UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended August 28, 2015May 27, 2016

OR

For the transition period from                    to                    

Commission file number 1-13859

AMERICAN GREETINGS CORPORATION

(Exact name of registrant as specified in its charter)

(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 October 9, 2015,July 8, 2016, 100 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

AMERICAN GREETING CORPORATION

AMERICAN GREETINGS CORPORATIONINDEX

INDEX

PART I - I—FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Thousands of dollars)

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Thousands of dollars)

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Thousands of dollars except share and per share amounts)

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Thousands of dollars)

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and Six Months Ended August 28,May 27, 2016 and May 29, 2015 and August 29, 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, 20152016 refers to the year ended February 28, 2015.29, 2016. The Corporation’s subsidiary, AG Retail Cards Limited is consolidated on a one-month lag corresponding with its fiscal year-end of January 3028 for 2016.2017.

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, 2015,29, 2016, from which the Consolidated Statement of Financial Position at February 28, 2015,29, 2016, presented herein, has been derived. Certain amounts in the prior year financial statements have been reclassified to conform to the 2017 presentation. These reclassifications had no material impact on financial position, earnings or cash flows.

The Corporation’s investments in less than majority-owned companies in which it has the ability to exercise significant influence over the 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”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 August 28, 2015May 27, 2016 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 August 28, 2015May 27, 2016 includes:

Correction of Immaterial Errors

¡

normal course of business trade and other receivables due from Schurman of $28.6 million, the balance of which fluctuates throughout the year due to the seasonal nature of the business; and

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 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 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:

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 July 2015,June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11 (“ASU 2015-11”), “Simplifying the2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Inventory”.Credit Losses on Financial Instruments.” ASU 2015-11 requires an entity2016-13 introduces a new forward-looking approach, based on expected losses, to measure inventory thatestimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities, ASU 2016-13 is within the scope of this ASU at the lower of costeffective for annual and net realizable value. Existing impairment models will continue to be used for inventories that are accounted for using the last-in first-out (“LIFO”) method. ASU 2015-11 requires prospective adoption for inventory measurements for fiscal yearsinterim reporting periods beginning after December 15, 20162019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods within those fiscal years for 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.beginning after December 15, 2018. The Corporation doesis currently evaluating the new guidance and has not expect thatdetermined the adoption ofimpact this standards update willmay have a material impact on its consolidated financial statements.

In April 2015,February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 will require lessees to recognize aright-of-use asset and a lease liability. Theright-of-use asset and lease liability will be initially measured at the present value of the lease payments in the statement of financial position. Lessor accounting under the new guidance is largely unchanged. For public business entities, ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified-retrospective approach, which includes a number of optional practical expedients. The Corporation is currently evaluating the new guidance and has not determined the impact this standards update may have on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2015-03 (“2016-01, “Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2015-03”), “Simplifying2016-01 addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, this ASU requires equity investments (except those accounted for under the Presentation of Debt Issuance Costs”. ASU 2015-03 requiresequity method or those that all costs incurred to issue debt be presentedresult in the balance sheet as a direct deduction from the carrying valueconsolidation of the debt, similarinvestee) to the presentation of debt discounts.be measured at fair value with changes in fair value recognized in net income. ASU 2015-032016-01 is effective for public business entities for fiscal yearsinterim and annual periods beginning after December 15, 2015 and interim periods within those fiscal years, with early adoption permitted.2017. The Corporation doesis currently evaluating the new guidance and has not expect thatdetermined the adoption ofimpact this standards update willmay have a material impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, (“ASU 2014-15”), “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”.Concern.” ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Corporation doesis currently evaluating the new guidance and has not expect thatdetermined the adoption ofimpact this standards update will impactmay have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, (“ASU 2014-09”), “Revenue from Contracts with Customers”.Customers.” Subsequent accounting standards updates have been issued which amend and/or clarify the application of ASU 2014-09. The objective ofASU 2014-09, and its related amendments and clarifications, 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 2014-09the new guidance 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 applyingMore detailed disclosures will also be required to enable users of financial statements to understand 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 transaction price to the contract’s performance obligations;nature, amount, timing and (5) recognizeuncertainty of revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to alland cash flows arising from 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,customers. For public business entities, should apply the new revenue recognition guidance in ASU 2014-09 towill be effective for annual and interim reporting periods (including interim periods within those periods) beginning after December 15, 2017. EarlyEarlier adoption is permitted but not beforefor annual and interim reporting periods beginning after December 15, 2016. Entities haveThe new guidance permits the optionuse of using either a full retrospective or modified approach to adopt ASU 2014-09.modified-retrospective transition method. The Corporation is currently evaluating the new guidance and has not determined the impact this standardit may have on its consolidated financial statements, nor decided upon the preferred method of adoption.

Note 4 – Acquisitions and Dispositions

Sale of Strawberry Shortcake

As reported in its Annual Report on Form 10-K for the year ended February 28,29, 2016, in March 2015, the Corporation entered into an agreementreceived cash proceeds of $105.0 million and recorded a preliminary gain, subject to sellfinalization of certain closing date estimates, of $61.7 million, for the sale of 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 saleproceeds of which 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. DuringFlows, and the six months ended August 28, 2015, the Corporation recognized a net gain of $61.6 million fromwhich was reflected in “Other operating income – net” on the saleConsolidated Statement of Strawberry Shortcake.Income for the quarter ended May 29, 2015.

Character Property Rights Acquisition

As reported in its Annual Report on Form 10-K for the year ended February 28,29, 2016, in conjunction with and based on the proceeds resulting from the March 2015 in order to secure complete control and ownership over the rights in certain character properties, including thesale of Strawberry Shortcake, property, thatin the quarter ended May 29, 2015, the Corporation paid an additional $2.8 million for character property rights associated with Strawberry Shortcake, that were previously granted topurchased from 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

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.during 2015. This payment is included in “Cash paid for acquired character property rights” within “Investing Activities” on the Consolidated Statement of Cash Flows.Flows for the quarter ended May 29, 2015.

Sale of AGI In-Store

On AugustAs reported in its Annual Report on Form 10-K for the year ended February 29, 2014,2016, in March 2015, the Corporation completedfinalized the working capital adjustments related to the 2015 sale of its wholly-owned display fixtures business, AGI In-Store, for $73.7 millionwhich resulted in cash, subject to closing date working capital adjustments. A gain of $38.8 million was recognized from the sale in the prior year second fiscal quarter and was included in “Other operating income – net” on the Consolidated Statement of Income. In March 2015, the working capital adjustments were finalized and a payment of $3.2 million was made to the buyer. This payment and the prior year cash proceeds from the sale areis included in “(Adjustment“Adjustment to proceeds)/proceeds from sale of AGI In-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.

Sale of World Headquarters

On July 1, 2014, the Corporation sold its current world headquarters location and entered into an operating lease arrangement with the new owner of the building. The Corporation expects to remain in this current location until the completion of the new world headquarters, which the Corporation anticipates will occur in calendar year 2016. Net of transaction costs, the Corporation received $13.5 million in cash from the sale, and recorded a non-cash loss on disposal of $15.5 million in the prior year second fiscal quarter, which loss is included in “Other operating income – net” on the Consolidated Statement of Income. The cash proceeds are included in “Proceeds from sale of fixed assets” on the Consolidated Statement of Cash Flows.

Surrender of Certain Corporate-Owned Life Insurance Policies

As reported in its Annual Report on Form 10-K for the year ended February 28, 2015, the Corporation,29, 2016, in order to mitigate the ongoing risks to the Corporation that may arise from retaining certain corporate-owned life insurance policies, surrendered those policies during the prior year fourth quarter. In March 2015, in connection with the 2015 surrender of thosecertain corporate-owned life insurance 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 Consolidated Statement of Cash Flows.

Note 5 – Royalty Revenue and Related Expenses

The Corporation has agreements for licensing certain characters and other intellectual property. These license agreements provide for royalty revenue to the Corporation, which is recorded in “Other revenue” on the Consolidated Statement of Income. These license agreements may include the receipt of upfront advances, which are recorded as deferred revenue and earned during the period of 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:

As disclosed in Note 4, the Corporation completed the sale of 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.

Note 6 – Other Income and Expense

Other Operating Income – Net

During the sixthree 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 and an adjustment to the gain in the second quarter of approximately $0.1 million. See Note 4 for further information.

During the quarter ended August 28, 2015,May 27, 2016, the Corporation recognized income of $6.5$1.1 million fromrelated to non-income based tax credits received from the State of Ohio underfor certain incentive programs made available to the Corporation in connection with its decision to maintainthe relocation of its world headquarters in the state ofwithin Ohio.

During the quarter ended August 29, 2014,In March 2015, the Corporation recognized a gain onof $61.7 million in connection with the sale of AGI In-Store of $38.8 million.Strawberry Shortcake. See Note 4 for further information.

“Loss on asset disposal” during the three and six month periods ended August 29, 2014 included a non-cash loss of $15.5 million related to the sale of the Corporation’s current world headquarters location. See Note 4 for further information.

During 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.

Other Non-Operating IncomeExpense (Income) – Net

Note 7 – Accumulated Other Comprehensive (Loss) Income (Loss)

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

The reclassifications out of accumulated other comprehensive (loss) income (loss) are as follows:

As 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 current year first quarter, 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”Classification 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 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.Income:

Note 8 – Customer Allowances and Discounts

Trade accounts receivable isare reported net of certain allowances and discounts. The most significant of these 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 $13.9$10.3 million, $17.0$16.0 million and $12.5$14.6 million as of August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, respectively.

Note 9 – Inventories

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

Inventory held on location for retailers with scan-based trading arrangements, which is included in finished products, totaled $64.2$68.4 million, $63.3$63.5 million and $68.0$67.9 million as of August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, respectively.

Note 10 – Deferred Costs

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

The Corporation maintains ana general allowance for deferred costs related to supply agreements of $3.5$3.3 million, $2.3$3.6 million and $3.1$2.2 million at August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, respectively. This allowance is included in “Other assets” on the Consolidated Statement of Financial Position.

Note 11 – Other Liabilities

Included in “Other liabilities” on the Consolidated Statement of Financial Position is a deferred lease obligation related to an operating leasea build to suit leasing arrangement 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.

H L & L is an indirect affiliate of the Corporation as it is indirectly owned by members of the Weiss Family (as defined in Note 17). Due to, among other things, the Corporation’s involvement in the construction of the building, the Corporation is required to be treated, for accounting purposes only, as the “deemed owner” of the new world headquarters building during the construction period. Accordingly, the Corporation has recorded an asset 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 corresponding construction debt. The asset and corresponding liability was $57.4$105.7 million, $31.7$94.7 million and $14.8$39.3 million as of August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, respectively. See Note 17 for further information.

Note 12 – Debt

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.

Long-term debt and their related calendar year due dates as of August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, respectively, were as follows:

At August 28, 2015,May 27, 2016, the balances outstanding on the term loan facility and revolving credit facility each bear interest at a rate of approximately 2.7% and 2.7%, respectively.2.95%. 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,May 27, 2016, February 29, 2016 and May 29, 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$25.9 million at August 28, 2015.May 27, 2016.

In March 2015 the Corporation 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 sixthree months ended August 28,May 29, 2015, the Corporation expensed an additional $1.8 million of unamortized financing fees as a result of the prepayment.

The total fair value of the Corporation’s publicly traded debt, which was considered a Level 1 valuation as it was based on quoted market prices, was $234.1$230.2 million (at a carrying value of $225.2 million), $238.2$229.6 million (at a carrying value of $225.2 million) and $240.3$238.6 million (at a carrying value of $225.2 million) at August 28,May 27, 2016, February 29, 2016 and May 29, 2015, respectively.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt, similar to the presentation of debt discounts. The Corporation adopted ASU 2015-03 effective March 1, 2016, on a retrospective basis, and accordingly, debt issuance costs of $3.3 million and $3.8 million were reclassified from “Other assets” to “Long-term debt” on the Consolidated Balance Sheets at February 28,29, 2016 and May 29, 2015, and August 29, 2014, respectively.

The total fair value of the Corporation’s non-publicly traded debt, which was considered a Level 2 valuation as it was based on comparable privately traded debt prices, was $240.5$189.1 million (at a principal carrying value of $241.0$189.1 million), $251.8$185.0 million (at a principal carrying value of $254.3$185.0 million), and $330.0$242.5 million (at a principal carrying value of $330.0$243.0 million) at August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, respectively.

At August 28, 2015,May 27, 2016, the Corporation was in compliance with the financial covenants under its borrowing agreements.

Note 13 – Retirement Benefits

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

TheAs reported in its Annual Report on Form 10-K for the year ended February 29, 2016, prior to January 1, 2016, the Corporation hassponsored a discretionary profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. The profit-sharing plan expense forUnder this arrangement, the six months ended August 28, 2015 was $3.4 million, compared to $5.5 million in the prior year period. The Corporation also matches a portion of 401(k) employee contributions. The expenses recognized for the three and six month periods ended August 28, 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 planmade separate discretionary profit sharing and 401(k) matching expensescontributions annually, after fiscal year-end, depending on its financial results.

Effective January 1, 2016, the existing profit sharing and 401(k) retirement savings plan was replaced with a safe harbor 401(k) arrangement. Pursuant to the new arrangement, the matching contributions became non-discretionary, were increased, and are now made throughout the year, rather than on an annual basis. The increased matching contributions effectively replace the Corporation’s discretionary profit sharing contributions, which were discontinued for fiscal years ending after February 29, 2016. The 401(k) matching contributions for the six month periods are estimatesthree-month period ended May 27, 2016 were $5.1 million as actualcompared to the combined expense attributable to the profit sharing and 401(k) matching contributions are determined after fiscal year-end.for the three-month period ended May 29, 2015 of $2.9 million.

At August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, the liability for postretirement benefits other than pensions was $19.2$18.5 million, $17.5$17.8 million and $19.7$18.5 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position. At August 28,May 27, 2016, February 29, 2016 and May 29, 2015, February 28, 2015 and August 29, 2014, the long-term liability for pension benefits was $78.6$79.0 million, $81.9$80.2 million and $74.5$80.3 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position.

Note 14 – Fair Value Measurements

Assets and liabilities measured at fair value are classified using the fair value hierarchy based upon the transparency of inputs as of the measurement date. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. The three levels are defined as follows:

The following table summarizes the financial assets and liabilities measured at fair value as of August 28, 2015:May 27, 2016:

The following table summarizes the assets and liabilities measured at fair value as of February 28, 2015:29, 2016:

The following table summarizes the assets and liabilities measured at fair value as of AugustMay 29, 2014:2015:

The deferred compensation plan 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 investment in equity securities is considered a Level 1 valuation as it is based on a quoted price in an active market.

Note 15 -– Contingency

The Corporation is presently involved in various judicial, administrative, regulatory and arbitrationregulatory proceedings concerning matters arising in the ordinary course of business, including but not limited to, employment and commercial disputes and other contractual matters.disputes. 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. This accrual is included in “Accrued liabilities” on the Consolidated Statement of Financial Position. 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.

Al Smith et al. v. American Greetings Corporation.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. 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. On August 24, 2015, the claims administrator commenced mailing of notice and claim forms to class members and the claims closed October 24, 2015. On October 14, 2015, plaintiffs filed a motion for final approval of the class settlement, together with their motion for approval of incentive payments to the Named Plaintiffs and attorneys’ fees. The Court held a final approval hearing on December 17, 2015. On May 19, 2016, the Court entered an Order Granting Motion for Final Approval of Class Action Settlement; Granting in Part Motion for Attorneys’ Fees, Costs, and Class Representatives’ Service Payments.

The proposedCourt-approved 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,American Greetings paid the settlement funds to 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. 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 agreementon June 21, 2016, and the Court’s orders.claims administrator will disburse the funds.

Michael Ackerman v. American Greetings Corporation, et al.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 claimsclaimed 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 seekssought 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 seekssought damages in the statutory amount of $500five-hundred dollars for each and every violation of the TCPA and $1,500one-thousand five-hundred dollars for each and every willful violation of the TCPA. TheAfter extensive negotiations, on June 7, 2016, the parties entered into a confidential release and settlement agreement which contemplated a one-time payment of an immaterial amount to plaintiff through his legal counsel and, on June 23, 2016, with all amounts due thereunder from the Corporation believeshaving been paid, the plaintiff’s allegations in this lawsuit are without merit and intends to defend the action vigorously.

With respect to theAckerman 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 asparties stipulated to the outcomedismissal of pending and 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.lawsuit with prejudice.

Note 16 – Income Taxes

The Corporation’s provision for 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 quarterly effective tax rate is dependent on the level of income in the period. The effective tax rate was 21.0%32.6% and 31.7%34.6% for the three and six months ended August 28,May 27, 2016 and May 29, 2015, respectively, and 33.8% and 26.0% for the three and six months ended August 29, 2014, respectively. The lower than U.S. statutory rate for the three months ended May 27, 2016 and six month periodsMay 29, 2015 are primarily related to the releasedomestic production activities deduction, tax treatment of a $4.3 million unrecognized tax benefit due to the issuance of regulations that clarified the lawcorporate-owned life insurance 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 thepartially offset by state income tax treatmentrates on U.S. income, net of corporate-owned life insurance. The lower than statutory ratefederal benefit.

As reported in the prior period was 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 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 first quarter of fiscal 2015,year, the Corporation identified and corrected errors in the accounting for income taxes that relatedbegan recording adjustments 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 tax position. 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, the Corporation recorded an adjustment to mark to marketmark-to-market the value of one of its investments as of August 28,May 29, 2015. As a result, a decrease in the Corporation’s deferred tax assets in the amount of $22.0$4.9 million and $28.5 million was recognized in other comprehensive income for the sixthree months ended August 28,May 27, 2016 and May 29, 2015.

At August 28,In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The Corporation early adopted ASU 2015-17 during the fourth quarter of 2016 on a prospective basis. Adoption of ASU 2015-17 resulted in a reclassification of the Corporation’s net current deferred tax asset to the net non-current deferred tax asset in the Corporation’s Consolidated Balance Sheet as of February 29, 2016. No prior periods were retrospectively adjusted.

As of May 27, 2016, the Corporation had unrecognized tax benefits of $16.9$17.1 million that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $15.3$15.4 million. It is reasonably possible that the Corporation’s unrecognized tax positions as of May 27, 2016 could decrease $1.4 million during the next twelve months due to anticipated settlements and resulting cash payments related to tax years which are open to examination.

The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the sixthree months ended August 28, 2015,May 27, 2016, the Corporation recognized a de minimis net benefit of $1.2 millionexpense for interest and penalties on unrecognized tax benefits and refundable income taxes. As of August 28, 2015,May 27, 2016, 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$1.7 million.

TheWith few exceptions, the Corporation is subject to examination byin the Internal Revenue Service for tax years 2010 to the presentU.S. and various U.S. state and local jurisdictions for tax years 20012010 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 20062011 to the present.

Note 17 – Related Party Information

World headquarters relocation

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

“Crocker “Crocker Park Site”) on which 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)$0.5 million). Morry Weiss, the Chairman of the boardBoard 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 members of their family (collectively, 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 members of the Weiss Family have guaranteed certain of Crocker Park, LLC’s obligations, and are expected to guarantee additionalincluding obligations of Crocker Park, LLC, incurred in connection with the Crocker Park Development. The authority to conduct, manage and control 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,the Corporation, was reserved to the manager of Crocker Park, LLC. The manager of Crocker Park, LLC who is not an affiliate of the Weiss Family, and whobut is an affiliate of Stark Enterprises, Inc.

The Corporation is leasing a portion of the Crocker Park Site to H L & L, which is constructing the new world headquarters building on the Crocker Park Site and, when complete, will subleaselease the new world headquarters building back to the Corporation. In addition, to accommodate additional office needs, H L & L is constructing an additional approximately 60,000 square foot building (“Tech West”) adjacent to the world headquarters building and a surface parking lot (“Surface Lot”) on land that it is leasing from the Corporation. The Corporation has also 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 11 for further information.

Although 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$9.0 million. No loans to HL&LThere were no amounts outstanding under this loan agreement as of May 27, 2016 and February 29, 2016, and $2.5 million outstanding as of August 28, 2015 and February 28,May 29, 2015.

Transactions with Parent Companies and Other Affiliated Companies

From time to time employees of the Corporation may provide services to its parent companies as well as companies that are owned or controlled by members of the Weiss Family, in each case provided that such services do not interfere with the Corporation’s employees’ ability to perform services on its behalf. When providing such services, the affiliated companies reimburse the Corporation for such services, based on the costs of employing the individual (including salary and benefits) and the amount of time spent by such employee in providing services to the affiliated company.

The Corporation, its parentParent 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, amountsthere was $0.3 million due from affiliates at May 27, 2016 and February 29, 2016 and $1.9 million due to affiliates totaled $1.9 million as of February 28,at May 29, 2015. No amounts were due to or due from affiliates under this arrangement as of August 28, 2015.

Note 18 – Business Segment Information

The Corporation hasoperates in five business segments: North American Social Expression Products, International Social Expression Products, Retail Operations, AG Interactive and Non-reportable segments.Non-reportable. 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,May 27, 2016, the Retail Operations segment operated 405395 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, theThe Corporation’s Non-reportable operating 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.

(In thousands)		Three Months Ended
Total Revenue:		May 27, 2016				May 29, 2015
North American Social Expression Products		$	322,460			$	335,604
International Social Expression Products			50,586				62,168
Intersegment items			(13,581	)			(10,313	)
Net			37,005				51,855
Retail Operations			65,412				71,808
AG Interactive			12,931				13,430
Non-reportable segment			1,500				746
		$	439,308			$	473,443