##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended November 23, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 1-13859
 AMERICAN GREETINGS CORPORATION
  Ohio
    
    34-0065325(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 One American Road, Cleveland, Ohio
    
    44144(Address of principal executive offices)
    
    (Zip Code)
 (216) 252-7300
   þ o
  þ o o
  o þ




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##### 



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
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBITSEX-10.1EX-31(A)EX-31(B)EX-32




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars except share and per share amounts)
 (Unaudited)Three Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    474,995
    
    
    $
    510,102
    
    
    $
    1,258,829
    
    
    $
    1,271,755Other revenue
    
    
    10,751
    
    
    
    11,052
    
    
    
    24,309
    
    
    
    26,537Total revenue
    
    
    485,746
    
    
    
    521,154
    
    
    
    1,283,138
    
    
    
    1,298,292Material, labor and other production costs
    
    
    223,329
    
    
    
    245,187
    
    
    
    547,509
    
    
    
    593,232Selling, distribution and marketing expenses
    
    
    159,420
    
    
    
    157,364
    
    
    
    444,695
    
    
    
    451,419Administrative and general expenses
    
    
    60,481
    
    
    
    65,287
    
    
    
    178,291
    
    
    
    183,516Other operating income  net
    
    
    (127
    )
    
    
    (20,541
    )
    
    
    (807
    )
    
    
    (20,963
    )Operating income
    
    
    42,643
    
    
    
    73,857
    
    
    
    113,450
    
    
    
    91,088Interest expense
    
    
    4,835
    
    
    
    6,951
    
    
    
    14,431
    
    
    
    27,024Interest income
    
    
    (2,115
    )
    
    
    (1,258
    )
    
    
    (5,834
    )
    
    
    (6,716
    )Other non-operating (income) expense  net
    
    
    (4,582
    )
    
    
    91
    
    
    
    (7,478
    )
    
    
    (2,811
    )Income from continuing operations
before income tax expense
    
    
    44,505
    
    
    
    68,073
    
    
    
    112,331
    
    
    
    73,591Income tax expense
    
    
    15,017
    
    
    
    21,058
    
    
    
    43,495
    
    
    
    22,583Income from continuing operations
    
    
    29,488
    
    
    
    47,015
    
    
    
    68,836
    
    
    
    51,008(Loss) income from discontinued operations,
net of tax
    
    
    (472
    )
    
    
    2,692
    
    
    
    (1,395
    )
    
    
    3,593Net income
    
    $
    29,016
    
    
    $
    49,707
    
    
    $
    67,441
    
    
    $
    54,601Earnings per share  basic:Income from continuing operations
    
    $
    0.54
    
    
    $
    0.79
    
    
    $
    1.25
    
    
    $
    0.87(Loss) income from discontinued operations
    
    
    (0.01
    )
    
    
    0.05
    
    
    
    (0.03
    )
    
    
    0.06Net income
    
    $
    0.53
    
    
    $
    0.84
    
    
    $
    1.22
    
    
    $
    0.93Earnings per share  assuming dilution:Income from continuing operations
    
    $
    0.53
    
    
    $
    0.79
    
    
    $
    1.24
    
    
    $
    0.82(Loss) income from discontinued operations
    
    
    (0.01
    )
    
    
    0.04
    
    
    
    (0.03
    )
    
    
    0.06Net income
    
    $
    0.52
    
    
    $
    0.83
    
    
    $
    1.21
    
    
    $
    0.88Average number of shares outstanding
    
    
    55,022,689
    
    
    
    59,502,276
    
    
    
    55,350,736
    
    
    
    58,590,857Average number of shares outstanding
 assuming dilution
    
    
    55,466,351
    
    
    
    59,902,127
    
    
    
    55,726,990
    
    
    
    64,361,644Dividends declared per share
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.30
    
    
    $
    0.24
  3




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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)
 (Unaudited)
    
    
    (Note 1)
    
    
    (Unaudited)November 23,
    
    
    February 28,
    
    
    November 24,2007
    
    
    2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    71,117
    
    
    $
    144,713
    
    
    $
    86,216Trade accounts receivable, net
    
    
    205,702
    
    
    
    103,992
    
    
    
    239,207Inventories
    
    
    239,209
    
    
    
    182,618
    
    
    
    244,181Deferred and refundable income taxes
    
    
    76,568
    
    
    
    135,379
    
    
    
    160,983Assets of businesses held for sale
    
    
    2,216
    
    
    
    5,199
    
    
    
    13,310Prepaid expenses and other
    
    
    213,529
    
    
    
    227,380
    
    
    
    295,866Total current assets
    
    
    808,341
    
    
    
    799,281
    
    
    
    1,039,763Goodwill
    
    
    267,308
    
    
    
    224,105
    
    
    
    219,093Other assets
    
    
    389,324
    
    
    
    416,887
    
    
    
    459,269Deferred and refundable income taxes
    
    
    111,959
    
    
    
    52,869
    
    
    
    Property, plant and equipment  at cost
    
    
    975,721
    
    
    
    944,534
    
    
    
    968,755Less accumulated depreciation
    
    
    684,170
    
    
    
    659,462
    
    
    
    668,524Property, plant and equipment  net
    
    
    291,551
    
    
    
    285,072
    
    
    
    300,231$
    1,868,483
    
    
    $
    1,778,214
    
    
    $
    2,018,356LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesDebt due within one year
    
    $
    46,490
    
    
    $
    
    
    
    $
    142,000Accounts payable
    
    
    131,099
    
    
    
    118,204
    
    
    
    126,956Accrued liabilities
    
    
    89,751
    
    
    
    80,389
    
    
    
    91,108Accrued compensation and benefits
    
    
    58,969
    
    
    
    61,192
    
    
    
    58,720Income taxes
    
    
    31,255
    
    
    
    26,385
    
    
    
    17,412Liabilities of businesses held for sale
    
    
    1,383
    
    
    
    1,932
    
    
    
    1,629Other current liabilities
    
    
    96,896
    
    
    
    84,898
    
    
    
    91,162Total current liabilities
    
    
    455,843
    
    
    
    373,000
    
    
    
    528,987Long-term debt
    
    
    200,975
    
    
    
    223,915
    
    
    
    223,985Other liabilities
    
    
    149,869
    
    
    
    162,410
    
    
    
    101,003Deferred income taxes and noncurrent income
taxes payable
    
    
    31,877
    
    
    
    6,315
    
    
    
    25,306Shareholders equityCommon shares  Class A
    
    
    49,929
    
    
    
    50,839
    
    
    
    53,775Common shares  Class B
    
    
    3,442
    
    
    
    4,283
    
    
    
    4,224Capital in excess of par value
    
    
    443,326
    
    
    
    414,859
    
    
    
    417,444Treasury stock
    
    
    (780,044
    )
    
    
    (710,414
    )
    
    
    (643,540
    )Accumulated other comprehensive income (loss)
    
    
    22,982
    
    
    
    (1,013
    )
    
    
    36,067Retained earnings
    
    
    1,290,284
    
    
    
    1,254,020
    
    
    
    1,271,105Total shareholders equity
    
    
    1,029,919
    
    
    
    1,012,574
    
    
    
    1,139,075$
    1,868,483
    
    
    $
    1,778,214
    
    
    $
    2,018,356
  4




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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
 (Unaudited)Nine Months EndedNovember 23, 2007
    
    
    November 24, 2006OPERATING ACTIVITIES:Net income
    
    $
    67,441
    
    
    $
    54,601Loss (income) from discontinued operations
    
    
    1,395
    
    
    
    (3,593
    )Income from continuing operations
    
    
    68,836
    
    
    
    51,008Adjustments to reconcile to net cash provided (used) by
operating activities:Net (gain) loss on disposal of fixed assets
    
    
    (481
    )
    
    
    754Loss on extinguishment of debt
    
    
    
    
    
    
    5,055Depreciation and amortization
    
    
    36,002
    
    
    
    37,229Deferred income taxes
    
    
    (7,994
    )
    
    
    5,827Other non-cash charges
    
    
    5,719
    
    
    
    9,180Changes in operating assets and liabilities, net of acquisitions and
dispositions:Increase in trade accounts receivable
    
    
    (99,268
    )
    
    
    (92,821
    )Increase in inventories
    
    
    (49,911
    )
    
    
    (27,202
    )Decrease (increase) in other current assets
    
    
    18,090
    
    
    
    (96,250
    )Decrease in deferred costs  net
    
    
    29,338
    
    
    
    110,076Increase (decrease) in accounts payable and other liabilities
    
    
    38,295
    
    
    
    (5,894
    )Other  net
    
    
    4,718
    
    
    
    (6,265
    )Cash Provided (Used) by Operating Activities
    
    
    43,344
    
    
    
    (9,303
    )INVESTING ACTIVITIES:Proceeds from sale of short-term investments
    
    
    692,985
    
    
    
    1,026,280Purchases of short-term investments
    
    
    (692,985
    )
    
    
    (817,540
    )Property, plant and equipment additions
    
    
    (37,394
    )
    
    
    (29,600
    )Cash payments for business acquisitions, net of cash acquired
    
    
    (51,256
    )
    
    
    (11,154
    )Cash receipts related to discontinued operations
    
    
    4,283
    
    
    
    12,559Proceeds from sale of fixed assets
    
    
    2,656
    
    
    
    695Cash (Used) Provided by Investing Activities
    
    
    (81,711
    )
    
    
    181,240FINANCING ACTIVITIES:Increase in long-term debt
    
    
    
    
    
    
    200,000Reduction of long-term debt
    
    
    
    
    
    
    (440,588
    )Increase in short-term debt
    
    
    23,800
    
    
    
    142,000Sale of stock under benefit plans
    
    
    26,198
    
    
    
    5,630Purchase of treasury shares
    
    
    (74,572
    )
    
    
    (186,331
    )Dividends to shareholders
    
    
    (16,657
    )
    
    
    (13,909
    )Debt issuance costs
    
    
    
    
    
    
    (8,344
    )Cash Used by Financing Activities
    
    
    (41,231
    )
    
    
    (301,542
    )DISCONTINUED OPERATIONS:Cash used by operating activities from discontinued operations
    
    
    (839
    )
    
    
    (2,377
    )Cash provided by investing activities from discontinued operations
    
    
    
    
    
    
    1,656Cash Used by Discontinued Operations
    
    
    (839
    )
    
    
    (721
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    6,841
    
    
    
    2,929DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (73,596
    )
    
    
    (127,397
    )Cash and Cash Equivalents at Beginning of Year
    
    
    144,713
    
    
    
    213,613Cash and Cash Equivalents at End of Period
    
    $
    71,117
    
    
    $
    86,216
  5




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AMERICAN GREETINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three and Nine Months Ended November 23, 2007 and November 24, 2006
 Note 1  Basis of Presentation
     Note 2  Seasonal Nature of Business
  Note 3  Recent Accounting Pronouncements
   6




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Note 4  Other Income and Expense
 Three Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Gain on contract terminations
    
    $
    
    
    
    $
    (20,004
    )
    
    $
    
    
    
    $
    (20,004
    )Other
    
    
    (127
    )
    
    
    (537
    )
    
    
    (807
    )
    
    
    (959
    )Other operating income  net
    
    $
    (127
    )
    
    $
    (20,541
    )
    
    $
    (807
    )
    
    $
    (20,963
    )Foreign exchange gain
    
    $
    (4,054
    )
    
    $
    (610
    )
    
    $
    (6,323
    )
    
    $
    (2,348
    )Rental income
    
    
    (274
    )
    
    
    (261
    )
    
    
    (949
    )
    
    
    (1,044
    )Other
    
    
    (254
    )
    
    
    962
    
    
    
    (206
    )
    
    
    581Other non-operating (income)
expense  net
    
    $
    (4,582
    )
    
    $
    91
    
    
    $
    (7,478
    )
    
    $
    (2,811
    )
  Note 5  Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator (in thousands):Income from continuing operations
    
    $
    29,488
    
    
    $
    47,015
    
    
    $
    68,836
    
    
    $
    51,008Add-back  interest on
convertible subordinated notes,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,958Income from continuing operations
 assuming dilution
    
    $
    29,488
    
    
    $
    47,015
    
    
    $
    68,836
    
    
    $
    52,966Denominator (in thousands):Weighted average shares
outstanding
    
    
    55,023
    
    
    
    59,502
    
    
    
    55,351
    
    
    
    58,591Effect of dilutive securities:Convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,353Stock options and other
    
    
    443
    
    
    
    400
    
    
    
    376
    
    
    
    418Weighted average shares
outstanding  assuming dilution
    
    
    55,466
    
    
    
    59,902
    
    
    
    55,727
    
    
    
    64,362Income from continuing operations
per share
    
    $
    0.54
    
    
    $
    0.79
    
    
    $
    1.25
    
    
    $
    0.87Income from continuing operations
per share  assuming dilution
    
    $
    0.53
    
    
    $
    0.79
    
    
    $
    1.24
    
    
    $
    0.82
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Note 6  Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    29,016
    
    
    $
    49,707
    
    
    $
    67,441
    
    
    $
    54,601Other comprehensive income (loss):Foreign currency translation
adjustment and other
    
    
    11,614
    
    
    
    6,018
    
    
    
    23,318
    
    
    
    25,896Unrealized gain (loss) on securities
    
    
    
    
    
    
    323
    
    
    
    (1
    )
    
    
    348Pension and other postretirement
benefit plans
    
    
    678
    
    
    
    
    
    
    
    678
    
    
    
    Total comprehensive income
    
    $
    41,308
    
    
    $
    56,048
    
    
    $
    91,436
    
    
    $
    80,845
 Note 7  Trade Accounts Receivable, Net
  (In thousands)
    
    November 23, 2007
    
    
    February 28, 2007
    
    
    November 24, 2006Allowance for seasonal sales returns
    
    $
    70,014
    
    
    $
    57,584
    
    
    $
    67,365Allowance for doubtful accounts
    
    
    5,402
    
    
    
    6,350
    
    
    
    8,392Allowance for cooperative
advertising and marketing funds
    
    
    35,939
    
    
    
    24,048
    
    
    
    27,677Allowance for rebates
    
    
    49,915
    
    
    
    40,053
    
    
    
    57,669$
    161,270
    
    
    $
    128,035
    
    
    $
    161,103
 Note 8  Inventories
 (In thousands)
    
    November 23, 2007
    
    
    February 28, 2007
    
    
    November 24, 2006Raw materials
    
    $
    16,211
    
    
    $
    17,590
    
    
    $
    22,334Work in process
    
    
    12,646
    
    
    
    11,315
    
    
    
    10,871Finished products
    
    
    265,013
    
    
    
    207,676
    
    
    
    264,940293,870
    
    
    
    236,581
    
    
    
    298,145Less LIFO reserve
    
    
    81,945
    
    
    
    79,145
    
    
    
    81,658211,925
    
    
    
    157,436
    
    
    
    216,487Display materials and factory supplies
    
    
    27,284
    
    
    
    25,182
    
    
    
    27,694$
    239,209
    
    
    $
    182,618
    
    
    $
    244,181
  8




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##### Table of Contents



Note 9  Deferred Costs
  (In thousands)
    
    November 23, 2007
    
    
    February 28, 2007
    
    
    November 24, 2006Prepaid expenses and other
    
    $
    135,017
    
    
    $
    131,972
    
    
    $
    142,329Other assets
    
    
    313,928
    
    
    
    355,115
    
    
    
    371,745Deferred cost assets
    
    
    448,945
    
    
    
    487,087
    
    
    
    514,074Other current liabilities
    
    
    (57,607
    )
    
    
    (47,692
    )
    
    
    (58,746
    )Other liabilities
    
    
    (28,652
    )
    
    
    (49,648
    )
    
    
    (47,272
    )Deferred cost liabilities
    
    
    (86,259
    )
    
    
    (97,340
    )
    
    
    (106,018
    )Net deferred costs
    
    $
    362,686
    
    
    $
    389,747
    
    
    $
    408,056
 Note 10  Debt
  (In thousands)
    
    November 23, 2007
    
    
    February 28, 2007
    
    
    November 24, 2006Revolving credit facility
    
    $
    12,800
    
    
    $
    
    
    
    $
    60,000Accounts receivable
securitization facility
    
    
    11,000
    
    
    
    
    
    
    
    82,0006.10% senior notes, due 2028
    
    
    22,690
    
    
    
    
    
    
    
    $
    46,490
    
    
    $
    
    
    
    $
    142,000
   (In thousands)
    
    November 23, 2007
    
    
    February 28, 2007
    
    
    November 24, 20066.10% senior notes, due 2028
    
    $
    
    
    
    $
    22,690
    
    
    $
    22,6337.375% senior notes, due 2016
    
    
    200,000
    
    
    
    200,000
    
    
    
    200,000Other
    
    
    975
    
    
    
    1,225
    
    
    
    1,352$
    200,975
    
    
    $
    223,915
    
    
    $
    223,985
  9




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##### Table of Contents



Note 11  Retirement Benefits
  Defined Benefit PensionThree Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,(In thousands)

    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    251
    
    
    $
    207
    
    
    $
    740
    
    
    $
    621Interest cost
    
    
    2,249
    
    
    
    2,192
    
    
    
    6,769
    
    
    
    6,713Expected return on plan assets
    
    
    (2,143
    )
    
    
    (2,182
    )
    
    
    (6,479
    )
    
    
    (6,503
    )Settlement
    
    
    
    
    
    
    
    
    
    
    1,067
    
    
    
    Amortization of prior service cost
    
    
    67
    
    
    
    67
    
    
    
    200
    
    
    
    200Amortization of actuarial loss
    
    
    411
    
    
    
    258
    
    
    
    1,227
    
    
    
    1,609$
    835
    
    
    $
    542
    
    
    $
    3,524
    
    
    $
    2,640
 Postretirement BenefitThree Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,(In thousands)


    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    1,050
    
    
    $
    999
    
    
    $
    3,150
    
    
    $
    2,997Interest cost
    
    
    2,150
    
    
    
    1,925
    
    
    
    6,450
    
    
    
    5,775Expected return on plan assets
    
    
    (1,250
    )
    
    
    (1,275
    )
    
    
    (3,750
    )
    
    
    (3,825
    )Amortization of prior service credit
    
    
    (1,850
    )
    
    
    (1,849
    )
    
    
    (5,550
    )
    
    
    (5,547
    )Amortization of actuarial loss
    
    
    1,650
    
    
    
    1,700
    
    
    
    4,950
    
    
    
    5,100$
    1,750
    
    
    $
    1,500
    
    
    $
    5,250
    
    
    $
    4,500
    Note 12  Income Taxes
  10




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Note 13  Business Segment Information
        11




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##### Table of Contents



Operating Segment Information
 Three Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Total Revenue:North American Social
Expression Products
    
    $
    339,543
    
    
    $
    371,726
    
    
    $
    892,518
    
    
    $
    908,909Intersegment items
    
    
    (19,423
    )
    
    
    (14,953
    )
    
    
    (41,532
    )
    
    
    (47,811
    )Exchange rate adjustment
    
    
    2,972
    
    
    
    218
    
    
    
    4,318
    
    
    
    325Net
    
    
    323,092
    
    
    
    356,991
    
    
    
    855,304
    
    
    
    861,423International Social
Expression Products
    
    
    80,604
    
    
    
    82,526
    
    
    
    199,648
    
    
    
    209,019Exchange rate adjustment
    
    
    8,606
    
    
    
    794
    
    
    
    17,958
    
    
    
    (1,527
    )Net
    
    
    89,210
    
    
    
    83,320
    
    
    
    217,606
    
    
    
    207,492Retail Operations
    
    
    39,550
    
    
    
    42,252
    
    
    
    115,856
    
    
    
    125,206Exchange rate adjustment
    
    
    2,467
    
    
    
    178
    
    
    
    3,540
    
    
    
    299Net
    
    
    42,017
    
    
    
    42,430
    
    
    
    119,396
    
    
    
    125,505AG Interactive
    
    
    18,912
    
    
    
    21,663
    
    
    
    55,964
    
    
    
    62,151Exchange rate adjustment
    
    
    (2
    )
    
    
    31
    
    
    
    (1
    )
    
    
    76Net
    
    
    18,910
    
    
    
    21,694
    
    
    
    55,963
    
    
    
    62,227Non-reportable segments
    
    
    12,486
    
    
    
    16,679
    
    
    
    34,754
    
    
    
    41,510Unallocated
    
    
    31
    
    
    
    40
    
    
    
    115
    
    
    
    135$
    485,746
    
    
    $
    521,154
    
    
    $
    1,283,138
    
    
    $
    1,298,292Segment Earnings (Loss):North American Social
Expression Products
    
    $
    64,549
    
    
    $
    98,533
    
    
    $
    192,288
    
    
    $
    182,111Intersegment items
    
    
    (14,481
    )
    
    
    (10,296
    )
    
    
    (31,203
    )
    
    
    (34,125
    )Exchange rate adjustment
    
    
    1,557
    
    
    
    80
    
    
    
    2,360
    
    
    
    129Net
    
    
    51,625
    
    
    
    88,317
    
    
    
    163,445
    
    
    
    148,115International Social
Expression Products
    
    
    10,037
    
    
    
    6,092
    
    
    
    11,470
    
    
    
    7,148Exchange rate adjustment
    
    
    1,117
    
    
    
    (30
    )
    
    
    1,464
    
    
    
    34Net
    
    
    11,154
    
    
    
    6,062
    
    
    
    12,934
    
    
    
    7,182Retail Operations
    
    
    (5,833
    )
    
    
    (5,056
    )
    
    
    (15,098
    )
    
    
    (21,428
    )Exchange rate adjustment
    
    
    86
    
    
    
    4
    
    
    
    83
    
    
    
    1Net
    
    
    (5,747
    )
    
    
    (5,052
    )
    
    
    (15,015
    )
    
    
    (21,427
    )AG Interactive
    
    
    2,194
    
    
    
    2,249
    
    
    
    8,667
    
    
    
    5,498Exchange rate adjustment
    
    
    15
    
    
    
    (18
    )
    
    
    (2
    )
    
    
    (17
    )Net
    
    
    2,209
    
    
    
    2,231
    
    
    
    8,665
    
    
    
    5,481Non-reportable segments
    
    
    636
    
    
    
    3,668
    
    
    
    3,598
    
    
    
    8,308Unallocated
    
    
    (15,312
    )
    
    
    (27,157
    )
    
    
    (61,161
    )
    
    
    (73,919
    )Exchange rate adjustment
    
    
    (60
    )
    
    
    4
    
    
    
    (135
    )
    
    
    (149
    )Net
    
    
    (15,372
    )
    
    
    (27,153
    )
    
    
    (61,296
    )
    
    
    (74,068
    )$
    44,505
    
    
    $
    68,073
    
    
    $
    112,331
    
    
    $
    73,591
 12




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##### Table of Contents



Termination Benefits and Plant Closings
   Deferred Revenue
  Acquisition
  Note 14  Discontinued Operations
   Three Months Ended
    
    
    Nine Months EndedNovember 23,
    
    
    November 24,
    
    
    November 23,
    
    
    November 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Total revenue
    
    $
    20
    
    
    $
    2,122
    
    
    $
    379
    
    
    $
    11,275Pre-tax loss from operations
    
    $
    (368
    )
    
    $
    (388
    )
    
    $
    (1,122
    )
    
    $
    (2,371
    )(Loss) gain on sale
    
    
    (161
    )
    
    
    5,100
    
    
    
    34
    
    
    
    5,784(529
    )
    
    
    4,712
    
    
    
    (1,088
    )
    
    
    3,413Income tax (benefit) expense
    
    
    (57
    )
    
    
    2,020
    
    
    
    307
    
    
    
    (180
    )(Loss) income from discontinued
operations, net of tax
    
    $
    (472
    )
    
    $
    2,692
    
    
    $
    (1,395
    )
    
    $
    3,593
 13




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##### Table of Contents



(In thousands)
    
    November 23, 2007
    
    
    February 28, 2007
    
    
    November 24, 2006Assets of businesses held for sale:Current assets
    
    $
    13
    
    
    $
    2,933
    
    
    $
    8,035Other assets
    
    
    2,135
    
    
    
    2,185
    
    
    
    5,085Fixed assets
    
    
    68
    
    
    
    81
    
    
    
    190$
    2,216
    
    
    $
    5,199
    
    
    $
    13,310Liabilities of businesses held for sale:Current liabilities
    
    $
    158
    
    
    $
    610
    
    
    $
    292Noncurrent liabilities
    
    
    1,225
    
    
    
    1,322
    
    
    
    1,337$
    1,383
    
    
    $
    1,932
    
    
    $
    1,629
 Note 15  Subsequent Events
  14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
       15




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##### Table of Contents



Results
of Operations
 Three
months ended November 23, 2007 and November 24, 2006
   % Total
    
    
    
    
    
    
    % Total(Dollars in thousands)
    
    2007
    
    
    Revenue
    
    
    2006
    
    
    RevenueNet sales
    
    $
    474,995
    
    
    
    97.8
    %
    
    $
    510,102
    
    
    
    97.9
    %Other revenue
    
    
    10,751
    
    
    
    2.2
    %
    
    
    11,052
    
    
    
    2.1
    %Total revenue
    
    
    485,746
    
    
    
    100.0
    %
    
    
    521,154
    
    
    
    100.0
    %Material, labor and other production costs
    
    
    223,329
    
    
    
    46.0
    %
    
    
    245,187
    
    
    
    47.0
    %Selling, distribution and marketing expenses
    
    
    159,420
    
    
    
    32.8
    %
    
    
    157,364
    
    
    
    30.2
    %Administrative and general expenses
    
    
    60,481
    
    
    
    12.5
    %
    
    
    65,287
    
    
    
    12.5
    %Other operating income  net
    
    
    (127
    )
    
    
    (0.1
    %)
    
    
    (20,541
    )
    
    
    (3.9
    %)Operating income
    
    
    42,643
    
    
    
    8.8
    %
    
    
    73,857
    
    
    
    14.2
    %Interest expense
    
    
    4,835
    
    
    
    1.0
    %
    
    
    6,951
    
    
    
    1.3
    %Interest income
    
    
    (2,115
    )
    
    
    (0.4
    %)
    
    
    (1,258
    )
    
    
    (0.2
    %)Other non-operating (income) expense  net
    
    
    (4,582
    )
    
    
    (1.0
    %)
    
    
    91
    
    
    
    0.0
    %Income from continuing operations before
income tax expense
    
    
    44,505
    
    
    
    9.2
    %
    
    
    68,073
    
    
    
    13.1
    %Income tax expense
    
    
    15,017
    
    
    
    3.1
    %
    
    
    21,058
    
    
    
    4.1
    %Income from continuing operations
    
    
    29,488
    
    
    
    6.1
    %
    
    
    47,015
    
    
    
    9.0
    %(Loss) income from discontinued operations,
net of tax
    
    
    (472
    )
    
    
    (0.1
    %)
    
    
    2,692
    
    
    
    0.5
    %Net income
    
    $
    29,016
    
    
    
    6.0
    %
    
    $
    49,707
    
    
    
    9.5
    %
   16




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##### Table of Contents



Wholesale Unit and Pricing Analysis for Greeting Cards
  Increase (Decrease) From the Prior YearEveryday Cards
    
    Seasonal Cards
    
    Total Greeting Cards2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Unit volume
    
    
    1.7
    %
    
    
    (4.2
    %)
    
    
    4.2
    %
    
    
    (23.4
    %)
    
    
    2.3
    %
    
    
    (9.7
    %)Selling prices
    
    
    (2.5
    %)
    
    
    2.1
    %
    
    
    (3.3
    %)
    
    
    15.0
    %
    
    
    (2.7
    %)
    
    
    5.3
    %Overall increase / (decrease)
    
    
    (0.9
    %)
    
    
    (2.2
    %)
    
    
    0.8
    %
    
    
    (11.9
    %)
    
    
    (0.4
    %)
    
    
    (5.0
    %)
    Expense Overview
  17




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18




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##### Table of Contents



Results of Operations
 Nine
months ended November 23, 2007 and November 24, 2006
   % Total
    
    
    
    
    
    
    % Total(Dollars in thousands)
    
    2007
    
    
    Revenue
    
    
    2006
    
    
    RevenueNet sales
    
    $
    1,258,829
    
    
    
    98.1
    %
    
    $
    1,271,755
    
    
    
    98.0
    %Other revenue
    
    
    24,309
    
    
    
    1.9
    %
    
    
    26,537
    
    
    
    2.0
    %Total revenue
    
    
    1,283,138
    
    
    
    100.0
    %
    
    
    1,298,292
    
    
    
    100.0
    %Material, labor and other production costs
    
    
    547,509
    
    
    
    42.7
    %
    
    
    593,232
    
    
    
    45.7
    %Selling, distribution and marketing expenses
    
    
    444,695
    
    
    
    34.7
    %
    
    
    451,419
    
    
    
    34.8
    %Administrative and general expenses
    
    
    178,291
    
    
    
    13.9
    %
    
    
    183,516
    
    
    
    14.1
    %Other operating income  net
    
    
    (807
    )
    
    
    (0.1
    %)
    
    
    (20,963
    )
    
    
    (1.6
    %)Operating income
    
    
    113,450
    
    
    
    8.8
    %
    
    
    91,088
    
    
    
    7.0
    %Interest expense
    
    
    14,431
    
    
    
    1.1
    %
    
    
    27,024
    
    
    
    2.0
    %Interest income
    
    
    (5,834
    )
    
    
    (0.5
    %)
    
    
    (6,716
    )
    
    
    (0.5
    %)Other non-operating income  net
    
    
    (7,478
    )
    
    
    (0.6
    %)
    
    
    (2,811
    )
    
    
    (0.2
    %)Income from continuing operations before
income tax expense
    
    
    112,331
    
    
    
    8.8
    %
    
    
    73,591
    
    
    
    5.7
    %Income tax expense
    
    
    43,495
    
    
    
    3.4
    %
    
    
    22,583
    
    
    
    1.8
    %Income from continuing operations
    
    
    68,836
    
    
    
    5.4
    %
    
    
    51,008
    
    
    
    3.9
    %(Loss) income from discontinued operations,
net of tax
    
    
    (1,395
    )
    
    
    (0.1
    %)
    
    
    3,593
    
    
    
    0.3
    %Net income
    
    $
    67,441
    
    
    
    5.3
    %
    
    $
    54,601
    
    
    
    4.2
    %
    19




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##### Table of Contents



Wholesale Unit and Pricing Analysis for Greeting Cards
  Increase (Decrease) From the Prior YearEveryday Cards
    
    Seasonal Cards
    
    Total Greeting Cards2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Unit volume
    
    
    9.3
    %
    
    
    (12.2
    %)
    
    
    4.8
    %
    
    
    (9.4
    %)
    
    
    8.1
    %
    
    
    (11.5
    %)Selling prices
    
    
    (5.5
    %)
    
    
    7.0
    %
    
    
    (3.4
    %)
    
    
    7.5
    %
    
    
    (4.9
    %)
    
    
    7.2
    %Overall increase / (decrease)
    
    
    3.3
    %
    
    
    (6.1
    %)
    
    
    1.3
    %
    
    
    (2.6
    %)
    
    
    2.8
    %
    
    
    (5.1
    %)
    Expense Overview
   20




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##### Table of Contents



Segment Information
   21




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##### Table of Contents



North American Social Expression Products Segment
 (Dollars in
    
    Three Months Ended November
    
    %
    
    Nine Months Ended November
    
    %thousands)
    
    23, 2007
    
    24, 2006
    
    Change
    
    23, 2007
    
    24, 2006
    
    ChangeTotal revenue
    
    $
    320,120
    
    
    $
    356,773
    
    
    
    (10.3
    %)
    
    $
    850,986
    
    
    $
    861,098
    
    
    
    (1.2
    %)Segment earnings
    
    
    50,068
    
    
    
    88,237
    
    
    
    (43.3
    %)
    
    
    161,085
    
    
    
    147,986
    
    
    
    8.9
    %
   International Social Expression Products Segment
 (Dollars in
    
    Three Months Ended November
    
    %
    
    Nine Months Ended November
    
    %thousands)
    
    23, 2007
    
    24, 2006
    
    Change
    
    23, 2007
    
    24, 2006
    
    ChangeTotal revenue
    
    $
    80,604
    
    
    $
    82,526
    
    
    
    (2.3
    %)
    
    $
    199,648
    
    
    $
    209,019
    
    
    
    (4.5
    %)Segment earnings
    
    
    10,037
    
    
    
    6,092
    
    
    
    64.8
    %
    
    
    11,470
    
    
    
    7,148
    
    
    
    60.5
    %
  22




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##### Table of Contents



Retail Operations Segment
 (Dollars in
    
    Three Months Ended November
    
    %
    
    Nine Months Ended November
    
    %thousands)
    
    23, 2007
    
    24, 2006
    
    Change
    
    23, 2007
    
    24, 2006
    
    ChangeTotal revenue
    
    $
    39,550
    
    
    $
    42,252
    
    
    
    (6.4
    %)
    
    $
    115,856
    
    
    $
    125,206
    
    
    
    (7.5
    %)Segment loss
    
    
    (5,833
    )
    
    
    (5,056
    )
    
    
    (15.4
    %)
    
    
    (15,098
    )
    
    
    (21,428
    )
    
    
    29.5
    %
   AG Interactive Segment
 (Dollars in
    
    Three Months Ended November
    
    %
    
    Nine Months Ended November
    
    %thousands)
    
    23, 2007
    
    24, 2006
    
    Change
    
    23, 2007
    
    24, 2006
    
    ChangeTotal revenue
    
    $
    18,912
    
    
    $
    21,663
    
    
    
    (12.7
    %)
    
    $
    55,964
    
    
    $
    62,151
    
    
    
    (10.0
    %)Segment earnings
    
    
    2,194
    
    
    
    2,249
    
    
    
    (2.5
    %)
    
    
    8,667
    
    
    
    5,498
    
    
    
    57.6
    %
   23




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##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
       Investing Activities
  24




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##### Table of Contents



Financing Activities
    Credit Sources
     Critical Accounting Policies
  25




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##### Table of Contents



Factors That May Affect Future Results
  
    
    retail consolidations, acquisitions and bankruptcies, including the possibility of
resulting adverse changes to retail contract terms;
    
    our ability to successfully implement our strategy to invest in our core greeting
card business;
    
    the timing and impact of investments in new retail or product strategies as well
as new product introductions and achieving the desired benefits from those
investments;
    
    the timing and impact of converting customers to a scan-based trading model;
    
    our ability to successfully implement, or achieve the desired benefits associated
with, any information systems refresh that we may implement;
    
    the ability to execute share repurchase programs or the ability to achieve the
desired accretive effect from such repurchases;
    
    the ability to successfully complete the proposed acquisition of PhotoWorks and
the ability to successfully integrate acquisitions;
    
    our ability to successfully complete, or achieve the desired benefits associated
with, dispositions;
    
    a weak retail environment;
    
    consumer acceptance of products as priced and marketed;
    
    the impact of technology on core product sales;
    
    competitive terms of sale offered to customers;
    
    successful implementation of supply chain improvements and achievement of
projected cost savings from those improvements;
    
    increases in the cost of material, energy, freight and other production costs;
    
    our ability to comply with our debt covenants;
    
    fluctuations in the value of currencies in major areas where we operate, including
the U.S. Dollar, Euro, U.K. Pound Sterling and Canadian Dollar;
    
    escalation in the cost of providing employee health care; and
    
    the outcome of any legal claims known or unknown.
   26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Not applicable.(b)
    
    Not applicable.
 27




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##### Table of Contents



(c)
    
    The following table provides information with respect to our purchases of our common shares
during the three months ended November 23, 2007.
 Maximum Number ofShares (orTotal Number of
    
    Approximate DollarShares Purchased as
    
    Value) that May Yet BeTotal Number of Shares
    
    Average Price
    
    Part of Publicly
    
    Purchased Under thePeriod
    
    Repurchased
    
    Paid per Share
    
    Announced Plans
    
    PlansSeptember 2007
    
    Class A 
    
    395,000
    
    
    $
    24.41
    (2)
    
    
    395,000
    (3)
    
    $
    79,969,524Class B 
    
    1,404
    (1)
    
    $
    25.56
    
    
    
    October 2007
    
    Class A 
    
    425,000
    
    
    $
    26.51
    (2)
    
    
    425,000
    (3)
    
    $
    68,702,396Class B 
    
    688
    (1)
    
    $
    26.64
    
    
    
    November 2007
    
    Class A 
    
    842,302
    
    
    $
    24.27
    (2)
    
    
    842,302
    (3)
    
    $
    48,258,793Class B 
    
    852,400
    (1)
    
    $
    24.92
    
    
    
    Total
    
    Class A 
    
    1,662,302
    
    
    
    
    
    
    
    1,662,302
    (3)Class B 
    
    854,492
    (1)
    
    
    
    
    
    
    
 
 (1)
    
    There is no public market for the Class B common shares of the Corporation. Pursuant to our
Articles of Incorporation, a holder of Class B common shares may not transfer such Class B
common shares (except to permitted transferees, a group that generally includes members of the
holders extended family, family trusts and charities) unless such holder first offers such
shares to the Corporation for purchase at the most recent closing price for the Corporations
Class A common shares. If the Corporation does not purchase such Class B common shares, the
holder must convert such shares, on a share for share basis, into Class A common shares prior
to any transfer. All of the shares were repurchased by American Greetings for cash pursuant
to this right of first refusal. Of the amount repurchased, 850,000 Class B common shares were
held by the American Greetings Profit Sharing and 401(k) Savings Plan on behalf of
participants investing in the Plans company stock fund. In connection with the Plans
determination that the company stock fund should consist solely of Class A common shares to
facilitate participant transactions, during November 2007, the Plan sold 850,000 Class B
common shares back to American Greetings in accordance with the Amended Articles of
Incorporation.(2)
    
    Excludes commissions paid, if any, related to the share repurchase transactions.(3)
    
    On April 17, 2007, American Greetings announced that its Board of Directors authorized a new
program to repurchase up to $100 million of its Class A common shares. There is no set
expiration date for this repurchase program and these repurchases are made through a 10b5-1
program in open market or privately negotiated transactions which are intended to be in
compliance with the SECs Rule 10b-18, subject to market conditions, applicable legal
requirements and other factors. 
 Item 6. Exhibits
  ExhibitNumber
    
    Description10.1
    
    American Greetings Corporation Second Amended and Restated
Supplemental Executive Retirement Plan (Effective October 31,
2007)(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
 28




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##### Table of Contents



AMERICAN GREETINGS CORPORATIONBy:
    /s/ Joseph B. CipolloneJoseph B. CipolloneJanuary 2, 2008

    
    Vice President, Corporate
Controller, and Chief 
    Accounting
Officer  * 
 *
    
    (Signing on behalf of Registrant as a duly authorized officer of the Registrant and signing as
the chief accounting officer of the Registrant.) 29