SaleTable of AGI In-Store Contents

OtherTable Operatingof Income – Net Contents

AsTable reported in its Annual Report on Form 10-K for the year ended February 28, 2015, the Corporation held a minority investment in the common stock of a privately held company which was classified as available for sale and accounted for under the cost method due to the Corporation’s inability to exercise significant influence over the investee’s operating and financial policies and the absence of a readily determinable fair value for its investment. At February 28, 2015, the carrying value of this investment was zero as a result of a cash distribution in 2014 that included a return of capital. During the three months ended May 29, 2015, the investee successfully completed an initial public offering of its common stock and thereby established a readily determinable fair value for the Corporation’s previously nonmarketable investment. In accordance with ASC Topic 320, “Investments – Debt and Equity Securities,” the investment is now reported at fair value and is included in “Other assets” on the Corporation’s Consolidated Statement of Financial Position. See Note 14 for further information. As a result of the initial fair value measurement at May 29, 2015, an unrealized gain, net of tax, of $44.6 million was recognized in other comprehensive income. Contents

12Table of Contents

Long-termTable debt and their related calendar year due dates as of May 29, 2015, February 28, 2015 and May 30, 2014, respectively, were as follows: Contents

NoteTable 13of – Retirement Benefits Contents

•Table Levelof 3 – Valuation is based upon unobservable inputs that are significant to the fair value measurement.Contents

AlTable Smith et al. v. American Greetings Corporation. On June 4, 2014, Al Smith and Jeffrey Hourcade, former fixture installation crew members for special projects, individually and on behalf of those similarly situated, filed a putative class action lawsuit against American Greetings Corporation in the U.S. District Court for the Northern District of California, San Francisco Division. Plaintiffs claim that the Corporation violated certain rules under the Fair Labor Standards Act and California law, including the California Labor Code and Industrial Welfare Commission Wage Orders. For themselves and the proposed classes, plaintiffs seek an unspecified amount of general and special damages, including but not limited to minimum wages, agreed upon wages and overtime wages, statutory liquidated damages, statutory penalties (including penalties under the California Labor Code Private Attorney General Act of 2004 (“PAGA”), unpaid benefits, reasonable attorneys’ fees and costs, and interest). In addition, plaintiffs request disgorgement of all funds the Corporation acquired by means of any act or practice that constitutes unfair competition and restoration of such funds to the plaintiffs and the proposed classes. On November 6, 2014, plaintiffs filed a Second Amended Complaint to add claims for reimbursement of business expenses and failure to provide meal periods in violation of California Law and on December 12, 2014, amended their PAGA notice to include the newly added claims. Contents

TheTable Corporationof is subject to examination by the Internal Revenue Service for tax years 2010 to the present and various U.S. state and local jurisdictions for tax years 2001 to the present. The Corporation is also subject to tax examination in various international tax jurisdictions, including Canada, the United Kingdom, Australia, Italy, Mexico and New Zealand for tax years 2006 to the present. Contents

AlthoughTable the majority of the costs to construct the new world headquarters is expected to be financed through H L & L, due to the inherent difficulty in estimating costs associated with projects of this scale and nature, the costs associated with this project may be higher than expected and the Corporation may have to dedicate additional funds to the project, including providing additional funds to H L & L. As a result, effective as of December 1, 2014, the Corporation entered into a loan agreement with H L & L under which the Corporation may from time to time make revolving loans to H L & L. Loans made to H L & L under this agreement may only be used to fund construction costs associated with the world headquarters project and the maximum principal and market-rate interest that may be outstanding as of any given time under this loan agreement may not exceed $9 million. As of May 29, 2015, there was a balance of $2.5 million outstanding under this loan agreement. There were no borrowings outstanding as of February 28, 2015. Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~May~~August 2928, 2015

¨	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 ofincorporation or organization)		(I.R.S. EmployerIdentification No.)
(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 ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

All of the outstanding capital stock of the registrant is held by Century Intermediate Holding Company. As of ~~July~~October 109, 2015, 100 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

AMERICAN GREETINGS CORPORATION

INDEX

	PageNumber
PART I — FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2123
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3035
Item 4. Controls and Procedures		3035
PART II — OTHER INFORMATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings		3136
Item 6. Exhibits		3237
SIGNATURES		3338
EXHIBITS

PART I— - FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Thousands of dollars)

	(Unaudited)Three Months Ended
	(Unaudited)
	May 29, 2015			May 30, 2014
	Three Months Ended						Six Months Ended
Net sales	$	471,892		$	497,274
	August 28,2015			August 29,2014			August 28,2015			August 29,2014
Other revenue		1,551			6,310
Net sales	$	418,611		$	427,090		$	890,503		$	924,364
Total revenue		473,443			503,584
Other revenue		2,417			5,335			3,968			11,645
Material, labor and other production costs		195,474			200,786
Total revenue		421,028			432,425			894,471			936,009
Selling, distribution and marketing expenses		163,759			172,259
Material, labor and other production costs		177,985			180,109			373,459			380,895
Administrative and general expenses		58,221			69,295
Selling, distribution and marketing expenses		153,641			165,834			317,400			338,093
Other operating income – net		(62,420	)		(1,968	)
Administrative and general expenses		59,365			66,850			117,586			136,145
Operating income		118,409			63,212
Other operating income – net		(7,309	)		(23,828	)		(69,729	)		(25,796	)
Interest expense		8,113			8,994
Operating income		37,346			43,460			155,755			106,672
Interest income		(99	)		(111	)
Interest expense		6,486			9,255			14,599			18,249
Other non-operating income – net		(938	)		(1,107	)
Interest income		(84	)		(30	)		(183	)		(141	)
Income before income tax expense		111,333			55,436
Other non-operating income – net		(54	)		(272	)		(992	)		(1,379	)
Income tax expense		38,569			11,697
Income before income tax expense		30,998			34,507			142,331			89,943
Net income	$	72,764		$	43,739
Income tax expense		6,518			11,667			45,087			23,364
Net income	$	24,480		$	22,840		$	97,244		$	66,579

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Thousands of dollars)

	(Unaudited)Three Months Ended
	(Unaudited)
	May 29, 2015			May 30, 2014
	Three Months Ended						Six Months Ended
Net income	$	72,764		$	43,739
	August 28,2015			August 29,2014			August 28,2015			August 29,2014
Other comprehensive income (loss), net of tax:
Net income	$	24,480		$	22,840		$	97,244		$	66,579
Foreign currency translation adjustments		(2,028	)		1,866
Other comprehensive income (loss), net of tax:
Pension and postretirement benefit adjustments		216			(23	)
Foreign currency translation adjustments		(2,351	)		(2,121	)		(4,379	)		(255	)
Unrealized gain on equity securities		44,610			—
Pension and postretirement benefit adjustments		505			137			721			114
Other comprehensive income, net of tax		42,798			1,843
Unrealized (loss) gain on equity securities		(10,133	)		—			34,477			—
Comprehensive income	$	115,562		$	45,582
Other comprehensive (loss) income, net of tax		(11,979	)		(1,984	)		30,819			(141	)
Comprehensive income	$	12,501		$	20,856		$	128,063		$	66,438

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Thousands of dollars except share and per share amounts)

(Unaudited)May 29, 2015

(Note 1)February 28, 2015

(Unaudited)May 30, 2014

(Unaudited)

(Note 1)

(Unaudited)

August 28, 2015

February 28, 2015

August 29, 2014

ASSETS

Current assets

Cash and cash equivalents

4233,~~806~~501

43,327

6445,~~990~~107

Trade accounts receivable, net

~~124~~104,~~966~~690

102,339

~~134~~93,~~185~~460

Inventories

~~251~~297,~~122~~338

248,577

~~259~~312,~~837~~300

Deferred and refundable income taxes

4445,~~790~~082

45,976

4345,~~862~~170

Assets held for sale

—

35,529

—

Prepaid expenses and other

~~135~~131,~~154~~635

157,669

~~139~~141,~~337~~800

Total current assets

~~598~~612,~~838~~246

633,417

~~642~~637,~~211~~837

Other assets

~~575~~539,~~673~~033

431,838

~~537~~517,~~453~~783

Deferred and refundable income taxes

5460,~~436~~897

90,143

7182,~~232~~526

Property, plant and equipment – at cost

~~845~~878,~~777~~035

828,028

~~876~~798,634

Less accumulated depreciation

~~457~~467,~~773~~304

447,731

~~491~~437,~~621~~435

Property, plant and equipment – net

~~388~~410,~~004~~731

380,297

~~385~~361,~~013~~199

1,~~616~~622,~~951~~907

1,535,695

1,~~635~~599,~~909~~345

LIABILITIES AND SHAREHOLDER’S EQUITY

Current liabilities

Debt due within one year

—

20,000

Accounts payable

~~103~~116,~~708~~450

133,135

~~103~~124,~~701~~282

Accrued liabilities

7469,~~448~~196

75,992

6858,~~012~~947

Accrued compensation and benefits

5063,~~962~~301

95,193

4052,~~514~~761

Income taxes payable

14,~~655~~398

22,512

316,~~706~~063

Liabilities held for sale

—

1,712

—

Deferred revenue

2623,~~313~~044

27,200

3025,~~360~~649

Other current liabilities

5867,~~456~~850

63,199

8283,~~679~~910

Total current liabilities

~~328~~354,~~542~~239

418,943

~~348~~381,~~972~~612

Long-term debt

~~463~~461,~~469~~752

472,729

~~596~~525,~~702~~590

Other liabilities

~~365~~359,~~467~~427

303,231

~~303~~309,~~937~~652

Deferred income taxes and noncurrent income taxes payable

1410,~~585~~824

11,466

1312,~~270~~760

Shareholder’s equity

Common shares – par value $.01 per share: 100 shares issued and outstanding

—

Capital in excess of par value

240,000

Accumulated other comprehensive income (loss)

186,~~395~~416

(24,403

)

~~2,595~~611

Retained earnings

~~186~~190,~~493~~249

113,729

~~130~~129,~~433~~120

Total shareholder’s equity

~~444~~436,~~888~~665

329,326

~~373~~369,~~028~~731

1,~~616~~622,~~951~~907

1,535,695

1,~~635~~599,~~909~~345

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Thousands of dollars)

	(Unaudited)Three Months Ended
	(Unaudited)Six Months Ended
	May 29, 2015			May 30, 2014
	August 28, 2015			August 29, 2014
OPERATING ACTIVITIES:
Net income	$	7297,~~764~~244		$	4366,~~739~~579
Adjustments to reconcile net income to cash flows from operating activities:
Gain on sale of Strawberry Shortcake		(61,~~666~~625	)		—
Net loss on disposal of fixed assets		9			23
Net gain on sale of AGI In-Store		—			(38,803	)
Depreciation and intangible assets amortization		13,993			15,222
Net loss on disposal of fixed assets		66			15,733
Depreciation and intangible assets amortization		28,114			30,499
Clinton Cards secured debt recovery		—			(3,390	)
Provision for doubtful accounts		30367			~~233~~351
Deferred income taxes		68,~~951~~076			(~~441~~9,795	)
Other non-cash charges		23,~~744~~614			12,~~063~~125
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Trade accounts receivable		(233,~~034~~431	)		~~(32,066~~119	)
Inventories		(349,~~473~~866	)		(476,~~596~~582	)
Other current assets		(27,~~306~~193	)		(2,~~618~~354	)
Net payable/receivable with related parties		(501,698	)		(76438	)
Income taxes		(27,~~584~~554	)		(82,~~785~~322	)
Deferred costs – net		519,~~276~~377			622,~~947~~005
Accounts payable and other liabilities		(~~104~~91,~~603~~698	)		(5839,~~499~~363	)
Other – net		~~(128~~680	)		32,~~081~~715
Total Cash Flows From Operating Activities		(9665,~~077~~527	)		(3428,~~927~~277	)
INVESTING ACTIVITIES:
Property, plant and equipment additions		(1331,~~392~~735	)		(2250,~~194~~242	)
Cash paid for acquired character property rights		(2,800	)		—
Proceeds from sale of fixed assets		955			1723,741
Adjustment to proceeds from sale of AGI In-Store		(3,200	)		—
(Adjustment to proceeds)/proceeds from sale of AGI In-Store		(3,200	)		73,659
Proceeds from sale of Strawberry Shortcake		105,000			—
Proceeds from surrender of corporate-owned life insurance policies		24,068			—
Net (borrowings)/repayments on loans to related parties		(2,479	)		—
Proceeds from Clinton Cards administration		—			604
Proceeds from Clinton Cards administration		—			582
Total Cash Flows From Investing Activities		91,388			47,762
Total Cash Flows From Investing Activities		107,206			(21,595	)
FINANCING ACTIVITIES:
Proceeds from revolving line of credit		94191,~~150~~200			~~168~~261,000
Repayments on revolving line of credit		(40139,~~450~~500	)		(~~105~~265,~~900~~500	)
Repayments on term loan		(65,000	)		(510,000	)
Total Cash Flows From Financing Activities		(11,300	)		57,100
Dividends to shareholder		(20,724	)		(24,154	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(350	)		449
Total Cash Flows From Financing Activities		(34,024	)		(38,654	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(521	)		1,027
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(1,663	)		313
DECREASE IN CASH AND CASH EQUIVALENTS		(9,826	)		(18,856	)
Cash and Cash Equivalents at Beginning of Year		43,327			63,963
Cash and Cash Equivalents at End of Period	$	4233,~~806~~501		$	6445,~~990~~107

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and Six Months Ended ~~May~~August 2928, 2015 and ~~May~~August 3029, 2014

Note 1 – Basis of Presentation

The accompanying unaudited 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, 2015 refers to the year ended February 28, 2015. The Corporation’s subsidiary, AG Retail Cards Limited is consolidated on a one-month lag corresponding with its fiscal year-end of January 30 for 2016.

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, 2015, from which the Consolidated Statement of Financial Position at February 28, 2015, presented herein, has been derived.

The Corporation’s investments in less than majority-owned companies in which it has the ability to exercise significant influence over the ~~operation~~operating and financial policies are accounted for using the equity method except when they qualify as variable interest entities (“VIE”) and the Corporation is the primary beneficiary, in which case, the investments are consolidated in accordance with Accounting Standards Codification (“ASC”) Topic 810 (“ASC 810”), “Consolidation.” Investments that do not meet the above criteria but have a readily determinable fair value are measured at fair value with unrealized gains and losses reported in other comprehensive income. Such investments that do not have a readily determinable fair value are accounted for under the cost method.

The Corporation provides limited credit support to Schurman Fine Papers (“Schurman”) which is a VIE as defined in ASC 810. Schurman owns and operates specialty card and gift retail stores in the United States and Canada. The stores are primarily located in malls and strip shopping centers. This limited credit support is provided through the provision of a liquidity guaranty (“Liquidity Guaranty”) in favor of the lenders under Schurman’s senior revolving credit facility (the “Senior Credit Facility”). Pursuant to the terms of the Liquidity Guaranty, the Corporation has guaranteed the repayment of up to $10.0 million of Schurman’s borrowings under the Senior Credit Facility to help ensure that Schurman has sufficient borrowing availability under this facility. The Liquidity Guaranty is required to be backed by a letter of credit for the term of the Liquidity Guaranty, which expires in January 2019. The Corporation’s obligations under the Liquidity Guaranty generally may not be triggered unless Schurman’s lenders under its Senior Credit Facility have substantially completed the liquidation of the collateral under Schurman’s Senior Credit Facility, or 91 days after the liquidation is started, whichever is earlier, and will be limited to the deficiency, if any, between the amount owed and the amount collected in connection with the liquidation. There was no triggering event or liquidation of collateral as of ~~May~~August 2928, 2015 requiring the use of the Liquidity Guaranty.

During the current period, the Corporation assessed the variable interests in Schurman and determined that a third party holder of variable interests has the controlling financial interest in the VIE and thus, the third party, not the Corporation, is the primary beneficiary. In completing this assessment, the Corporation identified the activities that it considers most significant to the future economic success of the VIE and determined that it does not have the power to direct those activities. As such, Schurman is not consolidated in the Corporation’s results. The Corporation’s maximum exposure to loss as it relates to Schurman as of ~~May~~August 2928, 2015 includes:

•

Liquidity Guaranty of Schurman’s indebtedness of $10.0 million;

• normal course of business trade and other receivables due from Schurman of $2629.54 million, the balance of which fluctuates throughout the year due to the seasonal nature of the business; and

• the retail store operating leases currently subleased to Schurman, the aggregate lease payments for the remaining life of which was $3.50 million as of ~~May~~August 2928, 2015.

~~Prior Year~~ Correction of Immaterial Errors

During the prior year first quarter, the Corporation identified and corrected errors in the accounting for income taxes that related to the year ended February 28, 2014. These errors primarily related to the Corporation’s failure to consider ~~all~~ all sources of available taxable income when assessing the need for a valuation allowance against certain deferred tax assets and the recognition of a liability for an uncertain tax position. These errors were the result of the significant ~~complexity~~ complexity created as a result of the going private transaction. The impact of correcting these items had a non-cash effect, decreasing tax expense and increasing net income by $4.1 million. Based on its evaluation as discussed more fully below, the Corporation concluded that the corrections to the financial statements were immaterial to its financial results for the years ended February 28, 2014 and 2015.

In accordance with ASC Topic 250, Accounting Changes and Error Corrections, the Corporation evaluated the effects of the errors on its financial statements for the years ended February 28, 2014 and 2015 and concluded that the results of operations for these periods were not materially misstated. In reaching its conclusion, the Corporation considered numerous qualitative and quantitative factors, including but not limited to the following:

•

In evaluating the financial and operational performance, the Corporation’s shareholder and debt holders focus on performance metrics such as earnings before interest, taxes, depreciation and amortization (“EBITDA”), operating income and cash flows from operations, none of which were impacted by the correction of the errors,

•

The numeric impact of the error on the Corporation’s results of operations, including the net dollar impact, the impact as a percentage of period earnings, the impact on financial trends, and the impact on non-GAAP measures such as adjusted operating income the Corporation presents in quarterly public debt holder conference calls, which were deemed immaterial, particularly in light of the Corporation’s stakeholders’ focus on EBITDA, operating income and cash flows from operations, and

•

The absence of any impact on the Corporation’s compliance with its debt covenants, management compensation or segment reporting.

Based on its evaluation, the Corporation concluded that it is not probable that the judgment of a reasonable person relying on the financial statements would have been changed or influenced by the error or correction of the error.

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 ~~April~~July 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-0311 (“ASU 2015-0311”), “Simplifying the ~~Presentation~~Measurement of ~~Debt Issuance Costs~~Inventory”. ASU 2015-0311 requires ~~that~~an ~~all~~entity ~~costs incurred~~ to ~~issue~~measure ~~debt~~inventory bethat ~~presented~~is inwithin the ~~balance~~scope ~~sheet~~of asthis aASU ~~direct~~at ~~reduction~~the ~~from~~lower ~~the~~of ~~carrying~~cost and net realizable value. Existing ofimpairment ~~the~~models ~~debt,~~will ~~similar~~continue to be used for inventories that are accounted for using the ~~presentation~~last-in offirst-out ~~debt~~(“LIFO”) ~~discounts~~method. ASU 2015-0311 isrequires ~~effective~~prospective adoption for ~~public~~inventory ~~business~~measurements ~~entities~~ for fiscal years beginning after December 15, ~~2015~~2016 and interim periods within those fiscal years, ~~with~~for ~~early~~public business entities. Early adoption is permitted. At August 28, 2015, approximately 48% of the Corporation’s pre-LIFO consolidated inventory is measured using a method other than LIFO. The Corporation does not expect that the adoption of this standards update will have a material impact on its consolidated financial statements.

In ~~August~~April ~~2014~~2015, the FASB issued ASU No. ~~2014~~2015-~~15,~~03 (“ASU ~~2014~~2015-1503”), “~~Disclosure~~Simplifying ofthe Presentation ~~Uncertainties~~of ~~About~~Debt anIssuance ~~Entity’s Ability to Continue as a Going Concern~~Costs”. ASU ~~2014~~2015-1503 requires ~~management~~that toall ~~perform~~costs ~~interim~~incurred ~~and~~to ~~annual~~issue ~~assessments~~debt ofbe anpresented ~~entity’s~~in ~~ability~~the tobalance ~~continue~~sheet as a ~~going~~direct ~~concern~~deduction ~~within~~from ~~one~~the ~~year~~carrying value of the ~~date~~debt, ~~the financial~~similar ~~statements are issued and provides guidance on determining when and how~~ to ~~disclose~~the ~~going~~presentation ~~concern~~of ~~uncertainties~~debt ~~in the financial statements~~discounts. ~~Certain~~ASU ~~disclosures~~2015-03 ~~will be required if conditions give rise to substantial doubt about an~~is ~~entity’s~~effective ~~ability~~for topublic ~~continue~~business asentities afor ~~going~~fiscal ~~concern.~~years ~~ASU~~beginning ~~2014-~~after December 15, ~~applies~~2015 ~~to all entities~~ and ~~is effective for annual and~~ interim ~~reporting~~ periods ~~ending~~within ~~after~~those ~~December 15,~~fiscal ~~2016~~years, with early adoption permitted. The Corporation does not expect that the adoption of this standards update will have a material impact on its consolidated financial statements.

In ~~May~~August 2014, the FASB issued ASU No. 2014-0915, (“ASU 2014-0915”), “~~Revenue~~Disclosure ~~from Contracts with Customers”. The objective~~ of ~~ASU 2014-19~~Uncertainties isAbout toan ~~establish~~Entity’s aAbility ~~single comprehensive model for entities~~ to ~~use~~Continue inas ~~accounting~~a ~~for~~Going ~~revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance~~Concern”. ~~The core principle of~~ ASU 2014-0915 isrequires ~~that~~management anto ~~entity~~perform ~~recognizes~~interim ~~revenue~~and toannual ~~depict~~assessments ~~the transfer~~ of ~~promised goods or services to customers in~~ an ~~amount that reflects the consideration to which the~~ entity’s ~~expects~~ability to becontinue ~~entitled~~as ina ~~exchange~~going ~~for~~concern ~~those~~within ~~goods~~one year orof ~~services.~~the Indate ~~applying~~ the ~~new~~financial ~~guidance,~~statements anare ~~entity~~issued ~~will~~and ~~(1)~~provides ~~identify~~guidance ~~the~~on ~~contract(s)~~determining ~~with~~when aand ~~customer;~~how ~~(2)~~to ~~identify~~disclose ~~the~~going ~~performance~~concern ~~obligations~~uncertainties in the ~~contract;~~ ~~(3)~~financial ~~determine~~statements. ~~the~~Certain ~~transaction~~disclosures ~~price;~~will ~~(4)~~be ~~allocate~~required ~~the~~if ~~transaction~~conditions ~~price~~give rise to ~~the~~substantial doubt ~~contract~~about an entity’s ~~performance~~ability ~~obligations;~~to ~~and~~continue ~~(5) recognize revenue when (or~~ as) ~~the entity satisfies~~ a ~~performance~~going ~~obligation~~concern. ASU 2014-0915 applies to all ~~contracts~~ ~~with~~entities ~~customers~~and except those that are within the scope of other topics in the FASB Accounting Standards Codification. On July 9, 2015, the FASB agreed to delay the effective date of ASU 2014-09 by one year. In accordance with the agreed upon delay the new guidance is effective for annual ~~reporting~~and ~~periods (including~~ interim ~~periods~~reporting ~~within those~~ periods) ~~beginning~~ending after December 15, ~~2017~~2016, ~~for~~with ~~public~~early ~~companies. Early~~ adoption is permitted ~~but not before annual periods beginning after December 15, 2016~~. ~~Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09.~~ The Corporation does isnot ~~currently~~expect ~~evaluating~~that the ~~new~~adoption ~~guidance~~of ~~and~~this ~~has~~standards ~~not~~update ~~determined~~will ~~the~~ impact ~~this~~its ~~standard~~consolidated ~~may have on its~~ financial statements ~~nor decided upon the method of adoption~~.

~~Note~~In May 2014, the FASB issued ASU No. 2014-09, (“ASU 2014-09”), “Revenue from Contracts with Customers”. The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate –the ~~Acquisitions~~transaction price to the contract’s performance obligations; and ~~Dispositions~~(5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. In August 2015, the FASB issued ASU 2015-14, (“ASU 2015-14”), “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Accordingly, public business entities should apply the guidance in ASU 2014-09 to annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. Early adoption is permitted but not before annual periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. The Corporation is currently evaluating the new guidance and has not determined the impact this standard may have on its financial statements nor decided upon the method of adoption.

~~Sale~~Note of4 ~~Strawberry~~– ~~Shortcake~~Acquisitions and Dispositions

~~As reported~~Sale in its Annual Report on Form 10-K for the year ended February 28, 2015, the Corporation entered into an agreement to sell its Strawberry Shortcake property and related intangible assets and licensing agreements (“Strawberry Shortcake”) on February 2, 2015. At February 28, 2015, the assets and liabilities related to the pending sale were classified as held for sale. In March 2015, the sale was completed and the Corporation received $105.0 million in cash and recognized a gain of ~~$61.7 million, subject to finalization of certain closing date estimates. The proceeds are included in “Proceeds from sale of~~ Strawberry Shortcake” ~~within “Investing Activities” on the Consolidated Statement of Cash Flows.~~

~~Character~~As reported ~~Property~~in ~~Rights~~its ~~Acquisition~~Annual Report on Form 10-K for the year ended February 28, 2015, the Corporation entered into an agreement to sell its Strawberry Shortcake property and related intangible assets and licensing agreements (“Strawberry Shortcake”) on February 2, 2015. At February 28, 2015, the assets and liabilities related to the pending sale were classified as held for sale. In March 2015, the sale was completed and the Corporation received $105.0 million in cash which is included in “Proceeds from sale of Strawberry Shortcake” within “Investing Activities” on the Consolidated Statement of Cash Flows. During the six months ended August 28, 2015, the Corporation recognized a net gain of $61.6 million from the sale of Strawberry Shortcake.

As reported in its Annual Report on Form 10-K for the year ended February 28, 2015, in order to secure complete control and ownership over the rights in certain character properties, including the Strawberry Shortcake property, that the Corporation previously granted to a third party (the “Character Property Rights~~”),~~ onAcquisition December 18, 2014, the Corporation paid $37.7 million to purchase these rights, and recorded the rights as indefinite-lived intangible assets. At February 28, 2015, approximately $26 million of this amount was classified as held for sale related to the expected sale of Strawberry Shortcake. In addition, under the agreement by which it acquired these rights, the Corporation agreed that in the event of a future sale of these Character Property Rights and the associated character properties, the Corporation will, depending on the proceeds of such sale, pay up to an additional $4.0 million of the proceeds that it receives from any such sale. Accordingly, as a result of the sale of the Strawberry Shortcake property described above, in March 2015, the Corporation made an additional payment in the amount of $2.8 million. This payment is included in “Cash paid for acquired character property rights” within “Investing Activities” on the Consolidated Statement of Cash Flows.

9As reported in its Annual Report on Form 10-K for the year ended February 28, 2015, in order to secure complete control and ownership over the rights in certain character properties, including the Strawberry Shortcake property, that the Corporation previously granted to a third party (the “Character Property Rights”), on December 18, 2014, the Corporation paid $37.7 million to purchase these rights, and recorded the rights as indefinite-lived intangible assets. At February 28, 2015, approximately $26 million of this amount was classified as held for sale related to the

~~Table~~9 ~~of Contents~~

As expected ~~reported~~sale inof ~~its~~Strawberry ~~Annual~~Shortcake. ~~Report~~In onaddition, ~~Form~~under ~~10-K~~the ~~for~~agreement ~~the~~by ~~year~~which ~~ended~~it ~~February 28,~~acquired ~~2015~~these rights, the Corporation ~~completed~~agreed that in the event of a future sale of ~~its~~these ~~wholly-owned~~Character ~~display~~Property ~~fixtures~~Rights ~~business~~and the associated character properties, ~~AGI~~the ~~In-Store~~Corporation will, depending on ~~August 29~~the proceeds of such sale, ~~2014~~pay ~~for~~up to an additional $734.70 million inof ~~cash,~~the ~~subject~~proceeds tothat ~~closing~~it ~~date~~receives ~~working~~from ~~capital~~any ~~adjustments~~such sale. InAccordingly, as a result of the sale of the Strawberry Shortcake property described above, in March 2015, the ~~working~~Corporation ~~capital~~made ~~adjustments~~an ~~were~~additional ~~finalized~~payment ~~and~~in athe ~~payment~~amount of $3.2.8 million ~~was made to the buyer~~. This payment is included in “~~Adjustment~~Cash topaid ~~proceeds~~for ~~from~~acquired ~~sale~~character ofproperty ~~AGI In-Store~~rights” within “Investing Activities” on the Consolidated Statement of Cash Flows.

~~Surrender~~Sale of ~~Certain~~AGI ~~Corporate~~In-~~Owned~~Store ~~Life Insurance Policies~~

AsOn ~~reported~~August 29, in2014, ~~its~~the ~~Annual~~Corporation ~~Report~~completed onthe ~~Form~~sale ~~10-K~~of ~~for~~its ~~the~~wholly-owned ~~year~~display ~~ended~~fixtures ~~February 28~~business, ~~2015,~~AGI ~~the Corporation~~In-Store, infor ~~order~~$73.7 tomillion ~~mitigate~~in ~~the~~cash, ~~ongoing~~subject ~~risks~~ to ~~the~~ ~~Corporation~~closing ~~that~~date ~~may~~working ~~arise~~capital ~~from~~adjustments. ~~retaining~~A ~~certain~~gain ~~corporate-owned~~of ~~life~~$38.8 ~~insurance~~million ~~policies,~~was ~~surrendered~~recognized ~~those~~from ~~policies~~the ~~during~~sale in the prior year ~~fourth~~second fiscal quarter. Inand ~~March~~was ~~2015,~~included in ~~connection~~“Other ~~with~~operating income – net” on the ~~surrender~~Consolidated Statement of ~~those~~Income. ~~policies~~In March 2015, the ~~Corporation~~working ~~received proceeds~~capital adjustments were finalized and a payment of $243.12 million was made to the buyer. ~~These~~This payment and the prior year cash proceeds from the sale are included in “~~Proceeds~~(Adjustment to proceeds)/proceeds from ~~surrender~~sale of ~~corporate~~AGI In-~~owned life insurance policies~~Store” within “Investing Activities” on the Consolidated Statement of Cash Flows. Subsequent to the prior year second quarter, post-closing date adjustments, including the final working capital adjustment, reduced the overall gain by $0.1 million and $3.7 million in the prior year third and fourth quarters, respectively.

~~Note~~Sale 5of –World ~~Royalty~~Headquarters ~~Revenue and Related Expenses~~

~~The~~On July 1, 2014, the Corporation ~~has~~sold ~~agreements~~its ~~for~~current ~~licensing~~world ~~certain~~headquarters ~~characters~~location and ~~other~~entered ~~intellectual~~into ~~property.~~an ~~These~~operating ~~license~~lease ~~agreements~~arrangement ~~provide~~with ~~for royalty~~the ~~revenue~~new toowner of the building. The Corporation, ~~which~~expects isto ~~recorded~~remain in ~~“Other~~this ~~revenue”~~current onlocation until the ~~Consolidated~~completion ~~Statement~~ of ~~Income.~~the ~~These~~new ~~license~~world ~~agreements~~headquarters, ~~may~~which ~~include~~ the ~~receipt~~Corporation anticipates will occur in calendar year 2016. Net of ~~upfront~~transaction ~~advances~~costs, ~~which~~the ~~are~~Corporation ~~recorded~~received as$13.5 million ~~deferred~~in ~~revenue~~cash from the sale, and ~~earned during~~recorded ~~the~~a ~~period~~non-cash loss on disposal of $15.5 million in the ~~agreement.~~prior ~~Revenues~~year ~~and~~second ~~expenses~~fiscal ~~associated~~quarter, ~~with~~which ~~the~~loss ~~servicing~~is ofincluded ~~these~~in ~~agreements,~~“Other ~~primarily~~operating ~~relating~~income to– net” on the ~~licensing~~Consolidated ~~activities~~Statement of Income. The cash proceeds are included in ~~the~~“Proceeds ~~Non-reportable~~from ~~segment,~~sale ~~are~~of ~~summarized~~fixed asassets” ~~follows:~~on the Consolidated Statement of Cash Flows.

	Three Months Ended
(In thousands)	May 29, 2015		May 30, 2014
Royalty revenue	$	1,129	$	5,938
Royalty expenses:
Material, labor and other production costs	$	934	$	1,544
Selling, distribution and marketing expenses		703		1,576
Administrative and general expenses		367		472
	$	2,004	$	3,592

Surrender of Certain Corporate-Owned Life Insurance Policies

As ~~disclosed~~reported in ~~Note~~its 4Annual Report on Form 10-K for the year ended February 28, 2015, the Corporation, in ~~completed~~order to mitigate the ~~sale~~ongoing ofrisks ~~Strawberry~~to ~~Shortcake~~the inCorporation ~~March~~that ~~2015.~~may Asarise ~~such,~~from ~~royalty~~retaining ~~revenue~~certain ~~and expenses~~corporate-owned ~~related~~life toinsurance ~~Strawberry~~policies, ~~Shortcake~~surrendered ~~for~~those policies during the prior year ~~three~~fourth ~~month~~quarter. ~~period~~In doMarch ~~not~~2015, ~~have~~in ~~comparative~~connection ~~amounts~~with the surrender of those policies, the Corporation received proceeds of $24.1 million. These proceeds are included in “Proceeds from surrender of corporate-owned life insurance policies” within “Investing Activities” on the ~~current~~Consolidated Statement ~~year~~of Cash Flows.

~~Note~~10 ~~6 – Other Income and Expense~~

	Three Months Ended
(In thousands)	May 29, 2015			May 30, 2014
Gain on sale of Strawberry Shortcake	$	(61,666	)	$	—
Clinton Cards secured debt recovery		—			(3,390	)
Loss on asset disposal		9			23
Miscellaneous		(763	)		1,399
Other operating income – net	$	(62,420	)	$	(1,968	)

Note 5 – Royalty Revenue and Related Expenses

InThe ~~March~~Corporation ~~2015,~~has agreements for licensing certain characters and other intellectual property. These license agreements provide for royalty revenue to the Corporation, ~~recognized~~which ais ~~gain~~recorded in “Other revenue” on the Consolidated Statement of ~~$61~~Income.7 ~~million~~These inlicense ~~connection~~agreements ~~with~~may include the ~~sale~~receipt of ~~Strawberry~~upfront ~~Shortcake.~~advances, ~~See~~which are recorded as deferred revenue and earned ~~Note~~during 4the ~~for~~period ~~further~~of ~~information~~the agreement. Revenues and expenses associated with the servicing of these agreements, primarily relating to the licensing activities included in the Non-reportable segment, are summarized as follows:


	Three Months Ended				Six Months Ended
(In thousands)	August 28, 2015		August 29, 2014		August 28, 2015		August 29, 2014
Royalty revenue	$	1,975	$	4,923	$	3,104	$	10,861

Royalty expenses:
Material, labor and other production costs	$	1,241	$	1,491	$	2,175	$	3,035
Selling, distribution and marketing expenses		988		1,699		1,691		3,275
Administrative and general expenses		344		309		711		781

	$	2,573	$	3,499	$	4,577	$	7,091

~~Table~~As disclosed in Note 4, the Corporation completed the sale of ~~Contents~~Strawberry Shortcake in March 2015. As such, royalty revenue and expenses related to Strawberry Shortcake for the prior year three and six month periods do not have comparative amounts in the current year.

~~During~~Note ~~the~~6 ~~three~~– ~~months~~Other ~~ended~~Income ~~May 30, 2014, the Corporation recorded an impairment recovery of $3.4 million related to the senior secured debt of Clinton Cards that the Corporation acquired in May 2012~~ and ~~subsequently~~Expense ~~impaired.~~

Other ~~Non-~~Operating Income – Net

	Three Months Ended						Six Months Ended
(In thousands)	~~May~~August 2928, 2015			~~May~~August 3029, 2014			August 28,2015			August 29,2014
Foreign exchange gain	$	(784	)	$	(460	)
Gain adjustment (gain) on sale of Strawberry Shortcake	$	41		$	—		$	(61,625	)	$	—
Rental income		(152	)		(539	)
Gain on sale of AGI In-Store		—			(38,803	)		—			(38,803	)
Miscellaneous		(2	)		(108	)
Clinton Cards secured debt recovery		—			—			—			(3,390	)
Other non-operating income – net	$	(938	)	$	(1,107	)
State tax credits		(6,541	)		—			(6,541	)		—
Loss on asset disposal		57			15,710			66			15,733
Miscellaneous		(866	)		(735	)		(1,629	)		664
Other operating income – net	$	(7,309	)	$	(23,828	)	$	(69,729	)	$	(25,796	)

~~Note~~During the six months ended August 28, 2015, the Corporation recognized a net gain of $61.6 million from the sale of Strawberry Shortcake, which included a first quarter gain of $61.7 –million ~~Accumulated~~and ~~Other~~an ~~Comprehensive~~adjustment ~~Income~~to ~~(Loss)~~the gain in the second quarter of approximately $0.1 million. See Note 4 for further information.

~~The~~During ~~changes~~the inquarter ~~accumulated~~ended ~~other~~August 28, ~~comprehensive~~2015, the Corporation recognized income ~~(loss)~~of ~~are~~$6.5 asmillion ~~follows~~from tax credits received from the State of Ohio under certain incentive programs made available to the Corporation in connection with its decision to maintain its world headquarters in the state of Ohio.

(In thousands)	ForeignCurrencyTranslationAdjustments			Pensions andOtherPostretirementBenefits			UnrealizedInvestmentGain		Total
Balance at February 28, 2015	$	1,836		$	(26,239	)	$	—	$	(24,403	)
Other comprehensive income (loss) before reclassifications		(2,028	)		(22	)		44,610		42,560
Amounts reclassified from accumulated other comprehensive income (loss)		—			238			—		238
Net current period other comprehensive income (loss)		(2,028	)		216			44,610		42,798
Balance at May 29, 2015	$	(192	)	$	(26,023	)	$	44,610	$	18,395

During the quarter ended August 29, 2014, the Corporation recognized a gain on the sale of AGI In-Store of $38.8 million. See Note 4 for further information.

~~The~~“Loss ~~reclassifications~~on ~~out~~asset ofdisposal” ~~accumulated~~during ~~other~~the ~~comprehensive~~three ~~income~~and (six month periods ended August 29, 2014 included a non-cash loss) ~~are~~of as$15.5 million ~~follows:~~related to the sale of the Corporation’s current world headquarters location. See Note 4 for further information.

(In thousands)	Three Months EndedMay 29, 2015			Consolidated Statement of IncomeClassification
Pensions and Postretirement Benefits:
Amortization of pensions and other postretirement benefits items
Actuarial losses, net	$	(548	)	Administrative and general expenses
Prior service credit, net		174		Administrative and general expenses
		(374	)
Tax benefit		136		Income tax expense
Total, net of tax		(238	)
Total reclassifications	$	(238	)

11During the prior year first quarter, the Corporation recorded an impairment recovery of $3.4 million related to the senior secured debt of Clinton Cards that the Corporation acquired in May 2012 and subsequently impaired.

~~Table~~Other ofNon-Operating ~~Contents~~Income – Net

Note 8 – Customer Allowances and Discounts


	Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014
Foreign exchange loss (gain)	$	111		$	(63	)	$	(673	)	$	(523	)
Rental income		(129	)		(216	)		(281	)		(755	)
Miscellaneous		(36	)		7			(38	)		(101	)

Other non-operating income – net	$	(54	)	$	(272	)	$	(992	)	$	(1,379	)

~~Trade~~Note ~~accounts~~7 ~~receivable~~– ~~are~~Accumulated ~~reported~~Other ~~net~~Comprehensive ofIncome ~~certain~~(Loss) ~~allowances and discounts. The most significant of these are as follows:~~

(In thousands)	May 29, 2015		February 28, 2015		May 30, 2014
Allowance for seasonal sales returns	$	20,026	$	18,895	$	23,214
Allowance for outdated products		10,547		11,074		10,313
Allowance for doubtful accounts		1,603		1,730		2,115
Allowance for marketing funds		26,373		26,841		33,027
Allowance for rebates		24,828		34,214		29,236
	$	83,377	$	92,754	$	97,905

The changes in accumulated other comprehensive income (loss) are as follows.

Certain customer allowances and discounts are settled in cash. These accounts, primarily rebates, which are classified as “Accrued liabilities” on the Consolidated Statement of Financial Position, totaled $14.6 million, $17.0 million and $14.6 million as of May 29, 2015, February 28, 2015 and May 30, 2014, respectively.


(In thousands)	Foreign Currency Translation Adjustments			Pensions and Other Postretirement Benefits			Unrealized Investment Gain		Total
Balance at February 28, 2015	$	1,836		$	(26,239	)	$	—	$	(24,403	)
Other comprehensive income (loss) before reclassifications		(4,379	)		245			34,477		30,343
Amounts reclassified from accumulated other comprehensive income (loss)		—			476			—		476

Net current period other comprehensive income (loss)		(4,379	)		721			34,477		30,819

Balance at August 28, 2015	$	(2,543	)	$	(25,518	)	$	34,477	$	6,416

~~Note~~The 9reclassifications –out ~~Inventories~~of accumulated other comprehensive income (loss) are as follows:

(In thousands)	~~May~~Six 29Months EndedAugust 28, 2015			~~February~~Consolidated ~~28,~~Statement ~~2015~~of IncomeClassification		~~May 30, 2014~~
Raw materials	$	18,271		$	14,809	$	27,109
Pensions and Postretirement Benefits:
Work in process		11,310			7,578		12,774
Amortization of pensions and other postretirement benefits items
Finished products		294,217			297,899		284,415
Actuarial losses, net	$	(1,094	)	Administrative and general expenses
		323,798			320,286		324,298
Prior service credit, net		348		Administrative and general expenses
Less LIFO reserve		81,314			80,755		82,746
		(746	)
		242,484			239,531		241,552
Tax benefit		270		Income tax expense
Display materials and factory supplies		8,638			9,046		18,285
Total, net of tax		(476	)
	$	251,122		$	248,577	$	259,837
Total reclassifications	$	(476	)

~~The~~As ~~valuation~~reported ofin ~~inventory~~its ~~under~~Annual ~~the~~Report ~~Last~~on Form 10-InK for the year ended February 28, ~~First-Out~~2015, ~~(“LIFO”)~~the ~~method~~Corporation isheld ~~made~~a atminority investment in the ~~end~~common stock of ~~each~~a ~~fiscal~~privately ~~year~~held ~~based~~company which was classified as available for sale and accounted for under the cost method due to the Corporation’s inability to exercise significant influence over the investee’s onoperating ~~inventory~~and ~~levels~~financial policies and ~~costs~~the atabsence ~~that~~of ~~time~~a readily determinable fair value for its investment. ~~Accordingly~~At February 28, ~~interim~~2015, ~~LIFO~~the ~~calculations,~~carrying byvalue ~~necessity,~~of ~~are~~this ~~based~~investment onwas ~~estimates~~zero as a result of ~~expected~~a ~~fiscal~~cash ~~year-end~~distribution ~~inventory~~in ~~levels~~2014 ~~and~~that ~~costs~~included a return of capital. During the current year first quarter, the investee successfully completed an initial public offering of its common stock and ~~are~~thereby ~~subject~~established toa ~~final~~readily ~~fiscal~~determinable ~~year-end~~fair ~~LIFO~~value ~~inventory~~for ~~calculations.~~the Corporation’s previously nonmarketable investment. In accordance with ASC Topic 320, “Investments – Debt and Equity

~~Inventory~~12 held on location for retailers with scan-based trading arrangements, which is included in finished products, totaled $71.8 million, $66.9 million and $76.2 million as of May 29, 2015, February 28, 2015 and May 30, 2014, respectively.

~~Table~~ Securities,” the investment is now reported at fair value and is included in “Other assets” on the Corporation’s Consolidated Statement of ~~Contents~~Financial Position. See Note 14 for further information. As a result of the initial fair value measurement at May 29, 2015 and subsequent revaluation at the end of the second quarter, an unrealized gain, net of tax, of $34.5 million was recognized in other comprehensive income during the six months ended August 28, 2015.

Note 108 – ~~Deferred~~Customer ~~Costs~~Allowances and Discounts

~~Deferred~~Trade ~~costs~~accounts ~~and~~receivable ~~future~~is ~~payment~~reported ~~commitments~~net ~~for~~of ~~retail~~certain ~~supply~~allowances ~~agreements~~and ~~are~~discounts. ~~included~~The inmost ~~the~~significant ~~following~~of ~~financial~~these ~~statement~~are ~~captions~~as follows:

(In thousands)	~~May~~August 2928, 2015			February 28, 2015			~~May~~August 3029, 2014
Prepaid expenses and other	$	95,001		$	98,061		$	93,125
Allowance for seasonal sales returns	$	16,437		$	18,895		$	18,147
Other assets		429,532			364,311			420,358
Allowance for outdated products		10,109			11,074			10,863
Deferred cost assets		524,533			462,372			513,483
Allowance for doubtful accounts		1,814			1,730			1,612
Other current liabilities		(53,530	)		(59,018	)		(81,154	)
Allowance for marketing funds		23,495			26,841			28,836
Other liabilities		(177,133	)		(104,127	)		(144,762	)
Allowance for rebates		21,465			34,214			27,425
Deferred cost liabilities		(230,663	)		(163,145	)		(225,916	)
	$	73,320		$	92,754		$	86,883
Net deferred costs	$	293,870		$	299,227		$	287,567

~~The~~Certain ~~Corporation~~customer ~~maintains~~allowances anand ~~allowance~~discounts ~~for~~are ~~deferred~~settled ~~costs~~in ~~related~~cash. toThese ~~supply~~accounts, ~~agreements~~primarily rebates, which are classified as “Accrued liabilities” on the Consolidated Statement of Financial Position, totaled $213.29 million, $217.30 million and $312.6 5 million atas ~~May~~of August 2928, 2015, February 28, 2015 and ~~May~~August 3029, 2014, respectively. ~~This allowance is included in “Other assets” on the Consolidated Statement of Financial Position.~~

Note 119 – ~~Other~~Inventories ~~Liabilities~~

Included in “Other liabilities” on the Consolidated Statement of Financial Position is a deferred lease obligation related to an operating lease with H L & L Property Company (“H L & L”), for a building that will function as the Corporation’s world headquarters. The building is currently being constructed and expected to be available for occupancy in calendar year 2016.


(In thousands)	August 28, 2015		February 28, 2015		August 29, 2014
Raw materials	$	19,861	$	14,809	$	15,304
Work in process		12,869		7,578		11,892
Finished products		337,344		297,899		359,219

		370,074		320,286		386,415
Less LIFO reserve		81,659		80,755		83,493

		288,415		239,531		302,922
Display materials and factory supplies		8,923		9,046		9,378

	$	297,338	$	248,577	$	312,300

HThe Lvaluation ~~& L is an indirect affiliate~~ of ~~the~~inventory ~~Corporation~~under ~~as it is indirectly owned by members of~~ the ~~Weiss~~Last-In, ~~Family~~First-Out (~~as defined in Note 17~~“LIFO”). ~~Due~~method ~~to,~~is ~~among~~made ~~other~~at ~~things,~~ the ~~Corporation’s~~end ~~involvement in the construction~~ of ~~the~~each ~~building,~~fiscal ~~the~~year ~~Corporation~~based on isinventory ~~required~~levels toand becosts ~~treated,~~at ~~for~~that ~~accounting purposes only, as the “deemed owner” of the new world headquarters building during the construction period~~time. Accordingly, ~~the~~interim ~~Corporation~~LIFO ~~has~~calculations, ~~recorded~~by ~~an asset and associated offsetting liability during the construction of the building~~necessity, ~~even~~are ~~though~~based ~~the Corporation does not own the asset and is not the obligor~~ on ~~the corresponding~~estimates ~~construction~~of ~~debt.~~expected ~~The~~fiscal ~~asset~~year-end ~~and~~inventory ~~corresponding~~levels ~~liability was $39.3 million, $31.7 million~~ and ~~$0.9 million as of May 29~~costs, ~~2015, February 28, 2015~~ and ~~May 30,~~are ~~2014,~~subject ~~respectively.~~to ~~See~~final ~~Note~~fiscal 17year-end ~~for~~LIFO ~~further~~inventory ~~information~~calculations.

~~Note~~Inventory 12held –on ~~Debt~~location for retailers with scan-based trading arrangements, which is included in finished products, totaled $64.2 million, $63.3 million and $68.0 million as of August 28, 2015, February 28, 2015 and August 29, 2014, respectively.

~~There~~13 ~~was no debt due within one year as of May 29, 2015 and February 28, 2015. Debt due within one year totaled $20,000 as of May 30, 2014, which represented the current maturity of the term loan.~~

(In thousands)	May 29, 2015			February 28, 2015			May 30, 2014
Term loan, due 2019	$	185,000		$	250,000		$	335,000
7.375% senior notes, due 2021		225,000			225,000			225,000
Revolving credit facility, due 2018		58,000			4,300			66,600
6.10% senior notes, due 2028		181			181			181
Unamortized financing fees		(4,712	)		(6,752	)		(10,079	)
		463,469			472,729			616,702
Current portion of term loan		—			—			(20,000	)
	$	463,469		$	472,729		$	596,702

Note 10 – Deferred Costs

13Deferred costs and future payment commitments for retail supply agreements are included in the following financial statement captions:


(In thousands)	August 28, 2015			February 28, 2015			August 29, 2014
Prepaid expenses and other	$	89,305		$	98,061		$	90,496
Other assets		411,909			364,311			403,920

Deferred cost assets		501,214			462,372			494,416
Other current liabilities		(64,117	)		(59,018	)		(82,422	)
Other liabilities		(160,558	)		(104,127	)		(141,102	)

Deferred cost liabilities		(224,675	)		(163,145	)		(223,524	)

Net deferred costs	$	276,539		$	299,227		$	270,892

AtThe ~~May 29,~~Corporation ~~2015,~~maintains ~~the~~an ~~balances~~allowance ~~outstanding~~for ondeferred ~~the~~costs ~~term~~related ~~loan~~to ~~facility~~supply ~~and~~agreements ~~revolving credit facility bear interest at a rate~~ of ~~approximately 2~~$3.7%5 ~~and~~million, $2.~~9%,~~3 ~~respectively.~~million ~~The~~and ~~revolving credit facility provides the Corporation with funding of up to~~ $~~250 million~~3. ~~The Corporation is also a party to an accounts receivable facility that provides funding of~~1 ~~up to $50~~ million, ~~under~~at ~~which there were no borrowings outstanding as of May~~August 2928, 2015, February 28, 2015 and ~~May~~August 3029, 2014, respectively. ~~Outstanding~~This ~~letters~~allowance ofis ~~credit,~~included ~~which~~in ~~reduce~~“Other ~~the~~assets” ~~total~~on ~~credit available under~~ the ~~revolving credit~~Consolidated ~~and~~Statement ~~the~~of ~~accounts~~Financial ~~receivable facilities, totaled $26~~Position.4 ~~million at May 29, 2015.~~

InNote ~~March~~11 ~~2015~~– ~~the~~Other ~~Corporation~~Liabilities made a voluntary prepayment of $65.0 million on the term loan facility, thereby eliminating all future quarterly installment payments prior to this facility’s August 9, 2019 maturity date. During the three months ended May 29, 2015, the Corporation expensed an additional $1.8 million of unamortized financing fees as a result of the prepayment.

~~The~~Included ~~total~~in ~~fair~~“Other ~~value~~liabilities” ofon the ~~Corporation’s~~Consolidated ~~publicly~~Statement ~~traded~~of ~~debt, which~~Financial ~~was~~Position ~~considered~~is a ~~Level~~deferred 1lease ~~valuation~~obligation asrelated itto ~~was~~an operating ~~based~~lease onwith ~~quoted~~H ~~market~~L ~~prices,~~& ~~was~~L ~~$238.6~~Property ~~million~~Company (at“H aL ~~carrying~~& ~~value of $225.2 million~~L”), ~~$238.2~~for ~~million~~a ~~(at~~building athat ~~carrying~~will ~~value~~function ofas ~~$225.2~~the ~~million)~~Corporation’s ~~and~~world ~~$236~~headquarters.4 ~~million~~The ~~(at~~building ais ~~carrying~~currently ~~value~~being ofconstructed ~~$225.2 million)~~and atexpected ~~May 29,~~to ~~2015, February 28,~~be ~~2015~~available ~~and~~for ~~May 30,~~occupancy ~~2014,~~in calendar ~~respectively~~year 2016.

~~The~~H ~~total~~L ~~fair~~& ~~value~~L is an indirect affiliate of the Corporation’s as it is indirectly owned by members of the Weiss Family (as defined in Note ~~non-publicly~~17). ~~traded~~Due ~~debt~~to, ~~which~~among ~~was~~other ~~considered~~things, athe ~~Level~~Corporation’s 2involvement ~~valuation~~in asthe itconstruction ~~was~~of ~~based~~the onbuilding, ~~comparable~~the ~~privately~~Corporation ~~traded~~is ~~debt~~required ~~prices~~to be treated, ~~was~~for ~~$242.5~~accounting ~~million~~purposes ~~(at~~only, aas ~~principal~~the ~~carrying~~“deemed ~~value~~owner” of ~~$243~~the new world headquarters building during the construction period.0 ~~million)~~Accordingly, ~~$251.8~~the ~~million~~Corporation ~~(at~~has arecorded ~~principal~~an ~~carrying~~asset ~~value~~and associated offsetting liability during the construction of the building, even though the Corporation does not own the asset and is not the obligor on the ~~$254~~corresponding construction debt.3 ~~million),~~The asset and corresponding liability was $~~401~~57.64 million, ~~(at~~$31.7 amillion ~~carrying~~and ~~value of~~ $~~401~~14.68 million) atas ~~May~~of August 2928, 2015, February 28, 2015 and ~~May~~August 3029, 2014, respectively. See Note 17 for further information.

At14 ~~May 29, 2015, the Corporation was in compliance with the financial covenants under its borrowing agreements.~~

~~The~~Note ~~components~~12 of– ~~periodic~~Debt ~~benefit cost for the Corporation’s defined benefit pension and postretirement benefits plans are as follows:~~

	Defined Benefit Pension Plans						Postretirement Benefits Plan
	Three Months Ended						Three Months Ended
(In thousands)	May 29, 2015			May 30, 2014			May 29, 2015			May 30, 2014
Service cost	$	159		$	144		$	125		$	100
Interest cost		1,558			1,837			525			675
Expected return on plan assets		(1,668	)		(1,623	)		(675	)		(700	)
Amortization of prior service cost (credit)		1			1			(175	)		(325	)
Amortization of actuarial loss (gain)		848			706			(300	)		(225	)
	$	898		$	1,065		$	(500	)	$	(475	)

There was no debt due within one year as of August 28, 2015 and February 28, 2015. Debt due within one year totaled $20,000 as of August 29, 2014, which represented the current maturity of the term loan.

~~The Corporation has a discretionary profit~~Long-~~sharing~~term ~~plan~~debt ~~with~~and atheir ~~401(k)~~related ~~provision~~calendar ~~covering~~year ~~most~~due ofdates ~~its~~as ~~United States employees.~~of ~~The profit-sharing plan expense for the three months ended May~~August 2928, 2015 ~~was $1.7 million~~, February 28, ~~compared~~2015 toand $4.1 million in the prior year period. The Corporation also matches a portion of 401(k) employee contributions. The expense recognized for the 401(k) match was $1.2 million for the three month period ended MayAugust 29, ~~2015~~2014, ~~compared~~respectively, towere ~~$1.3 million for the prior year period. The profit-sharing plan and 401(k) matching expenses for the three month periods are estimates~~ as ~~actual contributions~~follows: ~~are determined after fiscal year-end.~~

At May 29, 2015, February 28, 2015 and May 30, 2014, the liability for postretirement benefits other than pensions was $18.5 million, $17.5 million and $18.7 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position. At May 29, 2015, February 28, 2015 and May 30, 2014, the long-term liability for pension benefits was $80.3 million, $81.9 million and $76.0 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position.


(In thousands)	August 28, 2015			February 28, 2015			August 29, 2014
Term loan, due 2019	$	185,000		$	250,000		$	330,000
7.375% senior notes, due 2021		225,000			225,000			225,000
Revolving credit facility, due 2018		56,000			4,300			—
6.10% senior notes, due 2028		181			181			181
Unamortized financing fees		(4,429	)		(6,752	)		(9,591	)

		461,752			472,729			545,590
Current portion of term loan		—			—			(20,000	)

	$	461,752		$	472,729		$	525,590

14At August 28, 2015, the balances outstanding on the term loan facility and revolving credit facility bear interest at a rate of approximately 2.7% and 2.7%, respectively. The revolving credit facility provides the Corporation with funding of up to $250 million. The Corporation is also a party to an accounts receivable facility that provides funding of up to $50 million, under which there were no borrowings outstanding as of August 28, 2015, February 28, 2015 and August 29, 2014, respectively. Outstanding letters of credit, which reduce the total credit available under the revolving credit and the accounts receivable facilities, totaled $26.4 million at August 28, 2015.

~~Table~~In March 2015 the Corporation made a voluntary prepayment of ~~Contents~~$65.0 million on the term loan facility, thereby eliminating all future quarterly installment payments prior to this facility’s August 9, 2019 maturity date. During the six months ended August 28, 2015, the Corporation expensed an additional $1.8 million of unamortized financing fees as a result of the prepayment.

~~Note~~The 14total –fair ~~Fair~~value ~~Value~~of ~~Measurements~~the Corporation’s publicly traded debt, which was considered a Level 1 valuation as it was based on quoted market prices, was $234.1 million (at a carrying value of $225.2 million), $238.2 million (at a carrying value of $225.2 million) and $240.3 million (at a carrying value of $225.2 million) at August 28, 2015, February 28, 2015 and August 29, 2014, respectively.

~~Assets~~The ~~and~~total ~~liabilities~~fair ~~measured~~value atof ~~fair~~the ~~value~~Corporation’s non-publicly ~~are~~traded ~~classified~~debt, ~~using~~which ~~the~~was ~~fair~~considered ~~value~~a ~~hierarchy~~Level ~~based~~2 ~~upon~~valuation ~~the~~as ~~transparency~~it ofwas ~~inputs~~based ason ofcomparable ~~the measurement~~privately ~~date~~traded debt prices, was $240.5 ~~The~~million ~~classification~~(at ofa ~~fair~~principal carrying value ~~measurements~~of ~~within~~$241.0 ~~the~~million), ~~hierarchy~~$251.8 ismillion ~~based~~(at ~~upon~~a ~~the~~principal ~~lowest~~carrying ~~level~~value of $254.3 ~~input~~million), ~~that~~and is$330.0 ~~significant~~million to(at ~~the~~a ~~measurement~~principal carrying value of $330.0 ~~The~~million) ~~three~~at ~~levels~~August 28, ~~are~~2015, February 28, ~~defined~~2015 asand ~~follows:~~August 29, 2014, respectively.

•At ~~Level~~August 28, 12015, –the ~~Valuation~~Corporation iswas ~~based~~in ~~upon~~compliance ~~quoted~~with ~~prices~~the ~~(unadjusted)~~financial incovenants ~~active~~under ~~markets~~its ~~for~~borrowing ~~identical assets or liabilities~~agreements.

•15 Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

~~The~~Note ~~following~~13 ~~table~~– ~~summarizes~~Retirement ~~the~~Benefits ~~financial assets and liabilities measured at fair value as of May 29, 2015:~~

(In thousands)	May 29, 2015		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,484	$	11,035	$	1,449	$	—
Investment in equity securities		73,080		73,080		—		—
	$	85,564	$	84,115	$	1,449	$	—
Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	13,448	$	11,035	$	2,413	$	—

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

The following table summarizes the assets and liabilities measured at fair value as of February 28, 2015:


	Defined Benefit Pension Plans
	Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014
Service cost	$	159		$	145		$	318		$	289
Interest cost		1,550			1,846			3,108			3,683
Expected return on plan assets		(1,659	)		(1,628	)		(3,327	)		(3,251	)
Amortization of prior service cost		1			1			2			2
Amortization of actuarial loss		846			720			1,694			1,426

	$	897		$	1,084		$	1,795		$	2,149

(In thousands)	February 28, 2015			Level 1			Level 2			Level 3
	Postretirement Benefits Plan
Assets measured on a recurring basis:
	Three Months Ended						Six Months Ended
Deferred compensation plan assets	$	12,745		$	10,997		$	1,748		$	—
(In thousands)	August 28,2015			August 29,2014			August 28,2015			August 29,2014
Liabilities measured on a recurring basis:
Service cost	$	125		$	100		$	250		$	200
Deferred compensation plan liabilities	$	13,412		$	10,997		$	2,415		$	—
Interest cost		525			675			1,050			1,350
Expected return on plan assets		(675	)		(700	)		(1,350	)		(1,400	)
Amortization of prior service credit		(175	)		(325	)		(350	)		(650	)
Amortization of actuarial gain		(300	)		(225	)		(600	)		(450	)
	$	(500	)	$	(475	)	$	(1,000	)	$	(950	)

The ~~following~~Corporation ~~table~~has ~~summarizes~~a discretionary profit-sharing plan with a 401(k) provision covering most of its United States employees. The profit-sharing plan expense for the ~~assets~~six ~~and~~months ~~liabilities~~ended ~~measured~~August 28, at2015 ~~fair~~was ~~value~~$3.4 asmillion, compared to $5.5 million in the prior year period. The Corporation also matches a portion of ~~May~~401(k) employee contributions. The expenses recognized for the three and six month periods ended August 3028, 2015 were $1.3 million and $2.6 million ($1.3 million and $2.6 million for the three and six month periods ended August 29, 2014:), respectively. The profit-sharing plan and 401(k) matching expenses for the six month periods are estimates as actual contributions are determined after fiscal year-end.

(In thousands)	May 30, 2014		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,218	$	10,243	$	1,975	$	—
Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	13,214	$	10,243	$	2,971	$	—

At August 28, 2015, February 28, 2015 and August 29, 2014, the liability for postretirement benefits other than pensions was $19.2 million, $17.5 million and $19.7 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position. At August 28, 2015, February 28, 2015 and August 29, 2014, the long-term liability for pension benefits was $78.6 million, $81.9 million and $74.5 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position.

~~The~~Note ~~deferred~~14 ~~compensation~~– ~~plan~~Fair ~~includes~~Value ~~investments~~Measurements in mutual funds and a money market fund. Assets held in mutual funds are recorded at fair value, which is considered a Level 1 valuation as it is based on each fund’s quoted market value per share in an active market. The money market fund is classified as Level 2 as substantially all of the fund’s investments are determined using amortized cost. The fair value of the deferred compensation plan liabilities is based on the fair value of: (i) the plan’s assets for invested deferrals and (ii) hypothetical investments for unfunded deferrals.

~~The~~Assets ~~investment~~and inliabilities ~~equity~~measured ~~securities~~at isfair ~~considered~~value aare ~~Level~~classified 1using ~~valuation~~the fair value hierarchy based upon the transparency of inputs as itof the measurement date. The classification of fair value measurements within the hierarchy is based onupon athe ~~quoted~~lowest ~~price~~level inof aninput ~~active~~that ~~market~~is significant to the measurement. The three levels are defined as follows:

15• Level 1 – Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities.

~~Table~~• Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of ~~Contents~~the financial instrument.

~~Note~~• 15Level 3 – ~~Contingency~~Valuation is based upon unobservable inputs that are significant to the fair value measurement.

~~The~~16 Corporation is presently involved in various judicial, administrative, regulatory and arbitration proceedings concerning matters arising in the ordinary course of business, including but not limited to, employment, commercial disputes and other contractual matters. These matters are inherently subject to many uncertainties regarding the possibility of a loss to the Corporation. These uncertainties will ultimately be resolved when one or more future events occur or fail to occur, confirming the incurrence of a liability or reduction of a liability. In accordance with ASC Topic 450, “Contingencies,” the Corporation accrues for these contingencies by a charge to income when it is both probable that one or more future events will occur confirming the fact of a loss and the amount of the loss can be reasonably estimated. Due to this uncertainty, the actual amount of any loss may ultimately prove to be larger or smaller than the amounts reflected in the Corporation’s Consolidated Financial Statements. Some of these proceedings are at preliminary stages and some of these cases seek an indeterminate amount of damages.

OnThe ~~January 20,~~following ~~2015,~~table ~~the~~summarizes ~~parties reached a settlement in principle that, if approved by~~ the ~~Court,~~financial ~~will~~assets ~~fully~~ and ~~finally~~liabilities ~~resolve~~measured ~~the~~at ~~claims~~fair ~~brought~~value ~~by Smith and Hourcade,~~ as ~~well as the classes they seek to represent. The settlement was a product~~ of ~~extensive negotiations and a private mediation, which was finalized and memorialized in a Stipulation and Class Action Settlement Agreement signed March~~August 3028, 2015.: The proposed settlement establishes a settlement fund of $4.0 million to pay claims from current and former employees who worked at least one day for American Greetings Corporation and/or certain of its subsidiaries in any hourly non-exempt position in California between June 4, 2010 and the date of the Court’s preliminary approval of the settlement.

On March 31, 2015, plaintiffs filed a Motion for Preliminary Approval of Class Action Settlement. On April 30, 2015, plaintiffs filed their Third Amended Complaint to which American Greetings Corporation filed its answer on May 19, 2015. On April 30, 2015, the Court held a preliminary approval hearing. If the settlement is preliminarily approved, notice and claim forms will be mailed to class members and class members will have an opportunity to submit claims, to opt-out of the settlement, and/or to object to the settlement. As part of a Preliminary Approval Order, the Court will set a Final Approval Hearing to occur after the notice process, at which point the Court will consider the notice process and results, any objections, and other relevant information. The Court will then decide whether to finally approve the class settlement. If the settlement is finally approved, American Greetings will fund the settlement within twenty (20) days after passage of all appeal periods. Thereafter, the settlement funds will be disbursed as provided in the settlement agreement and the Court’s orders.


(In thousands)	August 28, 2015		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	11,514	$	10,236	$	1,278	$	—
Investment in equity securities		56,482		56,482		—		—

	$	67,996	$	66,718	$	1,278	$	—

Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	12,425	$	10,236	$	2,189	$	—

Michael Ackerman v. American Greetings Corporation, et al. On March 6, 2015, plaintiff Michael Ackerman, individually and on behalf of others similarly situated, filed a putative class action lawsuit in the United States District Court of New Jersey alleging violation of the Telephone Consumer Protection Act (“TCPA”) by American Greetings Corporation and its subsidiary, AG Interactive, Inc. The ~~plaintiff~~following ~~claims~~table ~~that~~summarizes ~~defendants (1) sent plaintiff an unsolicited text message notifying plaintiff that he had received an ecard; and (2) knowingly and/or willfully violated~~ the ~~TCPA,~~assets ~~which prohibits unsolicited automated or prerecorded telephone calls, including faxes~~ and ~~text~~liabilities ~~messages,~~measured ~~sent~~at tofair ~~cellular~~value ~~telephones. Plaintiff~~as ~~seeks~~of ~~to certify a nationwide class based on unsolicited text messages sent by defendants during the period~~ February 828, ~~2011 through February 8,~~ 2015~~. The~~: plaintiff seeks damages in the statutory amount of $500 for each and every violation of the TCPA and $1,500 for each and every willful violation of the TCPA. The Corporation believes the plaintiff’s allegations in this lawsuit are without merit and intends to defend the action vigorously.


(In thousands)	February 28, 2015		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,745	$	10,997	$	1,748	$	—

Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	13,412	$	10,997	$	2,415	$	—

~~Table~~The following table summarizes the assets and liabilities measured at fair value as of ~~Contents~~August 29, 2014:

With respect to the Ackerman case, management is unable to estimate a range of reasonably possible losses as (i) the aggregate damages have not been specified, (ii) the proceeding is in the early stages, (iii) there is uncertainty as to the outcome of anticipated motions, and/or (iv) there are significant factual issues to be resolved. However, management does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on the Corporation’s business, consolidated financial position or results of operations, although the outcome could be material to the Corporation’s operating results for any particular period, depending, in part, upon the operating results for such period.


(In thousands)	August 29, 2014		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,516	$	10,599	$	1,917	$	—

Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	13,429	$	10,599	$	2,830	$	—

~~Note~~The 16deferred –compensation ~~Income~~plan ~~Taxes~~includes investments in mutual funds and a money market fund. Assets held in mutual funds are recorded at fair value, which is considered a Level 1 valuation as it is based on each fund’s quoted market value per share in an active market. The money market fund is classified as Level 2 as substantially all of the fund’s investments are determined using amortized cost. The fair value of the deferred compensation plan liabilities is based on the fair value of: (i) the plan’s assets for invested deferrals and (ii) hypothetical investments for unfunded deferrals.

The ~~Corporation’s~~investment ~~provision for income taxes~~ in ~~interim~~equity ~~periods~~securities is ~~computed~~considered bya ~~applying~~Level its estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The magnitude of the impact that discrete items have on the Corporation’s quarterly effective tax rate is dependent on the level of income in the period. The effective tax rate was 34.6% and 21.1% ~~for~~valuation ~~the~~as ~~three~~it ~~month periods ended May 29, 2015 and May 30, 2014, respectively. The lower than statutory rate for the three months ended May 29, 2015~~ is ~~primarily~~based ~~related to the domestic production activities deduction, tax treatment of corporate-owned life insurance and lower tax rates in foreign jurisdictions partially offset by state income tax rates~~ on ~~U.S. income, net of federal benefit. The lower than statutory rate for the three months ended May 30, 2014 was due primarily to the recording of~~ a ~~net~~quoted ~~$3.1~~price ~~million federal tax refund and related interest attributable to fiscal 2000 and the error corrections recorded~~ in accordance with ASC Topic 250, Accounting Changes and Error Corrections. The net impact of the error corrections was a reduction to income tax expense of $4.1 million. During the three months ended May 30, 2014, the Corporation identified and corrected errors in the accounting for income taxes that related to the year ended February 28, 2014. These errors primarily related to the Corporation’s failure to consider all sources of available taxable income when assessing the need for a valuation allowance against certain deferred tax assets and the recognition of a liability for an ~~uncertain~~active ~~tax position~~market. ~~These errors were the result of the significant complexity created as a result of the going private transaction in fiscal 2014.~~

~~As discussed in~~ Note 7,15 ~~the~~- ~~Corporation~~Contingency recorded an adjustment to mark to market the value of one of its investments as of May 29, 2015. As a result, a decrease in the Corporation’s deferred tax assets in the amount of $28.5 million was recognized in other comprehensive income during the quarter.

AtThe ~~May 29~~Corporation is presently involved in various judicial, ~~2015~~administrative, regulatory and arbitration proceedings concerning matters arising in the ~~Corporation~~ordinary ~~had~~course ~~unrecognized~~of ~~tax~~business, ~~benefits~~including but not limited to, employment, commercial disputes and other contractual matters. These matters are inherently subject to many uncertainties regarding the possibility of ~~$21~~a loss to the Corporation.7 ~~million~~These uncertainties ~~that,~~will ifultimately ~~recognized~~be resolved when one or more future events occur or fail to occur, ~~would~~confirming ~~have~~the incurrence of a ~~favorable~~liability ~~effect~~or onreduction of a liability. In accordance with ASC Topic 450, “Contingencies,” the Corporation’s accrues ~~income~~for ~~tax~~these ~~expense~~contingencies ofby ~~$19.5~~a ~~million.~~charge Itto income when it is ~~reasonably~~both ~~possible~~probable that one or more future events will occur confirming the ~~Corporation’s~~fact ~~unrecognized~~of ~~tax~~a ~~positions~~loss asand the amount of ~~May 29,~~the ~~2015~~loss ~~could~~can ~~decrease~~be $2reasonably estimated.3 ~~million~~This ~~during~~accrual is included in “Accrued liabilities” on the ~~next~~Consolidated ~~twelve~~Statement ~~months~~of ~~due~~Financial Position. Due to ~~anticipated~~this ~~settlements and~~uncertainty, ~~resulting~~the ~~cash~~actual ~~payments~~amount ~~related~~of any loss may ultimately prove to ~~tax~~be ~~years~~larger ~~which~~or smaller than the amounts reflected in the Corporation’s Consolidated Financial Statements. Some of these proceedings are ~~open~~at topreliminary ~~examination~~stages and some of these cases seek an indeterminate amount of damages.

~~The~~17 Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the three months ended May 29, 2015, the Corporation recognized net expense of $0.2 million for interest and penalties on unrecognized tax benefits and refundable income taxes. As of May 29, 2015, the total amount of gross accrued interest and penalties related to unrecognized tax benefits less refundable income taxes was a net payable of $3.0 million.

17Al Smith et al. v. American Greetings Corporation. On June 4, 2014, Al Smith and Jeffrey Hourcade, former fixture installation crew members for special projects, individually and on behalf of those similarly situated, filed a putative class action lawsuit against American Greetings Corporation in the U.S. District Court for the Northern District of California, San Francisco Division. Plaintiffs claim that the Corporation violated certain rules under the Fair Labor Standards Act and California law, including the California Labor Code and Industrial Welfare Commission Wage Orders. For themselves and the proposed classes, plaintiffs seek an unspecified amount of general and special damages, including but not limited to minimum wages, agreed upon wages and overtime wages, statutory liquidated damages, statutory penalties (including penalties under the California Labor Code Private Attorney General Act of 2004 (“PAGA”), unpaid benefits, reasonable attorneys’ fees and costs, and interest). In addition, plaintiffs request disgorgement of all funds the Corporation acquired by means of any act or practice that constitutes unfair competition and restoration of such funds to the plaintiffs and the proposed classes. On November 6, 2014, plaintiffs filed a Second Amended Complaint to add claims for reimbursement of business expenses and failure to provide meal periods in violation of California Law and on December 12, 2014, amended their PAGA notice to include the newly added claims.

~~Table~~On January 20, 2015, the parties reached a settlement in principle that, if approved by the Court, will fully and finally resolve the claims brought by Smith and Hourcade, as well as the classes they seek to represent. The settlement was a product of ~~Contents~~extensive negotiations and a private mediation, which was finalized and memorialized in a Stipulation and Class Action Settlement Agreement signed March 30, 2015. On March 31, 2015, plaintiffs filed a Motion for Preliminary Approval of Class Action Settlement and on July 23, 2015, the Court entered its Order Granting Preliminary Approval of Class Action Settlement.

~~Note~~The proposed settlement establishes a settlement fund of $4.0 million to pay claims from current and former employees who worked at least one day for American Greetings Corporation and/or certain of its subsidiaries in any hourly non-exempt position in California between June 4, 2010 and July 23, 2015. On August 24, 2015, the claims administrator commenced mailing of notice and claim forms to class members. The Court’s Order Granting Preliminary Approval of Class Action Settlement ordered plaintiffs to file their motion for final approval of the settlement, together with applications for attorney’s fees, costs and service awards, no later than October 16, 2015 and set the final approval hearing for December 17, –2015. ~~Related~~If ~~Party~~the ~~Information~~settlement is finally approved, American Greetings will fund the settlement within twenty (20) days after passage of all appeal periods. Thereafter, the settlement funds will be disbursed as provided in the settlement agreement and the Court’s orders.

~~World~~Michael ~~headquarters~~Ackerman v. ~~relocation~~American Greetings Corporation, et al. On March 6, 2015, plaintiff Michael Ackerman, individually and on behalf of others similarly situated, filed a putative class action lawsuit in the United States District Court of New Jersey alleging violation of the Telephone Consumer Protection Act (“TCPA”) by American Greetings Corporation and its subsidiary, AG Interactive, Inc. The plaintiff claims that defendants (1) sent plaintiff an unsolicited text message notifying plaintiff that he had received an ecard; and (2) knowingly and/or willfully violated the TCPA, which prohibits unsolicited automated or prerecorded telephone calls, including faxes and text messages, sent to cellular telephones. Plaintiff seeks to certify a nationwide class based on unsolicited text messages sent by defendants during the period February 8, 2011 through February 8, 2015. The plaintiff seeks damages in the statutory amount of $500 for each and every violation of the TCPA and $1,500 for each and every willful violation of the TCPA. The Corporation believes the plaintiff’s allegations in this lawsuit are without merit and intends to defend the action vigorously.

InWith ~~May~~respect ~~2011,~~to the ~~Corporation~~Ackerman ~~announced~~case, ~~that~~management itis ~~will~~unable ~~be relocating its world headquarters~~ to estimate a ~~new~~range ~~location in the City~~ of ~~Westlake,~~reasonably ~~Ohio,~~possible inlosses ~~a mixed-use development known~~ as ~~Crocker Park~~ (~~the “Crocker Park Development”~~i)~~, which offers a vibrant urban setting, with retail stores and restaurants, offices and apartments. After putting~~ the ~~project~~aggregate ondamages ~~hold pending the outcome of the going~~have ~~private~~not ~~transaction~~been specified, (ii) the ~~Corporation~~proceeding ~~announced~~is ~~plans~~ in ~~October 2013 to resume~~ the ~~project~~early ~~and~~stages, ~~on March~~(iii) ~~26,~~there ~~2014,~~is ~~the~~uncertainty ~~Corporation~~as ~~purchased~~to ~~from Crocker Park, LLC,~~ the ~~owner~~outcome of ~~the~~pending ~~Crocker~~and ~~Park~~anticipated ~~Development~~motions, ~~14.48~~and/or ~~acres of land at the south end of the Crocker Park Development~~ (~~the “Crocker Park Site”~~iv) there onare ~~which~~significant ~~the~~factual ~~new~~issues ~~world~~to ~~headquarters will~~ be ~~built~~resolved. ~~The purchase price for the land was $7.4 million (based on a per acre price of $510 thousand). Morry Weiss~~However, ~~the~~management ~~Chairman of the~~does ~~board~~not ~~of the Corporation~~believe, ~~Zev~~based ~~Weiss~~on ~~and~~currently ~~Jeffrey~~available ~~Weiss~~information, ~~directors~~that ~~and~~ the ~~Co-Chief~~outcome ~~Executive Officers~~ of ~~the~~this ~~Corporation,~~proceeding ~~and~~will ~~Gary~~have ~~and~~a ~~Elie~~material ~~Weiss,~~adverse ~~directors~~effect ~~and~~on ~~non-executive officers of~~ the Corporation,’s ~~together with members of their family (collectively~~business, ~~the~~consolidated ~~“Weiss~~financial ~~Family”),~~position ~~indirectly~~or ~~own~~results aof ~~minority stake in Crocker Park~~operations, ~~LLC~~although ~~through their indirect ownership of approximately 37% of~~ the ~~membership~~outcome ~~interests~~could be inmaterial ~~Crocker~~to ~~Park, LLC. In addition, Morry Weiss and other members of~~ the ~~Weiss Family have guaranteed certain of Crocker Park, LLC~~Corporation’s ~~obligations,~~operating ~~and~~results ~~are~~for ~~expected~~any toparticular ~~guarantee additional obligations of Crocker Park~~period, ~~LLC~~depending, ~~incurred~~ in ~~connection with the Crocker Park Development. The authority to conduct~~part, ~~manage and~~upon ~~control~~ the ~~business of Crocker Park, LLC, including~~ operating ~~the~~results ~~Crocker~~for ~~Park~~such Development and the decision whether to sell the Crocker Park Site to American Greetings, was reserved to the manager of Crocker Park, LLC, who is not an affiliate of the Weiss Family and who is an affiliate of Stark Enterprises, Incperiod.

~~The~~18 Corporation is leasing a portion of the Crocker Park Site to H L & L, which will construct the new world headquarters on the Crocker Park Site and sublease the new world headquarters back to the Corporation. The Corporation has also entered into an operating lease with H L & L for the use of the new world headquarters building, anticipated to be available for occupancy in calendar year 2016. The initial lease term is fifteen years and will begin upon occupancy. The annual rent is expected to be approximately $9.5 million. Furthermore, due to the Corporation’s need for incremental space, H L & L is building additional space at the new world headquarters location, which the Corporation expects will increase the annual rent by approximately $1 million. See Note 11 for further information.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

~~Transactions~~Note ~~with~~16 ~~Parent~~– ~~Companies~~Income ~~and~~Taxes ~~Other Affiliated Companies~~

~~From~~The ~~time~~Corporation’s toprovision ~~time~~for ~~employees~~income taxes in interim periods is computed by applying its estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The magnitude of the impact that discrete items have on the Corporation’s ~~may~~quarterly ~~provide~~effective ~~services~~tax rate is dependent on the level of income in the period. The effective tax rate was 21.0% and 31.7% for the three and six months ended August 28, 2015, respectively, and 33.8% and 26.0% for the three and six months ended August 29, 2014, respectively. The lower than statutory rate for the three and six month periods are primarily related to ~~its~~the ~~parent~~release ~~companies~~of a $4.3 million unrecognized tax benefit due to the issuance of regulations that clarified the law and the expiration of a statute of limitations, as well as ~~companies~~the ~~that~~impact ~~are~~of ~~owned~~lower ortax ~~controlled~~rates byin ~~members~~foreign jurisdictions, domestic production activities deduction and the tax treatment of corporate-owned life insurance. The lower than statutory rate in the prior period was due primarily ~~Weiss~~to ~~Family,~~the inrecording ~~each~~of ~~case~~a ~~provided~~net ~~that~~$3.1 ~~such~~million ~~services~~federal dotax ~~not~~refund ~~interfere~~and related interest attributable to fiscal 2000 and the error corrections recorded in accordance with ASC Topic 250, Accounting Changes and Error Corrections. The net impact of the ~~Corporation’s~~error corrections ~~employees’~~was ~~ability~~a reduction to ~~perform~~income ~~services~~tax onexpense ~~its~~of ~~behalf~~$4.1 ~~When~~million. ~~providing~~During ~~such~~the ~~services~~first quarter of fiscal 2015, the ~~affiliated~~Corporation ~~companies~~identified ~~reimburse~~and corrected errors in the ~~Corporation~~accounting for ~~such services~~income taxes that related to the year ended February 28, ~~based~~2014. These onerrors primarily related to the ~~costs~~Corporation’s failure to consider all sources of ~~employing~~available taxable income when assessing the ~~individual~~need ~~(including~~for ~~salary~~a ~~and~~valuation ~~benefits)~~allowance against certain deferred tax assets and the ~~amount~~recognition of ~~time~~a ~~spent~~liability byfor ~~such~~an uncertain ~~employee~~tax inposition. ~~providing~~These ~~services~~errors towere the ~~affiliated~~result ~~company~~of the significant complexity created as a result of the going private transaction in fiscal 2014.

~~The~~As ~~Corporation,~~discussed ~~its~~in ~~parent~~Note ~~and~~7, ~~certain~~the ofCorporation ~~their~~recorded ~~subsidiaries~~an ~~and~~adjustment ~~affiliates~~to ~~file~~mark ato ~~consolidated~~market ~~U.S.~~the ~~federal~~value ~~income~~of ~~tax~~one ~~return. The~~of ~~Corporation~~its ~~pays~~investments ~~all taxes~~as onof ~~behalf~~August 28, of2015. ~~the~~As ~~group~~a ~~included~~result, a decrease in ~~this~~the ~~consolidated~~Corporation’s ~~federal~~deferred ~~income~~ tax ~~return. Pursuant~~assets toin ~~this~~the ~~tax~~amount ~~sharing~~of ~~arrangement,~~$22.0 ~~amounts~~million ~~due~~was torecognized ~~affiliates~~in ~~totaled~~other ~~$1.9~~comprehensive ~~million~~income asfor ofthe ~~May 29,~~six ~~2015~~months ~~and~~ended ~~February~~August 28, 2015.

18At August 28, 2015, the Corporation had unrecognized tax benefits of $16.9 million that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $15.3 million.

~~Table~~The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of ~~Contents~~income tax expense. During the six months ended August 28, 2015, the Corporation recognized a net benefit of $1.2 million for interest and penalties on unrecognized tax benefits and refundable income taxes. As of August 28, 2015, the total amount of gross accrued interest and penalties related to unrecognized tax benefits less refundable income taxes was a net payable of $1.6 million.

~~Note~~The 18Corporation –is ~~Business~~subject ~~Segment~~to ~~Information~~examination by the Internal Revenue Service for tax years 2010 to the present and various U.S. state and local jurisdictions for tax years 2001 to the present. The Corporation is also subject to tax examination in various international tax jurisdictions, including Canada, the United Kingdom, Australia, Italy, Mexico and New Zealand for tax years 2006 to the present.

The Corporation has North American Social Expression Products, International Social Expression Products, Retail Operations, AG Interactive and Non-reportable segments. 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 merchandising as the primary channel. At May 29, 2015, the Retail Operations segment operated 410 card and gift retail stores in the United Kingdom. The stores sell products purchased from the International Social Expression Products segment as well as products purchased from other vendors. AG Interactive distributes social expression products, including electronic greetings and a broad range of graphics and digital services and products, through a variety of electronic channels, including Web sites, Internet portals and electronic mobile devices. For the three months ended May 29, 2015, the Corporation’s Non-reportable segment primarily includes licensing activities. For the three months ended May 30, 2014, the Non-reportable segment also included the design, manufacture and sale of display fixtures. The display fixtures business was sold on the last day of the prior year second quarter. See Note 417 ~~for~~– ~~further~~Related ~~information.~~Party Information

(In thousands)	Three Months Ended
	May 29, 2015			May 30, 2014
Total Revenue:
North American Social Expression Products	$	335,604		$	329,057
International Social Expression Products		62,168			75,039
Intersegment items		(10,313	)		(10,065	)
Net		51,855			64,974
Retail Operations		71,808			79,164
AG Interactive		13,430			14,499
Non-reportable segment		746			15,890
	$	473,443		$	503,584

World headquarters relocation

(In thousands)	Three Months Ended
	May 29, 2015			May 30, 2014
Segment Earnings (Loss) Before Tax:
North American Social Expression Products	$	73,127		$	69,364
International Social Expression Products		(5,010	)		3,762
Intersegment items		751			(2,310	)
Net		(4,259	)		1,452
Retail Operations		(8,143	)		(4,040	)
AG Interactive		4,871			5,412
Non-reportable segment		60,347			4,015
Unallocated
Interest expense		(8,113	)		(8,994	)
Profit-sharing plan expense		(1,675	)		(4,079	)
Corporate overhead expense		(4,822	)		(7,694	)
		(14,610	)		(20,767	)
	$	111,333		$	55,436

In May 2011, the Corporation announced that it will be relocating its world headquarters to a new location in the City of Westlake, Ohio, in a mixed-use development known as Crocker Park (the “Crocker Park Development”), which offers a vibrant urban setting, with retail stores and restaurants, offices and apartments. After putting the project on hold pending the outcome of the going private transaction, the Corporation announced plans in October 2013 to resume the project and, on March 26, 2014, the Corporation purchased from Crocker Park, LLC, the owner of the Crocker Park Development, 14.48 acres of land at the south end of the Crocker Park Development (the

“~~Corporate~~Crocker ~~overhead~~Park ~~expense~~Site”) ~~includes~~on ~~costs~~which ~~associated~~the new world headquarters will be built. The purchase price for the land was $7.4 million (based on a per acre price of $510 thousand). Morry Weiss, the Chairman of the board of the Corporation, Zev Weiss and Jeffrey Weiss, directors and the Co-Chief Executive Officers of the Corporation, and Gary and Elie Weiss, directors and non-executive officers of the Corporation, together with ~~corporate~~members ~~operations~~of ~~including~~their family (collectively, ~~among~~the “Weiss Family”), indirectly own a minority stake in Crocker Park, LLC through their indirect ownership of approximately 37% of the membership interests in Crocker Park, LLC. In addition, Morry Weiss and other ~~costs~~members of the Weiss Family have guaranteed certain of Crocker Park, ~~senior~~LLC’s ~~management~~obligations, ~~corporate~~and ~~finance~~are expected to guarantee additional obligations of Crocker Park, ~~legal~~LLC, incurred in connection with the Crocker Park Development. The authority to conduct, manage and ~~insurance~~control ~~programs~~the business of Crocker Park, LLC, including operating the Crocker Park Development and the decision whether to sell the Crocker Park Site to American Greetings, was reserved to the manager of Crocker Park, LLC, who is not an affiliate of the Weiss Family and who is an affiliate of Stark Enterprises, Inc.

~~For~~The Corporation is leasing a portion of the ~~three~~Crocker ~~months~~Park ~~ended~~Site ~~May 29~~to H L & L, ~~2015~~which is constructing the new world headquarters building on the Crocker Park Site and, ~~Non-reportable~~when ~~segment~~complete, ~~earnings~~will sublease the new world headquarters building back to the Corporation. In addition, to accommodate additional office needs, H L ~~includes~~& L is constructing an additional approximately 60,000 square foot building adjacent to the world headquarters building and a ~~gain~~surface ofparking ~~$61.7~~lot ~~million~~on land that it is leasing from the ~~sale~~Corporation. ofThe ~~Strawberry~~Corporation ~~Shortcake~~has entered into operating leases to lease these buildings from H L & L, which are anticipated to be available for occupancy in calendar year 2016. The initial lease terms are fifteen years and will begin upon occupancy. The total annual rent is expected to be approximately $10.6 million. See Note 411 for further information.

~~Termination~~Although ~~Benefits~~the majority of the costs to construct the new world headquarters is expected to be financed through H L & L, due to the inherent difficulty in estimating costs associated with projects of this scale and nature, the costs associated with this project may be higher than expected and the Corporation may have to dedicate additional funds to the project, including providing additional funds to H L & L. As a result, effective as of December 1, 2014, the Corporation entered into a loan agreement with H L & L under which the Corporation may from time to time make revolving loans to H L & L. Loans made to H L & L under this agreement may only be used to fund construction costs associated with the world headquarters project and the maximum principal and market-rate interest that may be outstanding as of any given time under this loan agreement may not exceed $9 million. No loans to HL&L were outstanding as of August 28, 2015 and February 28, 2015.

~~Termination~~Transactions ~~benefits are primarily considered part of an ongoing benefit arrangement, accounted for in accordance~~ with ~~ASC~~Parent ~~Topic~~Companies ~~712, “Compensation – Nonretirement Postemployment Benefits,”~~ and ~~are~~Other ~~recorded~~Affiliated ~~when~~Companies ~~payment of the benefits is probable and can be reasonably estimated.~~

~~The~~From ~~balance~~time to time employees of the ~~severance~~Corporation ~~accrual~~may ~~was~~provide ~~$3.3~~services ~~million,~~to ~~$4.3~~its ~~million~~parent ~~and~~companies ~~$3.9~~as ~~million~~well atas ~~May 29,~~companies ~~2015, February 28,~~that ~~2015~~are ~~and~~owned ~~May 30,~~or ~~2014~~controlled by members of the Weiss Family, ~~respectively.~~in ~~The~~each ~~payments~~case ~~expected~~provided ~~within~~that such services do not interfere with the ~~next~~Corporation’s ~~twelve~~employees’ ~~months~~ability ~~are~~to ~~included~~perform inservices ~~“Accrued liabilities”~~on ~~while~~its ~~the~~behalf. ~~remaining~~When ~~payments~~providing ~~beyond~~such services, the ~~next~~affiliated ~~twelve~~companies ~~months~~reimburse ~~are~~the ~~included~~Corporation infor ~~“Other~~such services, ~~liabilities”~~based on the ~~Consolidated~~costs ~~Statement~~of employing the individual (including salary and benefits) and the amount of ~~Financial~~time ~~Position~~spent by such employee in providing services to the affiliated company.

20The Corporation, its parent and certain of their subsidiaries and affiliates file a consolidated U.S. federal income tax return. The Corporation pays all taxes on behalf of the group included in this consolidated federal income tax return. Pursuant to this tax sharing arrangement, amounts due to affiliates totaled $1.9 million as of February 28, 2015. No amounts were due to or due from affiliates under this arrangement as of August 28, 2015.

~~Table~~Note of18 ~~Contents~~– Business Segment Information

The Corporation has North American Social Expression Products, International Social Expression Products, Retail Operations, AG Interactive and Non-reportable segments. The North American Social Expression Products segment primarily designs, manufactures and sells greeting cards and other related products through various channels of distribution with mass merchandising as the primary channel. The International Social Expression Products segment primarily designs and sells greeting cards and other related products through various channels of distribution and is located principally in the United Kingdom, Australia and New Zealand. At August 28, 2015, the Retail Operations segment operated 405 card and gift retail stores in the United Kingdom.

The stores sell products purchased from the International Social Expression Products segment as well as products purchased from other vendors. AG Interactive distributes social expression products, including electronic greetings and a broad range of graphics and digital services and products, through a variety of electronic channels, including Web sites, Internet portals and electronic mobile devices. For the three and six months ended August 28, 2015, the Corporation’s Non-reportable segment primarily includes licensing activities. For the three and six months ended August 29, 2014, the Non-reportable segment also included the design, manufacture and sale of display fixtures. The display fixtures business was sold on the last day of the quarter ended August 29, 2014. See Note 4 for further information.


	Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014
Total Revenue:
North American Social Expression Products	$	285,556		$	276,990		$	621,160		$	606,047
International Social Expression Products		65,858			68,451			128,026			143,490
Intersegment items		(11,286	)		(11,234	)		(21,599	)		(21,299	)

Net		54,572			57,217			106,427			122,191
Retail Operations		65,503			69,741			137,311			148,905
AG Interactive		13,736			14,445			27,166			28,944
Non-reportable segment		1,661			14,032			2,407			29,922

	$	421,028		$	432,425		$	894,471		$	936,009


	Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014
Segment Earnings (Loss) Before Tax:
North American Social Expression Products	$	46,209		$	27,830		$	119,336		$	97,194
International Social Expression Products		(49	)		(6	)		(5,059	)		3,756
Intersegment items		879			570			1,630			(1,740	)

Net		830			564			(3,429	)		2,016
Retail Operations		(12,615	)		(14,563	)		(20,758	)		(18,603	)
AG Interactive		5,276			5,964			10,147			11,376
Non-reportable segment		(934	)		(1,306	)		59,413			2,709
Unallocated
Interest expense		(6,486	)		(9,255	)		(14,599	)		(18,249	)
Profit-sharing plan expense		(1,675	)		(1,389	)		(3,350	)		(5,468	)
Corporate overhead expense		393			26,662			(4,429	)		18,968

		(7,768	)		16,018			(22,378	)		(4,749	)

	$	30,998		$	34,507		$	142,331		$	89,943

“Corporate overhead expense” includes costs associated with corporate operations including, among other costs, senior management, corporate finance, legal, and insurance programs.

For the six months ended August 28, 2015, Non-reportable segment earnings includes a gain of $61.6 million from the sale of Strawberry Shortcake. See Note 4 for further information.

For both the three and six month periods ended August 28, 2015, “Corporate overhead expense” includes income recognized from state tax credits of $6.5 million. See Note 6 for further information.

During the prior year second quarter, the Corporation sold its current world headquarters location and incurred a non-cash loss on disposal of $15.5 million, of which $13.3 million was recorded within the North American Social Expression Products segment and $2.2 million was recorded in “Corporate overhead expense”. See Note 4 for further information

For both the three and six month periods ended August 29, 2014, “Corporate overhead expense” included the gain on sale of AGI In-Store of $38.8 million. See Note 4 for further information.

Termination Benefits

Termination benefits are primarily considered part of an ongoing benefit arrangement, accounted for in accordance with ASC Topic 712, “Compensation – Nonretirement Postemployment Benefits,” and are recorded when payment of the benefits is probable and can be reasonably estimated.

The balance of the severance accrual was $2.1 million, $4.3 million and $3.5 million at August 28, 2015, February 28, 2015 and August 29, 2014, respectively. The payments expected within the next twelve months are included in “Accrued liabilities” while the remaining payments beyond the next twelve months are included in “Other liabilities” on the Consolidated Statement of Financial Position.

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

~~Total~~Second ~~revenue~~Quarter ~~for~~Results ~~the current year first quarter was $473.4 million, a decrease~~ of $30.1 million, or 6.0% compared to the prior year period. This decrease was primarily the result of foreign currency translation, which had an unfavorable impact of approximately $17 million, decreased salesOperations of greeting cards and lower revenues from our Non-reportable segment due to the sale of our display fixtures business in the prior year second quarter and the sale of our Strawberry Shortcake property and related intangible assets and licensing agreements (“Strawberry Shortcake”) at the beginning of the current year first quarter. These decreases were partially offset by higher sales of gift packaging, party goods and other ancillary products and the year-over-year favorable impact of fewer scan-based trading (“SBT’) implementations in the current year, primarily within the North American Social Expression Products segment.

~~First~~Total ~~quarter~~revenue ~~operating~~for ~~income~~the current year second quarter was $~~118~~421.40 million, ana ~~increase~~decrease of ~~approximately~~ $5511.24 million, or 872.36% compared to the prior year period. ~~The current year~~ This ~~includes~~decrease awas ~~gain~~primarily ~~of $61.7 million related to~~ the ~~sale~~result of ~~Strawberry~~foreign ~~Shortcake~~currency translation, which ~~was~~had ~~recorded~~an ~~within~~unfavorable ~~our Non-reportable segment, and the year-over year favorable~~ impact of approximately $3 16 million, ~~related~~as towell ~~fewer~~as ~~SBT~~lower ~~implementations~~revenues infor ~~the current~~our ~~year.~~Non-reportable ~~The~~segment ~~current~~due ~~quarter includes an unfavorable impact of less than $0.5 million related~~ to ~~SBT implementations. Excluding~~ the ~~impact~~sale of ~~these~~our ~~items,~~display ~~operating~~fixtures ~~income~~business ~~was~~at ~~lower in~~ the end ~~current~~of ~~year compared to~~ the prior year, ~~driven~~second ~~by lower~~quarter ~~earnings within our Retail Operations~~ and ~~International~~the ~~Social~~sale ~~Expression~~of ~~Products~~our ~~segments~~Strawberry asShortcake ~~well~~property asand ~~lower~~related ~~earnings~~intangible ~~within~~assets ~~our~~and ~~Non-reportable~~licensing ~~segment,~~agreements ~~due~~(“Strawberry toShortcake”) at the ~~sale~~beginning of ~~our~~the ~~fixtures~~current ~~business~~year ~~and~~first ~~Strawberry Shortcake as noted above~~quarter. These ~~lower~~ ~~earnings~~impacts were partially offset ~~in part~~ by ~~earnings~~higher ~~within~~sales ~~the~~of ~~North~~gift ~~American Social Expression Products segment~~packaging, ~~which~~party ~~improved~~goods ~~compared~~and togreeting ~~the prior year~~cards.

21Second quarter operating income was $37.4 million, a decrease of $6.1 million compared to the same period in the prior year. The decline was driven by prior year transactions that included the gain of $38.8 million in connection with the sale of A.G. Industries, Inc. (dba AGI In-Store “AGI In-Store”), partially offset by the non-cash loss on disposal of $15.5 million related to the sale of the current world headquarters location. The current quarter includes income of $6.5 million from tax credits received from the State of Ohio under certain incentive programs made available to us in connection with our decision to maintain our world headquarters in the state of Ohio. Net of the above items, operating income increased due to improved earnings in our North American Social Expression Products and Retail Operations segment in addition to lower Corporate overhead costs.

Results of Operations

Three months ended ~~May~~August 2928, 2015 and ~~May~~August 3029, 2014

Net income was $7224.85 million in the ~~first~~second quarter compared to $4322.78 million in the prior year ~~first quarter~~period.

Our results for the three months ended ~~May~~August 2928, 2015 and ~~May~~August 3029, 2014 are summarized below:

(Dollars in thousands)	2015			% TotalRevenue			2014			% TotalRevenue
Net sales	$	~~471~~418,~~892~~611			99.74	%	$	~~497~~427,~~274~~090			98.78	%
Other revenue		12,~~551~~417			0.36	%		65,~~310~~335			1.32	%
Total revenue		~~473~~421,~~443~~028			100.0	%		~~503~~432,~~584~~425			100.0	%
Material, labor and other production costs		~~195~~177,~~474~~985			4142.3	%		~~200~~180,~~786~~109			3941.97	%
Selling, distribution and marketing expenses		~~163~~153,~~759~~641			3436.65	%		~~172~~165,~~259~~834			3438.23	%
Administrative and general expenses		5859,~~221~~365			1214.31	%		6966,~~295~~850			1315.85	%
Other operating income – net		(627,~~420~~309	)		(131.27	%)		(123,~~968~~828	)		(05.45	%)
Operating income		~~118~~37,~~409~~346			258.08	%		6343,~~212~~460			1210.50	%
Interest expense		86,~~113~~486			1.75	%		89,~~994~~255			12.81	%
Interest income		(9984	)		(0.0	%)		(~~111~~30	)		(0.0	%)
Other non-operating income – net		(~~938~~54	)		(0.20	%)		(~~1,107~~272	)		(0.31	%)
Income before income tax expense		~~111~~30,~~333~~998			237.53	%		5534,~~436~~507			118.0	%
Income tax expense		386,~~569~~518			8.1.5	%		11,~~697~~667			2.37	%
Net income	$	7224,~~764~~480			155.48	%	$	4322,~~739~~840			85.73	%

For the three months ended ~~May~~August 2928, 2015, consolidated net sales were $~~471~~418.96 million, down from $~~497~~427.31 million in the prior year ~~first~~second quarter. This 52.10%, or ~~approximately~~ $258.5 million, decrease was driven by the unfavorable impact of foreign currency ~~translation~~ of approximately $1716 million and lower sales ~~from~~in our ~~display~~ fixtures business of approximately $11 9 million due to the sale of that business inat the end of the prior year second quarter. ~~In addition, sales of greeting cards decreased by approximately $10 million.~~ These decreases were partially offset by increased sales of gift packaging, and party goods of approximately $12 million and ~~other ancillary~~higher ~~products~~sales of greeting cards of approximately $95 million. ~~and~~The ~~the~~current year ~~favorable~~quarter includes an unfavorable impact of ~~fewer~~approximately $1.5 million related to SBT implementations, ~~during~~which ~~the~~is ~~quarter~~flat ofto ~~approximately~~the $3prior ~~million~~year quarter.

Other revenue, primarily royalty revenue from ~~certain~~our character properties, decreased $42.89 million during the three months ended ~~May~~August 2928, 2015. In March 2015, we completed the sale of Strawberry Shortcake. As such, royalty revenue related to Strawberry Shortcake for the prior year three month period does not have a comparative amount in the current year.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis), excluding intercompany eliminations, for the three months ended ~~May~~August 2928, 2015 and ~~May~~ August 3029, 2014 are summarized below:

	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2015			2014			2015			2014			2015			2014
Unit volume		(1.31	%)		(31.91	%)		(510.49	%)		6(3.98	%)		(21.82	%)		(0.31	%)
Selling prices		2.10	%		54.52	%		(1.1	%)		(113.50	%)		1.64	%		35.29	%
Overall increase / (decrease)		0.89	%		15.43	%		(49.36	%)		58.47	%		~~(1.~~2.6	%)		26.90	%

2224

During the ~~first~~second quarter, combined everyday and seasonal greeting card sales less returns ~~decreased~~increased 1.2.6% ~~compared~~ compared to the prior year quarter, asincluding aincreases ~~result of a decrease~~ in ~~unit~~selling ~~volume~~prices of 21.84% ~~partially~~and ~~offset~~unit byvolume ~~increases in selling prices~~ of 1.62%. The overall ~~decrease~~increase was ~~primarily~~ driven by ~~decreases~~increased inselling ~~unit~~prices ~~volume~~of ~~from~~everyday ~~our seasonal~~ greeting cards in ~~both~~ our North American Social Expression Products segment and increased seasonal units in our North American Social Expressions Products and International Social ~~Expression~~Expressions Products segments.

Everyday card sales less returns ~~during~~for the ~~three~~second ~~months ended~~quarter ~~May 29,~~increased ~~2015 were up~~ 0.89%, ~~compared~~due to ~~the~~increases ~~prior year quarter. Increases~~ in selling prices of 2.10%, ~~were partially~~ offset by a decrease in unit volume of 1.31%. The selling price increase was adriven ~~result~~by of general price increases, within the core product line, which more than offset the continued unfavorable shift to a higher proportion of value cards. The unit volume decline ~~occurred~~was inprimarily ~~both~~due ~~our~~to ~~North~~lower ~~American~~sales ~~Social~~in ~~Expression~~our ~~Products~~North ~~and~~American ~~International~~ Social Expression Products ~~segments~~segment.

Seasonal card sales less returns ~~decreased~~increased 49.36% during the ~~three~~second ~~months ended May 29~~quarter, ~~2015~~including ~~compared~~a to10.9% ~~the~~increase ~~prior~~in ~~year~~unit ~~quarter,~~volume ~~with~~offset by a decrease in ~~unit volume~~selling ofprice 5of 1.41%. ~~partially~~Since ~~offset~~the bysecond anquarter ~~increase~~has the fewest holidays, the change in selling prices ofand 1unit volume appear large on a percentage basis compared to other quarters.~~1%.~~ The increase in unit volume ~~decline~~ was driven by ~~our~~the ~~Easter and~~ Father’s Day programs in our North American Social Expression Products ~~segment~~and International Social Expression Products segments and the Graduation program in our ~~Easter~~North American Social Expression Products segment, ~~Mother’s~~partially ~~Day~~offset ~~and Father’s~~by ~~Day~~a ~~programs~~decrease in the Fall program in our ~~International~~North American Social Expression Products segment. The ~~increase in~~ selling ~~prices~~price decrease was primarily ~~attributable~~driven toby ~~our~~the ~~Mother~~Father’s Day program in our ~~North~~International ~~American~~ Social Expression Products segment, ~~and~~partially ~~our Father’s~~offset ~~Day~~by an increase in the Fall program in our ~~International~~North American Social Expression Products segment.

Expense Overview

Material, labor and other production costs ~~were~~(“MLOPC”) ~~$195.5 million~~ for the three months ended ~~May~~August 2928, 2015, awere ~~decrease of~~ $5178.30 million, ~~from~~compared to $~~200~~180.81 million in in the prior year ~~first~~three ~~quarter~~months. As a percentage of total revenue, these costs were 4142.3% in the current period compared to 3941.97% for the three months ended ~~May~~August 3029, 2014. The $2.1 million dollar decrease was primarily due to the favorable impact of foreign currency translation of approximately $87 million and the elimination of costs related to the display fixtures business that was sold in the prior year second quarter. Partially offsetting these decreases were higher product content and production expenses, unfavorable product ~~content~~mix and ~~inventory~~ ~~scrap~~the ~~expenses~~impact of higher sales volume in the wholesale card businesses and lower margins on slightly higher volumes in the Retail Operations segment.

Selling, distribution and marketing (“SDM”) expenses ~~were $163.8 million~~ for the three months ended ~~May~~August 2928, 2015 were $153.6 million, decreasing $812.~~5 million~~2 million from $~~172~~165.38 million in the prior year ~~first~~second quarter. As a percentage of total revenue, these costs were 3436.65% in the current period compared to 3438.23% for the prior year period. The dollar decrease in the current year ~~first~~second quarter was driven by lower ~~the~~supply ~~favorable~~chain ~~impact~~costs of ~~foreign currency translation of~~ approximately $82 million, lower ~~supply~~marketing ~~chain~~and product management costs of approximately $31 million, ~~and~~ the elimination of approximately $1 million of costs related to the ~~display~~fixture ~~fixtures~~ business that was sold in the prior year second quarter. ~~Partially offsetting these decreases were higher sales, marketing~~ and ~~product~~the ~~management~~favorable ~~expenses~~impact of ~~approximately~~foreign $2currency ~~million~~translation ~~and higher retail store expenses~~ of approximately $28 million.

Administrative and general expenses were $5859.2 4 million for the three months ended ~~May~~August 2928, 2015, a decrease of $117.15 million from $6966.39 million infor the ~~prior~~ ~~year~~three ~~first~~months ~~quarter~~ended August 29, 2014. This decrease was driven primarily by lower retail expenses of approximately $23 million, ~~decreased profit-sharing expense of approximately $2 million,~~ the elimination of approximately $1 million of costs related to the display ~~fixtures~~fixture business that was sold in the prior year second quarter, the favorable impact of foreign currency translation of approximately $2 million and other ~~general~~costs ~~cost~~ savings of approximately $41 million.

Other operating income – net was $627.43 million ~~during~~for the ~~current~~three ~~year~~months ~~quarter~~ended August 28, 2015 compared to $223.08 million for in the prior year. Insecond ~~the~~quarter. The current year ~~first quarter,~~period weincludes ~~recognized~~income ~~a gain~~ of $616.75 million infrom ~~connection~~tax ~~with~~credits received from the ~~sale~~State of ~~Strawberry~~Ohio ~~Shortcake.~~under ~~See~~certain ~~Note~~incentive 4,programs ~~“Acquisitions~~made ~~and~~available ~~Dispositions,”~~ to ~~the~~us ~~Consolidated~~in ~~Financial~~connection ~~Statements~~with ~~for~~our ~~further~~decision ~~information.~~to Inmaintain ~~the~~our ~~prior year first~~world ~~quarter,~~headquarters ~~based~~in onthe ~~updated~~state ~~estimated~~of ~~recovery~~Ohio. ~~information~~The ~~provided~~prior inyear ~~connection~~period ~~with~~included the ~~Clinton~~gain ~~Cards~~on ~~bankruptcy~~the ~~administration,~~sale weof ~~recorded~~AGI anIn-Store ~~impairment~~of ~~recovery~~$38.8 ~~related~~million towhich ~~the~~was ~~senior~~partially ~~secured~~offset ~~debt~~by ofa ~~Clinton~~non-cash ~~Cards~~loss ~~that~~recorded weupon ~~acquired~~the insale ~~May~~of ~~2012~~our ~~and subsequently~~current ~~impaired.~~world ~~The~~headquarters ~~recovery~~location ~~was~~of $315.45 million ~~for three months ended May 30, 2014~~.

2325

~~The~~Other ~~effective~~non-operating ~~tax~~income ~~rate~~– ~~was~~net ~~34.6% and 21.1%~~ for the three months ended ~~May~~August 2928, 2015 ~~and~~was ~~May 30, 2014, respectively~~$0.1 ~~The lower than statutory rate for the three months ended May 29~~million, ~~2015 is primarily related to the domestic production activities deduction, tax treatment of corporate-owned life insurance and lower tax rates in foreign~~ ~~jurisdictions~~decreasing ~~partially offset by state income tax rates on U.S. income, net of federal benefit. The lower than statutory rate in the prior period is due primarily to the recording of a net~~ $30.12 million ~~federal~~from tax refund and related interest attributable to fiscal 2000 and the error corrections recorded in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections. The net impact of the error corrections was a reduction to income tax expense of $40.13 million. ~~See~~in ~~Note 16, “Income Taxes,” to~~ the ~~Consolidated~~prior ~~Financial~~year ~~Statements~~second ~~for further information~~quarter.

The effective tax rate was 21.0% and 33.8% for the three months ended August 28, 2015 and August 29, 2014, respectively. The lower than statutory rate for the current period is primarily related to the release of a $4.3 million unrecognized tax benefit due to the issuance of regulations that clarified the law and the expiration of a statute of limitations, as well as the impact of lower tax rates in foreign jurisdictions, domestic production activities deduction and the tax treatment of certain corporate-owned life insurance policies. The lower than statutory rate in the prior period was due primarily to the favorable settlement of state audits.

Results of Operations

Six months ended August 28, 2015 and August 29, 2014

Net income was $97.2 million in the six months ended August 28, 2015 compared to $66.6 million in the prior year six months.

Our results for the six months ended August 28, 2015 and August 29, 2014 are summarized below:


(Dollars in thousands)	2015			% Total Revenue			2014			% Total Revenue
Net sales	$	890,503			99.6	%	$	924,364			98.8	%
Other revenue		3,968			0.4	%		11,645			1.2	%

Total revenue		894,471			100.0	%		936,009			100.0	%

Material, labor and other production costs		373,459			41.8	%		380,895			40.7	%
Selling, distribution and marketing expenses		317,400			35.5	%		338,093			36.1	%
Administrative and general expenses		117,586			13.1	%		136,145			14.5	%
Other operating income – net		(69,729	)		(7.8	%)		(25,796	)		(2.7	%)

Operating income		155,755			17.4	%		106,672			11.4	%

Interest expense		14,599			1.6	%		18,249			1.9	%
Interest income		(183	)		(0.0	%)		(141	)		(0.0	%)
Other non-operating income – net		(992	)		(0.1	%)		(1,379	)		(0.1	%)

Income before income tax expense		142,331			15.9	%		89,943			9.6	%
Income tax expense		45,087			5.0	%		23,364			2.5	%

Net income	$	97,244			10.9	%	$	66,579			7.1	%

For the six months ended August 28, 2015, consolidated net sales were $890.5 million, down from $924.4 million in the prior year six months. This 3.7%, or $33.9 million, decrease was driven by the unfavorable impact of foreign currency translation of approximately $33 million, lower sales from our display fixture business of approximately $20 million due to the sale of that business at the end of the prior year second quarter, and lower card sales of approximately $5 million. These decreases were partially offset by increased sales of gift packaging and party goods of approximately $21 million and the favorable impact of fewer SBT implementations of approximately $3 million. The impact of SBT implementations in the current year six months was a charge of approximately $2 million.

Other revenue, primarily royalty revenue from certain character properties, decreased $7.7 million in the six months ended August 28, 2015 compared to the same period in the prior year. In March 2015, we completed the sale of Strawberry Shortcake. As such, royalty revenue related to Strawberry Shortcake for the prior year six month period does not have a comparative amount in the current year.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis), excluding intercompany eliminations, for the six months ended August 28, 2015 and August 29, 2014 are summarized below:


	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2015			2014			2015			2014			2015			2014
Unit volume		(1.2	%)		(1.4	%)		(0.7	%)		4.2	%		(1.0	%)		0.1	%
Selling prices		2.0	%		4.9	%		0.3	%		2.0	%		1.5	%		4.1	%
Overall increase / (decrease)		0.8	%		3.4	%		(0.3	%)		6.3	%		0.5	%		4.2	%

During the six months ended August 28, 2015, combined everyday and seasonal greeting card sales less returns increased 0.5% compared to the prior year six months. The overall increase was primarily driven by increases in selling prices from our everyday greeting cards in our North American Social Expression Products.

Everyday card sales less returns were up 0.8 % compared to the prior year six months, as a result of increases in selling prices of 2.0%, partially offset by a decline in unit volume of 1.2%. The increase in selling prices was driven by general price increases within the core product line, which more than offset the continued unfavorable shift to a higher proportion of value cards. The unit volume decline was primarily driven by lower sales within our North American Social Expression Products segment.

Seasonal card sales less returns decreased 0.3%, with a unit volume decline of 0.7% and a selling price increase of 0.3%. The decrease in unit volume was attributable to the Fall program in our North American Social Expression Products segment, Easter program in both our North American Social Expression Products and International Social Expression Products segments and Mother’s Day program in our International Social Expression Products segment, partially offset by increases in the Father’s Day program in our International Social Expression Products segment and Graduation program in our North American Social Expression Products segment. The increase in selling prices was driven by the Fall and Graduation programs in our North American Social Expression Products segment.

Expense Overview

MLOPC for the six months ended August 28, 2015 were $373.5 million, a decrease of $7.4 million from $380.9 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 41.8% in the current period compared to 40.7% for the six months ended August 29, 2014. The $7.4 million dollar decrease was primarily due to the favorable impact of foreign currency translation of approximately $14 million and the elimination of costs related to the display fixtures business that was sold in the prior year second quarter. Partially offsetting these decreases were higher product content and production expenses, and the impact of higher sales volume in the wholesale card businesses and lower margins on slightly higher sales volumes in the Retail segment.

SDM expenses for the six months ended August 28, 2015 were $317.4 million, decreasing $20.7 million from $338.1 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 35.5% in the current period compared to 36.1% for the prior year period. The decrease was primarily driven by the favorable impact of foreign currency translation of approximately $16 million, lower supply chain costs of approximately $3 million, lower expenses from our display fixture business of approximately $2 million due to the sale of that business in the prior year second quarter and other cost savings of approximately $2 million, offset by higher expenses in the Retail Operations segment of $3 million.

Administrative and general expenses were $117.6 million for the six months ended August 28, 2015, a decrease of $18.5 million from $136.1 million in the prior year period. This decrease was driven primarily by the favorable impact of foreign currency translation of approximately $3 million, lower expenses from our display fixture business of approximately $2 million due to the sale of that business in the prior year second quarter, lower expenses in our Retail Operations segment of approximately $4 million, elimination of expenses related to the former stock compensation program of approximately $3 million, decreased profit sharing expense of approximately $2 million and other general cost savings of approximately $4 million.

Other operating income – net was $69.7 million for the six months ended August 28, 2015 compared to $25.8 million for the prior year six month period. The current year six month period includes the gain on the sale of Strawberry Shortcake of $61.6 million and the income of $6.5 million from tax credits received from the State of Ohio under certain incentive programs made available to us in connection with our decision to maintain our world headquarters in the state of Ohio. The prior year six month period included the gain on the sale of AGI In-Store of $38.8 million, the non-cash loss recorded upon sale of our current world headquarters location of $15.5 million and the recovery of $3.4 million related Clinton Cards bankruptcy administration, which, based on updated estimated recovery information provided we recorded an impairment recovery related to the senior secured debt of Clinton Cards that we acquired in May 2012 and subsequently impaired.

The effective tax rate was 31.7% and 26.0% for the six months ended August 28, 2015 and August 29, 2014, respectively. The lower than statutory rate for the six months ended August 28, 2015 is primarily related to the release of a $4.3 million unrecognized tax benefit due to the issuance of regulations that clarified the law and the expiration of a statute of limitations, as well as the impact of lower tax rates in foreign jurisdictions, domestic production activities deduction and the tax treatment of corporate-owned life insurance. The lower than statutory rate in the prior period is due primarily to the recording of a net $3.1 million federal tax refund and related interest attributable to fiscal 2000 and the error corrections recorded in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections. The net impact of the error corrections was a reduction to income tax expense of $4.1 million. During the six months ended August 29, 2014, we identified and corrected errors in the accounting for income taxes that related to the year ended February 28, 2014. These errors primarily related to our failure to consider all sources of available income when assessing the need for a valuation allowance against certain deferred tax assets and the recognition of a liability for an uncertain tax position. These errors were the result of the significant complexity created as a result of the going private transaction that was completed in fiscal 2014.

Segment Information

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. ~~Our~~ The North American Social Expression Products segment primarily designs, manufactures and sells greeting cards and other related products through various channels of distribution with mass merchandising as the primary channel. The International Social Expression Products ~~segments~~segment primarily ~~design, manufacture~~designs and ~~sell~~sells greeting cards and other related products through various channels of distribution, ~~with~~and ~~mass~~is ~~retailers~~located asprincipally in the ~~primary~~United ~~channel~~Kingdom, Australia and New Zealand. As permitted under ASC Topic 280 (“ASC 280”), “Segment Reporting,” certain operating segments have been aggregated into the International Social Expression Products segment. The aggregated operating divisions have similar economic characteristics, products, production processes, types of customers and distribution methods. At ~~May~~August 2928, 2015, we operated ~~410~~405 card and gift retail stores in the United Kingdom (“UK”) through our Retail Operations segment. These stores sell products purchased from the International Social Expression Products segment as well as products purchased from other vendors. The AG Interactive segment distributes social expression products, including electronic greetings, and a broad range of graphics and digital services and products, through a variety of electronic channels, including Web sites, Internet portals and electronic mobile devices. For the ~~three~~six months ended ~~May~~August 2928, 2015, the Non-reportable segment primarily includes licensing activities. For the ~~three~~six months ended ~~May~~August 3029, 2014, the Non-reportable segment also included the design, manufacture and sales of display fixtures. The display fixtures business was sold on the last day of the ~~prior~~quarter ~~year~~ended ~~second quarter~~August 29, 2014. See Note 4, “~~Acquisitions and~~ Dispositions,” to the Consolidated Financial Statements for further information.

Segment results are reported using actual foreign exchange rates for the periods presented. Refer to Note 18, “Business Segment Information,” to the Consolidated Financial Statements for further information and a reconciliation of total segment revenue to consolidated “Total revenue” and total segment earnings (loss) before tax to consolidated “Income before income tax expense.”

~~North~~28 ~~American Social Expression Products Segment~~

	Three Months Ended
(Dollars in thousands)	May 29, 2015		May 30, 2014		% Change
Total revenue	$	335,604	$	329,057		2.0	%
Segment earnings		73,127		69,364		5.4	%

Total revenue of our North American Social Expression Products segment for the quarter ended May 29, 2015, increased $6.5 million, or 2.0%, compared to the prior year period. The increase was primarily driven by higher sales of gift packaging, party goods and other ancillary products of approximately $9 million and the favorable impact of fewer SBT implementations during the quarter of approximately $3 million. These increases were partially offset by lower sales of greeting cards of approximately $3 million and the unfavorable impacts of foreign currency translation of approximately $3 million.

Segment earnings increased $3.8 million in the current year three months compared to the three months ended May 30, 2014. The increase was driven primarily by the impact of higher revenues, including the favorable impact of fewer SBT implementations. In addition, supply chain costs were lower by approximately $3 million. These favorable items were partially offset by higher production and product content costs of approximately $4 million and higher sales, marketing and product management expenses of approximately $3 million.

North American Social Expression Products Segment


(Dollars in thousands)	Three Months Ended August				% Change			Six Months Ended August				% Change
(Dollars in thousands)	28, 2015		29, 2014		% Change			28, 2015		29, 2014		% Change
Total revenue	$	285,556	$	276,990		3.1	%	$	621,160	$	606,047		2.5	%
Segment earnings		46,209		27,830		66.0	%		119,336		97,194		22.8	%

Total revenue of our North American Social Expression Products segment increased $8.6 million for the three months ended August 28, 2015 and increased $15.1 million for the six months ended August 28, 2015 compared to the prior year periods. The increase during the current quarter was primarily driven by higher gift packaging and party goods sales of approximately $12 million. These increases for the current quarter were partially offset the unfavorable impacts of foreign currency translation of approximately $4 million. The increase in total revenue for the six months ended August 28, 2015 was primarily driven by higher sales of gift packaging, party goods and other ancillary products of approximately $22 million and the favorable impact of fewer SBT Implementations of approximately $3 million, offset by lower sales of greeting cards of approximately $3 million and the unfavorable impact of foreign currency translation of approximately $7 million.

Segment earnings increased $18.4 million in the current three months compared to the three months ended August 29, 2014. The improvement was driven primarily by the prior year non-cash loss related to the sale of our current world headquarters location, of which approximately $13 million of the total loss of $15.5 million was recorded within the North American Social Expression Products segment. In addition, the current year includes the favorable impact of higher revenues, lower marketing and product management costs of approximately $1 million and lower supply chain costs of approximately $1 million, partially offset by higher technology costs of approximately $1 million.

Segment earnings increased $22.1 million in the six month period ended August 28, 2015 compared to the prior year period. The increase was driven primarily by the prior year non-cash loss related to the sale of our current world headquarters location, of which approximately $13 million of the total loss of $15.5 million was recorded within the North American Social Expression Products segment. In addition, the current year includes the favorable impact of higher revenues and lower supply chain costs of approximately $2 million, partially offset by higher technology costs of approximately $1 million.

International Social Expression Products Segment

	Three Months Ended
(Dollars in thousands)	Three Months Ended August					%Change			Six Months Ended August					%Change
(Dollars in thousands)	May 29, 2015			May 30, 2014		% Change
	28, 2015			29, 2014					28, 2015			29, 2014
Total revenue	$	5154,~~855~~572		$	6457,~~974~~217		(204.26	%)	$	106,427		$	122,191		(12.9	%)
Segment (loss) earnings		(4,259	)		1,452		N/A
Segment earnings		830			564		47.2	%		(3,429	)		2,016		—

Total revenue of our International Social Expression Products segment decreased $132.16 million, ~~or 20.2%~~ for the three ~~months ended~~month ~~May~~period ended August 2928, 2015, compared to the ~~same period in the~~ prior year comparable period. The decrease was primarily ~~driven~~due to the unfavorable impact of foreign currency translation of approximately $7 million offset by ~~decreased~~higher sales of greeting cards of approximately $74 million. Total revenue of our International Social Expression Products segment decreased $15.8 million ~~and~~for the ~~unfavorable~~six month period end August 28, 2015 compared to the prior year comparable period. The decrease was primarily due to the unfavorable impact of foreign currency translation of approximately $6 13 million and lower sales of greeting cards of approximately $2 million.

Segment earnings remained ~~decreased~~flat ~~$5.7~~year-over-year ~~million~~for in the three months ended ~~May~~August 2928, 2015 ~~compared~~and toAugust 29, ~~the same period in the prior year~~2014. The ~~decreased earnings~~impact ~~were~~on ~~primarily~~earnings ~~driven~~from byincreased ~~the~~greeting ~~impact~~card ~~of lower~~ sales ~~volume as well as higher production~~ and ~~scrap~~favorable ~~expense~~supply ofchain ~~approximately~~expenses $5was ~~million. These unfavorable items were partially~~ offset by ~~the~~increases ~~favorable impact of lower elimination of profit~~ in ~~inventory~~ ~~related~~product ~~to sales from the International Social Expression Products segment to the Retail Operations segment of approximately $3 million~~costs.

Segment earnings decreased $5.5 million in the six months ended August 28, 2015, compared to the six months ended August 29, 2014. The decreased earnings were primarily driven by lower sales and increased product and scrap costs, partially offset by lower supply chain costs of approximately $2 million.

Retail Operations Segment

	Three Months Ended
(Dollars in thousands)	Three Months Ended August						%Change			Six Months Ended August						%Change
(Dollars in thousands)	May 29, 2015			May 30, 2014			% Change
	28, 2015			29, 2014						28, 2015			29, 2014
Total revenue	$	7165,~~808~~503		$	7969,~~164~~741			(96.31	%)	$	137,311		$	148,905			(7.8	%)
Segment loss		(812,~~143~~615	)		(414,~~040~~563	)		~~(101~~13.64	%)		(20,758	)		(18,603	)		(11.6	%)

Total revenue of our Retail Operations segment decreased $7.4.2 million and $11.6 million for the three and six months ended August 28, 2015, respectively, compared to the prior year, periods. The decreases were driven by the impact of unfavorable foreign exchange translation of approximately $86 million and $13 million for the three and six month periods, respectively, partially offset by increases in greeting card and gift packaging sales. During the ~~first~~three ~~quarter~~and ofsix ~~the~~month ~~current~~periods ~~year~~ended August 28, 2015, net sales at stores open one year or more were ~~down~~up approximately 2.2% and 0.48%, respectively, compared to the same periods in the prior year ~~period~~.

Segment ~~loss~~earnings increased $4.1.9 million in the three month period ended August 28, 2015 and decreased $2.2 million in six months ended August 28, 2015 compared to the prior year periods. The ~~higher~~improved ~~segment~~earnings ~~loss~~in ~~was~~the second quarter were about half due to the ~~result~~favorable impact of ~~lower~~foreign ~~gross~~exchange ~~margins~~translation on the loss and ~~higher~~about ~~store~~half due to lower operating expenses. The lower ~~gross~~segment ~~margins~~earnings in the six month period were the result of ~~increased~~lower gross margins resulting from promotional pricing activities and increased inventory shrink and scrap expense., ~~The~~partially ~~majority~~offset ofby the favorable ~~higher~~impact ~~store~~of ~~operating~~foreign ~~expenses~~exchange ~~was~~translation on the ~~result of new store openings~~loss.

AG Interactive Segment

	Three Months Ended
(Dollars in thousands)	Three Months Ended August				%Change			Six Months Ended August				%Change
(Dollars in thousands)	May 29, 2015		May 30, 2014		% Change
	28, 2015		29, 2014					28, 2015		29, 2014
Total revenue	$	13,~~430~~736	$	14,~~499~~445		(7.4.9	%)	$	27,166	$	28,944		(6.1	%)
Segment earnings		45,~~871~~276		5,~~412~~964		(1011.05	%)		10,147		11,376		(10.8	%)

Total revenue of AG Interactive decreased $10.7 million and $1.8 million for the three and six months ended August 28, 2015, respectively, compared to the prior year ~~quarter~~periods. ~~This~~These ~~decrease~~decreases in revenue ~~was~~were driven primarily by lower subscription revenue compared to the respective prior year periods as well as the unfavorable impact of foreign exchange translation. At Asthe end of ~~May 29,~~the ~~2015~~second quarter of fiscal 2016, AG Interactive had approximately 3.54 million online paid subscriptions as compared to ~~approximately~~ 3.76 million at ~~May 30,~~the ~~2014~~end of the same period in the prior year.

Segment earnings decreased $0.57 million ~~compared~~and to$1.2 million for the ~~prior~~three ~~year~~and ~~quarter~~six months ended August 28, 2015 primarily due to the impact of lower revenue.

Non-reportable Segment

	Three Months Ended
(Dollars in thousands)	Three Months Ended August						%Change			Six Months Ended August				%Change
(Dollars in thousands)	May 29, 2015			May 30, 2014			% Change
	28, 2015			29, 2014						28, 2015		29, 2014
Total revenue	$	~~746~~1,661		$	1514,~~890~~032			(9588.32	%)	$	2,407	$	29,922		(92.0	%)
Segment earnings		60,347			4,015			N/A
Segment (loss) earnings		(934	)		(1,306	)		28.5	%		59,413		2,709		2093.2	%

Total revenue from our Non-reportable segment decreased $1512.14 million and $27.5 million for the three and six months ended August 28, 2015, respectively, compared to the prior year ~~quarter~~periods. The decrease in revenue for the current year ~~first~~periods ~~quarter~~ was due ~~primarily~~ to the sale of our display ~~fixtures~~fixture business ~~in the prior year second quarter and the sale of Strawberry Shortcake~~ at the ~~beginning~~end of the ~~current~~prior year ~~first~~second quarter~~. Revenue in the prior~~ ~~year first quarter for the fixtures business was $10.5 million. The remaining decrease in revenue was due primarily to the sale of Strawberry Shortcake.~~

~~Segment~~30 earnings increased $56.3 million compared to the prior year quarter. This increase was primarily due to the gain of $61.7 million in connection with the sale of Strawberry Shortcake. This increase was partially offset by the impact to earnings from the sale of our display fixtures business and Strawberry Shortcake as noted above.

and the sale of Strawberry Shortcake at the beginning of the current year first quarter. Revenue of the display fixture business was $9.7 million for the three months ended August 29, 2014 and $20.2 million for the six months ended August 29, 2014. The remaining decrease in revenue was due primarily to the sale of Strawberry Shortcake.

Segment earnings increased $0.4 million and $56.7 million for the three and six months ended August 28, 2015 compared to the prior year periods. The increase for the six month period ended August 28, 2015 was primarily due to the gain of $61.6 million recorded in the first quarter of the current year in connection with the sale of Strawberry Shortcake. This increase was partially offset by the operational impact to earnings from the sale of our display fixtures business and Strawberry Shortcake as noted above.

Unallocated Items

Centrally incurred and managed costs are not allocated back to the operating segments. The unallocated items include interest expense for centrally-incurred debt, ~~and~~ domestic profit-sharing expense., ~~Unallocated~~as ~~items~~well ~~also~~as ~~include~~ costs associated with corporate operations such as the senior management, corporate finance, legal and insurance programs.

	Three Months Ended
	Three Months Ended August						Six Months Ended August
(Dollars in thousands)	~~May 29~~28, 2015			~~May 30~~29, 2014			28, 2015			29, 2014
Interest expense	$	(86,~~113~~486	)	$	(89,~~994~~255	)	$	(14,599	)	$	(18,249	)
Profit-sharing expense		(1,675	)		(41,~~079~~389	)		(3,350	)		(5,468	)
Corporate overhead expense		~~(4,822~~393	)		(726,~~694~~662	)		(4,429	)		18,968
Total Unallocated	$	(147,~~610~~768	)	$	~~(20~~16,~~767~~018	)	$	(22,378	)	$	(4,749	)

~~Our~~Interest ~~profit-sharing~~expense ~~plan~~is ~~includes~~lower ain ~~profit-sharing~~both ~~component~~the three and asix ~~401(k)~~month ~~component.~~periods ~~The~~ended ~~401(k)~~August 28, ~~component~~2015 iscompared ~~included~~to ~~in corporate overhead expense. While~~ the ~~current~~same ~~year~~periods ~~quarterly expense will vary from~~ in the prior year. ~~expense~~During ~~pattern, we expect~~ the ~~full~~fourth ~~year~~quarter ~~2016~~of ~~expense~~2015 ofand the ~~combined~~first ~~components~~quarter toof ~~be consistent with~~ the ~~prior~~current fiscal year., ~~The~~we ~~lower~~made ~~corporate~~voluntary ~~overhead expense~~prepayments inon ~~the~~our ~~current~~term ~~year~~loan ~~was~~facility ~~primarily~~of ~~due~~$140 tomillion ~~lower~~thus ~~health~~reducing ~~care~~interest ~~claims~~expense.

Our profit-sharing plan includes a profit-sharing component and a 401(k) component. The 401(k) component is included in corporate overhead expense. While the current year three and six month expense will vary from the prior year expense pattern, we expect the full year 2016 expense of the combined components to be consistent with the prior year.

For both the three and six month periods ended August 28, 2015, “Corporate overhead expense” includes income of $6.5 million from tax credits received from the State of Ohio under certain incentive programs made available to us in connection with our decision to maintain our world headquarters in the state of Ohio. See Note 6, “Other Income and Expense,” to the Consolidated Financial Statements for further information.

During the prior year second quarter, we sold our world headquarters location and incurred a non-cash loss on disposal of $15.5 million, of which $2.2 million was recorded within the Unallocated segment. See Note 4, “Dispositions,” to the Consolidated Financial Statements for further information.

For both the three and six month periods ended August 29, 2014, “Corporate overhead expense” included the gain on sale of AGI In-Store of $38.8 million. See Note 4, “Dispositions,” to the Consolidated Financial Statements for further information.

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 ~~Consolidated~~ Consolidated Statement of Financial Position as of ~~May~~August 3029, 2014, has been included.

~~Operating~~31 ~~Activities~~

Operating activities used $96.1 million of cash during the three months ended May 29, 2015, compared to using $34.9 million in the prior year period.

Accounts receivable used $23.0 million of cash during the three months ended May 29, 2015, compared to $32.1 million of cash used during the same period in the prior year. The year-over-year change in cash flow of $9.1 million occurred primarily within our North American Social Expression and International Social Expression Products segments and was due to the timing of collections from, or credits issued to, certain customers occurring in a different pattern in the current year period compared to the prior year period.

~~Deferred~~Operating ~~costs~~Activities – net generally represents payments under agreements with retailers, net of the related amortization of those payments. During the three months ended May 29, 2015, amortization exceeded payments by $5.3 million. During the three months ended May 30, 2014, amortization exceeded payments by $6.9 million. See Note 10, “Deferred Costs,” to the Consolidated Financial Statements for further detail of deferred costs related to customer agreements.

~~Accounts payable~~Operating ~~and~~activities ~~other liabilities~~ used $~~104~~65.65 million of cash during the ~~three~~six months ended ~~May~~August 2928, 2015, compared to using $5828.53 million in the prior year ~~first quarter~~period. ~~The year-over-year change in cash usage was attributable to higher variable~~ compensation payments during the current year first quarter compared to the prior year first quarter and an increase in accounts payable payments due to normal year-over-year timing of business transactions.

Accounts receivable used $3.4 million of cash during the six months ended August 28, 2015, compared to providing $0.1 million of cash during the prior year period. The year-over-year decrease in cash flow of approximately $3 million occurred mainly within our North American Social Expression Products and International Social Expression Products segments due primarily to the timing of collections from, or credits issued to, certain customers occurring in a different pattern in the current year period compared to the prior year period.

Inventory used $49.9 million of cash during the six months ended August 28, 2015, compared to $76.6 million in the prior year six months. Historically, the first half of our fiscal year is a period of inventory build, and thus a use of cash, in preparation for the fall and winter seasonal holidays. In the prior year, in addition to the normal seasonal inventory build, the inventory increase related to a new party goods product launch and inventory growth in our Retail Operations segment to align inventory to more normalized levels, which was achieved and, as such, did not recur in the current year.

Deferred costs – net generally represents payments under agreements with retailers net of the related amortization of those payments. During the six months ended August 28, 2015, amortization exceeded payments by $19.4 million. During the six months ended August 29, 2014, amortization exceeded payments by $22.0 million. See Note 10, “Deferred Costs,” to the Consolidated Financial Statements for further detail of deferred costs related to customer agreements.

Accounts payable and other liabilities used $91.7 million of cash during the six months ended August 28, 2015, compared to using $39.4 million in the prior year period. The year-over-year change in cash usage was attributable to higher variable compensation payments during the current year compared to the same period in the prior year and an increase in accounts payable payments due to normal year-over-year timing of business transactions, both of which were mainly in our North American Social Expression Products and Unallocated segments.

Investing Activities

Investing activities provided $~~107~~91.2 4 million of cash during the ~~three~~six months ended ~~May~~August 2928, 2015, compared to ~~using~~providing $2147.68 million ofin ~~cash during~~ the ~~three~~prior ~~months~~year ~~ended May 30, 2014~~period. The current year includes proceeds of $105.0 ~~million~~ received from the sale of Strawberry Shortcake and proceeds of $24.1 million received from the surrender of certain corporate-owned life insurance policies. These cash inflows were partially offset by cash paid for capital expenditures of $1331.47 million, cash paid for acquired character property rights of $2.8 million, aand a payment of $3.2 million related to the final working capital adjustments made in connection with the sale of AGI In-Store ~~and $2~~.5 ~~million of loans, net of repayments, made to related parties.~~

The prior year cash provided was driven by the proceeds of $73.7 million from the sale of AGI In-store and $13.5 million from the sale of our current world headquarters. In addition, the prior year ~~first~~includes ~~quarter~~proceeds received from H L & L Property Company, ~~the~~an ~~cash~~indirect affiliate ~~usage~~of ~~was~~American ~~primarily~~Greetings ~~driven~~(“H byL & L”) of $229.29 million related to the sale to H L & L by us of certain assets previously purchased by us related to the new world headquarters. Partially offsetting these cash inflows was cash paid for capital expenditures of $50.2 million during the prior year six month period.

Financing Activities

Financing activities used $1134.3 0 million of cash during the ~~three~~current ~~months~~year ~~ended~~six ~~May 29~~months, ~~2015,~~ compared to ~~providing~~ $5738.17 million ~~during~~in the ~~three~~prior ~~months~~year ~~ended~~six ~~May 30,~~month ~~2014~~period. During the current year ~~first quarter~~, this use of cash was primarily driven by a voluntary prepayment made on our term loan of $65.0 million, ~~partially~~and ~~offset~~cash bydividend ~~borrowings,~~payments ~~net~~ of ~~repayments, under our revolving credit facility of~~ $5320.7 million., Inpartially ~~the~~offset ~~first~~by ~~quarter of~~ the ~~prior~~additional ~~year, the source of cash was primarily driven by~~ borrowings, net of repayments, under our revolving credit facility of $6251.17 million. ~~In addition, we made a payment of $5.0 million on our term loan in the first quarter of the prior year.~~

In the prior year this use of cash was primarily driven by cash dividend payments of $24.2 million. In addition, we made payments in the aggregate of $10.0 million on our term loan and made repayments, net of borrowings, under our revolving credit facility of $4.5 million.

Credit Sources

Substantial credit sources are available to us. In total, we had available sources of credit of approximately $485 million at ~~May~~August 2928, 2015, which included $185 million outstanding on our term loan facility, a $250 million revolving credit facility and a $50 million accounts receivable securitization facility, of which $~~215~~217.6 million in the aggregate was unused as of ~~May~~August 2928, 2015. Borrowings under the accounts receivable securitization facility are limited based on our eligible receivables outstanding. At ~~May~~August 2928, 2015, we had $5856 million of borrowings outstanding under our revolving credit facility and we had no borrowings outstanding under our accounts receivable securitization facility. We had, in the aggregate, $26.4 million outstanding under letters of credit, which reduced the total credit availability thereunder as of ~~May~~August 2928, 2015.

Please refer to the discussion of our borrowing arrangements as disclosed in the “Credit Sources” section under Part II, Item 7 of our Annual Report on Form 10-K for the year ended February 28, 2015 for further information.

At ~~May~~August 2928, 2015, we were in compliance with our financial covenants under the borrowing agreements described above.

Capital Deployment and Investments

On February 10, 2014, Century Intermediate Holding Company 2 (“CIHC2”), an indirect parent company of American Greetings Corporation, issued $285 million aggregate principal amount of 9.75%/10.50% Senior PIK Toggle Notes due 2019 (the “PIK Notes”). Excluding the first and last interest payment periods, which must be paid in cash, CIHC2 may elect to either accrue or pay cash interest on the PIK Notes. The PIK Notes carry a cash interest rate of 9.75%. Prior to the required semi-annual payment of interest by CIHC2 in August and February, it is expected that we will provide CIHC2 with the cash flow for CIHC2 to pay interest on the PIK Notes. Assuming interest is paid regularly in cash, rather than accrued, the annual cash required to pay the interest is expected to be approximately $27.8 million while the entire issuance of PIK Notes are outstanding. For further information, refer to the discussion of the PIK Notes as disclosed in “Transactions with Parent Companies and Other Affiliated Companies” in Note 18, “Related Party Information,” to the Consolidated Financial Statements under Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

(the “PIK Notes”). Excluding the first and last interest payment periods, which must be paid in cash, CIHC2 may elect to either accrue or pay cash interest on the PIK Notes. The PIK Notes carry a cash interest rate of 9.75%. Prior to the payment of interest by CIHC2, it is expected that we will provide CIHC2 with the cash flow for CIHC2 to pay interest on the PIK Notes. Assuming interest is paid regularly in cash, rather than accrued, the annual cash required to pay the interest is expected to be approximately $27.8 million while the entire issuance of PIK Notes are outstanding. For further information, refer to the discussion of the PIK Notes as disclosed in “Transactions with Parent Companies and Other Affiliated Companies” in Note 18, “Related Party Information,” to the Consolidated Financial Statements under Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

Throughout fiscal 2016 and thereafter, we will continue to consider all options for capital deployment including growth opportunities, acquisitions and other investments in third parties, expanding customer relationships, expenditures or investments related to our current product leadership initiatives or other future strategic initiatives, capital expenditures, the information technology systems refresh project, paying down debt, paying dividends and, as appropriate, preserving cash. Our future operating cash flow and borrowing availability under our credit agreement and our accounts receivable securitization facility are expected to meet these and other currently anticipated funding requirements. The seasonal nature of our business results in peak working capital requirements that may be financed through short-term borrowings when cash on hand is insufficient.

Over the next several years, we expect to allocate resources, including capital, to refresh our information technology systems by modernizing our systems, redesigning and deploying new processes, and evolving new organization structures, all of which are intended to drive efficiencies within the business and add new capabilities. Amounts that we spend could be material in any fiscal year and over the life of the project. The total amount spent through fiscal 2015 on this project was approximately $132 million. During the ~~three~~six months ended ~~May~~August 2928, 2015, we spent approximately $922 million, including capital of approximately $818 million and expense of approximately $14 million, on these information technology systems. Based on the current scope of the project, we currently expect to spend approximately $~~180~~170 million on these information technology systems over the remaining life of the project, the majority of which we expect will be capital expenditures. We believe these investments are important to our business, help us drive further efficiencies and add new capabilities; however, there can be no assurance that we will not spend more or less than $~~180~~170 million over the remaining life of the project, or that we will achieve the anticipated efficiencies or any cost savings.

In May 2011, we announced plans to relocate our world headquarters to the Crocker Park mixed use development in Westlake, Ohio, which offers a vibrant urban setting, with retail stores and restaurants, offices and apartments. After putting the project on hold pending the outcome of the going private transaction, we announced plans in October 2013 to resume the project and on March 26, 2014, we purchased the land on which the new world headquarters will be built. We are leasing a portion of the real property to H L & L Property Company, an indirect affiliate of American Greetings (“H L & L”), that will build the new world headquarters on the site. We have also entered into an operating lease with H L & L for the use of the new world headquarters building, which we expect to be ready for occupancy in calendar year 2016. The initial lease term is fifteen years and will begin upon occupancy. The annual rent is expected to be approximately $9.5 million. Furthermore, due to our need for incremental space, H L & L is building additional space at the new world headquarters location, which we expect will increase the annual rent by approximately $1 million. Further details of the relocation undertaking are provided in Note 18, “Related Party Information,” to the Consolidated Financial Statements under Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015 and Note 17, “Related Party Information,” to the Consolidated Financial Statements of this Form 10-Q.

~~Critical~~33 ~~Accounting Estimates~~

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Please refer to the discussion of our Critical Accounting Estimates under Part II, Item 7 of our Annual Report on Form 10-K for the year ended February 28, 2015.

putting the project on hold pending the outcome of the going private transaction, we announced plans in October 2013 to resume the project and on March 26, 2014, we purchased the land on which the new world headquarters will be built. We are leasing a portion of the Crocker Park Site to H L & L, which is constructing the new world headquarters building on the site and, when complete, will sublease the new world headquarters building back to us. In addition, to accommodate additional office needs, H L & L is constructing an additional approximately 60,000 square foot building adjacent to the world headquarters building and a surface parking lot on land that it is leasing from us. We have entered into operating leases to lease these buildings from H L & L, which are anticipated to be available for occupancy in calendar year 2016. The initial lease terms are fifteen years and will begin upon occupancy. The total annual rent is expected to be approximately $10.6 million. Further details of the relocation undertaking are provided in Note 18, “Related Party Information,” to the Consolidated Financial Statements under Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015 and Note 17, “Related Party Information,” to the Consolidated Financial Statements of this Form 10-Q.

During the quarter ended August 28, 2015, we paid cash dividends in the aggregate amount of $20.7 million to CIHC, our parent and sole shareholder, $13.9 million of which was for the purpose of paying interest on the PIK Notes.

During the prior year quarter ended August 29, 2014, we paid cash dividends in the aggregate amount of $24.2 million to CIHC, our parent and sole shareholder, $14.3 million of which was for the purpose of paying interest on the PIK Notes. In addition, H L & L paid to us $9.9 million to acquire certain assets previously purchased by us related to the new world headquarters project.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Please refer to the discussion of our Critical Accounting Policies under Part II, Item 7 of our Annual Report on Form 10-K for the year ended February 28, 2015.

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:

•

a weak retail environment and general economic conditions;

•

the loss of one or more retail customers and/or retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;

• competitive terms of sale offered to customers, including costs and other terms associated with ~~new and expanded~~ customer relationships;

•

risks associated with leasing substantial amounts of space for our retail stores;

•

the timing and impact of expenses incurred and investments made to support new retail or product strategies, as well as new product introductions and achieving the desired benefits from those investments;

•

unanticipated expenses we may be required to incur relating to our world headquarters project;

•34 ~~our ability to qualify for state and local incentives offered to assist us in the development of a new world headquarters;~~

•

our ability to qualify for, and stay qualified for, state and local incentives offered to assist us in the development of a new world headquarters;

•

the timing of investments in, together with the ability to successfully implement or achieve the desired benefits and cost savings associated with, any information systems refresh we may implement;

•

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

•

Schurman Fine Paper’s ability to successfully operate its retail operations and satisfy its obligations to us;

•

consumer demand for social expression products generally, shifts in consumer shopping behavior, and consumer acceptance of products as priced and marketed, including the success of advertising and marketing efforts;

•

the impact and availability of technology, including social media, on product sales;

•

escalation in the cost of providing employee health care;

•

the ability to comply with our debt covenants;

•

our ability to adequately maintain the security of our electronic and other confidential information;

•

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

•

the outcome of any legal claims, known or unknown.

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 included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

29Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~Table~~For further information, refer to our Annual Report on Form 10-K for the year ended February 28, 2015. There were no material changes in market risk, specifically interest rate and foreign currency exposure, for us from February 28, 2015, the end of ~~Contents~~our preceding fiscal year, to August 28, 2015, the end of our most recent fiscal quarter.

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, 2015. There were no material changes in market risk, specifically interest rate and foreign currency exposure, for us from February 28, 2015, the end of our preceding fiscal year, to May 29, 2015, 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 Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Corporation’s management, including its Co-Chief Executive Officers 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 Co-Chief Executive Officers 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 Co-Chief Executive Officers 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~~35 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~~There ~~II—OTHER~~has ~~INFORMATION~~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

Al Smith et al. v. American Greetings Corporation. On June 4, 2014, Al Smith and Jeffrey Hourcade, former fixture installation crew members for special projects, individually and on behalf of those similarly situated, filed a putative class action lawsuit against American Greetings Corporation in the U.S. District Court for the Northern District of California, San Francisco Division. Plaintiffs claim that the Corporation violated certain rules under the Fair Labor Standards Act and California law, including the California Labor Code and Industrial Welfare Commission Wage Orders. For themselves and the proposed classes, plaintiffs seek an unspecified amount of general and special damages, including but not limited to minimum wages, agreed upon wages and overtime wages, statutory liquidated damages, statutory penalties (including penalties under the California Labor Code Private Attorney General Act of 2004 (“PAGA”), unpaid benefits, reasonable attorneys’ fees and costs, and interest). In addition, plaintiffs request disgorgement of all funds the Corporation acquired by means of any act or practice that constitutes unfair competition and restoration of such funds to the plaintiffs and the proposed classes. On November 6, 2014, plaintiffs filed a Second Amended Complaint to add claims for reimbursement of business expenses and failure to provide meal periods in violation of California Law and on December 12, 2014, amended their PAGA notice to include the newly added claims.

On January 20, 2015, the parties reached a settlement in principle that, if approved by the Court, will fully and finally resolve the claims brought by Smith and Hourcade, as well as the classes they seek to represent. The settlement was a product of extensive negotiations and a private mediation, which was finalized and memorialized in a Stipulation and Class Action Settlement Agreement signed March 30, 2015. ~~The~~On ~~proposed~~March 31, ~~settlement~~2015, ~~establishes~~plaintiffs filed a ~~settlement~~Motion ~~fund of $4.0 million to pay claims from current and former employees who worked at least one day~~ for ~~American~~Preliminary ~~Greetings~~Approval ~~Corporation and/or certain~~ of ~~its~~Class ~~subsidiaries~~Action inSettlement ~~any hourly~~and ~~non-exempt~~on ~~position in California between June~~July 423, ~~2010~~2015, ~~and~~ the ~~date~~Court ofentered ~~the~~its ~~Court’s~~Order ~~preliminary~~Granting ~~approval~~Preliminary Approval of ~~the~~Class ~~settlement.~~Action Settlement.

~~On March 31,~~The ~~2015,~~proposed ~~plaintiffs~~settlement ~~filed~~establishes a ~~Motion~~settlement ~~for~~fund ~~Preliminary Approval~~ of ~~Class Action Settlement~~$4. On0 ~~April 30,~~million ~~2015,~~to ~~plaintiffs~~pay ~~filed~~claims ~~their~~from ~~Third~~current ~~Amended~~and ~~Complaint~~former toemployees ~~which~~who ~~American~~worked ~~Greetings~~at ~~Corporation~~least ~~filed~~one ~~its~~day ~~answer~~for ~~on May 19,~~American ~~2015.~~Greetings OnCorporation ~~April 30,~~and/or ~~2015,~~certain ~~the~~of ~~Court~~its ~~held~~subsidiaries ain ~~preliminary~~any ~~approval~~hourly ~~hearing. If~~non-exempt ~~the~~position ~~settlement~~in isCalifornia ~~preliminarily~~between ~~approved~~June 4, ~~notice~~2010 and ~~claim~~July 23, ~~forms~~2015. ~~will~~On beAugust 24, ~~mailed~~2015, tothe ~~class~~claims ~~members~~administrator ~~and~~commenced ~~class~~mailing ~~members will have an opportunity to submit claims, to opt-out~~ of ~~the~~notice ~~settlement,~~ and~~/or~~ toclaim ~~object~~ forms to ~~the~~class ~~settlement~~members. As ~~part~~The ofCourt’s aOrder Granting Preliminary Approval ~~Order,~~of ~~the~~Class ~~Court~~Action ~~will~~Settlement ~~set~~ordered aplaintiffs ~~Final Approval Hearing~~ to ~~occur~~file ~~after~~their ~~the~~motion ~~notice~~for ~~process,~~final atapproval ~~which~~of ~~point~~ the ~~Court~~settlement, ~~will~~together ~~consider~~with ~~the~~applications ~~notice~~for ~~process~~attorney’s ~~and results~~fees, ~~any~~costs ~~objections~~and service awards, ~~and~~no ~~other~~later ~~relevant~~than ~~information.~~October ~~The~~16, ~~Court~~2015 ~~will~~and ~~then~~set ~~decide~~the ~~whether~~final toapproval ~~finally~~hearing ~~approve~~for ~~the~~December 17, ~~class settlement~~2015. If the settlement is finally approved, American Greetings will fund the settlement within twenty (20) days after passage of all appeal periods. Thereafter, the settlement funds will be disbursed as provided in the settlement agreement and the Court’s orders.

Michael Ackerman v. American Greetings Corporation, et al. On March 6, 2015, plaintiff Michael Ackerman, individually and on behalf of others similarly situated, filed a putative class action lawsuit in the United States District Court of New Jersey alleging violation of the Telephone Consumer Protection Act (“TCPA”) by American Greetings Corporation and its subsidiary, AG Interactive, Inc. The plaintiff claims that defendants (1) sent plaintiff an unsolicited text message notifying plaintiff that he had received an ecard; and (2) knowingly and/or willfully violated the TCPA, which prohibits unsolicited automated or prerecorded telephone calls, including faxes and text messages, sent to cellular telephones. Plaintiff seeks to certify a nationwide class based on unsolicited text messages sent by defendants during the period February 8, 2011 through February 8, 2015. The plaintiff seeks damages in the statutory amount of $500 for each and every violation of the TCPA and $1,500 for each and every willful violation of the TCPA. We believe the plaintiff’s allegations in this lawsuit are without merit and intend to defend the action vigorously.

~~Management~~36 does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on the Corporation’s business, consolidated financial position or results of operations, although the outcomes could be material to the Corporation’s operating results for any particular period, depending, in part, upon the operating results for such period.

Management does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on the Corporation’s business, consolidated financial position or results of operations, although the outcomes could be material to the Corporation’s operating results for any particular period, depending, in part, upon the operating results for such period.

In addition to the foregoing, we are involved in various judicial, administrative, regulatory and arbitration proceedings concerning matters arising in the ordinary course of business operations, including, but not limited to, employment, commercial disputes and other contractual matters. We, however, do not believe that any of the other 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 6. Exhibits

Exhibits required by Item 601 of Regulation S-K

ExhibitNumber		Description
31(a)		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (a)		Certification of co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (b)		Certification of co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(c)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (c)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Coco-Chief Executive Officers and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from the Corporation’s quarterly report on Form 10-Q for the quarter ended ~~May~~August 2928, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statement of Income for the quarters ended ~~May~~August 2928, 2015, and ~~May~~August 3029, 2014, (ii) Consolidated Statement of Comprehensive Income (Loss) for the quarters ended ~~May~~August 2928, 2015, and ~~May~~August 3029, 2014, (iii) Consolidated Statement of Financial Position at ~~May~~August 2928, 2015, February 28, 2015 and ~~May~~August 3029, 2014, (iv) Consolidated Statement of Cash Flows for the ~~quarters~~six months ended ~~May~~August 2928, 2015 and ~~May~~August 3029, 2014, and (v) Notes to the Consolidated Financial Statements for the quarter ended ~~May~~August 2928, 2015.

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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/ Robert D. Tyler
		Robert D. Tyler
		Corporate Controller and
		Chief Accounting Officer *

~~July~~October 109, 2015

*	(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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