10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended                                                                                                                         August 24, 2007

OR

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

For the transition period from		to
	Commission file number	1-13859

AMERICAN GREETINGS CORPORATION
(Exact name of registrant as specified in its charter)

Ohio		34-0065325
(State or other jurisdiction of    organization)	(I.R.S. Employer Identification No.) incorporation or

One American Road, Cleveland, Ohio		44144
(Address of principal executive offices)	(Zip Code)

(216) 252-7300
(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               No                     

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]            Accelerated filer [ ]            Non-accelerated filer [ ]

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

Yes                           No          X         

As of September 28, 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

AMERICAN GREETINGS CORPORATION
INDEX

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

	(Unaudited)
	Three Months Ended						Six Months 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

See notes to condensed consolidated financial statements (unaudited).

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

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

See notes to condensed consolidated financial statements (unaudited).

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

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

See notes to condensed consolidated financial statements (unaudited).

5

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

Three and Six Months Ended August 24, 2007 and August 25, 2006

Note 1 – Basis of Presentation

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. 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 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

6

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.

Note 4 – Other Income and Expense

	Three Months Ended						Six Months Ended
	August 24,			August 25,			August 24,			August 25,
(In thousands)	2007			2006			2007			2006
Other operating income – net	$	(320	)	$	(93	)	$	(680	)	$	(422	)
Foreign exchange gain	$	(1,149	)	$	(311	)	$	(2,269	)	$	(1,738	)
Rental income		(277	)		(251	)		(675	)		(783	)
Other		74			(80	)		48			(381	)
Other non-operating income – net	$	(1,352	)	$	(642	)	$	(2,896	)	$	(2,902	)

“Other” includes, among other things, gains and losses on asset disposals and equity income.

Note 5 – Earnings (Loss) Per Share

The following table sets forth the computation of earnings (loss) per share and earnings (loss) per share — assuming dilution:

	Three Months Ended					Six Months Ended
	August 24,		August 25,			August 24,		August 25,
	2007		2006			2007		2006
Numerator (in thousands):
Income (loss) from continuing operations	$	8,726	$	(12,557	)	$	39,348	$	3,993
Denominator (in thousands):
Weighted average shares outstanding		55,767		58,133			55,515		58,135
Effect of dilutive securities:
Convertible debt		—		—			—		1,460
Stock options and other		413		—			387		395
Weighted average shares outstanding – assuming dilution		56,180		58,133			55,902		59,990
Income (loss) from continuing operations per share	$	0.16	$	(0.22	)	$	0.71	$	0.06
Income (loss) from continuing operations per share – assuming dilution	$	0.16	$	(0.22	)	$	0.71	$	0.06

Approximately 1.2 million and 1.9 million stock options outstanding in the three and six month periods ended August 24, 2007, respectively, were excluded from the computation of earnings per share–assuming dilution because the options’ exercise prices were greater than the average market price of the common shares during the respective periods (4.2 million and 4.7 million stock options outstanding in the three and six month periods ended August 25, 2006, respectively). For the three months ended August 25, 2006, all options outstanding (totaling approximately 7.2 million) and the convertible debt were excluded from the computation of earnings per share–

7

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
	August 24,			August 25,			August 24,			August 25,
(In thousands)	2007			2006			2007			2006
Net income (loss)	$	8,375		$	(10,498	)	$	38,425		$	4,894
Other comprehensive income (loss):
Foreign currency translation adjustment and other		4,661			5,821			11,704			19,878
Unrealized (loss) gain on securities		(1	)		(47	)		(1	)		25
Total comprehensive income (loss)	$	13,035		$	(4,724	)	$	50,128		$	24,797

Note 7 – Trade Accounts Receivable, Net

Trade accounts receivable are reported net of certain allowances and discounts. The most significant of these are as follows:

(In thousands)	August 24, 2007		February 28, 2007		August 25, 2006
Allowance for seasonal sales returns	$	38,530	$	62,567	$	40,226
Allowance for doubtful accounts		5,118		6,350		8,655
Allowance for cooperative advertising and marketing funds		27,643		24,048		26,883
Allowance for rebates		35,397		40,053		49,009
	$	106,688	$	133,018	$	124,773

Note 8 – Inventories

(In thousands)	August 24, 2007		February 28, 2007		August 25, 2006
Raw materials	$	21,038	$	17,590	$	25,943
Work in process		16,781		11,315		16,006
Finished products		264,006		207,676		286,161
		301,825		236,581		328,110
Less LIFO reserve		81,332		79,145		80,686
		220,493		157,436		247,424
Display materials and factory supplies		27,683		25,182		26,364
	$	248,176	$	182,618	$	273,788

The valuation of inventory under the Last-In, First-Out (LIFO) method is made at the end of each fiscal year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations, by necessity, are based on estimates of expected fiscal year-end inventory levels and costs and are subject to final fiscal year-end LIFO inventory calculations.

8

Note 9 – Deferred Costs

As of August 24, 2007, February 28, 2007 and August 25, 2006, deferred costs and future payment commitments are included in the following financial statement captions:

(In thousands)	August 24, 2007			February 28, 2007			August 25, 2006
Prepaid expenses and other	$	115,382		$	131,972		$	133,992
Other assets		338,932			355,115			471,430
Deferred cost assets		454,314			487,087			605,422
Other current liabilities		(62,290	)		(47,692	)		(64,590	)
Other liabilities		(29,489	)		(49,648	)		(50,138	)
Deferred cost liabilities		(91,779	)		(97,340	)		(114,728	)
Net deferred costs	$	362,535		$	389,747		$	490,694

Note 10 – Debt

At August 24, 2007, February 28, 2007 and August 25, 2006, long-term debt and their related calendar year due dates were as follows:

(In thousands)	August 24, 2007		February 28, 2007		August 25, 2006
6.10% Senior Notes, due 2028	$	–	$	22,690	$	22,624
7.375% Senior Notes, due 2016		200,000		200,000		200,000
Other		988		1,225		1,454
	$	200,988	$	223,915	$	224,078

At August 24, 2007 and August 25, 2006, debt due within one year totaled $22.7 million and $20.0 million, respectively. There was no debt due within one year at February 28, 2007. The balance of the 6.10% senior notes was reclassified to current during the second quarter of 2008 as these notes may be put back to the Corporation on August 1, 2008, at the option of the holders, at 100% of the principal amount provided the holders exercise this option between July 1, 2008 and August 1, 2008.

The Corporation’s convertible subordinated notes were retired during the second quarter of 2007.

There were no balances outstanding under the $600 million secured credit agreement or the amended and restated receivables purchase agreement as of August 24, 2007. While there were no balances outstanding under either facility, the Corporation does have, in the aggregate, $27.9 million outstanding under letters of credit, which reduces the total credit availability thereunder.

At August 24, 2007, the Corporation was in compliance with the financial covenants under its borrowing agreements.

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Note 11 – Retirement Benefits

The components of periodic benefit cost for the Corporation’s defined benefit pension and postretirement benefit plans are as follows:

	Defined Benefit Pension
	Three Months Ended						Six Months Ended
	August 24,			August 25,			August 24,			August 25,
(In thousands)	2007			2006			2007			2006
Service cost	$	245		$	202		$	489		$	414
Interest cost		2,255			2,417			4,520			4,521
Expected return on plan assets		(2,182	)		(2,213	)		(4,336	)		(4,321	)
Settlement		1,067			–			1,067			–
Amortization of prior service cost		69			66			133			133
Amortization of actuarial loss		406			590			816			1,351
	$	1,860		$	1,062		$	2,689		$	2,098

	Postretirement Benefit
	Three Months Ended						Six Months Ended
	August 24,			August 25,			August 24,			August 25,
(In thousands)	2007			2006			2007			2006
Service cost	$	1,050		$	999		$	2,100		$	1,998
Interest cost		2,150			1,925			4,300			3,850
Expected return on plan assets		(1,250	)		(1,275	)		(2,500	)		(2,550	)
Amortization of prior service credit		(1,850	)		(1,849	)		(3,700	)		(3,698	)
Amortization of actuarial loss		1,650			1,700			3,300			3,400
	$	1,750		$	1,500		$	3,500		$	3,000

During the three months ended August 24, 2007, the Corporation settled a portion of its obligation under one of the defined benefit pension plans at its Canadian subsidiary. For the affected participants, the plan was converted to a defined contribution plan. As a result, a settlement expense of $1.1 million was recorded in the period.

The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. The profit-sharing plan expense was $3.5 million for the six months ended August 24, 2007. There was no profit-sharing expense for the six months ended August 25, 2006. The profit-sharing plan expense for the six month periods are estimates as actual contributions to the profit-sharing plan are made after fiscal year-end and are contingent upon final year-end results. The Corporation matches a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The expenses recognized for the three and six month periods ended August 24, 2007 were $1.0 million and $2.2 million ($1.1 million and $2.2 million for the three and six month periods ended August 25, 2006), respectively.

At August 24, 2007, February 28, 2007 and August 25, 2006, the liability for postretirement benefits other than pensions was $70.3 million, $66.7 million and $14.0 million, respectively, and is included in “Other liabilities” on the Condensed Consolidated Statement of Financial Position. The change since August 25, 2006 is due to the adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R),” effective February 28, 2007.

Note 12 – Income Taxes

Effective March 1, 2007, the Corporation adopted FIN 48, including the provisions of FASB Staff Position No. FIN-48-1, “Definition of Settlement in FASB Interpretation No. 48.” In connection with the adoption of FIN 48, the Corporation recorded a decrease to retained earnings of $14.0 million to recognize an increase in its liability (or decrease to its refundable) for unrecognized tax benefits, interest and penalties under the recognition and measurement criteria of FIN 48. As of March 1, 2007, the Corporation had $33.5 million of total gross unrecognized tax benefits, which represent potential tax benefits for positions taken for tax return filings that have not yet been recognized for financial reporting purposes. If the Corporation sustains its positions, the recognition of these tax benefits would have a favorable effect of $29.3 million on the effective tax rate. It is reasonably possible that the Corporation’s unrecognized tax positions as of March 1, 2007 could

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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.

As of August 24, 2007, the Corporation had $36.0 million of total gross unrecognized tax benefits, the recognition of which would have a favorable effect of $30.6 million on the effective tax rate. Included in the total gross unrecognized tax benefits is $10.4 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, 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 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.

11

Operating Segment Information

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

12

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 million, $8.4 million and $4.5 million at August 24, 2007, February 28, 2007 and August 25, 2006, respectively.

Deferred Revenue

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

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. Learning Horizons, the Hatchery 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 as discontinued operations for all periods presented. Learning Horizons and the Hatchery 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.

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 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 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

13

“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)	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

During the three months ended August 24, 2007, proceeds of $1.1 million 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.

14

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 consolidated total revenues and earnings during the second quarter of 2008, compared to the prior year quarter, primarily driven by our North American Social Expression Products segment where 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. 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.

During the second quarter of 2008, actions related to our investment in cards strategy decreased total revenue by approximately $7 million and SBT implementations reduced total revenue by less than $1 million, compared to approximately $7 million and $8 million, respectively, in the prior year quarter. Other related costs to implement the strategy were approximately $1 million in the current quarter, compared to approximately $2 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 million in the prior year period.

For the six months ended August 24, 2007, total revenue was reduced by approximately $8 million for actions related to our investment in cards strategy and approximately $1 million for SBT implementations, compared to approximately $13 million and $15 million, respectively, in the prior year first half. Other related costs to implement the strategy were approximately $2 million in the current six month period, compared to approximately $4 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 million, compared with approximately $32 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 million, compared to actual expenditures of approximately $66 million in fiscal 2007.

Also contributing to the increased earnings during the quarter was an improvement in the net sales of everyday greeting cards, 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 the North American Social Expression Products segment was partially offset by lower revenues in the International Social Expression Products, Retail Operations and AG Interactive segments as well as the fixtures 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 during the prior year fourth quarter and the elimination of certain mobile product lines in the AG Interactive segment.

15

Results of Operations

Three months ended August 24, 2007 and August 25, 2006

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

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

				% Total						% Total
(Dollars in thousands)	2007			Revenue			2006			Revenue
Net sales	$	365,821			96.9	%	$	357,483			96.2	%
Other revenue		11,606			3.1	%		14,044			3.8	%
Total revenue		377,427			100.0	%		371,527			100.0	%
Material, labor and other production costs		163,052			43.2	%		172,808			46.5	%
Selling, distribution and marketing expenses		144,584			38.3	%		151,475			40.8	%
Administrative and general expenses		55,938			14.8	%		56,881			15.3	%
Other operating income – net		(320	)		(0.1	%)		(93	)		(0.0	%)
Operating income (loss)		14,173			3.8	%		(9,544	)		(2.6	%)
Interest expense		4,839			1.3	%		7,609			2.0	%
Interest income		(2,227	)		(0.6	%)		(2,628	)		(0.7	%)
Other non-operating income – net		(1,352	)		(0.3	%)		(642	)		(0.2	%)
Income (loss) from continuing operations before income tax expense (benefit)		12,913			3.4	%		(13,883	)		(3.7	%)
Income tax expense (benefit)		4,187			1.1	%		(1,326	)		(0.3	%)
Income (loss) from continuing operations		8,726			2.3	%		(12,557	)		(3.4	%)
(Loss) income from discontinued operations, net of tax		(351	)		(0.1	%)		2,059			0.6	%
Net income (loss)	$	8,375			2.2	%	$	(10,498	)		(2.8	%)

For the three months ended August 24, 2007, consolidated net sales were $365.8 million, up from $357.5 million in the prior year second quarter. This 2.3% or approximately $8 million increase was primarily the result of higher net sales in our North American Social Expression Products segment of approximately $13 million combined with a favorable foreign exchange impact of approximately $7 million partially offset by lower net sales of approximately $2 to $3 million in each of our International Social Expression Products, Retail Operations and AG Interactive segments and our fixtures business.

Net sales of our North American Social Expression Products segment increased approximately $13 million. Our candle product lines, which were sold in January 2007, contributed approximately $7 million to net sales in the prior year quarter. As a result, sales of products other than candles increased approximately $20 million. Approximately $7 million of the increase resulted from fewer SBT implementations and approximately $1 million was due to lower spending on our investment in cards strategy. The majority of the remaining increase was due to improvements in everyday card sales. Seasonal card sales also contributed to the remaining increase, primarily Father’s Day and graduation as SBT implementations in the prior year impacted the timing of the sales as discussed below.

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 $2 million, or 5%, as favorable same-store sales of approximately 7% 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.

16

Wholesale Unit and Pricing Analysis for Greeting Cards

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

	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2007			2006			2007			2006			2007			2006
Unit volume		19.5%			(18.8%	)		24.0%			(13.5%	)		20.2%			(18.1%	)
Selling prices		(9.6%	)		12.3%			(12.8%	)		15.0%			(10.1%	)		12.7%
Overall increase / (decrease)		8.1%			(8.9%	)		8.2%			(0.5%	)		8.1%			(7.8%	)

During the second quarter, combined everyday and seasonal greeting card sales less returns improved 8.1% compared to the prior year quarter, with increases in both everyday and seasonal greeting cards. Approximately 30% of the increase was due to SBT implementations that reduced unit volume in the prior year second quarter.

Everyday card unit volume, up 19.5%, and selling prices, down 9.6%, were significantly impacted by the SBT implementations during the prior year second quarter. As reported in the prior year second quarter Form 10-Q, there was a significant amount of SBT implementations during the quarter that decreased unit volume and increased selling prices. Approximately 60% of the increase in everyday card unit volume and 80% of the decrease in selling prices was a direct result of the prior year SBT implementations. The remaining increase in everyday card unit volume was due to improvements across all business units, particularly within the North American Social Expression Products segment.

Seasonal card unit volume increased 24.0% in the current quarter, primarily due to Father’s Day 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 in selling prices of seasonal cards was the result of a higher mix of value priced cards. This change in product mix was primarily the result of the SBT implementations in the prior year.

Expense Overview

Material, labor and other production costs (“MLOPC”) for the three months ended August 24, 2007 were $163.1 million, a decrease from $172.8 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 43.2% in the current period compared to 46.5% for the three months ended August 25, 2006. The decrease of $9.7 million is due to favorable product mix of approximately $15 million partially offset by increased spending of approximately $2 million and foreign exchange impacts of approximately $3 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 the sale of our candle product lines in January 2007. The increased spending was primarily attributable to higher creative content costs.

Selling, distribution and marketing costs for the three months ended August 24, 2007 were $144.6 million, decreasing from $151.5 million for the comparable period in the prior year. The decrease of $6.9 million is due to favorable spending variances of approximately $10 million partially offset by unfavorable foreign exchange impacts of approximately $3 million. The lower spending is due to decreases in retail store expenses of approximately $3 million, 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.

17

Administrative and general expenses were $55.9 million for the three months ended August 24, 2007, a decrease from $56.9 million for the three months ended August 25, 2006. The decrease of $1.0 million is primarily related to favorable spending variances of approximately $2 million partially offset by unfavorable foreign exchange impacts of approximately $1 million. The decreased spending is attributable to lower information technology-related expenses and stock-based compensation expense.

Interest expense for the three months ended August 24, 2007 was $4.8 million, down from $7.6 million for the prior year quarter. The decrease of $2.8 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 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. 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% and 9.6% for the three months ended August 24, 2007 and August 25, 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 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 months ended August 24, 2007 and August 25, 2006

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

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

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

18

For the six months ended August 24, 2007, consolidated net sales were $783.8 million, up from $761.7 million in the prior year six months. This 2.9% or approximately $22 million increase was primarily the result of higher net sales in our North American Social Expression Products segment of approximately $26 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 million, our Retail Operations segment of approximately $7 million and our AG Interactive segment of approximately $3 million.

Net sales of our North American Social Expression Products segment increased approximately $26 million. Our candle product lines, which were sold in January 2007, contributed approximately $14 million to net sales in the prior year six months. As a result, sales of products other than candles increased approximately $40 million. Approximately $5 million of the increase was due to lower spending on our investment in cards strategy and approximately $15 million resulted from fewer SBT implementations. The majority of the remaining increase was due to improvements in everyday and seasonal card sales.

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 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 million from $15.5 million during the six months ended August 25, 2006 to $13.6 million during the six months ended August 24, 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 months ended August 24, 2007 and August 25, 2006 are summarized below:

	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2007			2006			2007			2006			2007			2006
Unit volume		13.8%			(16.1%	)		5.3%			(0.6%	)		11.4%			(12.3%	)
Selling prices		(7.2%	)		9.6%			(3.6%	)		2.8%			(6.2%	)		8.1%
Overall increase / (decrease)		5.6%			(8.0%	)		1.6%			2.2%			4.4%			(5.2%	)

During the six month period, combined everyday and seasonal greeting card sales less returns improved 4.4% compared to the prior year period, with the majority of the increase in everyday greeting cards. Approximately 45% of the increase was due to SBT implementations that reduced unit volume in the prior year first half.

Everyday card unit volume, up 13.8%, and selling prices, down 7.2%, were significantly impacted by the SBT implementations during the prior year six months. As reported in the prior year Form 10-Q, there was a significant amount of SBT implementations during the period that decreased unit volume and increased selling prices. Approximately 70% of the increase in everyday card unit volume and 85% of the decrease in selling prices was a direct result of the prior year SBT implementations. The remaining increase in everyday card unit volume was due to improvements across all business units, particularly within the North American Social Expression Products segment.

Seasonal card unit volume increased 5.3% in the six month period, primarily due to increases in Easter and graduation compared to the prior year period. The lower selling prices were due to a change in mix of cards sold to a higher mix of value priced products.

19

Expense Overview

MLOPC for the six months ended August 24, 2007 were $324.2 million, a decrease from $348.0 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 40.6% in the current period compared to 44.8% for the six months ended August 25, 2006. The decrease of $23.8 million is due to favorable mix of approximately $34 million partially offset by unfavorable volume variances of approximately $2 million due to the increased sales in the current period, unfavorable spending variances of approximately $1 million and foreign exchange impacts of approximately $7 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.

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

Administrative and general expenses were $117.8 million for the six months ended August 24, 2007, a decrease from $118.2 million for the six months ended August 25, 2006. The decrease of $0.4 million is primarily related to favorable spending variances of approximately $2 million partially offset by unfavorable foreign exchange impacts of approximately $2 million. The reduced spending is attributable to lower non-income related business taxes and stock-based compensation expense.

Interest expense for the six months ended August 24, 2007 was $9.6 million, down from $20.1 million for the prior year period. The decrease of $10.5 million is attributable to the financing activities from the prior year period. Expenses of $5.4 million were incurred 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 written off in the prior period. Savings of $8.5 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 the prior period financing activities. 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 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 months ended August 25, 2006.

The effective tax rate on income from continuing operations was 42.0% and 27.6% for the six months ended August 24, 2007 and August 25, 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.

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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, 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.

North American Social Expression Products Segment

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

Total revenue of our North American Social Expression Products segment for the three months ended August 24, 2007, excluding the impact of foreign exchange and intersegment items, increased $13.0 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%, from the prior year period. Our candle product lines, which were sold in January 2007, contributed approximately $14 million to net sales in the prior year six months. As a result, sales of products other than candles increased approximately $40 million. Approximately $5 million of the increase was due to lower spending on our investment in cards strategy and approximately $15 million resulted from fewer SBT implementations. The majority of the remaining increase was due to improvements in everyday and seasonal card sales.

Segment earnings, excluding the impact of foreign exchange and intersegment items, increased $25.8 million compared to the prior year second quarter. The lower spending on our investment in cards strategy and SBT implementations accounted for approximately $8 million of the increase. Segment earnings, excluding the impact of foreign exchange and intersegment items, increased $51.3 million during the six months ended August 24, 2007 compared to the prior year period. The lower spending on our investment in cards strategy and SBT implementations accounted for approximately $21 million of the increase. The remaining increase for both the three and six month periods is attributable to 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.

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International Social Expression Products Segment

(Dollars in	Three Months Ended August				%			Six Months Ended August				%
thousands)	24, 2007		25, 2006		Change			24, 2007		25, 2006		Change
Total revenue	$	59,390	$	62,385		(4.8	%)	$	119,044	$	126,493		(5.9	%)
Segment earnings		1,393		559		149.2	%		1,433		1,056		35.7	%

Total revenue of our International Social Expression Products segment, excluding the impact of foreign exchange, decreased $3.0 million, or 4.8%, compared to the prior year quarter and decreased $7.5 million, or 5.9%, compared to the prior year six months. The majority of the decrease in both the three and six month periods is attributable to lower sales in the U.K., which continues to experience a challenging retail environment including reductions of inventory at retail.

Segment earnings, excluding the impact of foreign exchange, increased $0.8 million compared to the prior year three months and increased $0.4 million compared to the prior year six months. The increase in both periods is attributable to product mix and expense control, including merchandiser and distribution expenses, which more than offset the impact of the reduced sales volume in the current year periods.

Retail Operations Segment

(Dollars in	Three Months Ended August						%			Six Months Ended August						%
thousands)	24, 2007			25, 2006			Change			24, 2007			25, 2006			Change
Total revenue	$	37,382		$	39,453			(5.2	%)	$	76,306		$	82,954			(8.0	%)
Segment loss		(6,484	)		(9,071	)		28.5	%		(9,265	)		(16,372	)		43.4	%

Total revenue, excluding the impact of foreign exchange, in our Retail Operations segment decreased $2.1 million, or 5.2%, for the three months ended August 24, 2007, compared to the prior year period as favorable same-store sales of approximately $2 million, or 6.9%, were more than offset by the reduction in store doors. Total revenue for the quarter decreased approximately $4 million due to fewer stores. The average number of stores was approximately 13% less than in the prior year quarter. For the six months ended August 24, 2007, total revenue decreased $6.6 million compared to the prior year period, as favorable same-store sales of approximately $3 million, or 4.6%, were more than offset by the reduction in store doors. The average number of stores was approximately 13% less than in the prior year period, which accounted for approximately $10 million of the decrease. 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 million in the three months ended August 24, 2007, compared to a loss of $9.1 million in the three months ended August 25, 2006. Segment earnings were favorably impacted by lower store rent, operating expenses and associate costs of approximately $3 million due to fewer stores as we closed approximately 60 underperforming stores in the fourth quarter of 2007. For the six months ended August 24, 2007, segment earnings was a loss of $9.3 million compared to a loss of $16.4 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 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 percentage points.

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AG Interactive Segment

(Dollars in	Three Months Ended August				%			Six Months Ended August				%
thousands)	24, 2007		25, 2006		Change			24, 2007		25, 2006		Change
Total revenue	$	17,158	$	20,447		(16.1	%)	$	37,052	$	40,488		(8.5	%)
Segment earnings		3,177		1,208		163.0	%		6,473		3,249		99.2	%

Total revenue of AG Interactive for the three months ended August 24, 2007, excluding the impact of foreign exchange, was $17.2 million compared to $20.4 million in the prior year second quarter. Total revenue of AG Interactive for the six months ended August 24, 2007, excluding the impact of foreign exchange, was $37.1 million compared to $40.5 million in the prior year six months. Growth in advertising and subscription revenue in our online product group, due to both ongoing operations and the second quarter 2007 acquisition of an online greeting card business, was more than offset by the decrease in revenue of our mobile product group due to reduced offerings for both the three and six month periods. At the end of the second quarter of 2008, AG Interactive had approximately 3.6 million online paid subscribers versus 3.3 million at the prior year quarter end.

Segment earnings, excluding the impact of foreign exchange, increased $2.0 million for the quarter ended August 24, 2007, compared to the prior year period. Segment earnings, excluding the impact of foreign exchange, increased from $3.2 million in the six months ended August 25, 2006 to $6.5 million in the current year period. Growth in 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.

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, 2006, has been included.

Operating Activities

Operating activities provided $58.1 million of cash during the six months ended August 24, 2007, compared to $28.1 million of cash in the prior year period.

Other non-cash charges were $3.9 million for the six months ended August 24, 2007, compared to $7.0 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 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 million from February 28, 2007, compared to a use of $57.1 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 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 million of cash from February 28, 2007, compared to using $24.2 million in the prior year six months. The difference is due to refundable tax amounts in the prior year.

Deferred costs — net represents payments under agreements with retailers net of the related amortization of those payments. During the six months ended August 24, 2007, amortization exceeded payments by $28.5 million; in the six months ended August 25, 2006, amortization exceeded payments by $26.8 million. See Note 9 to the condensed consolidated financial statements for further detail of deferred costs related to customer agreements.

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Accounts payable and other liabilities were a use of $23.4 million during the six months ended August 24, 2007, compared to $33.2 million in the prior year period. The change from the prior year is due primarily to the change in profit-sharing payments and accruals during the respective periods.

Investing Activities

Investing activities used $15.1 million of cash during the six months ended August 24, 2007, compared to providing $188.9 million in the prior year period. The use of cash in the current year is related to capital expenditures of $13.6 million as well as cash payments for business acquisitions. 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 months ended August 25, 2006.

Financing Activities

Financing activities provided $1.3 million of cash during the six months ended August 24, 2007, compared to using $343.7 million during the six months ended August 25, 2006. Our receipt of the exercise price on stock options provided $24.3 million in the current period, but was offset by dividend payments and share repurchases as discussed below. 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. We also repaid $159.1 million of our 7.00% convertible subordinated notes and borrowed $20.0 million under our credit facility. We paid $8.1 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 months ended August 24, 2007, $10.4 million was paid to repurchase approximately 0.4 million shares under the repurchase program, compared to $108.6 million used in the prior year period to repurchase approximately 4.9 million shares. We also paid $1.5 million in the current period to repurchase 0.1 million Class B common shares, in accordance with our Amended Articles of Incorporation.

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

Credit Sources

Substantial credit sources are available to us. In total, we had available sources of approximately $600 million at August 24, 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 outstanding under these arrangements at August 24, 2007. While there were no balances outstanding under either facility, we do have, in the aggregate, $27.9 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

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suppliers, we are unable to estimate the future impact on earnings and cash flows, but it is likely that these impacts could be significant.

Critical Accounting Policies

Please refer to the discussion of our Critical Accounting Policies as disclosed in our Annual Report on Form 10-K for the year ended February 28, 2007.

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;

• our ability to successfully complete, or achieve the desired benefits associated with, dispositions;

• a weak retail environment;

• consumer acceptance of products as priced and marketed;

• the impact of technology on core product sales;

• competitive terms of sale offered to customers;

• successful implementation of supply chain improvements and achievement of projected cost savings from those improvements;

• increases in the cost of material, energy, freight and other production costs;

• our ability to comply with our debt covenants;

• fluctuations in the value of currencies in major areas where we operate, including the U.S. Dollar, Euro, U.K. Pound Sterling and Canadian Dollar;

• escalation in the cost of providing employee health care;

• successful integration of acquisitions; and

• the outcome of any legal claims known or unknown.

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.

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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, 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.

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(c) The following table provides information with respect to our purchases of our common shares during the three months ended August 24, 2007.

										Maximum Number 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)					-

(1)	There is no public market for our Class B common shares. Pursuant to our Amended Articles of Incorporation, all of the Class B common shares were repurchased by American Greetings for cash pursuant to its right of first refusal.
(2)	Excludes commissions paid, if any, related to the share repurchase transactions.
(3)	On April 17, 2007, American Greetings announced that its Board of Directors authorized a new program to repurchase up to $100 million of its Class A common shares. There is no set expiration date for this repurchase program and these repurchases are made through a 10b5-1 program in open market or privately negotiated transactions which are intended to be in compliance with the SEC’s Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.

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

Our Annual Meeting of Shareholders was held on June 22, 2007, at which the following proposals were put to a vote of shareholders of record as of May 1, 2007:

Proposal 1: Election of Directors
The following were elected to Class III of our Board of Directors with a term expiring in 2010: Scott S. Cowen, William E. MacDonald, III, Charles A. Ratner and Zev Weiss.

The following individuals were continuing Class I directors with a term expiring in 2008: Morry Weiss, Stephen R. Hardis and Michael J. Merriman, Jr.

The following individuals were Class II directors with a term expiring in 2009: Joseph S. Hardin, Jr., Jerry Sue Thornton and Jeffrey Weiss.

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

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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 Plan
(31) a	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31) b	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN GREETINGS CORPORATION
By:	/s/ Joseph B. Cipollone
	Joseph B. Cipollone
	Vice President, Corporate Controller,      and Chief Accounting Officer*

October 3, 2007

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

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EX-10.1

Exhibit __________

TABLE OF CONTENTS

Eligibility	1
How the Plan Works	2
Your Individual Target Incentive	2
Weighting the Measures	3
Measuring Performance	4
Performance Multipliers	4
Performance Measures	5
Corporate Performance	5
Business Unit Performance	6
Individual Performance	7
Summary — Total Award Calculation	8
Appendix	9
Business Unit Plan Components	9
Administrative Details	10
Definition of Common Terms	11

AMERICAN GREETINGS KEY MANAGEMENT ANNUAL INCENTIVE PLAN
	1

AMERICAN GREETINGS
KEY MANAGEMENT
ANNUAL INCENTIVE PLAN

This brochure provides an overview of the Key Management Annual Incentive Plan — a valuable component of your total compensation package. It contains details about how the Plan rewards for Corporate, Business Unit and Individual performance results. In addition, your Incentive Compensation Statement — provided separately — includes information specific to your participation in the plan: your assigned business unit and sub-business unit if any, your target

incentive percentage and detailed examples of the incentive calculation under different performance scenarios. Together, these documents provide the information you need to understand the Plan so you can maximize your annual incentive award.

n ELIGIBILITY

You are eligible to participate in the Key Management Annual Incentive Plan if you are a Key Manager or Officer in one of the following primary business units and you do not participate in another Company-sponsored annual incentive plan:

	PRIMARY BUSINESS UNIT	PARTICIPANTS
	Corporate Consolidated	Chairman, Chief Executive Officer, President and
		Chief Operating Officer and other Section 16
		Executive Officers
	Total Social Expressions Group (SEG)	Associates who are part of:
		AGI In Store
		Business Intelligence
		Canada
		Carlton Mexico
		Carlton Retail
		Corporate Staff (Delta, Finance, HR, ISD, Legal)
		Creative
		DesignWare & Specialty SBU
		Everyday & Seasonal Cards
		Field Sales
		Field Sales Operations (FSO)
		Gift Packaging & Holiday SBU
		Global Sourcing
		Inbound Licensing
		Invention Lab
		Plants
		All other North American Greeting Card
		Division units
	AG Intellectual Properties Group	AGIP Corporate Staff
	AG Interactive	AG Interactive associates
	AG Properties	AG Properties associates
	UK Greetings	UK Greetings associates
	John Sands Group	John Sands Group associates
Key Managers include individuals in Key Manager 1 and Key Manager 2 job levels. Officers include Corporate-level Executive Directors, Vice Presidents, Senior Vice Presidents, President and Chief Operating Officer, Chief Executive Officer, Chairman of the Board and any other job level(s) that may be designated.

	AMERICAN GREETINGS KEY MANAGEMENT ANNUAL INCENTIVE PLAN
2

n HOW THE PLAN WORKS

The Key Management Annual Incentive Plan rewards participants for their contributions to American Greetings success over a 12-month fiscal year. The Plan rewards for successful results in three key performance areas:

§	Corporate Performance. At the beginning of each fiscal year, the American Greetings Board of Directors approves the corporate earnings per share (EPS) goal for the year. Actual corporate results are compared to this goal at the end of the fiscal year.
§	Business Unit Performance. Every year, each business unit develops an earnings goal — which is approved by the Board of Directors — based on its strategic direction, business opportunities and growth projections. Business unit performance is based on actual fiscal year earnings results for your assigned business unit compared to goal.
§	Individual Performance. Your manager will determine your individual performance compared to your objectives for the year. Your actual fiscal year-end performance rating determines the percentage of the target individual incentive amount you earn.

At the end of each fiscal year, incentive amounts are determined based on performance in these three areas and are added together to determine your total Key Management Annual Incentive Plan award.

The total award — which is paid in cash — can range from 0% to 200% of your individual target incentive. This provides significant incentive earnings opportunity when performance in one or more of these performance areas exceeds expectations.

Let’s take a look at the components of the Plan and how they work.

YOUR INDIVIDUAL TARGET INCENTIVE

At the beginning of each fiscal year, an individual target incentive is established for you based on your job level. This target incentive is typically communicated as a percentage of your base earnings but may also be expressed as a dollar amount, determined by multiplying your base earnings by your target incentive percentage as follows:

The target incentive represents what you would earn if each performance measure in this incentive plan (Corporate, Business Unit and Individual) were achieved at 100% of goal (i.e., all components achieve their target performance).

EXAMPLE

For example, assume Joe is a Key Manager 1 with base earnings of $60,000. His target incentive under the Plan is 10%, or $6,000 ($60,000 x 10% = $6,000).

We’ll refer to Joe throughout this brochure as we describe how the Plan works.

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WEIGHTING THE MEASURES

Performance measures are weighted by job level to reflect the degree to which positions within a job level can affect performance in each of the three performance measurement areas. Accordingly, associates at higher job levels — who have more impact on the achievement of corporate objectives — have more weight assigned to the corporate performance measure. Lower job levels, in contrast, have more weight assigned to the business unit performance measure.

The following chart shows the specific weightings for each job level for fiscal year 2008.

	FISCAL YEAR 2008 WEIGHTINGS
JOB LEVEL		Corporate	Business Unit	Individual
Chairman of the Board, CEO, President and COO, Senior Vice Presidents and other Section 16 Executive Officers		30%	40%	30%
Vice Presidents, Executive Directors, Key Managers 2, Key Managers 1		20%	50%	30%

EXAMPLE

Joe, a Key Manager 1 with base earnings of $60,000 and a 10% incentive target, would have the following set of performance measure weightings and target incentive awards:

Corporate            Business Unit            Individual            Total Key Manager 1 Weightings 20% 50% 30% 100%

Joe’s Target Incentive 2% 5% 3% 10% (Percent of Base Earnings) (10% x 20%) (10% x 50%) (10% x 30%)

Joe’s Target Incentive ($) $1,200$3,000$1,800 $6,000 ($ 60,000 x 2%) ($60,000 x 5%) ($60,000 x 3%)

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MEASURING PERFORMANCE

At the beginning of each fiscal year, the American Greetings Board of Directors approves the corporate earnings per share (EPS) goal for the coming year. This goal provides the context within which each business unit then sets its earnings goal.

Corporate and business unit actual earnings performance is determined at the end of the fiscal year and expressed as a percentage of the earnings goal. In contrast, individual results are evaluated by your manager at fiscal year-end and communicated as an individual performance rating. If the corporation’s or your business unit’s results exceed or fall below the earnings goal, Plan payouts are adjusted.

PERFORMANCE THRESHOLD

The corporate performance threshold is 90% of the fiscal year earnings goal.

n	Below Target Performance. If actual earnings results do not meet a minimum level of performance — the performance threshold — no incentive award is earned for that performance measure. Earnings results that fall between threshold and goal result in a reduced incentive award.
n	Target Performance. When actual results meet the earnings goal, you receive 100% of the target incentive award for that performance measure.
n	Above Target Performance. When actual results exceed the earnings goal, you can receive up to 200% of the targeted incentive award for that performance measure.

As described above, there is a precise relationship between actual earnings results and the corresponding incentive award. As performance rises or falls, so does your incentive award. But how much your award changes as performance varies is determined by something called a performance multiplier, which is discussed in the following section.

PERFORMANCE MULTIPLIERS

The performance multiplier is used to calculate the corporate and business unit incentive awards when performance is above or below goal, provided the performance thresholds have been achieved.

Corporate and business unit performance incrementally increase your incentive award for performance above goal. They also incrementally decrease your incentive award for performance below goal.

For example, a multiplier of 4 means that for every 1% increase or decrease in the percentage of goal achieved, there is a corresponding 4% increase or decrease in the percentage of target incentive earned.

The formula below illustrates the role of the performance multiplier in determining the adjustment that is made to your incentive target based on actual performance achieved.

Example of a performance adjustment when the percent of goal achieved is 105% and the performance multiplier is 4

100% + ( 4x 5% ) = 120%

Target            Performance Results Above Performance Performance            Multiplier            Goal            Adjustment

Important Note: Business unit performance multipliers vary by business unit. The multiplier assigned to your business unit is provided in your fiscal year 2008 Incentive Plan Statement. A list of all business unit multipliers is provided in the Appendix.

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n PERFORMANCE MEASURES

CORPORATE PERFORMANCE

Corporate performance is based on fiscal year-end corporate earnings per share compared to goal. Minimum performance of 90% of goal must be attained before any incentive is earned. From that point forward, incentive awards are determined using a performance multiplier of 4 as illustrated in the example below.

CORPORATE PERFORMANCE

+

BUSINESS UNIT PERFORMANCE

+

INDIVIDUAL PERFORMANCE

EXAMPLE

Joe is a KM1 with $60,000 in base earnings. Let’s assume corporate EPS performance at year-end is 105% of goal. Joe’s corporate incentive award is calculated in three steps:

1.	Determine the corporate performance adjustment factor
2.	Apply the corporate performance adjustment to Joe’s target incentive percentage for the corporate component
3.	Multiply the result by Joe’s base earnings

100% + ( 4 x 5% ) = 120%

Target Performance Corporate Results Above Goal Performance Adjustment Performance Multiplier

CORPORATE INCENTIVE Joe’s Target Incentive 2%

Performance Adjustment x 120% Joe’s Base Earnings x $60,000 Joe’s Incentive Earned = $1,440

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BUSINESS UNIT PERFORMANCE

Business unit performance is based on fiscal year-end earnings results compared to goal. All associates are assigned to a primary business unit. However, some will also be assigned to a sub-business unit based on business conditions and American Greetings strategic priorities.

Business unit and sub-business unit performance measures will vary, but your primary business unit measure will be one of the following:

n	Business Unit Pro Forma Earnings Before Interest and Taxes (Business Unit Pro Forma EBIT), or
n	Corporate Earnings Before Interest and Taxes (Corporate EBIT).

Earnings are charged/credited for any variation from plan in Net Capital Employed at the weighted average cost of capital. Performance is based on fiscal year-end earnings compared to goal.

The incentive is earned when the performance threshold for the primary business unit (or sub-business unit, where applicable) is achieved.

n	The performance threshold for all primary and sub-business units, except for Carlton Cards Retail, is 90% of goal.
n	The performance threshold for Carlton Cards Retail is 60% of goal.

A listing of each business unit’s and sub-business unit’s assigned earnings measure(s) and performance multipliers are provided in the Appendix. An example of the calculation of this incentive follows.

CORPORATE PERFORMANCE

+

BUSINESS UNIT PERFORMANCE

+

INDIVIDUAL PERFORMANCE

EXAMPLE

Joe is a KM1 with $60,000 in base earnings. Let’s assume his Business Unit has a performance multiplier of 4 and that its performance at year-end is 96% of goal. Joe’s business unit incentive award is calculated in three steps:

1.	Determine the business unit performance adjustment
2.	Apply the business unit performance adjustment to Joe’s target incentive percentage for the business unit component
3.	Multiply the result by Joe’s base earnings

100% + ( 4 x — 4% ) = 84%

Target Performance Business Unit Results Below Goal Business Unit Performance Multiplier Performance Adjustment

BUSINESS UNIT INCENTIVE Joe’s Target Incentive 5%

Performance Adjustment x 84% Joe’s Base Earnings x $60,000 Joe’s Incentive Earned = $2,520

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INDIVIDUAL PERFORMANCE

At the end of the fiscal year, managers assess each participant’s performance compared to other participants within the business unit. Managers determine the degree to which the participants achieve the goals and job expectations defined at the beginning of the year.

Managers rank participants based on their relative performance and determine the actual performance rating based on these rankings and the targeted percentage of participants for each rating.

§	Participants who receive an “Exceeds Expectations” performance rating receive the target incentive for the individual performance measure multiplied by 150%. In certain circumstances, this target can be increased to 200%1.
§	Participants who receive a “Meets Expectations” rating will receive 100% of their target individual incentive.
§	Participants who receive an “Improvement Expected/ Performance Below Peer Level” rating will not receive an individual performance incentive and will only receive 50% of any incentive otherwise earned.

If corporate earnings performance is below the performance threshold, only those associates with a performance rating of “Exceeds Expectations” may receive awards for the individual performance measure.

§ Participants who receive an “Exceeds Expectations” performance rating will receive 50% of the target incentive payable for the individual performance component.

§ Participants who receive a “Meets Expectations” or “Improvement Expected/Below Peer Level” performance rating will not receive any portion of the individual performance incentive.

If you are a senior executive officer, please refer to the fiscal year 2008 Addendum to the Individual Performance Component, included with your personalized Incentive Compensation Statement, for a complete description of how individual performance under the Key Management Annual Incentive Plan applies to you.

The following schedule shows how individual amounts will be adjusted based on individual performance.

¹  Managers can, at their discretion, increase the Individual Payout Percentage to 200% for associates rated as “Exceeds Expectations” who demonstrate an extraordinary level of performance. Accomplishments must be the result of extraordinary effort and initiative that go well beyond the contributions of other associates rated as “Exceeds Expectations.” The number of persons eligible to receive an Individual Payout Percentage of 200% may not exceed one-third of the total number of associates rated as “Exceeds Expectations.”

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n SUMMARY—TOTAL AWARD CALCULATION

At the end of American Greetings fiscal year, corporate, business unit and individual results are evaluated and your total incentive award is calculated.

EXAMPLE
The following example shows how Joe’s actual incentive award is calculated based on the assumptions that were used throughout this brochure:
	JOE’S ASSUMPTIONS		PERFORMANCE ASSUMPTIONS
	Base Earnings:	$60,000	Corporate:	105% of Goal
	Individual Target Percentage:	10%	Business Unit:	96% of Goal
	Individual Target Incentive:	$6,000	Individual:	Exceeds Expectations

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n APPENDIX

The following section provides additional details about the plan, including details about the business units, their performance measures and performance multipliers.

Please note that some plan participants will have their business unit incentive determined based on performance in two areas. Details about the weightings and performance multipliers for these measures are shown below and on your personalized Incentive Compensation Statement, as appropriate.

	BUSINESS UNIT COMPONENTS
BUSINESS UNIT/	PERFORMANCE								PERFORMANCE
PARTICIPANTS	MEASURE		WEIGHT						MULTIPLIER
	Primary Unit	Sub Unit	Primary Unit			Sub Unit			Primary Unit		Sub Unit
Corporate Consolidated Chairman, CEO, President and COO and Section 16 Executive Officers	Corporate EBIT			100	%					4
Business Intelligence, Canada, Carlton Mexico, Corporate Staff (Delta, Finance, HR, ISD, Legal), Creative, DesignWare & Specialty SBU, Everyday & Seasonal Cards, Field Sales, FSO, Gift Packaging & Holiday SBU, Global Sourcing, Invention Lab, Plants, all other North American Greeting Card Division units	Total SEG(1)			100	%					4
Inbound Licensing	Total SEG(1)	AG Interactive pro forma EBIT		50	%		50	%		4		2
AGI In Store	Total SEG(1)	AGI In Store pro forma EBIT		50	%		50	%		4		2
Carlton Cards Retail	Total SEG(1)	Carlton Cards Retail pro forma EBIT		25	%		75	%		4		1
AG Intellectual Properties Group – Corporate Staff	AG Interactive pro forma EBIT + AG Properties pro forma EBIT			100	%					2
AG Interactive	AG Interactive pro forma EBIT			100	%					2
AG Properties	AG Properties pro forma EBIT			100	%					2
UK Greetings	UK Greetings pro forma EBIT			100	%					4
John Sands Group	John Sands Group pro forma EBIT			100	%					2

⁽¹⁾ Total SEG = NAGCD pro forma EBIT (includes Carlton Mexico pro forma EBIT, Retail Eliminations and Corporate Expense) + Carlton Cards Retail pro forma EBIT + AGI In Store pro forma EBIT

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ADMINISTRATIVE DETAILS

If your employment status changes, your Plan participation and any payouts may be affected as described below.

§	New Hires. If you are hired during the Plan year —defined as the American Greetings fiscal year ending February 29, 2008 — and are eligible to participate in the Key Management Annual Incentive Plan, you will receive a prorated incentive payout based on the period of time you participated in the Plan and your base earnings during that time.
§	Promotions and Transfers. If you are promoted or you move from one business unit to another during the Plan year, your individual target incentive, base earnings, business unit goal and corresponding performance multiplier may change. If any of these do change, your incentive will be calculated based on the targets, base earnings, plan provisions and actual performance for each business unit you participated in on a prorated basis basis and rounded to the nearest full month.
§	Termination. If you voluntarily or involuntarily leave American Greetings before the completion of the Plan year, you will forfeit your Key Management Annual Incentive Plan award for that fiscal year.
§	Retirement, Leave of Absence, Disability, Death. If your employment ends during the Plan year because you elect to retire after age 60, or if you take a leave of absence, suffer a permanent disability or die, your incentive payout will be prorated to the nearest full month based on the actual period you participated in the Plan during the year.
	An associate will be deemed to suffer a permanent disability only in the following circumstances: (A) where an associate is absent from employment with American Greetings due to his or her inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which either can be expected to result in death, or can be expected to last for a continuous period of not less than 12 months; or (B) where an associate is scheduled

	to receive income replacement benefits for a period of not less than 3 months under an accident and health plan covering American Greetings associate on account of a medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than 12 months.
§	Incentive Payout. Incentive payouts earned in fiscal year 2008 will be paid to participants within two and one-half months following the end of fiscal 2008, typically within 60 days after the end of the fiscal year. Incentive payouts are subject to normal tax withholding at a standardized rate and will be deposited to a bank account of your choice.
§	It is the intent that incentive payouts fall under the short-term deferral rules of Section 409A of the Internal Revenue Code to exempt the payment of such Key Management Annual Incentive Plan benefits from the requirements of Section 409A.
§	Calculating Payouts. For computation purposes, financial goals and actual performance results are rounded to the nearest $1,000. The percent of the financial goal achieved and the percent of target bonus earned is rounded to the nearest one-tenth of one percent. The actual incentive payout is rounded to the nearest dollar.
§	Omnibus Incentive Plan. The Key Management Annual Incentive Plan is governed by the American Greetings Corporation 2007 Omnibus Incentive Compensation Plan, as such plan may be amended from time to time. In the event of a conflict between the Key Management Annual Incentive Plan and the Omnibus Incentive Plan, the terms of the Omnibus Incentive Plan will govern.
§	Questions. If you have questions about the Key Management Annual Incentive Plan and how it works, please contact your manager. Your manager will work with you to ensure you understand the Plan so you can maximize your annual incentive.

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DEFINITION OF COMMON TERMS

The following provides definitions of some common terms used throughout this brochure. Capitalized terms used herein that are not defined will have the meaning set forth in the Omnibus Incentive Plan.

§	Base Earnings. Your base earnings are defined as your base salary earned during the fiscal year. Base earnings exclude health and welfare benefits, bonus, commission, and incentive payments, overtime and other indirect compensation. Base earnings for Plan participants outside of the U.S. may be defined differently and may vary by country.
§	Business Unit EBIT. A business unit’s earnings before interest and taxes.
§	Business Unit Pro Forma EBIT. A business unit’s earnings before interest and taxes, charged/credited for any variation from plan in Net Capital Employed at the weighted average cost of capital.
§	Corporate Earnings Per Share (EPS). Corporate earnings per share is measured at the end of the fiscal year and is calculated as corporate pre-tax income minus taxes divided by the total number of planned shares outstanding as calculated on a fully diluted basis.

§	Corporate Earnings Before Interest and Taxes (Corporate EBIT). Consolidated corporate earnings before interest and taxes, charged/credited for any variation from plan in Net Capital Employed at the weighted average cost of capital.
§	Fiscal Year. March 1 through February 28 or 29 of the following calendar year.
§	Net Capital Employed (NCE). Assets (minus cash and LIFO reserve) minus liabilities (not including interest-bearing debt, inter-company payables and income taxes).

blank page

Nothing in this brochure or in any individual Incentive Compensation Statement should be construed to create or imply any contract of employment between an associate and American Greetings and its subsidiaries or to create any binding contractual right to payment of any specific amount under the American Greetings Key Management Annual Incentive Plan. The provisions of this brochure describe the general guidelines used by American Greetings in determining the benefits payable to Plan participants; however, in every case, American Greetings reserves the right to reduce or eliminate the amount that would otherwise be payable to a participant or participants under such guidelines where it determines, in its discretion, that such a reduction is necessary or appropriate, in light of the participant’s performance or other relevant business circumstances.

American Greetings reserves the right to terminate or make changes to the Plan, including retroactively, at any time without prior notice to any of the Plan’s participants (provided, that no amendment to the Plan adopted more than 90 days after the beginning of the applicable fiscal year may have the effect of increasing the amount that is or could be payable under the guidelines set forth herein for such fiscal year to any participant who is a “covered employee” of American Greetings as defined in section 162(m)(3) of the Internal Revenue Code). In the case of our executive officers, the Board of Directors (or committee thereof), and in the case of all other participants, the Board of Directors (or committee thereof), the Chief Executive Officer and the Chairman are the only persons who have the authority to alter or amend this Plan. Any such alteration or amendment must be done in writing. No participant should rely on an alteration or amendment to this Plan unless it is made in writing and signed by the Chief Executive Officer or the Chairman.

SENIOR EXECUTIVE OFFICER
ADDENDUM TO INDIVIDUAL PERFORMANCE COMPONENT OF
FY2008 AMERICAN GREETINGS KEY MANAGEMENT ANNUAL INCENTIVE PLAN

Individual Performance
Notwithstanding the description of the Individual Performance component included in the brochure (the “Plan Brochure”) outlining the Fiscal 2008 Key Management Annual Incentive Plan, the Individual Performance component of American Greetings Key Management Annual Incentive Plan for all Senior Executive Officers of American Greetings, including the Corporation’s Chairman, Chief Executive Officer, President and Chief Operating Officer, Senior Vice Presidents and other Section 16 officers (collectively the “Senior Executive Officers”) is modified by this Addendum as follows:

§	A new performance rating of “Satisfactory” has been added to categorize the achievement of goals and objectives at an overall performance level that is greater than the “Improvement Expected / Performance Below Peer Level” performance rating, but less than the “Meets Expectations” rating.
§	There is not a specified target for the percentage of officers to be rated either as “Satisfactory” or “Meets Expectations”; however, on a combined basis, the targeted percentage of Senior Executive Officers to be rated “Meets Expectations” or “Satisfactory” is 60%.

Accordingly, as with all participants in the Key Management Annual Incentive

Plan, at the end of the fiscal year, managers assess each participant’s performance compared to other participants within the business unit. Managers determine the degree to which the participants achieve the goals and job expectations defined at the beginning of the year.

Managers rank participants based on their relative performance and determine actual performance ratings based on these rankings and the targeted percentage of participants for each rating.

§	For Senior Executive Officers, the targeted percentage of participants for the “Exceeds” Performance rating is 30%; the targeted percentage for the “Meets Expectations” or “Satisfactory” performance ratings on a combined basis is 60%; and the targeted percentage for the “Improvement Expected / Performance Below Peer Level” is 10%. (See chart on the following page.)
§	As with other participants, Senior Executive Officers who receive an “Exceeds Expectations” performance rating receive the target incentive for the individual performance measure multiplied by 150%. In certain circumstances, this target can be increased to 200%. (1)
§	As with other participants, Senior Executive Officers who receive a

	“Meets Expectations” rating will receive 100% of their target individual incentive.
§	Senior Executive Officers who receive a “Satisfactory” rating will receive 50% of their target individual incentive.
§	As with other participants, Senior Executive Officers who receive an “Improvement Expected / Performance Below Peer Level” rating will not receive an individual performance incentive and will only receive 50% of any incentive otherwise earned.

As with other participants, if corporate earnings performance is below the performance threshold, only those Senior Executive Officers with a performance rating of “Exceeds Expectations” may receive awards for the individual performance measure.

§	Participants, including Senior Executive Officers, who receive an “Exceeds Expectations” performance rating, will receive 50% of the target incentive payable for the individual performance component.
§	Senior Executives who receive a “Meets Expectations”, “Satisfactory”, or “Improvement Expected / Below Peer Level” performance rating will not receive any portion of the individual performance incentive.

The following schedule shows how individual amounts will be adjusted based on individual performance.

⁽¹⁾ As with other participants, managers can, at their discretion, increase the Individual Payout percentage to 200% for associates, including Senior Executive Officers, rated as “Exceeds Expectations” who demonstrate an extraordinary level of performance. Accomplishments must be the result of extraordinary effort and initiative that go well beyond the contribution of other associates rated as “Exceeds Expectations”. The number of persons eligible to receive an Individual Payout Percentage of 200% may not exceed one-third of the total number of Senior Executives rated as “Exceeds Expectations”.

Except as set forth in this Addendum, the description of the Key Management Annual Incentive Plan included in the Plan Brochure remains unchanged. In the event of a conflict between the terms described in the Plan Brochure and this Addendum, the terms set forth in this Addendum will govern.

EX-10.2

Exhibit 10.2

AMERICAN GREETINGS CORPORATION
2007 OMNIBUS INCENTIVE COMPENSATION PLAN

NONQUALIFIED STOCK OPTION GRANT TO NON-EMPLOYEE DIRECTOR

Option	Nonqualified option to purchase Class A Common Shares of American Greetings Corporation ("AG")
Exercise Price	$           per share
Date of Grant	(the "Date of Grant")
Vesting	The option granted hereby will become exercisable in the manner set forth in your Notice of Grant, as such term is defined below.

This STOCK OPTION GRANT AGREEMENT (the “Agreement”), dated as of the Date of Grant, is delivered by AG to the Director (the “Grantee”) identified in the notice of stock option grant (the “Notice of Grant”) delivered to Grantee.

RECITALS

The American Greetings Corporation 2007 Omnibus Incentive Compensation Plan (the “Plan”) provides for the grant of options to purchase common shares of AG. The Committee (as defined in the Plan) has decided to make a stock option grant as an inducement for Grantee to promote the best interests of AG and its shareholders. A copy of the Plan is provided herewith.

AGREEMENT

     Grantee has or will receive a Notice of Grant, which, if accepted in accordance with the instructions in such notice, will constitute Grantee’s binding agreement with the following terms:

1. Grant of Option. Subject to the terms and conditions set forth in this Agreement, the Plan and the Notice of Grant, which are incorporated herein by reference and deemed a part of this Agreement, AG hereby grants to Grantee a nonqualified stock option (the “Option”) to purchase the number and type of common shares of AG (“Shares”) at an exercise price per Share as indicated in the Notice of Grant. The Option will become exercisable according to Section 2 below.

2. Exercisability of Option.

     (a) The Option will become exercisable on the dates set forth under “vesting” in the Notice of Grant, if Grantee is on the Board on the applicable date. The exercisability of the Option is cumulative, but will not exceed one hundred percent (100%) of the Shares subject to the Option. If the foregoing vesting schedule would produce fractional Shares, the number of Shares for which the Option becomes exercisable will be rounded down to the nearest whole Share.

     (b) Notwithstanding the foregoing, the Option will become fully exercisable on the date of Grantee’s death, Disability, or Retirement, provided Grantee is on the Board, or providing service to, AG (as defined in the Plan) on such date. For purposes of this Agreement, “Retirement” means termination of Grantee’s service as a director after completing ten (10) or more years of continuous service and attaining age sixty-five (65), and “Disability” means that Grantee is “disabled” as such term is defined in Section 409A(a)(2) of the Internal Revenue Code.

3. Term of Option.

     (a) The Option will have a term of ten (10) years from the Date of Grant and will terminate at the expiration of that period, unless it is terminated at an earlier date pursuant to the provisions of this Agreement or the Plan.

     (b) The Option will automatically terminate prior to the expiration of its term of ten (10) years upon the happening of the first of the following events:

     (i) The expiration of the six (6) month and one (1) day period after Grantee ceases to provide service to AG, if such cessation of service is for any reason other than Disability, Retirement, death or Cause (as defined below).

     (ii) The expiration of one (1) year from the date of death or Disability of Grantee if such death or Disability was the cause of, or occurred within three (3) months after, cessation of Grantee’s service as a Director of AG.

     (iii) The date on which Grantee ceases to be a Director of AG for Cause. In addition, notwithstanding the prior provisions of this Section 3, if Grantee engages in conduct that constitutes Cause after Grantee’s service ceases, the Option will immediately terminate.

Notwithstanding the foregoing, in no event may the Option be exercised after the tenth anniversary of the Date of Grant. Any portion of the Option that is not exercisable at the time Grantee ceases to be a Director of AG will immediately terminate. For purposes of this Agreement, the term “Cause” will have such meaning as may be defined in any agreement between Grantee and AG and, if none, will mean any one or more of the following: Grantee’s (i) fraud; (ii) misappropriation of funds; (iii) commission of a felony or of an act or series of acts which results in material injury to the business reputation of AG; (iv) commission of a crime or act or series of acts involving moral turpitude; (v) commission of an act or series of repeated acts of dishonesty that are materially inimical to the best interests of AG; or (vi) willful and repeated failure to perform his or her duties, which failure has not been cured in all substantial respects within fifteen (15) days after AG gives written notice thereof to Grantee.

4. Exercise Procedures.

     (a) Subject to the provisions of Sections 2 and 3 above, Grantee may exercise part or all of the exercisable Option by giving AG notice of Grantee’s intent to exercise the Option in accordance with procedures communicated to Grantee from time to time, specifying the number of Shares as to which the Option is to be exercised and the method of payment. Payment of the

exercise price will be made in accordance with procedures established by the Committee from time to time based on the type of payment being made but, in any event, prior to issuance of the Shares. Except as otherwise determined by the Committee, Grantee will pay the exercise price (i) in cash, (ii) by delivering common shares of AG, which will be valued at their fair market value on the date of delivery, or by attestation to ownership of common shares having a fair market value on the date of exercise equal to the exercise price, (iii) with respect to an Option to purchase Class A common shares, by delivery of a properly executed notice together with irrevocable instructions to a broker to promptly deliver to AG the amount of sale proceeds to pay the exercise price and related withholding taxes on the settlement date that occurs after the date specified in the notice of exercise, (iv) with respect to an Option to purchase Class B common shares, through attestation of the ability to pay the exercise price followed by immediate tendering of such shares to AG and its immediate repurchase of such shares in accordance with AG’s articles of incorporation, (v) a combination of the foregoing, or (vi) by such other method as the Committee may approve. The Committee may impose from time to time such limitations as it deems appropriate on the use of common shares of AG to exercise the Option.

     (b) The obligation of AG to deliver Shares upon exercise of the Option will be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such actions as AG’s counsel may deem necessary or appropriate to comply with relevant securities laws and regulations.

     (c) All obligations of AG under this Agreement will be subject to the rights of AG as set forth in the Plan to withhold amounts required to be withheld for any taxes, if applicable. Except as otherwise determined by the Committee, Grantee may elect to satisfy any tax withholding obligation of AG with respect to the Option by having Shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities.

5. Restrictions on Exercise. Except as the Committee may otherwise permit pursuant to the Plan, only Grantee may exercise the Option during Grantee’s lifetime and, after Grantee’s death, the Option will be exercisable (subject to the limitations specified in the Plan) solely by the legal representatives of Grantee, or by the person who acquires the right to exercise the Option by will or by the laws of descent and distribution, to the extent that the Option is exercisable pursuant to this Agreement.

6. Grant Subject to Plan Provisions. This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects will be interpreted in accordance with the Plan. The grant and exercise of the Option are subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not

limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes (if applicable), (ii) the registration, qualification or listing of the Shares, (iii) changes in capitalization of AG and (iv) other requirements of applicable law. The Committee will have the authority to interpret and construe the Option pursuant to the terms of the Plan, and its decisions will be conclusive as to any questions arising hereunder.

7. No Continued Service Rights. The grant of the Option will not confer upon Grantee any right to be retained by or in the service of AG and will not interfere in any way with the right of AG to terminate Grantee’s service at any time. Subject to any obligations under law or AG’s Articles of Incorporation or Code of Regulations the right of AG to terminate at will Grantee’s service at any time for any reason is specifically reserved.

8. No Shareholder Rights. Neither Grantee, nor any person entitled to exercise Grantee’s rights in the event of Grantee’s death, will have any of the rights and privileges of a shareholder with respect to the Shares subject to the Option, until the Shares have been issued upon the exercise of the Option.

9. Assignment and Transfers. Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of Grantee under this Agreement may not be sold, assigned, encumbered or otherwise transferred except, in the event of the death of Grantee, by will or by the laws of descent and distribution. In the event of any attempt by Grantee to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or any right hereunder, except as provided for in this Agreement, or in the event of the levy or any attachment, execution or similar process upon the rights or interests hereby conferred, AG may terminate the Option by notice to Grantee, and the Option and all rights hereunder will thereupon become null and void. The rights and protections of AG hereunder will extend to any successors or assigns of AG and to AG’s parents, subsidiaries, and affiliates. This Agreement may be assigned by AG without Grantee’s consent.

10. Applicable Law. The validity, construction, interpretation and effect of this instrument will be governed by and construed in accordance with the laws of the State of Ohio, without giving effect to the conflicts of laws provisions thereof.

11. Notice. Except as otherwise described herein or as otherwise instructed by AG from time to time, any notice to AG provided for in this instrument shall be addressed to the principal executive office of AG to the attention of the Human Resources Department, and any notice to Grantee will be addressed to such Grantee at the current address shown on AG’s records, or to such other address as Grantee may designate to AG in writing. Any notice shall be delivered by hand, sent by facsimile, overnight delivery, or enclosed in a properly sealed envelope addressed as stated above, registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

AMERICAN GREETINGS CORPORATION	GRANTEE
By:	By electronically accepting the Notice of Grant in accordance with the instructions in such notice, Grantee will be deemed a party to, and legally bound by the terms of, this Agreement.

-2-

EX-31.A

Exhibit (31) a

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Zev Weiss, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Greetings Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of American Greetings Corporation as of, and for, the periods presented in this report;
4.	American Greetings Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for American Greetings Corporation and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to American Greetings Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of American Greetings Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in American Greetings Corporation’s internal control over financial reporting that occurred during American Greetings Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, American Greetings Corporation’s internal control over financial reporting; and

5. American Greetings Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to American Greetings Corporation’s auditors and the audit committee of American Greetings Corporation’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect American Greetings Corporation’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in American Greetings Corporation’s internal control over financial reporting.

October 3, 2007	/s/ Zev Weiss
	Zev Weiss
	Chief Executive Officer      (principal executive officer)

EX-31.B

Exhibit (31) b

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen J. Smith, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of American Greetings Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of American Greetings Corporation as of, and for, the periods presented in this report;
4.	American Greetings Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for American Greetings Corporation and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to American Greetings Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of American Greetings Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in American Greetings Corporation’s internal control over financial reporting that occurred during American Greetings Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, American Greetings Corporation’s internal control over financial reporting; and

5. American Greetings Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to American Greetings Corporation’s auditors and the audit committee of American Greetings Corporation’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect American Greetings Corporation’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in American Greetings Corporation’s internal control over financial reporting.

October 3, 2007	/s/ Stephen J. Smith
	Stephen J. Smith
	Senior Vice President and      Chief Financial Officer (principal financial officer)

EX-32

Exhibit (32)

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with this quarterly report of American Greetings Corporation on Form 10-Q as filed with the Securities and Exchange Commission on the date therein specified (the “Report”), each of the undersigned certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of American Greetings Corporation.

October 3, 2007

/s/ Zev Weiss Zev Weiss

Chief Executive Officer (principal executive officer)

/s/ Stephen J. Smith Stephen J. Smith

Senior Vice President and

Chief Financial Officer (principal financial officer)