##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 o
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED February 25, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 333-121479
COMMISSION FILE NUMBER 333-84294
 AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  DELAWARE
    
    20-1854833DELAWARE
    
    13-4126506(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification Number)organization)
 7211 CIRCLE S ROAD
AUSTIN, TEXAS 78745
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE (512) 444-0571
 o þ
  o o þ
 o þ




---



##### 



FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2006
INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements and NotesCondensed Consolidated Balance Sheets (unaudited)  As of February 25, 2006 and August 27, 2005
    
    
    3Condensed Consolidated Statements of Operations (unaudited)  For the Three Months Ended February 25, 2006 and For the Three Months Ended February 26, 2005
    
    
    4Condensed Consolidated Statements of Operations (unaudited)  For the Six Months Ended February 25, 2006 and For the Six Months Ended February 26, 2005
    
    
    5Condensed Consolidated Statements of Cash Flows (unaudited)  For the Six Months Ended February 25, 2006 and For the Six Months Ended February 26, 2005
    
    
    6Condensed Consolidated Statements of Stockholders Equity (unaudited)  For the Six Months Ended February 25, 2006
    
    
    7Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    8-19Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20-30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  Explanatory Note
  2




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
    AAC Group Holding Corp.
    
    
    American Achievement CorporationFebruary 25,
    
    
    August 27,
    
    
    February 25,
    
    
    August 27,2006
    
    
    2005
    
    
    2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,660
    
    
    $
    4,324
    
    
    $
    17,163
    
    
    $
    4,093Accounts receivable, net
    
    
    37,392
    
    
    
    40,639
    
    
    
    37,392
    
    
    
    40,639Inventories, net
    
    
    35,168
    
    
    
    21,913
    
    
    
    35,168
    
    
    
    21,913Deferred tax asset
    
    
    6,760
    
    
    
    6,760
    
    
    
    6,760
    
    
    
    6,760Prepaid expenses and other current
assets, net
    
    
    22,603
    
    
    
    22,180
    
    
    
    22,603
    
    
    
    22,180Total current assets
    
    
    126,583
    
    
    
    95,816
    
    
    
    119,086
    
    
    
    95,585Property, plant and equipment, net
    
    
    74,302
    
    
    
    75,943
    
    
    
    74,302
    
    
    
    75,943Goodwill
    
    
    184,565
    
    
    
    184,026
    
    
    
    184,565
    
    
    
    184,026Other intangible assets, net
    
    
    146,626
    
    
    
    153,265
    
    
    
    143,432
    
    
    
    150,112Other assets
    
    
    3,751
    
    
    
    3,809
    
    
    
    3,751
    
    
    
    3,809Total assets
    
    $
    535,827
    
    
    $
    512,859
    
    
    $
    525,136
    
    
    $
    509,475LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank overdraft
    
    $
    6,270
    
    
    $
    3,730
    
    
    $
    6,270
    
    
    $
    3,730Accounts payable
    
    
    7,475
    
    
    
    13,959
    
    
    
    7,475
    
    
    
    13,959Customer deposits
    
    
    60,590
    
    
    
    17,762
    
    
    
    60,590
    
    
    
    17,762Accrued expenses
    
    
    25,312
    
    
    
    26,263
    
    
    
    25,301
    
    
    
    26,252Accrued interest
    
    
    7,514
    
    
    
    7,370
    
    
    
    7,514
    
    
    
    7,370Current portion of long-term debt
    
    
    1,273
    
    
    
    1,409
    
    
    
    1,273
    
    
    
    1,409Total current liabilities
    
    
    108,434
    
    
    
    70,493
    
    
    
    108,423
    
    
    
    70,482Long-term debt, net of current portion
    
    
    380,932
    
    
    
    384,367
    
    
    
    271,823
    
    
    
    287,711Deferred income taxes
    
    
    20,382
    
    
    
    25,331
    
    
    
    25,649
    
    
    
    28,126Other long-term liabilities
    
    
    7,860
    
    
    
    8,377
    
    
    
    7,699
    
    
    
    8,344Total liabilities
    
    
    517,608
    
    
    
    488,568
    
    
    
    413,594
    
    
    
    394,663Commitments and contingenciesStockholders equity:Common stock
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    16,491
    
    
    
    16,491
    
    
    
    102,046
    
    
    
    102,046Accumulated earnings
    
    
    2,679
    
    
    
    8,751
    
    
    
    10,452
    
    
    
    13,722Accumulated other comprehensive loss
    
    
    (956
    )
    
    
    (956
    )
    
    
    (956
    )
    
    
    (956
    )Total stockholders equity
    
    
    18,219
    
    
    
    24,291
    
    
    
    111,542
    
    
    
    114,812Total liabilities and stockholders equity
    
    $
    535,827
    
    
    $
    512,859
    
    
    $
    525,136
    
    
    $
    509,475
  3




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
    AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the three
    
    
    For the threemonths ended
    
    
    months endedFebruary 25,
    
    
    February 26,
    
    
    February 25,
    
    
    February 26,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    56,356
    
    
    $
    58,823
    
    
    $
    56,356
    
    
    $
    58,823Cost of sales
    
    
    20,779
    
    
    
    23,150
    
    
    
    20,779
    
    
    
    23,150Gross profit
    
    
    35,577
    
    
    
    35,673
    
    
    
    35,577
    
    
    
    35,673Selling, general and
administrative expenses
    
    
    30,810
    
    
    
    35,677
    
    
    
    30,810
    
    
    
    35,677Operating income (loss)
    
    
    4,767
    
    
    
    (4
    )
    
    
    4,767
    
    
    
    (4
    )Interest expense
    
    
    8,481
    
    
    
    8,172
    
    
    
    5,752
    
    
    
    5,772Loss before income taxes
    
    
    (3,714
    )
    
    
    (8,176
    )
    
    
    (985
    )
    
    
    (5,776
    )Benefit for income taxes
    
    
    (1,624
    )
    
    
    (3,718
    )
    
    
    (391
    )
    
    
    (2,311
    )Net loss
    
    $
    (2,090
    )
    
    $
    (4,458
    )
    
    $
    (594
    )
    
    $
    (3,465
    )
  4




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
    AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the six
    
    
    For the sixmonths ended
    
    
    months endedFebruary 25,
    
    
    February 26,
    
    
    February 25,
    
    
    February 26,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    118,346
    
    
    $
    122,105
    
    
    $
    118,346
    
    
    $
    122,105Cost of sales
    
    
    46,863
    
    
    
    50,466
    
    
    
    46,863
    
    
    
    50,466Gross profit
    
    
    71,483
    
    
    
    71,639
    
    
    
    71,483
    
    
    
    71,639Selling, general and
administrative expenses
    
    
    65,144
    
    
    
    71,280
    
    
    
    65,144
    
    
    
    71,280Operating income
    
    
    6,339
    
    
    
    359
    
    
    
    6,339
    
    
    
    359Interest expense
    
    
    17,032
    
    
    
    14,290
    
    
    
    11,758
    
    
    
    11,488Loss before income taxes
    
    
    (10,693
    )
    
    
    (13,931
    )
    
    
    (5,419
    )
    
    
    (11,129
    )Benefit for income taxes
    
    
    (4,621
    )
    
    
    (6,217
    )
    
    
    (2,149
    )
    
    
    (4,452
    )Net loss
    
    $
    (6,072
    )
    
    $
    (7,714
    )
    
    $
    (3,270
    )
    
    $
    (6,677
    )
  5




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
    AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the six months ended
    
    
    For the six months endedFebruary 25, 2006
    
    
    February 26, 2005
    
    
    February 25, 2006
    
    
    February 26, 2005Cash flows from operating activities:Net loss
    
    $
    (6,072
    )
    
    $
    (7,714
    )
    
    $
    (3,270
    )
    
    $
    (6,677
    )Adjustments to reconcile net loss
to net cash provided by operating
activities:Depreciation and amortization
    
    
    13,015
    
    
    
    12,692
    
    
    
    13,015
    
    
    
    12,692Deferred income taxes
    
    
    (4,949
    )
    
    
    (5,431
    )
    
    
    (2,477
    )
    
    
    (3,666
    )Amortization of debt discount and
deferred financing fees
    
    
    5,929
    
    
    
    3,555
    
    
    
    748
    
    
    
    753Recovery for doubtful accounts
    
    
    (339
    )
    
    
    (289
    )
    
    
    (339
    )
    
    
    (289
    )Changes in assets and liabilities:Accounts receivable
    
    
    3,586
    
    
    
    6,896
    
    
    
    3,586
    
    
    
    6,896Inventories, net
    
    
    (13,255
    )
    
    
    (13,336
    )
    
    
    (13,255
    )
    
    
    (13,336
    )Prepaid expenses and other
current assets, net
    
    
    (423
    )
    
    
    2,529
    
    
    
    (423
    )
    
    
    2,529Other assets
    
    
    (481
    )
    
    
    (4,484
    )
    
    
    (481
    )
    
    
    (976
    )Customer deposits
    
    
    42,828
    
    
    
    37,207
    
    
    
    42,828
    
    
    
    37,207Deferred revenue
    
    
    
    
    
    
    (4,562
    )
    
    
    
    
    
    
    (4,562
    )Accounts payable, accrued
expenses, and other long-term
liabilities
    
    
    (7,808
    )
    
    
    (5,351
    )
    
    
    (7,936
    )
    
    
    (5,370
    )Net cash provided by operating
activities
    
    
    32,031
    
    
    
    21,712
    
    
    
    31,996
    
    
    
    25,201Cash flows from investing
activities:Purchases of property, plant and
equipment
    
    
    (5,442
    )
    
    
    (6,573
    )
    
    
    (5,442
    )
    
    
    (6,573
    )Net cash used in investing
activities
    
    
    (5,442
    )
    
    
    (6,573
    )
    
    
    (5,442
    )
    
    
    (6,573
    )Cash flows from financing
activities:Payments on revolver
    
    
    (16,050
    )
    
    
    (22,400
    )
    
    
    (16,050
    )
    
    
    (22,400
    )Proceeds from credit facility
revolver
    
    
    16,050
    
    
    
    22,400
    
    
    
    16,050
    
    
    
    22,400Payments on term loan
    
    
    (16,024
    )
    
    
    (10,140
    )
    
    
    (16,024
    )
    
    
    (10,140
    )Proceeds from stock issuance
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    Transaction costs on stock issuance
    
    
    (269
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from 10.25% notes
    
    
    
    
    
    
    89,269
    
    
    
    
    
    
    
    Distribution to stockholders
    
    
    
    
    
    
    (85,550
    )
    
    
    
    
    
    
    Change in bank overdraft
    
    
    2,540
    
    
    
    (1,149
    )
    
    
    2,540
    
    
    
    (1,149
    )Net cash used in financing
activities
    
    
    (6,253
    )
    
    
    (7,570
    )
    
    
    (13,484
    )
    
    
    (11,289
    )Net increase in cash and cash
equivalents
    
    
    20,336
    
    
    
    7,569
    
    
    
    13,070
    
    
    
    7,339Cash and cash equivalents,
beginning of period
    
    
    4,324
    
    
    
    3,038
    
    
    
    4,093
    
    
    
    3,038Cash and cash equivalents, end of
period
    
    $
    24,660
    
    
    $
    10,607
    
    
    $
    17,163
    
    
    $
    10,377Supplemental disclosureCash paid during
the period for:Interest
    
    $
    11,066
    
    
    $
    11,877
    
    
    $
    11,066
    
    
    $
    11,877Income taxes
    
    $
    302
    
    
    $
    124
    
    
    $
    302
    
    
    $
    124
  6




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
 
  AccumulatedAdditional
    
    
    
    
    
    
    otherCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    ComprehensiveAAC Group Holding Corp.
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    earnings
    
    
    income (loss)
    
    
    Total(Dollars in thousands)Balance, August
27, 2005
    
    
    505,460
    
    
    $
    5
    
    
    $
    16,491
    
    
    $
    8,751
    
    
    $
    (956
    )
    
    $
    24,291Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,072
    )
    
    
    
    
    
    
    (6,072
    )Balance, February 25,
2006
    
    
    505,460
    
    
    $
    5
    
    
    $
    16,491
    
    
    $
    2,679
    
    
    $
    (956
    )
    
    $
    18,219
 AccumulatedAdditional
    
    
    
    
    
    
    otherCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    comprehensiveAmerican Achievement Corporation
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    earnings
    
    
    income (loss)
    
    
    Total(Dollars in thousands)Balance, August 27, 2005
    
    
    100
    
    
    $
    
    
    
    $
    102,046
    
    
    $
    13,722
    
    
    $
    (956
    )
    
    $
    114,812Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,270
    )
    
    
    
    
    
    
    (3,270
    )Balance, February 25, 2006
    
    
    100
    
    
    $
    
    
    
    $
    102,046
    
    
    $
    10,452
    
    
    $
    (956
    )
    
    $
    111,542
  7




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
    1. Summary of Significant Accounting Policies
 Consolidation
      8




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
    Use of Estimates
  Stock-Based Compensation
  2. Comprehensive Income (Loss)
  3. Inventories, Net
 AAC Group Holding Corp.  American Achievement Corporation
 February 25, 2006
    
    
    August 27, 2005Raw materials
    
    $
    9,381
    
    
    $
    9,022Work in process
    
    
    19,011
    
    
    
    6,306Finished goods
    
    
    7,669
    
    
    
    6,790Less  Reserves
    
    
    (893
    )
    
    
    (205
    )$
    35,168
    
    
    $
    21,913
 9




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  4. Prepaid Expenses and Other Current Assets, Net
  5. Goodwill and Other Intangible Assets
 Goodwill
 AAC Group Holding Corp.  American Achievement Corporation
 February 25, 2006
    
    
    August 27, 2005Class Rings
    
    $
    71,792
    
    
    $
    71,792Yearbooks
    
    
    65,241
    
    
    
    65,241Graduation Products
    
    
    23,781
    
    
    
    23,242Achievement Publications
    
    
    11,693
    
    
    
    11,693Other
    
    
    12,058
    
    
    
    12,058Total
    
    $
    184,565
    
    
    $
    184,026
  Other Intangible Assets
  Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetUseful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt February 25, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs and other
    
    
    7 to 8 years
    
    
    
    14,889
    
    
    
    (6,417
    )
    
    
    8,472Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (739
    )
    
    
    6,578Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (19,035
    )
    
    
    81,481$
    172,817
    
    
    $
    (26,191
    )
    
    $
    146,626At August 27, 2005Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs and other
    
    
    7 to 8 years
    
    
    
    14,620
    
    
    
    (2,475
    )
    
    
    12,145Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (629
    )
    
    
    6,688Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (16,179
    )
    
    
    84,337$
    172,548
    
    
    $
    (19,283
    )
    
    $
    153,265
  10




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
   Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetUseful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt February 25, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs and other
    
    
    7 to 8 years
    
    
    
    11,112
    
    
    
    (2,868
    )
    
    
    8,244Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (850
    )
    
    
    6,467Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (21,890
    )
    
    
    78,626$
    169,040
    
    
    $
    (25,608
    )
    
    $
    143,432At August 27, 2005Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs and other
    
    
    7 to 8 years
    
    
    
    11,112
    
    
    
    (2,120
    )
    
    
    8,992Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (629
    )
    
    
    6,688Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (16,179
    )
    
    
    84,337$
    169,040
    
    
    $
    (18,928
    )
    
    $
    150,112
  6. Long-term Debt
  AAC Group Holding Corp.
 February 25, 2006
    
    
    August 27, 200510.25% Senior discount notes due
2012 (net of unamortized discount of
$29,891 and $34,844)
    
    $
    101,609
    
    
    $
    96,656Mandatory redeemable preferred stock
    
    
    7,500
    
    
    
    8.25% Senior subordinated notes due 2012
    
    
    150,000
    
    
    
    150,000Senior secured credit facility:Revolving credit facility due 2010
    
    
    
    
    
    
    Term loan due 2011
    
    
    123,096
    
    
    
    139,120Total
    
    
    382,205
    
    
    
    385,776Less current portion of long-term debt
    
    
    (1,273
    )
    
    
    (1,409
    )Total long-term debt
    
    $
    380,932
    
    
    $
    384,367
 11




---



##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 American Achievement Corporation
 February 25, 2006
    
    
    August 27, 20058.25% Senior subordinated notes due 2012
    
    $
    150,000
    
    
    $
    150,000Senior secured credit facility:Revolving credit facility due 2010
    
    
    
    
    
    
    Term loan due 2011
    
    
    123,096
    
    
    
    139,120Total
    
    
    273,096
    
    
    
    289,120Less current portion of long-term debt
    
    
    (1,273
    )
    
    
    (1,409
    )Total long-term debt
    
    $
    271,823
    
    
    $
    287,711
 10.25% Senior Discount Notes
     Mandatory Redeemable Preferred Stock
  12




---



##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  8.25% Senior Subordinated Notes
 pari passu pari passu
     13




---



##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 Senior Secured Credit Facility
          14




---



##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  7. Commitments and Contingencies
 Pending Litigation
   Gold Consignment Agreement
  8. Income Taxes
  15




---



##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 9. Postretirement Pension and Medical Benefits
   For the three months ended
    
    
    For the three months endedFebruary 25, 2006
    
    
    February 26, 2005CBI post-
    
    
    
    
    
    
    CBI post-Taylor pension
    
    
    retirement
    
    
    Taylor pension
    
    
    retirementService costs,
benefits attributed to
Service during the
period
    
    $
    25
    
    
    $
    
    
    
    $
    19
    
    
    $
    Interest cost
    
    
    211
    
    
    
    39
    
    
    
    209
    
    
    
    37Expected return on assets
    
    
    (223
    )
    
    
    
    
    
    
    (208
    )
    
    
    Amortization of
unrecognized net loss
(gain)
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    (74
    )Amortization of
unrecognized net prior
service costs
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    Net periodic
postretirement benefit
cost (income)
    
    $
    13
    
    
    $
    (78
    )
    
    $
    20
    
    
    $
    (37
    )
 For the six months ended
    
    
    For the six months endedFebruary 25, 2006
    
    
    February 26, 2005CBI post-
    
    
    
    
    
    
    CBI post-Taylor pension
    
    
    retirement
    
    
    Taylor pension
    
    
    retirementService costs,
benefits attributed to
Service during the
period
    
    $
    49
    
    
    $
    
    
    
    $
    38
    
    
    $
    Interest cost
    
    
    422
    
    
    
    77
    
    
    
    418
    
    
    
    74Expected return on assets
    
    
    (446
    )
    
    
    
    
    
    
    (416
    )
    
    
    Amortization of
unrecognized net loss
(gain)
    
    
    
    
    
    
    (155
    )
    
    
    
    
    
    
    (148
    )Amortization of
unrecognized net prior
service costs
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    Net periodic
postretirement benefit
cost (income)
    
    $
    25
    
    
    $
    (155
    )
    
    $
    40
    
    
    $
    (74
    )
 10. Related-Party Transactions
  16




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 11. Business Segments
  AAC Group Holding Corp.SegmentOperatingIncome
    
    SegmentThree Months Ended February 25, 2006
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    31,589
    
    
    $
    5,205
    
    
    $
    215,734Yearbooks
    
    
    2,684
    
    
    
    (2,553
    )
    
    
    175,601Graduation Products
    
    
    14,850
    
    
    
    2,008
    
    
    
    70,381Achievement Publications
    
    
    860
    
    
    
    (876
    )
    
    
    38,448Other
    
    
    6,373
    
    
    
    983
    
    
    
    35,663Total
    
    $
    56,356
    
    
    $
    4,767
    
    
    $
    535,827
 American Achievement CorporationSegmentOperatingIncome
    
    SegmentThree Months Ended February 25, 2006
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    31,589
    
    
    $
    5,205
    
    
    $
    211,563Yearbooks
    
    
    2,684
    
    
    
    (2,553
    )
    
    
    171,811Graduation Products
    
    
    14,850
    
    
    
    2,008
    
    
    
    69,031Achievement Publications
    
    
    860
    
    
    
    (876
    )
    
    
    37,769Other
    
    
    6,373
    
    
    
    983
    
    
    
    34,962Total
    
    $
    56,356
    
    
    $
    4,767
    
    
    $
    525,136
 17




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 AAC Group Holding Corp.SegmentOperatingIncome
    
    SegmentThree Months Ended February 26, 2005
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    32,651
    
    
    $
    3,140
    
    
    $
    219,413Yearbooks
    
    
    2,978
    
    
    
    (5,292
    )
    
    
    177,731Graduation Products
    
    
    16,361
    
    
    
    2,866
    
    
    
    71,032Achievement Publications
    
    
    495
    
    
    
    (1,229
    )
    
    
    35,816Other
    
    
    6,338
    
    
    
    511
    
    
    
    36,247Total
    
    $
    58,823
    
    
    $
    (4
    )
    
    $
    540,239
 American Achievement CorporationSegmentOperatingIncome
    
    SegmentThree Months Ended February 26, 2005
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    32,651
    
    
    $
    3,140
    
    
    $
    218,007Yearbooks
    
    
    2,978
    
    
    
    (5,292
    )
    
    
    176,453Graduation Products
    
    
    16,361
    
    
    
    2,866
    
    
    
    70,577Achievement Publications
    
    
    495
    
    
    
    (1,229
    )
    
    
    35,587Other
    
    
    6,338
    
    
    
    511
    
    
    
    36,010Total
    
    $
    58,823
    
    
    $
    (4
    )
    
    $
    536,634
 AAC Group Holding Corp.SegmentOperatingIncome
    
    SegmentSix Months Ended February 25, 2006
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    67,092
    
    
    $
    11,316
    
    
    $
    215,734Yearbooks
    
    
    15,532
    
    
    
    (6,130
    )
    
    
    175,601Graduation Products
    
    
    18,585
    
    
    
    820
    
    
    
    70,381Achievement Publications
    
    
    7,516
    
    
    
    156
    
    
    
    38,448Other
    
    
    9,621
    
    
    
    177
    
    
    
    35,663Total
    
    $
    118,346
    
    
    $
    6,339
    
    
    $
    535,827
 American Achievement CorporationSegmentOperatingIncome
    
    SegmentSix Months Ended February 25, 2006
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    67,092
    
    
    $
    11,316
    
    
    $
    211,563Yearbooks
    
    
    15,532
    
    
    
    (6,130
    )
    
    
    171,811Graduation Products
    
    
    18,585
    
    
    
    820
    
    
    
    69,031Achievement Publications
    
    
    7,516
    
    
    
    156
    
    
    
    37,769Other
    
    
    9,621
    
    
    
    177
    
    
    
    34,962Total
    
    $
    118,346
    
    
    $
    6,339
    
    
    $
    525,136
 18




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 AAC Group Holding Corp.SegmentOperatingIncome
    
    SegmentSix Months Ended February 26, 2005
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    67,502
    
    
    $
    8,786
    
    
    $
    219,413Yearbooks
    
    
    15,929
    
    
    
    (10,788
    )
    
    
    177,731Graduation Products
    
    
    19,319
    
    
    
    1,116
    
    
    
    71,032Achievement Publications
    
    
    9,294
    
    
    
    1,503
    
    
    
    35,816Other
    
    
    10,061
    
    
    
    (258
    )
    
    
    36,247Total
    
    $
    122,105
    
    
    $
    359
    
    
    $
    540,239
 American Achievement CorporationSegmentOperatingIncome
    
    SegmentSix Months Ended February 26, 2005
    
    Net Sales
    
    (Loss)
    
    AssetsClass Rings
    
    $
    67,502
    
    
    $
    8,786
    
    
    $
    218,007Yearbooks
    
    
    15,929
    
    
    
    (10,788
    )
    
    
    176,453Graduation Products
    
    
    19,319
    
    
    
    1,116
    
    
    
    70,577Achievement Publications
    
    
    9,294
    
    
    
    1,503
    
    
    
    35,587Other
    
    
    10,061
    
    
    
    (258
    )
    
    
    36,010Total
    
    $
    122,105
    
    
    $
    359
    
    
    $
    536,634
 12. Recent Accounting Pronouncements
    19




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Basis of Presentation
  Fiscal Year End
  General
 Whos Who The National Deans List
   20




---



##### Table of Contents



Company Background
    21




---



##### Table of Contents



Critical Accounting Policies
  Sales Returns and Allowances.
 Allowance for Doubtful Accounts and Reserve on Sales Representative Advances.
 Goodwill and Other Intangible Assets
 22




---



##### Table of Contents



Long-lived Tangible and Intangible Assets with Definite Lives.
  Results of Operations
 Three Months Ended February 25, 2006 Compared to Three Months Ended February 26, 2005
 AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the Three
    
    
    % of
    
    
    For the Three
    
    
    % of
    
    
    For the Three
    
    
    % of
    
    
    For the Three
    
    
    % ofMonths Ended
    
    
    Net
    
    
    Months Ended
    
    
    Net
    
    
    Months Ended
    
    
    Net
    
    
    Months Ended
    
    
    NetFebruary 25, 2006
    
    
    Sales
    
    
    February 26, 2005
    
    
    Sales
    
    
    February 25, 2006
    
    
    Sales
    
    
    February 26, 2005
    
    
    SalesNet sales
    
    $
    56,356
    
    
    
    100.0
    %
    
    $
    58,823
    
    
    
    100.0
    %
    
    $
    56,356
    
    
    
    100.0
    %
    
    $
    58,823
    
    
    
    100.0
    %Cost of sales
    
    
    20,779
    
    
    
    36.9
    %
    
    
    23,150
    
    
    
    39.4
    %
    
    
    20,779
    
    
    
    36.9
    %
    
    
    23,150
    
    
    
    39.4
    %Gross profit
    
    
    35,577
    
    
    
    63.1
    %
    
    
    35,673
    
    
    
    60.6
    %
    
    
    35,577
    
    
    
    63.1
    %
    
    
    35,673
    
    
    
    60.6
    %Selling, general
and administrative
expenses
    
    
    30,810
    
    
    
    54.7
    %
    
    
    35,677
    
    
    
    60.6
    %
    
    
    30,810
    
    
    
    54.7
    %
    
    
    35,677
    
    
    
    60.6
    %Operating income
(loss)
    
    
    4,767
    
    
    
    8.4
    %
    
    
    (4
    )
    
    
    0.0
    %
    
    
    4,767
    
    
    
    8.4
    %
    
    
    (4
    )
    
    
    0.0
    %Interest expense
    
    
    8,481
    
    
    
    15.0
    %
    
    
    8,172
    
    
    
    13.9
    %
    
    
    5,752
    
    
    
    10.2
    %
    
    
    5,772
    
    
    
    9.8
    %Loss before income
taxes
    
    
    (3,714
    )
    
    
    (6.6
    )%
    
    
    (8,176
    )
    
    
    (13.9
    )%
    
    
    (985
    )
    
    
    (1.8
    )%
    
    
    (5,776
    )
    
    
    (9.8
    )%Benefit for income
taxes
    
    
    (1,624
    )
    
    
    (2.9
    )%
    
    
    (3,718
    )
    
    
    (6.3
    )%
    
    
    (391
    )
    
    
    (0.7
    )%
    
    
    (2,311
    )
    
    
    (3.9
    )%Net loss
    
    $
    (2,090
    )
    
    
    (3.7
    )%
    
    $
    (4,458
    )
    
    
    (7.6
    )%
    
    $
    (594
    )
    
    
    (1.1
    )%
    
    $
    (3,465
    )
    
    
    (5.9
    )%
 23




---



##### Table of Contents



Net Sales.
  Class Rings.
 Yearbooks.
 Graduation Products.
 Achievement Publications.
 Other.
 Gross Profit.
 Selling, General and Administrative Expenses.
  24




---



##### Table of Contents



Operating Income (Loss).
 Interest Expense, Net.
  Benefit for Income Taxes.
  Net Income.
 25




---



##### Table of Contents



Six
Months Ended February 25, 2006 Compared to Six Months Ended
February 26, 2005
  AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the Six
    
    
    % of
    
    
    For the Six
    
    
    % of
    
    
    For the Six
    
    
    % of
    
    
    For the Six
    
    
    % ofMonths Ended
    
    
    Net
    
    
    Months Ended
    
    
    Net
    
    
    Months Ended
    
    
    Net
    
    
    Months Ended
    
    
    NetFebruary 25, 2006
    
    
    Sales
    
    
    February 26, 2005
    
    
    Sales
    
    
    February 25, 2006
    
    
    Sales
    
    
    February 26, 2005
    
    
    SalesNet sales
    
    $
    118,346
    
    
    
    100.0
    %
    
    $
    122,105
    
    
    
    100.0
    %
    
    $
    118,346
    
    
    
    100.0
    %
    
    $
    122,105
    
    
    
    100.0
    %Cost of sales
    
    
    46,863
    
    
    
    39.6
    %
    
    
    50,466
    
    
    
    41.3
    %
    
    
    46,863
    
    
    
    39.6
    %
    
    
    50,466
    
    
    
    41.3
    %Gross profit
    
    
    71,483
    
    
    
    60.4
    %
    
    
    71,639
    
    
    
    58.7
    %
    
    
    71,483
    
    
    
    60.4
    %
    
    
    71,639
    
    
    
    58.7
    %Selling, general
and administrative
expenses
    
    
    65,144
    
    
    
    55.0
    %
    
    
    71,280
    
    
    
    58.4
    %
    
    
    65,144
    
    
    
    55.0
    %
    
    
    71,280
    
    
    
    58.4
    %Operating income
    
    
    6,339
    
    
    
    5.4
    %
    
    
    359
    
    
    
    0.3
    %
    
    
    6,339
    
    
    
    5.4
    %
    
    
    359
    
    
    
    0.3
    %Interest expense
    
    
    17,032
    
    
    
    14.4
    %
    
    
    14,290
    
    
    
    11.7
    %
    
    
    11,758
    
    
    
    9.9
    %
    
    
    11,488
    
    
    
    9.4
    %Loss before income
taxes
    
    
    (10,693
    )
    
    
    (9.0
    )%
    
    
    (13,931
    )
    
    
    (11.4
    )%
    
    
    (5,419
    )
    
    
    (4.5
    )%
    
    
    (11,129
    )
    
    
    (9.1
    )%Benefit for income
taxes
    
    
    (4,621
    )
    
    
    (3.9
    )%
    
    
    (6,217
    )
    
    
    (5.1
    )%
    
    
    (2,149
    )
    
    
    (1.7
    )%
    
    
    (4,452
    )
    
    
    (3.6
    )%Net loss
    
    $
    (6,072
    )
    
    
    (5.1
    )%
    
    $
    (7,714
    )
    
    
    (6.3
    )%
    
    $
    (3,270
    )
    
    
    (2.8
    )%
    
    $
    (6,677
    )
    
    
    (5.5
    )%
 Net Sales.
 Class Rings.
 Yearbooks.
 Graduation Products.
 Achievement Publications.
 26




---



##### Table of Contents



Other.
 Gross Profit.
 Selling, General and Administrative Expenses.
  Operating Income (Loss).
 Interest Expense, Net.
  27




---



##### Table of Contents



Benefit for Income Taxes.
  Net Income.
 Liquidity and Capital Resources
 Operating Activities
   Investing Activities
  Financing Activities
   Capital Resources
   28




---



##### Table of Contents



Off Balance-Sheet Obligations
 Gold Consignment Agreement.
 Seasonality
  29




---



##### Table of Contents



Recent Accounting Pronouncements
    30




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk.
 Semi-Precious Stones.
 Gold
 31




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
   32




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits
 EXHIBITNUMBER
    
    DESIGNATION31.1
    
    CEO Certification Accompanying Period Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    CFO Certification Accompanying Period Report Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    CEO Certification Accompanying Period Report Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    CFO Certification Accompanying Period Report Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 33




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
 SIGNATURES
   AAC GROUP HOLDING CORP.AMERICAN ACHIEVEMENT CORPORATIONBy:
    /s/ DONALD J. PERCENTIDonald J. PercentiCHIEF EXECUTIVE OFFICER

(principal executive officer) By:
    /s/ SHERICE P. BENCHSherice P. BenchCHIEF FINANCIAL OFFICER

(principal financial officer) 34