##### 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 November 25, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBERS 333-137067, 333-121479, 333-84294
 AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  DELAWARE
    
    20-4833998DELAWARE
    
    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




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##### 



FOR THE QUARTERLY PERIOD ENDED November 25, 2006
INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements and NotesCondensed Consolidated Balance Sheets (unaudited)  As of November 25, 2006 and August 26, 2006
    
    
    3-5Condensed
Consolidated Statements of Operations (unaudited)  For the Three Months Ended November 25, 2006 and For the Three Months Ended November 26, 2005
    
    
    6-8Condensed Consolidated Statements of Cash Flows (unaudited)  For the Three Months Ended November 25, 2006 and For the Three Months Ended November 26, 2005
    
    
    9-11Condensed Consolidated Statements of Stockholders Equity (unaudited)  For the Three Months Ended November 25, 2006
    
    
    12-14Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    15-26Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27-36Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    40Certification 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



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
 
 
 Parent HoldingsNovember 25,
    
    
    August 26,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,287
    
    
    $
    3,404Accounts receivable, net
    
    
    39,079
    
    
    
    40,226Inventories, net
    
    
    31,887
    
    
    
    31,438Deferred tax asset
    
    
    9,668
    
    
    
    5,582Prepaid expenses and other current assets, net
    
    
    20,075
    
    
    
    13,944Total current assets
    
    
    102,996
    
    
    
    94,594Property, plant and equipment, net
    
    
    75,441
    
    
    
    76,054Goodwill
    
    
    184,565
    
    
    
    184,565Other intangible assets, net
    
    
    144,937
    
    
    
    148,595Other assets
    
    
    6,903
    
    
    
    7,468Total assets
    
    $
    514,842
    
    
    $
    511,276LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Bank overdraft
    
    $
    541
    
    
    $
    2,147Accounts payable
    
    
    10,582
    
    
    
    13,585Customer deposits
    
    
    27,870
    
    
    
    11,392Accrued expenses
    
    
    24,010
    
    
    
    23,382Deferred revenue
    
    
    6,609
    
    
    
    2,617Accrued interest
    
    
    3,160
    
    
    
    5,997Current portion of long-term debt
    
    
    1,090
    
    
    
    1,090Total current liabilities
    
    
    73,862
    
    
    
    60,210Long-term debt, net of current portion
    
    
    529,858
    
    
    
    525,734Mandatory redeemable preferred stock, $.01 par
value, 15,000 shares authorized, 7,500 shares
issued and outstanding
    
    
    7,500
    
    
    
    7,500Deferred tax liabilities
    
    
    22,889
    
    
    
    25,760Other long-term liabilities
    
    
    7,177
    
    
    
    6,858Total liabilities
    
    
    641,286
    
    
    
    626,062Commitments
and contingencies (Note 6)Stockholders equity (deficit)Common stock, $.01 par value, 1,250,000 shares
authorized, 505,460 shares issued and
outstanding
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    (124,045
    )
    
    
    (124,045
    )Accumulated earnings (deficit)
    
    
    (2,404
    )
    
    
    9,254Total stockholders equity (deficit)
    
    
    (126,444
    )
    
    
    (114,786
    )Total liabilities and stockholders equity (deficit)
    
    $
    514,842
    
    
    $
    511,276
  3




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##### Table of Contents



AAC GROUP HOLDING CORP.
 Intermediate HoldingsNovember 25, 2006
    
    
    August 26, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,886
    
    
    $
    2,904Accounts receivable, net
    
    
    39,079
    
    
    
    40,226Inventories, net
    
    
    31,887
    
    
    
    31,438Deferred tax asset
    
    
    9,668
    
    
    
    5,582Prepaid expenses and other current
assets, net
    
    
    20,075
    
    
    
    13,944Total current assets
    
    
    102,595
    
    
    
    94,094Property, plant and equipment, net
    
    
    75,441
    
    
    
    76,054Goodwill
    
    
    184,565
    
    
    
    184,565Other intangible assets, net
    
    
    136,150
    
    
    
    139,592Other assets
    
    
    6,903
    
    
    
    7,468Total assets
    
    $
    505,654
    
    
    $
    501,773LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank overdraft
    
    $
    541
    
    
    $
    2,147Accounts payable
    
    
    10,582
    
    
    
    13,585Customer deposits
    
    
    27,870
    
    
    
    11,392Accrued expenses
    
    
    23,862
    
    
    
    23,292Deferred revenue
    
    
    6,609
    
    
    
    2,617Accrued interest
    
    
    3,160
    
    
    
    5,997Current portion of long-term debt
    
    
    1,090
    
    
    
    1,090Total current liabilities
    
    
    73,714
    
    
    
    60,120Long-term debt, net of current portion
    
    
    370,757
    
    
    
    371,537Deferred tax liabilities
    
    
    26,213
    
    
    
    27,523Other long-term liabilities
    
    
    5,568
    
    
    
    5,879Total liabilities
    
    
    476,252
    
    
    
    465,059Commitments
and contingencies (Note 6)Stockholders equity:Common stock, $.01 par value, 1,000
shares authorized, 100 shares issued and
outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    24,144
    
    
    
    24,144Accumulated earnings
    
    
    5,258
    
    
    
    12,570Total stockholders equity
    
    
    29,402
    
    
    
    36,714Total liabilities and stockholders equity
    
    $
    505,654
    
    
    $
    501,773
  4




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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION
 AACNovember 25, 2006
    
    
    August 26, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,356
    
    
    $
    2,381Accounts receivable, net
    
    
    39,079
    
    
    
    40,226Inventories, net
    
    
    31,887
    
    
    
    31,438Deferred tax asset
    
    
    9,668
    
    
    
    5,582Prepaid expenses and other current assets, net
    
    
    20,075
    
    
    
    13,944Total current assets
    
    
    102,065
    
    
    
    93,571Property, plant and equipment, net
    
    
    75,441
    
    
    
    76,054Goodwill
    
    
    184,565
    
    
    
    184,565Other intangible assets, net
    
    
    133,553
    
    
    
    136,884Other assets
    
    
    6,903
    
    
    
    7,468Total assets
    
    $
    502,527
    
    
    $
    498,542LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank overdraft
    
    $
    541
    
    
    $
    2,147Accounts payable
    
    
    10,582
    
    
    
    13,585Customer deposits
    
    
    27,870
    
    
    
    11,392Accrued expenses
    
    
    23,860
    
    
    
    23,290Deferred revenue
    
    
    6,609
    
    
    
    2,617Accrued interest
    
    
    3,160
    
    
    
    5,997Current portion of long-term debt
    
    
    1,090
    
    
    
    1,090Total current liabilities
    
    
    73,712
    
    
    
    60,118Long-term debt, net of current portion
    
    
    261,248
    
    
    
    264,720Deferred tax liabilities
    
    
    34,307
    
    
    
    34,307Other long-term liabilities
    
    
    5,540
    
    
    
    5,851Total liabilities
    
    
    374,807
    
    
    
    364,996Commitments
and contingencies (Note 6)Stockholders equity:Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    109,046
    
    
    
    109,046Accumulated earnings
    
    
    18,674
    
    
    
    24,500Total stockholders equity
    
    
    127,720
    
    
    
    133,546Total liabilities and stockholders equity
    
    $
    502,527
    
    
    $
    498,542
  5




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
 
 
 Parent HoldingsFor the three months endedNovember 25, 2006
    
    
    November 26, 2005Net sales
    
    $
    52,758
    
    
    $
    58,373Cost of sales
    
    
    27,534
    
    
    
    25,039Gross profit
    
    
    25,224
    
    
    
    33,334Selling, general and administrative expenses
    
    
    28,920
    
    
    
    33,498Operating loss
    
    
    (3,696
    )
    
    
    (164
    )Interest expense, net of interest income
    
    
    14,621
    
    
    
    8,551Loss before
benefit for income taxes
    
    
    (18,317
    )
    
    
    (8,715
    )Benefit for income taxes
    
    
    (6,659
    )
    
    
    (3,742
    )Net loss
    
    $
    (11,658
    )
    
    $
    (4,973
    )
  6




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##### Table of Contents



AAC GROUP HOLDING CORP.
 Intermediate HoldingsFor the three months endedNovember 25, 2006
    
    
    November 26, 2005Net sales
    
    $
    52,758
    
    
    $
    58,373Cost of sales
    
    
    27,534
    
    
    
    25,039Gross profit
    
    
    25,224
    
    
    
    33,334Selling, general and administrative expenses
    
    
    28,920
    
    
    
    33,498Operating loss
    
    
    (3,696
    )
    
    
    (164
    )Interest expense, net of interest income
    
    
    8,714
    
    
    
    8,551Loss before benefit for income taxes
    
    
    (12,410
    )
    
    
    (8,715
    )Benefit for income taxes
    
    
    (5,098
    )
    
    
    (3,742
    )Net loss
    
    $
    (7,312
    )
    
    $
    (4,973
    )
  7




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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION
 AACFor the three months endedNovember 25, 2006
    
    
    November 26, 2005Net sales
    
    $
    52,758
    
    
    $
    58,373Cost of sales
    
    
    27,534
    
    
    
    25,039Gross profit
    
    
    25,224
    
    
    
    33,334Selling, general and administrative expenses
    
    
    28,920
    
    
    
    33,498Operating loss
    
    
    (3,696
    )
    
    
    (164
    )Interest expense, net of interest income
    
    
    5,918
    
    
    
    6,006Loss before benefit for income taxes
    
    
    (9,614
    )
    
    
    (6,170
    )Benefit for income taxes
    
    
    (3,788
    )
    
    
    (2,445
    )Net loss
    
    $
    (5,826
    )
    
    $
    (3,725
    )
  8




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
 
 
 Parent HoldingsFor the three months endedNovember 25, 2006
    
    
    November 26, 2005Cash flows from operating activities:Net loss
    
    $
    (11,658
    )
    
    $
    (4,973
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    6,490
    
    
    
    6,416Deferred income taxes
    
    
    (6,957
    )
    
    
    (3,742
    )Amortization of debt discount and deferred
financing fees
    
    
    871
    
    
    
    485Accretion of interest on 10.25% senior
discount notes
    
    
    2,692
    
    
    
    2,436Accretion of 12.75% PIK notes
    
    
    4,904
    
    
    
    Recovery (provision) for doubtful accounts
    
    
    233
    
    
    
    (330
    )Changes in assets and liabilities:Accounts receivable
    
    
    914
    
    
    
    1,202Inventories, net
    
    
    (449
    )
    
    
    (1,895
    )Prepaid expenses and other current assets, net
    
    
    (6,131
    )
    
    
    695Other assets
    
    
    565
    
    
    
    83Customer deposits
    
    
    16,478
    
    
    
    9,700Deferred revenue
    
    
    3,992
    
    
    
    3,125Accounts payable, accrued expenses, and
other long-term liabilities
    
    
    (5,496
    )
    
    
    (10,163
    )Net cash provided by operating activities
    
    
    6,448
    
    
    
    3,039Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,308
    )
    
    
    (2,672
    )Net cash used in investing activities
    
    
    (2,308
    )
    
    
    (2,672
    )Cash flows from financing activities:Payments on
revolving credit facility
    
    
    (18,050
    )
    
    
    (11,050
    )Proceeds from revolving credit facility
    
    
    14,850
    
    
    
    11,050Payments on term loan
    
    
    (272
    )
    
    
    (352
    )Deferred financing fees
    
    
    (179
    )
    
    
    Change in bank overdraft
    
    
    (1,606
    )
    
    
    4,173Net cash provided by (used in) financing
activities
    
    
    (5,257
    )
    
    
    3,821Net increase (decrease) in cash and cash
equivalents
    
    
    (1,117
    )
    
    
    4,188Cash and cash equivalents, beginning of period
    
    
    3,404
    
    
    
    4,324Cash and cash equivalents, end of period
    
    $
    2,287
    
    
    $
    8,512Supplemental disclosureCash paid during the period for:Interest
    
    $
    7,640
    
    
    $
    8,486Income taxes
    
    $
    102
    
    
    $
    230
  9




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##### Table of Contents



AAC GROUP HOLDING CORP.
 
 Intermediate HoldingsFor the three months endedNovember 25, 2006
    
    
    November 26, 2005Cash flows from operating activities:Net loss
    
    $
    (7,312
    )
    
    $
    (4,973
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    6,490
    
    
    
    6,416Deferred income taxes
    
    
    (5,396
    )
    
    
    (3,742
    )Amortization of debt discount and deferred
financing fees
    
    
    492
    
    
    
    485Accretion of interest on 10.25% senior
discount notes
    
    
    2,692
    
    
    
    2,436Recovery (provision) for doubtful accounts
    
    
    233
    
    
    
    (330
    )Changes in assets and liabilities:Accounts receivable
    
    
    914
    
    
    
    1,202Inventories, net
    
    
    (449
    )
    
    
    (1,895
    )Prepaid expenses and other current assets, net
    
    
    (6,131
    )
    
    
    695Other assets
    
    
    565
    
    
    
    83Customer deposits
    
    
    16,478
    
    
    
    9,700Deferred revenue
    
    
    3,992
    
    
    
    3,125Accounts payable, accrued expenses, and
other long-term liabilities
    
    
    (6,184
    )
    
    
    (10,163
    )Net cash provided by operating activities
    
    
    6,384
    
    
    
    3,039Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,308
    )
    
    
    (2,672
    )Net cash used in investing activities
    
    
    (2,308
    )
    
    
    (2,672
    )Cash flows from financing activities:Payments on revolving credit facility
    
    
    (18,050
    )
    
    
    (11,050
    )Proceeds from  revolving credit facility
    
    
    14,850
    
    
    
    11,050Payments on term loan
    
    
    (272
    )
    
    
    (352
    )Deferred financing fees
    
    
    (16
    )
    
    
    Change in bank overdraft
    
    
    (1,606
    )
    
    
    4,173Net cash provided by (used in) financing
activities
    
    
    (5,094
    )
    
    
    3,821Net increase (decrease) in cash and cash
equivalents
    
    
    (1,018
    )
    
    
    4,188Cash and cash equivalents, beginning of period
    
    
    2,904
    
    
    
    4,324Cash and cash equivalents, end of period
    
    $
    1,886
    
    
    $
    8,512Supplemental disclosureCash paid during the period for:Interest
    
    $
    7,640
    
    
    $
    8,486Income taxes
    
    $
    102
    
    
    $
    230
  10




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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION
 
 AACFor the three months endedNovember 25, 2006
    
    
    November 26, 2005Cash flows from operating activities:Net income loss
    
    $
    (5,826
    )
    
    $
    (3,725
    )Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    6,490
    
    
    
    6,416Deferred income taxes
    
    
    (4,086
    )
    
    
    (2,445
    )Amortization of debt discount and deferred
financing fees
    
    
    381
    
    
    
    374Recovery (provision) for doubtful accounts
    
    
    233
    
    
    
    (330
    )Changes in assets and liabilities:Accounts receivable
    
    
    914
    
    
    
    1,202Inventories, net
    
    
    (449
    )
    
    
    (1,895
    )Prepaid expenses and other current assets, net
    
    
    (6,131
    )
    
    
    695Other assets
    
    
    565
    
    
    
    83Customer deposits
    
    
    16,478
    
    
    
    9,700Deferred revenue
    
    
    3,992
    
    
    
    3,125Accounts payable, accrued expenses, and
other long-term liabilities
    
    
    (6,184
    )
    
    
    (10,163
    )Net cash provided by operating activities
    
    
    6,377
    
    
    
    3,037Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,308
    )
    
    
    (2,672
    )Net cash used in investing activities
    
    
    (2,308
    )
    
    
    (2,672
    )Cash flows from financing activities:Payments on revolving credit facility
    
    
    (18,050
    )
    
    
    (11,050
    )Proceeds from revolving credit facility
    
    
    14,850
    
    
    
    11,050Payments on term loan
    
    
    (272
    )
    
    
    (352
    )Deferred financing fees
    
    
    (16
    )
    
    
    Change in bank overdraft
    
    
    (1,606
    )
    
    
    4,173Net cash provided by (used in) financing
activities
    
    
    (5,094
    )
    
    
    3,821Net increase (decrease) in cash and cash
equivalents
    
    
    (1,025
    )
    
    
    4,186Cash and cash equivalents, beginning of
period
    
    
    2,381
    
    
    
    4,093Cash and cash equivalents, end of period
    
    $
    1,356
    
    
    $
    8,279Supplemental disclosureCash paid during the period for:Interest
    
    $
    7,640
    
    
    $
    8,486Income taxes
    
    $
    102
    
    
    $
    230
  11




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
 
 
 Additional
    
    
    AccumulatedCommon Stock
    
    
    Paid-in
    
    
    EarningsParent Holdings
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBalance, August 26, 2006
    
    
    505,460
    
    
    $
    5
    
    
    $
    (124,045
    )
    
    $
    9,254
    
    
    $
    (114,786
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,658
    )
    
    
    (11,658
    )Balance, November 25, 2006
    
    
    505,460
    
    
    $
    5
    
    
    $
    (124,045
    )
    
    $
    (2,404
    )
    
    $
    (126,444
    )
  12




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##### Table of Contents



AAC GROUP HOLDING CORP.
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    AccumulatedIntermediate Holdings
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance, August 26, 2006
    
    
    100
    
    
    $
    
    
    
    $
    24,144
    
    
    $
    12,570
    
    
    $
    36,714Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,312
    )
    
    
    (7,312
    )Balance, November 25, 2006
    
    
    100
    
    
    $
    
    
    
    $
    24,144
    
    
    $
    5,258
    
    
    $
    29,402
  13




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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    AccumulatedAAC
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance, August 26, 2006
    
    
    100
    
    
    $
    
    
    
    $
    109,046
    
    
    $
    24,500
    
    
    $
    133,546Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,826
    )
    
    
    (5,826
    )Balance, November 25, 2006
    
    
    100
    
    
    $
    
    
    
    $
    109,046
    
    
    $
    18,674
    
    
    $
    127,720
  14




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AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
 
 1. Summary of Organization and Significant Accounting Policies
 Registrants
  Description of Business
  Consolidation
     15




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AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
   Use of Estimates
  2. Inventories, Net
 November 25, 2006
    
    
    August 26, 2006Raw materials
    
    $
    16,244
    
    
    $
    17,759Work in process
    
    
    6,590
    
    
    
    6,473Finished goods
    
    
    9,324
    
    
    
    7,400Less  reserves
    
    
    (271
    )
    
    
    (194
    )$
    31,887
    
    
    $
    31,438
  3. Prepaid Expenses and Other Current Assets, Net
  4. Goodwill and Other Intangible Assets
 November 25, 2006
    
    
    August 26, 2006Class Rings
    
    $
    71,792
    
    
    $
    71,792Yearbooks
    
    
    65,241
    
    
    
    65,241Graduation Products
    
    
    23,781
    
    
    
    23,781Achievement Publications
    
    
    11,693
    
    
    
    11,693Other
    
    
    12,058
    
    
    
    12,058Total
    
    $
    184,565
    
    
    $
    184,565
 16




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 Other Intangible Assets
 Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetParent Holdings
    
    Useful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt November 25, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred
financing costs
    
    
    7 to 8 years
    
    
    
    24,263
    
    
    
    (5,616
    )
    
    
    18,647Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (1,183
    )
    
    
    6,134Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (30,455
    )
    
    
    70,061Total
    
    
    
    
    
    $
    182,191
    
    
    $
    (37,254
    )
    
    $
    144,937
 Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetParent Holdings
    
    Useful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt August 26, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs
    
    
    7 to 8 years
    
    
    
    24,084
    
    
    
    (4,745
    )
    
    
    19,339Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (1,072
    )
    
    
    6,245Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (27,600
    )
    
    
    72,916Total
    
    
    
    
    
    $
    182,012
    
    
    $
    (33,417
    )
    
    $
    148,595
 Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetIntermediate Holdings
    
    Useful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt November 25, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs
    
    
    7 to 8 years
    
    
    
    14,771
    
    
    
    (4,911
    )
    
    
    9,860Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (1,183
    )
    
    
    6,134Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (30,455
    )
    
    
    70,061Total
    
    
    
    
    
    $
    172,699
    
    
    $
    (36,549
    )
    
    $
    136,150
 Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetIntermediate Holdings
    
    Useful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt August 26, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs
    
    
    7 to 8 years
    
    
    
    14,755
    
    
    
    (4,419
    )
    
    
    10,336Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (1,072
    )
    
    
    6,245Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (27,600
    )
    
    
    72,916Total
    
    
    
    
    
    $
    172,683
    
    
    $
    (33,091
    )
    
    $
    139,592
 Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetAAC
    
    Useful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt November 25, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs
    
    
    7 to 8 years
    
    
    
    11,263
    
    
    
    (4,000
    )
    
    
    7,263Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (1,183
    )
    
    
    6,134Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (30,455
    )
    
    
    70,061Total
    
    
    
    
    
    $
    169,191
    
    
    $
    (35,638
    )
    
    $
    133,553
 Estimated
    
    
    Gross
    
    
    Accumulated
    
    
    NetAAC
    
    Useful Life
    
    
    Asset
    
    
    Amortization
    
    
    AssetAt August 26, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs
    
    
    7 to 8 years
    
    
    
    11,247
    
    
    
    (3,619
    )
    
    
    7,628Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (1,072
    )
    
    
    6,245Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (27,600
    )
    
    
    72,916Total
    
    
    
    
    
    $
    169,175
    
    
    $
    (32,291
    )
    
    $
    136,884
 17




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AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
    5. Long-term Debt
 November 25, 2006
    
    
    August 26, 2006Parent Holdings12.75% Senior PIK Notes (including PIK
interest of $9,101 and $4,197, respectively)
    
    $
    159,101
    
    
    $
    154,19710.25% Senior discount notes due 2012
(net of unamortized discount of $21,991
and $24,683, respectively)
    
    
    109,509
    
    
    
    106,8178.25% Senior subordinated notes due 2012
    
    
    150,000
    
    
    
    150,000Senior secured credit facilityRevolving credit facility due 2010
    
    
    6,100
    
    
    
    9,300Term loan due 2011
    
    
    106,238
    
    
    
    106,510Total
    
    
    530,948
    
    
    
    526,824Less current portion of long-term debt
    
    
    (1,090
    )
    
    
    (1,090
    )Total long-term debt
    
    $
    529,858
    
    
    $
    525,734
 November 25, 2006
    
    
    August 26, 2006Intermediate Holdings10.25% Senior discount notes due 2012
(net of unamortized discount of $21,991
and $24,683, respectively)
    
    $
    109,509
    
    
    $
    106,8178.25% Senior subordinated notes due 2012
    
    
    150,000
    
    
    
    150,000Senior secured credit facilityRevolving credit facility due 2010
    
    
    6,100
    
    
    
    9,300Term loan due 2011
    
    
    106,238
    
    
    
    106,510Total
    
    
    371,847
    
    
    
    372,627Less current portion of long-term debt
    
    
    (1,090
    )
    
    
    (1,090
    )Total long-term debt
    
    $
    370,757
    
    
    $
    371,537
 November 25, 2006
    
    
    August 26, 2006AAC8.25% Senior subordinated notes due 2012
    
    $
    150,000
    
    
    $
    150,000Senior secured credit facilityRevolving credit facility due 2010
    
    
    6,100
    
    
    
    9,300Term loan due 2011
    
    
    106,238
    
    
    
    106,510Total
    
    
    262,338
    
    
    
    265,810Less current portion of long-term debt
    
    
    (1,090
    )
    
    
    (1,090
    )Total long-term debt
    
    $
    261,248
    
    
    $
    264,720
 18




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 12.75% Senior PIK Notes
       Mandatory Redeemable Preferred Stock
  19




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
   10.25% Senior Discount Notes
     8.25% Senior Subordinated Notes
 pari passu
  20




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AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
    Senior Secured Credit Facility
        21




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
     6. Commitments and Contingencies
 Pending Litigation
 th
  Gold Consignment Agreement
  7. Income Taxes
  22




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  8. Postretirement Pension and Medical Benefits
   For the three months ended
    
    
    For the three months endedNovember 25, 2006
    
    
    November 26, 2005CBI post-
    
    
    
    
    
    
    CBI post-Taylor pension
    
    
    retirement
    
    
    Taylor pension
    
    
    retirementService costs, benefits attributed to
Service during the period
    
    $
    20
    
    
    $
    
    
    
    $
    24
    
    
    $
    Interest cost
    
    
    225
    
    
    
    27
    
    
    
    211
    
    
    
    38Expected return on assets
    
    
    (247
    )
    
    
       
    
    
    
 (223
  )

    
    
 Amortization of unrecognized net loss (gain)
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    (77
    )Amortization of unrecognized net prior
service costs
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    (38
    )Net periodic postretirement benefit
cost (income)
    
    $
    (2
    )
    
    $
    (98
    )
    
    $
    12
    
    
    $
    (77
    )
 9. Related-Party Transactions
   23




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AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 10. Business Segments
  Parent HoldingsClass
    
    
    
    
    
    Graduation
    
    AchievementRings
    
    Yearbooks
    
    Products
    
    Publications
    
    Other
    
    TotalThree Months
Ended November 25,
2006Net sales
    
    $
    33,367
    
    
    $
    10,561
    
    
    $
    2,759
    
    
    $
    710
    
    
    $
    5,361
    
    
    $
    52,758Segment operating
income (loss)
    
    
    3,887
    
    
    
    (3,881
    )
    
    
    (2,305
    )
    
    
    (874
    )
    
    
    (523
    )
    
    $
    (3,696
    )Segment assets
    
    
    212,469
    
    
    
    165,180
    
    
    
    69,324
    
    
    
    32,963
    
    
    
    34,906
    
    
    $
    514,842
 Parent HoldingsClass
    
    
    
    
    
    Graduation
    
    AchievementRings
    
    Yearbooks
    
    Products
    
    Publications
    
    Other
    
    TotalThree Months
Ended November 26,
2005Net sales
    
    $
    32,378
    
    
    $
    12,848
    
    
    $
    3,243
    
    
    $
    6,656
    
    
    $
    3,248
    
    
    $
    58,373Segment operating
income (loss)
    
    
    4,663
    
    
    
    (3,577
    )
    
    
    (1,476
    )
    
    
    1,032
    
    
    
    (806
    )
    
    $
    (164
    )Segment assets
    
    
    210,806
    
    
    
    166,273
    
    
    
    66,691
    
    
    
    34,996
    
    
    
    34,374
    
    
    $
    513,140
 Intermediate HoldingsClass
    
    
    
    
    
    Graduation
    
    AchievementRings
    
    Yearbooks
    
    Products
    
    Publications
    
    Other
    
    TotalThree Months
Ended November 25,
2006Net sales
    
    $
    33,367
    
    
    $
    10,561
    
    
    $
    2,759
    
    
    $
    710
    
    
    $
    5,361
    
    
    $
    52,758Segment operating
income (loss)
    
    
    3,887
    
    
    
    (3,881
    )
    
    
    (2,305
    )
    
    
    (874
    )
    
    
    (523
    )
    
    $
    (3,696
    )Segment assets
    
    
    208,885
    
    
    
    161,923
    
    
    
    68,163
    
    
    
    32,379
    
    
    
    34,304
    
    
    $
    505,654
 Intermediate HoldingsClass
    
    
    
    
    
    Graduation
    
    AchievementRings
    
    Yearbooks
    
    Products
    
    Publications
    
    Other
    
    TotalThree Months
Ended November 26,
2005Net sales
    
    $
    32,378
    
    
    $
    12,848
    
    
    $
    3,243
    
    
    $
    6,656
    
    
    $
    3,248
    
    
    $
    58,373Segment operating
income (loss)
    
    
    4,663
    
    
    
    (3,577
    )
    
    
    (1,476
    )
    
    
    1,032
    
    
    
    (806
    )
    
    $
    (164
    )Segment assets
    
    
    210,806
    
    
    
    166,273
    
    
    
    66,691
    
    
    
    34,996
    
    
    
    34,374
    
    
    $
    513,140
 24




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 AACClass
    
    
    
    
    
    Graduation
    
    AchievementRings
    
    Yearbooks
    
    Products
    
    Publications
    
    Other
    
    TotalThree Months
Ended November 25,
2006Net sales
    
    $
    33,367
    
    
    $
    10,561
    
    
    $
    2,759
    
    
    $
    710
    
    
    $
    5,361
    
    
    $
    52,758Segment operating
income (loss)
    
    
    3,887
    
    
    
    (3,881
    )
    
    
    (2,305
    )
    
    
    (874
    )
    
    
    (523
    )
    
    $
    (3,696
    )Segment assets
    
    
    207,665
    
    
    
    160,814
    
    
    
    67,768
    
    
    
    32,181
    
    
    
    34,099
    
    
    $
    502,527
 AACClass
    
    
    
    
    
    Graduation
    
    AchievementRings
    
    Yearbooks
    
    Products
    
    Publications
    
    Other
    
    TotalThree Months
Ended November 26,
2005Net sales
    
    $
    32,378
    
    
    $
    12,848
    
    
    $
    3,243
    
    
    $
    6,656
    
    
    $
    3,248
    
    
    $
    58,373Segment operating
income (loss)
    
    
    4,663
    
    
    
    (3,577
    )
    
    
    (1,476
    )
    
    
    1,032
    
    
    
    (806
    )
    
    $
    (164
    )Segment assets
    
    
    209,528
    
    
    
    165,112
    
    
    
    66,277
    
    
    
    34,788
    
    
    
    34,160
    
    
    $
    509,865
 11. Recent Accounting Pronouncements
     25




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AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
  26




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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
   27




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##### Table of Contents



Company Background
    28




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##### Table of Contents



29




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##### Table of Contents



Results of Operations
 Three Months Ended November 26, 2006 Compared to Three Months Ended November 25, 2005
  Parent HoldingsFor the Three
    
    
    % of
    
    
    For the Three
    
    
    % ofMonths Ended
    
    
    Net
    
    
    Months Ended
    
    
    NetNovember 25, 2006
    
    
    Sales
    
    
    November 26, 2005
    
    
    SalesNet sales
    
    $
    52,758
    
    
    
    100.0
    %
    
    $
    58,373
    
    
    
    100.0
    %Cost of sales
    
    
    27,534
    
    
    
    52.2
    %
    
    
    25,039
    
    
    
    42.9
    %Gross profit
    
    
    25,224
    
    
    
    47.8
    %
    
    
    33,334
    
    
    
    57.1
    %Selling, general &
administrative expenses
    
    
    28,920
    
    
    
    54.8
    %
    
    
    33,498
    
    
    
    57.4
    %Operating loss
    
    
    (3,696
    )
    
    
    (7.0
    )%
    
    
    (164
    )
    
    
    (0.3
    )%Interest expense
    
    
    14,621
    
    
    
    27.7
    %
    
    
    8,551
    
    
    
    14.6
    %Loss before income taxes
    
    
    (18,317
    )
    
    
    (34.7
    )%
    
    
    (8,715
    )
    
    
    (14.9
    )%Benefit for
income taxes
    
    
    (6,659
       )
    
    
    (12.6
    )%
    
    
    (3,742
    )
    
    
    (6.4
    )%Net loss
    
    $
    (11,658
    )
    
    
    (22.1
    )%
    
    $
    (4,973
    )
    
    
    (8.5
    )%
 Intermediate HoldingsFor the Three
    
    
    % of
    
    
    For the Three
    
    
    % ofMonths Ended
    
    
    Net
    
    
    Months Ended
    
    
    NetNovember 25, 2006
    
    
    Sales
    
    
    November 26, 2005
    
    
    SalesNet sales
    
    $
    52,758
    
    
    
    100.0
    %
    
    $
    58,373
    
    
    
    100.0
    %Cost of sales
    
    
    27,534
    
    
    
    52.2
    %
    
    
    25,039
    
    
    
    42.9
    %Gross profit
    
    
    25,224
    
    
    
    47.8
    %
    
    
    33,334
    
    
    
    57.1
    %Selling, general &
administrative expenses
    
    
    28,920
    
    
    
    54.8
    %
    
    
    33,498
    
    
    
    57.4
    %Operating loss
    
    
    (3,696
    )
    
    
    (7.0
    )%
    
    
    (164
    )
    
    
    (0.3
    )%Interest expense
    
    
    8,714
    
    
    
    16.5
    %
    
    
    8,551
    
    
    
    14.6
    %Loss before income taxes
    
    
    (12,410
    )
    
    
    (23.5
    )%
    
    
    (8,715
    )
    
    
    (14.9
    )%Benefit for income taxes
    
    
    (5,098
    )
    
    
    (9.6
    )%
    
    
    (3,742
    )
    
    
    (6.4
    )%Net loss
    
    $
    (7,312
    )
    
    
    (13.9
    )%
    
    $
    (4,973
    )
    
    
    (8.5
    )%
 30




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##### Table of Contents



AACFor the Three
    
    
    % of
    
    
    For the Three
    
    
    % ofMonths Ended
    
    
    Net
    
    
    Months Ended
    
    
    NetNovember 25, 2006
    
    
    Sales
    
    
    November 26, 2005
    
    
    SalesNet sales
    
    $
    52,758
    
    
    
    100.0
    %
    
    $
    58,373
    
    
    
    100.0
    %Cost of sales
    
    
    27,534
    
    
    
    52.2
    %
    
    
    25,039
    
    
    
    42.9
    %Gross profit
    
    
    25,224
    
    
    
    47.8
    %
    
    
    33,344
    
    
    
    57.1
    %Selling, general &
administrative expenses
    
    
    28,920
    
    
    
    54.8
    %
    
    
    33,498
    
    
    
    57.4
    %Operating loss
    
    
    (3,696
    )
    
    
    (7.0
    )%
    
    
    (164
    )
    
    
    (0.3
    )%Interest expense
    
    
    5,918
    
    
    
    11.2
    %
    
    
    6,006
    
    
    
    10.3
    %Loss before income taxes
    
    
    (9,614
    )
    
    
    (18.2
    )%
    
    
    (6,170
    )
    
    
    (10.6
    )%Benefit for income taxes
    
    
    (3,788
    )
    
    
    (7.2
    )%
    
    
    (2,445
    )
    
    
    (4.2
    )%Net loss
    
    $
    (5,826
    )
    
    
    (11.0
    )%
    
    $
    (3,725
    )
    
    
    (6.4
    )%
 Net Sales.
 Class Rings.
 Yearbooks.
 Graduation Products.
 Achievement Publications. Whos Who Among American High School
Students Whos Who Among American
High School Students
 Other.
 Gross Profit. Whos Who Among
American High School Students Whos Who Among American High School
 31




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##### Table of Contents



Students
 Selling, General and Administrative Expenses. Whos Who Among American High School Students
 Operating
Income (Loss).
 Interest Expense, Net.
   Income
Taxes.
 32




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##### Table of Contents



Net
Loss.
   Liquidity and Capital Resources
 Operating Activities
  Investing Activities
  Financing Activities
    33




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##### Table of Contents



Capital Resources.
        34




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##### Table of Contents



Off Balance-Sheet Obligations
 Gold Consignment Agreement.
  Seasonality
   Recent Accounting Pronouncements
     35




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##### Table of Contents



36




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk.
 Semi-Precious Stones.
 Gold.
 37




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Internal Control  Integrated Framework.
  DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
   38




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  th
 
 ITEM 6. 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
 39




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##### Table of Contents



AMERICAN ACHIEVEMENT GROUP HOLDING CORP.
AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
 SIGNATURES
 
 AMERICAN ACHIEVEMENT GROUP HOLDING CORP.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)
 40