UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~May 27~~August 26, 2016

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

For the transition period from to

Commission file number 1-13859

AMERICAN GREETINGS CORPORATION

(Exact name of registrant as specified in its charter)

Ohio		34-0065325
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One American Boulevard, Cleveland, Ohio		44145
(Address of principal executive offices)		(Zip Code)

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

(216) 252-7300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨☐ No x☒

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

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

Large accelerated filer ¨☐ Accelerated filer ¨☐ Non-accelerated filer x☒ (Do not check if a smaller reporting company) Smaller reporting company ¨☐

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

All of the outstanding capital stock of the registrant is held by Century Intermediate Holding Company. As of ~~July 8~~October 7, 2016, 100 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

AMERICAN ~~GREETING~~GREETINGS CORPORATION

INDEX

		~~PageNumber~~			PageNumber
PART I - FINANCIAL INFORMATION
~~Item 1.~~	~~Financial Statements~~	Item 1.	3	Financial Statements		3
~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	Item 2.	20	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~	Item 3.	28	Quantitative and Qualitative Disclosures About Market Risk		31
~~Item 4.~~	~~Controls and Procedures~~	Item 4.	28	Controls and Procedures		32
PART II - OTHER INFORMATION
~~Item 1.~~	~~Legal Proceedings~~	Item 1.	30	Legal Proceedings		33
~~Item 6.~~	~~Exhibits~~	Item 6.	31	Exhibits		33
SIGNATURES			32			34
EXHIBITS

PART I— - FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Thousands of dollars)

	(Unaudited)
	Three Months Ended						Six Months Ended
	May 27, 2016			May 29, 2015
	August 26,2016			August 28,2015			August 26,2016			August 28,2015
Net sales	$	~~437~~374,~~187~~748		$	~~471~~418,~~892~~611		$	811,935		$	890,503
Other revenue		2,~~121~~265			12,~~551~~417			4,386			3,968
Total revenue		~~439~~377,~~308~~013			~~473~~421,~~443~~028			816,321			894,471
Material, labor and other production costs		~~178~~159,~~900~~214			~~195~~177,~~474~~985			338,114			373,459
Selling, distribution and marketing expenses		~~153~~142,~~528~~061			~~163~~153,~~759~~641			295,589			317,400
Administrative and general expenses		6455,~~018~~797			5859,~~221~~365			119,815			117,586
Other operating income – net		(1,~~890~~741	)		(627,~~420~~309	)		(3,631	)		(69,729	)
Operating income		4421,~~752~~682			~~118~~37,~~409~~346			66,434			155,755
Interest expense		5,~~597~~940			86,~~113~~486			11,537			14,599
Interest income		(~~105~~230	)		(9984	)		(335	)		(183	)
Other non-operating expense (income) – net		12698			(~~938~~54	)		710			(992	)
Income before income tax expense		3915,~~248~~274			~~111~~30,~~333~~998			54,522			142,331
Income tax expense		124,~~778~~970			386,~~569~~518			17,748			45,087
Net income	$	2610,~~470~~304		$	7224,~~764~~480		$	36,774		$	97,244

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Thousands of dollars)

	(Unaudited)
	Three Months Ended						Six Months Ended
	May 27, 2016			May 29, 2015
	August 26,2016			August 28,2015			August 26,2016			August 28,2015
Net income	$	2610,~~470~~304		$	7224,~~764~~480		$	36,774		$	97,244
Other comprehensive income (loss), net of tax:
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		6(12,~~810~~152	)		(2,~~028~~351	)		(5,342	)		(4,379	)
Pension and postretirement benefit adjustments		3227			~~216~~505			230			721
Unrealized gain on equity securities		7,858			44,610
Unrealized gain (loss) on equity securities		8,252			(10,133	)		16,110			34,477
Other comprehensive income, net of tax		14,671			42,798
Other comprehensive (loss) income, net of tax		(3,673	)		(11,979	)		10,998			30,819
Comprehensive income	$	416,~~141~~631		$	~~115~~12,~~562~~501		$	47,772		$	128,063

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Thousands of dollars except share and per share amounts)

(Unaudited)

(Note 1)

(Unaudited)

May 27, 2016

February 29, 2016

May 29, 2015

August 26, 2016

February 29, 2016

August 28, 2015

ASSETS

Current assets

Cash and cash equivalents

4025,~~293~~236

100,893

4233,~~806~~501

Trade accounts receivable, net

~~109~~77,~~194~~875

94,392

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

Inventories

~~234~~288,~~925~~644

227,456

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

Deferred and refundable income taxes

4,~~364~~782

8,056

4445,~~790~~082

Prepaid expenses and other

~~121~~132,~~815~~907

129,071

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

Total current assets

~~510~~529,~~591~~444

559,868

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

Other assets

~~469~~509,~~874~~564

473,100

~~571~~535,~~907~~436

Deferred and refundable income taxes

9990,~~019~~268

99,512

5460,~~436~~897

Property, plant and equipment – at cost

~~986~~999,~~225~~723

945,059

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

Less accumulated depreciation

~~491~~489,~~193~~355

477,349

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

Property, plant and equipment – net

~~495~~510,~~032~~368

467,710

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

1,~~574~~639,~~516~~644

1,600,190

1,~~613~~619,~~185~~310

LIABILITIES AND SHAREHOLDER’S EQUITY

Current liabilities

Accounts payable

~~101~~115,~~941~~262

109,014

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

Accrued liabilities

6751,~~267~~675

79,873

7469,~~448~~196

Accrued compensation and benefits

2440,~~088~~024

101,014

5063,~~962~~301

Income taxes payable

2528,~~216~~684

11,151

14,~~655~~398

Deferred revenue

2822,~~341~~235

26,271

2623,~~313~~044

Other current liabilities

6577,~~900~~908

50,617

5867,~~456~~850

Total current liabilities

~~312~~335,~~753~~788

377,940

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

Long-term debt

~~407~~418,~~560~~962

403,058

~~459~~458,~~703~~155

Other liabilities

~~373~~411,~~226~~093

379,769

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

Deferred income taxes and noncurrent income taxes payable

10,~~541~~628

10,129

1410,~~585~~824

Shareholder’s equity

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

—

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

—

Capital in excess of par value

240,000

Accumulated other comprehensive (loss) income

(48,~~987~~660

)

(19,658

)

186,~~395~~416

Retained earnings

~~235~~231,~~423~~833

208,952

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

Total shareholder’s equity

~~470~~463,~~436~~173

429,294

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

1,~~574~~639,~~516~~644

1,600,190

1,~~613~~619,~~185~~310

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Thousands of dollars)

	(Unaudited)
	Three Months Ended
	Six Months Ended
	May 27, 2016			May 29, 2015
	August 26, 2016			August 28, 2015
OPERATING ACTIVITIES:
Net income	$	2636,~~470~~774		$	7297,~~764~~244
Adjustments to reconcile net income to cash flows from operating activities:
Gain on sale of Strawberry Shortcake		—			(61,~~666~~625	)
Net (gain) loss on disposal of fixed assets		(3	)		9
Net loss on disposal of fixed assets		28			66
Depreciation and intangible assets amortization		1325,~~133~~305			1328,~~993~~114
Provision for doubtful accounts		46231			30367
Deferred income taxes		~~571~~4,469			68,~~951~~076
Other non-cash charges		~~870~~2,057			23,~~744~~614
Changes in operating assets and liabilities, net of dispositions:
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Trade accounts receivable		~~(11~~17,~~494~~918	)		(233,~~034~~431	)
Inventories		(365,~~556~~528	)		(349,~~473~~866	)
Other current assets		~~700~~(3,416	)		(27,~~306~~193	)
Net payable/receivable with related parties		(~~212~~754	)		(501,698	)
Income taxes		15,~~659~~625			(27,~~584~~554	)
Deferred costs – net		1617,~~924~~470			519,~~276~~377
Accounts payable and other liabilities		(9883,~~440~~462	)		(~~104~~91,~~603~~698	)
Other – net		(1,~~470~~277	)		~~(128~~680	)
Total Cash Flows From Operating Activities		(4032,~~802~~006	)		(9665,~~077~~527	)
INVESTING ACTIVITIES:
Property, plant and equipment additions		(2546,~~692~~005	)		(1331,~~392~~735	)
Proceeds from sale of fixed assets		4813			955
Cash paid for acquired character property rights		—			(2,800	)
Adjustment to proceeds from sale of AGI In-Store		—			(3,200	)
Proceeds from sale of Strawberry Shortcake		—			105,000
Proceeds from surrender of corporate-owned life insurance policies		—			24,068
Adjustment to proceeds from sale of AGI In-Store		—			(3,200	)
Total Cash Flows From Investing Activities		(45,192	)		91,388
Cash paid for acquired character property rights		—			(2,800	)
Net (lending)/repayments on loans to related parties		—			(2,479	)
Total Cash Flows From Investing Activities		(25,688	)		107,206
FINANCING ACTIVITIES:
Proceeds from revolving line of credit		3973,~~400~~275			94191,~~150~~200
Repayments on revolving line of credit		(3558,~~350~~275	)		(40139,~~450~~500	)
Repayment on term loan		—			(65,000	)
Dividends to shareholder		(13,894	)		(20,724	)
Total Cash Flows From Financing Activities		4,050			(11,300	)
Repayments on term loan		—			(65,000	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		1,840			(350	)
Total Cash Flows From Financing Activities		1,106			(34,024	)
DECREASE IN CASH AND CASH EQUIVALENTS		(60,600	)		(521	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		435			(1,663	)
DECREASE IN CASH AND CASH EQUIVALENTS		(75,657	)		(9,826	)
Cash and Cash Equivalents at Beginning of Year		100,893			43,327
Cash and Cash Equivalents at End of Period	$	4025,~~293~~236		$	4233,~~806~~501

See notes to consolidated financial statements (unaudited).

AMERICAN GREETINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and Six Months Ended ~~May~~August 2726, 2016 and ~~May~~August 2928, 2015

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of American Greetings Corporation and its subsidiaries (the “Corporation”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the periods have been included.

The Corporation’s fiscal year ends on February 28 or 29. References to a particular year refer to the fiscal year ending in February of that year. For example, 2016 refers to the year ended February 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 28 for 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 29, 2016, from which the Consolidated Statement of Financial Position at February 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.”

The Corporation provides limited credit support to Schurman Fine Papers (“Schurman”) which is a VIE as defined in ASC 810. Schurman owns and operates specialty card and gift retail stores in the United States and Canada. The stores are primarily located in malls and strip shopping centers. This limited credit support is provided through the provision of a liquidity guaranty (“Liquidity Guaranty”) in favor of the lenders under Schurman’s senior revolving credit facility (the “Senior Credit Facility”). Pursuant to the terms of the Liquidity Guaranty, the Corporation has guaranteed the repayment of up to $10.0 million of Schurman’s borrowings under the Senior Credit Facility to help ensure that Schurman has sufficient borrowing availability under this facility. The Liquidity Guaranty is required to be backed by a letter of credit for the term of the Liquidity Guaranty, which expires in January 2019. The Corporation’s obligations under the Liquidity Guaranty generally may not be triggered unless Schurman’s lenders under its Senior Credit Facility have substantially completed the liquidation of the collateral under Schurman’s Senior Credit Facility, or 91 days after the liquidation is started, whichever is earlier, and will be limited to the deficiency, if any, between the amount owed and the amount collected in connection with the liquidation. There was no triggering event or liquidation of collateral as of ~~May~~August 2726, 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 May 27, 2016 includes:~~

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

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

¡The ~~the~~Corporation’s ~~retail~~maximum ~~store~~exposure ~~operating~~to ~~leases~~loss ~~currently~~as ~~subleased~~it relates to Schurman, ~~the aggregate lease payments for the remaining life of which was $2.1 million~~ as of ~~May 27~~August 26, 2016. includes:

•

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

•

normal course of business trade and other receivables due from Schurman of $31.3 million, the balance of which fluctuates throughout the year due to the seasonal nature of the business; and

•

the retail store operating leases currently subleased to Schurman, the aggregate lease payments for the remaining life of which was $1.8 million as of August 26, 2016.

Note 2 – Seasonal Nature of Business

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

Note 3 – Recent Accounting Pronouncements

In August ~~June~~ 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-1315, “~~Financial~~Statement ~~Instruments—Credit~~of ~~Losses~~Cash Flows (Topic ~~326~~230): ~~Measurement~~Clarification of ~~Credit~~Certain ~~Losses~~Cash onReceipts ~~Financial~~and ~~Instruments~~Cash Payments.” ~~ASU~~The ~~2016-13~~objective ~~introduces~~of aASU ~~new forward~~2016-~~looking~~15 ~~approach,~~is ~~based on expected losses,~~ to ~~estimate~~eliminate ~~credit~~the ~~losses~~diversity ~~on certain~~in ~~types~~practice ofrelated ~~financial instruments, including trade receivables. The estimate of expected credit losses will require entities~~ to ~~incorporate~~the ~~considerations~~classification of ~~historical~~certain ~~information,~~cash ~~current~~receipts ~~information~~ and ~~reasonable~~payments ~~and~~in ~~supportable forecasts. This ASU also expands~~ the ~~disclosure~~statement ~~requirements to enable users~~ of ~~financial~~cash ~~statements~~flows, toby ~~understand~~adding ~~the~~or ~~entity’s~~clarifying ~~assumptions,~~guidance ~~models~~on ~~and~~eight ~~methods~~specific ~~for~~cash ~~estimating expected credit losses~~flow issues. For public business entities, ASU 2016-1315 is effective for annual and interim reporting periods beginning after December 15, ~~2019~~2017, ~~and~~with ~~the~~early ~~guidance~~adoption ispermitted. toThe beamendments ~~applied~~in ~~using~~this ~~the~~update ~~modified-retrospective~~should ~~approach.~~be ~~Earlier~~applied ~~adoption~~retrospectively isto ~~permitted~~all periods ~~for~~presented, ~~annual~~unless ~~and~~deemed ~~interim~~impracticable, ~~reporting~~in ~~periods~~which ~~beginning after December 15~~case, ~~2018~~prospective application is permitted. 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~~June 2016, the FASB issued ASU No. 2016-0213, “~~Leases~~Financial Instruments—Credit Losses (Topic ~~842~~326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-0213 ~~will~~introduces ~~require~~a ~~lessees~~new forward-looking approach, based on expected losses, to ~~recognize~~estimate acredit ~~right-~~losses on certain types of~~-use~~ ~~asset~~financial ~~and~~instruments, aincluding ~~lease~~trade ~~liability~~receivables. The ~~right-~~estimate of~~-use~~ ~~asset~~expected credit ~~and~~losses ~~lease~~will ~~liability~~require ~~will~~entities ~~be initially~~to ~~measured~~incorporate atconsiderations ~~the~~of ~~present~~historical ~~value~~information, ofcurrent ~~the~~information ~~lease~~and ~~payments~~reasonable inand supportable forecasts. This ASU also expands the ~~statement~~disclosure requirements to enable users of financial ~~position.~~statements ~~Lessor~~to understand ~~accounting~~the ~~under~~entity’s ~~the~~assumptions, ~~new~~models ~~guidance~~and ismethods ~~largely~~for ~~unchanged~~estimating expected credit losses. For public business entities, ASU 2016-0213 is effective for ~~interim~~annual and ~~annual~~ interim reporting periods beginning after December 15, ~~2018~~2019, ~~with early adoption permitted. In transition, lessees~~ and ~~lessors~~the guidance ~~are~~is ~~required~~ to ~~recognize~~be ~~and~~applied ~~measure~~using ~~leases at~~ the ~~beginning~~modified-retrospective ofapproach. ~~the~~Earlier ~~earliest~~adoption ~~period~~is ~~presented~~permitted ~~using~~for aannual ~~modified-retrospective approach,~~and ~~which~~interim ~~includes~~reporting aperiods ~~number~~beginning ofafter ~~optional~~December 15, ~~practical expedients~~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 a right-of-use asset and a lease liability. The right-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 August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going 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 is currently evaluating the new guidance and has not determined the impact this standards update may have on its consolidated financial statements.

~~the~~In ~~existing~~August ~~revenue~~2014, ~~recognition~~the ~~guidance,~~FASB ~~including~~issued ~~industry-specific~~ASU ~~guidance~~No. ~~The~~2014-15, ~~core~~“Disclosure ~~principle~~ of ~~the~~Uncertainties ~~new~~About ~~guidance is that~~ an ~~entity~~Entity’s Ability ~~recognizes~~to ~~revenue~~Continue toas ~~depict~~a ~~the~~Going ~~transfer~~Concern.” ~~of promised~~ASU ~~goods~~2014-15 orrequires ~~services~~management to ~~customers~~perform ininterim anand ~~amount~~annual ~~that~~assessments ~~reflects~~of ~~the~~an ~~consideration to which the~~ entity’s ~~expects~~ability to becontinue ~~entitled~~as ina ~~exchange~~going ~~for~~concern ~~those~~within ~~goods~~one oryear ~~services. More~~of ~~detailed~~the ~~disclosures~~date ~~will~~the ~~also~~financial bestatements ~~required~~are toissued ~~enable~~and provides ~~users~~guidance ~~of financial~~on ~~statements~~determining towhen ~~understand~~and ~~the~~how ~~nature,~~to ~~amount,~~disclose ~~timing~~going ~~and~~concern ~~uncertainty~~uncertainties ofin ~~revenue~~the ~~and~~financial ~~cash~~statements. ~~flows~~Certain ~~arising~~disclosures ~~from~~will ~~contracts~~be ~~with~~required ~~customers. For~~if ~~public~~conditions ~~business~~give ~~entities,~~rise ~~the~~to ~~new~~substantial ~~revenue~~doubt ~~recognition~~about ~~guidance~~an ~~will~~entity’s beability ~~effective~~to ~~for~~continue ~~annual~~as ~~and~~a ~~interim~~going ~~reporting~~concern. ~~periods~~ASU ~~beginning~~2014-15 ~~after~~applies ~~December 15,~~to ~~2017. Earlier~~all ~~adoption~~entities and is ~~permitted~~effective for annual and interim reporting periods ~~beginning~~ending after December 15, 2016., ~~The~~with ~~new~~early ~~guidance~~adoption ~~permits the use of either a retrospective or modified-retrospective transition method~~permitted. The Corporation isdoes ~~currently~~not ~~evaluating~~expect that the ~~new~~adoption ~~guidance~~of ~~and~~this ~~has~~standards update ~~not~~will ~~determined the~~ impact ~~it may have on~~ its consolidated financial statements~~, nor the preferred method of adoption~~.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” Subsequent accounting standards updates have been issued which amend and/or clarify the application of ASU 2014-09. The objective of ASU 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 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. More detailed disclosures will also be required to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. For public business entities, the new revenue recognition guidance will be effective for annual and interim reporting periods beginning after December 15, 2017. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2016. The new guidance permits the use of either a retrospective or modified-retrospective transition method. The Corporation is currently evaluating the new guidance and has not determined the impact it may have on its consolidated financial statements, nor the preferred method of adoption.

Note 4 – Acquisitions and Dispositions

Sale of Strawberry Shortcake

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, in March 2015, the Corporation ~~received~~completed ~~cash proceeds of $105.0 million and recorded a preliminary gain, subject to finalization of certain closing date estimates, of $61.7 million, for~~ the sale of its Strawberry Shortcake property and related intangible assets and licensing agreements (“Strawberry Shortcake”), and ~~the~~received cash proceeds of $105.0 million, which ~~were~~are ~~classified~~reflected in “Proceeds from sale of Strawberry Shortcake” within “Investing Activities” on the Consolidated Statement of Cash Flows, ~~and~~for the six months ended August 28, 2015. The Corporation also recognized a net gain of $61.6 million from the sale, which ~~was~~is ~~reflected~~included in “Other operating income – net” on the Consolidated Statement of Income for the ~~quarter~~six months ended ~~May~~August 2928, 2015.

Character Property Rights Acquisition

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, in conjunction with and based on the proceeds resulting from the March 2015 sale of Strawberry Shortcake, in the ~~quarter ended May 29, 2015, the~~ Corporation paid an additional $2.8 million for character property rights associated with Strawberry Shortcake, that were previously purchased from a third party during 2015. This payment is included in “Cash paid for acquired character property rights” within “Investing Activities” on the Consolidated Statement of Cash Flows for the ~~quarter~~six months ended ~~May~~August 2928, 2015.

Sale of AGI In-Store

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, in March 2015, the Corporation finalized the working capital adjustments related to the 2015 sale of its wholly-owned display fixtures business, AGI In-Store, which resulted in a payment of $3.2 million to the buyer. This payment is included in “Adjustment to proceeds from sale of AGI In-Store” within “Investing Activities” on the Consolidated Statement of Cash Flows for the six months ended August 28, 2015.

Surrender of Certain Corporate-Owned Life Insurance Policies

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, in March 2015, in connection with the 2015 surrender of certain corporate-owned life insurance policies, the Corporation received proceeds of $24.1 million. These proceeds are included in “Proceeds from surrender of corporate-owned life insurance policies” within “Investing Activities” on the Consolidated Statement of Cash Flows.

Surrender of Certain Corporate-Owned Life Insurance Policies

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, in March 2015, in connection with the 2015 surrender of certain corporate-owned life insurance policies, the Corporation received proceeds of $24.1 million that are included in “Proceeds from surrender of corporate-owned life insurance policies” within “Investing Activities” on the Consolidated Statement of Cash Flows for the six months ended August 28, 2015.

Note 5 – Royalty Revenue and Related Expenses

The Corporation has agreements for licensing certain characters and other intellectual property. These license agreements provide for royalty revenue to the Corporation, which is recorded in “Other revenue” on the Consolidated Statement of Income. These license agreements may include the receipt of upfront advances, which are recorded as deferred revenue and earned during the period of the agreement. Revenues and expenses associated with the servicing of these agreements, primarily relating to the licensing activities included in the Non-reportable segment, are summarized as follows:

	Three Months Ended				Six Months Ended
(In thousands)	~~May~~August 2726, 2016		~~May~~August 2928, 2015		August 26,2016		August 28,2015
Royalty revenue	$	1,~~762~~922	$	1,~~129~~975	$	3,684	$	3,104
Royalty expenses:
Material, labor and other production costs	$	~~613~~702	$	~~934~~1,241	$	1,315	$	2,175
Selling, distribution and marketing expenses		~~556~~942		~~703~~988		1,498		1,691
Administrative and general expenses		~~280~~212		~~367~~344		492		711
	$	1,~~449~~856	$	2,~~004~~573	$	3,305	$	4,577

Note 6 – Other Income and Expense

Other Operating Income – Net

	Three Months Ended						Six Months Ended
(In thousands)	~~May~~August 2726, 2016			~~May~~August 2928, 2015			August 26,2016			August 28,2015
State tax credits	$	(1,050	)	$	—(6,541	)	$	(2,100	)	$	(6,541	)
(Gain) loss on asset disposal		(3	)		9
Gain adjustment (gain) on sale of Strawberry Shortcake		—			41			—			(61,625	)
Gain on sale of Strawberry Shortcake		—			(61,666	)
Loss on asset disposal		31			57			28			66
Miscellaneous		(~~837~~722	)		(~~763~~866	)		(1,559	)		(1,629	)
Other operating income – net	$	(1,~~890~~741	)	$	(627,~~420~~309	)	$	(3,631	)	$	(69,729	)

During the three and six months ended ~~May~~August 2726, 2016, the Corporation recognized income of $1.1 million ~~related~~and to$2.1 million, ~~non-income~~respectively, ~~based~~ from tax credits received from the State of Ohio ~~for~~under certain incentive programs made available to the Corporation in connection with ~~the~~its ~~relocation~~decision ofto maintain its world headquarters ~~within~~in the state of Ohio. Tax credits of $6.5 million were recognized in the quarter ended August 28, 2015.

InDuring ~~March~~the six months ended August 28, 2015, the Corporation recognized a net gain of $61.76 million infrom ~~connection with~~ 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.

Other Non-Operating Expense (Income) – Net

	Three Months Ended
(In thousands)	May 27, 2016			May 29, 2015
Foreign exchange loss (gain)	$	160		$	(784	)
Rental income		(148	)		(152	)
Miscellaneous		—			(2	)
Other non-operating expense (income) – net	$	12		$	(938	)

Other Non-Operating Expense (Income) – Net


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

Other non-operating expense (income) – net	$	698		$	(54	)	$	710		$	(992	)

Note 7 – Accumulated Other Comprehensive (Loss) Income

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

(In thousands)	ForeignCurrencyTranslationAdjustments			Pensions ~~andOtherPostretirementBenefits~~andPostretirementBenefits			UnrealizedInvestmentGain		Total
Balance at February 29, 2016	$	(13,535	)	$	(26,628	)	$	20,505	$	(19,658	)
Other comprehensive income (loss) before reclassifications		6(5,~~810~~660	)		(~~213~~222	)		716,~~858~~110		1410,~~455~~228
Amounts reclassified from accumulated other comprehensive income (loss)		—318			~~216~~452			—		~~216~~770
Other comprehensive income, net of tax		6,810			3			7,858		14,671
Other comprehensive income (loss), net of tax		(5,342	)		230			16,110		10,998
Balance at May 27, 2016	$	(6,725	)	$	(26,625	)	$	28,363	$	(4,987	)
Balance at August 26, 2016	$	(18,877	)	$	(26,398	)	$	36,615	$	(8,660	)

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

(In thousands)	~~Three~~Six Months ~~EndedMay~~EndedAugust 2726, 2016
Pensions and Postretirement Benefits:
Amortization of pensions and other postretirement benefits items
Amortization of pensions and postretirement benefits items
Actuarial losses, net	$	(~~506~~1,043	) (1)
Prior service credit, net		~~174~~347	(1)
		(332	)
		(696	)
Tax benefit		~~116~~244	(2)
Total, net of tax		(~~216~~452	)
Total reclassifications	$	(216	)
Foreign Currency Translation Adjustments:
Loss upon dissolution of business		(318	)(3)
Total reclassifications	$	(770	)

Classification on Consolidated Statement of Income:

(1)	Administrative and general expenses

(2)	Income tax expense

~~Note~~(3) 8Other –operating ~~Customer~~income ~~Allowances~~– ~~and Discounts~~ net

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

(In thousands)	May 27, 2016		February 29, 2016		May 29, 2015
Allowance for seasonal sales returns	$	20,011	$	21,518	$	20,026
Allowance for outdated products		7,574		8,372		10,547
Allowance for doubtful accounts		1,681		1,628		1,603
Allowance for marketing funds		28,912		26,371		26,373
Allowance for rebates		19,993		24,373		24,828
	$	78,171	$	82,262	$	83,377

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 $10.3 million, $16.0 million and $14.6 million as of May 27, 2016, February 29, 2016 and May 29, 2015, respectively.

Note 8 – Customer Allowances and Discounts

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


(In thousands)	August 26, 2016		February 29, 2016		August 28, 2015
Allowance for seasonal sales returns	$	17,707	$	21,518	$	16,437
Allowance for outdated products		10,396		8,372		10,109
Allowance for doubtful accounts		1,827		1,628		1,814
Allowance for marketing funds		27,273		26,371		23,495
Allowance for rebates		16,203		24,373		21,465

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

Note 9 – Inventories

(In thousands)	~~May~~August 2726, 2016		February 29, 2016		~~May~~August 2928, 2015
Raw materials	$	1415,~~742~~277	$	13,516	$	1819,~~271~~861
Work in process		910,~~852~~410		8,116		1112,~~310~~869
Finished products		~~282~~336,~~592~~014		277,480		~~294~~337,~~217~~344
		307,186		299,112		323,798
		361,701		299,112		370,074
Less LIFO reserve		80,~~752~~860		80,159		81,~~314~~659
		226,434		218,953		242,484
		280,841		218,953		288,415
Display materials and factory supplies		87,~~491~~803		8,503		8,~~638~~923
	$	~~234~~288,~~925~~644	$	227,456	$	~~251~~297,~~122~~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 $6865.43 million, $63.5 million and $6764.92 million as of ~~May~~August 2726, 2016, February 29, 2016 and ~~May~~August 2928, 2015, respectively.

Note 10 – Deferred Costs

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

(In thousands)	~~May~~August 2726, 2016			February 29, 2016			~~May~~August 2928, 2015
Prepaid expenses and other	$	8593,~~895~~622		$	92,639		$	9589,~~001~~305
Other assets		~~362~~392,~~918~~139			378,223			~~429~~411,~~532~~909
Deferred cost assets		~~448~~485,~~813~~761			470,862			~~524~~501,~~533~~214
Other current liabilities		(6274,~~194~~458	)		(47,142	)		(5364,~~530~~117	)
Other liabilities		(~~125~~152,~~808~~324	)		(145,856	)		(~~177~~160,~~133~~558	)
Deferred cost liabilities		(~~188~~226,~~002~~782	)		(192,998	)		(~~230~~224,~~663~~675	)
Net deferred costs	$	~~260~~258,~~811~~979		$	277,864		$	~~293~~276,~~870~~539

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

Note 11 – Other Liabilities

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

H L & L is an indirect affiliate of the Corporation as it is indirectly owned by members of the Weiss Family (as defined in Note 17). Due to, among other things, the Corporation’s involvement in the construction of the building, the Corporation is required to be treated, for accounting purposes only, as the “deemed owner” of the new world headquarters building during the construction period. Accordingly, the Corporation has recorded an asset and associated offsetting liability during the construction of the building, even though the Corporation does not own the asset and is not the obligor on the corresponding construction debt. The asset and corresponding liability was $105.7 million, $94.7 million and $39.3 million as of May 27, 2016, February 29, 2016 and May 29, 2015, respectively. See Note 17 for further information.

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

Note 11 – Other Liabilities

Included in “Other liabilities” on the Consolidated Statement of Financial Position is a deferred lease obligation related to an operating 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 will be completed in 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 $117.7 million, $94.7 million and $57.4 million as of August 26, 2016, February 29, 2016 and August 28, 2015, respectively. See Note 17 for further information.

Note 12 – Debt

Long-term debt and their related calendar year due dates as of ~~May~~August 2726, 2016, February 29, 2016 and ~~May~~August 2928, 2015, respectively, were as follows:

(In thousands)	~~May~~August 2726, 2016			February 29, 2016			~~May~~August 2928, 2015
Term loan, due 2019	$	185,000		$	185,000		$	185,000
7.375% senior notes, due 2021		225,000			225,000			225,000
Revolving credit facility, due 2018		415,~~050~~000			—			5856,000
6.10% senior notes, due 2028		181			181			181
Unamortized debt issuance costs		(6,671	)		(7,123	)		(8,478	)
Unamortized financing fees		(6,219	)		(7,123	)		(8,026	)
	$	~~407~~418,~~560~~962		$	403,058		$	~~459~~458,~~703~~155

At ~~May~~August 2726, 2016, the balances outstanding on the term loan facility and revolving credit facility each bear interest at a rate of approximately 23.950%. 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~~ there were no borrowings outstanding as of ~~May~~August 2726, 2016, February 29, 2016 and ~~May~~August 2928, 2015, respectively. Outstanding letters of credit, which reduce the total credit available under the revolving credit and the accounts ~~receivable~~ receivable facilities, totaled $25.9 million at ~~May~~August 2726, 2016.

InOn ~~March~~July 27, ~~2015~~2016, the Corporation ~~made~~amended aits ~~voluntary~~accounts ~~prepayment of $65~~receivable facility.0 The ~~million~~amendment onmodified the ~~term~~accounts ~~loan~~ receivable facility to, ~~thereby~~among ~~eliminating~~other ~~all~~things: ~~future~~(i) extend ~~quarterly~~the ~~installment~~scheduled ~~payments~~termination ~~prior~~date to ~~this facility’s August~~July 927, ~~2019~~2018 ~~maturity~~and ~~date. During the three months ended May~~(ii) ~~29,~~revise ~~2015,~~ the ~~Corporation~~bases ~~expensed~~upon anwhich ~~additional $1.8 million of unamortized financing~~ fees asare aassessed ~~result~~under ofthis ~~the prepayment~~facility.

~~The~~In ~~total~~March ~~fair~~2015 ~~value of~~ the Corporation’s ~~publicly~~made ~~traded~~a ~~debt,~~voluntary ~~which~~prepayment ~~was~~of ~~considered~~$65.0 ~~a Level~~million 1on ~~valuation~~the asterm itloan ~~was~~facility, ~~based~~thereby oneliminating ~~quoted~~all ~~market~~future ~~prices,~~quarterly ~~was~~installment payments ~~$230.2~~prior ~~million~~to ~~(at~~its aAugust 9, ~~carrying~~2019 ~~value~~maturity ~~of $225~~date.2 ~~million),~~During ~~$229.6~~the ~~million~~six ~~(at~~months aended ~~carrying~~August 28, ~~value~~2015, ofthe ~~$225.2~~Corporation ~~million)~~expensed ~~and~~an additional $~~238~~1.68 million ~~(at a carrying value~~ of ~~$225.2~~unamortized ~~million)~~financing atfees ~~May 27, 2016, February 29,~~as ~~2016~~a ~~and~~result ~~May 29,~~of ~~2015,~~the ~~respectively~~prepayment.

InThe ~~April~~total ~~2015,~~fair ~~the~~value ~~FASB~~of ~~issued ASU No. 2015-03, “Simplifying~~ the ~~Presentation~~ ofCorporation’s ~~Debt~~publicly ~~Issuance~~traded ~~Costs.”~~debt, ~~ASU~~which ~~2015-03~~was ~~requires~~considered ~~that~~a ~~all~~Level ~~costs~~1 ~~incurred~~valuation toas ~~issue~~it ~~debt~~was bebased ~~presented~~on inquoted ~~the~~market ~~balance~~prices, ~~sheet~~was $235.5 asmillion (at a ~~direct deduction from the~~ carrying value of ~~the~~$225.2 ~~debt~~million), ~~similar to the presentation of debt discounts~~$229.6 ~~The Corporation~~million ~~adopted~~(at ~~ASU 2015-03 effective March 1, 2016, on~~ a ~~retrospective~~carrying ~~basis,~~value ~~and accordingly, debt issuance costs~~ of $3225.32 million) and $3234.81 million ~~were~~ ~~reclassified~~(at ~~from~~a ~~“Other~~carrying ~~assets”~~value toof ~~“Long-term~~$225.2 ~~debt”~~million) ~~on the Consolidated Balance Sheets~~ at August 26, 2016, February 29, 2016 and ~~May~~August 2928, 2015, 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 $189.1 million (at a principal carrying value of $189.1 million), $185.0 million (at a principal carrying value of $185.0 million) and $242.5 million (at a principal carrying value of $243.0 million) at May 27, 2016, February 29, 2016 and May 29, 2015, respectively.

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

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, 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) at August 26, 2016, February 29, 2016 and August 28, 2015, respectively.

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

Note 13 – Retirement Benefits

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

	Defined Benefit Pension Plans						~~Postretirement Benefits Plan~~
	Three Months Ended						~~Three~~Six Months Ended
(In thousands)	May 27, 2016			May 29, 2015			May 27, 2016			May 29, 2015
	August 26,			August 28,			August 26,			August 28,
Service cost	$	186		$	159		$	86		$	125
(In thousands)	2016			2015			2016			2015
Interest cost		1,593			1,558			528			525
Service cost	$	219		$	159		$	405		$	318
Expected return on plan assets		(1,528	)		(1,668	)		(582	)		(675	)
Interest cost		1,588			1,550			3,181			3,108
Amortization of prior service cost (credit)		1			1			(175	)		(175	)
Expected return on plan assets		(1,500	)		(1,659	)		(3,028	)		(3,327	)
Amortization of actuarial loss (gain)		873			848			(367	)		(300	)
Amortization of prior service cost		1			1			2			2
	$	1,125		$	898		$	(510	)	$	(500	)
Amortization of actuarial loss		904			846			1,777			1,694
	$	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	)

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, prior to January 1, 2016, the Corporation 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 contributions, which were discontinued for fiscal years ending after February 29, 2016. The 401(k) matching contributions for the three- and six month ~~period~~periods ended ~~May~~August 2726, 2016 were $53.14 million and $8.5 million, respectively, as compared to the combined expense attributable to the profit -sharing and 401(k) matching contributions for the three- and six month ~~period~~periods ended ~~May~~ August 2928, 2015 of $23.0 million and $5.9 million, respectively.

At14 May 27, 2016, February 29, 2016 and May 29, 2015, the liability for postretirement benefits other than pensions was $18.5 million, $17.8 million and $18.5 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position. At May 27, 2016, February 29, 2016 and May 29, 2015, the long-term liability for pension benefits was $79.0 million, $80.2 million and $80.3 million, respectively, and is included in “Other liabilities” on the Consolidated Statement of Financial Position.

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

Note 14 – Fair Value Measurements

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

•

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

•

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

•

Level 3 – Valuation is based upon unobservable inputs that are significant to the fair value measurement.

14The following table summarizes the financial assets and liabilities measured at fair value as of August 26, 2016:


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

	$	71,252	$	70,021	$	1,231	$	—

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

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

(In thousands)	May 27, 2016		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	12,004	$	10,780	$	1,224	$	—
Investment in equity securities		45,965		45,965		—		—
	$	57,969	$	56,745	$	1,224	$	—
Liabilities measured on a recurring basis:
Deferred compensation plan liabilities	$	12,987	$	10,780	$	2,207	$	—

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


(In thousands)	February 29, 2016		Level 1		Level 2		Level 3
Assets measured on a recurring basis:
Deferred compensation plan assets	$	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	$	12,064	$	9,936	$	2,128	$	—

The following table summarizes the assets and liabilities measured at fair value as of ~~May~~August 2928, 2015:

(In thousands)

~~May~~August 2928, 2015

Level 1

Level 2

Level 3

Assets measured on a recurring basis:

Deferred compensation plan assets

1211,~~484~~514

1110,~~035~~236

1,~~449~~278

—

Investment in equity securities

7356,~~080~~482

—

8567,~~564~~996

8466,~~115~~718

1,~~449~~278

—

Liabilities measured on a recurring basis:

Deferred compensation plan liabilities

1312,~~448~~425

1110,~~035~~236

2,~~413~~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 on a quoted price in an active market.

Note 15 – Contingency

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

AlThe ~~Smith~~deferred etcompensation ~~al.~~plan v.includes ~~American~~investments ~~Greetings~~in ~~Corporation.~~mutual Onfunds ~~June 4,~~and ~~2014,~~a Almoney ~~Smith~~market ~~and~~fund. ~~Jeffrey Hourcade,~~Assets ~~former~~held ~~fixture~~in mutual ~~installation~~funds ~~crew~~are ~~members~~recorded ~~for~~at ~~special~~fair ~~projects~~value, ~~individually~~which ~~and~~is onconsidered ~~behalf of those similarly situated, filed~~ a ~~putative~~Level ~~class~~1 ~~action~~valuation ~~lawsuit~~as ~~against~~it ~~American~~is ~~Greetings~~based ~~Corporation~~on ineach ~~the~~fund’s ~~U.S.~~quoted ~~District~~market ~~Court~~value ~~for~~per ~~the~~share ~~Northern District~~in ofan ~~California,~~active ~~San Francisco Division~~market. ~~Plaintiffs~~The ~~claim~~money ~~that~~market ~~the~~fund ~~Corporation~~is ~~violated~~classified ~~certain~~as ~~rules~~Level ~~under~~2 ~~the~~as ~~Fair~~substantially ~~Labor~~all ~~Standards~~of ~~Act and California law, including~~ the fund’s ~~California~~investments ~~Labor~~are ~~Code~~determined ~~and~~using ~~Industrial~~amortized ~~Welfare Commission Wage Orders~~cost. ~~For~~ ~~themselves~~The ~~and~~fair ~~the~~value ~~proposed classes, plaintiffs seek an unspecified amount~~ of ~~general~~the ~~and~~deferred ~~special~~compensation ~~damages,~~plan ~~including~~liabilities ~~but~~is ~~not~~based ~~limited~~on ~~to minimum wages, agreed upon wages and overtime wages, statutory liquidated damages, statutory penalties (including penalties under~~ the ~~California~~fair ~~Labor~~value ~~Code Private Attorney General Act~~ of: ~~2004~~ (~~“PAGA”~~i), the ~~unpaid benefits, reasonable attorneys~~plan’s ~~fees~~assets ~~and~~for ~~costs,~~invested ~~and~~deferrals ~~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~~(ii) 6,hypothetical ~~2014, plaintiffs filed a Second Amended Complaint to add claims~~investments for ~~reimbursement~~unfunded ~~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~~deferrals.

OnThe ~~January 20,~~investment ~~2015, the parties reached a settlement~~ in ~~principle~~equity ~~that,~~securities ifis ~~approved~~considered bya ~~the~~Level ~~Court,~~1 ~~will~~valuation ~~fully and finally resolve the claims brought by Smith and Hourcade,~~ as ~~well~~it asis ~~the~~based ~~classes~~upon ~~they seek to represent. The settlement was~~ a ~~product~~quoted ofprice ~~extensive negotiations and a private mediation, which was finalized and memorialized~~ in a Stipulation and Class Action Settlement Agreement signed March 30, 2015. On March 31, 2015, plaintiffs filed a Motion for Preliminary Approval of Class Action Settlement and on July 23, 2015, the Court entered its Order Granting Preliminary Approval of Class Action Settlement. On August 24, 2015, the claims administrator commenced mailing of notice and claim forms to class members and the claims closed October 24, 2015. On October 14, 2015, plaintiffs filed a motion for final approval of the class settlement, together with their motion for approval of incentive payments to the Named Plaintiffs and attorneys’ fees. The Court held a final approval hearing on December 17, 2015. On May 19, 2016, the Court entered an ~~Order~~active ~~Granting Motion for Final Approval of Class Action Settlement; Granting in Part Motion for Attorneys’ Fees, Costs, and Class Representatives’ Service Payments~~market.

~~The Court-approved~~Note ~~settlement~~15 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~~ inContingency ~~California between June 4, 2010 and July 23, 2015. American Greetings paid the settlement funds to the claims administrator on June 21, 2016, and the claims administrator will disburse the funds.~~

~~Michael~~The ~~Ackerman v. American Greetings~~ Corporation, etis presently ~~al.~~involved Onin ~~March 6,~~various ~~2015~~judicial, ~~plaintiff Michael Ackerman~~administrative, ~~individually~~ and onregulatory ~~behalf~~proceedings ~~of others~~concerning ~~similarly~~matters ~~situated,~~arising ~~filed a putative class action lawsuit~~ in the ~~United~~ordinary ~~States~~course ~~District Court~~ of ~~New~~business, ~~Jersey~~including ~~alleging~~but ~~violation~~not oflimited ~~the~~to, ~~Telephone~~employment ~~Consumer~~and ~~Protection~~commercial ~~Act~~disputes. ~~(“TCPA”)~~These bymatters ~~American~~are ~~Greetings~~inherently ~~Corporation~~subject to ~~and~~many ~~its~~uncertainties ~~subsidiary, AG~~regarding ~~Interactive,~~the ~~Inc.~~possibility ~~The~~of ~~plaintiff~~a ~~claimed~~loss ~~that~~to ~~defendants~~the ~~(1) sent~~Corporation. ~~plaintiff~~These anuncertainties ~~unsolicited~~will ~~text~~ultimately ~~message~~be ~~notifying~~resolved ~~plaintiff~~when ~~that~~one heor ~~had~~more ~~received~~future anevents ~~ecard;~~occur ~~and~~or ~~(2) knowingly~~fail ~~and/or~~to ~~willfully~~occur, ~~violated~~confirming the ~~TCPA,~~incurrence ~~which~~of ~~prohibits~~a ~~unsolicited automated~~liability or ~~prerecorded~~reduction ~~telephone~~of ~~calls,~~a liability. ~~including~~In ~~faxes~~accordance ~~and~~with ~~text~~ASC ~~messages~~Topic 450, ~~sent~~“Contingencies,” tothe ~~cellular~~Corporation ~~telephones.~~accrues ~~Plaintiff~~for ~~sought~~these tocontingencies ~~certify~~by a ~~nationwide~~charge ~~class~~to ~~based~~income onwhen ~~unsolicited~~it ~~text~~is ~~messages~~both ~~sent~~probable bythat ~~defendants~~one ~~during~~or ~~the~~more ~~period~~future ~~February 8,~~events ~~2011 through~~will ~~February 8,~~occur ~~2015.~~confirming ~~The~~the ~~plaintiff~~fact ~~sought~~of ~~damages~~a inloss ~~the~~and ~~statutory~~ the amount of ~~five-hundred~~the ~~dollars~~loss ~~for~~can ~~each~~be ~~and~~reasonably ~~every~~estimated. ~~violation~~This ofaccrual ~~the~~is ~~TCPA~~included ~~and~~in ~~one-thousand~~“Accrued ~~five-hundred~~liabilities” ~~dollars~~on ~~for~~the ~~each~~Consolidated ~~and~~Statement ~~every willful violation~~ of ~~the~~Financial ~~TCPA~~Position. ~~After extensive~~Due ~~negotiations,~~to onthis ~~June 7~~uncertainty, ~~2016,~~ the ~~parties~~actual ~~entered~~amount ~~into~~of aany ~~confidential~~loss ~~release~~may ~~and~~ultimately ~~settlement~~prove ~~agreement~~to ~~which~~be ~~contemplated~~larger or asmaller ~~one-time~~than ~~payment~~the ofamounts anreflected ~~immaterial~~in ~~amount~~the toCorporation’s ~~plaintiff~~Consolidated ~~through~~Financial ~~his~~Statements. ~~legal~~Some ~~counsel~~of ~~and,~~these onproceedings ~~June 23,~~are ~~2016, with~~at ~~all~~preliminary ~~amounts~~stages ~~due~~and ~~thereunder~~some ~~from~~of ~~the~~these ~~Corporation~~proceedings ~~having~~seek ~~been~~an ~~paid,~~indeterminate ~~the~~amount ~~parties stipulated to the dismissal~~ of ~~the lawsuit with prejudice~~damages.

Note 16 – Income Taxes

The Corporation’s provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The magnitude of the impact that discrete items have on the Corporation’s quarterly effective tax rate is dependent on the level of income in the period. The effective tax rate was 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. The lower than U.S. statutory rate for the three and six month periods 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.

As reported in its Annual Report on Form 10-K for the year ended February 29, 2016, a previously nonmarketable investment established a readily determinable fair value as the result of the investment’s successfully completed initial public offering. Therefore, the Corporation began recording adjustments to mark-to-market the value of 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 month periods ended August 26, 2016 and August 28, 2015, respectively.

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 $17.1 million that, if recognized, would have a favorable effect on the Corporation’s income tax expense of $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.

~~Note~~The 16Corporation –recognizes ~~Income~~interest ~~Taxes~~and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the six months ended August 26, 2016, the Corporation recognized a net expense of $0.2 million for interest and penalties on unrecognized tax benefits and refundable income taxes. As of August 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 $1.8 million.

~~The~~With ~~Corporation’s~~few ~~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~~exceptions, ~~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~~subject onto ~~the~~examination ~~level of income~~ in the ~~period~~U. ~~The effective tax rate was 32~~S.6% and ~~34.6%~~various ~~for~~state ~~the three months ended May 27, 2016~~ and ~~May 29,~~local ~~2015,~~jurisdictions ~~respectively.~~for ~~The~~tax ~~lower~~years ~~than~~2010 ~~U.S.~~to ~~statutory rate for~~ the ~~three months ended~~ ~~May~~present. ~~27,~~The ~~2016~~Corporation ~~and~~is ~~May 29,~~also ~~2015~~subject ~~are primarily related~~ to ~~the~~tax ~~domestic~~examination ~~production~~in ~~activities~~various ~~deduction,~~international tax ~~treatment~~jurisdictions ofincluding ~~corporate-owned~~Canada, ~~life~~the ~~insurance~~United ~~and~~Kingdom, ~~lower~~Australia, ~~tax rates in foreign jurisdictions~~Italy, ~~partially~~Mexico ~~offset~~and byNew ~~state~~Zealand ~~income~~for tax ~~rates on~~years ~~U.S.~~2011 ~~income,~~to ~~net~~the ~~of federal benefit~~present.

As reported in the prior year, the Corporation began recording adjustments to mark-to-market the value of one of its investments as of May 29, 2015. As a result, a decrease in the Corporation’s deferred tax assets in the amount of $4.9 million and $28.5 million was recognized in other comprehensive income for the three months ended May 27, 2016 and May 29, 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 Balance Sheet as of February 29, 2016. No prior periods were retrospectively adjusted.

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

The Corporation recognizes interest and penalties accrued on unrecognized tax benefits and refundable income taxes as a component of income tax expense. During the three months ended May 27, 2016, the Corporation recognized a de minimis net expense for interest and penalties on unrecognized tax benefits and refundable income taxes. As of May 27, 2016, the total amount of gross accrued interest and penalties related to unrecognized tax benefits less refundable income taxes was a net payable of $1.7 million.

With few exceptions, the Corporation is subject to examination in the U.S. and various state and local jurisdictions for tax years 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 2011 to the present.

Note 17 – Related Party Information

World ~~headquarters~~Headquarters ~~relocation~~Relocation

In May 2011, the Corporation announced that it will be relocating its world headquarters to a new location in the City of Westlake, Ohio, in a mixed-use development known as Crocker Park (the “Crocker Park Development”), which offers a vibrant urban setting, with retail stores and restaurants, offices and apartments. After putting the project on hold pending the outcome of the going private transaction, the Corporation announced plans in October 2013 to resume the project and, on March 26, 2014, the Corporation purchased from Crocker Park, LLC, the owner of the Crocker Park Development, 14.48 acres of land at the south end of the Crocker Park Development (the “Crocker 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 $0.5 million). Morry Weiss, the Chairman of the Board of the Corporation, Zev Weiss and Jeffrey Weiss, directors and the Co-Chief Executive Officers of the Corporation, and Gary and Elie Weiss, directors and non-executive officers of the Corporation, together with 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, including obligations 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 the Corporation, was reserved to the manager of Crocker Park, LLC. The manager of Crocker Park, LLC is not an affiliate of the Weiss Family, 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 beginning in the third quarter of fiscal 2017 will 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 lease to lease the Tech West building and Surface Lot from H L & L, also beginning in the third quarter of fiscal 2017. The initial lease terms are fifteen years and 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 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 have 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 $9.0 million. There were no amounts outstanding under this loan agreement as of August 26, 2016, February 29, 2016 and August 28, 2015.

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, including obligations 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 the Corporation, was reserved to the manager of Crocker Park, LLC. The manager of Crocker Park, LLC is not an affiliate of the Weiss Family, 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, will 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”) adjacent to the world headquarters building and a surface parking lot (“Surface Lot”) on land that it is leasing from the Corporation. The Corporation has also entered into operating leases to lease these buildings from H L & L, which are anticipated to be available for occupancy in calendar year 2016. The initial lease terms are fifteen years and will begin upon occupancy. The annual rent is expected to be approximately $10.6 million. See Note 11 for further information.

Although the majority of the costs to construct the new world headquarters is expected to be financed through H L & L, due to the inherent difficulty in estimating costs associated with projects of this scale and nature, the costs associated with this project may be higher than expected and the Corporation may have to dedicate additional funds to the project, including providing additional funds to H L & L. As a result, effective as of December 1, 2014, the Corporation entered into a loan agreement with H L & L under which the Corporation may from time to time make revolving loans to H L & L. Loans made to H L & L under this agreement may only be used to fund construction costs associated with the world headquarters project and the maximum principal and market-rate interest that may be outstanding as of any given time under this loan agreement may not exceed $9.0 million. There were no amounts outstanding under this loan agreement as of May 27, 2016 and February 29, 2016, and $2.5 million outstanding as of May 29, 2015.

Transactions with Parent Companies and Other Affiliated Companies

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

The Corporation, ~~Parent~~paid ~~and~~cash ~~certain~~dividends ofin ~~their~~the ~~subsidiaries~~aggregate ~~and~~amount ~~affiliates,~~of ~~file~~$13.9 amillion ~~consolidated~~to ~~U.S.~~Century ~~federal~~Intermediate ~~income~~Holding ~~tax~~Company ~~return. The~~(“Parent”), ~~Corporation~~its ~~pays~~parent ~~all~~and sole ~~taxes~~shareholder onduring ~~behalf of~~ the ~~group~~six ~~included~~months inended ~~this~~August 26, ~~consolidated~~2016, ~~federal~~for ~~income~~the ~~tax~~sole ~~return. Pursuant~~purpose toof ~~this~~paying ~~tax~~interest ~~sharing~~on ~~arrangement,~~the ~~there was~~ $0285.30 million ~~due~~aggregate ~~from~~principal ~~affiliates~~amount at9.750%/10.500% ~~May 27,~~Senior ~~2016~~PIK ~~and~~Toggle ~~February 29~~Notes due 2019, ~~2016~~(the ~~and~~“PIK” ~~$1.9~~notes) ~~million~~which ~~due~~were toissued by ~~affiliates~~Century atIntermediate ~~May 29~~Holding Company 2, ~~2015~~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, there was $0.3 million due from affiliates at August 26, 2016 and February 29, 2016 and no amounts due to or due from affiliates as of August 28, 2015.

Note 18 – Business Segment Information

The Corporation operates in five business segments: North American Social Expression Products, International Social Expression Products, Retail Operations, AG Interactive and 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 ~~May~~August 2726, 2016, the Retail Operations segment operated ~~395~~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. The Corporation’s Non-reportable operating segment primarily includes licensing activities.


	Three Months Ended						Six Months Ended
(In thousands)	August 26, 2016			August 28, 2015			August 26, 2016			August 28, 2015
Total Revenue:
North American Social Expression Products	$	270,769		$	285,556		$	593,229		$	621,160
International Social Expression Products		48,296			65,858			98,882			128,026
Intersegment items		(11,753	)		(11,286	)		(25,334	)		(21,599	)

Net		36,543			54,572			73,548			106,427
Retail Operations		55,149			65,503			120,561			137,311
AG Interactive		13,112			13,736			26,043			27,166
Non-reportable		1,440			1,661			2,940			2,407

	$	377,013		$	421,028		$	816,321		$	894,471

(In thousands)	Three Months Ended
	Three Months Ended						Six Months Ended
Total Revenue:	May 27, 2016			May 29, 2015
(In thousands)	August 26,2016			August 28,2015			August 26,2016			August 28,2015
North American Social Expression Products	$	322,460		$	335,604
Segment Earnings (Loss) Before Tax:
International Social Expression Products		50,586			62,168
North American Social Expression Products	$	37,627		$	46,209		$	97,772		$	119,336
Intersegment items		(13,581	)		(10,313	)
International Social Expression Products		(1,394	)		(49	)		(2,505	)		(5,059	)
Net		37,005			51,855
Intersegment items		148			879			(526	)		1,630
Retail Operations		65,412			71,808
Net		(1,246	)		830			(3,031	)		(3,429	)
AG Interactive		12,931			13,430
Retail Operations		(10,693	)		(12,615	)		(18,155	)		(20,758	)
Non-reportable segment		1,500			746
AG Interactive		3,926			5,276			8,134			10,147
	$	439,308		$	473,443
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

(In thousands)	Three Months Ended
Segment Earnings (Loss) Before Tax:	May 27, 2016			May 29, 2015
North American Social Expression Products	$	60,145		$	73,127
International Social Expression Products		(1,111	)		(5,010	)
Intersegment items		(674	)		751
Net		(1,785	)		(4,259	)
Retail Operations		(7,462	)		(8,143	)
AG Interactive		4,208			4,871
Non-reportable segment		64			60,347
Unallocated
Interest expense		(5,597	)		(8,113	)
401(k) match and profit-sharing expense		(5,061	)		(2,911	)
Corporate overhead expense		(5,264	)		(3,586	)
		(15,922	)		(14,610	)
	$	39,248		$	111,333

“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.

~~“Corporate~~For ~~overhead~~the ~~expense”~~six ~~includes~~months ~~costs~~ended August 28, ~~associated~~2015, ~~with~~Non-reportable ~~corporate~~segment ~~operations~~earnings ~~including,~~included ~~among~~a ~~other~~gain ~~costs, senior~~of ~~management,~~$61.6 ~~corporate~~million ~~finance,~~from ~~legal,~~the ~~and~~sale ~~insurance~~of ~~programs~~Strawberry Shortcake. See Note 4 for further information.

For the three months ended May 29, 2015, earnings for the Corporation’s Non-reportable segment included a preliminary gain, subject to finalization of certain closing date estimates, of $61.7 million from the sale of Strawberry Shortcake. See Note 4 for further information.

Termination Benefits

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

The balance of the severance accrual was $32.16 million, $3.5 million and $32.31 million at ~~May~~August 2726, 2016, February 29, 2016 and ~~May~~August 2928, 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.

Overview

~~Total revenue~~Second ~~for~~Quarter ~~the~~Results ~~current year first quarter was $439.3 million, a decrease~~ of $34.1 million, or 7.2%, compared to the prior year period. This decrease was primarily the result of decreased sales of greeting cards, gift packaging and party goods, and other ancillary products. In addition, foreign currency translation had an unfavorable impact of approximately $6 million. Revenue was lower in each of the North American Social Expression Products, International Social Expression Products, Retail Operations~~, and AG Interactive segments.~~

~~First~~Total ~~quarter~~revenue ~~operating~~for ~~income~~the current year second quarter was $44377.80 million, a decrease of ~~approximately~~ $7344.70 million, or 6210.25%, compared to the prior year period. This ~~The~~decrease ~~prior~~was ~~year~~primarily ~~included~~the aresult ~~gain~~ of ~~$61.7~~decreased ~~million~~sales ~~related~~of togreeting ~~the~~cards, ~~sale~~gift ofpackaging ~~Strawberry~~and ~~Shortcake~~party goods, ~~which~~as ~~was~~well ~~recorded~~as ~~within~~an ~~our~~unfavorable ~~Non-reportable~~foreign ~~segment.~~currency ~~Excluding~~translation ~~the~~ impact of ~~the~~approximately ~~transaction~~$13 ~~gain,~~million. ~~operating~~Excluding ~~income~~the ~~decreased approximately~~impact ~~$12.0~~of ~~million~~foreign currency translation, orthe ~~21.1%.~~lower ~~This~~revenue ~~remaining decrease~~ was primarily within ~~our~~the North American Social Expression Products ~~segment, driven by lower sales volume~~ and ~~higher technology costs. Despite the lower revenue in the~~ International Social Expression Products ~~and Retail Operations~~ segments~~, earnings improved in these segments due to lower operating expenses~~. ~~The current quarter also includes an unfavorable impact of approximately $1.0 million related to SBT implementations, compared to less than $0.5 million in the prior year period.~~

20Second quarter operating income was $21.7 million, a decrease of $15.7 million compared to the same period in the prior year. The current and prior year quarters include income of $1.1 million and $6.5 million, respectively, from tax credits received from the State of Ohio to maintain our world headquarters in Ohio. Net of the year-over-year impact of the tax credits, the remaining earnings decrease was primarily within our North American Social Expression Products segment driven by lower sales.

~~Table~~20 ~~of Contents~~

ResultsTable of Operations Contents

~~Three~~Results ~~months~~of ~~ended~~Operations ~~May 27, 2016 and May 29, 2015~~

~~Net~~Three ~~income~~months ~~was~~ended $August 26.5, ~~million~~2016 inand ~~the~~August 28, ~~first~~2015 ~~quarter compared to $72.8 million in the prior year first quarter.~~

~~Our~~Net ~~results~~income ~~for~~was $10.3 million in the ~~three~~second ~~months~~quarter ~~ended~~compared ~~May 27,~~to ~~2016~~$24.5 ~~and~~million ~~May 29,~~in ~~2015~~the ~~are~~prior ~~summarized~~year ~~below:~~period.

(Dollars in thousands)	2016			% TotalRevenue			2015			% TotalRevenue
Net sales	$	437,187			99.5	%	$	471,892			99.7	%
Other revenue		2,121			0.5	%		1,551			0.3	%
Total revenue		439,308			100.0	%		473,443			100.0	%
Material, labor and other production costs		178,900			40.7	%		195,474			41.3	%
Selling, distribution and marketing expenses		153,528			34.9	%		163,759			34.6	%
Administrative and general expenses		64,018			14.6	%		58,221			12.3	%
Other operating income – net		(1,890	)		(0.4	%)		(62,420	)		(13.2	%)
Operating income		44,752			10.2	%		118,409			25.0	%
Interest expense		5,597			1.3	%		8,113			1.7	%
Interest income		(105	)		(0.0	%)		(99	)		(0.0	%)
Other non-operating expense (income) – net		12			0.0	%		(938	)		(0.2	%)
Income before income tax expense		39,248			8.9	%		111,333			23.5	%
Income tax expense		12,778			2.9	%		38,569			8.1	%
Net income	$	26,470			6.0	%	$	72,764			15.4	%

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

For the three months ended May 27, 2016, consolidated net sales were $437.2 million, down from $471.9 million in the prior year first quarter. This 7.4%, or approximately $35 million, decrease was driven by lower sales of greeting cards of approximately $23 million, the unfavorable impact of foreign currency translation of approximately $6 million, a decrease in gift packaging and party goods sales of approximately $3 million, lower sales of other ancillary products of approximately $2 million, and the unfavorable impact of more SBT implementations during the current year period compared to the prior year of approximately $1 million.


(Dollars in thousands)	2016			% Total Revenue			2015			% Total Revenue
Net sales	$	374,748			99.4	%	$	418,611			99.4	%
Other revenue		2,265			0.6	%		2,417			0.6	%

Total revenue		377,013			100.0	%		421,028			100.0	%
Material, labor and other production costs		159,214			42.2	%		177,985			42.3	%
Selling, distribution and marketing expenses		142,061			37.7	%		153,641			36.5	%
Administrative and general expenses		55,797			14.8	%		59,365			14.1	%
Other operating income – net		(1,741	)		(0.4	%)		(7,309	)		(1.7	%)

Operating income		21,682			5.7	%		37,346			8.8	%
Interest expense		5,940			1.6	%		6,486			1.5	%
Interest income		(230	)		(0.1	%)		(84	)		(0.0	%)
Other non-operating expense (income) – net		698			0.2	%		(54	)		(0.0	%)

Income before income tax expense		15,274			4.0	%		30,998			7.3	%
Income tax expense		4,970			1.3	%		6,518			1.5	%

Net income	$	10,304			2.7	%	$	24,480			5.8	%

~~Wholesale~~For ~~Unit~~the three months ended August 26, 2016, consolidated net sales were $374.7 million, down from $418.6 million in the prior year second quarter. This 10.5%, or $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 $13 million, and ~~Pricing~~lower ~~Analysis~~sales ~~for~~of ~~Greeting~~gift packaging ~~Cards~~and party goods of approximately $9 million. The current year quarter includes a nominal impact related to scan-based trading (“SBT”) implementations, which is favorable to the prior year quarter by approximately $1.5 million.

Wholesale Unit and ~~pricing~~Pricing ~~comparatives~~Analysis ~~(on a sales less returns basis)~~ for ~~the~~Greeting ~~three~~Cards ~~months ended May 27, 2016 and May 29, 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		(7.7	%)		(1.3	%)		(6.8	%)		(5.4	%)		(7.4	%)		(2.8	%)
Selling prices		2.3	%		2.1	%		2.6	%		1.1	%		2.4	%		1.6	%
Overall increase / (decrease)		(5.6	%)		0.8	%		(4.4	%)		(4.3	%)		(5.1	%)		(1.2	%)

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 26, 2016 and August 28, 2015 are summarized below:

During the first quarter, combined everyday and seasonal greeting card sales less returns decreased 5.1% compared to the prior year quarter, as a result of a decrease in unit volume of 7.4% partially offset by increases in selling prices of 2.4%. The overall decrease was primarily driven by decreases in unit volume from our everyday and seasonal greeting cards in both our North American Social Expression Products and International Social Expression Products segments.


	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	%

~~Everyday~~During ~~card~~the ~~sales~~second ~~less~~quarter, ~~returns~~combined ~~during~~everyday ~~the~~and ~~three~~seasonal ~~months ended~~greeting ~~May 27,~~card ~~2016~~sales less returns decreased 5.61% compared to the prior year quarter, including a decrease in unit volume of 7.7%, ~~Both~~partially ~~the~~offset by an increase in selling prices of 2.9%. The overall decrease was driven by decreased unit volumes in both everyday and seasonal greeting cards in our North American Social Expression Products and International Social ~~Expression~~Expressions Products segments, partially offset by an increase in selling prices in both the everyday and seasonal greeting cards in our International Social Expressions Products segment.

~~segments~~Everyday ~~experienced~~card sales less returns during the three months ended August 26, 2016 decreased ~~unit~~4.8% ~~volumes~~compared ~~that~~to the ~~were~~prior ~~partially~~year ~~offset~~quarter byprimarily ~~selling~~due ~~price~~to ~~increases~~decreased unit volume experienced in the International Social Expression Products 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 ~~during the three months ended May 27, 2016~~ decreased 46.47% during ~~compared to~~ the ~~prior~~second ~~year~~ quarter, ~~with~~including a 10.5% decrease in unit volume, ~~of 6.8% partially~~ offset by an increase in selling ~~prices~~price of 24.62%. ~~The~~Due ~~unit~~to ~~volume~~the ~~decline~~fact inthat ~~our North~~the ~~American~~second ~~Social~~quarter ~~Expression~~has ~~Products~~the ~~segment~~fewest ~~was~~holidays, ~~driven~~the byimpact ~~our~~of ~~Easter~~changes ~~program.~~in ~~The~~selling price and unit volume ~~decline~~appear large inon ~~our~~a ~~International~~percentage ~~Social~~basis, ~~Expression~~compared ~~Products~~to ~~segment~~other quarters. The decrease in unit volume was primarily driven by ~~declines~~the Father’s Day program in our ~~Easter~~International ~~and~~Social ~~Mother’s~~Expression ~~Day~~Products ~~programs~~segment, ~~due~~ primarily due to the continuation of the reduced distribution to a significant customer., ~~The~~as ~~increase~~well as the Father’s Day and Fall programs in our North American Social Expression Products segment. The selling ~~prices~~price increase was primarily ~~attributable~~driven toby the Father’s Day program in our International ~~Easter~~Social Expression Products segment and ~~Mother’s~~the ~~Day~~Fall ~~programs~~program in our ~~International~~North American Social Expression Products segment.

Expense Overview

Material, labor and other production costs ~~were~~(“MLOPC”) ~~$178.9 million~~ for the three months ended ~~May~~August 2726, 2016, awere ~~decrease of~~ $16159.62 million, ~~from~~compared to $~~195~~178.5 0 million in the prior year ~~first~~three ~~quarter~~months. As a percentage of total revenue, these costs were 4042.72% in the current period compared to 4142.3% for the three months ended ~~May~~August 2928, 2015. The ~~dollar~~$18.8 million decrease was primarily due to the ~~favorable~~ impact of lower sales ~~volumes~~volume and favorable product mix in the wholesale card business of approximately $912 million, ~~lower~~the ~~production~~favorable impact of foreign currency translation of approximately $7 million and ~~inventory~~favorable ~~scrap~~production expenses of approximately $5 million,. Partially ~~and~~offsetting ~~the~~these ~~favorable~~decreases ~~impact~~were higher scrap expenses of ~~foreign~~approximately ~~currency~~$3 ~~translation~~million and higher product content costs of approximately $32 million.

Selling, distribution and marketing (“SDM”) expenses ~~were $153.5 million~~ for the three months ended ~~May~~August 2726, 2016 were $142.1 million, decreasing $1011.35 million from $~~163~~153.86 million in the prior year ~~first~~second quarter. As a percentage of total revenue, these costs were 3437.97% in the current period compared to 3436.65% 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 $37 million, lower ~~marketing~~expenses ~~and~~in ~~advertising~~our ~~costs~~Retail ofOperations ~~approximately~~segment ~~$3 million, lower supply chain costs~~ of approximately $3 million, and ~~lower~~other ~~retail~~cost ~~expenses~~savings of approximately $1 million.

Administrative and general expenses were $6455.08 million for the three months ended ~~May~~August 2726, 2016, ana ~~increase~~decrease of $53.86 million from $5859.24 million infor the three ~~prior~~months ~~year~~ended ~~first~~August 28, ~~quarter~~2015. This ~~increase~~decrease was driven primarily by ~~higher~~lower technology costs, predominantly related to our information technology systems refresh project of approximately $42 million, and ~~higher combined~~the ~~401(k)~~favorable ~~match~~impact ~~and~~of ~~profit-sharing~~foreign currency ~~expense~~translation of approximately $21 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 $1.97 million ~~during~~for the ~~current~~three ~~year~~months ~~quarter~~ended August 26, 2016 compared to $627.43 million infor the prior year second quarter. InThe ~~the~~current ~~prior~~ year ~~first~~period ~~quarter,~~includes weincome ~~recognized~~of a$1.1 ~~preliminary~~million ~~gain~~compared ofto $616.75 million in ~~connection~~the ~~with~~prior year period, from tax credits received from the ~~sale~~State of ~~Strawberry~~Ohio ~~Shortcake.~~under ~~See~~certain ~~Note~~incentive 4,programs made ~~“Acquisitions~~available ~~and~~to ~~Dispositions,”~~us toin ~~the~~connection ~~Consolidated~~with ~~Financial~~our ~~Statements~~decision ~~for~~to ~~further~~maintain ~~information~~our world headquarters in Ohio.

The effective tax rate was 32.65% and 3421.60% for the three months ~~month periods~~ ended ~~May~~August 2726, 2016 and ~~May~~August 2928, 2015, respectively. The lower than ~~U.S.~~ statutory rate for the ~~three~~current ~~months~~period ~~ended~~is ~~May 27, 2016 and May 29, 2015 are~~ 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 was 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.

~~Segment~~22 ~~Information~~

OurTable operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. Our North American Social Expression Products 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, “Segment Reporting,” certain operating segments have been aggregated into the International Social Expression Products segment. The aggregated operating divisions have similar economic characteristics, products, sourcing processes, types of customers and distribution methods. At May 27, 2016, we operated 395 card and gift retail stores in the United Kingdom (“UK”) Contents

22Results of Operations

~~Table~~Six ofmonths ~~Contents~~ended August 26, 2016 and August 28, 2015

~~through~~Net ~~our~~income ~~Retail~~was ~~Operations segment~~$36.8 ~~These~~million ~~stores~~in ~~sell products purchased from~~ the ~~International~~six ~~Social~~months ~~Expression~~ended ~~Products segment as well as products purchased from other vendors. The AG Interactive segment distributes social expression products~~August 26, ~~including~~2016 ~~electronic~~compared ~~greetings,~~to ~~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~~$97.2 ~~The~~million ~~Non-reportable~~in ~~segment~~the ~~primarily~~prior ~~includes~~year ~~licensing~~six ~~activities~~months.

~~Segment~~Our results ~~are reported using actual foreign exchange rates~~ for the ~~periods~~six ~~presented.~~months ~~Refer~~ended ~~to Note 18~~August 26, ~~“Business~~2016 ~~Segment~~and ~~Information~~August 28,” to2015 ~~the~~are ~~Consolidated~~summarized ~~Financial~~below: Statements for further information and a reconciliation of total segment revenue to consolidated “Total revenue” and total segment earnings (loss) before tax to consolidated “Income before income tax expense.”

North American Social Expression Products Segment


(Dollars in thousands)	2016			% Total Revenue			2015			% Total Revenue
Net sales	$	811,935			99.5	%	$	890,503			99.6	%
Other revenue		4,386			0.5	%		3,968			0.4	%

Total revenue		816,321			100.0	%		894,471			100.0	%
Material, labor and other production costs		338,114			41.4	%		373,459			41.8	%
Selling, distribution and marketing expenses		295,589			36.2	%		317,400			35.5	%
Administrative and general expenses		119,815			14.7	%		117,586			13.1	%
Other operating income – net		(3,631	)		(0.5	%)		(69,729	)		(7.8	%)

Operating income		66,434			8.2	%		155,755			17.4	%
Interest expense		11,537			1.4	%		14,599			1.6	%
Interest income		(335	)		(0.0	%)		(183	)		(0.0	%)
Other non-operating expense (income) – net		710			0.1	%		(992	)		(0.1	%)

Income before income tax expense		54,522			6.7	%		142,331			15.9	%
Income tax expense		17,748			2.2	%		45,087			5.0	%

Net income	$	36,774			4.5	%	$	97,244			10.9	%

	Three Months Ended
(Dollars in thousands)	May 27, 2016		May 29, 2015		% Change
Total revenue	$	322,460	$	335,604		(3.9	%)
Segment earnings		60,145		73,127		(17.8	%)

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.

~~Total~~Wholesale ~~revenue~~Unit of our North American Social Expression Products segment for the quarter ended May 27, 2016, decreased $13.1 million, or 3.9%, compared to the prior year period. The decrease was primarily driven by lower sales of greeting cards of approximately $9 million, as well as decreased sales of gift packaging and ~~party goods, and other ancillary~~Pricing ~~products~~Analysis ~~which~~for ~~both~~Greeting ~~decreased~~Cards approximately $1 million, the unfavorable impact of more SBT implementations in the current year period of approximately $1 million, and the unfavorable impact of foreign currency translation of approximately $1 million.

~~Segment~~Unit ~~earnings~~and ~~decreased~~pricing ~~$13.0~~comparatives ~~million~~(on ina ~~the~~sales ~~current~~less ~~year~~returns ~~three months ended May 27~~basis), ~~2016~~excluding ~~compared~~intercompany toeliminations ~~the~~and ~~same period in~~ the ~~prior year. The decrease was driven primarily by the~~ impact of foreign ~~lower~~currency ~~revenues~~translation, ~~including~~for the ~~unfavorable~~six ~~impact~~months ofended ~~more SBT implementations~~August 26, ~~unfavorable~~2016 ~~technology costs of approximately $4 million,~~ and ~~higher supply chain expenses of approximately $1~~August ~~million.~~28, ~~Partially~~2015 ~~offsetting~~are ~~these~~summarized ~~unfavorable~~below: ~~impacts was a decrease in marketing and advertising expenses of approximately $3 million.~~

International Social Expression Products Segment


	Increase (Decrease) From the Prior Year
	Everyday Cards						Seasonal Cards						Total Greeting Cards
	2016			2015			2016			2015			2016			2015
Unit volume		(7.4	%)		(1.2	%)		(7.6	%)		(0.7	%)		(7.5	%)		(1.0	%)
Selling prices		2.4	%		2.0	%		3.0	%		0.3	%		2.6	%		1.5	%
Overall increase / (decrease)		(5.2	%)		0.8	%		(4.9	%)		(0.3	%)		(5.1	%)		0.5	%

	Three Months Ended
(Dollars in thousands)	May 27, 2016			May 29, 2015			% Change
Total revenue	$	37,005		$	51,855			(28.6	%)
Segment loss		(1,785	)		(4,259	)		58.1	%

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.

~~Total~~23 revenue of our International Social Expression Products segment decreased $14.9 million, or 28.6%, for the three months ended May 27, 2016, compared to the same period in the prior year. The decrease was primarily driven by decreased sales of greeting cards of approximately $13 million and the unfavorable impact of foreign currency translation of approximately $2 million. The lower sales of greeting cards was primarily the continuation of the reduced distribution to a significant customer.

SegmentTable loss decreased $2.5 million in the three months ended May 27, 2016 compared to the same period in the prior year. The lower segment loss was primarily driven by lower production and inventory scrap expenses of approximately $5 million, and lower supply chain expenses of approximately $4 million. These favorable items were partially offset by the margin impact of lower sales of approximately $7 million. Contents

23Everyday 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.

~~Table~~Seasonal card sales less returns decreased 4.9%, with a unit volume decline of ~~Contents~~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.

~~Retail~~Expense ~~Operations~~Overview ~~Segment~~

	Three Months Ended
(Dollars in thousands)	May 27, 2016			May 29, 2015			% Change
Total revenue	$	65,412		$	71,808			(8.9	%)
Segment loss		(7,462	)		(8,143	)		8.4	%

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.

~~Total~~SDM ~~revenue~~expenses offor ~~our~~the ~~Retail~~six ~~Operations~~months ended ~~segment~~August 26, ~~decreased~~2016 were $295.6 million, decreasing $21.8 million from $317.4 million ~~compared~~for tothe 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 ~~unfavorable~~ favorable impact of foreign currency translation of approximately $411 million., ~~During~~lower expenses in the ~~first~~Retail ~~quarter~~Operations segment of ~~the~~approximately ~~current~~$4 ~~year~~million, ~~net~~decreased ~~sales~~marketing atand ~~stores~~advertising costs ~~open~~of ~~one~~approximately ~~year~~$4 ormillion, ~~more~~and ~~were~~lower ~~down~~supply ~~approximately~~chain ~~1.1%~~costs ~~compared~~of toapproximately ~~the~~$3 ~~prior year period~~million.

~~Segment~~Administrative ~~loss~~and ~~decreased~~general expenses were $0119.78 million ~~compared~~for the tosix months ended August 26, 2016, an increase of $2.2 million from $117.6 million in the prior year period. The ~~lower~~increase ~~segment loss~~ was driven primarily ~~the~~by ~~result~~higher technology costs, predominantly related to our information technology systems refresh project of ~~lower~~approximately ~~store~~$2 ~~operating~~million ~~expenses~~and higher combined 401(k) match and profit-sharing expense of approximately $2 million, ~~partially~~ offset by ~~lower~~the ~~gross~~favorable ~~margins~~impact ~~due~~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 ~~the~~our ~~lower~~combined ~~sales~~401(k) match and profit-sharing expense.

AGOther ~~Interactive~~operating ~~Segment~~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.

	Three Months Ended
(Dollars in thousands)	May 27, 2016		May 29, 2015		% Change
Total revenue	$	12,931	$	13,430		(3.7	%)
Segment earnings		4,208		4,871		(13.6	%)

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 was 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.

~~Total~~24 revenue of AG Interactive decreased $0.5 million compared to the prior year quarter. This decrease in revenue was driven primarily by lower subscription revenue compared to the prior year. As of May 27, 2016, AG Interactive had approximately 3.3 million online paid subscriptions as compared to approximately 3.5 million at May 29, 2015.

SegmentTable earnings decreased $0.7 million compared to the prior year quarter primarily due to the impact of lower revenue. Contents

~~Non-reportable~~ Segment Information

	Three Months Ended
(Dollars in thousands)	May 27, 2016		May 29, 2015		% Change
Total revenue	$	1,500	$	746		101.1	%
Segment earnings		64		60,347		(99.9	%)

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. Our North American Social Expression Products 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, “Segment Reporting,” certain operating segments have been aggregated into the International Social Expression Products segment. The aggregated operating divisions have similar economic characteristics, products, sourcing processes, types of customers and distribution methods. At August 26, 2016 we operated 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. The Non-reportable segment primarily includes licensing activities.

~~Total~~Segment ~~revenue~~results ~~from~~are ~~our~~reported ~~Non-reportable~~using ~~segment~~actual ~~increased~~foreign ~~$0.8~~exchange ~~million~~rates ~~compared~~for the periods presented. Refer to ~~the~~Note ~~prior~~18, ~~year~~“Business ~~quarter.~~Segment ~~The~~Information,” ~~increase~~to inthe ~~revenue~~Consolidated Financial Statements for ~~the~~further ~~current~~information ~~year~~and ~~first~~a ~~quarter~~reconciliation ~~was~~of ~~due~~total ~~primarily~~segment revenue to ~~higher~~consolidated ~~merchandise~~“Total revenue” and ~~entertainment~~total ~~revenue~~segment ~~from~~earnings ~~our~~(loss) ~~character~~before ~~properties~~tax to consolidated “Income before income tax expense.”

~~Segment earnings~~North ~~decreased~~American ~~$60.3~~Social ~~million~~Expression ~~compared~~Products toSegment ~~the prior year quarter. This decrease was primarily due to the gain of $61.7 million recognized in connection with the sale of Strawberry Shortcake during the prior year quarter.~~


(Dollars in thousands)	Three Months Ended August				% Change			Six Months Ended August				% Change
(Dollars in thousands)	26, 2016		28, 2015		% Change			26, 2016		28, 2015		% Change
Total revenue	$	270,769	$	285,556		(5.2	%)	$	593,229	$	621,160		(4.5	%)
Segment earnings		37,627		46,209		(18.6	%)		97,772		119,336		(18.1	%)

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

~~Unallocated~~Segment ~~Items~~earnings decreased $8.6 million in the current quarter compared to the three months ended August 28, 2015. The decline was driven primarily by the impact of lower revenues, higher costs in our supply chain of approximately $1 million, partially offset by lower technology costs of approximately $2 million.

~~Centrally~~Segment ~~incurred~~earnings ~~and~~decreased ~~managed~~$21.6 ~~costs~~million ~~are~~in ~~not~~the ~~allocated~~six ~~back~~month period ended August 26, 2016 compared to the ~~operating~~prior ~~segments~~year period. ~~The~~This ~~unallocated~~decrease ~~items~~was ~~include~~driven primarily ~~interest~~by ~~expense~~the ~~for~~impact ~~centrally-incurred debt~~of ~~and~~lower ~~domestic~~revenues, ~~401(k)~~higher ~~match~~technology costs of approximately $2 million and ~~profit-sharing~~higher ~~expense~~business taxes of approximately $1 million. ~~Unallocated~~These ~~items~~decreases ~~also~~were ~~include~~offset by lower costs ~~associated~~in ~~with~~our ~~corporate~~supply ~~operations~~chain ~~such~~of asapproximately ~~the~~$1 ~~senior~~million ~~management,~~and other ~~corporate~~general ~~finance,~~cost ~~legal~~savings ~~and~~of ~~insurance~~approximately ~~programs~~$1 million.

	Three Months Ended
(Dollars in thousands)	May 27, 2016			May 29, 2015
Interest expense	$	(5,597	)	$	(8,113	)
401(k) match and profit-sharing expense		(5,061	)		(2,911	)
Corporate overhead expense		(5,264	)		(3,586	)
Total Unallocated	$	(15,922	)	$	(14,610	)

AsTable reported in our Annual Report on Form 10-K for the 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 separate discretionary profit sharing and 401(k) matching contributions annually, after fiscal year-end, depending on our financial results. Contents

~~Effective~~International ~~January 1,~~Social ~~2016,~~Expression ~~the~~Products ~~existing~~Segment 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 our discretionary profit sharing contributions, which were discontinued for fiscal years ending after February 29, 2016. While the current year quarterly expense will vary from the prior year expense pattern, we expect the full year 2017 expense to be consistent with the combined profit sharing and match components of the profit sharing and 401(k) retirement savings plan in effect during the prior year.

Liquidity and Capital Resources


(Dollars in thousands)	Three Months Ended August					% Change			Six Months Ended August						% Change
(Dollars in thousands)	26, 2016			28, 2015		% Change			26, 2016			28, 2015			% Change
Total revenue	$	36,543		$	54,572		(33.0	%)	$	73,548		$	106,427			(30.9	%)
Segment (loss) earnings		(1,246	)		830		(250.1	%)		(3,031	)		(3,429	)		11.6	%

Total revenue of our International Social Expression Products segment decreased $18.0 million for the three month period ended August 26, 2016 compared to the prior year period. The ~~seasonal~~decrease was primarily due to lower sales of greeting cards of approximately $14 million and the unfavorable impact of foreign currency translation of approximately $4 million. Total ~~nature~~revenue of our ~~business~~International ~~precludes~~Social aExpression ~~useful~~Products ~~comparison~~segment ofdecreased $32.9 million for the ~~current~~six month period ~~and~~ended August 26, 2016 compared to the ~~fiscal~~prior year~~-end~~ ~~financial~~period. ~~statements;~~The ~~therefore,~~decrease awas ~~Consolidated~~primarily ~~Statement~~due to lower sales of ~~Financial~~greeting ~~Position~~cards asof approximately $27 million and the unfavorable impact of ~~May~~foreign currency translation of approximately $6 million. The lower sales of greetings cards in both the three and six month periods ended August 2926, ~~2015~~2016 ~~has~~are, ~~been~~as ~~included~~expected, primarily the result of the continuation of the reduced distribution to a significant customer.

~~Operating~~Segment ~~Activities~~earnings decreased $2.1 million in the three months ended August 26, 2016 compared to the same period in the prior year. The decrease is driven primarily by the impact on earnings from lower sales, offset by favorable supply chain costs of approximately $2 million and cost savings initiatives undertaken to offset the impact of lower sales of approximately $1 million.

~~Operating~~Segment ~~activities~~loss ~~used~~decreased $400.8 4 million ofin ~~cash~~the ~~during~~six months ended August 26, 2016, compared to the ~~three~~six months ended ~~May~~August 2728, ~~2016~~2015. The decrease in segment loss was primarily driven by favorable supply chain costs of approximately $6 million, ~~compared~~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 $~~96.1~~2 million, inoffset by the ~~prior~~margin ~~year~~impact ~~period~~of lower sales of approximately $14 million.

~~Accounts~~Retail ~~receivable~~Operations ~~used~~Segment $11.5 million of cash during the three months ended May 27, 2016, compared to $23.0 million of cash used during the same period in the prior year. The year-over-year change in cash flow of $11.5 million occurred primarily within our North American Social Expression Products segment and was due to lower accounts receivable growth due to lower sales in the current quarter compared to the prior year period, 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.

Deferred costs – net generally represents payments under agreements with retailers, net of the related amortization of those payments. During the three months ended May 27, 2016, amortization exceeded payments by $16.9 million. During the three months ended May 29, 2015, amortization exceeded payments by $5.3 million. See Note 10, “Deferred Costs,” to the Consolidated Financial Statements for further detail of deferred costs related to customer agreements.


(Dollars in thousands)	Three Months Ended August						% Change			Six Months Ended August						% Change
(Dollars in thousands)	26, 2016			28, 2015			% Change			26, 2016			28, 2015			% Change
Total revenue	$	55,149		$	65,503			(15.8	%)	$	120,561		$	137,311			(12.2	%)
Segment loss		(10,693	)		(12,615	)		15.2	%		(18,155	)		(20,758	)		12.5	%

~~Accounts~~Total ~~payable~~revenue ~~and~~of ~~other~~our ~~liabilities~~Retail ~~used~~Operations segment decreased $9810.4 million ofand ~~cash~~$16.8 ~~during~~million for the three and six months ended ~~May~~ August 2726, 2016, respectively, compared to ~~$104~~the prior year periods.6 ~~million~~The indecreases were driven by the ~~prior year~~unfavorable ~~first~~impact ~~quarter.~~of ~~The~~foreign ~~year-over-year~~currency ~~change~~translation inof ~~cash~~approximately ~~usage~~$9 ~~was~~million ~~attributable~~and to$12 amillion ~~smaller~~for ~~decrease~~the inthree ~~accounts~~and ~~payable~~six ~~due~~month toperiods, respectively, ~~normal~~as ~~year-over-year~~well ~~timing~~as lower sales of ~~business~~greeting ~~transactions,~~cards ~~partially~~in ~~offset~~both bythe ~~higher~~three ~~variable~~and ~~compensation~~six ~~payments~~month ~~during~~periods. During the ~~current~~ three and six month periods ended August 26, 2016, net sales at stores open one year ~~first~~or ~~quarter~~more were down approximately 0.1% and 0.6%, respectively, compared to the ~~prior~~same ~~year~~periods ~~first~~in ~~quarter~~the prior year.

25Segment loss decreased $1.9 million and $2.6 million in the three and six month periods ended August 26, 2016 compared to the prior year periods, respectively. The improved earnings in both the three and six months ended August 26, 2016 were primarily driven by lower retail store operating expenses and the favorable impact of foreign currency translation on the loss, partially offset by lower margins resulting from the decrease in revenue.

~~Table~~26 ~~of Contents~~

InvestingTable Activitiesof Contents

~~Investing~~AG ~~activities~~Interactive ~~used~~Segment $25.7 million of cash during the three months ended May 27, 2016, compared to providing $107.2 million of cash during the three months ended May 29, 2015. The current year includes cash paid for capital expenditures of $25.7 million. The prior year included proceeds of $105.0 million received from the sale of Strawberry Shortcake and proceeds of $24.1 million received from the surrender of certain corporate-owned life insurance policies. These cash inflows were partially offset by cash paid for capital expenditures of $13.4 million, cash paid for acquired character property rights of $2.8 million, a payment of $3.2 million related to the final working capital adjustments in connection with the sale of AGI In-Store, and $2.5 million of loans, net of repayments, made to related parties.

Financing Activities


(Dollars in thousands)	Three Months Ended August				% Change			Six Months Ended August				% Change
(Dollars in thousands)	26, 2016		28, 2015		% Change			26, 2016		28, 2015		% Change
Total revenue	$	13,112	$	13,736		(4.5	%)	$	26,043	$	27,166		(4.1	%)
Segment earnings		3,926		5,276		(25.6	%)		8,134		10,147		(19.8	%)

~~Financing~~Total ~~activities~~revenue ~~provided~~of our AG Interactive segment decreased $40.1 6 million ofand ~~cash~~$1.1 ~~during~~million for the three and six months ended ~~May~~ August 2726, 2016, respectively, compared to ~~using~~the ~~$11~~prior year periods.3 ~~million~~The ~~during~~decrease in revenue for the three months ended ~~May~~August 2926, ~~2015.~~2016 Incompared to the ~~first~~same ~~quarter~~period ofin the prior year, was driven by the ~~use~~unfavorable impact of ~~cash~~foreign ~~was~~currency translation. ~~primarily~~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 alower ~~voluntary~~subscription ~~prepayment on~~revenue ~~our~~as ~~term~~well ~~loan~~as the unfavorable impact of ~~$65~~foreign currency translation.0 ~~million,~~At the ~~partially~~end ~~offset~~of bythe ~~borrowings,~~second ~~net~~quarter of ~~repayments~~2017, ~~under~~AG ~~our~~Interactive ~~revolving~~had ~~credit~~approximately ~~facility~~3.3 million ofonline ~~$53.7~~paid subscriptions compared to 3.4 million at the end of the same period in the prior year.

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

~~Substantial~~Non-reportable ~~credit~~Segment sources are available to us. In total, we had available sources of credit of approximately $485 million at May 27, 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 $270.0 million in the aggregate was unused as of May 27, 2016. Borrowings under the accounts receivable securitization facility are limited based on our eligible receivables outstanding. At May 27, 2016, we had $4.1 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, $25.9 million outstanding under letters of credit, which reduced the total credit availability thereunder as of May 27, 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 29, 2016 for further information.


(Dollars in thousands)	Three Months Ended August						% Change			Six Months Ended August					% Change
(Dollars in thousands)	26, 2016			28, 2015			% Change			26, 2016			28, 2015		% Change
Total revenue	$	1,440		$	1,661			(13.3	%)	$	2,940		$	2,407		22.1	%
Segment (loss) earnings		(438	)		(934	)		53.1	%		(374	)		59,413		(100.6	%)

AtTotal ~~May~~revenue of our Non-reportable segment decreased $0.2 million for the three months ended August 2726, 2016, weand increased ~~were~~$0.5 inmillion ~~compliance~~for ~~with~~the ~~our~~six ~~financial covenants~~months ~~under~~ended ~~the~~August 26, ~~borrowing~~2016, ~~agreements~~compared ~~described~~to ~~above~~the prior year periods.

~~Capital~~Segment ~~Deployment~~loss ~~and~~decreased ~~Investments~~$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 months ended August 26, 2016 compared to the prior year period, which was primarily due to the net gain of $61.6 million recorded in connection with the 2016 sale of Strawberry Shortcake, partially offset by lower film production costs in the current year.

OnUnallocated ~~February 10,~~Items 2014, Century Intermediate Holding Company 2 (“CIHC2”), an indirect parent of American Greetings, issued $285 million aggregate principal amount of 9.750%/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 9.750%. Prior to the payment of interest by CIHC2, it is expected that we will provide CIHC2 with the cash flow for CIHC2 to pay interest on the PIK Notes. Assuming interest is paid regularly in cash, rather than accrued, the annual cash required to pay the interest is expected to be approximately $27.8 million while the entire issuance of PIK Notes are outstanding. For further information, refer to the discussion of the PIK Notes as disclosed in “Transactions with Parent Companies and Other Affiliated Companies” in Note 18, “Related Party Information,” to the Consolidated Financial Statements under Part II, Item 8 of our Annual Report on Form 10-K for the year ended February 29, 2016.

~~Throughout~~Centrally ~~fiscal~~incurred ~~2017~~ and ~~thereafter,~~managed ~~we will continue to consider all options for capital deployment~~costs ~~including~~are ~~growth~~not ~~opportunities,~~allocated ~~acquisitions~~back ~~and other investments in third parties, expanding customer relationships, expenditures or investments related~~ to ~~our~~the ~~current~~operating ~~product~~segments. ~~leadership~~The ~~initiatives~~unallocated oritems ~~other~~include ~~future~~interest ~~strategic~~expense ~~initiatives,~~for ~~capital expenditures,~~centrally-incurred ~~the information technology systems refresh project~~debt, ~~paying~~domestic ~~down~~401(k) ~~debt,~~match ~~paying~~and ~~dividends~~profit-sharing ~~and~~expense, as ~~appropriate,~~well ~~preserving~~as ~~cash.~~costs ~~Our~~associated ~~future~~with ~~operating~~corporate ~~cash~~operations ~~flow~~such ~~and~~as ~~borrowing~~the ~~availability under our credit agreement and our accounts~~senior ~~receivable~~management, ~~securitization~~corporate ~~facility~~finance, ~~are~~legal ~~expected to meet these~~ and ~~other~~insurance ~~currently anticipated funding requirements~~programs. ~~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.~~


	Three Months Ended August						Six Months Ended August
(Dollars in thousands)	26, 2016			28, 2015			26, 2016			28, 2015
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	)

Total Unallocated	$	(13,902	)	$	(7,768	)	$	(29,824	)	$	(22,378	)

~~Table~~Interest expense is lower by $0.5 million in the three month period ended August 26, 2016 compared to the same period in the prior year primarily due to the 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 ~~Contents~~debt issuance costs of $1.9 million due to our voluntary prepayment of our Term Loan facility, and the continued interest capitalized in conjunction with our systems refresh project of $1.1 million.

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. During the three months ended May 27, 2016, we spent approximately $23 million, including capital of approximately $19 million and expense of approximately $4 million, on these information technology systems. Based on the current scope of the project, we presently expect to spend at least an additional $172 million on these information technology systems, 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 $172 million, or that we will achieve the anticipated efficiencies or any cost savings.

InTable 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 (the “Crocker Park Site”). We are leasing a portion of the Crocker Park Site to H L & L Property Company, an indirect affiliate of American Greetings (“H L & L”), which is constructing the new world headquarters building on the Crocker Park Site and, when complete, will sublease the new world headquarters building back to the Corporation. In addition, to accommodate additional office needs, H L & L is constructing an additional approximately 60,000 square foot building (“Tech West”) adjacent to the world headquarters building and a surface parking lot (“Surface Lot”) on land that it is leasing from the Corporation. The Corporation has also entered into operating leases to lease these buildings from H L & L, which are anticipated to be available for occupancy in calendar year 2016. The initial lease terms are fifteen years and will begin upon occupancy. The 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 29, 2016 and Note 17, “Related Party Information,” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Contents

~~Critical~~As ~~Accounting~~reported ~~Estimates~~in our Annual Report on Form 10-K for the 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 separate discretionary profit-sharing and 401(k) matching contributions annually, after fiscal year-end, depending on our financial results.

~~Our~~Effective ~~consolidated~~January 1, ~~financial~~2016, ~~statements~~the ~~are~~existing ~~prepared~~profit-sharing inand ~~accordance~~401(k) ~~with~~retirement savings ~~accounting~~plan ~~principles~~was ~~generally~~replaced ~~accepted~~with ina ~~the~~safe ~~United~~harbor ~~States~~401(k) arrangement. ~~The~~Pursuant ~~preparation~~to ofthe ~~these financial~~new ~~statements~~arrangement, ~~requires~~the usmatching tocontributions ~~make~~became ~~estimates~~non-discretionary, were increased, and ~~assumptions~~are ~~that~~now ~~affect~~made throughout the ~~reported~~year, ~~amounts~~rather ofthan ~~assets~~on ~~and~~an ~~liabilities~~annual atbasis. ~~the~~The increased ~~date~~matching ofcontributions ~~the~~effectively ~~financial~~replace ~~statements~~our ~~and~~discretionary ~~the~~profit-sharing ~~reported~~contributions, ~~amounts~~which ofwere ~~revenues~~discontinued ~~and~~for ~~expenses~~fiscal ~~during~~years ~~the~~ending ~~periods~~after ~~presented~~February 29, 2016. ~~Please~~ ~~refer~~We toexpect that the ~~discussion~~current ofyear ~~our~~quarterly ~~Critical~~expense ~~Accounting~~will ~~Estimates~~vary ~~under~~from ~~Part~~the prior ~~II,~~year ~~Item 7~~expense ofpattern ~~our~~and ~~Annual~~the ~~Report~~full onyear ~~Form~~2017 10expense to be slightly higher than the combined profit-Ksharing ~~for~~and match components of the ~~year~~profit-sharing ~~ended~~and ~~February 29,~~401(k) ~~2016~~retirement savings plan in effect during the prior year.

~~Factors~~“Corporate ~~That~~overhead ~~May~~expense” ~~Affect~~for ~~Future~~the ~~Results~~three and six month periods ended August 26, 2016, includes 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 us in connection with our decision to maintain our world headquarters in the state of Ohio. The three and six month periods in the prior year included $6.5 million related to these incentives.

~~Certain statements~~Liquidity 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~~Capital ~~words~~Resources 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 seasonal nature of our business precludes a ~~weak~~useful ~~retail~~comparison ~~environment~~of the current period and ~~general~~the ~~economic~~fiscal ~~conditions~~year-end financial statements; therefore, a Consolidated Statement of Financial Position as of August 28, 2015, has been included.

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

27Operating activities used $32.0 million of cash during the six months ended August 26, 2016, compared to using $65.5 million in the prior year period.

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

•Inventory ~~competitive~~used ~~terms~~$65.5 million of ~~sale~~cash ~~offered~~during the six months ended August 26, 2016, compared to ~~customers~~$49.9 million in the prior year six months. Historically, the ~~including~~first ~~costs~~half of our fiscal year is a period of inventory build, and ~~other~~thus ~~terms~~a ~~associated~~use ~~with~~of ~~new~~cash, in preparation for the fall and ~~expanded~~winter ~~customer~~seasonal ~~relationships;~~holidays.

•Deferred ~~our~~costs ~~ability~~- tonet ~~successfully~~generally ~~complete~~represents payments under agreements with retailers net of the ~~turnaround~~related ~~efforts~~amortization inof ~~our~~those ~~retail~~payments. ~~business~~During inthe six months ended August 26, 2016, amortization exceeded payments by $17.5 million. During the ~~UK;~~six months ended August 28, 2015, amortization exceeded payments by $19.4 million. See Note 10, “Deferred Costs,” to the Consolidated Financial Statements for further detail of deferred costs related to customer agreements.

•Accounts ~~risks~~payable ~~associated~~and ~~with~~other ~~leasing~~liabilities ~~substantial~~used ~~amounts~~$83.5 million of ~~space~~cash ~~for~~during the ~~our~~six ~~retail~~months ~~stores;~~ended August 26, 2016, compared to using $91.7 million in the prior year period. The year-over-year change in cash usage was attributable to an increase in accounts payable payments due to normal year-over-year timing of business transactions.

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

•Table unanticipatedof expenses we may be required to incur relating to our world headquarters project;Contents

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

•Investing activities used $45.2 million of cash during the ~~timing~~six ~~and~~months ~~amount~~ended August 26, 2016, compared to a source of ~~investments~~$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, ~~together~~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 ~~ability~~sale toof ~~successfully~~AGI ~~implement~~In-Store, orrespectively. ~~achieve~~These cash uses were offset by proceeds of $105.0 received from the ~~desired~~sale ~~benefits~~of Strawberry Shortcake and ~~cost~~proceeds ~~savings~~of ~~associated~~$24.1 ~~with,~~million ~~any~~received ~~information~~from ~~systems~~the ~~refresh~~surrender weof certain ~~may~~corporate-owned ~~implement;~~life insurance policies.

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

•Financing ~~Schurman~~activities ~~Fine~~provided ~~Paper’s~~$1.1 ~~ability~~million of cash during the current year six months, compared to ~~successfully~~a ~~operate~~use ~~its~~of ~~retail~~$34.0 ~~operations~~million in the prior year six month period. The current year 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 $65.0 million and ~~satisfy~~cash ~~its~~dividend ~~obligations~~payments toof ~~us;~~$20.7 million, partially offset by additional borrowings, net of repayments, under our revolving credit facility of $51.7 million.

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

•Substantial ~~the~~credit ~~impact~~sources are available to us. In total, we had available sources of credit of approximately $485 million at August 26, 2016, which included $185 million outstanding on our term loan facility, a $250 million revolving credit facility and ~~availability~~a $50 million accounts receivable securitization facility, of ~~technology~~which, ~~including~~$259.1 ~~social~~million, ~~media~~in the aggregate, was unused as of August 26, 2016. Borrowings under the accounts receivable securitization facility are limited based on ~~product~~our ~~sales;~~eligible receivables outstanding. At August 26, 2016, we had $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, $25.9 million outstanding under letters of credit, which reduced the total credit availability thereunder as of August 26, 2016.

•Please ~~escalation~~refer to the discussion of our borrowing arrangements as disclosed in the ~~cost~~“Credit Sources” section under Part II, Item 7 of ~~providing~~our ~~employee~~Annual ~~health~~Report ~~care;~~on Form 10-K for the year ended February 29, 2016 for further information.

•At ~~the~~August 26, ~~ability~~2016, towe ~~comply~~were in compliance with our ~~debt~~financial covenants; under the borrowing agreements described above.

•Capital ~~our~~Deployment ~~ability to adequately maintain the security of our electronic~~ and ~~other~~Investments ~~confidential information;~~

•On ~~fluctuations~~February 10, 2014, Century Intermediate Holding Company 2 (“CIHC2”), an indirect parent of American Greetings, issued $285 million aggregate principal amount of 9.750%/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 ~~value~~PIK Notes. The PIK Notes carry a cash interest rate of ~~currencies~~9.750%. inPrior ~~major~~to ~~areas~~the ~~where~~payment of interest by CIHC2, it is expected that we ~~operate~~will provide CIHC2 with the cash flow for CIHC2 to pay interest on the PIK Notes. Assuming interest is paid regularly in cash, ~~including~~rather than accrued, the Uannual cash required to pay the interest is expected to be approximately $27.S8 million while the entire issuance of PIK Notes are outstanding. ~~Dollar,~~For ~~Euro~~further information, UKrefer ~~Pound~~to ~~Sterling~~the ~~and~~discussion ~~Canadian~~of ~~Dollar;~~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 year ended February 29, 2016.

•Throughout ~~the~~fiscal ~~outcome~~2017 ofand ~~any~~thereafter, ~~legal~~we ~~claims~~will continue to consider all options for capital deployment including growth opportunities, ~~known~~acquisitions and other investments in third parties, expanding customer relationships, expenditures or ~~unknown~~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

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 29, ~~2016.~~

ItemTable 3.of Quantitative and Qualitative Disclosures About Market RiskContents

~~The majority of inventory~~ ~~purchases~~agreement ~~within~~and our ~~U.K.~~accounts ~~wholesale~~receivable ~~operations~~securitization facility are ~~denominated~~expected into ~~U.S.~~meet ~~Dollars.~~these Weand ~~estimate~~other ~~that~~currently aanticipated ~~hypothetical~~funding ~~10% strengthening of the U~~requirements.S. ~~Dollar~~The ~~against~~seasonal ~~the~~nature ~~U.K.~~of ~~Pound,~~our ~~compared~~business toresults ~~the~~in ~~average exchange rate during the year ended~~peak ~~February 29,~~working ~~2016,~~capital ~~would~~requirements ~~negatively~~that ~~impact~~may ~~operating~~be ~~income~~financed inthrough ~~the~~short-term ~~International~~borrowings ~~Social~~when ~~Expression~~cash ~~Products~~on ~~segment~~hand byis ~~approximately $5 million~~insufficient.

~~For~~Over ~~further~~the ~~information~~next several years, ~~refer~~we expect to allocate resources, including capital, to refresh our ~~Annual~~information ~~Report~~technology onsystems ~~Form 10-K~~by ~~for~~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. During the six months ended ~~February~~August 2926, 2016, we spent approximately $33 million, including capital of approximately $29 million and expense of approximately $4 million, on these information technology systems. Based on the current scope of the project, we presently expect to spend at least an additional $162 million on these information technology systems, 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 $162 million, or that we will achieve the anticipated efficiencies or any cost savings.

~~Item~~In 4May 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. ~~Controls~~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 ~~Procedures~~on March 26, 2014, we purchased the land on which the new world headquarters will be 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 Crocker Park Site and, beginning in the third quarter of our fiscal 2017, will sublease the new world headquarters building back to the Corporation. In addition, to accommodate additional office needs, H L & L is constructing an additional approximately 60,000 square foot building (“Tech West”) adjacent to the world headquarters building and a surface parking lot (“Surface Lot”) on land that it is leasing from the Corporation. The Corporation has also entered into an operating lease to lease the Tech West building and Surface Lot from H L & L, also beginning in third quarter of fiscal 2017. The initial lease terms are fifteen years and 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 29, 2016 and Note 17, “Related Party Information,” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

~~American~~During ~~Greetings maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under~~ the ~~Securities~~quarter ~~Exchange~~ended ~~Act of 1934~~August 26, ~~as amended~~2016, iswe ~~recorded,~~paid ~~processed,~~a ~~summarized~~cash ~~and~~dividend ~~reported within the time periods specified~~ in the ~~Securities and Exchange~~ ~~Commission’s~~aggregate ~~rules~~amount ~~and~~of ~~forms~~$13.9 ~~and~~million ~~that such information is accumulated and communicated~~ to ~~the~~Century ~~Corporation’s~~Intermediate ~~management~~Holding Company, ~~including~~our ~~its~~parent ~~Co-Chief Executive Officers~~ and ~~Chief~~sole ~~Financial Officer~~shareholder, ~~as appropriate, to allow~~ for ~~timely decisions regarding required disclosure. In designing and evaluating~~ the ~~disclosure~~purpose ~~controls~~of ~~and~~paying ~~procedures,~~interest ~~management~~on ~~recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving~~ the ~~desired~~PIK ~~control objectives~~Notes.

28Critical Accounting Policies

~~Table~~Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of ~~Contents~~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 29, 2016.

~~American~~Factors ~~Greetings~~That ~~carries~~May ~~out~~Affect aFuture ~~variety~~Results 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~~Certain ~~has~~statements ~~been~~in nothis ~~change~~report inmay constitute forward-looking statements within the ~~Corporation’s~~meaning ~~internal~~of ~~control~~the ~~over~~Federal ~~financial~~securities ~~reporting~~laws. ~~during~~These ~~the~~statements ~~Corporation’s~~can ~~most~~be identified ~~recent~~by ~~fiscal~~the ~~quarter~~fact that ~~has materially~~they ~~affected~~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 isfinancial ~~reasonably~~performance. ~~likely~~These forward-looking statements are based on currently available information, but are subject to ~~materially~~a variety ~~affect~~of uncertainties, ~~the~~unknown ~~Corporation’s~~risks ~~internal~~and other factors concerning our operations and business environment, which are difficult to predict and may be beyond our control. ~~over~~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 ~~reporting.~~performance, include, but are not limited to, the following:

2930

~~PART~~• IIa –weak ~~OTHER~~retail ~~INFORMATION~~environment and general economic conditions;

~~Item~~• 1.the ~~Legal~~loss ~~Proceedings~~of one or more retail customers and/or retail consolidations, acquisitions and bankruptcies, including the possibility of resulting adverse changes to retail contract terms;

Al• ~~Smith~~competitive etterms ~~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~~sale ~~similarly~~offered 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~~customers, ~~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).~~other Interms ~~addition,~~associated ~~plaintiffs request~~with ~~disgorgement~~new ~~of all funds the Corporation acquired by means of any act or practice that constitutes unfair competition~~ and ~~restoration~~expanded ofcustomer 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. relationships;

On• ~~January 20,~~our ~~2015,~~ability ~~the~~to ~~parties~~successfully ~~reached~~complete ~~a settlement in principle that, if approved by~~ the ~~Court,~~turnaround ~~will~~efforts ~~fully~~in ~~and~~our ~~finally~~retail ~~resolve~~business the claims brought by Smith and Hourcade, as well as the classes they seek to represent. The settlement was a product of extensive negotiations and a private mediation, which was finalized and memorialized in ~~a Stipulation and Class Action Settlement Agreement signed March 30, 2015. On March 31, 2015, plaintiffs filed a Motion for Preliminary Approval of Class Action Settlement and on July 23, 2015,~~ the Court entered its Order Granting Preliminary Approval of Class Action Settlement. On August 24, 2015, the claims administrator commenced mailing of notice and claim forms to class members and the claims closed October 24, 2015. On October 14, 2015, plaintiffs filed a motion for final approval of the class settlement, together with their motion for approval of incentive payments to the Named Plaintiffs and attorneys’ fees. The Court held a final approval hearing on December 17, 2015. On May 19, 2016, the Court entered an Order Granting Motion for Final Approval of Class Action SettlementUK; ~~Granting in Part Motion for Attorneys’ Fees, Costs, and Class Representatives’ Service Payments.~~

~~The Court-approved~~• ~~settlement~~risks ~~establishes~~associated awith ~~settlement~~leasing ~~fund~~substantial amounts of ~~$4.0~~space ~~million to pay claims from current and former employees who worked at least one day~~ for ~~American~~our ~~Greetings~~retail Corporation and/or certain of its subsidiaries in any hourly non-exempt position in California between June 4, 2010 and July 23, 2015. American Greetings paid the settlement funds to the claims administrator on June 21, 2016 and the claims administrator will disburse the funds. stores;

~~Michael~~• ~~Ackerman~~the v.timing ~~American Greetings Corporation, et al. On March 6, 2015, plaintiff Michael Ackerman, individually~~ and onimpact ~~behalf~~ of ~~others~~ ~~similarly~~expenses ~~situated,~~incurred ~~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~~investments ~~subsidiary, AG~~made ~~Interactive,~~to ~~Inc.~~support ~~The~~new ~~plaintiff~~retail ~~claimed that defendants (1) sent plaintiff an unsolicited text message notifying plaintiff that he had received an ecard; and (2) knowingly and/~~or ~~willfully~~product ~~violated the TCPA~~strategies, ~~which~~as ~~prohibits~~well ~~unsolicited automated~~as ornew ~~prerecorded~~product ~~telephone~~introductions ~~calls, including faxes~~ and ~~text~~achieving ~~messages, sent to cellular telephones. Plaintiff sought to certify a nationwide class based on unsolicited text messages sent by defendants during~~ the ~~period~~desired ~~February 8,~~benefits 2011 through February 8, 2015. The plaintiff sought damages in the statutory amount of five-hundred dollars for each and every violation of the TCPA and one-thousand five-hundred dollars for each and every willful violation of the TCPA. After extensive negotiations, on June 7, 2016, the parties entered into a confidential release and settlement agreement which contemplated a one-time payment of an immaterial amount to plaintiff through plaintiff’s legal counsel and, on June 23, 2016, with all amounts due thereunder from ~~the~~those ~~Corporation having been paid, the parties stipulated to the dismissal of the lawsuit with prejudice.~~ investments;

In• ~~addition~~unanticipated toexpenses ~~the above described cases,~~ we ~~are~~may ~~involved~~be inrequired ~~certain~~to ~~legal~~incur ~~proceedings~~relating ~~arising~~to in the ordinary course of business. We, however, do not believe that any of the litigation in which we are currently engaged, either individually or in the aggregate, will have a material adverse effect on our ~~business,~~world ~~consolidated~~headquarters ~~financial position or results of operations.~~ project;

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

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

~~Item~~• 6.the ~~Exhibits~~timing and impact of converting customers to a scan-based trading model;

~~Exhibits~~• ~~required~~Schurman byFine ~~Item 601~~Paper’s ofability ~~Regulation~~to ~~S-K~~successfully operate its retail operations and satisfy its obligations to us;

Exhibit Number		Description
31 (a)		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (b)		Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (c)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of 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 on Form 10-Q for the quarter ended May 27, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statement of Income for the quarters ended May 27, 2016 and May 29, 2015, (ii) Consolidated Statement of Comprehensive Income for the quarters ended May 27, 2016 and May 29, 2015, (iii) Consolidated Statement of Financial Position at May 27, 2016, February 29, 2016 and May 29, 2015, (iv) Consolidated Statement of Cash Flows for the quarters ended May 27, 2016 and May 29, 2015, and (v) Notes to the Consolidated Financial Statements for the quarter ended May 27, 2016.

•

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

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

~~Table~~• escalation in the cost of ~~Contents~~providing employee health care;

~~SIGNATURES~~• the ability to comply with our debt covenants;

~~Pursuant~~• toour ~~the~~ability ~~requirements~~to ofadequately maintain the ~~Securities~~security ~~Exchange Act~~ of ~~1934,~~our ~~the~~electronic ~~Registrant~~and ~~has~~other ~~duly~~confidential ~~caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~ information;

~~AMERICAN~~• ~~GREETINGS~~fluctuations ~~CORPORATION~~in ~~By:~~the ~~/s/~~value ~~Robert~~of D.currencies ~~Tyler~~in ~~Robert~~major Dareas where we operate, including the U.S. ~~Tyler~~Dollar, ~~Corporate~~Euro, ~~Controller~~UK ~~and~~Pound ~~Chief~~Sterling ~~Accounting~~and ~~Officer~~Canadian *Dollar; and

~~July 8~~• the outcome of any legal claims, ~~2016~~known or unknown.

*The ~~(Signing~~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 ~~behalf~~our business, financial condition and results of ~~Registrant~~operations. asFor afurther ~~duly~~information ~~authorized~~concerning ~~officer~~the ofrisks we face and issues that could materially affect our financial performance related to forward-looking statements, refer to our periodic filings with the ~~Registrant~~Securities and ~~signing~~Exchange asCommission, including the ~~chief~~“Risk ~~accounting~~Factors” ~~officer~~section included in Part I, Item 1A of our Annual Report on Form 10-K for the ~~Registrant~~fiscal year ended February 29, 2016.)

32Item 3. Quantitative and Qualitative Disclosures about Market Risk

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 29, 2016.

Item 4. Controls and Procedures

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

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

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is described in Note 15 to the Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K


Exhibit Number		Description

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

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

31 (c)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

SIGNATURES

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


AMERICAN GREETINGS CORPORATION

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

October 7, 2016

*	(Signing on behalf of Registrant as a duly authorized officer of the Registrant and signing as the Chief Accounting Officer of the Registrant.)

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SegmentTable earnings decreased $0.7 million compared to the prior year quarter primarily due to the impact of lower revenue. Contents

InvestingTable Activitiesof Contents

•Table unanticipatedof expenses we may be required to incur relating to our world headquarters project;Contents

ItemTable 3.of Quantitative and Qualitative Disclosures About Market RiskContents

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Filing Compare · AMERICAN GREETINGS CORP