10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended November 23, 2007

OR

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

For the transition period from                        to                     

Commission file number 1-13859

AMERICAN GREETINGS CORPORATION

(Exact name of registrant as specified in its charter)

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

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 þ       No o

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 þ    Accelerated filer o    Non-accelerated filer o

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

Yes o       No þ

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

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

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		27
Item 4. Controls and Procedures		27
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 6. Exhibits		28
SIGNATURES		29
EXHIBITS
EX-10.1
EX-31(A)
EX-31(B)
EX-32

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

See notes to condensed consolidated financial statements (unaudited).

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

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

See notes to condensed consolidated financial statements (unaudited).

4

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

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

See notes to condensed consolidated financial statements (unaudited).

5

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

Three and Nine Months Ended November 23, 2007 and November 24, 2006

Note 1 — Basis of Presentation

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 Income. The remaining items previously included in “Other income — net” have been segregated between operating and non-operating.

Note 2 — Seasonal Nature of Business

A significant portion of the Corporation’s business is seasonal in nature. Therefore, the results of operations for interim periods are not necessarily indicative of the results for the fiscal year taken as a whole.

Note 3 — Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertain tax positions recognized in a company’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” including what criteria must be met prior to recognition of the financial statement benefit of a position taken or expected to be taken in a tax return. FIN 48 requires a company to include additional qualitative and quantitative disclosures within its financial statements. The disclosures include potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each annual period. The disclosures also include a discussion of the nature of uncertainties, factors that could cause a change and an estimated range of reasonably possible changes in tax uncertainties. FIN 48 requires a company to recognize a financial statement benefit for a position taken for tax return purposes when it is more likely than not that the position will be sustained. The cumulative effect of adopting FIN 48 is recorded as an adjustment to the opening balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Corporation adopted FIN 48 on March 1, 2007. See Note 12.

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

6

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

Note 4 — Other Income and Expense

	Three Months Ended						Nine Months Ended
	November 23,			November 24,			November 23,			November 24,
(In thousands)	2007			2006			2007			2006
Gain on contract terminations	$	—		$	(20,004	)	$	—		$	(20,004	)
Other		(127	)		(537	)		(807	)		(959	)
Other operating income — net	$	(127	)	$	(20,541	)	$	(807	)	$	(20,963	)
Foreign exchange gain	$	(4,054	)	$	(610	)	$	(6,323	)	$	(2,348	)
Rental income		(274	)		(261	)		(949	)		(1,044	)
Other		(254	)		962			(206	)		581
Other non-operating (income) expense — net	$	(4,582	)	$	91		$	(7,478	)	$	(2,811	)

“Other” includes, among other things, gains and losses on asset disposals and equity income. The $20.0 million gain on contract terminations was a result of retailer consolidations, wherein, multiple long-term supply agreements were terminated and a new agreement was negotiated with a new legal entity with substantially different terms and sales commitments.

Note 5 — Earnings Per Share

The following table sets forth the computation of earnings per share and earnings per share - assuming dilution:

	Three Months Ended				Nine Months Ended
	November 23,		November 24,		November 23,		November 24,
	2007		2006		2007		2006
Numerator (in thousands):
Income from continuing operations	$	29,488	$	47,015	$	68,836	$	51,008
Add-back — interest on convertible subordinated notes, net of tax		—		—		—		1,958
Income from continuing operations — assuming dilution	$	29,488	$	47,015	$	68,836	$	52,966
Denominator (in thousands):
Weighted average shares outstanding		55,023		59,502		55,351		58,591
Effect of dilutive securities:
Convertible debt		—		—		—		5,353
Stock options and other		443		400		376		418
Weighted average shares outstanding — assuming dilution		55,466		59,902		55,727		64,362
Income from continuing operations per share	$	0.54	$	0.79	$	1.25	$	0.87
Income from continuing operations per share — assuming dilution	$	0.53	$	0.79	$	1.24	$	0.82

7

Approximately 1.3 million and 1.7 million stock options outstanding in the three and nine month periods ended November 23, 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 (2.5 million and 4.4 million stock options outstanding in the three and nine month periods ended November 24, 2006, respectively). The convertible debt was retired during the second quarter of 2007.

Note 6 — Comprehensive Income

The Corporation’s total comprehensive income is as follows:

	Three Months Ended				Nine Months Ended
	November 23,		November 24,		November 23,			November 24,
(In thousands)	2007		2006		2007			2006
Net income	$	29,016	$	49,707	$	67,441		$	54,601
Other comprehensive income (loss):
Foreign currency translation adjustment and other		11,614		6,018		23,318			25,896
Unrealized gain (loss) on securities		—		323		(1	)		348
Pension and other postretirement benefit plans		678		—		678			—
Total comprehensive income	$	41,308	$	56,048	$	91,436		$	80,845

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)	November 23, 2007		February 28, 2007		November 24, 2006
Allowance for seasonal sales returns	$	70,014	$	57,584	$	67,365
Allowance for doubtful accounts		5,402		6,350		8,392
Allowance for cooperative advertising and marketing funds		35,939		24,048		27,677
Allowance for rebates		49,915		40,053		57,669
	$	161,270	$	128,035	$	161,103

Note 8 — Inventories

(In thousands)	November 23, 2007		February 28, 2007		November 24, 2006
Raw materials	$	16,211	$	17,590	$	22,334
Work in process		12,646		11,315		10,871
Finished products		265,013		207,676		264,940
		293,870		236,581		298,145
Less LIFO reserve		81,945		79,145		81,658
		211,925		157,436		216,487
Display materials and factory supplies		27,284		25,182		27,694
	$	239,209	$	182,618	$	244,181

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

Deferred costs and future payment commitments are included in the following financial statement captions:

(In thousands)	November 23, 2007			February 28, 2007			November 24, 2006
Prepaid expenses and other	$	135,017		$	131,972		$	142,329
Other assets		313,928			355,115			371,745
Deferred cost assets		448,945			487,087			514,074
Other current liabilities		(57,607	)		(47,692	)		(58,746	)
Other liabilities		(28,652	)		(49,648	)		(47,272	)
Deferred cost liabilities		(86,259	)		(97,340	)		(106,018	)
Net deferred costs	$	362,686		$	389,747		$	408,056

Note 10 — Debt

Debt due within one year is as follows:

(In thousands)	November 23, 2007		February 28, 2007		November 24, 2006
Revolving credit facility	$	12,800	$	—	$	60,000
Accounts receivable securitization facility		11,000		—		82,000
6.10% senior notes, due 2028		22,690		—		—
	$	46,490	$	—	$	142,000

At November 23, 2007, the balances outstanding on the revolving credit facility and accounts receivable securitization facility bear interest at a rate of approximately 5.7% and 5.4%, respectively. In addition to the balances outstanding under the aforementioned agreements, the Corporation has, in the aggregate, $25.7 million outstanding under letters of credit, which reduces the total credit availability thereunder. 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.

Long-term debt and their related calendar year due dates are as follows:

(In thousands)	November 23, 2007		February 28, 2007		November 24, 2006
6.10% senior notes, due 2028	$	—	$	22,690	$	22,633
7.375% senior notes, due 2016		200,000		200,000		200,000
Other		975		1,225		1,352
	$	200,975	$	223,915	$	223,985

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

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

During the nine months ended November 23, 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 second quarter.

The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. The profit-sharing plan expense for the nine months ended November 23, 2007 was $5.1 million, compared to $3.6 million in the prior year period. The profit-sharing plan expense for the nine 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 nine month periods ended November 23, 2007 were $1.0 million and $3.2 million ($0.8 million and $3.0 million for the three and nine month periods ended November 24, 2006), respectively.

At November 23, 2007, February 28, 2007 and November 24, 2006, the liability for postretirement benefits other than pensions was $72.7 million, $66.7 million and $15.6 million, respectively, and is included in “Other liabilities” on the Condensed Consolidated Statement of Financial Position. The change since November 24, 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

10

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

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

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

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

Note 13 — Business Segment Information

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

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

At November 23, 2007, the Corporation owned and operated 429 card and gift retail stores in the United States and Canada through its Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the North American Social Expression Products segment as well as products purchased from other vendors.

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

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

Segment results are internally reported and evaluated at consistent exchange rates between years to eliminate the impact of foreign currency fluctuations. An exchange rate adjustment is included in the reconciliation of the segment results to the consolidated results; this adjustment represents the impact on the segment results of the difference between the exchange rates used for segment reporting and evaluation and the actual exchange rates for the periods presented.

Centrally incurred and managed costs are not allocated back to the operating segments. The unallocated items include interest expense on centrally-incurred debt, domestic profit-sharing expense and stock-based compensation expense. In addition, the costs associated with corporate operations including the senior management, corporate finance, legal and human resource functions, among other costs, are included in the unallocated items.

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Operating Segment Information

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

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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 $6.9 million, $8.4 million and $5.7 million at November 23, 2007, February 28, 2007 and November 24, 2006, respectively, and is included in “Accrued liabilities” on the Condensed Consolidated Statement of Financial Position.

Deferred Revenue

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

Acquisition

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

Note 14 — Discontinued Operations

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

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

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

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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 $2.2 million, which is included in “Cash receipts related to discontinued operations” on the Condensed Consolidated Statement of Cash Flows.

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

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

The sale of Magnivision closed in the third quarter of 2005. In the third quarter of 2007, the Corporation recorded an additional pre-tax gain of $5.1 million based on final closing balance sheet adjustments. During the three and nine months ended November 23, 2007, proceeds of $1.0 million and $2.1 million, respectively, related to the sale of Magnivision were received and are included in “Cash receipts related to discontinued operations” on the Condensed Consolidated Statement of Cash Flows. These proceeds are associated with the gain recorded during the third quarter of 2007.

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

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

Note 15 — Subsequent Events

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

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

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

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

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

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

Our recent trend of gross margin percentage improvement continued in the quarter, up one percentage point over the prior year quarter due to a change in the mix of products sold to a richer mix (as defined by higher gross margins) of

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

On October 25, 2007, we announced the acquisition of the assets of Webshots, an online photo and video sharing site. This acquisition, made through our AG Interactive unit, provides us the opportunity to expand our current product offerings of online social expressions into the adjacent area of online photo sharing. In addition, subsequent to November 23, 2007, we announced that we entered into a definitive agreement to acquire PhotoWorks, an online personal publishing company and photography site.

During the prior year third quarter, we recorded a gain of $20.0 million as a result of retailer consolidations, wherein, multiple long-term supply agreements were terminated and a new agreement was negotiated with a new legal entity with substantially different terms and sales commitments.

Results of Operations

Three months ended November 23, 2007 and November 24, 2006

Net income was $29.0 million, or $0.52 per share, in the quarter compared to $49.7 million, or $0.83 per share, in the prior year third quarter (all per-share amounts assume dilution).

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

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

For the three months ended November 23, 2007, consolidated net sales were $475.0 million, down from $510.1 million in the prior year third quarter. This 6.9%, or approximately $35 million, decrease was primarily the result of lower net sales in our North American Social Expression Products segment of approximately $37 million and 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. These decreases were partially offset by a favorable foreign exchange impact of approximately $13 million.

Net sales of our North American Social Expression Products segment decreased approximately $37 million. Our candle product lines, which were sold in January 2007, contributed approximately $14 million to net sales in the

16

prior year quarter. Approximately $4 million of the decrease resulted from more SBT implementations in the current quarter compared to the prior year third quarter. The majority of the remaining decrease was the result of lower sales of our gift packaging products and party goods due to continued softness in demand for gift wrap as well as our attempt to improve the overall annual return within these product lines by not pursuing traditionally low margin business that we did pursue in prior years. Both seasonal and everyday cards were also down slightly compared to the prior year period. These decreases were partially offset by our reduced spending on our investment in cards strategy. In the current quarter, we spent approximately $2 million on our investment in cards strategy, compared to approximately $10 million in the prior year quarter.

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

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the three months ended November 23, 2007 and November 24, 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		1.7	%		(4.2	%)		4.2	%		(23.4	%)		2.3	%		(9.7	%)
Selling prices		(2.5	%)		2.1	%		(3.3	%)		15.0	%		(2.7	%)		5.3	%
Overall increase / (decrease)		(0.9	%)		(2.2	%)		0.8	%		(11.9	%)		(0.4	%)		(5.0	%)

During the third quarter, combined everyday and seasonal greeting card sales less returns were virtually flat, down 0.4%, compared to the prior year quarter, with a slight increase in seasonal greeting cards and a slight decrease in everyday greeting cards.

Everyday card sales less returns for the third quarter were down slightly, 0.9%, compared to the prior year quarter primarily due to lower performance from our International Social Expression Products segment. Overall, unit volume was up 1.7% and selling prices were down 2.5%. The higher unit volume was driven by the North American Social Expression Products segment, which also drove the lower selling prices with a higher mix of value line cards compared to the prior year period.

Seasonal card unit volume increased 4.2%, primarily in the fall and Christmas programs. Lower selling prices of 3.3% were related to these same programs, with a higher mix of value priced cards compared to the prior year period.

Expense Overview

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

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Selling, distribution and marketing costs for the three months ended November 23, 2007 were $159.4 million, increasing from $157.4 million for the comparable period in the prior year. The increase of $2.0 million is due to unfavorable foreign exchange impacts of approximately $5 million partially offset by spending decreases of approximately $3 million. The reductions in spending are attributable to decreases in retail store expenses of approximately $2 million (due to fewer stores), savings from supply chain cost reduction programs 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 and approximately $1 million of distribution expenses associated with our animated children’s television programs.

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

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

Interest expense for the three months ended November 23, 2007 was $4.8 million, down from $7.0 million for the prior year quarter. The decrease of $2.2 million is attributable to savings of $1.5 million due to the reduced debt balances for the revolving credit facility and the accounts receivable securitization facility. Commitment fees paid on the available balance of our credit facility decreased $0.4 million, primarily as a result of the reduction in the size of the term loan facility.

The effective tax rate on income from continuing operations was 33.7% and 30.9% for the three months ended November 23, 2007 and November 24, 2006, respectively. The lower effective tax rate in the prior quarter relates to several discrete events during that period, including interest expense on estimated tax payments, return to provision adjustments and the effect of amended tax returns on deferred tax assets.

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Results of Operations

Nine months ended November 23, 2007 and November 24, 2006

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

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

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

For the nine months ended November 23, 2007, consolidated net sales were $1,258.8 million, down from $1,271.8 million in the prior year nine months. This 1.0%, or approximately $13 million, decrease was primarily the result of lower net sales in our North American Social Expression Products segment of approximately $10 million, our International Social Expression Products segment of approximately $10 million, our Retail Operations segment of approximately $9 million, our AG Interactive segment of approximately $6 million and our fixtures business of approximately $4 million. These decreases were partially offset by approximately $26 million of favorable foreign exchange impacts.

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

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

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

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the nine months ended November 23, 2007 and November 24, 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		9.3	%		(12.2	%)		4.8	%		(9.4	%)		8.1	%		(11.5	%)
Selling prices		(5.5	%)		7.0	%		(3.4	%)		7.5	%		(4.9	%)		7.2	%
Overall increase / (decrease)		3.3	%		(6.1	%)		1.3	%		(2.6	%)		2.8	%		(5.1	%)

During the nine month period, combined everyday and seasonal greeting card sales less returns improved 2.8% compared to the prior year period, with the majority of the increase in everyday greeting cards. Approximately 35% of the increase was due to SBT implementations that reduced unit volume in the prior year nine months.

Everyday card unit volume, up 9.3%, and selling prices, down 5.5%, were significantly impacted by the SBT implementations during the prior year nine 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. SBT implementations during the current year period have been substantially less. 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 within the North American Social Expression Products segment.

Seasonal card unit volume increased 4.8% in the nine month period, primarily due to increases in Easter, graduation and summer programs 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.

Expense Overview

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

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

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

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

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

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

Segment Information

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. Our North American Social Expression Products and our International Social Expression Products segments primarily design, manufacture and sell greeting cards and other related products through various channels of distribution, with mass retailers as the primary channel. As permitted under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” certain operating divisions have been aggregated into both the North American Social Expression Products and International Social Expression Products segments. The aggregated operating divisions have similar economic characteristics, products, production processes, types of customers and distribution methods. At November 23, 2007, we owned and operated 429 card and gift retail stores in the United States and Canada through our Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the North American Social Expression Products segment as well as products purchased from other vendors. AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms.

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

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North American Social Expression Products Segment

(Dollars in	Three Months Ended November				%			Nine Months Ended November				%
thousands)	23, 2007		24, 2006		Change			23, 2007		24, 2006		Change
Total revenue	$	320,120	$	356,773		(10.3	%)	$	850,986	$	861,098		(1.2	%)
Segment earnings		50,068		88,237		(43.3	%)		161,085		147,986		8.9	%

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

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

International Social Expression Products Segment

(Dollars in	Three Months Ended November				%			Nine Months Ended November				%
thousands)	23, 2007		24, 2006		Change			23, 2007		24, 2006		Change
Total revenue	$	80,604	$	82,526		(2.3	%)	$	199,648	$	209,019		(4.5	%)
Segment earnings		10,037		6,092		64.8	%		11,470		7,148		60.5	%

Total revenue of our International Social Expression Products segment, excluding the impact of foreign exchange, decreased $1.9 million, or 2.3%, compared to the prior year quarter and decreased $9.4 million, or 4.5%, compared to the prior year nine months. The majority of the decrease in both the three and nine 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.

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Segment earnings, excluding the impact of foreign exchange, increased $3.9 million compared to the prior year three months and increased $4.3 million compared to the prior year nine 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 November						%			Nine Months Ended November						%
thousands)	23, 2007			24, 2006			Change			23, 2007			24, 2006			Change
Total revenue	$	39,550		$	42,252			(6.4	%)	$	115,856		$	125,206			(7.5	%)
Segment loss		(5,833	)		(5,056	)		(15.4	%)		(15,098	)		(21,428	)		29.5	%

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

Segment earnings, excluding the impact of foreign exchange, was a loss of $5.8 million in the three months ended November 23, 2007, compared to a loss of $5.1 million during the three months ended November 24, 2006. Segment earnings were favorably impacted by lower store expenses of approximately $2 million primarily due to fewer stores in the current period. The impact on earnings of these expense reductions was more than offset by the decrease in sales in the current period. For the nine months ended November 23, 2007, segment earnings was a loss of $15.1 million compared to a loss of $21.4 million in the prior year period. The impact on earnings of the lower revenue in the period was more than offset by lower store expenses of approximately $9 million due to fewer stores. Lower information technology expenses in the current period also contributed to the reduced segment loss in the period. Earnings were favorably impacted by improved gross margins as a result of less promotional pricing. Gross margins increased by approximately 1.6 percentage points.

AG Interactive Segment

(Dollars in	Three Months Ended November				%			Nine Months Ended November				%
thousands)	23, 2007		24, 2006		Change			23, 2007		24, 2006		Change
Total revenue	$	18,912	$	21,663		(12.7	%)	$	55,964	$	62,151		(10.0	%)
Segment earnings		2,194		2,249		(2.5	%)		8,667		5,498		57.6	%

Total revenue of AG Interactive for the three months ended November 23, 2007, excluding the impact of foreign exchange, was $18.9 million compared to $21.7 million in the prior year third quarter. Total revenue of AG Interactive for the nine months ended November 23, 2007, excluding the impact of foreign exchange, was $56.0 million compared to $62.2 million in the prior year nine 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 nine month periods. At the end of the third quarter of 2008, AG Interactive had approximately 3.7 million online paid subscribers versus 3.4 million at the prior year quarter end.

Segment earnings, excluding the impact of foreign exchange, were flat for the quarter ended November 23, 2007, compared to the prior year period. Segment earnings, excluding the impact of foreign exchange, increased from $5.5 million in the nine months ended November 24, 2006 to $8.7 million in the current year period. Growth in

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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 the nine month period.

Liquidity and Capital Resources

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

Operating Activities

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

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

Inventory was a use of $49.9 million from February 28, 2007, compared to a use of $27.2 million in the prior year period. The higher usage in the current nine months is attributable to improved inventory management at February 28, 2007 versus February 28, 2006. The lower beginning inventory at March 1 increased the inventory usage in the current year as we build our seasonal inventory.

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

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

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

Investing Activities

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

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Financing Activities

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

Our Class A common share repurchase programs also contributed to the cash used for financing activities in both periods. These repurchases were made through 10b5-1 programs. During the nine months ended November 23, 2007, $51.8 million was paid to repurchase approximately 2.1 million shares under the repurchase program, compared to $186.1 million used in the prior year period to repurchase approximately 8.2 million shares. We also paid $22.8 million in the current period to repurchase 0.9 million Class B common shares, in accordance with our Amended Articles of Incorporation. The majority of the Class B common shares repurchased were held by the American Greetings Profit Sharing and 401(k) Savings Plan on behalf of participants investing in the Plan’s company stock fund. In connection with the Plan’s determination that the company stock fund should consist solely of Class A common shares to facilitate participant transactions, during November 2007, the Plan sold the remaining Class B common shares back to American Greetings in accordance with our Amended Articles of Incorporation.

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

Credit Sources

Substantial credit sources are available to us. In total, we had available sources of approximately $600 million at November 23, 2007. This included our $450 million senior secured credit facility and our $150 million accounts receivable securitization facility. The credit agreement includes a $350 million revolving credit facility and a $100 million delay draw term loan. Approximately $13 million was outstanding under the revolving credit facility and approximately $11 million was outstanding under the accounts receivable securitization program at November 23, 2007. In addition to these borrowings, we have, in the aggregate, $25.7 million outstanding under letters of credit, which reduces the total credit availability thereunder.

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

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

We are going through the due diligence process necessary to prepare for a multi-year information systems refresh. We see this effort as a multi-year program, in the range of 7 to 10 years. As we are still negotiating key components of the program, we are unable to estimate the future impact on earnings and cash flows, but it is likely that the impact 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.

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Factors That May Affect Future Results

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

• retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;

• our ability to successfully implement our strategy to invest in our core greeting card business;

• the timing and impact of investments in new retail or product strategies as well as new product introductions and achieving the desired benefits from those investments;

• the timing and impact of converting customers to a scan-based trading model;

• our ability to successfully implement, or achieve the desired benefits associated with, any information systems refresh that we may implement;

• the ability to execute share repurchase programs or the ability to achieve the desired accretive effect from such repurchases;

• the ability to successfully complete the proposed acquisition of PhotoWorks and the ability to successfully integrate acquisitions;

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

• a weak retail environment;

• consumer acceptance of products as priced and marketed;

• the impact of technology on core product sales;

• competitive terms of sale offered to customers;

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

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

• our ability to comply with our debt covenants;

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

• escalation in the cost of providing employee health care; and

• 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 November 23, 2007, the end of our most recent fiscal quarter.

Item 4. Controls and Procedures

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

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

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

(a)	Not applicable.
(b)	Not applicable.

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(c) The following table provides information with respect to our purchases of our common shares during the three months ended November 23, 2007.

										Maximum Number of
										Shares (or
							Total Number of			Approximate Dollar
							Shares Purchased as			Value) that May Yet Be
	Total Number of Shares			Average Price			Part of Publicly			Purchased Under the
Period	Repurchased			Paid per Share			Announced Plans			Plans
September 2007	Class A –	395,000		$	24.41	(2)		395,000	(3)	$	79,969,524
	Class B –	1,404	(1)	$	25.56			—
October 2007	Class A –	425,000		$	26.51	(2)		425,000	(3)	$	68,702,396
	Class B –	688	(1)	$	26.64			—
November 2007	Class A –	842,302		$	24.27	(2)		842,302	(3)	$	48,258,793
	Class B –	852,400	(1)	$	24.92			—
Total	Class A –	1,662,302						1,662,302	(3)
	Class B –	854,492	(1)					—

(1)	There is no public market for the Class B common shares of the Corporation. Pursuant to our Articles of Incorporation, a holder of Class B common shares may not transfer such Class B common shares (except to permitted transferees, a group that generally includes members of the holder’s extended family, family trusts and charities) unless such holder first offers such shares to the Corporation for purchase at the most recent closing price for the Corporation’s Class A common shares. If the Corporation does not purchase such Class B common shares, the holder must convert such shares, on a share for share basis, into Class A common shares prior to any transfer. All of the shares were repurchased by American Greetings for cash pursuant to this right of first refusal. Of the amount repurchased, 850,000 Class B common shares were held by the American Greetings Profit Sharing and 401(k) Savings Plan on behalf of participants investing in the Plan’s company stock fund. In connection with the Plan’s determination that the company stock fund should consist solely of Class A common shares to facilitate participant transactions, during November 2007, the Plan sold 850,000 Class B common shares back to American Greetings in accordance with the Amended Articles of Incorporation.
(2)	Excludes commissions paid, if any, related to the share repurchase transactions.
(3)	On April 17, 2007, American Greetings announced that its Board of Directors authorized a new program to repurchase up to $100 million of its Class A common shares. There is no set expiration date for this repurchase program and these repurchases are made through a 10b5-1 program in open market or privately negotiated transactions which are intended to be in compliance with the SEC’s Rule 10b-18, subject to market conditions, applicable legal requirements and other factors.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K

Exhibit
Number	Description
10.1	American Greetings Corporation Second Amended and Restated Supplemental Executive Retirement Plan (Effective October 31, 2007)
(31) a	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31) b	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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
January 2, 2008			Vice President, Corporate Controller, and Chief     Accounting Officer *

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

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EX-10.1

Exhibit 10.1

AMERICAN GREETINGS CORPORATION

SECOND AMENDED AND RESTATED

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(Effective October 31, 2007)

TABLE OF CONTENTS

ARTICLE I	INTRODUCTION	1
ARTICLE II	DEFINITIONS	3
ARTICLE III	PLAN PARTICIPATION	11
ARTICLE IV	CALCULATION, FORM OF A PARTICIPANT’S ACCRUED BENEFIT	13
ARTICLE V	FORMS OF RETIREMENT; ELIGIBILITY CONDITIONS	17
ARTICLE VI	DISTRIBUTION OF BENEFITS; LIMITATIONS	21
ARTICLE VII	DEATH BENEFIT	27
ARTICLE VIII	ADMINISTRATION; PLAN MODIFICATION	29
ARTICLE IX	GENERAL PROVISIONS	33

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ARTICLE I

INTRODUCTION

     WHEREAS, American Greetings Corporation currently maintains the American Greetings Corporation Supplemental Executive Retirement Plan (the “Plan”), which was originally adopted effective March 1, 1986, and that has subsequently been amended and restated effective March 1, 2004 (the “First Amended and Restated Plan”), and further amended effective January 1, 2005 by Amendment No. 1 thereto (“Amendment No. 1”); and

     WHEREAS, American Greetings Corporation desires to amend and restate the First Amended and Restated Plan to incorporate the provisions of Amendment No. 1 and further amend the Plan; and

     WHEREAS, Section 8.4 of the Plan permits the Company to amend the Plan at any time, by action taken by its Board of Directors, and acting in its sole discretion;

1.1

Name Of Plan. This Plan shall be known as the American Greetings Corporation Second Amended and Restated Supplemental Executive Retirement Plan (Effective October 31, 2007). It constitutes a full and complete amendment and restatement of, and continuation of, the American Greetings Corporation Supplemental Executive Retirement Plan, effective as of March 1, 1986, as amended and restated effective March 1, 2004 by the First Amended and Restated Plan, and as further amended by Amendment No. 1 thereto effective January 1, 2005.

1.2

Purpose. The purpose of the Plan is to provide any Executive designated to participate in the Plan with a retirement benefit that supplements those benefits provided under any other pension, retirement or profit-sharing plan maintained by American Greetings Corporation. The Plan is being maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Company (as defined herein) on an unfunded basis, within the meaning of section 201(2) of the Employee Retirement Income Security Act, as amended (“ERISA”).

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1.3 Rights of Former Employees. Except as otherwise specifically provided herein the terms of the Plan, as in effect immediately prior to March 1, 2004 (as amended by Amendment No. 1), shall control and be used exclusively to determine the rights and duties of any Executive or former Executive who separated from employment by the Company prior to the March 1, 2004, the effective date of the First Amended and Restated Plan. The terms of the Plan as in effect as of October 31, 2007, the effective date of this amendment and restatement, shall control and be used exclusively to determine the rights and duties of any Executive or former Executive who separated from employment by the Company on or after March 1, 2004 but prior to October 31, 2007.

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ARTICLE II

DEFINITIONS

     The following words and phrases, where used in the Plan, shall have the following meanings, unless a different meaning is plainly required by the context.

2.1	Accrued Benefit shall have the meaning set forth in Article IV hereof.
2.2	Affiliate means any limited liability company, general partnership, limited partnership, business trust, or other non-corporate organization with respect to which American Greetings Corporation directly or indirectly owns at least fifty percent (50%) of either the capital or profits interest therein, and directly or indirectly has the power and authority to select and appoint, and where applicable remove, such organization’s managers, general partner(s) and/or trustees (as applicable).
2.3	Assumed Bonus Percentage shall mean, for any Fiscal Year, 50% of the Participant’s target bonus under the Company’s key management incentive plan, for which the Participant is eligible during any Fiscal Year, based on the Participant’s job classification. For this purpose, the schedule set forth by the Company’s Board for the various levels of job classifications covered by the Company’s key management incentive plan shall be used to calculate such awards.
2.4	Beneficiary shall mean any person or persons designated by the Executive to receive payments hereunder in the event of such Executive’s death and shall include any person designated by such person or persons designated by such beneficiary (or subsequent beneficiary, as applicable) to receive payments hereunder in the event of such beneficiary’s (or such subsequent beneficiary’s) death. If an Executive or, as applicable, any Beneficiary of the Executive or of a Beneficiary fails to designate one or more persons as his Beneficiary, or no such “beneficiary” designation is held to be lawful and in effect, any Plan benefit becoming due and payable to a Beneficiary hereunder shall be paid over to the estate of such Participant, or, the estate of such Beneficiary, as the case may be. If the Beneficiary designated by an individual is, at the time of such designation, the individual’s lawful spouse, and the individual and such spouse subsequently become

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divorced or legally separated, such designation shall be deemed invalid as of the effective date of such divorce or legal separation, unless (i) the individual thereafter files a new beneficiary designation again naming the spouse or former spouse as Beneficiary or (ii) continued designation of the spouse or former spouse as the individual’s death beneficiary under this Plan is expressly provided for in the terms of a QDRO (as defined in Section 9.3(b)).

2.5	Board shall mean the board of directors of AGCo (as defined herein) or the Committee; provided, that if the Board designates a person or other committee to act specifically on matters relevant to this Plan, such person or committee shall act (and have the power and authority to act) as the Board with respect to such matters.
2.6	Change in Control shall mean the occurrence of any of the following events, individually or in combination:

(a)	AGCo is merged or consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transition is held in the aggregate by the holders of AGCo’s common shares immediately prior to such transaction;
(b)	AGCo sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of AGCo’s common shares immediately prior to such sale or transfer;
(c)	There is a report filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”), disclosing that any person (as the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the

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	Exchange Act) of securities representing 20% or more of the voting power of AGCo’s common shares;
(d)	AGCo files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of AGCo has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; or
(e)	If during any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of AGCo cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by AGCo’s shareholders, of each director of AGCo first elected during such period was approved by a vote of at least two-thirds of the directors of AGCo then still in office who were directors of AGCo at the beginning of any such period.

Notwithstanding the foregoing provisions of Section 12c and (d) above, a “Change in Control” shall not be deemed to have occurred for purposes of this Plan (i) solely because (A) AGCo; (B) a Subsidiary; (C) any AGCo-sponsored employee stock ownership plan or other employee benefit plan of AGCo; or (D) any family member of Jacob Sapirstein (including lineal descendants, spouses of such descendants, the lineal descendants of any such spouses, the spouse of any such spouses’ lineal descendants and trusts (including voting trusts) either files or becomes obligated to file a report or proxy statement under or in responses to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares, whether in excess of 20% of the voting power of AGCo’s common shares or otherwise, or because AGCo reports that a Change in Control of AGCo has or may have occurred or will or may occur in the future by reason of such beneficial ownership or (ii) solely because of a Change in Control of any Subsidiary.

2.7 Committee shall mean the Compensation & Management Development Committee of the Board.

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2.8	Company shall mean American Greetings Corporation, an Ohio corporation (“AGCo”) and its controlled Subsidiaries and Affiliates; provided , that for Plan Years commencing after December 31, 2004, such term shall also include (to the extent not previously included in the preceding definition) any corporation, limited liability company, partnership, or other business organization which is part of a “controlled group of corporations” that includes AGCo (within the meaning of Code Section 414(b) and related regulations), or is “under common control” with AGCo (within the meaning of Code Section 414(c) and related regulations).
2.9	Compensation shall mean, for any calendar year preceding the calendar year in which an Executive who is a Participant attains Normal Retirement Date (or Late Retirement Date, where applicable), the annual base pay received by such Participant from the Company while a Participant. In the event an Executive who is also a Participant becomes disabled and is eligible for and receiving benefits under the Long Term Disability Plan, such Participant’s participation in the Plan shall be deemed to continue and, for Plan purposes, the “Compensation” attributable to such Participant shall be deemed to continue until the close of the calendar year coincident with or next preceding the date such Participant no longer receives such disability income benefits.
2.10	Effective Date shall mean October 31, 2007. The effective date of the Plan, in effect prior to this amendment and restatement, was March 1, 1986 and, with respect to the First Amended and Restated Plan, March 1, 2004.
2.11	Executive shall mean an employee of AGCo, or of a Subsidiary, or of an Affiliate, who is either a named executive officer, a senior vice president, or a vice president, of such Company; provided , that such term shall specifically exclude any individual who is (or, is classified as) a non-resident alien of the United States during any period(s) such individual performs services outside of the United States.
2.12	Final Average Compensation shall mean an amount, expressed in dollars and cents, determined by the sum of (a) and (b), where: (a) is the average of a Participant’s two (2) calendar years of Compensation that provide the highest average, and (b) is the product derived from multiplying (i) that amount determined in part (a) hereof, by (ii) that

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	average of such Participant’s two (2) Fiscal Year Assumed Bonus Percentages which provide the highest average; provided , that for this purpose, if a Participant has only one Assumed Bonus Percentage, such Percentage will be considered to be the average.
2.13	Fiscal Year shall mean that period which begins on March 1 of each year and ends on the last day of February of the ensuing year.
2.14	Long Term Disability Plan shall mean the American Greetings Corporation Long Term Disability Plan, an employee welfare benefit plan sponsored and maintained by the Company to provide long-term disability income benefits to plan-covered employees.
2.15	Participant shall mean any Executive who is, or becomes, eligible to participate in the Plan in accordance with the provisions of Sections 3.1 or 3.2 hereof; provided , that such Executive shall continue as a Participant hereunder only so long as such Executive remains eligible to participate in the Plan and has not had such participation terminated or suspended in accordance with Section 3.3 hereof. An Executive, or other individual, who was a Participant shall remain a Participant so long as such Executive or individual has a vested interest in the Plan, without regard to whether such Executive or individual is then employed by the Company.
2.16	Plan shall mean the American Greetings Corporation Second Amended and Restated Supplemental Executive Retirement Plan (Effective October 31, 2007), as set forth in this instrument and as further amended from time to time.
2.17	Plan Administrator shall mean that person identified in Section 8.1 hereof.
2.18	Plan Benefit shall mean the monthly benefit amount a Participant is eligible to receive pursuant to Article IV, calculated in accordance with Article V, and payable in the form of a monthly annuity for life (with 180 months, guaranteed) in accordance with (and limited by) Article VI and the remaining provisions of the Plan.
2.19	Service shall mean that period of time an Executive is in the employ of the Company, commencing with such Executive’s date of hire and ending with the date such Executive

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separates from Company employment, as further determined in accordance with the following rules:

(a)	Service shall specifically include any period(s) when an Executive is on a medical, military, family or personal leave of absence that either has been approved by the Company or is required by law to be recognized as employment service for seniority and benefit plan purposes.
(b)	Service shall specifically include any period(s) of time an Executive (who is also a Plan Participant) is disabled and receiving benefits under the Long Term Disability Plan, even though no longer classified as a Company employee.
(c)	Periods of employment by a predecessor-in-interest to the Company or by a predecessor-in-interest to a Subsidiary or an Affiliate, shall be recognized as Service only where (and, to the extent) recognized by the Board by written action.

2.20	Subsidiary shall mean any corporation at least eighty percent (80%) of whose equity securities (determined either by voting power or by interest in profits) are directly or indirectly owned by American Greetings Corporation.
2.21	Code shall mean the Internal Revenue Code of 1986, as amended from time to time. Any reference to a Code section shall include any regulations, notices, or rulings promulgated thereunder.
2.22	409A Disability shall mean a Participant’s absence from employment with the Company which: (i) is due to his or her inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) results from a medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, and causes such Participant to receive income replacement benefits for a period of not less than three (3) months under an accident and health plan covering the Company’s employees.

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	Notwithstanding the foregoing, if the Company’s Long Term Disability Plan defines a Participant’s disability in accordance with the foregoing or, in the alternative, as determined by the Social Security Administration, then the definition of ‘409A Disability’ shall have the same meaning as the definition of ‘disability’ provided for under the Company’s Long Term Disability Plan.
2.23	Specified Employee shall mean any Participant for whom the following conditions, (a) and (b), are satisfied:

(a) at any time during the twelve (12) month period ending on the December 31st preceding the calendar year in which a given distribution is to occur, such Participant:

(i)	is one of the top fifty (50) compensated officers of AGCo and has annual “W-2” compensation of at least One Hundred Thirty Thousand Dollars ($130,000); or
(ii)	owns more than five percent (5%) of AGCo’s stock; or
(iii)	owns more than one percent (1%) of AGCo’s stock and has annual “W-2” compensation in excess of One Hundred Fifty Thousand Dollars ($150,000); and

(b) AGCo’s stock is publicly traded on the date such Participant Separates from Service.

In applying the above rules, the following shall apply: the foregoing compensation amounts shall be adjusted from time to time in accordance with the cost-of-living adjustments under Code Section 416(i); and an individual who qualifies as a Specified Employee under this Section 2.23 shall be treated as a Specified Employee for the twelve (12) month period beginning on the April 1st next following the date he or she so qualifies.

2.24 Separation from Service or “Separates from Service” shall mean a Participant’s termination from employment with the Company on account of such Participant’s death, permanent and total disability, retirement, or other such termination of employment. A Participant will not be deemed to have experienced a Separation from Service if such

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Participant is on military leave, sick leave, or other bona fide leave of absence, to the extent such leave does not exceed a period of six (6) months or, if longer, such longer period of time as is protected by either statute or contract. A Participant will not be deemed to have experienced a Separation from Service, if such Participant continues to provide “significant services” to the Company. For purposes of the preceding sentence, a Participant will be considered to provide “significant services” if such Participant provides continuing services that average more than twenty percent (20%) of the services provided by such Participant to the Company during the immediately preceding three (3) full calendar year of employment.

In this document, unless the context clearly requires otherwise, the singular shall include the plural and the masculine gender shall include the feminine.

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ARTICLE III

PLAN PARTICIPATION

3.1	Automatic Participation, As Of The Effective Date. Each Executive who was a Participant in the Plan on the day before the Effective Date of this amendment and restatement shall automatically continue as a Participant, as of the Effective Date.
3.2	Participation After The Effective Date; New Entrants. Any Executive who does not automatically become a Participant as of the Effective Date shall become a Participant on any date, subsequent to the Effective Date, that such Executive is designated as eligible to participate in an action taken by the Board. Where a Board action designates an Executive as eligible to participate in the Plan without also specifying a date for commencing such participation, the date such Board action was taken shall constitute the commencement date.
3.3	Termination Or Suspension Of Participation; Renewed Participation. A Participant’s continued participation in the Plan may be discontinued at any time by action of the Board, in accordance with and subject to the following rules:

(a)	In the event a Participant’s participation herein is discontinued, the terms of such discontinuation shall be set forth in writing and a copy of such terms shall be provided to such Participant, the Plan Administrator, and the Committee.
(b)	Subject to the provisions of Article VI hereof, if at the time a Participant discontinues participation hereunder such Participant has a right to a Plan benefit based on the terms of the Plan then in effect, said right shall not be forfeitable and such Participant shall be entitled to receive such Plan benefit, based on and in accordance with the terms of the Plan in effect at the time of such discontinuation.
(c)	In the event a Participant whose Plan participation has been discontinued is again designated for participation in the Plan in accordance with Section 3.2 hereof, the Board may specify the terms and conditions under which such Participant’s Compensation and Service (and previously-determined Plan Benefit, if any) are to be taken into account when determining such Participant’s Plan rights hereunder.

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In the absence of any direction from the Board, such Participant shall be considered a newly-eligible Participant for all Plan purposes (other than with respect to any Plan Benefit such Participant already has qualified to receive); provided, that such Participant’s Service shall only be used once.

(d) Notwithstanding the foregoing, in the event that a Participant commences employment with a Subsidiary or Affiliate that has its principal place of business located outside of the United States, but otherwise does not Separate from Service, such Participant will cease being an active Participant and stop accruing any benefit in the Plan until and unless such Participant (i) again performs services as an employee for AGCo, a Subsidiary or an Affiliate located within the United States, and (ii) is designated as an Executive eligible to participate in the Plan.

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ARTICLE IV

CALCULATION, FORM OF PARTICIPANT’S ACCRUED BENEFIT

4.1

Form of Accrued Benefit. A Participant’s accrued benefit hereunder shall consist of a monthly benefit. Where paid as a Normal Retirement Benefit, such monthly benefit shall commence payment on the first day of the calendar month coincident with or next following the date such Participant attains his or her Normal Retirement Age, and shall be paid to such Participant as an annuity for life (with 180 monthly payments, guaranteed) (the “Accrued Benefit”). Where paid as a Late Retirement Benefit, such monthly benefit shall commence payment on the first day of the calendar month coincident with or next following the date such Participant Separates from Service, and shall be paid to such Participant as an annuity for life (with 180 monthly payments, guaranteed). Notwithstanding the foregoing, in the event the Participant is a Specified Employee, such Participant’s Normal Retirement Benefit or Late Retirement Benefit, as applicable, shall not commence payment until six (6) months after such Participant’s Separation from Service.

4.2

Calculation of Accrued Benefit. A Participant’s Accrued Benefit, when payable in its normal form and commencing as provided in Section 4.1 hereof, is equal in amount to one-twelfth (1/12th) of the product of (a) times (b), where:

(a)	is equal to one percent (1%) of such Participant’s Final Average Compensation; and
(b)	consists of such Participant’s years of Service, calculated to the nearest attained calendar month, but in any event subject to a maximum of twenty (20) years of Service.

4.3 Certain Compensation, Service To Be Disregarded. Notwithstanding any contrary Plan provision, when calculating a Participant’s Accrued Benefit there shall be disregarded (a) any Compensation received by such Participant that is attributable to any period prior to the date such Participant first commences participation hereunder as a Participant, and (b) any Compensation paid to such Participant and any Service rendered by such Participant for any Fiscal Year (or, fraction thereof) in which such Participant is

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determined by the Committee (acting in its reasonable discretion, following consultation with legal counsel) to have violated Section 304 or Section 306 of the Sarbanes-Oxley Act (15 U.S.C. §§7243, 7244), or other applicable law (including, without limitation, any otherwise-applicable faithless servant doctrine).

4.4

Payments to Specified Employees. Notwithstanding anything herein to the contrary, in the event the commencement of the Normal Retirement Benefit, Late Retirement Benefit, or Early Retirement Benefit to a Participant is delayed until six (6) months after such Participant’s Separation from Service because the Participant is a Specified Employee, for purpose of calculating the amount of the first payment due to the Participant, such amount shall include a total of seven (7) monthly payments calculated in accordance with the Plan (i.e., the normal payment scheduled to occur in the seventh month after commencement of the benefit, plus the aggregate of the first six (6) months of payments that were delayed), and shall be considered payment of the first seven (7) of the one hundred eighty (180) monthly guaranteed payments contemplated herein.

4.5

Special Right to Elect to Receive Lump Sum

(a)

Eligibility: Those Participants who as of October 31, 2007 (i) are retired and in pay status; regardless of whether due to Normal, Late or Early Retirement as provided for in Article V; or (ii) have a right to receive a Deferred Vested Benefit under Section 5.3, shall have the right to make the special election described in this Section 4.5. A Participant who meets the eligibility criteria set forth in this Section 4.5(a) shall be referred to herein as an “Eligible Participant”.

(b)

Benefit To Be Received If The Election Is Made: Any Eligible Participant who makes the election provided in this Section 4.5 shall receive a lump sum amount that is the actuarial equivalent of his or her Plan Benefit calculated by using the RP 2000 Mortality Table for males projected to 2010 and an interest rate of 9%. The lump sum actuarial equivalence shall be calculated as of March 1, 2008 as follows: (i) the lump sum for any retired Eligible Participant who has been receiving payment of his or her Plan Benefit shall be based on the projected remaining payments; or (ii) the lump sum for a deferred vested Eligible

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Participant shall be based on the Plan Benefit assuming the Participant would have elected to commence his or her Plan Benefit at the later of March 1, 2008 and the first of the month following his or her 55th birthday. In all cases, any Eligible Participant who makes the election provided by this Section 4.5 shall receive any monthly payments that would be due under the Plan during 2007, but shall not receive any monthly payments that would be due under the Plan during 2008.

Any lump sum payment due under this Section 4.5 shall be made on a date selected by the Plan Administrator between February 15, 2008 and March 15, 2008; however, in all events payment will be made no later than March 15, 2008. Any such payment made during this period, regardless of whether on February 15, 2008 or March 15, 2008, shall not be further adjusted or recalculated.

(c) The Election: Any Eligible Participant who elects this lump sum benefit is electing to receive the lump sum in lieu of receiving his or her Plan Benefit in the normal annuity form of payment and is waiving any and all other rights that the Participant may have under the Plan. The Company is not waiving the protections provided to it under Section 6.3 and the Participant who elects the lump sum benefit shall be subject to those same restrictions provided in Section 6.3. If the Committee as provided in the last paragraph of Section 6.3 determines that there are any violations of those restrictions of Section 6.3 subsequent to payment of the lump sum, the Company may demand repayment to the Company of the lump sum benefit received.

An Eligible Participant shall make the election on such forms and in such manner as the established by the Plan Administrator. Any election under this special program must be made by such time as established by the Plan Administrator, but in no event shall the election be made after December 31, 2007 and such election shall be irrevocable as specified by the Plan Administrator.

(d) Beneficiary Death Benefit: If an Eligible Participant who makes the election provided by this Amendment dies prior to payment of the lump sum amount as contemplated herein, this election will be null and void and any death benefit will be determined under Article VII.

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(e) Administration: Except as specifically provided for in this Section 4.5, the administration and general provisions of Articles VIII and IX shall apply to this Amendment. As provided in Section 9.7, any lump sum payment shall be subject to applicable tax withholding and as provided in Section 9.9, there are no tax guarantees, representations or warranties regarding the tax consequences of this Plan, or the offering of the election option or payment pursuant to an election under this Section 4.5.

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ARTICLE V

FORMS OF RETIREMENT; ELIGIBILITY CONDITIONS

5.1 Normal/Late Retirement Benefit. A Participant shall receive either a Normal Retirement Benefit or a Late Retirement Benefit, as applicable, commencing as of the first of the month next following the Participant’s Separation from Service upon attaining his or her Normal Retirement Age (“Normal Retirement”) or next following his or her Separation from Service in any month subsequent to the month in which he or she attains Normal Retirement Age (“Late Retirement”). For purposes of this Plan, Normal Retirement Age shall mean a Participant’s attainment of age sixty-five (65). The Participant’s Normal Retirement Benefit or Late Retirement Benefit, as applicable, shall consist of his or her Accrued Benefit, determined as of the date of his Separation from Service.

Notwithstanding the foregoing, in the event the Participant is a Specified Employee, such Participant’s Normal Retirement Benefit or Late Retirement Benefit, as applicable, shall not commence payment until six (6) months after such Participant’s Separation from Service.

5.2 Early Retirement Benefit. A Participant who has not attained age 65 shall receive an Early Retirement Benefit under the Plan, if such Participant Separates from Service and satisfies the criteria for obtaining an Early Retirement Benefit, as set forth below.

(a) A Participant shall be eligible to receive an Early Retirement Benefit as follows:

(i) if such Participant has attained age 55 on or before the Participant Separates from Service and as of the date that the Participant Separates from Service, such Participant has completed at least ten (10) years of Service (at least five (5) of which must be completed while a Participant), then such Participant will receive an Early Retirement Benefit on or after the first day of the month coinciding with or next following

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(1)	such Separation from Service; or
(2)	any date certain, designated by the Board in writing by agreement with such Participant within thirty (30) days of such Participant first becoming eligible to participate in the Plan.

(ii) if such Participant has not attained the age of fifty five (55) but has attained the age of forty-five (45), then if such Participant Separates from Service and has vested in his or her Accrued Benefit in accordance with Section 5.3, then such Participant will receive an Early Retirement Benefit on the first day of the month coinciding with or next following:

(1)	the date such Participant attains age fifty-five (55) and has completed at least ten (10) years of Service (at least five (5) of which must be completed while a Participant); or
(2)	any date certain, designated by the Board in writing by agreement with such Participant within thirty (30) days of such Participant first becoming eligible to participate in the Plan.

Notwithstanding the foregoing, in the event a Participant is a Specified Employee and he or she is eligible for an Early Retirement Benefit due to his or her Separation from Service, such Participant’s Early Retirement Benefit shall not commence payment until six (6) months after such Participant’s Separation from Service.

The Early Retirement Benefit payable to a Participant who retires under this Section 5.2 shall be in an amount equal to such Participant’s Accrued Benefit, determined as of the date such Benefit commences payment hereunder (or if the Participant is a Specified Employee, the date such Benefit would have commenced hereunder disregarding the requirement that payment shall not commence until six (6) months after such Participant’s Separation from Service), but reduced by the appropriate reduction factor specified in Schedule A (attached hereto).

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5.3 Deferred Vested Benefit.

     A Participant who has completed not less than ten (10) years of Service (at least five (5) of which is completed while a Participant) and who has attained the age of forty-five (45) will be eligible for and deemed vested in an Accrued Benefit under Section 5.2 (even if such Participant Separates from Service with the Company prior to the attainment of age fifty-five (55)), so long as one (1) or more of the following events occurs after such Participant’s forty-fifth (45th) birthday:

(a)	Such Participant’s Separation from Service results from unilateral action taken by the Company;
(b)	Such Participant is a member of a class of Executives declared by Board action to be ineligible to participate further in the Plan;
(c)	Such Participant is demoted to non-Executive status by the Company; or
(d)	A Change in Control occurs.

     Any Participant who vests hereunder (as provided above), but Separates from Service from the Company prior to attaining age fifty-five (55) nevertheless shall commence receiving a Plan Benefit on the first day of the month coinciding with or next following the date such Participant attains age fifty-five (55). The Accrued Benefit of a Participant who Separates from Service with the Company prior to attaining age fifty-five (55) shall be computed and frozen as of the date such Participant Separates from Service with the Company. Notwithstanding the foregoing, in the event the Participant is a Specified Employee, such Deferred Vested Benefit shall not commence payment until the later of the date specified above or six (6) months after such Participant’s Separation from Service.

     The Plan Benefit actually payable to a Participant whose Accrued Benefit vests hereunder shall be determined in accordance with Section 5.2 hereof; provided, however, that such Plan Benefit shall be based on the above determination of the Participant’s Accrued Benefit.

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5.4 Disability Retirement Benefit.

     A Participant who becomes disabled for purposes of the Long Term Disability Plan and, as a result, is eligible for and receiving benefits under the Long Term Disability Plan, will commence receiving a Disability Retirement Benefit on the later of the first day of the month coinciding with or next following:

(a)	The date such Participant ceases to receive benefit payments under the Long Term Disability Plan; and
(b)	The date such Participant attains age sixty-five (65).

     The Plan Benefit so payable to a Participant shall consist of such Participant’s Accrued Benefit, determined as of the date such Participant commenced receiving benefits under the Long Term Disability Plan, if any. In the event such Participant is not eligible to receive benefits under the Long Term Disability Plan, such Participant’s Accrued Benefit shall be determined as of the date such Participant is found to have qualified for a 409A Disability. Notwithstanding any contrary Plan provision, if a Participant is found to have qualified for a 409A Disability on or after attaining age fifty-five (55), but ceases to be so disabled before such Participant’s Disability Plan Benefit would have otherwise commenced, such Participant shall be eligible to receive an Early Retirement Benefit as provided under Section 5.2 herein.

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ARTICLE VI

DISTRIBUTION OF BENEFITS; LIMITATIONS

6.1 Commencing Payment. A Participant’s Plan Benefit shall commence automatically on the relevant commencement date specified in Article V. The Participant shall, in advance of such date, complete and return to the Plan Administrator such form or forms as may be required by the Plan Administrator. If a Participant believes that he or she is entitled to have his or her Plan Benefit commence on a particular specified commencement date, but the benefit has not commenced, the Participant may file an application for such benefit in a writing dated and signed by such Participant and mailed or otherwise delivered to the Plan Administrator. Such application, when made, shall thereupon be treated as a claim for benefits made in accordance with Section 8.2 hereof.

6.2 Delay of Distribution To Preserve Allowable Deduction. In the event the Plan Administrator, after consultation with the Committee but otherwise acting in its sole and absolute discretion, determines that one (1) or more of the payments to be made to a Participant hereunder cannot be claimed by the Company as an allowable federal income tax deduction (whether on account of the limitations imposed by Section 162(m) or Section 280G of the Code, or otherwise), the Plan Administrator shall cause such payment(s) to be suspended and deferred, and paid as such time and in such manner so as to permit the Company to claim such payment(s) as an allowable deduction for federal income tax purposes. In the event any such payment is suspended or deferred hereunder to avoid the limitations imposed by Section 162(m) of the Code, and such period of suspension or deferment exceeds thirty-six (36) months, interest shall accrue on such payment at the rate of one percent (1%) per month, simple interest, for each month or fraction thereof; such interest shall accrue from the date of initial suspension or deferment and shall be paid with such payment, when made to or in respect of such Participant.

6.3 Protection of Company Interests. A Participant’s right to receive a Plan Benefit hereunder is conditioned upon such Participant engaging in conduct (or where applicable, refraining from conduct) so as to protect, and not impair, the Company’s interests while

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covered by and benefiting from the Plan. Each Participant accordingly shall observe and comply with the following rules, covenants and restrictions, commencing with the date such Participant first commences participation hereunder and ending with the second (2^nd) anniversary of the date such Participant separates from employment with the Company and all Subsidiaries and Affiliates (the “Restricted Period”):

(a) Disclosure of Confidential Information. A Participant shall keep in strict confidence and not directly or indirectly make known, divulge, reveal, furnish, make available or use (except for use in the regular course of such Participant’s duties on behalf of the Company) any “Confidential Information,” as herein defined, and shall return to the Company any Company property or documents and any other documents or property containing or constituting Confidential Information in such Participant’s possession, custody or control as and when such Participant separates from Company employment or ceases to perform any personal services therefor. For this purpose, the term “Confidential Information” shall mean that non-public data and other information (regardless of the form such Information takes) which the Company determines to be a strategic asset of the Company (specifically including, without limitation, customer and personnel lists, licensing agreements, materials sources and costs, and delivery and distribution sources, methods and costs) the disclosure or release of which would financially harm or impair the Company.

(b)

Solicitation of Workforce. A Participant will not directly or indirectly solicit, encourage, or otherwise attempt to influence, any employee or representative of the Company or consultant to the Company, to terminate his or her relationship, employment or other association with the Company (whether or not the purpose of such solicitation, encouragement or attempt at influence is to become an employee, representative or consultant of such Participant or any organization employing, owned by or associated with such Participant).

(c)

Solicitation of Customers. A Participant will not directly or indirectly, on his or her own behalf or on the behalf of any other person, firm or entity, solicit or

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	attempt to solicit, or attempt to divert the patronage or business of, any current customer of the Company, any customer that has engaged in business with the Company during the Restricted Period, or any prospective customer to whom (or, to which) the Company has presented a proposal to provide goods or services during the Restricted Period, or any party or entity related to any such customer or prospective customer (including but not limited to any employees or agents of any such customer or prospective customer).
(d)	Disparagement of Company, Officers and Directors. Other than with the prior consent of the Company, a Participant will not communicate any false, critical, disparaging or otherwise negative comment(s), statement(s) or information of and concerning the Company, or any of its directors, officers, employees or shareholders, or which could reasonably be perceived or construed as critical, disparaging or otherwise negative, other than comments, statements and information made and published to an individual who is (at the time of such communication) then a Company director, officer, employee or shareholder; provided, that this provision shall not preclude a Participant from testifying under oath in a legal or comparable administrative proceeding.
(e)	Appropriation of Business Opportunities. A Participant will promptly disclose and report to Company superiors (and where applicable, the Board) any and all business opportunities brought to such Participant (whether internal to the Company, or from persons or parties not associated or affiliated with the Company) or of which such Participant is made or becomes aware, which directly or indirectly relate to or have any commercial, artistic, or conceptual connection to any of the Company’s current or contemplated businesses (as discussed or described in any of the Company’s strategic or business plans).
(f)	Sanctioned Personal Conduct. A Participant will refrain from committing, or attempting to commit, any felony; and refrain from taking any other action or engaging in any other conduct that results in the forfeiture of property or a

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property interest (regardless whether imposed upon such Participant, or the Company, or both).

In the event the Committee, in its sole and absolute discretion, determines that a Participant has violated one (1) or more of the covenants and restrictions set forth in this Section 6.3, then except as provided in Section 6.6 herein, such Participant shall immediately forfeit any and all right to any Plan Benefit for which such Participant otherwise would qualify hereunder; provided , that no Participant shall forfeit a Plan Benefit hereunder, or any part thereof, on account of having engaged in (or, agreed to engage in) conduct protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. §1541A, et seq.) and related rulings and regulations.

6.4 Post-Employment Prohibitions. In addition to the restrictions set forth in Section 6.3 hereof and the obligations imposed under Section 6.5 hereof, a Participant’s right to receive a Plan Benefit hereunder is conditioned upon such Participant refraining from any of the following conduct, following the termination of such Participant’s employment by the Company (and all Subsidiaries and Affiliates) and for period of ten (10) years thereafter:

(a) Acquires five percent (5%) or more of the voting stock in a corporation (or a comparable capital and profits interest in an organization that is not a corporation) that competes with the Company, or, without the written consent of the Company, provides personal services to such corporation or other organization as a director, officer, employee, consultant, advisor, agent, member, partner or owner thereof; provided , that for purposes of this provision, a corporation or other organization will be considered to “compete” with the Company if, at the time of such Participant’s retirement or separation from Company employment and as determined by the Committee, such corporation or other organization is substantially engaged in any one (1) or more of the production, merchandising, marketing, e-commerce or other business activities in which the Company is then engaged; and

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(b)

Fails or refuses to provide personal services, as a compensated consultant to the Company upon the Company’s reasonable written request; and

(c)

Commences, or threatens to commence, an action seeking recovery of a Plan Benefit that has been completely or partially denied hereunder or to enforce the terms of the Plan, without first signing a binding confidentiality and nondisclosure agreement that commits such Participant to not disclose, publish or otherwise reveal (other than pursuant to court order, or under oath) any financial, business or personnel information of and regarding the Company, or any of their respective directors, officers, agents and employees, or the fact of any dispute involving such Participant’s claim to a Plan Benefit.

In the event the Committee, in its sole and absolute discretion, determines that the Participant has violated any or all of the above conditions, then except as specifically provided in Section 6.6 hereof, the Company shall be relieved of any and all obligation to pay, or continue payment of, any Plan Benefits to or on behalf of such Participant.

6.5

Ownership of Intellectual Property; Assignment of Certain Rights. So long as an Executive remains a Participant in the Plan and remains employed by the Company, such Participant shall assign and transfer to the Company any and all discoveries, inventions and improvements, whether or not patentable, which such Participant at any time during such Participant’s employment by the Company has made or has conceived, or may make, conceive, acquire or suggest, whether solely or jointly with others, and which (i) relates to any subject matter within the field in which such Participant provided personal services to the Company, and involved the use of resources belonging to the Company. Such Participant also shall promptly disclose to the Company any and all such discoveries, inventions and improvements; and, without charge to the Company but at its expense, shall execute, acknowledge and deliver all documents and information (including applications for patents) necessary to obtain patents for such inventions in any and all countries, and to vest title thereto in the Company.

In the event a Participant is determined by the Committee, in its sole and absolute discretion, to have violated any of the above conditions, then except as specifically

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provided in Section 6.6 hereof, the Company shall be relieved of any and all obligation to pay, or continue payment of, any Plan Benefits to or on behalf of such Participant.

6.6 Construing Forfeiture Provisions; Discretion To Impose Lesser Sanction. The Committee, acting in its sole and absolute discretion (but otherwise in accordance with the provisions of this Section 6.6), shall determine whether (and, to what extent) a Participant has violated any or all of the provisions of Section 6.3, Section 6.4 and/or Section 6.5 hereof, and if so, whether such conduct warrants imposition of a limited monetary sanction, equal in amount to the lesser of (a) one-half (1/2) of the present value of the Participant’s Plan Benefit (determined as of the date of the violation(s)), or (b) one hundred thousand dollars ($100,000), as a set off against the Plan Benefit otherwise payable and in lieu of the complete forfeiture of such Participant’s interest (as otherwise prescribed in Sections 6.3, 6.4 and 6.5 herein, as applicable). Notwithstanding the generality of the preceding sentence, the Committee shall be entitled to impose the limited monetary sanction described herein only if the Committee, acting in consultation with counsel, determines that the financial impact on the Company from such violation(s) can be expected to be less than two hundred fifty thousand dollars ($250,000) in the aggregate.

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ARTICLE VII

DEATH BENEFIT

7.1 Eligibility For Death Benefit. A death benefit shall be paid to the Beneficiary of any Participant who dies under the following circumstances:

(a)	A Participant who is not receiving benefits under the Long Term Disability Plan but is eligible to elect to retire and receive an Early or Normal/Late Retirement Benefit; or
(b)	A Participant who is receiving benefits under the Long Term Disability Plan who had attained age 55 on or prior to the date of his or her disability;
(c)	A Participant who has retired with an Early Retirement Benefit but has not yet commenced receiving a Plan Benefit; or
(d)	A former Executive with a vested interest in the Plan (determined in accordance with Section 5.3 hereof), who dies on or after attaining age 55; or
(e)	A Participant who has retired and commenced receiving a Plan Benefit, but dies before a total of one hundred eighty (180) monthly payments have been made.

            Where a Participant dies before payment of such Participant’s Plan Benefit has commenced, payment of a death benefit (as prescribed in this Section) shall commence as of the first day of the calendar month coincident with or next following the date such Participant dies.

7.2 Amount Of Death Benefit. Subject to Section 7.3, the death benefit payable to the Beneficiary of a deceased Participant shall consist of one hundred eighty (180) monthly payments, commencing promptly following the date application is made for a death benefit hereunder, less any payments made to such deceased Participant (pursuant to Section 7.1(e), above). For death benefits not payable under the circumstances described in Section 7.1(e) hereof, the monthly amount payable shall be calculated as of the date payment of such death benefit commences, as if the deceased Participant had retired (or,

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commenced receiving his Plan Benefit) on such date and had then died, based on whichever benefit described in Article V would have then applied.

7.3

Acceleration. When a Participant who is eligible for a Death Benefit under Section 7.1 dies before payment of such Participant’s Plan Benefit has commenced, the Plan Administrator shall pay a Death Benefit in a single lump representing the present value of such Death Benefit, less applicable withholding. When determining the present value of a Participant’s Death benefit for this purpose, the Plan Administrator shall use the interest rate in effect for United States Treasury Department debt securities having a maturity of ten (10) years, based on the auction of Treasury securities held on the date coincident with or next preceding the date of such Participant’s death.

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ARTICLE VIII

ADMINISTRATION; PLAN MODIFICATION

8.1 Plan Administrator.

(a)	The Company’s Senior Vice President — Human Resources shall act as the Plan Administrator; provided, that if no individual holds such position within the Company, or in the absence of such a position within the Company, the Plan Administrator shall be such other Company officer as the Committee shall direct.
(b)	The Plan Administrator shall be responsible for the Plan’s general administration and for carrying out the provisions hereof. The Plan Administrator shall have all needed discretionary power, authority and control to carry out the Plan’s provisions, including the power and authority to (i) determine all questions relating to whether an individual qualifies as a Participant hereunder, and whether any person found to be a Participant or a Beneficiary hereunder qualifies for or is otherwise entitled to a benefit hereunder (including, without limitation, deciding any and all questions pertaining to claims for benefits made in accordance with Section 8.2 hereof), (ii) resolve any and all questions arising under the Plan, including any questions of construction, and (iii) take such further action as the Plan Administrator deems advisable in the administration of the Plan. Except as specifically provided in Section 8.2 hereof (relating to the appeal of adverse benefit determinations), decisions by the Plan Administrator, made in good faith, shall be final, conclusive and binding upon all parties.
(c)	In the event the Plan Administrator qualifies as a Participant hereunder, the Plan Administrator shall not make or participate in any decision affecting the Administrator as a Participant; rather, the Committee shall make all determinations with regard to such Participant, as though the Committee were the Plan Administrator, and any appeal of the Committee’s decisions shall be reviewed (if at all) by the Board.

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(d) The Plan Administrator from time to time may allocate or delegate to any other persons or organizations any or all of its rights, powers, duties and responsibilities with respect to the operation and administration of the Plan. Any such allocation or delegation shall be made in writing and shall be terminable upon such notice as the Plan Administrator deems reasonable and proper under the circumstances.

8.2 Claims Procedures. Any application for benefits made under the Plan (whether by or on behalf of a Participant or by a Beneficiary) shall strictly comply with the following procedures:

(a)

Making A Claim. Any application for benefits made by a claimant shall be made in writing to the Plan Administrator by first-class mail, identifying the benefit(s) being sought, the terms of the Plan that entitle the claimant to apply for such benefit(s), and such other information as may be reasonably needed to confirm the identity of the claimant and such claimant’s eligibility for said benefit. Within ninety (90) days following receipt, the Plan Administrator shall respond to such application either (i) by complying with the terms set forth in the application, in their entirety, or (ii) by requesting in writing a sixty (60)-day extension to further consider such application, or (iii) by denying in writing some or all of the application, in the manner described in subparagraph (b) hereof. Any claimant whose application has been wholly or partly denied, or believes that such application has been wholly or partly denied, may file an appeal in the manner described in subparagraph (c) hereof.

(b)

Denying A Claim. Unless an application for benefits is allowed in total by the Plan Administrator, the Plan Administrator shall, within ninety (90) days after such claim is filed (plus an additional period of sixty (60) days, if required for due consideration, so long as notice of such extension is provided within the initial ninety (90)-day period), notify the claimant in writing totally or partially denying such application. Such notice shall be written in a manner calculated to be understood by the claimant and shall include (i) the specific reasons for denying the application, (ii) specific reference to the Plan provisions upon which the

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denial of the application is based, (iii) a description of any additional materials or information needed to perfect the application and an explanation why such material or information is necessary, and (iv) an explanation of the review procedure specified in subparagraph (c) hereof. A claimant who does not receive any such notice from the Plan Administrator within one hundred (100) days after the date of such written application is entitled to conclude that such application has been denied.

(c)

Appeals. Within sixty (60) days after a claimant’s application is denied, such claimant may appeal such denial by filing with the Committee (as a whole) a written request for review of that denial. In the event of such an appeal, such claimant shall be entitled to submit written comments, documents, records and other information pertinent to such claimant’s claim(s), and have a reasonable opportunity to examine (free of charge) all documents, records and other information relied upon by the Plan Administrator when considering such claim(s). If a claimant files an appeal within such sixty (60)-day period, the Committee shall conduct a full and fair review of such appeal and mail or deliver to such claimant a written decision on the matter, based on the facts and the Plan’s pertinent provisions within sixty (60) days after receiving the request for review (unless special circumstances require an extension of up to sixty (60) additional days, in which case the Committee shall provide written notice of such extension prior to the commencement of such extension). Any adverse decision of an appeal shall be written in a manner calculated to be understood by the claimant, shall state the specific reasons for the decision and the specific Plan provisions on which the decision is based and shall, to the extent permitted by law, be final and binding on all interested persons. During any such review, an appealing claimant shall be given the opportunity to review those files and documents pertinent such claimant’s application, and be entitled to submit comments and argument in writing. If a decision on review is not furnished within such sixty (60) day or such one hundred-twenty (120)-day period, as the case may be, such claimant is entitled to conclude that the decision by the Plan Administrator has been upheld by the Committee, following its review.

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8.3 Indemnification. The Company shall defend, indemnify and hold harmless the Board and its constituent members, and the Committee and its constituent members, and the Plan Administrator (and its delegatee(s), if any) from and against any and all liabilities, claims, demands, judgments, tax liens, settlement payments, losses, costs, damages, and expenses whatsoever (including reasonable attorneys’, consultants’ and other professional fees and disbursements of every kind, nature and description) that such indemnified party may sustain, suffer, or incur in connection with, or that may result from, the administration of the Plan (including participation in tax liens and levies, bankruptcy proceedings, garnishment actions, and foreclosures and other creditor-initiated proceedings), so long as such liability, claim, demand, judgment, settlement expense, loss, cost, damage or expense does not involve bad faith or gross neglect of duty on the part of the indemnified party. The Company may, but shall not be required to, provide such indemnification through the purchase of fiduciary or comparable errors and omissions insurance.

8.4 Termination, Suspension Or Amendment Of The Plan. The Board may, in its sole discretion, amend, suspend, modify, discontinue or terminate this Plan at any time. No such amendment, suspension, modification, discontinuation, or amendment shall adversely affect:

(a)	The benefits or rights thereto of any Participant who retired, whether or not such Participant has commenced to receive a Plan Benefit; or
(b)	The right of any Participant to receive the amount, on an immediate or deferred basis, computed under Article V to which such Participant would be entitled under this Plan prior to its suspension, termination or amendment taking into account such person’s age, Service and Final Average Compensation as of the date of such termination, suspension or amendment:

provided , that subsections (a) and (b) above shall not apply to any such termination, suspension or amendment if a change has occurred in the law (or in its interpretation) which would adversely affect the Company or such Participant if this Plan were to remain in effect and unamended in its form immediately prior to such occurrence.

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ARTICLE IX

GENERAL PROVISIONS

9.1 Plan Is Unfunded; Company Has No Prefunding Obligation. All interests in the Plan are unfunded. The Company has no obligation to establish any special or separate fund, or segregate any of its assets in order to assure the payment of any amounts due or becoming due and payable under the Plan. However, to provide for the discharge of its obligations under the Plan, the Company in its sole discretion may settle and establish a trust or other fund in its name, or acquire property or contract rights in its name. The right of a Participant or a Beneficiary to receive a Plan distribution hereunder shall constitute an unsecured claim against the Company’s general assets, and no Participant or Beneficiary shall have any right in or against any specific Company assets.

9.2	Expenses. All costs and expenses incurred in the administration of this Plan shall be paid by the Company, except as specifically provided in Section 9.3 hereof.
9.3	Non-Alienability of Plan Interests.

(a) In General. Except as specifically provided in this Section 9.3, no Participant or Beneficiary shall have any right, directly or indirectly, to alienate, assign, anticipate or encumber any Plan interest or amount that may be payable hereunder, and no amount or Plan interest shall be subject to voluntary or involuntary alienation, assignment, encumbrance or garnishment, whether by process of law, in equity, or otherwise. Any such attempted alienation, assignment, encumbrance, or garnishment shall be null and void and of no effect. In the event any attempt by a Participant or Beneficiary is made to alienate, pledge or charge any such interest of any such benefit for any debt, liabilities in tort or contract, or otherwise, contrary to the prohibitions of this Section, the Plan Administrator in its discretion may suspend or forfeit the interest of such person and during the period of such suspension, or in the case of forfeiture, the Plan Administrator shall hold such interest for the benefit of, or shall make the benefit payments to which such Participant would otherwise be entitled to, to the

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Beneficiary or to some member of the Participant’s or Beneficiary’s family, acting in its sole and exclusive discretion.

(b)

Domestic Relations Orders. Notwithstanding the provisions of subsection (a) hereof, a Participant’s Plan Benefit shall be subject to division and partition in accordance with the terms of a domestic relations order satisfying the requirements of a “qualified domestic relations order” (“QDRO”), as defined in Section 414(p) of the Code and related regulations; provided, that (i) a separate benefit shall be recognized and maintained for any spouse or former spouse determined to have an interest in the Plan as a result of a QDRO; and (ii) all costs and expenses incurred by the Company or the Plan Administrator in connection with such QDRO shall be charged against such Participant’s Plan Benefit, prior to effecting any such division or partition.

9.4

No Implied Rights. No Participant or any other person shall have any legal or equitable right or interest in the Plan not expressly provided for hereunder.

9.5

No Contract of Employment. The Plan does not constitute a contract of employment, nor is it evidence of the existence of any contract of employment, or any contractual or other right to continued employment, between an individual and the Company. In addition, the Plan (including specifically and without limitation, any participation agreement that an eligible Executive signs when commencing participation) shall not be held to have created, or evidenced, any right on the part of any such Executive (whether or not then a Participant) to be employed, or to continue to be employed, by the Company. Rather, the Company (or where relevant, the actual employer of any individual, whether or not then an Executive) has the right to terminate the employment or personal services of such individual (whether or not then or at any time an Executive, and whether or not then a Participant) at any time, and for any reason or no reason, in the absence of a written agreement expressly providing to the contrary.

9.6 Governing Law. The provisions of this Plan shall be interpreted and construed in accordance with the laws of the State of Ohio without regard to conflicts of laws, but only to the extent not preempted by relevant federal law.

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9.7 Tax Withholding. Where and to the extent the accrual of Plan Benefits by or for a Participant, and/or the payment and distribution of Plan rights or interests to a Participant or Beneficiary, results in employment taxes imposed under the Federal Income Contributions Act (“FICA”) with respect to such Participant’s Plan interest, or any related federal state or local income tax withholding obligation(s) to be imposed upon the Company or the Plan Administrator, or some other party, the Company (or such other party) shall have the right to withhold such amounts from any Plan Benefit(s) due or becoming due and payable to such Participant or Beneficiary, and to the extent not unlawful, from any regular remuneration paid by the Company to a Participant.

9.8

Severability. In the event that any one or more of the Plan provisions is held to be invalid, illegal, or unenforceable, such invalidity, illegality or unenforceability shall not affect any other Plan provision, and the Plan thereafter shall be construed as if such invalid, illegal, or unenforceable provisions had never been contained herein. In such event, the Committee will designate and substitute a lawful provision that most nearly accomplishes the Company’s intent.

9.9

No Tax Guarantees. While the Plan is designed to provide deferred compensation to Executives who qualify as Participants hereunder, the Company makes no representation, warranty or guarantee of any federal, state or local tax consequences of participation in the Plan to any Participant or designated Beneficiary.

9.10 Code Section 409A Compliance. The Plan is intended to be operated in compliance with the requirements of Code Section 409A (including any rulings or regulations promulgated thereunder). In the event that any provision of the Plan fails to satisfy such requirements, such provision shall be void and shall not apply to a Participant’s Deferred Compensation Benefit, to the extent practicable. In the event that it is determined not to be feasible to void a Plan provision as it applies to a Participant’s Deferred Compensation Benefit, such Plan provision shall be construed in a manner so as to comply with the requirements of Code Section 409A.

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     IN WITNESS WHEREOF, the undersigned, a duly elected officer of American Greetings Corporation, has executed this Plan as of the thirty-first (31^st) day of October, 2007, by the authority and at the direction of the Committee of American Greetings Corporation.

/s/ Brian T. McGrath
Name:	Brian T. McGrath
Title:	Senior Vice President, Human Resources

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AMERICAN GREETINGS CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

SCHEDULE A

Reduction Factors for Benefits
Payable Prior to Age 65

Age* At Which	Reduction
Benefits Begin	Factor
65		0.00	%
64		2.88
63		5.76
62		8.64
61		11.52
60		14.40
59		17.28
58		20.16
57		23.04
56		25.92
55		28.80

· For completed months of age, straight line interpolation shall be used.

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.

January 2, 2008	/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.

January 2, 2008	/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.

January 2, 2008

/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)