluctuations.
The 1.5% decrease was due to lower seasonal sales as a result of delayed
shipments of fall products as compared to the prior year, the continued
downward trend in the retail business due to fewer stores and reduced
comparative store sales, and a decline in the display fixture business due to
lower sales to outside customers. These decreases were partially offset by
reduced implementation costs in the current year due to the prior year
integration of a new major customer and growth in the AG Interactive business
due to two acquisitions during the quarter. 19




---



##### Table of Contents



Unit and Pricing Analysis Unit and pricing comparatives for the three months ended August 31, 2004 and
2003 are summarized below: Increase (Decrease)From the Prior YearEveryday Cards
    
    Seasonal Cards
    
    Total Greeting Cards2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Unit volume
    
    
    (2.1
    %)
    
    
    2.2
    %
    
    
    (19.7
    %)
    
    
    (2.1
    %)
    
    
    (3.9
    %)
    
    
    3.0
    %Selling prices
    
    
    
    
    
    
    1.0
    %
    
    
    5.8
    %
    
    
    (3.5
    %)
    
    
    0.3
    %
    
    
    (1.0
    %)Overall Increase /
(Decrease)
    
    
    (2.1
    %)
    
    
    3.2
    %
    
    
    (15.0
    %)
    
    
    (5.5
    %)
    
    
    (3.6
    %)
    
    
    2.0
    %
 For seasonal cards, the 19.7% decrease in unit volume and 5.8% increase in
selling prices was the direct result of a change in product mix caused by the
delayed shipments of fall seasonal cards. Since fall seasonal programs are
generally lower priced cards, the delayed shipments caused negative unit
variances and positive price variances compared to the prior year second
quarter. Further, since the second quarter is the smallest seasonal card
quarter, the variances appear large on a percentage basis. When these products
ship in the third quarter, the unit and pricing variances will swing back
albeit at a smaller percentage basis due to the heavy Christmas volume in the
quarter. Expense Overview Material, labor and other production costs for the three months ended August
31, 2004 were $186.7 million, a decrease from $196.0 million for the same
period in the prior year. As a percentage of net sales, these costs were 47.6%
in the current period and 50.1% for the three months ended August 31, 2003.
The 250 basis point decrease from the prior year is due to an approximate 200
basis point decrease in spending, primarily reduced costs of implementing
supply chain improvements and lower inventory costs in the fixtures business.
Favorable mix contributed an additional 50 basis points due primarily
to lower sales of relatively higher cost display fixtures. Selling, distribution and marketing costs for the three months ended August 31,
2004 were $146.3 million, down from the $150.2 million for the same period in
the prior year. As a percentage of net sales, these costs decreased from 38.4%
for the three months ended August 31, 2003 to 37.3% for the three months ended
August 31, 2004. Of the 110
basis point decrease, approximately 200 basis points related to lower costs of
implementing supply chain improvements, reduced merchandiser costs and lower store
operating expenses in the retail business, mainly store rent and payroll, due
to operating efficiencies and less stores. These improvements were partially
offset by increased spending of approximately 90 basis points in the AG
Interactive business related to the acquisitions made during the quarter. 20




---



##### Table of Contents



Administrative and general expenses were $57.5 million for the three months
ended August 31, 2004, an increase from $54.4 million for the same period in
the prior year. The $3.1 million increase is due to increased profit sharing
expense, reorganization costs in the display fixtures business and reduced
benefits related to the wind-down of the Corporations corporate-owned life
insurance (COLI) program. These increases were partially offset by lower bad
debt expense as a result of strong collections on specific accounts receivable
previously considered uncollectible. Interest expense decreased by $8.3 million to $9.2 million for the three months
ended August 31, 2004 from $17.5 million for the same period in the prior year.
This decrease is due to the interest savings from the repurchase of $186.2
million of the Corporations 11.75% Senior Subordinated Notes during the
quarter ended May 31, 2004 and the repurchase of $63.6 million of 11.75% Senior
Subordinated Notes during the quarter ended November 30, 2003. Other income  net increased to $17.4 million for the three months ended August
31, 2004, from $9.6 million in the same period in the prior year. The $7.8
million improvement included the receipt of a one-time payment for past
performance of $10.0 million as a result of the Corporation substantially
modifying certain agreements related to its licensing activities offset by
lower royalty revenue of $2.4 million. The effective tax rates for the three months ended August 31, 2004 and 2003
were 38.7% and 39.7%, respectively. The Corporations August 31, 2004 effective tax rate reflects an estimate of the Corporations annual effective tax rate for the current year. 21




---



##### Table of Contents



Six months ended August 31, 2004 Net income was $11.1 million, or $0.16 per share, in the six months ended
August 31, 2004, compared to net income of $10.0 million,
or $0.15 per share,
in the prior year period. The Corporations results for the six months ended August 31, 2004 and 2003 are
summarized below: (In thousands)
    
    2004
    
    % Net Sales
    
    2003
    
    % Net Sales
    
    Fav (Unfav)Net sales
    
    $
    824,929
    
    
    
    100.0
    %
    
    $
    831,692
    
    
    
    100.0
    %
    
    
    (0.8
    %)Material, labor and other
production costs
    
    
    368,332
    
    
    
    44.7
    %
    
    
    374,717
    
    
    
    45.1
    %
    
    
    1.7
    %Selling, distribution and marketing
    
    
    292,955
    
    
    
    35.5
    %
    
    
    296,411
    
    
    
    35.6
    %
    
    
    1.2
    %Administrative and general
    
    
    121,642
    
    
    
    14.7
    %
    
    
    118,947
    
    
    
    14.3
    %
    
    
    (2.3
    %)Interest expense
    
    
    61,857
    
    
    
    7.5
    %
    
    
    40,337
    
    
    
    4.8
    %
    
    
    (53.4
    %)Other
(income) - net
    
    
    (34,272
    )
    
    
    (4.2
    %)
    
    
    (12,213
    )
    
    
    (1.4
    %)
    
    
    180.6
    %Total deductions
    
    
    810,514
    
    
    
    98.2
    %
    
    
    818,199
    
    
    
    98.4
    %
    
    
    0.9
    %Income from continuing operations
before tax expense
    
    
    14,415
    
    
    
    1.8
    %
    
    
    13,493
    
    
    
    1.6
    %
    
    
    6.8
    %Income tax expense
    
    
    5,579
    
    
    
    0.7
    %
    
    
    5,357
    
    
    
    0.6
    %
    
    
    (4.1
    %)Income from continuing operations
    
    
    8,836
    
    
    
    1.1
    %
    
    
    8,136
    
    
    
    1.0
    %
    
    
    8.6
    %Income from discontinued
operations, net of tax
    
    
    2,312
    
    
    
    0.3
    %
    
    
    1,874
    
    
    
    0.2
    %
    
    
    23.4
    %Net income
    
    $
    11,148
    
    
    
    1.4
    %
    
    $
    10,010
    
    
    
    1.2
    %
    
    
    11.4
    %
 For the six months ended August 31, 2004, consolidated net sales were $824.9
million, down from $831.7 million in the same period in the prior year. This
0.8% decrease was the result of a 3.1% decline in net sales from ongoing
operations at constant exchange rates offset by foreign currency exchange
fluctuations, which improved sales comparisons by 2.3%. The 3.1% decrease was
due to lower seasonal sales as a result of delayed shipments of fall products
as compared to the prior year, the continued downward trend in the retail
business due to fewer stores and reduced comparative store sales, reduced
promotional gift wrap programs, and a decline in the display fixtures business
due to lower sales to outside customers. These decreases were partially offset
by reduced allowances in the current year related to the prior year integration
of a new major customer and growth in the AG Interactive business due to two
acquisitions during the current year second quarter. 22




---



##### Table of Contents



Unit and Pricing Analysis Unit and pricing comparatives for the six months ended August 31, 2004 and 2003
are summarized below: Increase (Decrease)From the Prior YearEveryday Cards
    
    Seasonal Cards
    
    Total Greeting Cards2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Unit volume
    
    
    (0.8
    %)
    
    
    (3.9
    %)
    
    
    (3.7
    %)
    
    
    (3.9
    %)
    
    
    (1.5
    %)
    
    
    (4.3
    %)Selling prices
    
    
    (0.9
    %)
    
    
    (0.6
    %)
    
    
    2.3
    %
    
    
    (3.8
    %)
    
    
    (0.2
    %)
    
    
    (1.1
    %)Overall Increase /
(Decrease)
    
    
    (1.8
    %)
    
    
    (4.4
    %)
    
    
    (1.5
    %)
    
    
    (7.7
    %)
    
    
    (1.7
    %)
    
    
    (5.4
    %)
 Expense Overview Material, labor and other production costs for the six months ended August 31,
2004 were $368.3 million, a decrease from $374.7 million for the same period in
the prior year. As a percentage of net sales, these costs were 44.7% in the
current period and 45.1% for the six months ended August 31, 2003. The 40
basis point decrease from the prior year is due to a favorable mix as the lower margin display fixtures business contributed a lower percentage of the Corporations sales. Selling, distribution and marketing costs for the six months ended August 31,
2004 were $293.0 million, down from the $296.4 million for the same period in
the prior year. As a percentage of net sales, these costs decreased slightly
from 35.6% for the six months ended August 31, 2003 to 35.5% for the six months
ended August 31, 2004. Of the 10 basis point decrease, lower costs of
implementing supply chain improvements, reduced merchandiser costs and lower store
operating expenses in the retail business contributed 140 basis points. These
improvements were substantially offset by increased licensing agency fees (as a
result of higher licensing revenue) and higher costs in the AG Interactive
business due to the acquisitions. Administrative and general expenses were $121.6 million for the six months
ended August 31, 2004, an increase from $118.9 million for the same period in
the prior year. The $2.7 million increase is due to increased profit sharing
expense and reduced benefits related to the wind-down of the COLI program.
These increases were partially offset by lower bad debt expense as a result of
strong collections on accounts receivable previously considered uncollectible. Interest expense increased by $21.6 million to $61.9 million for the six months
ended August 31, 2004 from $40.3 million for the same period in the prior year.
This increase is due to $39.1 million of premium payments and other fees and
the write-off of deferred financing costs associated with the repurchase of
$186.2 million of the Corporations 11.75% Senior 23




---



##### Table of Contents



Subordinated Notes during the quarter ended May 31, 2004, partially offset by
interest savings from that repurchase, the extinguishment of the $118.0 million
term loan during the quarter ended May 31, 2003 and the repurchase of $63.6
million of 11.75% Senior Subordinated Notes during the quarter ended November
30, 2003. Other income  net increased to $34.3 million for the six months ended August
31, 2004, from $12.2 million in the same period in the prior year. The $22.1
million improvement included the receipt of a one-time payment of $10.0 million as a result of the Corporation substantially
modifying certain agreements relating to its licensing activities, increased
royalty revenue of $5.6 million, a foreign exchange improvement of $2.0 million
and a $3.1 million gain on the sale of an investment in the current year. The effective tax rates for the six months ended August 31, 2004 and 2003 were
38.7% and 39.7%, respectively. The Corporations August 31, 2004 effective tax rate reflects an estimate of the Corporations annual effective tax rate for the current year. Restructuring Activities In Fiscal 2002, the Corporation undertook a restructure of the Corporations
domestic and foreign manufacturing and distribution operations and recorded a
charge of $56.7 million. All activities required to complete the restructure
were substantially completed by February 28, 2002, with the exception of
ongoing termination benefit payments, which will not be completed until 2007.
The following table summarizes the remaining reserve associated with the 2002
restructure charge: (In thousands)
    
    Termination BenefitsBalance at March 1, 2004
    
    $
    1,504Cash expenditures
    
    
    (384
    )Balance at August 31, 2004
    
    $
    1,120
 Included in Accrued liabilities at August 31, 2004 is $1.1 million
representing the portion of severance costs not yet disbursed. Segment Information The Corporation is organized and managed according to a number of factors,
including product categories, geographic locations and channels of
distribution. The Social Expression Products segment primarily designs,
manufactures and sells greeting cards and other related products through
various channels of distribution with mass retailers as the primary channel and
is managed by geographic location. As permitted under Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, certain operating divisions have been aggregated into the
Social Expression Products segment. These operating divisions have similar
economic characteristics, products, 24




---



##### Table of Contents



production processes, types of customers and distribution methods. The
Corporation owns and operates 584 card and gift retail stores in the United
States and Canada through its Retail Operations segment. The stores are
primarily located in malls and strip shopping centers. The stores sell
products purchased from the Social Expression Products segment and products
purchased from other vendors. AG Interactive, formerly AmericanGreetings.com,
is an electronic provider of social expression content through the Internet and
wireless platforms. The Corporation reviews segment results using consistent exchange rates between
periods to eliminate the impact of foreign currency fluctuations. Social Expression Products Segment Three Months Ended
    
    
    
    
    
    Six Months EndedAugust 31,
    
    
    
    
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeNet Sales
    
    $
    317,688
    
    
    $
    315,942
    
    
    
    0.6
    %
    
    $
    678,578
    
    
    $
    685,526
    
    
    
    (1.0
    %)Segment Earnings
    
    
    47,976
    
    
    
    17,756
    
    
    
    170.2
    %
    
    
    131,328
    
    
    
    97,565
    
    
    
    34.6
    %
 Net sales of the Social Expression Products segment excluding the impact of
foreign exchange and intersegment items, for the three months ended August 31,
2004, increased $1.7 million or 0.6% from the same period in the prior year.
This increase was due to improvements in the international greeting card
businesses and improved overall returns performance on seasonal cards, offset
by lower seasonal sales as a result of delayed shipments of fall products as
compared to the prior year. For the six months ended August 31, 2004, net
sales decreased $6.9 million or 1.0% from the prior year period. This decrease
is primarily related to lower seasonal sales from the delayed shipments
partially offset by improvements in the international greeting card business
and reduced field service costs. Segment earnings excluding the impact of foreign exchange and intersegment
items for the three months ended August 31, 2004, increased $30.2 million
compared to the prior year period. Segment earnings during six months ended
August 31, 2004, improved $33.8 million compared to the prior year period.
These improvements are primarily the result of higher licensing income, lower
bad debt expense, reduced costs of implementing supply chain improvements, and
lower field service costs related to the prior year integration of a new major
customer. Retail Operations Segment Three Months Ended

    
    
    
    
    
    Six Months EndedAugust 31,
    
    
    
    
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeNet Sales
    
    $
    48,048
    
    
    $
    54,141
    
    
    
    (11.3
    %)
    
    $
    98,866
    
    
    $
    110,366
    
    
    
    (10.4
    %)Segment Earnings
    
    
    (11,376
    )
    
    
    (8,602
    )
    
    
    (32.2
    %)
    
    
    (15,520
    )
    
    
    (9,516
    )
    
    
    (63.1
    %)
 Net sales excluding the impact of foreign exchange in the Retail Operations
segment decreased $6.1 million or 11.3% as comparable same-store sales
decreased 7.8% for the three months ended August 31, 2004 compared to the same
period in the prior year. For the six months ended August 31, 2004, net sales
decreased $11.5 million or 10.4% as same-store 25




---



##### Table of Contents



sales decreased 8.1% compared to the same period in the prior year. This
decrease was due to disappointing results in sales across product categories
and increased promotional pricing. The average number of stores during the
six month period ended August 31, 2004, was 26 less than in the prior year six
month period and the Corporation ended the period with 584 operating outlets
compared to 632 in the prior year. Segment earnings excluding the impact of foreign exchange was a loss of $11.4
million in the three months ended August 31, 2004, compared to a loss of $8.6
million in the three months ended August 31, 2003. For the six months ended
August 31, 2004, segment earnings was a loss of $15.5 million, compared to a
loss of $9.5 million in the prior year period. The increased loss is mainly
due to the reduced net sales and higher markdowns to clear slow moving
inventories, partially offset by savings in operating expenses, mainly store
rent and payroll, due to operating efficiencies and less stores. AG Interactive Segment Three Months Ended
    
    
    
    
    
    Six Months EndedAugust 31,
    
    
    
    
    
    August 31,(In thousands)
    
    2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeNet Sales
    
    $
    12,959
    
    
    $
    8,699
    
    
    
    49.0
    %
    
    $
    22,404
    

    
    $
    16,947
    
    
    
    32.2
    %Segment Earnings
    
    
    (2,046
    )
    
    
    1,737
    
    
    
    (217.8
    %)
    
    
    (1,683
    )
    
    
    2,130
    
    
    
    (179.0
    %)
 Net sales of AG Interactive increased $4.3 million for the three months ended
August 31, 2004, compared to the same period in the prior year. For the six
months ended August 31, 2004, net sales increased $5.5 million compared to the
same period in the prior year. These improvements are a result of higher
subscription revenue and business acquisitions within the AG Mobile wireless
division during the second quarter. Segment earnings decreased $3.8 million for both the three months and six
months ended August 31, 2004, compared to the prior year periods as the impact
of sales increases were offset by acquisition costs, higher technology costs
and the cost of new business initiatives. Liquidity and Capital Resources The seasonal nature of the Corporations business precludes a useful comparison
of the current period and the fiscal year-end financial statements; therefore,
a Condensed Consolidated Statement of Financial Position for August 31, 2003
has been included. During the six months ended August 31, 2004, the Corporation continued the
initiative to enhance its financial position and as a result, generated cash
from operating and investing activities of $79.8 million. With the early
retirement of $186.2 million of debt, the Corporation improving its debt to
total capital ratio from 34.4% to 27.4% during the six month period. Total
debt less cash at August 31, 2004 was $331.1 million, compared to $699.9
million at August 31, 2003. 26




---



##### Table of Contents



Operating Activities Operating activities provided $68.4 million in cash during the six months ended
August 31, 2004, compared to using $35.4 million of cash in the same period in
the prior year. Accounts receivable increased $0.4 million from February 29, 2004, compared to
a decrease of $16.9 million in the same period in the prior year. The prior
year decrease of $16.9 million reflected the lower net sales in the Social
Expression Products segment and an improvement in the aging of the accounts
receivable. Inventories increased $72.2 million from February 29, 2004, compared to an
increase of $89.2 million in the same period in the prior year. The lower
inventory build in the six months ended August 31, 2004, as compared to the
same period in the prior year, is mainly due to lower display fixture inventory in the current year related to
the integration of a new major customer in the prior year and lower inventory
levels in the Retail Operations segment due to less stores and markdowns taken to move
slower moving inventory. These improvements were partially offset by higher
inventory levels of seasonal products due to later shipments compared to the
prior year. Other current assets decreased $6.7 million from February 29, 2004, compared to
a decrease of $34.6 in the same period in the prior year. The difference
relates to the prior year tax refund of estimated payments and COLI benefits
due to policy surrenders made in the prior year. Deferred costs  net represents payments under agreements with retailers net of
the related amortization of those payments. During the six months ended August
31, 2004, amortization exceeded payments by $71.0 million; in the six months
ended August 31, 2003, amortization exceeded payments by $21.6 million. The
current year amount reflects a lower level of payments for new or amended
contracts as well as payments due on existing contracts than in the prior year
six months. See Note 9 to the condensed consolidated financial statements for
further discussion of deferred costs related to customer agreements. Accounts payable and other liabilities decreased $1.0 million during the six
months ended August 31, 2004, compared to a decrease of $75.0 million is the
prior year period. The decrease in the prior year reflected a decrease in
trade payables, payments made to decrease various compensation related
liabilities and approximately $24 million of state income tax payments related
to the Corporations liability associated with its COLI program. Investing Activities Investing activities provided $11.4 million in cash during the six months ended
August 31, 2004, compared to using $11.7 million in the same period in the
prior year. The increase of $23.1 million is primarily due to the proceeds
received from the sale of the marketable security investment of $19.1 million.
Included in investing activities in the current year is a payment of $3.8
million related to the MIDIRingTones, LLC acquisition. As the K-MOBILE
acquisition was a non-cash transaction, it is not reflected in the Condensed
Consolidated Statement of Cash Flows. 27




---



##### Table of Contents



Financing Activities Financing activities used $207.0 million of cash during the six months ended
August 31, 2004, compared to $115.7 million in the same period of the prior
year. The current year amount relates primarily to the repurchase of the
Corporations 11.75% Senior Subordinated Notes and the prior year amount
relates primarily to the early retirement of the Corporations term loan. Stock activity also provided and used a significant amount of cash during the
current year six months. There was a high amount of employee option exercises
due to a tranche of options nearing their expiration date. The receipt by the
Corporation of the strike price on these options provided approximately $19
million during the six months. In addition, the Corporation repurchased shares
at a cost of approximately $9 million, primarily B shares, into its Treasury. In September 2004, the Corporation announced the initiation of a quarterly cash
dividend of $0.06 per common share beginning in October 2004. Credit Sources Substantial credit sources are available to the Corporation. In total, the
Corporation had available sources of approximately $400 million at August 31,
2004. This includes the Corporations $200 million Senior Secured Revolving
Credit Facility and its $200 million Accounts Receivable Securitization
Financing. There were no outstanding balances under either of these
arrangements at August 31, 2004. On May 11, 2004, the Corporation amended and restated its senior secured credit
facility. This facility was originally entered into on August 9, 2001, as a
$350 million facility and was amended on July 22, 2002 to a $320 million
facility. With the repayment of the term loan on April 7, 2003, the facility
had a borrowing capacity of $195 million. At that date, the Corporation
recorded a charge of $4.6 million for the write-off of the related deferred
financing costs and a premium payment associated with the repayment of the term
loan. The amended and restated senior secured credit facility consists of a
$200 million revolving facility maturing on May 10, 2008. The amended facility
is secured by the domestic assets of the Corporation and a 65% interest in the
common stock of its foreign subsidiaries. The facility contains various
restrictive covenants. Some of these restrictions require that the Corporation
meet specified periodic financial ratios, minimum net worth, maximum leverage,
and interest coverage. The credit facility places certain restrictions on the
Corporations ability to incur additional indebtedness, to engage in
acquisitions of other businesses, to repurchase its own capital stock and
allows payments of shareholder dividends up to a maximum of $20 million per
year. These covenants are less restrictive than the covenants previously in
place. The Accounts Receivable Securitization Financing agreement was amended on
August 2, 2004, to extend the maturity date to August 1, 2007. During the three months ended May 31, 2004, the Corporation commenced a cash
tender offer for all of its outstanding 11.75% senior subordinated notes due
July 15, 2008. As a result of this tender offer, a total of $186.2 million of
these senior subordinated notes were repurchased and the Corporation recorded a
charge of $39.1 million for the payment of the 28




---



##### Table of Contents



premium and other fees associated with the notes repurchased as well as for the
write-off of related deferred financing costs. At August 31, 2004,
approximately $10 million of these notes remained outstanding. As part of this
transaction, substantially all restrictive covenants were eliminated from the
remaining outstanding notes. There were no material changes in the financial condition, liquidity or capital
resources of the Corporation from February 29, 2004, the end of its preceding
fiscal year, to August 31, 2004, the end of its last fiscal quarter and the
date of the most recent balance sheet included in this report, nor from August
31, 2003, the end of the corresponding fiscal quarter last year, to August 31,
2004, except for the changes discussed above and aside from normal seasonal
fluctuations. The Corporations future operating cash flow and existing credit
facilities are expected to meet currently anticipated funding requirements. Critical Accounting Policies Please refer to the discussion of the Corporations Critical Accounting
Policies as disclosed in the Corporations Form 10-K for the year ended
February 29, 2004. Prospective Information The statements contained in this document that are not historical facts are
forward-looking statements. Actual results may differ materially from those
projected in the forward-looking statements. These forward-looking statements
involve risks and uncertainties, including but not limited to retail
bankruptcies and consolidations, successful integration of acquisitions, a weak
retail environment, consumer acceptance of products as priced and marketed, the
impact of technology on core product sales and competitive terms of sale
offered to customers. Risks pertaining specifically to AG Interactive include
the viability of Internet advertising as a generator of revenue, and the
publics continued acceptance of paid electronic greetings and other social
expression products. 29




---



##### Table of Contents



Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk For further information, refer to the Corporations annual report on Form 10-K
for the year ended February 29, 2004. There were no material changes in market
risk, specifically interest rate and foreign currency exposure, for the
Corporation from February 29, 2004, the end of its preceding fiscal year, to
August 31, 2004, the end of its most recent fiscal quarter except for the
repurchase of $186.2 million in 11.75% senior subordinated notes during the
fiscal quarter ended May 31, 2004. 
 Part I, Item 4. Controls and Procedures The Corporations
management, with the participation of the Corporations Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Corporations disclosure controls and procedures as of August 31, 2004.
Based on that evaluation, the Corporations Chief Executive Officer and Chief
Financial Officer concluded that the Corporations disclosure controls and
procedures were effective as of August 31, 2004. There were no material
changes in the Corporations internal control over financial reporting during
the second quarter of 2005. 30




---



##### Table of Contents



PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings The Corporation is involved in certain legal actions and claims arising in the
ordinary course of business. The Corporation does not believe that any of the
litigation in which it is currently engaged, either individually or in the
aggregate, will have a material adverse effect on its business, consolidated
financial position or results of operations. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table provides information with respect to purchases of common
stock of the Corporation made during the three months ended August 31, 2004, by
American Greetings Corporation. TotalNumber of
    
    MaximumShares
    
    Number ofPurchased
    
    Shares thatas Part of
    
    May Yet BeAverage
    
    Publicly
    
    PurchasedTotal Number of
    
    Price Paid
    
    Announced
    
    Under thePeriod
    
    Shares Repurchased
    
    per Share
    
    Plans
    
    PlansJune 2004
    
    Class A  445 (1)
    
    $
    22.17
    
    
    
    
    
    
    
    Class B  1,976 (2)
    
    $
    22.32
    
    
    
    
    
    
    
    July 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    August 2004
    
    Class B  420 (2)
    
    $
    23.85
    
    
    
    
    
    
    
    Total
    
    Class A  445 (1)
    
    $
    22.17
    
    
    
    
    
    
    
    Class B  2,396 (2)
    
    $
    22.58
    
    
    
    
    
    
    
    
 (1) All of the Class A Common Shares were delivered to the Corporation by
holders of options to purchase Class A Common Shares to satisfy the exercise
price or tax obligations in connection with the exercise of options. (2) All of the Class B Common Shares were repurchased by the Corporation for
cash pursuant to its right of first refusal with respect to Class B Common
Shares set forth in the Corporations Articles of Incorporation. The Corporations senior secured credit facility allows payments of shareholder
dividends up to a maximum of $20 million per year. 
 Item 3. Defaults Upon Senior Securities Not applicable 31




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the Corporation was held on June 25,
2004.  (a)
    
    Proposal 1 - Election of Directors  The following individuals were elected to Class III of the
Corporations Board of Directors with term expiring in 2007: Scott S.
Cowen, Harriet Mouchly-Weiss, Charles A. Ratner and Zev Weiss.The following individual was elected to Class II of the Corporations
Board of Directors with term expiring in 2006: Joseph Hardin. The
following individuals were continuing Class II directors with term
expiring in 2006: Jack Kahl, Jerry Sue Thornton and Jeffrey M. Weiss.The following individuals were continuing directors with term expiring
in 2005 (Class I): Stephen R. Hardis, James C. Spira and Morry Weiss.The vote total was as follows for the election of directors (Class
III): Nominee
    
    Votes For
    
    Votes WithheldScott S. Cowen
    
    
    99,213,470
    
    
    
    5,924,066Harriet Mouchly-Weiss
    
    
    99,262,697
    
    
    
    5,874,839Charles A. Ratner
    
    
    80,838,503
    
    
    
    24,299,033Zev Weiss
    
    
    103,383,119
    
    
    
    1,754,417
  The vote total was as follows for the election of directors (Class
II): Nominee
    
    Votes For
    
    Votes WithheldJoseph Hardin
    
    
    104,394,549
    
    
    
    742,987
  (b)
    
    Proposal 2 - Increasing the number of Common Shares available for
issuance under the Corporations 1997 Equity and Performance Incentive
Plan from 12,500,000 to 17,000,000. Votes For
    
    Votes Against
    
    Abstains83,938,143
    
    
    16,447,413
    
    
    
    459,939
 
 Item 5. Other Information Not applicable 32




---



##### Table of Contents



Item 6. Exhibits Exhibits required by Item 601 of Regulation S-K (31) a  Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (31) b  Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (32)  Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 33




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. AMERICAN GREETINGS CORPORATION
 By:
    /s/ Joseph B. CipolloneJoseph B. CipolloneVice President
Corporate Controller
Chief Accounting Officer September 30, 2004 (Signing on behalf of Registrant as a duly authorized officer of Registrant and
signing as the principal accounting officer of Registrant.) 34