UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


X þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


~~For the quarterly period ended~~	~~August 24, 2007~~

For the quarterly period endedNovember 23, 2007


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~~

For the transition period fromto

Commission file number1-13859

AMERICAN GREETINGS CORPORATION

(Exact name of registrant as specified in its charter)


Ohio		34-0065325

(State or other jurisdiction of incorporation or 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

(Registrant’s telephone number, including area code)

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.

Yes X þ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ~~[x]~~þ Accelerated filer ~~[ ]~~o Non-accelerated filer ~~[ ]~~o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso No X þ

As of ~~September 28,~~December 27, 2007, the number of shares outstanding of each of the issuer’s classes of common stock was:


		~~Class A Common~~			~~51,212,893~~
		~~Class B Common~~			~~4,291,796~~

Class A Common 48,743,833
Class B Common 3,442,145

PART I -— FINANCIAL INFORMATION

Item 1.Financial Statements

AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF ~~OPERATIONS~~INCOME
(Thousands of dollars except share and per share amounts)

(Unaudited)
Three Months Ended Six Months Ended
August 24, August 25, August 24, August 25,
2007 2006 2007 2006
Net sales      $ 365,821      $ 357,483      $ 783,834      $ 761,653
Other revenue 11,606 14,044 13,558 15,485

Total revenue 377,427 371,527 797,392 777,138

Material, labor and other production costs 163,052 172,808 324,180 348,045
Selling, distribution and marketing expenses 144,584 151,475 285,275 294,055
Administrative and general expenses 55,938 56,881 117,810 118,229
Other operating income – net (320 ) (93 ) (680 ) (422 )

Operating income (loss) 14,173 (9,544 ) 70,807 17,231

Interest expense 4,839 7,609 9,596 20,073
Interest 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 5,518
Income tax expense (benefit) 4,187 (1,326 ) 28,478 1,525

Income (loss) from continuing operations 8,726 (12,557 ) 39,348 3,993

(Loss) income from discontinued operations, net of tax (351 ) 2,059 (923 ) 901

Net income (loss)      $ 8,375 $ (10,498 )      $ 38,425      $ 4,894

Earnings (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 ) 0.02

Net income (loss)      $ 0.15 $ (0.18 )      $ 0.69      $ 0.08

Earnings (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 ) 0.02

Net income (loss)      $ 0.15 $ (0.18 )      $ 0.69      $ 0.08

Average number of shares outstanding 55,766,802 58,133,066 55,514,759 58,135,148

Average number of shares outstanding – assuming dilution 56,180,165 58,133,066 55,902,189 59,990,069

Dividends declared per share      $ 0.10      $ 0.08      $ 0.20      $ 0.16


				(Unaudited)
	Three Months Ended						Nine Months Ended
	November 23,			November 24,			November 23,			November 24,
	2007			2006			2007			2006
Net sales	$	474,995		$	510,102		$	1,258,829		$	1,271,755
Other revenue		10,751			11,052			24,309			26,537

Total revenue		485,746			521,154			1,283,138			1,298,292

Material, labor and other production costs		223,329			245,187			547,509			593,232
Selling, distribution and marketing expenses		159,420			157,364			444,695			451,419
Administrative and general expenses		60,481			65,287			178,291			183,516
Other operating income — net		(127	)		(20,541	)		(807	)		(20,963	)


Operating income		42,643			73,857			113,450			91,088

Interest expense		4,835			6,951			14,431			27,024
Interest 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			73,591
Income tax expense		15,017			21,058			43,495			22,583


Income from continuing operations		29,488			47,015			68,836			51,008

(Loss) income from discontinued operations, net of tax		(472	)		2,692			(1,395	)		3,593


Net income	$	29,016		$	49,707		$	67,441		$	54,601


Earnings 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	)		0.06

Net income	$	0.53		$	0.84		$	1.22		$	0.93


Earnings 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	)		0.06

Net income	$	0.52		$	0.83		$	1.21		$	0.88


Average number of shares outstanding		55,022,689			59,502,276			55,350,736			58,590,857

Average number of shares outstanding — assuming dilution		55,466,351			59,902,127			55,726,990			64,361,644

Dividends declared per share	$	0.10		$	0.08		$	0.30		$	0.24

See notes to condensed consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Thousands of dollars)


										(Unaudited)			(Note 1)			(Unaudited)
	(Unaudited)			(Note 1)			(Unaudited)			November 23,			February 28,			November 24,
	August 24, 2007			February 28, 2007			August 25, 2006			2007			2007			2006
ASSETS

Current assets
Cash and cash equivalents	$	192,450		$	144,713		$	89,113		$	71,117		$	144,713		$	86,216
Trade accounts receivable, net		71,195			103,992			87,926			205,702			103,992			239,207
Inventories		248,176			182,618			273,788			239,209			182,618			244,181
Deferred and refundable income taxes		66,399			135,379			170,472			76,568			135,379			160,983
Assets of businesses held for sale		2,434			5,199			12,648			2,216			5,199			13,310
Prepaid expenses and other		215,369			227,380			194,291			213,529			227,380			295,866

Total current assets		796,023			799,281			828,238			808,341			799,281			1,039,763

Goodwill		226,920			224,105			214,969			267,308			224,105			219,093
Other assets		402,931			416,887			549,931			389,324			416,887			459,269
Deferred and refundable income taxes		98,968			52,869			-			111,959			52,869			—

Property, plant and equipment – at cost		950,273			944,534			967,253
Property, plant and equipment — at cost											975,721			944,534			968,755
Less accumulated depreciation		672,602			659,462			665,936			684,170			659,462			668,524

Property, plant and equipment – net		277,671			285,072			301,317
Property, plant and equipment — net											291,551			285,072			300,231

	$	1,802,513		$	1,778,214		$	1,894,455		$	1,868,483		$	1,778,214		$	2,018,356


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Debt due within one year	$	22,690		$	-		$	20,000		$	46,490		$	—		$	142,000
Accounts payable		126,341			118,204			127,619			131,099			118,204			126,956
Accrued liabilities		70,880			80,389			76,071			89,751			80,389			91,108
Accrued compensation and benefits		50,397			61,192			48,932			58,969			61,192			58,720
Income taxes		1,457			26,385			8,364			31,255			26,385			17,412
Liabilities of businesses held for sale		1,283			1,932			639			1,383			1,932			1,629
Other current liabilities		97,765			84,898			100,517			96,896			84,898			91,162

Total current liabilities		370,813			373,000			382,142			455,843			373,000			528,987

Long-term debt		200,988			223,915			224,078			200,975			223,915			223,985
Other liabilities		147,496			162,410			101,744			149,869			162,410			101,003
Deferred income taxes and noncurrent income taxes payable		29,930			6,315			25,775			31,877			6,315			25,306

Shareholders’ equity
Common shares – Class A		51,497			50,839			56,858
Common shares – Class B		4,291			4,283			4,226
Common shares — Class A											49,929			50,839			53,775
Common shares — Class B											3,442			4,283			4,224
Capital in excess of par value		439,985			414,859			412,919			443,326			414,859			417,444
Treasury stock		(720,027	)		(710,414	)		(569,143	)		(780,044	)		(710,414	)		(643,540	)
Accumulated other comprehensive income (loss)		10,690			(1,013	)		29,726			22,982			(1,013	)		36,067
Retained earnings		1,266,850			1,254,020			1,226,130			1,290,284			1,254,020			1,271,105

Total shareholders’ equity		1,053,286			1,012,574			1,160,716			1,029,919			1,012,574			1,139,075

	$	1,802,513		$	1,778,214		$	1,894,455		$	1,868,483		$	1,778,214		$	2,018,356

AMERICAN GREETINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)


	(Unaudited)						(Unaudited)
	Six Months Ended						Nine Months Ended
	August 24, 2007			August 25, 2006			November 23, 2007			November 24, 2006
OPERATING ACTIVITIES:
Net income	$	38,425		$	4,894		$	67,441		$	54,601
Loss (income) from discontinued operations		923			(901	)		1,395			(3,593	)

Income from continuing operations		39,348			3,993			68,836			51,008
Adjustments to reconcile to net cash provided by operating activities:
Net gain on disposal of fixed assets		(41	)		(24	)
Adjustments to reconcile to net cash provided (used) by operating activities:
Net (gain) loss on disposal of fixed assets								(481	)		754
Loss on extinguishment of debt		-			4,972			—			5,055
Depreciation and amortization		23,919			24,823			36,002			37,229
Deferred income taxes		14,335			15,532			(7,994	)		5,827
Other non-cash charges		3,861			7,016			5,719			9,180
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Decrease in trade accounts receivable		33,385			55,353
Increase in trade accounts receivable								(99,268	)		(92,821	)
Increase in inventories		(61,980	)		(57,101	)		(49,911	)		(27,202	)
Increase in other current assets		(2,750	)		(24,196	)
Decrease in deferred costs – net		28,451			26,787
Decrease in accounts payable and other liabilities		(23,400	)		(33,170	)
Other – net		2,952			4,152
Decrease (increase) in other current assets								18,090			(96,250	)
Decrease in deferred costs — net								29,338			110,076
Increase (decrease) in accounts payable and other liabilities								38,295			(5,894	)
Other — net								4,718			(6,265	)

Cash Provided by Operating Activities		58,080			28,137
Cash Provided (Used) by Operating Activities								43,344			(9,303	)

INVESTING ACTIVITIES:
Proceeds from sale of short-term investments		480,630			1,026,280			692,985			1,026,280
Purchases of short-term investments		(480,630	)		(817,540	)		(692,985	)		(817,540	)
Property, plant and equipment additions		(13,577	)		(18,708	)		(37,394	)		(29,600	)
Cash payments for business acquisitions		(6,056	)		(11,154	)
Cash payments for business acquisitions, net of cash acquired								(51,256	)		(11,154	)
Cash receipts related to discontinued operations		3,419			9,559			4,283			12,559
Proceeds from sale of fixed assets		1,105			461			2,656			695

Cash (Used) Provided by Investing Activities		(15,109	)		188,898			(81,711	)		181,240

FINANCING ACTIVITIES:
Increase in long-term debt		-			200,000			—			200,000
Reduction of long-term debt		-			(440,505	)		—			(440,588	)
Increase in short-term debt		-			20,000			23,800			142,000
Sale of stock under benefit plans		24,250			2,804			26,198			5,630
Purchase of treasury shares		(11,883	)		(108,674	)		(74,572	)		(186,331	)
Dividends to shareholders		(11,115	)		(9,164	)		(16,657	)		(13,909	)
Debt issuance costs		-			(8,136	)		—			(8,344	)

Cash Provided (Used) by Financing Activities		1,252			(343,675	)
Cash Used by Financing Activities								(41,231	)		(301,542	)

DISCONTINUED OPERATIONS:
Cash used by operating activities from discontinued operations		(789	)		(2,296	)		(839	)		(2,377	)
Cash provided by investing activities from discontinued operations		-			1,656			—			1,656

Cash Used by Discontinued Operations		(789	)		(640	)		(839	)		(721	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		4,303			2,780			6,841			2,929

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		47,737			(124,500	)
DECREASE IN CASH AND CASH EQUIVALENTS								(73,596	)		(127,397	)

Cash and Cash Equivalents at Beginning of Year		144,713			213,613			144,713			213,613

Cash and Cash Equivalents at End of Period	$	192,450		$	89,113		$	71,117		$	86,216

AMERICAN GREETINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and ~~Six~~Nine Months Ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006

Note 1 –— Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Greetings Corporation and its subsidiaries (the “Corporation”) 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 periods have been included.

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, 2007 refers to the year ended February 28, 2007.

These interim financial statements should be read in conjunction with the Corporation’s financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended February 28, 2007, from which the Condensed Consolidated Statement of Financial Position at February 28, 2007, presented herein, has been derived. Certain amounts in the prior year financial statements have been reclassified to reflect certain business units as discontinued operations and adjusted to reflect the Corporation’s adoption of Staff Accounting Bulletin No. 108 (“SAB 108”). The opening balance of retained earnings in 2007 was adjusted $5.2 million ($3.3 million after-tax) to record the correction of the overstatement of the allowance for rebates (correspondingly, an understatement of net income of prior periods) pursuant to the special transition provision detailed in SAB 108.

Certain amounts in the prior year financial statements have also been reclassified to conform to the 2008 presentation. Previously included in “Other income –— net,” royalty revenue is now reported as “Other revenue” and interest income is now included as a separate line item on the Condensed Consolidated Statement of ~~Operations.~~Income. The remaining items previously included in “Other income –— net” have been segregated between operating and non-operating.

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 ~~June~~July 2006, the Financial Accounting Standards Board (the “FASB”) ratified Emerging Issues Task Force Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” The scope of EITF 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer. This issue provides that a company may adopt a policy of presenting taxes either gross within revenue or net. If taxes subject to this issue are significant, a company is required to disclose its accounting policy for presenting taxes and the amount of such taxes that are recognized on a gross basis. EITF 06-3 is effective for the first interim or annual reporting period beginning after December 15, 2006. The adoption of EITF 06-3 during the first quarter of fiscal 2008 had no material impact on the consolidated financial statements.

~~In July 2006, the FASB~~ issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes –— an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertain tax positions recognized in a company’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” including what criteria must be met prior to recognition of the financial statement benefit of a position taken or expected to be taken in a tax return. FIN 48 requires a company to include additional qualitative and quantitative disclosures within its financial statements. The disclosures include

potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each annual period. The disclosures also include a discussion of the nature of uncertainties, factors that could cause a change and an estimated range of reasonably possible changes in tax uncertainties. FIN 48 requires a company to recognize a financial statement benefit for a position taken for tax return purposes when it is more likely than not that the position will be sustained. The cumulative effect of adopting FIN 48 is recorded as an adjustment to the opening balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Corporation adopted FIN 48 on March 1, 2007. See Note 12.

In September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements,” which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about

fair value measurements. In November 2007, the FASB agreed to defer the effective date of SFAS 157 for non-financial assets and liabilities until fiscal years and interim periods beginning after November 15, 2008. SFAS 157 is still effective for the Corporation in fiscal 2009 for financial assets and liabilities. The provisions of SFAS 157 will be applied prospectively. The Corporation is currently evaluating the impact that SFAS 157 will have on its consolidated financial statements upon adoption.

Note 4 –— Other Income and Expense


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	August 24,			August 25,			August 24,			August 25,			November 23,			November 24,			November 23,			November 24,
(In thousands)	2007			2006			2007			2006			2007			2006			2007			2006
Other operating income – net	$	(320	)	$	(93	)	$	(680	)	$	(422	)
Gain 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	$	(1,149	)	$	(311	)	$	(2,269	)	$	(1,738	)	$	(4,054	)	$	(610	)	$	(6,323	)	$	(2,348	)
Rental income		(277	)		(251	)		(675	)		(783	)		(274	)		(261	)		(949	)		(1,044	)
Other		74			(80	)		48			(381	)		(254	)		962			(206	)		581

Other non-operating income – net	$	(1,352	)	$	(642	)	$	(2,896	)	$	(2,902	)
Other non-operating (income) expense — net													$	(4,582	)	$	91		$	(7,478	)	$	(2,811	)

~~assuming dilution, as the effect would have been antidilutive due to the net loss in the period.~~ The convertible debt was retired during the second quarter of 2007.

Note 6 –— Comprehensive Income ~~(Loss)~~

The Corporation’s total comprehensive income ~~(loss)~~ is as follows:


	Three Months Ended						Six Months Ended					Three Months Ended				Nine Months Ended
	August 24,			August 25,			August 24,			August 25,		November 23,		November 24,		November 23,			November 24,
(In thousands)	2007			2006			2007			2006		2007		2006		2007			2006
Net income (loss)	$	8,375		$	(10,498	)	$	38,425		$	4,894
Net income												$	29,016	$	49,707	$	67,441		$	54,601

Other comprehensive income (loss):
Foreign currency translation adjustment and other		4,661			5,821			11,704			19,878		11,614		6,018		23,318			25,896
Unrealized (loss) gain on securities		(1	)		(47	)		(1	)		25
Unrealized gain (loss) on securities													—		323		(1	)		348
Pension and other postretirement benefit plans													678		—		678			—

Total comprehensive income												$	41,308	$	56,048	$	91,436		$	80,845

Total comprehensive income (loss)	$	13,035		$	(4,724	)	$	50,128		$	24,797

decrease approximately $2 million during 2008. The anticipated decrease is primarily due to settlements and resulting cash payments related to open years after 1999, which are currently under examination.

The Corporation recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of March 1, 2007, the Corporation had $8.8 million of gross accrued interest and penalties related to uncertain tax positions. The Corporation is subject to examination by the U.S. Internal Revenue Service (“IRS”) and various U.S. state and local jurisdictions for tax years 1999 to the present. The Corporation is also subject to tax examination in various foreign tax jurisdictions, including Canada, the United Kingdom, Australia, France, Italy, Mexico and New Zealand for tax years 2003 to the present.

During the first quarter of 2008, the Corporation’s net unrecognized tax benefits decreased $1.1 million as the Corporation reached an agreement with the IRS on a significant tax issue that was not anticipated at the beginning of the year. During the second quarter of 2008, the Corporation’s net unrecognized tax benefits increased $2.4 million primarily related to a prior year outstanding tax issue in one of the international jurisdictions in which the Corporation operates. During the third quarter of 2008, the Corporation’s net unrecognized tax benefits increased $1.9 million primarily related to interest accruing on the unrecognized tax benefits.

As of ~~August 24,~~November 23, 2007, the Corporation had ~~$36.0~~$38.9 million of total gross unrecognized tax benefits, the recognition of which would have a favorable effect of ~~$30.6~~$32.5 million on the effective tax rate. Included in the total gross unrecognized tax benefits is ~~$10.4~~$13.5 million of gross accrued interest and penalties related to uncertain tax positions.

Note 13 –— Business Segment Information

The Corporation is organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution.

The North American Social Expression Products and International Social Expression Products segments primarily design, manufacture and sell greeting cards and other related products through various channels of distribution with mass retailers as the primary channel.

At ~~August 24,~~November 23, 2007, the Corporation owned and operated 429 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 North American Social Expression Products segment as well as products purchased from other vendors.

AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms. The acquisition of the online digital photography business discussed below is also included in the AG Interactive segment.

The Corporation’s non-reportable operating segments primarily include licensing activities and the design, manufacture and sale of display fixtures.

Segment results are internally reported and evaluated at consistent exchange rates between years to eliminate 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 exchange rates used for segment reporting and evaluation and the actual exchange rates for the periods presented.

Centrally incurred and managed costs are not allocated back to the operating segments. The unallocated items include interest expense on centrally-incurred debt, domestic profit-sharing expense and stock-based compensation 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.

Operating Segment Information


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	August 24,			August 25,			August 24,			August 25,			November 23,			November 24,			November 23,			November 24,
(In thousands)	2007			2006			2007			2006			2007			2006			2007			2006
Total Revenue:
North American Social Expression Products	$	255,881		$	244,220		$	552,975		$	537,183		$	339,543		$	371,726		$	892,518		$	908,909
Intersegment items		(13,942	)		(15,310	)		(22,109	)		(32,858	)		(19,423	)		(14,953	)		(41,532	)		(47,811	)
Exchange rate adjustment		1,341			170			1,346			107			2,972			218			4,318			325

Net		243,280			229,080			532,212			504,432			323,092			356,991			855,304			861,423

International Social Expression Products		59,390			62,385			119,044			126,493			80,604			82,526			199,648			209,019
Exchange rate adjustment		5,257			(59	)		9,352			(2,321	)		8,606			794			17,958			(1,527	)

Net		64,647			62,326			128,396			124,172			89,210			83,320			217,606			207,492

Retail Operations		37,382			39,453			76,306			82,954			39,550			42,252			115,856			125,206
Exchange rate adjustment		1,069			183			1,073			121			2,467			178			3,540			299

Net		38,451			39,636			77,379			83,075			42,017			42,430			119,396			125,505

AG Interactive		17,158			20,447			37,052			40,488			18,912			21,663			55,964			62,151
Exchange rate adjustment		(2	)		40			1			45			(2	)		31			(1	)		76

Net		17,156			20,487			37,053			40,533			18,910			21,694			55,963			62,227

Non-reportable segments		13,885			19,936			22,268			24,831			12,486			16,679			34,754			41,510

Unallocated		8			62			84			95			31			40			115			135


	$	377,427		$	371,527		$	797,392		$	777,138
													$	485,746		$	521,154		$	1,283,138		$	1,298,292

Segment Earnings (Loss):
North American Social Expression Products	$	40,799		$	15,417		$	127,739		$	83,578		$	64,549		$	98,533		$	192,288		$	182,111
Intersegment items		(10,467	)		(10,919	)		(16,722	)		(23,829	)		(14,481	)		(10,296	)		(31,203	)		(34,125	)
Exchange rate adjustment		798			82			803			49			1,557			80			2,360			129

Net		31,130			4,580			111,820			59,798			51,625			88,317			163,445			148,115

International Social Expression Products		1,393			559			1,433			1,056			10,037			6,092			11,470			7,148
Exchange rate adjustment		200			18			347			64			1,117			(30	)		1,464			34

Net		1,593			577			1,780			1,120			11,154			6,062			12,934			7,182

Retail Operations		(6,484	)		(9,071	)		(9,265	)		(16,372	)		(5,833	)		(5,056	)		(15,098	)		(21,428	)
Exchange rate adjustment		(3	)		(5	)		(3	)		(3	)		86			4			83			1

Net		(6,487	)		(9,076	)		(9,268	)		(16,375	)		(5,747	)		(5,052	)		(15,015	)		(21,427	)

AG Interactive		3,177			1,208			6,473			3,249			2,194			2,249			8,667			5,498
Exchange rate adjustment		(8	)		2			(17	)		1			15			(18	)		(2	)		(17	)

Net		3,169			1,210			6,456			3,250			2,209			2,231			8,665			5,481

Non-reportable segments		2,035			6,735			2,962			4,640			636			3,668			3,598			8,308

Unallocated		(18,456	)		(17,856	)		(45,849	)		(46,762	)		(15,312	)		(27,157	)		(61,161	)		(73,919	)
Exchange rate adjustment		(71	)		(53	)		(75	)		(153	)		(60	)		4			(135	)		(149	)

Net		(18,527	)		(17,909	)		(45,924	)		(46,915	)		(15,372	)		(27,153	)		(61,296	)		(74,068	)

													$	44,505		$	68,073		$	112,331		$	73,591
	$	12,913		$	(13,883	)	$	67,826		$	5,518

Termination Benefits and Plant Closings

Termination benefits are primarily considered part of an ongoing benefit arrangement, accounted for in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” and are recorded when payment of the benefits is probable and can be reasonably estimated.

The balance of the severance accrual was ~~$5.7~~$6.9 million, $8.4 million and ~~$4.5~~$5.7 million at ~~August 24,~~November 23, 2007, February 28, 2007 and ~~August 25,~~November 24, 2006, ~~respectively.~~respectively, and is included in “Accrued liabilities” on the Condensed Consolidated Statement of Financial Position.

Deferred Revenue

Deferred revenue, included in “Other current liabilities” on the Condensed Consolidated Statement of Financial Position, totaled ~~$33.3~~$32.5 million, $35.5 million and ~~$29.6~~$27.0 million at ~~August 24,~~November 23, 2007, February 28, 2007 and ~~August 25,~~November 24, 2006, respectively. The amounts relate primarily to the Corporation’s AG Interactive segment and the licensing activities included in non-reportable segments.

Acquisition

During the third quarter of 2008, the AG Interactive segment acquired Webshots, an online digital photography business, for approximately $45 million. Cash paid was $45.2 million and is reflected in investing activities in the Condensed Consolidated Statement of Cash Flows. Although the allocation of the purchase price has not yet been finalized, preliminary estimates of $12 million and $37 million were recorded for intangible assets and goodwill, respectively. The financial results of this acquisition are included in the Corporation’s consolidated results from the date of acquisition. The pro forma results of operations have not been presented because the effect of this acquisition was not deemed material.

Note 14 –— Discontinued Operations

Discontinued operations include the Corporation’s educational products business, its entertainment development and production joint venture, ~~and~~ its South African business ~~unit.~~unit and its nonprescription reading glasses business. Learning Horizons, the Hatchery, Magnivision and the South African business units each meet the definition of a “component of an entity” and have been accounted for as discontinued operations under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the Corporation’s consolidated financial statements and related notes have been presented to reflect all ~~three~~four as discontinued operations for all periods presented. Learning Horizons, ~~and~~ the Hatchery and Magnivision were previously included within the Corporation’s “non-reportable segments” and the South African business unit was included within the former “Social Expression Products” segment.

Discontinued operations for the nine months ended November 23, 2007 includes the operations of the Hatchery and the operations of Learning Horizons through the closing date of the sale of that business. The nine months ended November 24, 2006 included the operations of the Hatchery and Learning Horizons and the operations of the Corporation’s South African business unit through the closing date of the sale of that unit. The “(Loss) gain on sale” in the current year relates to the sale of Learning Horizons while the prior year amount related to the sales of the South African business unit and Magnivision. The following summarizes the results of discontinued operations:


	Three Months Ended						Nine Months Ended
	November 23,			November 24,			November 23,			November 24,
	2007			2006			2007			2006
Total revenue	$	20		$	2,122		$	379		$	11,275


Pre-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	)		3,413
Income tax (benefit) expense		(57	)		2,020			307			(180	)

(Loss) income from discontinued operations, net of tax	$	(472	)	$	2,692		$	(1,395	)	$	3,593

In February 2007, the Corporation entered into an agreement to sell its educational products subsidiary, Learning Horizons. The sale reflects the Corporation’s strategy to focus its resources on business units closely related to its core social expression business. The sale closed in March 2007 and the Corporation received cash proceeds of ~~$2.3~~$2.2 million, which is included in “Cash receipts related to discontinued operations” on the Condensed Consolidated Statement of Cash Flows.

Also, in February 2007, the Corporation committed to a plan to exit its investment in the Hatchery, which seeks growth from opportunities that are inconsistent with the Corporation’s objectives and that would require significant capital commitments. The Corporation is taking this action as it has decided to focus its efforts on opportunities in children’s animation.

In February 2006, the Corporation committed to a plan to sell its South African business unit as it had been determined that the business unit was no longer a strategic fit for the Corporation. The sale closed in the second quarter of 2007.

The ~~following summarizes the results~~sale of ~~discontinued operations:~~

Three Months Ended Six Months Ended
August 24, August 25, August 24, August 25,
2007 2006 2007 2006
Total revenue $ 57 $ 2,979 $ 359 $ 9,153

Pre-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

~~“Assets of businesses held for sale” and “Liabilities of businesses held for sale”~~Magnivision closed in the ~~Condensed Consolidated Statement~~third quarter of ~~Financial Position include~~2005. In the ~~following:~~

(In thousands) August 24, 2007 February 28, 2007 August 25, 2006
Assets of businesses held for sale:
Current assets $ 10 $ 2,933 $ 8,777
Other assets 2,352 2,185 3,668
Fixed assets 72 81 203

$ 2,434 $ 5,199 $ 12,648

Liabilities of businesses held for sale:
Current liabilities $ 58 $ 610 $ 519
Noncurrent liabilities 1,225 1,322 120

$ 1,283 $ 1,932 $ 639

third quarter of 2007, the Corporation recorded an additional pre-tax gain of $5.1 million based on final closing balance sheet adjustments. During the three and nine months ended ~~August 24,~~November 23, 2007, proceeds of ~~$1.1~~$1.0 million and $2.1 million, respectively, related to the sale of Magnivision were received and are included in “Cash receipts related to discontinued operations” on the Condensed Consolidated Statement of Cash Flows. These proceeds are associated with the gain recorded during the third quarter of 2007.

“Assets of businesses held for sale” and “Liabilities of businesses held for sale” in the Condensed Consolidated Statement of Financial Position include the following:


(In thousands)	November 23, 2007		February 28, 2007		November 24, 2006
Assets of businesses held for sale:
Current assets	$	13	$	2,933	$	8,035
Other assets		2,135		2,185		5,085
Fixed assets		68		81		190

	$	2,216	$	5,199	$	13,310


Liabilities of businesses held for sale:
Current liabilities	$	158	$	610	$	292
Noncurrent liabilities		1,225		1,322		1,337

	$	1,383	$	1,932	$	1,629

Note 15 — Subsequent Events

On November 28, 2007, the Corporation announced that it entered into a definitive agreement to acquire PhotoWorks for approximately $26.5 million. PhotoWorks is a leading online photo sharing and personal publishing company that allows consumers to use their digital images to create quality photo-personalized products like greeting cards, calendars, online photo albums and photo books. In accordance with the terms of the agreement, on December 13, 2007, the Corporation commenced a cash tender offer to acquire all outstanding common stock of PhotoWorks at a price of 59.5 cents per share. The acquisition is expected to close in late January 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited consolidated financial statements. This discussion and analysis, and other statements made in this Report, contain forward-looking statements, see “Factors That May Affect Future Results” at the end of this discussion and analysis for a description of the uncertainties, risks and assumptions associated with these statements. Unless otherwise indicated or the context otherwise requires, the “Corporation,” “we,” “our,” “us” and “American Greetings” are used in this Report to refer to the businesses of American Greetings Corporation and its consolidated subsidiaries.

Overview

We experienced ~~higher~~lower consolidated total revenues and earnings during the ~~second~~third quarter of 2008, compared to the prior year quarter, due to lower sales in all reporting segments but primarily ~~driven by~~in our North American Social Expression Products segment ~~where we~~which experienced a decrease in sales of seasonal gift packaging products and party goods. Also significantly impacting the year-over-year comparison of this segment was the impact of the candle products divestiture and the gain on contract terminations in the prior year quarter.

We spent less on the implementation of our strategy to invest in our core greeting card business (“investment in cards strategy”) and scan-based trading (“SBT”) ~~implementations.~~implementations during the third quarter compared to the prior year period. The investment in cards strategy is focused on improving the design, production, display and promotion of our cards, creating relevant and on-trend products, brought to market quickly and merchandised in a manner that enhances the shopping experience. The most significant costs associated with this strategy are incentive allowances for new fixtures and removal of product at retail (to improve productivity), as credits issued to customers exceed new product shipments. Due to the nature of these costs, generally sales incentives and credits for removed product, they are reported as reductions to net sales. In addition, there are costs to implement the strategy, including installation services, information system improvements, point of purchase materials, scrap and order filling costs, which are reported within the appropriate expense lines of the Condensed Consolidated Statement of ~~Operations.~~Income.

During the ~~second~~third quarter of 2008, actions related to our investment in cards strategy decreased total revenue by approximately $7$2 million and SBT implementations reduced total revenue ~~by less than $1 million, compared to~~ approximately ~~$7 million and $8 million, respectively, in~~$4 million. In the prior year ~~quarter.~~quarter, actions related to our investment in cards strategy decreased total revenue by approximately $10 million while SBT implementations had minimal impact on total revenue. Other related costs to implement the strategy were approximately $1$2 million in the current quarter, compared to approximately $2$3 million in the prior year period, none of which were individually significant. In total, actions related to the investment in cards strategy and SBT implementations reduced consolidated pre-tax income by approximately $8 million, compared with approximately ~~$16~~$12 million in the prior year period.

For the ~~six~~nine months ended ~~August 24,~~November 23, 2007, total revenue was reduced by approximately $8$10 million for actions related to our investment in cards strategy and approximately $1$5 million for SBT implementations, compared to approximately ~~$13~~$23 million and ~~$15~~$14 million, respectively, in the prior ~~year first half.~~year. Other related costs to implement the strategy were approximately $2$4 million in the current ~~six~~nine month period, compared to approximately $4$7 million in the prior year period, none of which were individually significant. In total, actions related to the investment in cards strategy and SBT implementations reduced consolidated pre-tax income by approximately ~~$11~~$19 million, compared with approximately ~~$32~~$44 million in the prior year period.

For fiscal 2008, we expect the expenditures for the investment in cards strategy and SBT implementations to ~~total at least $36~~be in the range of $46 million to $51 million, compared to actual expenditures of approximately $66 million in fiscal 2007. Although we expect a significant amount of SBT implementations to occur in the fourth fiscal quarter, depending on timing, some of the income statement impact associated with the SBT implementations may occur in the first quarter of next year rather than this year’s fourth quarter.

~~Also contributing to the increased earnings during~~Our recent trend of gross margin percentage improvement continued in the quarter, ~~was an improvement in~~up one percentage point over the ~~net sales of everyday greeting cards,~~prior year quarter due to a change in the mix of products sold to a richer mix (as defined by higher gross margins) of

card versus non-card products and the impact of continued cost savings programs, particularly in the areas of manufacturing and supply chain.

~~The improvement in total revenue in~~On October 25, 2007, we announced the ~~North American Social Expression Products segment was partially offset by lower revenues in~~acquisition of the ~~International Social Expression Products, Retail Operations~~assets of Webshots, an online photo and video sharing site. This acquisition, made through our AG Interactive ~~segments as well as~~unit, provides us the ~~fixtures~~opportunity to expand our current product offerings of online social expressions into the adjacent area of online photo sharing. In addition, subsequent to November 23, 2007, we announced that we entered into a definitive agreement to acquire PhotoWorks, an online personal publishing company and licensing businesses. However, despite these revenue decreases, each of these segments showed improved earnings. These earnings improvements were driven by cost control programs, the closure of underperforming retail stores duringphotography site.

During the prior year ~~fourth~~third quarter, we recorded a gain of $20.0 million as a result of retailer consolidations, wherein, multiple long-term supply agreements were terminated and ~~the elimination of certain mobile product lines in the AG Interactive segment.~~a new agreement was negotiated with a new legal entity with substantially different terms and sales commitments.

Results of Operations

Three months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006

Net income was ~~$8.4~~$29.0 million, or ~~$0.15~~$0.52 per share, in the quarter compared to ~~a net loss of $10.5~~$49.7 million, or ~~$0.18~~$0.83 per share, in the prior year ~~second~~third quarter (all per-share amounts assume dilution).

Our results for the three months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006 are summarized below:


				% Total						% Total						% Total						% Total
(Dollars in thousands)	2007			Revenue			2006			Revenue			2007			Revenue			2006			Revenue
Net sales	$	365,821			96.9	%	$	357,483			96.2	%	$	474,995			97.8	%	$	510,102			97.9	%
Other revenue		11,606			3.1	%		14,044			3.8	%		10,751			2.2	%		11,052			2.1	%

Total revenue		377,427			100.0	%		371,527			100.0	%		485,746			100.0	%		521,154			100.0	%

Material, labor and other production costs		163,052			43.2	%		172,808			46.5	%		223,329			46.0	%		245,187			47.0	%
Selling, distribution and marketing expenses		144,584			38.3	%		151,475			40.8	%		159,420			32.8	%		157,364			30.2	%
Administrative and general expenses		55,938			14.8	%		56,881			15.3	%		60,481			12.5	%		65,287			12.5	%
Other operating income – net		(320	)		(0.1	%)		(93	)		(0.0	%)		(127	)		(0.1	%)		(20,541	)		(3.9	%)


Operating income (loss)		14,173			3.8	%		(9,544	)		(2.6	%)
Operating income														42,643			8.8	%		73,857			14.2	%

Interest expense		4,839			1.3	%		7,609			2.0	%		4,835			1.0	%		6,951			1.3	%
Interest income		(2,227	)		(0.6	%)		(2,628	)		(0.7	%)		(2,115	)		(0.4	%)		(1,258	)		(0.2	%)
Other non-operating income – net		(1,352	)		(0.3	%)		(642	)		(0.2	%)
Other non-operating (income) expense – net														(4,582	)		(1.0	%)		91			0.0	%


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 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 (loss) from continuing operations		8,726			2.3	%		(12,557	)		(3.4	%)
Income from continuing operations														29,488			6.1	%		47,015			9.0	%
(Loss) income from discontinued operations, net of tax		(351	)		(0.1	%)		2,059			0.6	%		(472	)		(0.1	%)		2,692			0.5	%

Net income													$	29,016			6.0	%	$	49,707			9.5	%

Net income (loss)	$	8,375			2.2	%	$	(10,498	)		(2.8	%)

prior year quarter. ~~As a result, sales of products other than candles increased approximately $20 million.~~ Approximately $7$4 million of the ~~increase~~decrease resulted from ~~fewer~~more SBT implementations in the current quarter compared to the prior year third quarter. The majority of the remaining decrease was the result of lower sales of our gift packaging products and ~~approximately $1 million was~~party goods due to ~~lower~~continued softness in demand for gift wrap as well as our attempt to improve the overall annual return within these product lines by not pursuing traditionally low margin business that we did pursue in prior years. Both seasonal and everyday cards were also down slightly compared to the prior year period. These decreases were partially offset by our reduced spending on our investment in cards strategy. ~~The majority of~~In the ~~remaining increase was due~~current quarter, we spent approximately $2 million on our investment in cards strategy, compared to ~~improvements in everyday card sales. Seasonal card sales also contributed to the remaining increase, primarily Father’s Day and graduation as SBT implementations~~approximately $10 million in the prior year ~~impacted the timing of the sales as discussed below.~~quarter.

The reduction in our International Social Expression Products segment’s net sales was due primarily to the challenging retail environment in the United Kingdom (“U.K.”), which continues to demand reduced inventory levels for most of our product lines. Our Retail Operations segment was down approximately $2$3 million, or 5%6%, as favorable same-store sales of approximately 7%5% were more than offset by the decrease in store doors of approximately 13%.

Other revenue, primarily royalty revenue, decreased from $14.0 million during the three months ended August 25, 2006 to $11.6 million during the three months ended August 24, 2007. The decrease of $2.4 million is primarily attributable to favorable audit recoveries recorded during the prior year quarter.

Seasonal card unit volume increased ~~24.0%~~4.2%, primarily in the ~~current quarter, primarily due to Father’s Day~~fall and graduation card sales. This increase is substantially the result of customers that implemented SBT in the prior year that impacted the timing of sales in the current year. As noted in prior quarters, the implementation of SBT impacts the timing of sales with these customers compared to the prior year because, under SBT arrangements, American Greetings owns the product delivered to the retail customer until the product is sold by the retailer to the ultimate consumer, at which time we record the sale. In addition, since the second quarter has the fewest holidays, the changes in unit volume during the quarter appear large on a percentage basis. The decrease inChristmas programs. Lower selling prices of ~~seasonal cards was the result of~~3.3% were related to these same programs, with a higher mix of value priced ~~cards. This change in product mix was primarily the result of the SBT implementations in~~cards compared to the prior ~~year.~~year period.

Material, labor and other production costs (“MLOPC”) for the three months ended ~~August 24,~~November 23, 2007 were ~~$163.1~~$223.3 million, a decrease from ~~$172.8~~$245.2 million for the comparable period in the prior year. As a percentage of total revenue, these costs were ~~43.2%~~46.0% in the current period compared to ~~46.5%~~47.0% for the three months ended ~~August 25,~~November 24, 2006. The decrease of ~~$9.7~~$21.9 million is the result of favorable volume variances of approximately $17 million due to the lower sales volume and favorable product mix of approximately ~~$15~~$12 million partially offset by increased spending of approximately $2 million and foreign exchange impacts of approximately $3$5 million. The favorable product mix is due to a change to a richer mix (as defined by higher gross margins) of card versus non-card products, ~~primarily as a result of the growth in everyday cards and~~partially due to the sale of our candle product lines in January 2007. The increased spending was primarily attributable to higher ~~creative content~~scrap costs.

Selling, distribution and marketing costs for the three months ended ~~August 24,~~November 23, 2007 were ~~$144.6~~$159.4 million, ~~decreasing~~increasing from ~~$151.5~~$157.4 million for the comparable period in the prior year. The ~~decrease~~increase of ~~$6.9~~$2.0 million is due to ~~favorable spending variances of approximately $10 million partially offset by~~ unfavorable foreign exchange impacts of approximately $5 million partially offset by spending decreases of approximately $3 million. The ~~lower~~reductions in spending ~~is due~~are attributable to decreases in retail store expenses of approximately $3$2 million (due to fewer stores), savings from supply chain cost reduction programs ~~of approximately $4 million, lower consulting expenses~~ of approximately $2 million and reduced marketing-related expenses at AG Interactive (primarily attributable to the reduced offerings for the mobile product group) of approximately $2 million. These amounts were partially offset by higher advertising and research expenses of approximately $2 million primarily attributable to our focus on our core greeting card ~~business.~~business and approximately $1 million of distribution expenses associated with our animated children’s television programs.

Administrative and general expenses were ~~$55.9~~$60.5 million for the three months ended ~~August 24,~~November 23, 2007, a decrease from ~~$56.9~~$65.3 million for the three months ended ~~August 25,~~November 24, 2006. The decrease of ~~$1.0~~$4.8 million is primarily related to favorable spending variances of approximately $2$6 million partially offset by unfavorable foreign exchange impacts of approximately $1 million. The decreased spending is attributable to lower profit-sharing expense of approximately $2 million as well as reductions in information technology-related expenses, ~~and~~ stock-based compensation ~~expense.~~expense, severance charges, consulting expenses and payroll and benefits related expenses.

Other operating income – net was $0.1 million for the quarter ended November 23, 2007, a decrease from $20.5 million for the comparable period in the prior year. The decrease of $20.4 million is attributable to the gain of $20.0 million recorded in the prior year third quarter related to terminations of long-term supply agreements associated with retailer consolidations. Other non-operating (income) expense – net was income of $4.6 million in the current year third quarter compared to expense of $0.1 million for the three months ended November 24, 2006. The $4.7 million improvement is due primarily to increased foreign exchange gains in the current period and a swing from a loss on disposal of fixed assets in the prior year period to a gain in the current period.

Interest expense for the three months ended ~~August 24,~~November 23, 2007 was $4.8 million, down from ~~$7.6~~$7.0 million for the prior year quarter. The decrease of ~~$2.8~~$2.2 million is attributable to savings of $1.5 million due to the reduced debt balances for the ~~7.00% convertible notes as a result of our financing activities in~~revolving credit facility and the ~~prior year. The amortization of deferred financing fees for the convertible notes was $0.9 million lower in the current quarter also as a result of the prior year activities.~~accounts receivable securitization facility. Commitment fees paid on the available balance of our credit facility decreased $0.4 million, primarily as a result of the reduction in the size of the term loan facility.

For the three months ended August 24, 2007, tax expense was $4.2 million on pre-tax income from continuing operations of $12.9 million compared to a tax benefit of $1.3 million on a pre-tax loss from continuing operations of $13.9 million in the prior year quarter. The effective tax rate on income ~~(loss)~~ from continuing operations was ~~32.4%~~33.7% and ~~9.6%~~30.9% for the three months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006, respectively. Since the second quarter has seasonally low income (loss) from continuing operations before income tax expense (benefit), discrete items or changes to the tax assets and reserves on the Condensed Consolidated Statement of Financial Position have a more significant impact on the Corporation’s quarterly effective tax rate. The ~~low~~lower effective tax rate in the prior quarter relates to several discrete events during that period, including interest expense on estimated tax payments, return to provision adjustments and the effect of amended tax returns on deferred tax assets.

Results of Operations

~~Six~~Nine months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006

Net income was ~~$38.4~~$67.4 million, or ~~$0.69~~$1.21 per share, for the ~~six~~nine months compared to ~~$4.9~~$54.6 million, or ~~$0.08~~$0.88 per share, in the prior year period.

Our results for the ~~six~~nine months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006 are summarized below:


				% Total						% Total						% Total						% Total
(Dollars in thousands)	2007			Revenue			2006			Revenue			2007			Revenue			2006			Revenue
Net sales	$	783,834			98.3	%	$	761,653			98.0	%	$	1,258,829			98.1	%	$	1,271,755			98.0	%
Other revenue		13,558			1.7	%		15,485			2.0	%		24,309			1.9	%		26,537			2.0	%

Total revenue		797,392			100.0	%		777,138			100.0	%		1,283,138			100.0	%		1,298,292			100.0	%

Material, labor and other production costs		324,180			40.6	%		348,045			44.8	%		547,509			42.7	%		593,232			45.7	%
Selling, distribution and marketing expenses		285,275			35.8	%		294,055			37.9	%		444,695			34.7	%		451,419			34.8	%
Administrative and general expenses		117,810			14.8	%		118,229			15.2	%		178,291			13.9	%		183,516			14.1	%
Other operating income – net		(680	)		(0.1	%)		(422	)		(0.1	%)		(807	)		(0.1	%)		(20,963	)		(1.6	%)


Operating income		70,807			8.9	%		17,231			2.2	%		113,450			8.8	%		91,088			7.0	%

Interest expense		9,596			1.2	%		20,073			2.6	%		14,431			1.1	%		27,024			2.0	%
Interest income		(3,719	)		(0.5	%)		(5,458	)		(0.7	%)		(5,834	)		(0.5	%)		(6,716	)		(0.5	%)
Other non-operating income – net		(2,896	)		(0.3	%)		(2,902	)		(0.4	%)		(7,478	)		(0.6	%)		(2,811	)		(0.2	%)


Income from continuing operations before income tax expense		67,826			8.5	%		5,518			0.7	%		112,331			8.8	%		73,591			5.7	%
Income tax expense		28,478			3.6	%		1,525			0.2	%		43,495			3.4	%		22,583			1.8	%


Income from continuing operations		39,348			4.9	%		3,993			0.5	%		68,836			5.4	%		51,008			3.9	%
(Loss) income from discontinued operations, net of tax		(923	)		(0.1	%)		901			0.1	%		(1,395	)		(0.1	%)		3,593			0.3	%


Net income	$	38,425			4.8	%	$	4,894			0.6	%	$	67,441			5.3	%	$	54,601			4.2	%

For the ~~six~~nine months ended ~~August 24,~~November 23, 2007, consolidated net sales were ~~$783.8~~$1,258.8 million, updown from ~~$761.7~~$1,271.8 million in the prior year ~~six~~nine months. This ~~2.9%~~1.0%, or approximately ~~$22~~$13 million, ~~increase~~decrease was primarily the result of ~~higher~~lower net sales in our North American Social Expression Products segment of approximately ~~$26~~$10 million, ~~combined with a favorable foreign exchange impact of approximately $14 million partially offset by lower net sales in~~ our International Social Expression Products segment of approximately $8$10 million, our Retail Operations segment of approximately $7$9 million, ~~and~~ our AG Interactive segment of approximately $3$6 million and our fixtures business of approximately $4 million. These decreases were partially offset by approximately $26 million of favorable foreign exchange impacts.

Net sales of our North American Social Expression Products segment ~~increased~~decreased approximately ~~$26~~$10 million. Our candle product lines, which were sold in January 2007, contributed approximately ~~$14~~$28 million to net sales in the prior year ~~six~~nine months. As a result, sales of products other than candles increased approximately ~~$40~~$18 million. Approximately $5$13 million of the increase was due to lower spending on our investment in cards strategy and approximately ~~$15~~$9 million resulted from fewer SBT implementations. ~~The majority of the remaining increase was due to improvements~~Improvements in everyday card sales added approximately $20 million to net sales in the current nine months. These increases were partially offset by reduced sales of our gift packaging products, stationery and ~~seasonal card sales.~~party goods of approximately $25 million.

The reduction in our International Social Expression Products segment’s net sales was due primarily to the challenging retail environment in the U.K., which continues to demand reduced inventory levels for most of our product lines. Our Retail Operations segment was down approximately $7$9 million, or 8%, as favorable same-store sales of approximately 5% were more than offset by the decrease in store doors of approximately 13%. Growth in advertising and subscription sales in our AG Interactive segment ~~including the favorable impact of the prior year second quarter acquisition,~~ were more than offset by the reduced offerings in our mobile product group.

Other revenue, primarily royalty revenue, decreased ~~$1.9~~$2.2 million from ~~$15.5~~$26.5 million during the ~~six~~nine months ended ~~August 25,~~November 24, 2006 to ~~$13.6~~$24.3 million during the ~~six~~nine months ended ~~August 24,~~November 23, 2007. The decrease is primarily attributable to favorable audit recoveries recorded during the prior year period.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the ~~six~~nine months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006 are summarized below:


	Increase (Decrease) From the Prior Year																		Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards						Everyday Cards						Seasonal Cards						Total Greeting Cards
	2007			2006			2007			2006			2007			2006			2007			2006			2007			2006			2007			2006
Unit volume		13.8%			(16.1%	)		5.3%			(0.6%	)		11.4%			(12.3%	)		9.3	%		(12.2	%)		4.8	%		(9.4	%)		8.1	%		(11.5	%)
Selling prices		(7.2%	)		9.6%			(3.6%	)		2.8%			(6.2%	)		8.1%			(5.5	%)		7.0	%		(3.4	%)		7.5	%		(4.9	%)		7.2	%
Overall increase / (decrease)		5.6%			(8.0%	)		1.6%			2.2%			4.4%			(5.2%	)		3.3	%		(6.1	%)		1.3	%		(2.6	%)		2.8	%		(5.1	%)

Expense Overview

MLOPC for the ~~six~~nine months ended ~~August 24,~~November 23, 2007 were ~~$324.2~~$547.5 million, a decrease from ~~$348.0~~$593.2 million for the comparable period in the prior year. As a percentage of total revenue, these costs were ~~40.6%~~42.7% in the current period compared to ~~44.8%~~45.7% for the ~~six~~nine months ended ~~August 25,~~November 24, 2006. The decrease of ~~$23.8~~$45.7 million is due to favorable mix of approximately ~~$34~~$49 million ~~partially offset by unfavorable~~and volume variances of approximately $2$12 million due to the ~~increased~~lower sales volume in the current period partially offset by unfavorable spending variances of approximately $1$3 million and foreign exchange impacts of approximately $7$12 million. The favorable product mix is due to a change to a richer mix of card versus non-card products, primarily as a result of the growth in everyday ~~and seasonal~~ cards and the sale of our candle product lines in January 2007. The increased spending is attributable to higher creative content ~~costs of approximately $5 million partially offset by favorable scrap and inventory adjustments of $4 million.~~costs.

Selling, distribution and marketing costs for the ~~six~~nine months ended ~~August 24,~~November 23, 2007 were ~~$285.3~~$444.7 million, decreasing from ~~$294.1~~$451.4 million for the comparable period in the prior year. The decrease of ~~$8.8~~$6.7 million is due to ~~favorable~~reduced spending ~~variances~~ of approximately ~~$14~~$17 million partially offset by unfavorable foreign exchange impacts of approximately $5$10 million. The lower spending is due to decreases in retail store expenses of approximately $7$9 million, savings from supply chain cost reduction programs of approximately $7$9 million, lower consulting expenses of approximately $2 million and reduced marketing-related expenses at AG Interactive (primarily attributable to the reduced offerings for the mobile product group) of approximately $4$5 million. These amounts were partially offset by higher advertising and research expenses of approximately $5$7 million, a portion of which is attributable to our focus on our core greeting card business.

Administrative and general expenses were ~~$117.8~~$178.3 million for the ~~six~~nine months ended ~~August 24,~~November 23, 2007, a decrease from ~~$118.2~~$183.5 million for the ~~six~~nine months ended ~~August 25,~~November 24, 2006. The decrease of ~~$0.4~~$5.2 million is primarily related to ~~favorable~~reductions in spending ~~variances~~ of approximately $2$7 million partially offset by unfavorable foreign exchange impacts of approximately $2 million. The ~~reduced~~decreased spending is attributable to lower information technology-related expenses of approximately $3 million, consulting expenses of approximately $2 million, stock-based compensation expense of approximately $1 million and lower non-income related business taxes ~~and stock-based compensation expense.~~of approximately $1 million.

Other operating income — net was $0.8 million for the nine months ended November 23, 2007, a decrease from $21.0 million for the comparable period in the prior year. The decrease of $20.2 million is attributable to the gain of $20.0 million recorded in the prior year period related to terminations of long-term supply agreements associated with retailer consolidations. Other non-operating income — net was $7.5 million in the current year nine months compared to $2.8 million for the nine months ended November 24, 2006. The $4.7 million improvement is due primarily to increased foreign exchange gains in the current period.

Interest expense for the ~~six~~nine months ended ~~August 24,~~November 23, 2007 was ~~$9.6~~$14.4 million, down from ~~$20.1~~$27.0 million for the prior year period. The decrease of ~~$10.5~~$12.6 million is attributable to the financing activities from the prior year period. Expenses of ~~$5.4~~$5.5 million were incurred in the prior year related to the early retirement of substantially all of our 6.10% senior notes and the convertible notes exchange offer, including the associated consent payment, fees paid and the write-off of deferred financing costs. Deferred financing costs of $1.0 million associated with the credit facility that was terminated in April 2006 were also written off in the prior period. Savings of ~~$8.5~~$10.1 million were realized in the current period due to the reduced debt balances for the 6.10% senior notes, ~~and~~ the 7.00% convertible notes ~~as a result of~~and the ~~prior period financing activities.~~facility borrowings. The amortization of deferred financing fees for the convertible notes was $1.2 million lower in the current period also as a result of the prior year activities. Commitment fees paid on the available balance of our credit facility decreased ~~$0.4~~$0.8 million, primarily as a result of the reduction in the size of the term loan facility. Partially offsetting these amounts are $3.7 million for interest expense on the new 7.375% notes issued in May 2006 and $2.4 million for the net gain recognized on the interest rate derivative entered into and settled during the ~~six~~nine months ended ~~August 25,~~November 24, 2006.

The effective tax rate on income from continuing operations was ~~42.0%~~38.7% and ~~27.6%~~30.7% for the ~~six~~nine months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006, respectively. The increase in the effective tax rate relates to several discrete events during the current year period, primarily agreements reached with the Internal Revenue Service as it closed its audit cycle.

Segment Information

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. Our North American Social Expression Products and our International Social Expression Products segments primarily design, manufacture and sell greeting cards and other related products through various channels of distribution, with mass retailers as the primary channel. 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 both the North American Social Expression Products and International Social Expression Products segments. The aggregated operating divisions have similar economic characteristics, products, production processes, types of customers and distribution methods. At ~~August 24,~~November 23, 2007, we owned and operated 429 card and gift retail stores in the United States and Canada through our Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the North American Social Expression Products segment as well as products purchased from other vendors. AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms.

We review segment results using consistent exchange rates between periods to eliminate the impact of foreign currency fluctuations.

Total revenue of our North American Social Expression Products segment for the ~~three months~~quarter ended ~~August 24,~~November 23, 2007, excluding the impact of foreign exchange and intersegment items, ~~increased $13.0~~decreased $36.7 million, or 5.7%, from the prior year period. Lower spending on our investment in cards strategy and SBT conversions in the current quarter compared to the prior year quarter accounted for approximately $1 million and $7 million, respectively, of the total revenue increase. Also contributing to the increase was sales of everyday and seasonal cards. These increases were partially offset by the sale of our candle product lines in January 2007, which contributed approximately $7 million to total revenue in the prior year quarter. Total revenue of our North American Social Expression Products segment for the six months ended August 24, 2007, excluding the impact of foreign exchange and intersegment items, increased $26.5 million, or 5.3%10.3%, from the prior year period. Our candle product lines, which were sold in January 2007, contributed approximately $14 million to ~~net sales~~total revenue in the prior year ~~six~~quarter. Approximately $4 million of the decrease resulted from more SBT implementations in the current quarter compared to the prior year third quarter. The majority of the remaining decrease was due to lower sales of our gift packaging products and party goods. Both seasonal and everyday cards were also down slightly compared to the prior year period. These decreases were partially offset by our reduced spending on our investment in cards strategy. In the current quarter, we spent approximately $2 million on our investment in cards strategy, compared to approximately $10 million in the prior year quarter. Total revenue of our North American Social Expression Products segment for the nine months ended November 23, 2007, excluding the impact of foreign exchange and intersegment items, decreased $10.1 million, or 1.2%, from the prior year period. Our candle product lines, which were sold in January 2007, contributed approximately $28 million to total revenue in the prior year nine months. As a result, ~~sales of~~revenue from products other than candles increased approximately ~~$40~~$18 million. Approximately $5$13 million of the increase was due to lower spending on our investment in cards strategy and approximately ~~$15~~$9 million resulted from fewer SBT implementations. ~~The majority of the remaining increase was due to improvements~~Improvements in everyday card sales added approximately $20 million to net sales in the current nine months. These increases were partially offset by reduced sales of our gift packaging products, stationery and ~~seasonal card sales.~~party goods of approximately $25 million.

Segment earnings, excluding the impact of foreign exchange and intersegment items, ~~increased $25.8~~decreased $38.1 million ~~compared~~from $88.2 million for the three months ended November 24, 2006 to $50.1 million for the three months ended November 23, 2007. The prior year quarter included the $20.0 million gain related to terminations of long-term supply agreements associated with retailer consolidations. The remaining decrease is primarily attributable to the ~~prior year second quarter. The lower~~reduction in variable margin due to the reduced sales in the current quarter (primarily our candle product lines and party goods). Segment earnings in the current quarter were also favorably impacted approximately $4 million by reduced spending on our investment in cards strategy and SBT implementations ~~accounted for approximately $8 million of~~in the ~~increase.~~current period compared to the prior year quarter. Segment earnings, excluding the impact of foreign exchange and intersegment items, increased ~~$51.3~~$13.1 million during the ~~six~~nine months ended ~~August 24,~~November 23, 2007 compared to the prior year period. The lower spending on our investment in cards strategy and SBT implementations accounted for approximately ~~$21~~$25 million of the increase. ~~The remaining~~Also contributing to the increase ~~for both the three and six month periods is attributable to~~are higher everyday card sales as well as lower costs. The lower costs are due to product mix, including the favorable impact from the sale of our lower margin candle product lines, ~~in January 2007,~~ plant efficiencies and supply chain cost reduction programs. Partially offsetting these increases is the $20.0 million gain related to terminations of long-term supply agreements associated with retailer consolidations that was recorded in the prior year nine months.

Total revenue, excluding the impact of foreign exchange, in our Retail Operations segment decreased ~~$2.1~~$2.7 million, or ~~5.2%~~6.4%, for the three months ended ~~August 24,~~November 23, 2007, compared to the prior year period as favorable same-store sales of approximately $2 million, or ~~6.9%~~4.6%, were more than offset by the reduction in store doors. Total revenue for the quarter decreased approximately $4$5 million due to fewer ~~stores. The~~stores as the average number of stores was approximately 13% less than in the prior year quarter. For the ~~six~~nine months ended ~~August 24,~~November 23, 2007, total revenue decreased ~~$6.6~~$9.4 million compared to the prior year period, as favorable same-store sales of approximately $3$5 million, or 4.6%, were more than offset by the reduction in store ~~doors. The average number of stores was~~doors which decreased total revenue approximately ~~13% less than in the prior year period, which accounted for approximately $10 million of the decrease.~~$14 million. Both current year periods benefited from the performance of children’s gifting products, which was the driver of the same-store sales increases.

Segment earnings, excluding the impact of foreign exchange, was a loss of ~~$6.5~~$5.8 million in the three months ended ~~August 24,~~November 23, 2007, compared to a loss of ~~$9.1~~$5.1 million induring the three months ended ~~August 25,~~November 24, 2006. Segment earnings were favorably impacted by lower store ~~rent, operating~~ expenses ~~and associate costs~~ of approximately $3$2 million primarily due to fewer stores ~~as we closed approximately 60 underperforming stores~~ in the ~~fourth quarter~~current period. The impact on earnings of ~~2007.~~these expense reductions was more than offset by the decrease in sales in the current period. For the ~~six~~nine months ended ~~August 24,~~November 23, 2007, segment earnings was a loss of ~~$9.3~~$15.1 million compared to a loss of ~~$16.4~~$21.4 million in the prior year period. The impact on earnings of the lower revenue in the period was more than offset by lower store expenses of approximately $7$9 million due to fewer stores. Lower information technology expenses in the current period also contributed to the reduced segment loss in the period. Earnings were favorably impacted by improved gross margins as a result of less promotional pricing. Gross margins increased by approximately ~~3.5~~1.6 percentage points.

advertising and subscription revenue as well as lower expenses in the mobile product group due to the reduced offerings in that group contributed to the improved segment earnings in ~~both periods.~~the nine month period.

Liquidity and Capital Resources

The seasonal nature of our business precludes a useful comparison of the current period and the fiscal year-end financial statements; therefore, a Condensed Consolidated Statement of Financial Position as of ~~August 25,~~November 24, 2006, has been included.

Operating Activities

Operating activities provided ~~$58.1~~$43.3 million of cash during the ~~six~~nine months ended ~~August 24,~~November 23, 2007, compared to ~~$28.1~~a use of $9.3 million of cash in the prior year period.

Other non-cash charges were ~~$3.9~~$5.7 million for the ~~six~~nine months ended ~~August 24,~~November 23, 2007, compared to ~~$7.0~~$9.2 million in the prior year period. The decrease is primarily related to the prior period write-off of deferred financing fees associated with our old credit facility and lower amortization of debt financing fees and reduced stock-based compensation expense in the current period.

Accounts receivable provided $33.4 million of cash from February 28, 2007, compared to $55.4 million during the six months ended August 25, 2006. The change is due to the timing of collections, primarily due to significantly more collections in the fourth quarter of 2007 compared to the fourth quarter of 2006.

Inventory was a use of ~~$62.0~~$49.9 million from February 28, 2007, compared to a use of ~~$57.1~~$27.2 million in the prior year period. ~~As a percentage of the prior twelve months’ MLOPC, inventories were 30.9% at August 24, 2007, compared to 32.4% at August 25, 2006.~~ The higher usage in the current ~~six~~nine months is attributable to improved inventory management at February 28, 2007 versus February 28, 2006. The lower beginning inventory at March 1 increased the inventory usage in the current year as we build our seasonal inventory.

Other current assets ~~used $2.8~~provided $18.1 million of cash from February 28, 2007, compared to using ~~$24.2~~$96.3 million in the prior year ~~six~~nine months. Both the current year cash provided and the prior year cash usage are attributable to a receivable of approximately $90 million recorded as part of the termination of several long-term supply agreements. The ~~difference is due to refundable tax amounts~~majority of the receivable was collected in the ~~prior~~fourth quarter of 2007 and the balance was received in the current year.

Deferred costs — net generally represents payments under agreements with retailers net of the related amortization of those payments. ~~During~~However, for the ~~six~~nine months ended ~~August~~November 23, 2007, deferred costs — net also includes the impact of a $15 million reduction of deferred contract costs associated with the termination of a long-term supply agreement and related refund received. For the nine months ended November 24, ~~2007,~~2006, deferred costs — net includes the impact of a $76 million reduction of deferred contract costs associated with the termination of several long-term supply agreements and related refunds received. In addition, amortization exceeded payments by ~~$28.5 million; in~~approximately $14 million during the ~~six~~nine months ended ~~August 25, 2006, amortization exceeded payments~~November 23, 2007 and by ~~$26.8 million.~~approximately $34 million during the nine months ended November 24, 2006. See Note 9 to the condensed consolidated financial statements for further detail of deferred costs related to customer agreements.

Accounts payable and other liabilities ~~were a use~~provided $38.3 million of ~~$23.4 million~~cash during the ~~six~~nine months ended ~~August 24,~~November 23, 2007, compared to ~~$33.2~~using $5.9 million in the prior year period. The change from the prior year is due primarily to income taxes and the change in profit-sharing payments and accruals during the respective periods.

Investing Activities

Investing activities used ~~$15.1~~$81.7 million of cash during the ~~six~~nine months ended ~~August 24,~~November 23, 2007, compared to providing ~~$188.9~~$181.2 million in the prior year period. The use of cash in the current year is related to capital expenditures of ~~$13.6~~$37.4 million as well as cash payments for business acquisitions. ~~The~~During the third quarter of fiscal 2008, we purchased the assets of Webshots, an online photo and video sharing site, for $45.2 million. Also, the final payment of $6.1 million for the online greeting card business purchased in the prior year’s second quarter was made during the first quarter of fiscal 2008. These amounts were partially offset by cash receipts related to discontinued operations and proceeds from the sale of fixed assets. The source of cash in the prior year is primarily related to sales of short-term investments exceeding purchases. Short-term investments decreased $208.7 million during the ~~six~~nine months ended ~~August 25,~~November 24, 2006.

Financing Activities

Financing activities ~~provided $1.3~~used $41.2 million of cash during the ~~six~~nine months ended ~~August 24,~~November 23, 2007, compared to using ~~$343.7~~$301.5 million during the ~~six~~nine months ended ~~August 25,~~November 24, 2006. ~~Our~~The use of cash in the current period is attributable to share repurchases and dividend payments as discussed below. These amounts were partially offset by short-term debt borrowings of $23.8 million and our receipt of the exercise price on stock options, which provided ~~$24.3~~$26.2 million in the current ~~period, but was offset by dividend payments and share repurchases as discussed below.~~period. The prior year amount relates primarily to our refinancing activities during the period. We issued $200.0 million of 7.375% senior unsecured notes and retired $277.3 million of our 6.10% senior notes, approximately 92% of the total ~~outstanding.~~outstanding, and had net borrowings under our revolving credit facility and accounts receivable facility of $142.0 million. We also repaid $159.1 million of our 7.00% convertible subordinated ~~notes and borrowed $20.0 million under our credit facility.~~notes. We paid ~~$8.1~~$8.3 million of debt issuance costs during the prior period for our new credit facility, the 7.375% senior unsecured notes and the 7.00% convertible subordinated notes exchange offer. These amounts were deferred and are being amortized over the respective periods of the instruments.

Our Class A common share repurchase programs also contributed to the cash used for financing activities in both periods. These repurchases were made through 10b5-1 programs. During the ~~six~~nine months ended ~~August 24,~~November 23, 2007, ~~$10.4~~$51.8 million was paid to repurchase approximately ~~0.4~~2.1 million shares under the repurchase program, compared to ~~$108.6~~$186.1 million used in the prior year period to repurchase approximately ~~4.9~~8.2 million shares. We also paid ~~$1.5~~$22.8 million in the current period to repurchase ~~0.1~~0.9 million Class B common shares, in accordance with our Amended Articles of Incorporation. The majority of the Class B common shares repurchased 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 the remaining Class B common shares back to American Greetings in accordance with our Amended Articles of Incorporation.

During the ~~six~~nine months ended ~~August 24,~~November 23, 2007 and ~~August 25,~~November 24, 2006, we paid quarterly dividends of $0.10 and $0.08 per common share, respectively, which totaled ~~$11.1~~$16.7 million and ~~$9.2~~$13.9 million, respectively.

Credit Sources

Substantial credit sources are available to us. In total, we had available sources of approximately $600 million at ~~August 24,~~November 23, 2007. This included our $450 million senior secured credit facility and our $150 million accounts receivable securitization facility. The credit agreement includes a $350 million revolving credit facility and a $100 million delay draw term loan. ~~There were no balances~~Approximately $13 million was outstanding under ~~these arrangements at August 24, 2007. While there were no balances~~the revolving credit facility and approximately $11 million was outstanding under ~~either facility,~~the accounts receivable securitization program at November 23, 2007. In addition to these borrowings, we do have, in the aggregate, ~~$27.9~~$25.7 million outstanding under letters of credit, which reduces the total credit availability thereunder.

Please refer to the discussion of our borrowing arrangements as disclosed in the “Credit Sources” section of our Annual Report on Form 10-K for the year ended February 28, 2007 for further information.

Our future operating cash flow and borrowing availability under our credit agreement and our accounts receivable securitization facility are expected to meet currently anticipated funding requirements. The seasonal nature of the business results in peak working capital requirements that may be financed through short-term borrowings.

We are going through the due diligence process necessary to prepare for a multi-year information systems refresh. We see this effort as a multi-year program, in the range of 7 to 10 years. As we are still negotiating ~~with potential~~

Factors That May Affect Future Results

Certain statements in this report may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning our operations and business environment, which are difficult to predict and may be beyond our control. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect our future financial performance, include, but are not limited to, the following:

	•		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
	•		~~successful integration of acquisitions; and~~
	•		the outcome of any legal claims known or unknown.

Risks pertaining specifically to AG Interactive include the viability of online advertising, subscriptions as revenue generators and the public’s acceptance of online greetings and other social expression products.

The risks and uncertainties identified above are not the only risks we face. Additional risks and uncertainties not presently known to us or that we believe to be immaterial also may adversely affect us. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on our business, financial condition and results of operations. For further information concerning the risks we face and issues that could materially affect our financial performance related to forward-looking statements, refer to our periodic filings with the Securities and Exchange Commission, including the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended February 28, 2007.

2526

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For further information, refer to our Annual Report on Form 10-K for the year ended February 28, 2007. There were no material changes in market risk, specifically interest rate and foreign currency exposure, for us from February 28, 2007, the end of our preceding fiscal year, to ~~August 24,~~November 23, 2007, the end of our most recent fiscal quarter.

Item 4. Controls and Procedures

American Greetings maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

American Greetings carries out a variety of on-going procedures, under the supervision and with the participation of the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of American Greetings concluded that the Corporation’s disclosure controls and procedures were effective as of the end of the period covered by this report.

There has been no change in the Corporation’s internal control over financial reporting during the Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II –— OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in certain legal proceedings arising in the ordinary course of business. We, however, do not believe that any of the litigation in which we are currently engaged, either individually or in the aggregate, will have a material adverse effect on our business, consolidated financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes in the risk factors that were discussed in our Annual Report on Form 10-K for the year ended February 28, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)		Not applicable.

(b)		Not applicable.

2627

(c)

The following table provides information with respect to our purchases of our common shares during the three months ended ~~August 24,~~November 23, 2007.

Maximum Number of
Shares (or
Total Number of Approximate Dollar
Shares Purchased as Value) that May Yet Be
Total Number of Shares Average Price Part of Publicly Purchased Under the
Period Repurchased Paid per Share Announced Plans Plans

June 2007 Class A – 85,000 $ 25.74   (2) 85,000   (3) $94,370,822
Class B – 52,215   (1) $ 25.34 -

July 2007 Class A – 15,000 $ 26.40   (2) 15,000   (3) $93,974,871
Class B – 500   (1) $ 28.66 -

August 2007 Class A – 180,000 $ 24.25   (2) 180,000   (3) $89,609,721
Class B – 892   (1) $ 24.26 -

Total Class A – 280,000 280,000   (3)
Class B – 53,607   (1) -

Maximum Number of
Shares (or
Total Number of Approximate Dollar
Shares Purchased as Value) that May Yet Be
Total Number of Shares Average Price Part of Publicly Purchased Under the
Period Repurchased Paid per Share Announced Plans Plans
September 2007 Class A – 395,000 $ 24.41 (2) 395,000 (3) $ 79,969,524
Class B – 1,404 (1) $ 25.56 —
October 2007 Class A – 425,000 $ 26.51 (2) 425,000 (3) $ 68,702,396
Class B – 688 (1) $ 26.64 —
November 2007 Class A – 842,302 $ 24.27 (2) 842,302 (3) $ 48,258,793
Class 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 ~~our~~the Class B common ~~shares.~~shares of the Corporation. Pursuant to our ~~Amended~~ Articles of Incorporation, ~~all~~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 ~~its~~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.

~~Proposal 2: Approval of the American Greetings Corporation 2007 Omnibus Incentive Compensation Plan~~

~~Shareholders approved the adoption of the American Greetings Corporation 2007 Omnibus Incentive Compensation Plan.~~

Votes For Against Abstain
68,978,959 10,886,573 497,438

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K


Exhibit
Number		Description

10.1		~~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~~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


(In thousands)	August 24, 2007		February 28, 2007		August 25, 2006		November 23, 2007		February 28, 2007		November 24, 2006
Allowance for seasonal sales returns	$	38,530	$	62,567	$	40,226	$	70,014	$	57,584	$	67,365
Allowance for doubtful accounts		5,118		6,350		8,655		5,402		6,350		8,392
Allowance for cooperative advertising and marketing funds		27,643		24,048		26,883		35,939		24,048		27,677
Allowance for rebates		35,397		40,053		49,009		49,915		40,053		57,669

	$	106,688	$	133,018	$	124,773	$	161,270	$	128,035	$	161,103


(In thousands)	August 24, 2007		February 28, 2007		August 25, 2006		November 23, 2007		February 28, 2007		November 24, 2006
Raw materials	$	21,038	$	17,590	$	25,943	$	16,211	$	17,590	$	22,334
Work in process		16,781		11,315		16,006		12,646		11,315		10,871
Finished products		264,006		207,676		286,161		265,013		207,676		264,940

		301,825		236,581		328,110		293,870		236,581		298,145
Less LIFO reserve		81,332		79,145		80,686		81,945		79,145		81,658

		220,493		157,436		247,424		211,925		157,436		216,487
Display materials and factory supplies		27,683		25,182		26,364		27,284		25,182		27,694

	$	248,176	$	182,618	$	273,788	$	239,209	$	182,618	$	244,181


(In thousands)	August 24, 2007			February 28, 2007			August 25, 2006			November 23, 2007			February 28, 2007			November 24, 2006
Prepaid expenses and other	$	115,382		$	131,972		$	133,992		$	135,017		$	131,972		$	142,329
Other assets		338,932			355,115			471,430			313,928			355,115			371,745

Deferred cost assets		454,314			487,087			605,422			448,945			487,087			514,074

Other current liabilities		(62,290	)		(47,692	)		(64,590	)		(57,607	)		(47,692	)		(58,746	)
Other liabilities		(29,489	)		(49,648	)		(50,138	)		(28,652	)		(49,648	)		(47,272	)

Deferred cost liabilities		(91,779	)		(97,340	)		(114,728	)		(86,259	)		(97,340	)		(106,018	)


Net deferred costs	$	362,535		$	389,747		$	490,694		$	362,686		$	389,747		$	408,056


	Postretirement Benefit												Postretirement Benefit
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	August 24,			August 25,			August 24,			August 25,			November 23,			November 24,			November 23,			November 24,
(In thousands)	2007			2006			2007			2006			2007			2006			2007			2006
Service cost	$	1,050		$	999		$	2,100		$	1,998		$	1,050		$	999		$	3,150		$	2,997
Interest cost		2,150			1,925			4,300			3,850			2,150			1,925			6,450			5,775
Expected return on plan assets		(1,250	)		(1,275	)		(2,500	)		(2,550	)		(1,250	)		(1,275	)		(3,750	)		(3,825	)
Amortization of prior service credit		(1,850	)		(1,849	)		(3,700	)		(3,698	)		(1,850	)		(1,849	)		(5,550	)		(5,547	)
Amortization of actuarial loss		1,650			1,700			3,300			3,400			1,650			1,700			4,950			5,100

	$	1,750		$	1,500		$	3,500		$	3,000		$	1,750		$	1,500		$	5,250		$	4,500


Nominee	Votes For		Votes Withheld

Scott S. Cowen		78,290,924		5,024,920
William E. MacDonald, III		82,034,111		1,281,733
Charles A. Ratner		79,346,283		3,969,561
Zev Weiss		65,379,777		17,936,067


	Page
	Number
PART I -— FINANCIAL INFORMATION

Item 1. Financial Statements		3

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk		26	27

Item 4. Controls and Procedures		26	27

PART II -— OTHER INFORMATION

Item 1. Legal Proceedings		26	27

Item 1A. Risk Factors		26	27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26	27

~~Item 4. Submission of Matters to a Vote of Security Holders~~		27

Item 6. Exhibits		28

SIGNATURES		28	29

EXHIBITS
EX-10.1
~~EX-10.2~~EX-31(A)
~~EX-31.A~~
~~EX-31.B~~EX-31(B)
EX-32


	Defined Benefit Pension												Defined Benefit Pension
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	August 24,			August 25,			August 24,			August 25,			November 23,			November 24,			November 23,			November 24,
(In thousands)	2007			2006			2007			2006			2007			2006			2007			2006
Service cost	$	245		$	202		$	489		$	414		$	251		$	207		$	740		$	621
Interest cost		2,255			2,417			4,520			4,521			2,249			2,192			6,769			6,713
Expected return on plan assets		(2,182	)		(2,213	)		(4,336	)		(4,321	)		(2,143	)		(2,182	)		(6,479	)		(6,503	)
Settlement		1,067			–			1,067			–			—			—			1,067			—
Amortization of prior service cost		69			66			133			133			67			67			200			200
Amortization of actuarial loss		406			590			816			1,351			411			258			1,227			1,609

	$	1,860		$	1,062		$	2,689		$	2,098		$	835		$	542		$	3,524		$	2,640


(Dollars in	Three Months Ended August				%			Six Months Ended August				%			Three Months Ended November				%			Nine Months Ended November				%
thousands)	24, 2007		25, 2006		Change			24, 2007		25, 2006		Change			23, 2007		24, 2006		Change			23, 2007		24, 2006		Change
Total revenue	$	241,939	$	228,910		5.7	%	$	530,866	$	504,325		5.3	%	$	320,120	$	356,773		(10.3	%)	$	850,986	$	861,098		(1.2	%)

Segment earnings		30,332		4,498		574.3	%		111,017		59,749		85.8	%		50,068		88,237		(43.3	%)		161,085		147,986		8.9	%



										Maximum Number of
										Shares (or
							Total Number of			Approximate Dollar
							Shares Purchased as			Value) that May Yet Be
	Total Number of Shares			Average Price			Part of Publicly			Purchased Under the
Period	Repurchased			Paid per Share			Announced Plans			Plans

June 2007	Class A –	85,000		$	25.74	(2)		85,000	(3)		$94,370,822
	Class B –	52,215	(1)	$	25.34			-

July 2007	Class A –	15,000		$	26.40	(2)		15,000	(3)		$93,974,871
	Class B –	500	(1)	$	28.66			-

August 2007	Class A –	180,000		$	24.25	(2)		180,000	(3)		$89,609,721
	Class B –	892	(1)	$	24.26			-

Total	Class A –	280,000						280,000	(3)
	Class B –	53,607	(1)					-


	AMERICAN GREETINGS CORPORATION
		By:	/s/ Joseph B. Cipollone



		Joseph B. Cipollone
January 2, 2008			Vice President, Corporate Controller, and Chief Accounting OfficerOfficer


*		(Signing on behalf of Registrant as a duly authorized officer of the Registrant and signing as the chief accounting officer of the Registrant.)