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	August 24, 2007

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    organization)		(I.R.S. Employer Identification No.) incorporation or

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          X               No                     

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [x]            Accelerated filer [ ]            Non-accelerated filer [ ]

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

Yes                           No          X         

As of September 28, 2007, the number of shares outstanding of each of the issuer’s classes of common stock was:

		Class A Common			51,212,893
		Class B Common			4,291,796

AMERICAN GREETINGS CORPORATION
INDEX

		Page
		Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
Item 4. Controls and Procedures			26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			26
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 4. Submission of Matters to a Vote of Security Holders			27
Item 6. Exhibits			28
SIGNATURES			28
EXHIBITS
EX-10.1
EX-10.2
EX-31.A
EX-31.B
EX-32

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

		(Unaudited)
		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
		2007				2006				2007				2006
Net sales		$	365,821			$	357,483			$	783,834			$	761,653
Other revenue			11,606				14,044				13,558				15,485
Total revenue			377,427				371,527				797,392				777,138
Material, labor and other production costs			163,052				172,808				324,180				348,045
Selling, distribution and marketing expenses			144,584				151,475				285,275				294,055
Administrative and general expenses			55,938				56,881				117,810				118,229
Other operating income – net			(320	)			(93	)			(680	)			(422	)
Operating income (loss)			14,173				(9,544	)			70,807				17,231
Interest expense			4,839				7,609				9,596				20,073
Interest income			(2,227	)			(2,628	)			(3,719	)			(5,458	)
Other non-operating income – net			(1,352	)			(642	)			(2,896	)			(2,902	)
Income (loss) from continuing operations before income tax expense (benefit)			12,913				(13,883	)			67,826				5,518
Income tax expense (benefit)			4,187				(1,326	)			28,478				1,525
Income (loss) from continuing operations			8,726				(12,557	)			39,348				3,993
(Loss) income from discontinued operations, net of tax			(351	)			2,059				(923	)			901
Net income (loss)		$	8,375			$	(10,498	)		$	38,425			$	4,894
Earnings (loss) per share – basic:
Income (loss) from continuing operations		$	0.16			$	(0.22	)		$	0.71			$	0.06
(Loss) income from discontinued operations			(0.01	)			0.04				(0.02	)			0.02
Net income (loss)		$	0.15			$	(0.18	)		$	0.69			$	0.08
Earnings (loss) per share – assuming dilution:
Income (loss) from continuing operations		$	0.16			$	(0.22	)		$	0.71			$	0.06
(Loss) income from discontinued operations			(0.01	)			0.04				(0.02	)			0.02
Net income (loss)		$	0.15			$	(0.18	)		$	0.69			$	0.08
Average number of shares outstanding			55,766,802				58,133,066				55,514,759				58,135,148
Average number of shares outstanding – assuming dilution			56,180,165				58,133,066				55,902,189				59,990,069
Dividends declared per share		$	0.10			$	0.08			$	0.20			$	0.16

See notes to condensed consolidated financial statements (unaudited).

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

		(Unaudited)				(Note 1)				(Unaudited)
		August 24, 2007				February 28, 2007				August 25, 2006
ASSETS
Current assets
Cash and cash equivalents		$	192,450			$	144,713			$	89,113
Trade accounts receivable, net			71,195				103,992				87,926
Inventories			248,176				182,618				273,788
Deferred and refundable income taxes			66,399				135,379				170,472
Assets of businesses held for sale			2,434				5,199				12,648
Prepaid expenses and other			215,369				227,380				194,291
Total current assets			796,023				799,281				828,238
Goodwill			226,920				224,105				214,969
Other assets			402,931				416,887				549,931
Deferred and refundable income taxes			98,968				52,869				-
Property, plant and equipment – at cost			950,273				944,534				967,253
Less accumulated depreciation			672,602				659,462				665,936
Property, plant and equipment – net			277,671				285,072				301,317
		$	1,802,513			$	1,778,214			$	1,894,455
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Debt due within one year		$	22,690			$	-			$	20,000
Accounts payable			126,341				118,204				127,619
Accrued liabilities			70,880				80,389				76,071
Accrued compensation and benefits			50,397				61,192				48,932
Income taxes			1,457				26,385				8,364
Liabilities of businesses held for sale			1,283				1,932				639
Other current liabilities			97,765				84,898				100,517
Total current liabilities			370,813				373,000				382,142
Long-term debt			200,988				223,915				224,078
Other liabilities			147,496				162,410				101,744
Deferred income taxes and noncurrent income taxes payable			29,930				6,315				25,775
Shareholders’ equity
Common shares – Class A			51,497				50,839				56,858
Common shares – Class B			4,291				4,283				4,226
Capital in excess of par value			439,985				414,859				412,919
Treasury stock			(720,027	)			(710,414	)			(569,143	)
Accumulated other comprehensive income (loss)			10,690				(1,013	)			29,726
Retained earnings			1,266,850				1,254,020				1,226,130
Total shareholders’ equity			1,053,286				1,012,574				1,160,716
		$	1,802,513			$	1,778,214			$	1,894,455

See notes to condensed consolidated financial statements (unaudited).

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

		(Unaudited)
		Six Months Ended
		August 24, 2007				August 25, 2006
OPERATING ACTIVITIES:
Net income		$	38,425			$	4,894
Loss (income) from discontinued operations			923				(901	)
Income from continuing operations			39,348				3,993
Adjustments to reconcile to net cash provided by operating activities:
Net gain on disposal of fixed assets			(41	)			(24	)
Loss on extinguishment of debt			-				4,972
Depreciation and amortization			23,919				24,823
Deferred income taxes			14,335				15,532
Other non-cash charges			3,861				7,016
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Decrease in trade accounts receivable			33,385				55,353
Increase in inventories			(61,980	)			(57,101	)
Increase in other current assets			(2,750	)			(24,196	)
Decrease in deferred costs – net			28,451				26,787
Decrease in accounts payable and other liabilities			(23,400	)			(33,170	)
Other – net			2,952				4,152
Cash Provided by Operating Activities			58,080				28,137
INVESTING ACTIVITIES:
Proceeds from sale of short-term investments			480,630				1,026,280
Purchases of short-term investments			(480,630	)			(817,540	)
Property, plant and equipment additions			(13,577	)			(18,708	)
Cash payments for business acquisitions			(6,056	)			(11,154	)
Cash receipts related to discontinued operations			3,419				9,559
Proceeds from sale of fixed assets			1,105				461
Cash (Used) Provided by Investing Activities			(15,109	)			188,898
FINANCING ACTIVITIES:
Increase in long-term debt			-				200,000
Reduction of long-term debt			-				(440,505	)
Increase in short-term debt			-				20,000
Sale of stock under benefit plans			24,250				2,804
Purchase of treasury shares			(11,883	)			(108,674	)
Dividends to shareholders			(11,115	)			(9,164	)
Debt issuance costs			-				(8,136	)
Cash Provided (Used) by Financing Activities			1,252				(343,675	)
DISCONTINUED OPERATIONS:
Cash used by operating activities from discontinued operations			(789	)			(2,296	)
Cash provided by investing activities from discontinued operations			-				1,656
Cash Used by Discontinued Operations			(789	)			(640	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH			4,303				2,780
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			47,737				(124,500	)
Cash and Cash Equivalents at Beginning of Year			144,713				213,613
Cash and Cash Equivalents at End of Period		$	192,450			$	89,113

See notes to condensed consolidated financial statements (unaudited).

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

Three and Six Months Ended August 24, 2007 and August 25, 2006

Note 1 – Basis of Presentation

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

The Corporation’s fiscal year ends on February 28 or 29. References to a particular year refer to the fiscal year ending in February of that year. For example, 2007 refers to the year ended February 28, 2007.

These interim financial statements should be read in conjunction with the Corporation’s financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended February 28, 2007, from which the Condensed Consolidated Statement of Financial Position at February 28, 2007, presented herein, has been derived. Certain amounts in the prior year financial statements have been reclassified to reflect certain business units as discontinued operations and adjusted to reflect the Corporation’s adoption of Staff Accounting Bulletin No. 108 (“SAB 108”). The opening balance of retained earnings in 2007 was adjusted $5.2 million ($3.3 million after-tax) to record the correction of the overstatement of the allowance for rebates (correspondingly, an understatement of net income of prior periods) pursuant to the special transition provision detailed in SAB 108.

Certain amounts in the prior year financial statements have also been reclassified to conform to the 2008 presentation. Previously included in “Other income – net,” royalty revenue is now reported as “Other revenue” and interest income is now included as a separate line item on the Condensed Consolidated Statement of Operations. The remaining items previously included in “Other income – net” have been segregated between operating and non-operating.

Note 2 – Seasonal Nature of Business

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

Note 3 – Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (the “FASB”) ratified Emerging Issues Task Force Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” The scope of EITF 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer. This issue provides that a company may adopt a policy of presenting taxes either gross within revenue or net. If taxes subject to this issue are significant, a company is required to disclose its accounting policy for presenting taxes and the amount of such taxes that are recognized on a gross basis. EITF 06-3 is effective for the first interim or annual reporting period beginning after December 15, 2006. The adoption of EITF 06-3 during the first quarter of fiscal 2008 had no material impact on the consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertain tax positions recognized in a company’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” including what criteria must be met prior to recognition of the financial statement benefit of a position taken or expected to be taken in a tax return. FIN 48 requires a company to include additional qualitative and quantitative disclosures within its financial statements. The disclosures include

potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each annual period. The disclosures also include a discussion of the nature of uncertainties, factors that could cause a change and an estimated range of reasonably possible changes in tax uncertainties. FIN 48 requires a company to recognize a financial statement benefit for a position taken for tax return purposes when it is more likely than not that the position will be sustained. The cumulative effect of adopting FIN 48 is recorded as an adjustment to the opening balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Corporation adopted FIN 48 on March 1, 2007. See Note 12.

Note 4 – Other Income and Expense

		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
(In thousands)		2007				2006				2007				2006
Other operating income – net		$	(320	)		$	(93	)		$	(680	)		$	(422	)
Foreign exchange gain		$	(1,149	)		$	(311	)		$	(2,269	)		$	(1,738	)
Rental income			(277	)			(251	)			(675	)			(783	)
Other			74				(80	)			48				(381	)
Other non-operating income – net		$	(1,352	)		$	(642	)		$	(2,896	)		$	(2,902	)

“Other” includes, among other things, gains and losses on asset disposals and equity income.

Note 5 – Earnings (Loss) Per Share

The following table sets forth the computation of earnings (loss) per share and earnings (loss) per share — assuming dilution:

		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
		2007				2006				2007				2006
Numerator (in thousands):
Income (loss) from continuing operations		$	8,726			$	(12,557	)		$	39,348			$	3,993
Denominator (in thousands):
Weighted average shares outstanding			55,767				58,133				55,515				58,135
Effect of dilutive securities:
Convertible debt			—				—				—				1,460
Stock options and other			413				—				387				395
Weighted average shares outstanding – assuming dilution			56,180				58,133				55,902				59,990
Income (loss) from continuing operations per share		$	0.16			$	(0.22	)		$	0.71			$	0.06
Income (loss) from continuing operations per share – assuming dilution		$	0.16			$	(0.22	)		$	0.71			$	0.06

Approximately 1.2 million and 1.9 million stock options outstanding in the three and six month periods ended August 24, 2007, respectively, were excluded from the computation of earnings per share–assuming dilution because the options’ exercise prices were greater than the average market price of the common shares during the respective periods (4.2 million and 4.7 million stock options outstanding in the three and six month periods ended August 25, 2006, respectively). For the three months ended August 25, 2006, all options outstanding (totaling approximately 7.2 million) and the convertible debt were excluded from the computation of earnings per share–

assuming dilution, as the effect would have been antidilutive due to the net loss in the period. The convertible debt was retired during the second quarter of 2007.

Note 6 – Comprehensive Income (Loss)

The Corporation’s total comprehensive income (loss) is as follows:

		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
(In thousands)		2007				2006				2007				2006
Net income (loss)		$	8,375			$	(10,498	)		$	38,425			$	4,894
Other comprehensive income (loss):
Foreign currency translation adjustment and other			4,661				5,821				11,704				19,878
Unrealized (loss) gain on securities			(1	)			(47	)			(1	)			25
Total comprehensive income (loss)		$	13,035			$	(4,724	)		$	50,128			$	24,797

Note 7 – Trade Accounts Receivable, Net

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

(In thousands)		August 24, 2007				February 28, 2007				August 25, 2006
Allowance for seasonal sales returns		$	38,530			$	62,567			$	40,226
Allowance for doubtful accounts			5,118				6,350				8,655
Allowance for cooperative advertising and marketing funds			27,643				24,048				26,883
Allowance for rebates			35,397				40,053				49,009
		$	106,688			$	133,018			$	124,773

Note 8 – Inventories

(In thousands)		August 24, 2007				February 28, 2007				August 25, 2006
Raw materials		$	21,038			$	17,590			$	25,943
Work in process			16,781				11,315				16,006
Finished products			264,006				207,676				286,161
			301,825				236,581				328,110
Less LIFO reserve			81,332				79,145				80,686
			220,493				157,436				247,424
Display materials and factory supplies			27,683				25,182				26,364
		$	248,176			$	182,618			$	273,788

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.

Note 9 – Deferred Costs

As of August 24, 2007, February 28, 2007 and August 25, 2006, deferred costs and future payment commitments are included in the following financial statement captions:

(In thousands)		August 24, 2007				February 28, 2007				August 25, 2006
Prepaid expenses and other		$	115,382			$	131,972			$	133,992
Other assets			338,932				355,115				471,430
Deferred cost assets			454,314				487,087				605,422
Other current liabilities			(62,290	)			(47,692	)			(64,590	)
Other liabilities			(29,489	)			(49,648	)			(50,138	)
Deferred cost liabilities			(91,779	)			(97,340	)			(114,728	)
Net deferred costs		$	362,535			$	389,747			$	490,694

Note 10 – Debt

At August 24, 2007, February 28, 2007 and August 25, 2006, long-term debt and their related calendar year due dates were as follows:

(In thousands)		August 24, 2007				February 28, 2007				August 25, 2006
6.10% Senior Notes, due 2028		$	–			$	22,690			$	22,624
7.375% Senior Notes, due 2016			200,000				200,000				200,000
Other			988				1,225				1,454
		$	200,988			$	223,915			$	224,078

At August 24, 2007 and August 25, 2006, debt due within one year totaled $22.7 million and $20.0 million, respectively. There was no debt due within one year at February 28, 2007. The balance of the 6.10% senior notes was reclassified to current during the second quarter of 2008 as these notes may be put back to the Corporation on August 1, 2008, at the option of the holders, at 100% of the principal amount provided the holders exercise this option between July 1, 2008 and August 1, 2008.

The Corporation’s convertible subordinated notes were retired during the second quarter of 2007.

There were no balances outstanding under the $600 million secured credit agreement or the amended and restated receivables purchase agreement as of August 24, 2007. While there were no balances outstanding under either facility, the Corporation does have, in the aggregate, $27.9 million outstanding under letters of credit, which reduces the total credit availability thereunder.

At August 24, 2007, the Corporation was in compliance with the financial covenants under its borrowing agreements.

Note 11 – Retirement Benefits

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

		Defined Benefit Pension
		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
(In thousands)		2007				2006				2007				2006
Service cost		$	245			$	202			$	489			$	414
Interest cost			2,255				2,417				4,520				4,521
Expected return on plan assets			(2,182	)			(2,213	)			(4,336	)			(4,321	)
Settlement			1,067				–				1,067				–
Amortization of prior service cost			69				66				133				133
Amortization of actuarial loss			406				590				816				1,351
		$	1,860			$	1,062			$	2,689			$	2,098

		Postretirement Benefit
		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
(In thousands)		2007				2006				2007				2006
Service cost		$	1,050			$	999			$	2,100			$	1,998
Interest cost			2,150				1,925				4,300				3,850
Expected return on plan assets			(1,250	)			(1,275	)			(2,500	)			(2,550	)
Amortization of prior service credit			(1,850	)			(1,849	)			(3,700	)			(3,698	)
Amortization of actuarial loss			1,650				1,700				3,300				3,400
		$	1,750			$	1,500			$	3,500			$	3,000

During the three months ended August 24, 2007, the Corporation settled a portion of its obligation under one of the defined benefit pension plans at its Canadian subsidiary. For the affected participants, the plan was converted to a defined contribution plan. As a result, a settlement expense of $1.1 million was recorded in the period.

The Corporation has a non-contributory profit-sharing plan with a contributory 401(k) provision covering most of its United States employees. The profit-sharing plan expense was $3.5 million for the six months ended August 24, 2007. There was no profit-sharing expense for the six months ended August 25, 2006. The profit-sharing plan expense for the six month periods are estimates as actual contributions to the profit-sharing plan are made after fiscal year-end and are contingent upon final year-end results. The Corporation matches a portion of 401(k) employee contributions contingent upon meeting specified annual operating results goals. The expenses recognized for the three and six month periods ended August 24, 2007 were $1.0 million and $2.2 million ($1.1 million and $2.2 million for the three and six month periods ended August 25, 2006), respectively.

At August 24, 2007, February 28, 2007 and August 25, 2006, the liability for postretirement benefits other than pensions was $70.3 million, $66.7 million and $14.0 million, respectively, and is included in “Other liabilities” on the Condensed Consolidated Statement of Financial Position. The change since August 25, 2006 is due to the adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R),” effective February 28, 2007.

Note 12 – Income Taxes

Effective March 1, 2007, the Corporation adopted FIN 48, including the provisions of FASB Staff Position No. FIN-48-1, “Definition of Settlement in FASB Interpretation No. 48.” In connection with the adoption of FIN 48, the Corporation recorded a decrease to retained earnings of $14.0 million to recognize an increase in its liability (or decrease to its refundable) for unrecognized tax benefits, interest and penalties under the recognition and measurement criteria of FIN 48. As of March 1, 2007, the Corporation had $33.5 million of total gross unrecognized tax benefits, which represent potential tax benefits for positions taken for tax return filings that have not yet been recognized for financial reporting purposes. If the Corporation sustains its positions, the recognition of these tax benefits would have a favorable effect of $29.3 million on the effective tax rate. It is reasonably possible that the Corporation’s unrecognized tax positions as of March 1, 2007 could

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

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

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

As of August 24, 2007, the Corporation had $36.0 million of total gross unrecognized tax benefits, the recognition of which would have a favorable effect of $30.6 million on the effective tax rate. Included in the total gross unrecognized tax benefits is $10.4 million of gross accrued interest and penalties related to uncertain tax positions.

Note 13 – Business Segment Information

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

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

At August 24, 2007, the Corporation owned and operated 429 card and gift retail stores in the United States and Canada through its Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the North American Social Expression Products segment as well as products purchased from other vendors.

AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms.

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

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

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

Operating Segment Information

		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
(In thousands)		2007				2006				2007				2006
Total Revenue:
North American Social Expression Products		$	255,881			$	244,220			$	552,975			$	537,183
Intersegment items			(13,942	)			(15,310	)			(22,109	)			(32,858	)
Exchange rate adjustment			1,341				170				1,346				107
Net			243,280				229,080				532,212				504,432
International Social Expression Products			59,390				62,385				119,044				126,493
Exchange rate adjustment			5,257				(59	)			9,352				(2,321	)
Net			64,647				62,326				128,396				124,172
Retail Operations			37,382				39,453				76,306				82,954
Exchange rate adjustment			1,069				183				1,073				121
Net			38,451				39,636				77,379				83,075
AG Interactive			17,158				20,447				37,052				40,488
Exchange rate adjustment			(2	)			40				1				45
Net			17,156				20,487				37,053				40,533
Non-reportable segments			13,885				19,936				22,268				24,831
Unallocated			8				62				84				95
		$	377,427			$	371,527			$	797,392			$	777,138
Segment Earnings (Loss):
North American Social Expression Products		$	40,799			$	15,417			$	127,739			$	83,578
Intersegment items			(10,467	)			(10,919	)			(16,722	)			(23,829	)
Exchange rate adjustment			798				82				803				49
Net			31,130				4,580				111,820				59,798
International Social Expression Products			1,393				559				1,433				1,056
Exchange rate adjustment			200				18				347				64
Net			1,593				577				1,780				1,120
Retail Operations			(6,484	)			(9,071	)			(9,265	)			(16,372	)
Exchange rate adjustment			(3	)			(5	)			(3	)			(3	)
Net			(6,487	)			(9,076	)			(9,268	)			(16,375	)
AG Interactive			3,177				1,208				6,473				3,249
Exchange rate adjustment			(8	)			2				(17	)			1
Net			3,169				1,210				6,456				3,250
Non-reportable segments			2,035				6,735				2,962				4,640
Unallocated			(18,456	)			(17,856	)			(45,849	)			(46,762	)
Exchange rate adjustment			(71	)			(53	)			(75	)			(153	)
Net			(18,527	)			(17,909	)			(45,924	)			(46,915	)
		$	12,913			$	(13,883	)		$	67,826			$	5,518

Termination Benefits and Plant Closings

Termination benefits are primarily considered part of an ongoing benefit arrangement, accounted for in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” and are recorded when payment of the benefits is probable and can be reasonably estimated.

The balance of the severance accrual was $5.7 million, $8.4 million and $4.5 million at August 24, 2007, February 28, 2007 and August 25, 2006, respectively.

Deferred Revenue

Deferred revenue, included in “Other current liabilities” on the Condensed Consolidated Statement of Financial Position, totaled $33.3 million, $35.5 million and $29.6 million at August 24, 2007, February 28, 2007 and August 25, 2006, respectively. The amounts relate primarily to the Corporation’s AG Interactive segment and the licensing activities included in non-reportable segments.

Note 14 – Discontinued Operations

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

In February 2007, the Corporation entered into an agreement to sell its educational products subsidiary, Learning Horizons. The sale reflects the Corporation’s strategy to focus its resources on business units closely related to its core social expression business. The sale closed in March 2007 and the Corporation received cash proceeds of $2.3 million, which is included in “Cash receipts related to discontinued operations” on the Condensed Consolidated Statement of Cash Flows.

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

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

The following summarizes the results of discontinued operations:

		Three Months Ended								Six Months Ended
		August 24,				August 25,				August 24,				August 25,
		2007				2006				2007				2006
Total revenue		$	57			$	2,979			$	359			$	9,153
Pre-tax loss from operations		$	(349	)		$	(828	)		$	(754	)		$	(1,983	)
Gain on sale			–				684				195				684
			(349	)			(144	)			(559	)			(1,299	)
Income tax expense (benefit)			2				(2,203	)			364				(2,200	)
(Loss) income from discontinued operations, net of tax		$	(351	)		$	2,059			$	(923	)		$	901

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

(In thousands)		August 24, 2007				February 28, 2007				August 25, 2006
Assets of businesses held for sale:
Current assets		$	10			$	2,933			$	8,777
Other assets			2,352				2,185				3,668
Fixed assets			72				81				203
		$	2,434			$	5,199			$	12,648
Liabilities of businesses held for sale:
Current liabilities		$	58			$	610			$	519
Noncurrent liabilities			1,225				1,322				120
		$	1,283			$	1,932			$	639

During the three months ended August 24, 2007, proceeds of $1.1 million related to the sale of Magnivision were received and are included in “Cash receipts related to discontinued operations” on the Condensed Consolidated Statement of Cash Flows. These proceeds are associated with the gain recorded during the third quarter of 2007.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited consolidated financial statements. This discussion and analysis, and other statements made in this Report, contain forward-looking statements, see “Factors That May Affect Future Results” at the end of this discussion and analysis for a description of the uncertainties, risks and assumptions associated with these statements. Unless otherwise indicated or the context otherwise requires, the “Corporation,” “we,” “our,” “us” and “American Greetings” are used in this Report to refer to the businesses of American Greetings Corporation and its consolidated subsidiaries.

Overview

We experienced higher consolidated total revenues and earnings during the second quarter of 2008, compared to the prior year quarter, primarily driven by our North American Social Expression Products segment where we spent less on the implementation of our strategy to invest in our core greeting card business (“investment in cards strategy”) and scan-based trading (“SBT”) implementations. The investment in cards strategy is focused on improving the design, production, display and promotion of our cards, creating relevant and on-trend products, brought to market quickly and merchandised in a manner that enhances the shopping experience. The most significant costs associated with this strategy are incentive allowances for new fixtures and removal of product at retail (to improve productivity), as credits issued to customers exceed new product shipments. Due to the nature of these costs, generally sales incentives and credits for removed product, they are reported as reductions to net sales. In addition, there are costs to implement the strategy, including installation services, information system improvements, point of purchase materials, scrap and order filling costs, which are reported within the appropriate expense lines of the Condensed Consolidated Statement of Operations.

During the second quarter of 2008, actions related to our investment in cards strategy decreased total revenue by approximately $7 million and SBT implementations reduced total revenue by less than $1 million, compared to approximately $7 million and $8 million, respectively, in the prior year quarter. Other related costs to implement the strategy were approximately $1 million in the current quarter, compared to approximately $2 million in the prior year period, none of which were individually significant. In total, actions related to the investment in cards strategy and SBT implementations reduced consolidated pre-tax income by approximately $8 million, compared with approximately $16 million in the prior year period.

For the six months ended August 24, 2007, total revenue was reduced by approximately $8 million for actions related to our investment in cards strategy and approximately $1 million for SBT implementations, compared to approximately $13 million and $15 million, respectively, in the prior year first half. Other related costs to implement the strategy were approximately $2 million in the current six month period, compared to approximately $4 million in the prior year period, none of which were individually significant. In total, actions related to the investment in cards strategy and SBT implementations reduced consolidated pre-tax income by approximately $11 million, compared with approximately $32 million in the prior year period.

For fiscal 2008, we expect the expenditures for the investment in cards strategy and SBT implementations to total at least $36 million, compared to actual expenditures of approximately $66 million in fiscal 2007.

Also contributing to the increased earnings during the quarter was an improvement in the net sales of everyday greeting cards, a change in the mix of products sold to a richer mix (as defined by higher gross margins) of card versus non-card products and the impact of continued cost savings programs, particularly in the areas of manufacturing and supply chain.

The improvement in total revenue in the North American Social Expression Products segment was partially offset by lower revenues in the International Social Expression Products, Retail Operations and AG Interactive segments as well as the fixtures and licensing businesses. However, despite these revenue decreases, each of these segments showed improved earnings. These earnings improvements were driven by cost control programs, the closure of underperforming retail stores during the prior year fourth quarter and the elimination of certain mobile product lines in the AG Interactive segment.

Results of Operations

Three months ended August 24, 2007 and August 25, 2006

Net income was $8.4 million, or $0.15 per share, in the quarter compared to a net loss of $10.5 million, or $0.18 per share, in the prior year second quarter (all per-share amounts assume dilution).

Our results for the three months ended August 24, 2007 and August 25, 2006 are summarized below:

						% Total								% Total
(Dollars in thousands)		2007				Revenue				2006				Revenue
Net sales		$	365,821				96.9	%		$	357,483				96.2	%
Other revenue			11,606				3.1	%			14,044				3.8	%
Total revenue			377,427				100.0	%			371,527				100.0	%
Material, labor and other production costs			163,052				43.2	%			172,808				46.5	%
Selling, distribution and marketing expenses			144,584				38.3	%			151,475				40.8	%
Administrative and general expenses			55,938				14.8	%			56,881				15.3	%
Other operating income – net			(320	)			(0.1	%)			(93	)			(0.0	%)
Operating income (loss)			14,173				3.8	%			(9,544	)			(2.6	%)
Interest expense			4,839				1.3	%			7,609				2.0	%
Interest income			(2,227	)			(0.6	%)			(2,628	)			(0.7	%)
Other non-operating income – net			(1,352	)			(0.3	%)			(642	)			(0.2	%)
Income (loss) from continuing operations before income tax expense (benefit)			12,913				3.4	%			(13,883	)			(3.7	%)
Income tax expense (benefit)			4,187				1.1	%			(1,326	)			(0.3	%)
Income (loss) from continuing operations			8,726				2.3	%			(12,557	)			(3.4	%)
(Loss) income from discontinued operations, net of tax			(351	)			(0.1	%)			2,059				0.6	%
Net income (loss)		$	8,375				2.2	%		$	(10,498	)			(2.8	%)

For the three months ended August 24, 2007, consolidated net sales were $365.8 million, up from $357.5 million in the prior year second quarter. This 2.3% or approximately $8 million increase was primarily the result of higher net sales in our North American Social Expression Products segment of approximately $13 million combined with a favorable foreign exchange impact of approximately $7 million partially offset by lower net sales of approximately $2 to $3 million in each of our International Social Expression Products, Retail Operations and AG Interactive segments and our fixtures business.

Net sales of our North American Social Expression Products segment increased approximately $13 million. Our candle product lines, which were sold in January 2007, contributed approximately $7 million to net sales in the prior year quarter. As a result, sales of products other than candles increased approximately $20 million. Approximately $7 million of the increase resulted from fewer SBT implementations and approximately $1 million was due to lower spending on our investment in cards strategy. The majority of the remaining increase was due to improvements in everyday card sales. Seasonal card sales also contributed to the remaining increase, primarily Father’s Day and graduation as SBT implementations in the prior year impacted the timing of the sales as discussed below.

The reduction in our International Social Expression Products segment’s net sales was due primarily to the challenging retail environment in the U.K., which continues to demand reduced inventory levels for most of our product lines. Our Retail Operations segment was down approximately $2 million, or 5%, as favorable same-store sales of approximately 7% were more than offset by the decrease in store doors of approximately 13%.

Other revenue, primarily royalty revenue, decreased from $14.0 million during the three months ended August 25, 2006 to $11.6 million during the three months ended August 24, 2007. The decrease of $2.4 million is primarily attributable to favorable audit recoveries recorded during the prior year quarter.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the three months ended August 24, 2007 and August 25, 2006 are summarized below:

		Increase (Decrease) From the Prior Year
		Everyday Cards								Seasonal Cards								Total Greeting Cards
		2007				2006				2007				2006				2007				2006
Unit volume			19.5%				(18.8%	)			24.0%				(13.5%	)			20.2%				(18.1%	)
Selling prices			(9.6%	)			12.3%				(12.8%	)			15.0%				(10.1%	)			12.7%
Overall increase / (decrease)			8.1%				(8.9%	)			8.2%				(0.5%	)			8.1%				(7.8%	)

During the second quarter, combined everyday and seasonal greeting card sales less returns improved 8.1% compared to the prior year quarter, with increases in both everyday and seasonal greeting cards. Approximately 30% of the increase was due to SBT implementations that reduced unit volume in the prior year second quarter.

Everyday card unit volume, up 19.5%, and selling prices, down 9.6%, were significantly impacted by the SBT implementations during the prior year second quarter. As reported in the prior year second quarter Form 10-Q, there was a significant amount of SBT implementations during the quarter that decreased unit volume and increased selling prices. Approximately 60% of the increase in everyday card unit volume and 80% of the decrease in selling prices was a direct result of the prior year SBT implementations. The remaining increase in everyday card unit volume was due to improvements across all business units, particularly within the North American Social Expression Products segment.

Seasonal card unit volume increased 24.0% in the current quarter, primarily due to Father’s Day and graduation card sales. This increase is substantially the result of customers that implemented SBT in the prior year that impacted the timing of sales in the current year. As noted in prior quarters, the implementation of SBT impacts the timing of sales with these customers compared to the prior year because, under SBT arrangements, American Greetings owns the product delivered to the retail customer until the product is sold by the retailer to the ultimate consumer, at which time we record the sale. In addition, since the second quarter has the fewest holidays, the changes in unit volume during the quarter appear large on a percentage basis. The decrease in selling prices of seasonal cards was the result of a higher mix of value priced cards. This change in product mix was primarily the result of the SBT implementations in the prior year.

Expense Overview

Material, labor and other production costs (“MLOPC”) for the three months ended August 24, 2007 were $163.1 million, a decrease from $172.8 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 43.2% in the current period compared to 46.5% for the three months ended August 25, 2006. The decrease of $9.7 million is due to favorable product mix of approximately $15 million partially offset by increased spending of approximately $2 million and foreign exchange impacts of approximately $3 million. The favorable product mix is due to a change to a richer mix (as defined by higher gross margins) of card versus non-card products, primarily as a result of the growth in everyday cards and the sale of our candle product lines in January 2007. The increased spending was primarily attributable to higher creative content costs.

Selling, distribution and marketing costs for the three months ended August 24, 2007 were $144.6 million, decreasing from $151.5 million for the comparable period in the prior year. The decrease of $6.9 million is due to favorable spending variances of approximately $10 million partially offset by unfavorable foreign exchange impacts of approximately $3 million. The lower spending is due to decreases in retail store expenses of approximately $3 million, savings from supply chain cost reduction programs of approximately $4 million, lower consulting expenses of approximately $2 million and reduced marketing-related expenses at AG Interactive (primarily attributable to the reduced offerings for the mobile product group) of approximately $2 million. These amounts were partially offset by higher advertising and research expenses of approximately $2 million primarily attributable to our focus on our core greeting card business.

Administrative and general expenses were $55.9 million for the three months ended August 24, 2007, a decrease from $56.9 million for the three months ended August 25, 2006. The decrease of $1.0 million is primarily related to favorable spending variances of approximately $2 million partially offset by unfavorable foreign exchange impacts of approximately $1 million. The decreased spending is attributable to lower information technology-related expenses and stock-based compensation expense.

Interest expense for the three months ended August 24, 2007 was $4.8 million, down from $7.6 million for the prior year quarter. The decrease of $2.8 million is attributable to savings of $1.5 million due to the reduced debt balances for the 7.00% convertible notes as a result of our financing activities in the prior year. The amortization of deferred financing fees for the convertible notes was $0.9 million lower in the current quarter also as a result of the prior year activities. Commitment fees paid on the available balance of our credit facility decreased $0.4 million, primarily as a result of the reduction in the size of the term loan facility.

For the three months ended August 24, 2007, tax expense was $4.2 million on pre-tax income from continuing operations of $12.9 million compared to a tax benefit of $1.3 million on a pre-tax loss from continuing operations of $13.9 million in the prior year quarter. The effective tax rate on income (loss) from continuing operations was 32.4% and 9.6% for the three months ended August 24, 2007 and August 25, 2006, respectively. Since the second quarter has seasonally low income (loss) from continuing operations before income tax expense (benefit), discrete items or changes to the tax assets and reserves on the Condensed Consolidated Statement of Financial Position have a more significant impact on the Corporation’s quarterly effective tax rate. The low effective tax rate in the prior quarter relates to several discrete events during that period, including interest expense on estimated tax payments, return to provision adjustments and the effect of amended tax returns on deferred tax assets.

Results of Operations

Six months ended August 24, 2007 and August 25, 2006

Net income was $38.4 million, or $0.69 per share, for the six months compared to $4.9 million, or $0.08 per share, in the prior year period.

Our results for the six months ended August 24, 2007 and August 25, 2006 are summarized below:

						% Total								% Total
(Dollars in thousands)		2007				Revenue				2006				Revenue
Net sales		$	783,834				98.3	%		$	761,653				98.0	%
Other revenue			13,558				1.7	%			15,485				2.0	%
Total revenue			797,392				100.0	%			777,138				100.0	%
Material, labor and other production costs			324,180				40.6	%			348,045				44.8	%
Selling, distribution and marketing expenses			285,275				35.8	%			294,055				37.9	%
Administrative and general expenses			117,810				14.8	%			118,229				15.2	%
Other operating income – net			(680	)			(0.1	%)			(422	)			(0.1	%)
Operating income			70,807				8.9	%			17,231				2.2	%
Interest expense			9,596				1.2	%			20,073				2.6	%
Interest income			(3,719	)			(0.5	%)			(5,458	)			(0.7	%)
Other non-operating income – net			(2,896	)			(0.3	%)			(2,902	)			(0.4	%)
Income from continuing operations before income tax expense			67,826				8.5	%			5,518				0.7	%
Income tax expense			28,478				3.6	%			1,525				0.2	%
Income from continuing operations			39,348				4.9	%			3,993				0.5	%
(Loss) income from discontinued operations, net of tax			(923	)			(0.1	%)			901				0.1	%
Net income		$	38,425				4.8	%		$	4,894				0.6	%

For the six months ended August 24, 2007, consolidated net sales were $783.8 million, up from $761.7 million in the prior year six months. This 2.9% or approximately $22 million increase was primarily the result of higher net sales in our North American Social Expression Products segment of approximately $26 million combined with a favorable foreign exchange impact of approximately $14 million partially offset by lower net sales in our International Social Expression Products segment of approximately $8 million, our Retail Operations segment of approximately $7 million and our AG Interactive segment of approximately $3 million.

Net sales of our North American Social Expression Products segment increased approximately $26 million. Our candle product lines, which were sold in January 2007, contributed approximately $14 million to net sales in the prior year six months. As a result, sales of products other than candles increased approximately $40 million. Approximately $5 million of the increase was due to lower spending on our investment in cards strategy and approximately $15 million resulted from fewer SBT implementations. The majority of the remaining increase was due to improvements in everyday and seasonal card sales.

The reduction in our International Social Expression Products segment’s net sales was due primarily to the challenging retail environment in the U.K. which continues to demand reduced inventory levels for most of our product lines. Our Retail Operations segment was down approximately $7 million, or 8%, as favorable same-store sales of approximately 5% were more than offset by the decrease in store doors of approximately 13%. Growth in advertising and subscription sales in our AG Interactive segment, including the favorable impact of the prior year second quarter acquisition, were more than offset by the reduced offerings in our mobile product group.

Other revenue, primarily royalty revenue, decreased $1.9 million from $15.5 million during the six months ended August 25, 2006 to $13.6 million during the six months ended August 24, 2007. The decrease is primarily attributable to favorable audit recoveries recorded during the prior year period.

Wholesale Unit and Pricing Analysis for Greeting Cards

Unit and pricing comparatives (on a sales less returns basis) for the six months ended August 24, 2007 and August 25, 2006 are summarized below:

		Increase (Decrease) From the Prior Year
		Everyday Cards								Seasonal Cards								Total Greeting Cards
		2007				2006				2007				2006				2007				2006
Unit volume			13.8%				(16.1%	)			5.3%				(0.6%	)			11.4%				(12.3%	)
Selling prices			(7.2%	)			9.6%				(3.6%	)			2.8%				(6.2%	)			8.1%
Overall increase / (decrease)			5.6%				(8.0%	)			1.6%				2.2%				4.4%				(5.2%	)

During the six month period, combined everyday and seasonal greeting card sales less returns improved 4.4% compared to the prior year period, with the majority of the increase in everyday greeting cards. Approximately 45% of the increase was due to SBT implementations that reduced unit volume in the prior year first half.

Everyday card unit volume, up 13.8%, and selling prices, down 7.2%, were significantly impacted by the SBT implementations during the prior year six months. As reported in the prior year Form 10-Q, there was a significant amount of SBT implementations during the period that decreased unit volume and increased selling prices. Approximately 70% of the increase in everyday card unit volume and 85% of the decrease in selling prices was a direct result of the prior year SBT implementations. The remaining increase in everyday card unit volume was due to improvements across all business units, particularly within the North American Social Expression Products segment.

Seasonal card unit volume increased 5.3% in the six month period, primarily due to increases in Easter and graduation compared to the prior year period. The lower selling prices were due to a change in mix of cards sold to a higher mix of value priced products.

Expense Overview

MLOPC for the six months ended August 24, 2007 were $324.2 million, a decrease from $348.0 million for the comparable period in the prior year. As a percentage of total revenue, these costs were 40.6% in the current period compared to 44.8% for the six months ended August 25, 2006. The decrease of $23.8 million is due to favorable mix of approximately $34 million partially offset by unfavorable volume variances of approximately $2 million due to the increased sales in the current period, unfavorable spending variances of approximately $1 million and foreign exchange impacts of approximately $7 million. The favorable product mix is due to a change to a richer mix of card versus non-card products, primarily as a result of the growth in everyday and seasonal cards and the sale of our candle product lines in January 2007. The increased spending is attributable to higher creative content costs of approximately $5 million partially offset by favorable scrap and inventory adjustments of $4 million.

Selling, distribution and marketing costs for the six months ended August 24, 2007 were $285.3 million, decreasing from $294.1 million for the comparable period in the prior year. The decrease of $8.8 million is due to favorable spending variances of approximately $14 million partially offset by unfavorable foreign exchange impacts of approximately $5 million. The lower spending is due to decreases in retail store expenses of approximately $7 million, savings from supply chain cost reduction programs of approximately $7 million and reduced marketing-related expenses at AG Interactive (primarily attributable to the reduced offerings for the mobile product group) of approximately $4 million. These amounts were partially offset by higher advertising and research expenses of approximately $5 million, a portion of which is attributable to our focus on our core greeting card business.

Administrative and general expenses were $117.8 million for the six months ended August 24, 2007, a decrease from $118.2 million for the six months ended August 25, 2006. The decrease of $0.4 million is primarily related to favorable spending variances of approximately $2 million partially offset by unfavorable foreign exchange impacts of approximately $2 million. The reduced spending is attributable to lower non-income related business taxes and stock-based compensation expense.

Interest expense for the six months ended August 24, 2007 was $9.6 million, down from $20.1 million for the prior year period. The decrease of $10.5 million is attributable to the financing activities from the prior year period. Expenses of $5.4 million were incurred related to the early retirement of substantially all of our 6.10% senior notes and the convertible notes exchange offer, including the associated consent payment, fees paid and the write-off of deferred financing costs. Deferred financing costs of $1.0 million associated with the credit facility that was terminated in April 2006 were written off in the prior period. Savings of $8.5 million were realized in the current period due to the reduced debt balances for the 6.10% senior notes and the 7.00% convertible notes as a result of the prior period financing activities. The amortization of deferred financing fees for the convertible notes was $1.2 million lower in the current period also as a result of the prior year activities. Commitment fees paid on the available balance of our credit facility decreased $0.4 million, primarily as a result of the reduction in the size of the term loan facility. Partially offsetting these amounts are $3.7 million for interest expense on the new 7.375% notes issued in May 2006 and $2.4 million for the net gain recognized on the interest rate derivative entered into and settled during the six months ended August 25, 2006.

The effective tax rate on income from continuing operations was 42.0% and 27.6% for the six months ended August 24, 2007 and August 25, 2006, respectively. The increase in the effective tax rate relates to several discrete events during the current year period, primarily agreements reached with the Internal Revenue Service as it closed its audit cycle.

Segment Information

Our operations are organized and managed according to a number of factors, including product categories, geographic locations and channels of distribution. Our North American Social Expression Products and our International Social Expression Products segments primarily design, manufacture and sell greeting cards and other related products through various channels of distribution, with mass retailers as the primary channel. As permitted under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” certain operating divisions have been aggregated into both the North American Social Expression Products and International Social Expression Products segments. The aggregated operating divisions have similar economic characteristics, products, production processes, types of customers and distribution methods. At August 24, 2007, we owned and operated 429 card and gift retail stores in the United States and Canada through our Retail Operations segment. The stores are primarily located in malls and strip shopping centers. The stores sell products purchased from the North American Social Expression Products segment as well as products purchased from other vendors. AG Interactive is an electronic provider of social expression content through the Internet and wireless platforms.

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

North American Social Expression Products Segment

(Dollars in		Three Months Ended August								%				Six Months Ended August								%
thousands)		24, 2007				25, 2006				Change				24, 2007				25, 2006				Change
Total revenue		$	241,939			$	228,910				5.7	%		$	530,866			$	504,325				5.3	%
Segment earnings			30,332				4,498				574.3	%			111,017				59,749				85.8	%