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,~~7, 2016, 100 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.


	(Unaudited)												(Unaudited)
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014			August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
Net sales	$	418,611		$	427,090		$	890,503		$	924,364		$	374,748		$	418,611		$	811,935		$	890,503
Other revenue		2,417			5,335			3,968			11,645			2,265			2,417			4,386			3,968

Total revenue		421,028			432,425			894,471			936,009			377,013			421,028			816,321			894,471
Material, labor and other production costs		177,985			180,109			373,459			380,895			159,214			177,985			338,114			373,459
Selling, distribution and marketing expenses		153,641			165,834			317,400			338,093			142,061			153,641			295,589			317,400
Administrative and general expenses		59,365			66,850			117,586			136,145			55,797			59,365			119,815			117,586
Other operating income – net		(7,309	)		(23,828	)		(69,729	)		(25,796	)		(1,741	)		(7,309	)		(3,631	)		(69,729	)

Operating income		37,346			43,460			155,755			106,672			21,682			37,346			66,434			155,755
Interest expense		6,486			9,255			14,599			18,249			5,940			6,486			11,537			14,599
Interest income		(84	)		(30	)		(183	)		(141	)		(230	)		(84	)		(335	)		(183	)
Other non-operating income – net		(54	)		(272	)		(992	)		(1,379	)
Other non-operating expense (income) – net														698			(54	)		710			(992	)

Income before income tax expense		30,998			34,507			142,331			89,943			15,274			30,998			54,522			142,331
Income tax expense		6,518			11,667			45,087			23,364			4,970			6,518			17,748			45,087

Net income	$	24,480		$	22,840		$	97,244		$	66,579		$	10,304		$	24,480		$	36,774		$	97,244


	(Unaudited)												(Unaudited)
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014			August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
Net income	$	24,480		$	22,840		$	97,244		$	66,579		$	10,304		$	24,480		$	36,774		$	97,244
Other comprehensive income (loss), net of tax:
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(2,351	)		(2,121	)		(4,379	)		(255	)		(12,152	)		(2,351	)		(5,342	)		(4,379	)
Pension and postretirement benefit adjustments		505			137			721			114			227			505			230			721
Unrealized (loss) gain on equity securities		(10,133	)		—			34,477			—
Unrealized gain (loss) on equity securities														8,252			(10,133	)		16,110			34,477

Other comprehensive (loss) income, net of tax		(11,979	)		(1,984	)		30,819			(141	)		(3,673	)		(11,979	)		10,998			30,819

Comprehensive income	$	12,501		$	20,856		$	128,063		$	66,438		$	6,631		$	12,501		$	47,772		$	128,063


	(Unaudited)		(Note 1)			(Unaudited)		(Unaudited)			(Note 1)			(Unaudited)
	August 28, 2015		February 28, 2015			August 29, 2014		August 26, 2016			February 29, 2016			August 28, 2015
ASSETS
Current assets
Cash and cash equivalents	$	33,501	$	43,327		$	45,107	$	25,236		$	100,893		$	33,501
Trade accounts receivable, net		104,690		102,339			93,460		77,875			94,392			104,690
Inventories		297,338		248,577			312,300		288,644			227,456			297,338
Deferred and refundable income taxes		45,082		45,976			45,170		4,782			8,056			45,082
Assets held for sale		—		35,529			—
Prepaid expenses and other		131,635		157,669			141,800		132,907			129,071			131,635

Total current assets		612,246		633,417			637,837		529,444			559,868			612,246
Other assets		539,033		431,838			517,783		509,564			473,100			535,436
Deferred and refundable income taxes		60,897		90,143			82,526		90,268			99,512			60,897
Property, plant and equipment – at cost		878,035		828,028			798,634		999,723			945,059			878,035
Less accumulated depreciation		467,304		447,731			437,435		489,355			477,349			467,304

Property, plant and equipment – net		410,731		380,297			361,199		510,368			467,710			410,731

	$	1,622,907	$	1,535,695		$	1,599,345	$	1,639,644		$	1,600,190		$	1,619,310

LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Debt due within one year	$	—	$	—		$	20,000
Accounts payable		116,450		133,135			124,282	$	115,262		$	109,014		$	116,450
Accrued liabilities		69,196		75,992			58,947		51,675			79,873			69,196
Accrued compensation and benefits		63,301		95,193			52,761		40,024			101,014			63,301
Income taxes payable		14,398		22,512			16,063		28,684			11,151			14,398
Liabilities held for sale		—		1,712			—
Deferred revenue		23,044		27,200			25,649		22,235			26,271			23,044
Other current liabilities		67,850		63,199			83,910		77,908			50,617			67,850

Total current liabilities		354,239		418,943			381,612		335,788			377,940			354,239
Long-term debt		461,752		472,729			525,590		418,962			403,058			458,155
Other liabilities		359,427		303,231			309,652		411,093			379,769			359,427
Deferred income taxes and noncurrent income taxes payable		10,824		11,466			12,760		10,628			10,129			10,824
Shareholder’s equity
Common shares – par value $.01 per share: 100 shares issued and outstanding		—		—			—		—			—			—
Capital in excess of par value		240,000		240,000			240,000		240,000			240,000			240,000
Accumulated other comprehensive income (loss)		6,416		(24,403	)		611
Accumulated other comprehensive (loss) income									(8,660	)		(19,658	)		6,416
Retained earnings		190,249		113,729			129,120		231,833			208,952			190,249

Total shareholder’s equity		436,665		329,326			369,731		463,173			429,294			436,665

	$	1,622,907	$	1,535,695		$	1,599,345	$	1,639,644		$	1,600,190		$	1,619,310


							(Unaudited)
	(Unaudited) Six Months Ended						Six Months Ended
	August 28, 2015			August 29, 2014			August 26, 2016			August 28, 2015
OPERATING ACTIVITIES:
Net income	$	97,244		$	66,579		$	36,774		$	97,244
Adjustments to reconcile net income to cash flows from operating activities:
Gain on sale of Strawberry Shortcake		(61,625	)		—			—			(61,625	)
Net gain on sale of AGI In-Store		—			(38,803	)
Net loss on disposal of fixed assets		66			15,733			28			66
Depreciation and intangible assets amortization		28,114			30,499			25,305			28,114
Clinton Cards secured debt recovery		—			(3,390	)
Provision for doubtful accounts		367			351			231			367
Deferred income taxes		8,076			(9,795	)		4,469			8,076
Other non-cash charges		3,614			2,125			2,057			3,614
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Trade accounts receivable		(3,431	)		119			17,918			(3,431	)
Inventories		(49,866	)		(76,582	)		(65,528	)		(49,866	)
Other current assets		(7,193	)		(2,354	)		(3,416	)		(7,193	)
Net payable/receivable with related parties		(1,698	)		(438	)		(754	)		(1,698	)
Income taxes		(7,554	)		2,322			15,625			(7,554	)
Deferred costs – net		19,377			22,005			17,470			19,377
Accounts payable and other liabilities		(91,698	)		(39,363	)		(83,462	)		(91,698	)
Other – net		680			2,715			1,277			680

Total Cash Flows From Operating Activities		(65,527	)		(28,277	)		(32,006	)		(65,527	)
INVESTING ACTIVITIES:
Property, plant and equipment additions		(31,735	)		(50,242	)		(46,005	)		(31,735	)
Proceeds from sale of fixed assets								813			55
Cash paid for acquired character property rights		(2,800	)		—			—			(2,800	)
Proceeds from sale of fixed assets		55			23,741
(Adjustment to proceeds)/proceeds from sale of AGI In-Store		(3,200	)		73,659
Adjustment to proceeds from sale of AGI In-Store								—			(3,200	)
Proceeds from sale of Strawberry Shortcake		105,000			—			—			105,000
Proceeds from surrender of corporate-owned life insurance policies		24,068			—			—			24,068
Proceeds from Clinton Cards administration		—			604

Total Cash Flows From Investing Activities		91,388			47,762			(45,192	)		91,388
FINANCING ACTIVITIES:
Proceeds from revolving line of credit		191,200			261,000			73,275			191,200
Repayments on revolving line of credit		(139,500	)		(265,500	)		(58,275	)		(139,500	)
Dividends to shareholder								(13,894	)		(20,724	)
Repayments on term loan		(65,000	)		(10,000	)		—			(65,000	)
Dividends to shareholder		(20,724	)		(24,154	)

Total Cash Flows From Financing Activities		(34,024	)		(38,654	)		1,106			(34,024	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(1,663	)		313			435			(1,663	)

DECREASE IN CASH AND CASH EQUIVALENTS		(9,826	)		(18,856	)		(75,657	)		(9,826	)
Cash and Cash Equivalents at Beginning of Year		43,327			63,963			100,893			43,327

Cash and Cash Equivalents at End of Period	$	33,501		$	45,107		$	25,236		$	33,501

Three and Six Months Ended August ~~28, 2015~~26, 2016 and August ~~29, 2014~~28, 2015

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~~2016 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”), “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, 2015~~26, 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, 2015~~26, 2016 includes:

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.

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.

In ~~July 2015,~~August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. ~~2015-11 (“~~2016-15, “Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments.” The objective of ASU ~~2015-11”), “Simplifying~~2016-15 is to eliminate the ~~Measurement~~diversity in practice related to the classification of ~~Inventory”.~~certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. For public business entities, ASU ~~2015-11 requires an entity to measure inventory that~~2016-15 is ~~within the scope of this ASU at the lower of cost~~effective 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, ~~2016 and interim~~2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods ~~within those fiscal years for public business entities. Early adoption~~presented, unless deemed impracticable, in which case, prospective application 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~~is currently evaluating the new guidance and has not ~~expect that~~determined the ~~adoption of~~impact this standards update may have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate 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 effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. 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 February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 will require lessees to recognize aright-of-use asset and a ~~material~~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. 2016-01, “Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 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 equity method or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017. 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 April 2015, the FASB issued ASU No. 2015-03 (“ASU 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. ASU 2015-03 is effective for public business entities for fiscal years beginning after December 15, 2015 and interim periods within those fiscal 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 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 does not expect that the adoption of this standards update will impact 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 2014-09~~the 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 applying~~More 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) recognize~~uncertainty of revenue ~~when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all~~and 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 to~~will be effective for annual and interim reporting periods ~~(including interim periods within those periods)~~ beginning after December 15, 2017. ~~Early~~Earlier adoption is permitted ~~but not before~~for annual and interim reporting periods beginning after December 15, 2016. ~~Entities have~~The new guidance permits the ~~option~~use 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 standard~~it may have on its consolidated financial statements, nor ~~decided upon~~ the preferred method of adoption.

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 agreement to sell~~completed 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 sale were classified as held for sale. In March 2015, the sale was completed and the Corporation~~ received cash proceeds of $105.0 million, ~~in cash~~ which ~~is included~~are reflected in “Proceeds from sale of Strawberry Shortcake” within “Investing Activities” on the Consolidated Statement of Cash ~~Flows. During~~Flows for the six months ended August 28, ~~2015, the~~2015. The Corporation also recognized a net gain of $61.6 million from the sale, which is included in “Other operating income – net” on the Consolidated Statement of ~~Strawberry Shortcake.~~Income for the six months ended August 28, 2015.

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 the~~sale of Strawberry Shortcake, ~~property, that~~ the Corporation paid an additional $2.8 million for character property rights associated with Strawberry Shortcake, that were previously ~~granted to~~purchased 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 six months ended August 28, 2015.

~~On August~~As reported in its Annual Report on Form 10-K for the year ended February 29, ~~2014,~~2016, in March 2015, the Corporation ~~completed~~finalized the working capital adjustments related to the 2015 sale of its wholly-owned display fixtures business, AGI In-Store, ~~for $73.7 million~~which 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 are~~is 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~~Flows for 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.six months ended August 28, 2015.

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.

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 ~~those~~certain corporate-owned life insurance policies, the Corporation received proceeds of $24.1 ~~million. These proceeds~~million that are included in “Proceeds from surrender of corporate-owned life insurance policies” within “Investing Activities” on the Consolidated Statement of Cash ~~Flows.~~Flows for the six months ended August 28, 2015.

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.


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014			August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
State tax credits													$	(1,050	)	$	(6,541	)	$	(2,100	)	$	(6,541	)
Gain adjustment (gain) on sale of Strawberry Shortcake	$	41		$	—		$	(61,625	)	$	—			—			41			—			(61,625	)
Gain on sale of AGI In-Store		—			(38,803	)		—			(38,803	)
Clinton Cards secured debt recovery		—			—			—			(3,390	)
State tax credits		(6,541	)		—			(6,541	)		—
Loss on asset disposal		57			15,710			66			15,733			31			57			28			66
Miscellaneous		(866	)		(735	)		(1,629	)		664			(722	)		(866	)		(1,559	)		(1,629	)

Other operating income – net	$	(7,309	)	$	(23,828	)	$	(69,729	)	$	(25,796	)	$	(1,741	)	$	(7,309	)	$	(3,631	)	$	(69,729	)

During the three and six months ended August 26, 2016, the Corporation recognized income of $1.1 million and $2.1 million, respectively, 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. Tax credits of $6.5 million were recognized in the quarter ended August 28, 2015.

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 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, the Corporation recognized income of $6.5 million 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.

~~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.~~

“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.


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014			August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
Foreign exchange loss (gain)	$	111		$	(63	)	$	(673	)	$	(523	)	$	842		$	111		$	1,002		$	(673	)
Rental income		(129	)		(216	)		(281	)		(755	)		(142	)		(129	)		(290	)		(281	)
Miscellaneous		(36	)		7			(38	)		(101	)		(2	)		(36	)		(2	)		(38	)

Other non-operating income – net	$	(54	)	$	(272	)	$	(992	)	$	(1,379	)
Other non-operating expense (income) – net													$	698		$	(54	)	$	710		$	(992	)

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


(In thousands)	Foreign Currency Translation Adjustments			Pensions and Other Postretirement Benefits			Unrealized Investment Gain		Total			Foreign Currency Translation Adjustments			Pensions and Postretirement Benefits			Unrealized Investment Gain		Total
Balance at February 28, 2015	$	1,836		$	(26,239	)	$	—	$	(24,403	)
Balance at February 29, 2016												$	(13,535	)	$	(26,628	)	$	20,505	$	(19,658	)
Other comprehensive income (loss) before reclassifications		(4,379	)		245			34,477		30,343			(5,660	)		(222	)		16,110		10,228
Amounts reclassified from accumulated other comprehensive income (loss)		—			476			—		476			318			452			—		770

Net current period other comprehensive income (loss)		(4,379	)		721			34,477		30,819
Other comprehensive income (loss), net of tax													(5,342	)		230			16,110		10,998

Balance at August 28, 2015	$	(2,543	)	$	(25,518	)	$	34,477	$	6,416
Balance at August 26, 2016												$	(18,877	)	$	(26,398	)	$	36,615	$	(8,660	)

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


(In thousands)	Six Months Ended August 28, 2015			Consolidated Statement of Income Classification	Six Months Ended August 26, 2016
Pensions and Postretirement Benefits:
Amortization of pensions and other postretirement benefits items
Amortization of pensions and postretirement benefits items
Actuarial losses, net	$	(1,094	)	Administrative and general expenses	$	(1,043	)(1)
Prior service credit, net		348		Administrative and general expenses		347	(1)

		(746	)			(696	)
Tax benefit		270		Income tax expense		244	(2)

Total, net of tax		(476	)			(452	)

Foreign Currency Translation Adjustments:
Loss upon dissolution of business						(318	)(3)

Total reclassifications	$	(476	)		$	(770	)

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:

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


(In thousands)	August 28, 2015		February 28, 2015		August 29, 2014		August 26, 2016		February 29, 2016		August 28, 2015
Allowance for seasonal sales returns	$	16,437	$	18,895	$	18,147	$	17,707	$	21,518	$	16,437
Allowance for outdated products		10,109		11,074		10,863		10,396		8,372		10,109
Allowance for doubtful accounts		1,814		1,730		1,612		1,827		1,628		1,814
Allowance for marketing funds		23,495		26,841		28,836		27,273		26,371		23,495
Allowance for rebates		21,465		34,214		27,425		16,203		24,373		21,465

	$	73,320	$	92,754	$	86,883	$	73,406	$	82,262	$	73,320

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~~$9.7 million, ~~$17.0~~$16.0 million and ~~$12.5~~$13.9 million as of August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, respectively.


(In thousands)	August 28, 2015		February 28, 2015		August 29, 2014		August 26, 2016		February 29, 2016		August 28, 2015
Raw materials	$	19,861	$	14,809	$	15,304	$	15,277	$	13,516	$	19,861
Work in process		12,869		7,578		11,892		10,410		8,116		12,869
Finished products		337,344		297,899		359,219		336,014		277,480		337,344

		370,074		320,286		386,415		361,701		299,112		370,074
Less LIFO reserve		81,659		80,755		83,493		80,860		80,159		81,659

		288,415		239,531		302,922		280,841		218,953		288,415
Display materials and factory supplies		8,923		9,046		9,378		7,803		8,503		8,923

	$	297,338	$	248,577	$	312,300	$	288,644	$	227,456	$	297,338

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~~$65.3 million, ~~$63.3~~$63.5 million and ~~$68.0~~$64.2 million as of August 26, 2016, February 29, 2016 and August 28, 2015, ~~February 28, 2015 and August 29, 2014,~~ respectively.

Deferred 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			August 26, 2016			February 29, 2016			August 28, 2015
Prepaid expenses and other	$	89,305		$	98,061		$	90,496		$	93,622		$	92,639		$	89,305
Other assets		411,909			364,311			403,920			392,139			378,223			411,909

Deferred cost assets		501,214			462,372			494,416			485,761			470,862			501,214
Other current liabilities		(64,117	)		(59,018	)		(82,422	)		(74,458	)		(47,142	)		(64,117	)
Other liabilities		(160,558	)		(104,127	)		(141,102	)		(152,324	)		(145,856	)		(160,558	)

Deferred cost liabilities		(224,675	)		(163,145	)		(223,524	)		(226,782	)		(192,998	)		(224,675	)

Net deferred costs	$	276,539		$	299,227		$	270,892		$	258,979		$	277,864		$	276,539

The Corporation maintains an allowance for deferred costs related to supply agreements of ~~$3.5~~$3.2 million, ~~$2.3~~$3.6 million and ~~$3.1~~$3.5 million at August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, respectively. This allowance is included in “Other assets” on the Consolidated Statement of Financial Position.

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 relocation to the building ~~is currently being constructed and expected to~~will be ~~available for occupancy~~completed in ~~calendar year 2016.~~the third quarter of fiscal 2017.

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 included in “Property, plant and equipment – at cost” and corresponding liability included in “Other liabilities” on the Consolidated Statement of Financial Position, was ~~$57.4~~$117.7 million, ~~$31.7~~$94.7 million and ~~$14.8~~$57.4 million as of August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, respectively. See Note 17 for further information.

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, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, respectively, were as follows:


(In thousands)	August 28, 2015			February 28, 2015			August 29, 2014			August 26, 2016			February 29, 2016			August 28, 2015
Term loan, due 2019	$	185,000		$	250,000		$	330,000		$	185,000		$	185,000		$	185,000
7.375% senior notes, due 2021		225,000			225,000			225,000			225,000			225,000			225,000
Revolving credit facility, due 2018		56,000			4,300			—			15,000			—			56,000
6.10% senior notes, due 2028		181			181			181			181			181			181
Unamortized financing fees		(4,429	)		(6,752	)		(9,591	)		(6,219	)		(7,123	)		(8,026	)

		461,752			472,729			545,590		$	418,962		$	403,058		$	458,155
Current portion of term loan		—			—			(20,000	)

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

At August ~~28, 2015,~~26, 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.~~3.0%. 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,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, 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.~~26, 2016.

On July 27, 2016, the Corporation amended its accounts receivable facility. The amendment modified the accounts receivable facility to, among other things: (i) extend the scheduled termination date to July 27, 2018 and (ii) revise the bases upon which fees are assessed under this facility.

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~~its 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.

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~~$235.5 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~~$234.1 million (at a carrying value of $225.2 million) at August 26, 2016, February 29, 2016 and August 28, 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 $3.6 million were reclassified from “Other assets” to “Long-term debt” on the Consolidated Statements of Financial Position at February 29, 2016 and August 28, 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 $200.0 million (at a principal carrying value of $200.0 million), $185.0 million (at a principal carrying value of $185.0 million), and $240.5 million (at a principal carrying value of $241.0 million)~~, $251.8 million (at a principal carrying value of $254.3 million),~~ at August 26, 2016, February 29, 2016 and ~~$330.0 million (at a principal carrying value of $330.0 million) at~~ August 28, 2015, ~~February 28, 2015 and August 29, 2014,~~ respectively.

At August ~~28, 2015,~~26, 2016, the Corporation was in compliance with the financial covenants under its borrowing agreements.

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


													Defined Benefit Pension Plans
	Defined Benefit Pension Plans												Three Months Ended						Six Months Ended
	Three Months Ended						Six Months Ended						August 26,			August 28,			August 26,			August 28,
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014			2016			2015			2016			2015
Service cost	$	159		$	145		$	318		$	289		$	219		$	159		$	405		$	318
Interest cost		1,550			1,846			3,108			3,683			1,588			1,550			3,181			3,108
Expected return on plan assets		(1,659	)		(1,628	)		(3,327	)		(3,251	)		(1,500	)		(1,659	)		(3,028	)		(3,327	)
Amortization of prior service cost		1			1			2			2			1			1			2			2
Amortization of actuarial loss		846			720			1,694			1,426			904			846			1,777			1,694

	$	897		$	1,084		$	1,795		$	2,149		$	1,212		$	897		$	2,337		$	1,795


													Postretirement Benefits Plan
													Three Months Ended						Six Months Ended
													August 26,			August 28,			August 26,			August 28,
(In thousands)													2016			2015			2016			2015
Service cost													$	86		$	125		$	172		$	250
Interest cost														527			525			1,055			1,050
Expected return on plan assets														(582	)		(675	)		(1,164	)		(1,350	)
Amortization of prior service credit														(174	)		(175	)		(349	)		(350	)
Amortization of actuarial gain														(367	)		(300	)		(734	)		(600	)

													$	(510	)	$	(500	)	$	(1,020	)	$	(1,000	)

~~The~~As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, prior to January 1, 2016, the Corporation ~~has~~sponsored a discretionary profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. Under this arrangement, the Corporation made separate discretionary profit-sharing and 401(k) matching contributions 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 ~~plan expense~~contributions, which were discontinued for fiscal years ending after February 29, 2016. The 401(k) matching contributions for the three and six ~~months~~month periods ended August ~~28, 2015 was~~26, 2016 were $3.4 million and $8.5 million, respectively, as compared to ~~$5.5 million in~~ the ~~prior year period. The Corporation also matches a portion of~~combined expense attributable to the profit-sharing and 401(k) ~~employee contributions. The expenses recognized~~matching contributions for the three and six month periods ended August 28, 2015 ~~were $1.3~~of $3.0 million and ~~$2.6~~$5.9 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.~~

At August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, the liability for postretirement benefits other than pensions was ~~$19.2~~$18.9 million, ~~$17.5~~$17.8 million and ~~$19.7~~$19.2 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position. At August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, the long-term liability for pension benefits was ~~$78.6~~$77.9 million, ~~$81.9~~$80.2 million and ~~$74.5~~$78.6 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position.

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:~~26, 2016:


(In thousands)	August 28, 2015		Level 1		Level 2		Level 3		August 26, 2016		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	11,514	$	10,236	$	1,278	$	—	$	11,914	$	10,683	$	1,231	$	—
Investment in equity securities		56,482		56,482		—		—		59,338		59,338		—		—

	$	67,996	$	66,718	$	1,278	$	—	$	71,252	$	70,021	$	1,231	$	—

Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	12,425	$	10,236	$	2,189	$	—	$	12,935	$	10,683	$	2,252	$	—

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


(In thousands)	February 28, 2015		Level 1		Level 2		Level 3		February 29, 2016		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,745	$	10,997	$	1,748	$	—	$	11,158	$	9,936	$	1,222	$	—
Investment in equity securities										33,230		33,230		—		—

									$	44,388	$	43,166	$	1,222	$	—

Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	13,412	$	10,997	$	2,415	$	—	$	12,064	$	9,936	$	2,128	$	—

The following table summarizes the assets and liabilities measured at fair value as of August ~~29, 2014:~~28, 2015:


(In thousands)	August 29, 2014		Level 1		Level 2		Level 3		August 28, 2015		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,516	$	10,599	$	1,917	$	—	$	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	$	13,429	$	10,599	$	2,830	$	—	$	12,425	$	10,236	$	2,189	$	—

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 onupon a quoted price in an active market.

The Corporation is presently involved in various judicial, administrative, ~~regulatory~~ and ~~arbitration~~regulatory 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~~proceedings seek an indeterminate amount of damages.

~~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. 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.

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. 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. The Corporation believes the plaintiff’s allegations in this lawsuit are without merit and intends to defend the action vigorously.

~~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 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.

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 32.5% and 32.6% for the three and six months ended August 26, 2016, respectively, and 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 U.S. statutory rate for the three and six month periods ~~are~~ended August 26, 2016 is primarily 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 in the prior 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 corporate-owned life insurance. ~~The lower than statutory rate~~

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, the Corporation identified and corrected errors in the accountingits Annual Report on Form 10-K 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~~29, 2016, a ~~valuation allowance against certain deferred tax assets and the recognition of~~previously nonmarketable investment established a ~~liability for an uncertain tax position. These errors were~~readily determinable fair value as the result of the ~~significant complexity created as a result of the going private transaction in fiscal 2014.~~

~~As discussed in Note 7,~~investment’s successfully completed initial public offering. Therefore, the Corporation ~~recorded an adjustment~~began recording adjustments to ~~mark to market~~mark-to-market the value of ~~one of its investments as of August 28, 2015. As a result,~~this investment. Consequently, a decrease in the Corporation’s deferred tax assets in the amount of $10.0 million and $22.0 million was recognized in other comprehensive income for the six ~~months~~month periods ended August ~~28, 2015.~~

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 Statement of Financial Position as of February 29, 2016. No prior periods were retrospectively adjusted.

As of August 26, 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 August 26, 2016 could decrease $1.4 million during the next twelve months due to the expiration of the statute of limitations.

The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the six months ended August ~~28, 2015,~~26, 2016, the Corporation recognized a net ~~benefit~~expense of ~~$1.2~~$0.2 million for interest and penalties on unrecognized tax benefits and refundable income taxes. As of August ~~28, 2015,~~26, 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~~$1.8 million.

~~The~~With few exceptions, the Corporation is subject to examination byin the ~~Internal Revenue Service for tax years 2010 to the present~~U.S. and various ~~U.S.~~ state and local jurisdictions for tax years ~~2001~~2010 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~~2011 to the present.

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 ~~board~~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 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 additional~~including 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 who~~but 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,~~beginning in the third quarter of fiscal 2017 will ~~sublease~~lease 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” and, together with the world headquarters building, the “Creative Studios Buildings”) 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 an operating ~~leases~~lease to lease ~~these buildings~~the Tech West building and Surface Lot from H L & L, ~~which are anticipated to be available for occupancy~~also beginning in ~~calendar year 2016.~~the third quarter of fiscal 2017. The initial lease terms are fifteen years and ~~will begin upon occupancy. The total~~the 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~~was 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 behave been higher than expected and the Corporation may have had 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&L~~There were no amounts outstanding under this loan agreement as of August ~~28, 2015~~26, 2016, February 29, 2016 and ~~February~~August 28, 2015.

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 paid cash dividends in the aggregate amount of $13.9 million to Century Intermediate Holding Company (“Parent”), its parent and sole shareholder during the six months ended August 26, 2016, for the sole purpose of paying interest on the $285.0 million aggregate principal amount 9.750%/10.500% Senior PIK Toggle Notes due 2019, (the “PIK” notes) which were issued by Century Intermediate Holding Company 2, an indirect parent of the Corporation.

The Corporation, 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~~there was $0.3 million due tofrom affiliates ~~totaled $1.9 million as of~~at August 26, 2016 and February ~~28, 2015. No~~29, 2016 and no amounts ~~were~~ due to or due from affiliates ~~under this arrangement~~ as of August 28, 2015.

The Corporation ~~has~~operates 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,~~26, 2016, the Retail Operations segment operated ~~405~~393 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~~The 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.


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(In thousands)	August 28, 2015			August 29, 2014			August 28, 2015			August 29, 2014			August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
Segment Earnings (Loss) Before Tax:
Total Revenue:
North American Social Expression Products	$	46,209		$	27,830		$	119,336		$	97,194		$	270,769		$	285,556		$	593,229		$	621,160
International Social Expression Products		(49	)		(6	)		(5,059	)		3,756			48,296			65,858			98,882			128,026
Intersegment items		879			570			1,630			(1,740	)		(11,753	)		(11,286	)		(25,334	)		(21,599	)

Net		830			564			(3,429	)		2,016			36,543			54,572			73,548			106,427
Retail Operations		(12,615	)		(14,563	)		(20,758	)		(18,603	)		55,149			65,503			120,561			137,311
AG Interactive		5,276			5,964			10,147			11,376			13,112			13,736			26,043			27,166
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
Non-reportable														1,440			1,661			2,940			2,407

		(7,768	)		16,018			(22,378	)		(4,749	)	$	377,013		$	421,028		$	816,321		$	894,471

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


	Three Months Ended						Six Months Ended
(In thousands)	August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
Segment Earnings (Loss) Before Tax:
North American Social Expression Products	$	37,627		$	46,209		$	97,772		$	119,336
International Social Expression Products		(1,394	)		(49	)		(2,505	)		(5,059	)
Intersegment items		148			879			(526	)		1,630

Net		(1,246	)		830			(3,031	)		(3,429	)
Retail Operations		(10,693	)		(12,615	)		(18,155	)		(20,758	)
AG Interactive		3,926			5,276			8,134			10,147
Non-reportable		(438	)		(934	)		(374	)		59,413
Unallocated
Interest expense		(5,940	)		(6,486	)		(11,537	)		(14,599	)
401(k) match and profit-sharing expense		(3,425	)		(3,020	)		(8,486	)		(5,931	)
Corporate overhead expense		(4,537	)		1,738			(9,801	)		(1,848	)

		(13,902	)		(7,768	)		(29,824	)		(22,378	)

	$	15,274		$	30,998		$	54,522		$	142,331

“Corporate overhead expense” includes costs associated with corporate operations including, among other costs, senior management, corporate finance, legal, and insurance programs. For the three and six month periods ended August 26, 2016, this includes income recognized from state tax credits of $1.1 million and $2.1 million, respectively, as compared to $6.5 million for both the three and six month periods ended August 28, 2015. See Note 6 for further information.

For the six months ended August 28, 2015, Non-reportable segment earnings ~~includes~~included 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 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~~$2.6 million, ~~$4.3~~$3.5 million and ~~$3.5~~$2.1 million at August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, 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.

Total revenue for the current year second quarter was ~~$421.0~~$377.0 million, a decrease of ~~$11.4~~$44.0 million, or ~~2.6%~~10.5%, compared to the prior year period. This decrease was primarily the result of decreased sales of greeting cards, gift packaging and party goods, as well as an unfavorable foreign currency translation ~~which had an unfavorable~~ impact of approximately ~~$16 million, as well as~~$13 million. Excluding the impact of foreign currency translation, the lower ~~revenues for our Non-reportable segment due to~~revenue was primarily within the ~~sale of our display fixtures business at the end of the prior year second quarter~~North American Social Expression Products 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 impacts were partially offset by higher sales of gift packaging, party goods and greeting cards.International Social Expression Products segments.

Second quarter operating income was ~~$37.4~~$21.7 million, a decrease of ~~$6.1~~$15.7 million compared to the same period in the prior year. The ~~decline was driven by~~current and 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 includesquarters include income of $1.1 million and $6.5 million, respectively, 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~~year-over-year impact of the tax credits, the remaining earnings indecrease was primarily within our North American Social Expression Products ~~and Retail Operations~~ segment ~~in addition to~~driven by lower ~~Corporate overhead costs.~~sales.

Three months ended August ~~28, 2015~~26, 2016 and August ~~29, 2014~~28, 2015

Net income was ~~$24.5~~$10.3 million in the second quarter compared to ~~$22.8~~$24.5 million in the prior year period.

Our results for the three months ended August ~~28, 2015~~26, 2016 and August ~~29, 2014~~28, 2015 are summarized below:


(Dollars in thousands)	2015			% Total Revenue			2014			% Total Revenue			2016			% Total Revenue			2015			% Total Revenue
Net sales	$	418,611			99.4	%	$	427,090			98.8	%	$	374,748			99.4	%	$	418,611			99.4	%
Other revenue		2,417			0.6	%		5,335			1.2	%		2,265			0.6	%		2,417			0.6	%

Total revenue		421,028			100.0	%		432,425			100.0	%		377,013			100.0	%		421,028			100.0	%

Material, labor and other production costs		177,985			42.3	%		180,109			41.7	%		159,214			42.2	%		177,985			42.3	%
Selling, distribution and marketing expenses		153,641			36.5	%		165,834			38.3	%		142,061			37.7	%		153,641			36.5	%
Administrative and general expenses		59,365			14.1	%		66,850			15.5	%		55,797			14.8	%		59,365			14.1	%
Other operating income – net		(7,309	)		(1.7	%)		(23,828	)		(5.5	%)		(1,741	)		(0.4	%)		(7,309	)		(1.7	%)

Operating income		37,346			8.8	%		43,460			10.0	%		21,682			5.7	%		37,346			8.8	%

Interest expense		6,486			1.5	%		9,255			2.1	%		5,940			1.6	%		6,486			1.5	%
Interest income		(84	)		(0.0	%)		(30	)		(0.0	%)		(230	)		(0.1	%)		(84	)		(0.0	%)
Other non-operating income – net		(54	)		(0.0	%)		(272	)		(0.1	%)
Other non-operating expense (income) – net														698			0.2	%		(54	)		(0.0	%)

Income before income tax expense		30,998			7.3	%		34,507			8.0	%		15,274			4.0	%		30,998			7.3	%
Income tax expense		6,518			1.5	%	��	11,667			2.7	%		4,970			1.3	%		6,518			1.5	%

Net income	$	24,480			5.8	%	$	22,840			5.3	%	$	10,304			2.7	%	$	24,480			5.8	%

For the three months ended August ~~28, 2015,~~26, 2016, consolidated net sales were ~~$418.6~~$374.7 million, down from ~~$427.1~~$418.6 million in the prior year second quarter. This ~~2.0%~~10.5%, or ~~$8.5~~$43.9 million, decrease was driven by lower sales of greeting cards of approximately $23 million, the unfavorable impact of foreign currency translation of approximately ~~$16~~$13 million, and lower ~~sales in our fixtures business of approximately $9 million due to the sale of that business at the end of the prior year second quarter. These decreases were partially offset by increased~~ sales of gift packaging and party goods of approximately ~~$12 million and higher sales of greeting cards of approximately $5~~$9 million. The current year quarter includes ~~an unfavorable~~a nominal impact ~~of approximately $1.5 million~~ related to ~~SBT~~scan-based trading (“SBT”) implementations, which is ~~flat~~favorable to the prior year ~~quarter.~~

Other revenue, primarily royalty revenue from our character properties, decreased $2.9 million during the three months ended August 28, 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.quarter by approximately $1.5 million.

Unit and pricing comparatives (on a sales less returns basis), excluding intercompany eliminations and the impact of foreign currency translation, for the three months ended August ~~28, 2015~~26, 2016 and August ~~29, 2014~~28, 2015 are summarized below:


	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2016			2015			2016			2015			2016			2015
Unit volume		(7.2	%)		(1.1	%)		(10.5	%)		10.9	%		(7.7	%)		1.2	%
Selling prices		2.6	%		2.0	%		4.2	%		(1.1	%)		2.9	%		1.4	%
Overall increase / (decrease)		(4.8	%)		0.9	%		(6.7	%)		9.6	%		(5.1	%)		2.6	%

During the second quarter, combined everyday and seasonal greeting card sales less returns ~~increased 2.6%~~decreased 5.1% compared to the prior year quarter, including ~~increases~~a decrease in unit volume of 7.7%, partially offset by an increase in selling prices of ~~1.4% and unit volume of 1.2%~~2.9%. The overall ~~increase~~decrease was driven by ~~increased selling prices of~~decreased unit volumes in both everyday and seasonal greeting cards in our North American Social Expression Products ~~segment and increased seasonal units in our North American Social Expressions Products~~ and International Social Expressions Products ~~segments.~~segments, partially offset by an increase in selling prices in both the everyday and seasonal greeting cards in our International Social Expressions Products segment.

Everyday card sales less returns ~~for~~during the ~~second~~three months ended August 26, 2016 decreased 4.8% compared to the prior year quarter increased 0.9% due to increases in selling prices of 2.0%, offset by a decrease in unit volume of 1.1%. The selling price increase 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 due to ~~lower sales~~decreased unit volume experienced in ~~our North American~~the International Social Expression Products ~~segment.~~segment that was partially offset by selling price increases. The lower unit volume in the International Social Expression Products segment was primarily the continuation of the reduced distribution to a significant customer.

Seasonal card sales less returns ~~increased 9.6%~~decreased 6.7% during the second quarter, including a ~~10.9% increase~~10.5% decrease in unit volume, offset by ~~a decrease~~an increase in selling price of ~~1.1%~~4.2%. ~~Since~~Due to the fact that the second quarter has the fewest holidays, the ~~change~~impact of changes in selling ~~prices~~price and unit volume appear large on a percentage basis, compared to other quarters. The ~~increase~~decrease in unit volume was driven by the Father’s Day programs in our North American Social Expression Products and International Social Expression Products segments and the Graduation program in our North American Social Expression Products segment, partially offset by a decrease in the Fall program in our North American Social Expression Products segment. The selling price decrease was primarily driven by the Father’s Day program in our International Social Expression Products segment, ~~partially offset~~primarily due to the continuation of the reduced distribution to a significant customer, as well as the Father’s Day and Fall programs in our North American Social Expression Products segment. The selling price increase was primarily driven by ~~an increase~~the Father’s Day program in our International Social Expression Products segment and the Fall program in our North American Social Expression Products segment.

Material, labor and other production costs (“MLOPC”) for the three months ended August ~~28, 2015~~26, 2016 were ~~$178.0~~$159.2 million, compared to ~~$180.1~~$178.0 million in the prior year three months. As a percentage of total revenue, these costs were ~~42.3%~~42.2% in the current period compared to ~~41.7%~~42.3% for the three months ended August ~~29, 2014.~~28, 2015. The ~~$2.1~~$18.8 million ~~dollar~~ decrease was primarily due to the impact of lower sales volume and favorable product mix in the wholesale card business of approximately $12 million, the favorable impact of foreign currency translation of approximately $7 million and ~~the elimination~~favorable production expenses of ~~costs related to the display fixtures business that was sold in the prior year second quarter.~~approximately $5 million. Partially offsetting these decreases were higher scrap expenses of approximately $3 million and higher product content ~~and production expenses, unfavorable product mix and the impact~~costs of ~~higher sales volume in the wholesale card businesses and lower margins on slightly higher volumes in the Retail Operations segment.~~approximately $2 million.

Selling, distribution and marketing (“SDM”) expenses for the three months ended August ~~28, 2015~~26, 2016 were ~~$153.6~~$142.1 million, decreasing ~~$12.2~~$11.5 million from ~~$165.8~~$153.6 million in the prior year second quarter. As a percentage of total revenue, these costs were ~~36.5%~~37.7% in the current period compared to ~~38.3%~~36.5% for the prior year period. The dollar decrease in the current year second quarter was driven by the favorable impact of foreign currency translation of approximately $7 million, lower ~~supply chain~~expenses in our Retail Operations segment of approximately $3 million, and other cost savings of approximately $1 million.

Administrative and general expenses were $55.8 million for the three months ended August 26, 2016, a decrease of $3.6 million from $59.4 million for the three months ended August 28, 2015. This decrease was driven primarily by lower technology costs, predominantly related to our information technology systems refresh project of approximately $2 million, lower marketing and product management costs of approximately $1 million, the elimination of approximately $1 million of costs related to the fixture business that was sold in the prior year second quarter and the favorable impact of foreign currency translation of approximately ~~$8 million.~~

Administrative and general expenses were $59.4 million for the three months ended August 28, 2015, a decrease of $7.5 million from $66.9 million for the three months ended August 29, 2014. This decrease was driven primarily by lower retail expenses of approximately $3 million, the elimination of approximately $1 million of costs related to the display fixture business that was sold in the prior year second quarter, the favorable impact of foreign currency translation of approximately $2 million and other costs savings of approximately $1 million.

Other operating income – net was ~~$7.3~~$1.7 million for the three months ended August ~~28, 2015~~26, 2016 compared to ~~$23.8~~$7.3 million for the prior year second quarter. The current year period includes income of $1.1 million compared to $6.5 million in the prior year period, 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 period included the gain on the sale of AGI In-Store of $38.8 million which~~effective tax rate was ~~partially offset by a non-cash loss recorded upon the sale of our current world headquarters location of $15.5 million.~~

~~Other non-operating income – net~~32.5% and 21.0% for the three months ended August ~~28, 2015 was $0.1 million, decreasing $0.2 million from $0.3 million in the prior year second quarter.~~

~~The effective tax rate was 21.0%~~26, 2016 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~~domestic production activities deduction, tax treatment of ~~a $4.3 million unrecognized tax benefit due to the issuance of regulations that clarified the law~~corporate-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 the~~partially offset by state income tax ~~treatment~~rates on U.S. income, net of ~~certain corporate-owned life insurance policies.~~federal benefit. The lower than statutory rate in the prior period was ~~due primarily to the favorable settlement of state audits.~~

~~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:~~

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.

~~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:~~

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.

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.

Net income was $36.8 million in the six months ended August 26, 2016 compared to $97.2 million in the prior year six months.

Our results for the six months ended August 26, 2016 and August 28, 2015 are summarized below:

For the six months ended August 26, 2016, consolidated net sales were $811.9 million, down from $890.5 million in the prior year six months. This 8.8%, or $78.6 million, decrease was driven by lower sales of greeting cards of approximately $47 million, the unfavorable impact of foreign currency translation of approximately $20 million, lower sales of our gift packaging and party goods of approximately $11 million, and decreased sales of other ancillary products of approximately $2 million. These decreases were partially offset by the favorable impact of fewer SBT implementations of approximately $1 million. The impact of SBT implementations in the current year six months was a charge of approximately $1 million.

Unit and pricing comparatives (on a sales less returns basis), excluding intercompany eliminations and the impact of foreign currency translation, for the six months ended August 26, 2016 and August 28, 2015 are summarized below:

During the six months ended August 26, 2016, combined everyday and seasonal greeting card sales less returns decreased 5.1% compared to the prior year six months. The overall decrease was primarily driven by decreased unit volume, partially offset with increased selling prices from our everyday and seasonal greeting cards in our International Social Expression Products segment.

Everyday card sales less returns are down 5.2% compared to the prior year six months, as a result of decreased unit volume of 7.4%, partially offset by an increase in selling prices of 2.4%. The unit volume decrease is primarily due to the continuation of the reduced distribution to a significant customer in our International Social Expression Products segment, as well as lower sales within our North American Social Expression Products segment. The increase in selling prices was driven by our International Social Expression Products segment.

Seasonal card sales less returns decreased 4.9%, with a unit volume decline of 7.6%, offset by a selling price increase of 3.0%. The decrease in unit volume was attributable to our Easter, Mother’s Day, and Father’s Day programs in our International Social Expression Products segment, primarily due to the continuation of the reduced distribution to a significant customer, as well as the Easter and Father’s Day programs in our North American Social Expression Products segment. The increase in selling prices was driven by our Mother’s Day and Easter programs in our International Social Expression Products segment, and our Father’s Day program in both our North American Social Expression Products and International Social Expression Products segments, partially offset by a decrease in our Easter program in our North American Social Expression Products segment.

MLOPC for the six months ended August 26, 2016 were $338.1 million, a decrease of $35.4 million from $373.5 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 41.4% in the current period compared to 41.8% for the six months ended August 28, 2015. The $35.4 million dollar decrease was primarily due to the impact of lower sales volume and favorable product mix in the wholesale card business of approximately $20 million, the favorable impact of foreign currency translation of approximately $9 million, favorable production expenses of approximately $9 million, and the favorable impact of lower sales in the Retail Operations segment of approximately $1 million. Partially offsetting these decreases were higher product content costs of approximately $3 million and unfavorable scrap expense of approximately $1 million.

SDM expenses for the six months ended August 26, 2016 were $295.6 million, decreasing $21.8 million from $317.4 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 36.2% in the current period compared to 35.5% for the prior year period. The decrease was primarily driven by the favorable impact of foreign currency translation of approximately $11 million, lower expenses in the Retail Operations segment of approximately $4 million, decreased marketing and advertising costs of approximately $4 million, and lower supply chain costs of approximately $3 million.

Administrative and general expenses were $119.8 million for the six months ended August 26, 2016, an increase of $2.2 million from $117.6 million in the prior year period. The increase was driven primarily by higher technology costs, predominantly related to our information technology systems refresh project of approximately $2 million and higher combined 401(k) match and profit-sharing expense of approximately $2 million, offset by the favorable impact of foreign currency translation of approximately $2 million. See “Segment Information – Unallocated Items” in this Quarterly Report on Form 10-Q for more information related to our combined
401(k) match and profit-sharing expense.

Other operating income – net was $3.6 million for the six months ended August 26, 2016 compared to $69.7 million for the prior year six month period. The current year six month period includes $2.1 million compared to $6.5 million in the prior year period, 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 Ohio. Additionally, the prior year includes the net gain on the sale of Strawberry Shortcake of $61.6 million.

The effective tax rate was 32.6% and 31.7% for the six months ended August 26, 2016 and August 28, 2015, respectively. The lower than U.S. statutory rate for the six month period ended August 26, 2016 is primarily 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 in the prior period ~~is due~~was 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~~release of a $4.3 million unrecognized tax benefit due to ~~our failure to consider all sources~~the issuance of ~~available income when assessing~~regulations that clarified the ~~need for a valuation allowance against certain deferred tax assets~~law and the ~~recognition~~expiration of a ~~liability for an uncertain~~statute of limitations, as well as the impact of lower tax ~~position. These errors were~~rates in foreign jurisdictions, domestic production activities deduction and the ~~result~~tax treatment of ~~the significant complexity created as a result of the going private transaction that was completed in fiscal 2014.~~corporate-owned life insurance.

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. ~~The~~Our 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. 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~~sourcing processes, types of customers and distribution methods. At August ~~28, 2015,~~26, 2016 we operated ~~405~~393 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 six months ended August 28, 2015, the~~The Non-reportable segment primarily includes licensing activities. For the six months ended August 29, 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 quarter ended August 29, 2014. See Note 4, “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.”


(Dollars in thousands)	Three Months Ended August				% Change			Six Months Ended August				% Change			Three Months Ended August				% Change			Six Months Ended August				% Change
(Dollars in thousands)	28, 2015		29, 2014		% Change			28, 2015		29, 2014		% Change			26, 2016		28, 2015		% Change			26, 2016		28, 2015		% Change
Total revenue	$	285,556	$	276,990		3.1	%	$	621,160	$	606,047		2.5	%	$	270,769	$	285,556		(5.2	%)	$	593,229	$	621,160		(4.5	%)
Segment earnings		46,209		27,830		66.0	%		119,336		97,194		22.8	%		37,627		46,209		(18.6	%)		97,772		119,336		(18.1	%)

Total revenue of our North American Social Expression Products segment ~~increased $8.6~~decreased $14.8 million for the three months ended August ~~28, 2015~~26, 2016 and ~~increased $15.1~~decreased $27.9 million for the six months ended August ~~28, 2015~~26, 2016 compared to the prior year periods. The ~~increase~~decrease during the current quarter was primarily driven by ~~higher~~lower sales of gift packaging and party goods ~~sales~~ of approximately ~~$12 million. These increases for the current quarter were~~$9 million, greeting cards of approximately $6 million, and other ancillary products of approximately $1 million, partially offset by the ~~unfavorable impacts~~favorable impact of ~~foreign currency translation~~fewer SBT implementations of approximately $4$1.5 million. The ~~increase~~decrease in total revenue for the six months ended August ~~28, 2015~~26, 2016 was primarily ~~driven by higher~~attributable to sales declines of greetings cards of approximately $16 million, gift packaging and party goods ~~and~~of approximately $10 million, 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~~$2 million, and the unfavorable impact of foreign currency translation of approximately $7$1 million. These decreases were partially offset by the favorable impact of fewer SBT implementations of approximately $1 million.

Segment earnings ~~increased $18.4~~decreased $8.6 million in the current ~~three months~~quarter compared to the three months ended August ~~29, 2014.~~28, 2015. The ~~improvement~~decline 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 lower revenues, higher ~~revenues, lower marketing and product management~~ costs ~~of approximately $1 million and lower~~in our supply chain ~~costs~~ of approximately $1 million, partially offset by ~~higher~~lower technology costs of approximately $1$2 million.

Segment earnings ~~increased $22.1~~decreased $21.6 million in the six month period ended August ~~28, 2015~~26, 2016 compared to the prior year period. ~~The increase~~This decrease 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 lower revenues, higher ~~revenues and lower supply chain~~technology costs of approximately $2 million ~~partially offset by~~and higher ~~technology costs~~business taxes of approximately $1 million. These decreases were offset by lower costs in our supply chain of approximately $1 million and other general cost savings of approximately $1 million.


(Dollars in thousands)	Three Months Ended August				% Change			Six Months Ended August					% Change			Three Months Ended August					% Change			Six Months Ended August						% Change
(Dollars in thousands)	28, 2015		29, 2014		% Change			28, 2015			29, 2014		% Change			26, 2016			28, 2015		% Change			26, 2016			28, 2015			% Change
Total revenue	$	54,572	$	57,217		(4.6	%)	$	106,427		$	122,191		(12.9	%)	$	36,543		$	54,572		(33.0	%)	$	73,548		$	106,427			(30.9	%)
Segment earnings		830		564		47.2	%		(3,429	)		2,016		—
Segment (loss) earnings																	(1,246	)		830		(250.1	%)		(3,031	)		(3,429	)		11.6	%

Total revenue of our International Social Expression Products segment decreased ~~$2.6~~$18.0 million for the three month period ended August ~~28, 2015~~26, 2016 compared to the prior year ~~comparable~~ period. The decrease was primarily due to lower sales of greeting cards of approximately $14 million and the unfavorable impact of foreign currency translation ~~of approximately $7 million offset by higher sales of greeting cards~~ of approximately $4 million. Total revenue of our International Social Expression Products segment decreased ~~$15.8~~$32.9 million for the six month period ~~end~~ended August ~~28, 2015~~26, 2016 compared to the prior year ~~comparable~~ period. The decrease was primarily due to lower sales of greeting cards of approximately $27 million and the unfavorable impact of foreign currency translation of approximately ~~$13 million and~~$6 million. The lower sales of ~~greeting~~greetings cards in both the three and six month periods ended August 26, 2016 are, as expected, primarily the result of ~~approximately $2 million.~~the continuation of the reduced distribution to a significant customer.

Segment earnings ~~remained flat year-over-year for~~decreased $2.1 million in the three months ended August ~~28, 2015 and August 29, 2014.~~26, 2016 compared to the same period in the prior year. The decrease is driven primarily by the impact on earnings from ~~increased greeting card~~lower sales, ~~and~~offset by favorable supply chain ~~expenses was~~costs of approximately $2 million and cost savings initiatives undertaken to offset ~~by increases in product costs.~~the impact of lower sales of approximately $1 million.

Segment ~~earnings~~loss decreased ~~$5.5~~$0.4 million in the six months ended August ~~28, 2015,~~26, 2016, compared to the six months ended August ~~29, 2014.~~28, 2015. The ~~decreased earnings were~~decrease in segment loss was primarily driven by ~~lower sales and increased product and scrap costs, partially offset by lower~~favorable supply chain costs of approximately $6 million, lower production expenses of approximately $4 million, favorable scrap expense of approximately $2 million, and cost savings initiatives undertaken to offset the impact of lower sales of approximately $2 million, offset by the margin impact of lower sales of approximately $14 million.


(Dollars in thousands)	Three Months Ended August						% Change				Six Months Ended August						% Change				Three Months Ended August						% Change				Six Months Ended August						% Change
	28, 2015			29, 2014						28, 2015				29, 2014						26, 2016				28, 2015						26, 2016				28, 2015
Total revenue	$	65,503		$	69,741				(6.1	%)		$	137,311		$	148,905			(7.8	%)		$	55,149		$	65,503			(15.8	%)		$	120,561		$	137,311			(12.2	%)
Segment loss		(12,615	)		(14,563	)		13.4	%			(20,758	)		(18,603	)		(11.6	%)			(10,693	)		(12,615	)		15.2	%			(18,155	)		(20,758	)		12.5	%

Total revenue of our Retail Operations segment decreased ~~$4.2~~$10.4 million and ~~$11.6~~$16.8 million for the three and six months ended August ~~28, 2015,~~26, 2016, respectively, compared to the prior year periods. The decreases were driven by the unfavorable impact of ~~unfavorable~~ foreign ~~exchange~~currency translation of approximately $6$9 million and ~~$13~~$12 million for the three and six month periods, respectively, ~~partially offset by increases~~as well as lower sales of greeting cards in ~~greeting card~~both the three and ~~gift packaging sales.~~six month periods. During the three and six month periods ended August ~~28, 2015,~~26, 2016, net sales at stores open one year or more were updown approximately ~~2.2%~~0.1% and ~~0.8%~~0.6%, respectively, compared to the same periods in the prior year.

Segment ~~earnings increased~~loss decreased $1.9 million and $2.6 million in the three and six month ~~period~~periods ended August ~~28, 2015 and decreased $2.2 million in six months ended August 28, 2015~~26, 2016 compared to the prior year ~~periods.~~periods, respectively. The improved earnings in both the ~~second quarter~~three and six months ended August 26, 2016 were ~~about half due to~~primarily driven by lower retail store operating expenses and the favorable impact of foreign ~~exchange~~currency translation on the loss, ~~and about half due to~~partially offset by lower ~~operating expenses. The lower segment earnings in the six month period were the result of lower gross~~ margins resulting from ~~promotional pricing activities and increased inventory shrink and scrap expense, partially offset by~~ the ~~favorable impact of foreign exchange translation on the loss.~~decrease in revenue.


(Dollars in thousands)	Three Months Ended August				% Change			Six Months Ended August				% Change			Three Months Ended August				% Change			Six Months Ended August				% Change
(Dollars in thousands)	28, 2015		29, 2014		% Change			28, 2015		29, 2014		% Change			26, 2016		28, 2015		% Change			26, 2016		28, 2015		% Change
Total revenue	$	13,736	$	14,445		(4.9	%)	$	27,166	$	28,944		(6.1	%)	$	13,112	$	13,736		(4.5	%)	$	26,043	$	27,166		(4.1	%)
Segment earnings		5,276		5,964		(11.5	%)		10,147		11,376		(10.8	%)		3,926		5,276		(25.6	%)		8,134		10,147		(19.8	%)

Total revenue of our AG Interactive segment decreased ~~$0.7~~$0.6 million and ~~$1.8~~$1.1 million for the three and six months ended August ~~28, 2015,~~26, 2016, respectively, compared to the prior year periods. ~~These decreases~~The decrease in revenue ~~were~~for the three months ended August 26, 2016 compared to the same period in the prior year was driven by the unfavorable impact of foreign currency translation. The decrease in revenue for the six months ended August 26, 2016 compared to the same period in the prior year was driven primarily by lower subscription revenue ~~compared to the respective prior year periods~~ as well as the unfavorable impact of foreign ~~exchange~~currency translation. At the end of the second quarter of ~~fiscal 2016,~~2017, AG Interactive had approximately ~~3.4~~3.3 million online paid subscriptions compared to ~~3.6~~3.4 million at the end of the same period in the prior year.

Segment earnings decreased ~~$0.7~~$1.4 million and ~~$1.2~~$2.0 million for the three and six months ended August ~~28, 2015~~26, 2016 primarily due to the impact of lower ~~revenue.~~revenue and higher operating expenses.


(Dollars in thousands)	Three Months Ended August						% Change				Six Months Ended August						% Change				Three Months Ended August						% Change				Six Months Ended August						% Change
(Dollars in thousands)	28, 2015			29, 2014						28, 2015				29, 2014			% Change			26, 2016				28, 2015			% Change			26, 2016				28, 2015			% Change
Total revenue	$	1,661		$	14,032		% Change		(88.2	%)		$	2,407		$	29,922			(92.0	%)		$	1,440		$	1,661			(13.3	%)		$	2,940		$	2,407			22.1	%
Segment (loss) earnings		(934	)		(1,306	)		28.5	%			59,413			2,709			2093.2	%			(438	)		(934	)		53.1	%			(374	)		59,413			(100.6	%)

Total revenue ~~from~~of our Non-reportable segment decreased $12.4 million and $27.5 million for the three and six months ended August 28, 2015, respectively, compared to the prior year periods. The decrease in revenue for the current year periods was due to the sale of our display fixture business at the end of the prior year second quarter

~~and the sale of Strawberry Shortcake at the beginning of the current year first quarter. Revenue of the display fixture business was $9.7~~$0.2 million for the three months ended August ~~29, 2014~~26, 2016 and ~~$20.2~~increased $0.5 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~~26, 2016, compared to the prior year periods. ~~The increase~~

Segment loss decreased $0.5 million for the three months ended August 26, 2016 compared to the same period in the prior year due to lower film production costs. Segment earnings decreased $59.8 million for the six ~~month period~~months ended August ~~28, 2015~~26, 2016 compared to the prior year period, which was primarily due to the net gain of $61.6 million recorded in ~~the first quarter of the current year in~~ connection with the 2016 sale of Strawberry ~~Shortcake. This increase was~~Shortcake, partially offset by lower film production costs in the ~~operational impact to earnings from the sale of our display fixtures business and Strawberry Shortcake as noted above.~~current year.

Centrally incurred and managed costs are not allocated back to the operating segments. The unallocated items include interest expense for centrally-incurred debt, domestic 401(k) match and profit-sharing expense, as well as costs associated with corporate operations such as the senior management, corporate finance, legal and insurance programs.


	Three Months Ended August						Six Months Ended August						Three Months Ended August						Six Months Ended August
(Dollars in thousands)	28, 2015			29, 2014			28, 2015			29, 2014			26, 2016			28, 2015			26, 2016			28, 2015
Interest expense	$	(6,486	)	$	(9,255	)	$	(14,599	)	$	(18,249	)	$	(5,940	)	$	(6,486	)	$	(11,537	)	$	(14,599	)
Profit-sharing expense		(1,675	)		(1,389	)		(3,350	)		(5,468	)
401(k) match and profit-sharing expense														(3,425	)		(3,020	)		(8,486	)		(5,931	)
Corporate overhead expense		393			26,662			(4,429	)		18,968			(4,537	)		1,738			(9,801	)		(1,848	)

Total Unallocated	$	(7,768	)	$	16,018		$	(22,378	)	$	(4,749	)	$	(13,902	)	$	(7,768	)	$	(29,824	)	$	(22,378	)

Interest expense is lower by $0.5 million in ~~both~~ the three ~~and six~~ month ~~periods~~period ended August ~~28, 2015~~26, 2016 compared to the same ~~periods~~period in the prior ~~year. During~~year primarily due to the ~~fourth quarter~~interest capitalized in conjunction with our systems refresh project. Interest expense is lower by $3.1 million in the six month period ended August 26, 2016 compared to the same period in the prior year primarily due to the prior year write-off of ~~2015~~debt issuance costs of $1.9 million due to our voluntary prepayment of our Term Loan facility, and the ~~first quarter~~continued interest capitalized in conjunction with our systems refresh project of $1.1 million.

As reported in our Annual Report on Form 10-K for the ~~current fiscal~~ year ended February 29, 2016, prior to January 1, 2016, we sponsored a discretionary profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. Under this arrangement, we made ~~voluntary prepayments~~separate discretionary profit-sharing and 401(k) matching contributions annually, after fiscal year-end, depending on our ~~term loan facility of $140 million thus reducing interest expense.~~financial results.

~~Our~~Effective January 1, 2016, the existing profit-sharing and 401(k) retirement savings plan ~~includes~~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 our discretionary profit-sharing ~~component and a 401(k) component. The 401(k) component is included in corporate overhead expense. While~~contributions, which were discontinued for fiscal years ending after February 29, 2016. We expect that the current year ~~three and six month~~quarterly expense will vary from the prior year expense pattern ~~we expect~~and the full year ~~2016~~2017 expense to be slightly higher than the combined profit-sharing and match components of the ~~combined components to be consistent with~~profit-sharing and 401(k) retirement savings plan in effect during the prior year.

~~For both~~“Corporate overhead expense” for the three and six month periods ended August ~~28, 2015, “Corporate overhead expense”~~26, 2016, includes income of ~~$6.5~~$1.1 million and $2.1 million, respectively, 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~~The three and six month periods ~~ended August 29, 2014, “Corporate overhead expense”~~in the prior year included ~~the gain on sale of AGI In-Store of $38.8 million. See Note 4, “Dispositions,”~~$6.5 million related to ~~the Consolidated Financial Statements for further information.~~these incentives.

The seasonal nature of our business precludes a useful comparison of the current period and the fiscal year-end financial statements; therefore, a Consolidated Statement of Financial Position as of August ~~29, 2014,~~28, 2015, has been included.

Operating activities used ~~$65.5~~$32.0 million of cash during the six months ended August ~~28, 2015,~~26, 2016, compared to using ~~$28.3~~$65.5 million in the prior year period.

Accounts receivable ~~used $3.4~~provided $17.9 million of cash during the six months ended August ~~28, 2015,~~26, 2016, compared to ~~providing $0.1~~a use of $3.4 million of cash during the prior year period. The year-over-year ~~decrease~~increase in cash flow of approximately $3$21.3 million occurred mainly within our North American Social Expression Products ~~and International Social Expression Products segments~~segment primarily due ~~primarily~~ to lower sales and 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.~~period in both our North American Social Expression Products and International Social Expression Products segments.

Inventory used ~~$49.9~~$65.5 million of cash during the six months ended August ~~28, 2015,~~26, 2016, compared to ~~$76.6~~$49.9 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,~~26, 2016, amortization exceeded payments by ~~$19.4~~$17.5 million. During the six months ended August ~~29, 2014,~~28, 2015, amortization exceeded payments by ~~$22.0~~$19.4 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~~$83.5 million of cash during the six months ended August ~~28, 2015,~~26, 2016, compared to using ~~$39.4~~$91.7 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.~~transactions.

Investing activities ~~provided $91.4~~used $45.2 million of cash during the six months ended August ~~28, 2015,~~26, 2016, compared to ~~providing $47.8~~a source of $91.4 million in the prior year period. The current year includes primarily capital expenditures of $46.0 million. The prior year included capital expenditures of $31.7 million, and cash payments of $2.8 million and $3.2 million for acquired character property rights and the final working capital adjustments made in connection with the sale of AGI In-Store, respectively. These cash uses were offset by proceeds of $105.0 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 $31.7 million, cash paid for acquired character property rights of $2.8 million and a payment of $3.2 million related to the final working capital adjustments made in connection with the sale of AGI In-Store.

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 includes proceeds received from H L & L Property Company, an indirect affiliate of American Greetings (“H L & L”) of $9.9 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 ~~used $34.0~~provided $1.1 million of cash during the current year six months, compared to ~~$38.7~~a use of $34.0 million in the prior year six month period. ~~During the~~The current year ~~this~~source of cash was driven by additional borrowings, net of repayments, under our revolving credit facility of $15.0 million, partially offset by a cash dividend payment of $13.9 million. The prior year use of cash was primarily driven by a voluntary prepayment made on our term loan of ~~$65~~$65.0 million and cash dividend payments of $20.7 million, partially offset by ~~the~~ additional borrowings, net of repayments, under our revolving credit facility of $51.7 million.

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.

Substantial credit sources are available to us. In total, we had available sources of credit of approximately $485 million at August ~~28, 2015,~~26, 2016, 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, ~~$217.6~~$259.1 million, in the aggregate, was unused as of August ~~28, 2015.~~26, 2016. Borrowings under the accounts receivable securitization facility are limited based on our eligible receivables outstanding. At August ~~28, 2015,~~26, 2016, we had ~~$56~~$15 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~~$25.9 million outstanding under letters of credit, which reduced the total credit availability thereunder as of August ~~28, 2015.~~26, 2016.

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~~29, 2016 for further information.

At August ~~28, 2015,~~26, 2016, we were in compliance with our financial covenants under the borrowing agreements described above.

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%~~9.750%/~~10.50%~~10.500% 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%~~9.750%. 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.~~29, 2016.

Throughout fiscal ~~2016~~2017 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 six months ended August ~~28, 2015,~~26, 2016, we spent approximately ~~$22~~$33 million, including capital of approximately ~~$18~~$29 million and expense of approximately $4 million, on these information technology systems. Based on the current scope of the project, we ~~currently~~presently expect to spend ~~approximately $170~~at least an additional $162 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 ~~$170~~$162 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.~~built (the “Crocker Park Site”). We are leasing a portion of the Crocker Park Site to H L & L Property Company (“H L & L”), an indirect affiliate of American Greetings, which is constructing the new world headquarters building on the ~~site~~Crocker Park Site and, ~~when complete,~~beginning in the third quarter of our fiscal 2017, will sublease the new world headquarters building back to ~~us.~~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 ~~us. We have~~the Corporation. The Corporation has also entered into an operating ~~leases~~lease to lease ~~these buildings~~the Tech West building and Surface Lot from H L & L, ~~which are anticipated to be available for occupancy~~also beginning in ~~calendar year 2016.~~third quarter of fiscal 2017. The initial lease terms are fifteen years and ~~will begin upon occupancy. The total~~the 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~~29, 2016 and Note 17, “Related Party Information,” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

During the quarter ended August ~~28, 2015,~~26, 2016, we paid a cash ~~dividends~~dividend in the aggregate amount of ~~$20.7~~$13.9 million to ~~CIHC,~~Century Intermediate Holding Company, 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.

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.~~29, 2016.

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:

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.~~29, 2016.

The majority of inventory purchases within our UK wholesale operations are denominated in U.S. Dollars. Subsequent to the Brexit event, we estimate that a hypothetical 10% strengthening of the U.S. Dollar against the UK Pound Sterling, compared to the average exchange rate during the year ended February 29, 2016, would negatively impact fiscal 2017 operating income in the International Social Expression Products segment by approximately $5 million.

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 August 28, 2015, the end of our most recent fiscal quarter.29, 2016.

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 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.

~~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 CorporationInformation regarding legal proceedings is described 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 fundsNote 15 to the ~~plaintiffs and the proposed classes. On November 6, 2014, plaintiffs filed a Second Amended Complaint to add claims for reimbursement~~Consolidated Financial Statements under Part I, Item 1 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.~~

~~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.~~Quarterly Report.

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.

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.


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

One American ~~Road,~~Boulevard, Cleveland, Ohio		~~44144~~44145
(Address of principal executive offices)		(Zip Code)


	~~Page~~ ~~Number~~
			Page Number

PART I - FINANCIAL INFORMATION

		Item 1.	Financial Statements	3

		Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320

		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3531

		Item 4.	Controls and Procedures	3532

PART II - OTHER INFORMATION

		Item 1.	Legal Proceedings	3633

		Item 6.	Exhibits	33

~~Item 6. Exhibits~~SIGNATURES				3734

~~SIGNATURES~~				38

EXHIBITS


	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


	Three Months Ended				Six Months Ended
(In thousands)	August 26, 2016		August 28, 2015		August 26, 2016		August 28, 2015
Royalty revenue	$	1,922	$	1,975	$	3,684	$	3,104

Royalty expenses:
Material, labor and other production costs	$	702	$	1,241	$	1,315	$	2,175
Selling, distribution and marketing expenses		942		988		1,498		1,691
Administrative and general expenses		212		344		492		711

	$	1,856	$	2,573	$	3,305	$	4,577


Exhibit Number		Description

31 (a)		Certification of ~~co-Chief~~Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31 (b)		Certification of ~~co-Chief~~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.

32		Certification of ~~co-Chief~~Co-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~~Quarterly Report on Form 10-Q for the quarter ended August ~~28, 2015,~~26, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statement of Income for the quarters ended August ~~28, 2015,~~26, 2016, and August ~~29, 2014,~~28, 2015, (ii) Consolidated Statement of Comprehensive Income (Loss) for the quarters ended August ~~28, 2015,~~26, 2016, and August ~~29, 2014,~~28, 2015, (iii) Consolidated Statement of Financial Position at August ~~28, 2015,~~26, 2016, February ~~28, 2015~~29, 2016 and August ~~29, 2014,~~28, 2015, (iv) Consolidated Statement of Cash Flows for the six months ended August ~~28, 2015~~26, 2016 and August ~~29, 2014~~28, 2015 and (v) Notes to the Consolidated Financial Statements for the quarter ended August ~~28, 2015.~~26, 2016.


AMERICAN GREETINGS CORPORATION

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

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