##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
  X QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended
    August 24, 2007
 OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
    


    
    toCommission file number
    
    1-13859
 AMERICAN GREETINGS CORPORATION
 Ohio
    
    
    
    34-0065325(State or other jurisdiction of
   organization)
    
    (I.R.S. Employer Identification No.) incorporation or
 One American Road, Cleveland, Ohio
    
    
    44144(Address of principal executive offices)
    
    (Zip Code)
 (216) 252-7300
  X
 
  X
  Class A Common
    
    
    51,212,893Class B Common
    
    
    4,291,796




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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
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    28EXHIBITSEX-10.1EX-10.2EX-31.AEX-31.BEX-32




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##### 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 24,
    
    August 25,
    
    August 24,
    
    August 25,2007
    
    2006
    
    2007
    
    2006Net sales
    
    $
    365,821
    
    
    $
    357,483
    
    
    $
    783,834
    
    
    $
    761,653Other revenue
    
    
    11,606
    
    
    
    14,044
    
    
    
    13,558
    
    
    
    15,485Total revenue
    
    
    377,427
    
    
    
    371,527
    
    
    
    797,392
    
    
    
    777,138Material, labor and other production costs
    
    
    163,052
    
    
    
    172,808
    
    
    
    324,180
    
    
    
    348,045Selling, distribution and marketing expenses
    
    
    144,584
    
    
    
    151,475
    
    
    
    285,275
    
    
    
    294,055Administrative and general expenses
    
    
    55,938
    
    
    
    56,881
    
    
    
    117,810
    
    
    
    118,229Other operating income  net
    
    
    (320
    )
    
    
    (93
    )
    
    
    (680
    )
    
    
    (422
    )Operating income (loss)
    
    
    14,173
    
    
    
    (9,544
    )
    
    
    70,807
    
    
    
    17,231Interest expense
    
    
    4,839
    
    
    
    7,609
    
    
    
    9,596
    
    
    
    20,073Interest income
    
    
    (2,227
    )
    
    
    (2,628
    )
    
    
    (3,719
    )
    
    
    (5,458
    )Other non-operating income  net
    
    
    (1,352
    )
    
    
    (642
    )
    
    
    (2,896
    )
    
    
    (2,902
    )Income (loss) from continuing operations
before income tax expense (benefit)
    
    
    12,913
    
    
    
    (13,883
    )
    
    
    67,826
    
    
    
    5,518Income tax expense (benefit)
    
    
    4,187
    
    
    
    (1,326
    )
    
    
    28,478
    
    
    
    1,525Income (loss) from continuing operations
    
    
    8,726
    
    
    
    (12,557
    )
    
    
    39,348
    
    
    
    3,993(Loss) income from discontinued operations,
net of tax
    
    
    (351
    )
    
    
    2,059
    
    
    
    (923
    )
    
    
    901Net income (loss)
    
    $
    8,375
    
    
    $
    (10,498
    )
    
    $
    38,425
    
    
    $
    4,894Earnings (loss) per share  basic:Income (loss) from continuing operations
    
    $
    0.16
    
    
    $
    (0.22
    )
    
    $
    0.71
    
    
    $
    0.06(Loss) income from discontinued operations
    
    
    (0.01
    )
    
    
    0.04
    
    
    
    (0.02
    )
    
    
    0.02Net income (loss)
    
    $
    0.15
    
    
    $
    (0.18
    )
    
    $
    0.69
    
    
    $
    0.08Earnings (loss) per share  assuming dilution:Income (loss) from continuing operations
    
    $
    0.16
    
    
    $
    (0.22
    )
    
    $
    0.71
    
    
    $
    0.06(Loss) income from discontinued operations
    
    
    (0.01
    )
    
    
    0.04
    
    
    
    (0.02
    )
    
    
    0.02Net income (loss)
    
    $
    0.15
    
    
    $
    (0.18
    )
    
    $
    0.69
    
    
    $
    0.08Average number of shares outstanding
    
    
    55,766,802
    
    
    
    58,133,066
    
    
    
    55,514,759
    
    
    
    58,135,148Average number of shares outstanding
 assuming dilution
    
    
    56,180,165
    
    
    
    58,133,066
    
    
    
    55,902,189
    
    
    
    59,990,069Dividends declared per share
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.20
    
    
    $
    0.16
  3




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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)
 (Unaudited)
    
    (Note 1)
    
    (Unaudited)August 24, 2007
    
    February 28, 2007
    
    August 25, 2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    192,450
    
    
    $
    144,713
    
    
    $
    89,113Trade accounts receivable, net
    
    
    71,195
    
    
    
    103,992
    
    
    
    87,926Inventories
    
    
    248,176
    
    
    
    182,618
    
    
    
    273,788Deferred and refundable income taxes
    
    
    66,399
    
    
    
    135,379
    
    
    
    170,472Assets of businesses held for sale
    
    
    2,434
    
    
    
    5,199
    
    
    
    12,648Prepaid expenses and other
    
    
    215,369
    
    
    
    227,380
    
    
    
    194,291Total current assets
    
    
    796,023
    
    
    
    799,281
    
    
    
    828,238Goodwill
    
    
    226,920
    
    
    
    224,105
    
    
    
    214,969Other assets
    
    
    402,931
    
    
    
    416,887
    
    
    
    549,931Deferred and refundable income taxes
    
    
    98,968
    
    
    
    52,869
    
    
    
    -Property, plant and equipment  at cost
    
    
    950,273
    
    
    
    944,534
    
    
    
    967,253Less accumulated depreciation
    
    
    672,602
    
    
    
    659,462
    
    
    
    665,936Property, plant and equipment  net
    
    
    277,671
    
    
    
    285,072
    
    
    
    301,317$
    1,802,513
    
    
    $
    1,778,214
    
    
    $
    1,894,455LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesDebt due within one year
    
    $
    22,690
    
    
    $
    -
    
    
    $
    20,000Accounts payable
    
    
    126,341
    
    
    
    118,204
    
    
    
    127,619Accrued liabilities
    
    
    70,880
    
    
    
    80,389
    
    
    
    76,071Accrued compensation and benefits
    
    
    50,397
    
    
    
    61,192
    
    
    
    48,932Income taxes
    
    
    1,457
    
    
    
    26,385
    
    
    
    8,364Liabilities of businesses held for sale
    
    
    1,283
    
    
    
    1,932
    
    
    
    639Other current liabilities
    
    
    97,765
    
    
    
    84,898
    
    
    
    100,517Total current liabilities
    
    
    370,813
    
    
    
    373,000
    
    
    
    382,142Long-term debt
    
    
    200,988
    
    
    
    223,915
    
    
    
    224,078Other liabilities
    
    
    147,496
    
    
    
    162,410
    
    
    
    101,744Deferred income taxes and noncurrent income
taxes payable
    
    
    29,930
    
    
    
    6,315
    
    
    
    25,775Shareholders equityCommon shares  Class A
    
    
    51,497
    
    
    
    50,839
    
    
    
    56,858Common shares  Class B
    
    
    4,291
    
    
    
    4,283
    
    
    
    4,226Capital in excess of par value
    
    
    439,985
    
    
    
    414,859
    
    
    
    412,919Treasury stock
    
    
    (720,027
    )
    
    
    (710,414
    )
    
    
    (569,143
    )Accumulated other comprehensive income (loss)
    
    
    10,690
    
    
    
    (1,013
    )
    
    
    29,726Retained earnings
    
    
    1,266,850
    
    
    
    1,254,020
    
    
    
    1,226,130Total shareholders equity
    
    
    1,053,286
    
    
    
    1,012,574
    
    
    
    1,160,716$
    1,802,513
    
    
    $
    1,778,214
    
    
    $
    1,894,455
  4




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AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
 (Unaudited)Six Months EndedAugust 24, 2007
    
    August 25, 2006OPERATING ACTIVITIES:Net income
    
    $
    38,425
    
    
    $
    4,894Loss (income) from discontinued operations
    
    
    923
    
    
    
    (901
    )Income from continuing operations
    
    
    39,348
    
    
    
    3,993Adjustments to reconcile to net cash provided by operating activities:Net gain on disposal of fixed assets
    
    
    (41
    )
    
    
    (24
    )Loss on extinguishment of debt
    
    
    -
    
    
    
    4,972Depreciation and amortization
    
    
    23,919
    
    
    
    24,823Deferred income taxes
    
    
    14,335
    
    
    
    15,532Other non-cash charges
    
    
    3,861
    
    
    
    7,016Changes in operating assets and liabilities, net of acquisitions and
dispositions:Decrease in trade accounts receivable
    
    
    33,385
    
    
    
    55,353Increase in inventories
    
    
    (61,980
    )
    
    
    (57,101
    )Increase in other current assets
    
    
    (2,750
    )
    
    
    (24,196
    )Decrease in deferred costs  net
    
    
    28,451
    
    
    
    26,787Decrease in accounts payable and other liabilities
    
    
    (23,400
    )
    
    
    (33,170
    )Other  net
    
    
    2,952
    
    
    
    4,152Cash Provided by Operating Activities
    
    
    58,080
    
    
    
    28,137INVESTING ACTIVITIES:Proceeds from sale of short-term investments
    
    
    480,630
    
    
    
    1,026,280Purchases of short-term investments
    
    
    (480,630
    )
    
    
    (817,540
    )Property, plant and equipment additions
    
    
    (13,577
    )
    
    
    (18,708
    )Cash payments for business acquisitions
    
    
    (6,056
    )
    
    
    (11,154
    )Cash receipts related to discontinued operations
    
    
    3,419
    
    
    
    9,559Proceeds from sale of fixed assets
    
    
    1,105
    
    
    
    461Cash (Used) Provided by Investing Activities
    
    
    (15,109
    )
    
    
    188,898FINANCING ACTIVITIES:Increase in long-term debt
    
    
    -
    
    
    
    200,000Reduction of long-term debt
    
    
    -
    
    
    
    (440,505
    )Increase in short-term debt
    
    
    -
    
    
    
    20,000Sale of stock under benefit plans
    
    
    24,250
    
    
    
    2,804Purchase of treasury shares
    
    
    (11,883
    )
    
    
    (108,674
    )Dividends to shareholders
    
    
    (11,115
    )
    
    
    (9,164
    )Debt issuance costs
    
    
    -
    
    
    
    (8,136
    )Cash Provided (Used) by Financing Activities
    
    
    1,252
    
    
    
    (343,675
    )DISCONTINUED OPERATIONS:Cash used by operating activities from discontinued operations
    
    
    (789
    )
    
    
    (2,296
    )Cash provided by investing activities from discontinued operations
    
    
    -
    
    
    
    1,656Cash Used by Discontinued Operations
    
    
    (789
    )
    
    
    (640
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    4,303
    
    
    
    2,780INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    47,737
    
    
    
    (124,500
    )Cash and Cash Equivalents at Beginning of Year
    
    
    144,713
    
    
    
    213,613Cash and Cash Equivalents at End of Period
    
    $
    192,450
    
    
    $
    89,113
  5




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AMERICAN GREETINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three and Six Months Ended August 24, 2007 and August 25, 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
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Other operating income  net
    
    $
    (320
    )
    
    $
    (93
    )
    
    $
    (680
    )
    
    $
    (422
    )Foreign exchange gain
    
    $
    (1,149
    )
    
    $
    (311
    )
    
    $
    (2,269
    )
    
    $
    (1,738
    )Rental income
    
    
    (277
    )
    
    
    (251
    )
    
    
    (675
    )
    
    
    (783
    )Other
    
    
    74
    
    
    
    (80
    )
    
    
    48
    
    
    
    (381
    )Other non-operating income  net
    
    $
    (1,352
    )
    
    $
    (642
    )
    
    $
    (2,896
    )
    
    $
    (2,902
    )
  Note 5  Earnings (Loss) Per Share
  Three Months Ended
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,2007
    
    2006
    
    2007
    
    2006Numerator (in thousands):Income (loss) from continuing operations
    
    $
    8,726
    
    
    $
    (12,557
    )
    
    $
    39,348
    
    
    $
    3,993Denominator (in thousands):Weighted average shares outstanding
    
    
    55,767
    
    
    
    58,133
    
    
    
    55,515
    
    
    
    58,135Effect of dilutive securities:Convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,460Stock options and other
    
    
    413
    
    
    
    
    
    
    
    387
    
    
    
    395Weighted average shares outstanding
 assuming dilution
    
    
    56,180
    
    
    
    58,133
    
    
    
    55,902
    
    
    
    59,990Income (loss) from continuing
operations per share
    
    $
    0.16
    
    
    $
    (0.22
    )
    
    $
    0.71
    
    
    $
    0.06Income (loss) from continuing
operations per share  assuming
dilution
    
    $
    0.16
    
    
    $
    (0.22
    )
    
    $
    0.71
    
    
    $
    0.06
  7




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Note 6  Comprehensive Income (Loss)
  Three Months Ended
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net income (loss)
    
    $
    8,375
    
    
    $
    (10,498
    )
    
    $
    38,425
    
    
    $
    4,894Other comprehensive income (loss):Foreign currency translation
adjustment and other
    
    
    4,661
    
    
    
    5,821
    
    
    
    11,704
    
    
    
    19,878Unrealized (loss) gain on securities
    
    
    (1
    )
    
    
    (47
    )
    
    
    (1
    )
    
    
    25Total comprehensive income (loss)
    
    $
    13,035
    
    
    $
    (4,724
    )
    
    $
    50,128
    
    
    $
    24,797
 Note 7  Trade Accounts Receivable, Net
  (In thousands)
    
    August 24, 2007
    
    February 28, 2007
    
    August 25, 2006Allowance for seasonal sales returns
    
    $
    38,530
    
    
    $
    62,567
    
    
    $
    40,226Allowance for doubtful accounts
    
    
    5,118
    
    
    
    6,350
    
    
    
    8,655Allowance for cooperative
advertising and marketing funds
    
    
    27,643
    
    
    
    24,048
    
    
    
    26,883Allowance for rebates
    
    
    35,397
    
    
    
    40,053
    
    
    
    49,009$
    106,688
    
    
    $
    133,018
    
    
    $
    124,773
 Note 8  Inventories
 (In thousands)
    
    August 24, 2007
    
    February 28, 2007
    
    August 25, 2006Raw materials
    
    $
    21,038
    
    
    $
    17,590
    
    
    $
    25,943Work in process
    
    
    16,781
    
    
    
    11,315
    
    
    
    16,006Finished products
    
    
    264,006
    
    
    
    207,676
    
    
    
    286,161301,825
    
    
    
    236,581
    
    
    
    328,110Less LIFO reserve
    
    
    81,332
    
    
    
    79,145
    
    
    
    80,686220,493
    
    
    
    157,436
    
    
    
    247,424Display materials and factory supplies
    
    
    27,683
    
    
    
    25,182
    
    
    
    26,364$
    248,176
    
    
    $
    182,618
    
    
    $
    273,788
  8




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Note 9  Deferred Costs
  (In thousands)
    
    August 24, 2007
    
    February 28, 2007
    
    August 25, 2006Prepaid expenses and other
    
    $
    115,382
    
    
    $
    131,972
    
    
    $
    133,992Other assets
    
    
    338,932
    
    
    
    355,115
    
    
    
    471,430Deferred cost assets
    
    
    454,314
    
    
    
    487,087
    
    
    
    605,422Other current liabilities
    
    
    (62,290
    )
    
    
    (47,692
    )
    
    
    (64,590
    )Other liabilities
    
    
    (29,489
    )
    
    
    (49,648
    )
    
    
    (50,138
    )Deferred cost liabilities
    
    
    (91,779
    )
    
    
    (97,340
    )
    
    
    (114,728
    )Net deferred costs
    
    $
    362,535
    
    
    $
    389,747
    
    
    $
    490,694
 Note 10  Debt
  (In thousands)
    
    August 24, 2007
    
    February 28, 2007
    
    August 25, 20066.10% Senior Notes, due 2028
    
    $
    
    
    
    $
    22,690
    
    
    $
    22,6247.375% Senior Notes, due 2016
    
    
    200,000
    
    
    
    200,000
    
    
    
    200,000Other
    
    
    988
    
    
    
    1,225
    
    
    
    1,454$
    200,988
    
    
    $
    223,915
    
    
    $
    224,078
     9




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##### Table of Contents



Note 11  Retirement Benefits
  Defined Benefit PensionThree Months Ended
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    245
    
    
    $
    202
    
    
    $
    489
    
    
    $
    414Interest cost
    
    
    2,255
    
    
    
    2,417
    
    
    
    4,520
    
    
    
    4,521Expected return on plan assets
    
    
    (2,182
    )
    
    
    (2,213
    )
    
    
    (4,336
    )
    
    
    (4,321
    )Settlement
    
    
    1,067
    
    
    
    
    
    
    
    1,067
    
    
    
    Amortization of prior service cost
    
    
    69
    
    
    
    66
    
    
    
    133
    
    
    
    133Amortization of actuarial loss
    
    
    406
    
    
    
    590
    
    
    
    816
    
    
    
    1,351$
    1,860
    
    
    $
    1,062
    
    
    $
    2,689
    
    
    $
    2,098
 Postretirement BenefitThree Months Ended
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    1,050
    
    
    $
    999
    
    
    $
    2,100
    
    
    $
    1,998Interest cost
    
    
    2,150
    
    
    
    1,925
    
    
    
    4,300
    
    
    
    3,850Expected return on plan assets
    
    
    (1,250
    )
    
    
    (1,275
    )
    
    
    (2,500
    )
    
    
    (2,550
    )Amortization of prior service credit
    
    
    (1,850
    )
    
    
    (1,849
    )
    
    
    (3,700
    )
    
    
    (3,698
    )Amortization of actuarial loss
    
    
    1,650
    
    
    
    1,700
    
    
    
    3,300
    
    
    
    3,400$
    1,750
    
    
    $
    1,500
    
    
    $
    3,500
    
    
    $
    3,000
    Note 12  Income Taxes
  10




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##### Table of Contents



Note 13  Business Segment Information
        11




---



##### Table of Contents



Operating Segment Information
 Three Months Ended
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,(In thousands)
    
    2007
    
    2006
    
    2007
    
    2006Total Revenue:North American Social
Expression Products
    
    $
    255,881
    
    
    $
    244,220
    
    
    $
    552,975
    
    
    $
    537,183Intersegment items
    
    
    (13,942
    )
    
    
    (15,310
    )
    
    
    (22,109
    )
    
    
    (32,858
    )Exchange rate adjustment
    
    
    1,341
    
    
    
    170
    
    
    
    1,346
    
    
    
    107Net
    
    
    243,280
    
    
    
    229,080
    
    
    
    532,212
    
    
    
    504,432International Social
Expression Products
    
    
    59,390
    
    
    
    62,385
    
    
    
    119,044
    
    
    
    126,493Exchange rate adjustment
    
    
    5,257
    
    
    
    (59
    )
    
    
    9,352
    
    
    
    (2,321
    )Net
    
    
    64,647
    
    
    
    62,326
    
    
    
    128,396
    
    
    
    124,172Retail Operations
    
    
    37,382
    
    
    
    39,453
    
    
    
    76,306
    
    
    
    82,954Exchange rate adjustment
    
    
    1,069
    
    
    
    183
    
    
    
    1,073
    
    
    
    121Net
    
    
    38,451
    
    
    
    39,636
    
    
    
    77,379
    
    
    
    83,075AG Interactive
    
    
    17,158
    
    
    
    20,447
    
    
    
    37,052
    
    
    
    40,488Exchange rate adjustment
    
    
    (2
    )
    
    
    40
    
    
    
    1
    
    
    
    45Net
    
    
    17,156
    
    
    
    20,487
    
    
    
    37,053
    
    
    
    40,533Non-reportable segments
    
    
    13,885
    
    
    
    19,936
    
    
    
    22,268
    
    
    
    24,831Unallocated
    
    
    8
    
    
    
    62
    
    
    
    84
    
    
    
    95$
    377,427
    
    
    $
    371,527
    
    
    $
    797,392
    
    
    $
    777,138Segment Earnings (Loss):North American Social
Expression Products
    
    $
    40,799
    
    
    $
    15,417
    
    
    $
    127,739
    
    
    $
    83,578Intersegment items
    
    
    (10,467
    )
    
    
    (10,919
    )
    
    
    (16,722
    )
    
    
    (23,829
    )Exchange rate adjustment
    
    
    798
    
    
    
    82
    
    
    
    803
    
    
    
    49Net
    
    
    31,130
    
    
    
    4,580
    
    
    
    111,820
    
    
    
    59,798International Social
Expression Products
    
    
    1,393
    
    
    
    559
    
    
    
    1,433
    
    
    
    1,056Exchange rate adjustment
    
    
    200
    
    
    
    18
    
    
    
    347
    
    
    
    64Net
    
    
    1,593
    
    
    
    577
    
    
    
    1,780
    
    
    
    1,120Retail Operations
    
    
    (6,484
    )
    
    
    (9,071
    )
    
    
    (9,265
    )
    
    
    (16,372
    )Exchange rate adjustment
    
    
    (3
    )
    
    
    (5
    )
    
    
    (3
    )
    
    
    (3
    )Net
    
    
    (6,487
    )
    
    
    (9,076
    )
    
    
    (9,268
    )
    
    
    (16,375
    )AG Interactive
    
    
    3,177
    
    
    
    1,208
    
    
    
    6,473
    
    
    
    3,249Exchange rate adjustment
    
    
    (8
    )
    
    
    2
    
    
    
    (17
    )
    
    
    1Net
    
    
    3,169
    
    
    
    1,210
    
    
    
    6,456
    
    
    
    3,250Non-reportable segments
    
    
    2,035
    
    
    
    6,735
    
    
    
    2,962
    
    
    
    4,640Unallocated
    
    
    (18,456
    )
    
    
    (17,856
    )
    
    
    (45,849
    )
    
    
    (46,762
    )Exchange rate adjustment
    
    
    (71
    )
    
    
    (53
    )
    
    
    (75
    )
    
    
    (153
    )Net
    
    
    (18,527
    )
    
    
    (17,909
    )
    
    
    (45,924
    )
    
    
    (46,915
    )$
    12,913
    
    
    $
    (13,883
    )
    
    $
    67,826
    
    
    $
    5,518
 12




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##### Table of Contents



Termination Benefits and Plant Closings
   Deferred Revenue
  Note 14  Discontinued Operations
      Three Months Ended
    
    Six Months EndedAugust 24,
    
    August 25,
    
    August 24,
    
    August 25,2007
    
    2006
    
    2007
    
    2006Total revenue
    
    $
    57
    
    
    $
    2,979
    
    
    $
    359
    
    
    $
    9,153Pre-tax loss from operations
    
    $
    (349
    )
    
    $
    (828
    )
    
    $
    (754
    )
    
    $
    (1,983
    )Gain on sale
    
    
    
    
    
    
    684
    
    
    
    195
    
    
    
    684(349
    )
    
    
    (144
    )
    
    
    (559
    )
    
    
    (1,299
    )Income tax expense (benefit)
    
    
    2
    
    
    
    (2,203
    )
    
    
    364
    
    
    
    (2,200
    )(Loss) income from discontinued
operations, net of tax
    
    $
    (351
    )
    
    $
    2,059
    
    
    $
    (923
    )
    
    $
    901
 13




---



##### Table of Contents



(In thousands)
    
    August 24, 2007
    
    February 28, 2007
    
    August 25, 2006Assets of businesses held for sale:Current assets
    
    $
    10
    
    
    $
    2,933
    
    
    $
    8,777Other assets
    
    
    2,352
    
    
    
    2,185
    
    
    
    3,668Fixed assets
    
    
    72
    
    
    
    81
    
    
    
    203$
    2,434
    
    
    $
    5,199
    
    
    $
    12,648Liabilities of businesses held for sale:Current liabilities
    
    $
    58
    
    
    $
    610
    
    
    $
    519Noncurrent liabilities
    
    
    1,225
    
    
    
    1,322
    
    
    
    120$
    1,283
    
    
    $
    1,932
    
    
    $
    639
  14




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##### Table of Contents



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




---



##### Table of Contents



Results of Operations
 Three months ended August 24, 2007 and August 25, 2006
   % Total
    
    
    
    
    
    % Total(Dollars in thousands)
    

2007
    
    Revenue
    
    2006
    
    RevenueNet sales
    
    $
    365,821
    
    
    
    96.9
    %
    
    $
    357,483
    
    
    
    96.2
    %Other revenue
    
    
    11,606
    
    
    
    3.1
    %
    
    
    14,044
    
    
    
    3.8
    %Total revenue
    
    
    377,427
    
    
    
    100.0
    %
    
    
    371,527
    
    
    
    100.0
    %Material, labor and other production costs
    
    
    163,052
    
    
    
    43.2
    %
    
    
    172,808
    
    
    
    46.5
    %Selling, distribution and marketing expenses
    
    
    144,584
    
    
    
    38.3
    %
    
    
    151,475
    
    
    
    40.8
    %Administrative and general expenses
    
    
    55,938
    
    
    
    14.8
    %
    
    
    56,881
    
    
    
    15.3
    %Other operating income  net
    
    
    (320
    )
    
    
    (0.1
    %)
    
    
    (93
    )
    
    
    (0.0
    %)Operating income (loss)
    
    
    14,173
    
    
    
    3.8
    %
    
    
    (9,544
    )
    
    
    (2.6
    %)Interest expense
    
    
    4,839
    
    
    
    1.3
    %
    
    
    7,609
    
    
    
    2.0
    %Interest income
    
    
    (2,227
    )
    
    
    (0.6
    %)
    
    
    (2,628
    )
    
    
    (0.7
    %)Other non-operating income  net
    
    
    (1,352
    )
    
    
    (0.3
    %)
    
    
    (642
    )
    
    
    (0.2
    %)Income (loss) from continuing operations before
income tax expense (benefit)
    
    
    12,913
    
    
    
    3.4
    %
    
    
    (13,883
    )
    
    
    (3.7
    %)Income tax expense (benefit)
    
    
    4,187
    
    
    
    1.1
    %
    
    
    (1,326
    )
    
    
    (0.3
    %)Income (loss) from continuing operations
    
    
    8,726
    
    
    
    2.3
    %
    
    
    (12,557
    )
    
    
    (3.4
    %)(Loss) income from discontinued operations,
net of tax
    
    
    (351
    )
    
    
    (0.1
    %)
    
    
    2,059
    
    
    
    0.6
    %Net income (loss)
    
    $
    8,375
    
    
    
    2.2
    %
    
    $
    (10,498
    )
    
    
    (2.8
    %)
     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
    
    
    19.5%
    
    
    
    (18.8%
    )
    
    
    24.0%
    
    
    
    (13.5%
    )
    
    
    20.2%
    
    
    
    (18.1%
    )Selling prices
    
    
    (9.6%
    )
    
    
    12.3%
    
    
    
    (12.8%
    )
    
    
    15.0%
    
    
    
    (10.1%
    )
    
    
    12.7%Overall increase / (decrease)
    
    
    8.1%
    
    
    
    (8.9%
    )
    
    
    8.2%
    
    
    
    (0.5%
    )
    
    
    8.1%
    
    
    
    (7.8%
    )
    Expense Overview
   17




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##### Table of Contents



Results of Operations
 Six months ended August 24, 2007 and August 25, 2006
   % Total
    
    
    
    
    
    % Total(Dollars in thousands)
    
    2007
    
    Revenue
    
    2006
    
    RevenueNet sales
    
    $
    783,834
    
    
    
    98.3
    %
    
    $
    761,653
    
    
    
    98.0
    %Other revenue
    
    
    13,558
    
    
    
    1.7
    %
    
    
    15,485
    
    
    
    2.0
    %Total revenue
    
    
    797,392
    
    
    
    100.0
    %
    
    
    777,138
    
    
    
    100.0
    %Material, labor and other production costs
    
    
    324,180
    
    
    
    40.6
    %
    
    
    348,045
    
    
    
    44.8
    %Selling, distribution and marketing expenses
    
    
    285,275
    
    
    
    35.8
    %
    
    
    294,055
    
    
    
    37.9
    %Administrative and general expenses
    
    
    117,810
    
    
    
    14.8
    %
    
    
    118,229
    
    
    
    15.2
    %Other operating income  net
    
    
    (680
    )
    
    
    (0.1
    %)
    
    
    (422
    )
    
    
    (0.1
    %)Operating income
    
    
    70,807
    
    
    
    8.9
    %
    
    
    17,231
    
    
    
    2.2
    %Interest expense
    
    
    9,596
    
    
    
    1.2
    %
    
    
    20,073
    
    
    
    2.6
    %Interest income
    
    
    (3,719
    )
    
    
    (0.5
    %)
    
    
    (5,458
    )
    
    
    (0.7
    %)Other non-operating income  net
    
    
    (2,896
    )
    
    
    (0.3
    %)
    
    
    (2,902
    )
    
    
    (0.4
    %)Income from continuing operations before
income tax expense
    
    
    67,826
    
    
    
    8.5
    %
    
    
    5,518
    
    
    
    0.7
    %Income tax expense
    
    
    28,478
    
    
    
    3.6
    %
    
    
    1,525
    
    
    
    0.2
    %Income from continuing operations
    
    
    39,348
    
    
    
    4.9
    %
    
    
    3,993
    
    
    
    0.5
    %(Loss) income from discontinued operations,
net of tax
    
    
    (923
    )
    
    
    (0.1
    %)
    
    
    901
    
    
    
    0.1
    %Net income
    
    $
    38,425
    
    
    
    4.8
    %
    
    $
    4,894
    
    
    
    0.6
    %
 18




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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
    
    
    13.8%
    
    
    
    (16.1%
    )
    
    
    5.3%
    
    
    
    (0.6%
    )
    
    
    11.4%
    
    
    
    (12.3%
    )Selling prices
    
    
    (7.2%
    )
    
    
    9.6%
    
    
    
    (3.6%
    )
    
    
    2.8%
    
    
    
    (6.2%
    )
    
    
    8.1%Overall increase / (decrease)
    
    
    5.6%
    
    
    
    (8.0%
    )
    
    
    1.6%
    
    
    
    2.2%
    
    
    
    4.4%
    
    
    
    (5.2%
    )
    19




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##### Table of Contents



Expense Overview
      20




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##### Table of Contents



Segment Information
   North American Social Expression Products Segment
 (Dollars in
    
    Three Months Ended August
    
    %
    
    Six Months Ended August
    
    %thousands)
    
    24, 2007
    
    25, 2006
    
    Change
    
    24, 2007
    
    25, 2006
    
    ChangeTotal revenue
    
    $
    241,939
    
    
    $
    228,910
    
    
    
    5.7
    %
    
    $
    530,866
    
    
    $
    504,325
    
    
    
    5.3
    %Segment earnings
    
    
    30,332
    
    
    
    4,498
    
    
    
    574.3
    %
    
    
    111,017
    
    
    
    59,749
    
    
    
    85.8
    %
   21




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##### Table of Contents



International Social Expression Products Segment
 (Dollars in
    
    Three Months Ended August
    
    %
    
    Six Months Ended August
    
    %thousands)
    
    24, 2007
    
    25, 2006
    
    Change
    
    24, 2007
    
    25, 2006
    
    ChangeTotal revenue
    
    $
    59,390
    
    
    $
    62,385
    
    
    
    (4.8
    %)
    
    $
    119,044
    
    
    $
    126,493
    
    
    
    (5.9
    %)Segment earnings
    
    
    1,393
    
    
    
    559
    
    
    
    149.2
    %
    
    
    1,433
    
    
    
    1,056
    
    
    
    35.7
    %
   Retail Operations Segment
 (Dollars in
    
    Three Months Ended August
    
    %
    
    Six Months Ended August
    
    %thousands)
    
    24, 2007
    
    25, 2006
    
    Change
    
    24, 2007
    
    25, 2006
    
    ChangeTotal revenue
    
    $
    37,382
    
    
    $
    39,453
    
    
    
    (5.2
    %)
    
    $
    76,306
    
    
    $
    82,954
    
    
    
    (8.0
    %)Segment loss
    
    
    (6,484
    )
    
    
    (9,071
    )
    
    
    28.5
    %
    
    
    (9,265
    )
    
    
    (16,372
    )
    
    
    43.4
    %
   22




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##### Table of Contents



AG Interactive Segment
 (Dollars in
    
    Three Months Ended August
    
    %
    
    Six Months Ended August
    
    %thousands)
    
    24, 2007
    
    25, 2006
    
    Change
    
    24, 2007
    
    25, 2006
    
    ChangeTotal revenue
    
    $
    17,158
    
    
    $
    20,447
    
    
    
    (16.1
    %)
    
    $
    37,052
    
    
    $
    40,488
    
    
    
    (8.5
    %)Segment earnings
    
    
    3,177
    
    
    
    1,208
    
    
    
    163.0
    %
    
    
    6,473
    
    
    
    3,249
    
    
    
    99.2
    %
   Liquidity and Capital Resources
  Operating Activities
       23




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##### Table of Contents



Investing Activities
  Financing Activities
   Credit Sources
     24




---



##### Table of Contents



Critical Accounting Policies
  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;
    
    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;
    
    successful integration of acquisitions; and
    
    the outcome of any legal claims known or unknown.
   25




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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.
 26




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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 August 24, 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
    
    
    PlansJune 2007
    
    
    Class A 
    
    
    85,000
    
    
    
    $
    25.74
    (2)
    
    
    
    85,000
    (3)
    
    
    
    $94,370,822Class B 
    
    
    52,215
    (1)
    
    
    $
    25.34
    
    
    
    
    -July 2007
    
    
    Class A 
    
    
    15,000
    
    
    
    $
    26.40
    (2)
    
    
    
    15,000
    (3)
    
    
    
    $93,974,871Class B 
    
    
    500
    (1)
    
    
    $
    28.66
    
    
    
    
    -August 2007
    
    
    Class A 
    
    
    180,000
    
    
    
    $
    24.25
    (2)
    
    
    
    180,000
    (3)
    
    
    
    $89,609,721Class B 
    
    
    892
    (1)
    
    
    $
    24.26
    
    
    
    
    -Total
    
    
    Class A 
    
    
    280,000
    
    
    
    
    
    
    
    
    
    280,000
    (3)Class B 
    
    
    53,607
    (1)
    
    
    
    
    
    
    
    
    -
 (1)
    
    There is no public market for our Class B common shares. Pursuant to our Amended Articles of
Incorporation, all of the Class B common shares were repurchased by American Greetings for
cash pursuant to its right of first refusal.(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 4. Submission of Matters to a Vote of Security Holders
  Proposal 1: Election of Directors
   Nominee
    
    Votes For
    
    Votes WithheldScott S. Cowen
    
    
    78,290,924
    
    
    
    5,024,920William E. MacDonald, III
    
    
    82,034,111
    
    
    
    1,281,733Charles A. Ratner
    
    
    79,346,283
    
    
    
    3,969,561Zev Weiss
    
    
    65,379,777
    
    
    
    17,936,067
 27




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##### Table of Contents



Proposal 2: Approval of the American Greetings Corporation 2007 Omnibus Incentive
Compensation Plan
  Votes For
    
    Against
    
    Abstain68,978,959
    
    10,886,573
    
    497,438
 
 Item 6. Exhibits
  ExhibitNumber
    
    Description10.1
    
    Key Management Annual Incentive Plan (Fiscal Year 2008 Description)10.2
    
    Form of Director Stock Agreement under the American Greetings
Corporation 2007 Omnibus Incentive Compensation Plan(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
 
   AMERICAN GREETINGS CORPORATIONBy:
    /s/ Joseph B. CipolloneJoseph B. CipolloneVice President, Corporate
Controller,      and Chief Accounting
Officer*   28