##### 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 May 27, 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
DELAWARE
(State or other jurisdiction of incorporation or
organization)
    
    20-1854833
13-4126506
(I.R.S. Employer Identification Number)
 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 MAY 27, 2006
INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements and NotesCondensed Consolidated Balance Sheets (unaudited)  As of May 27,
2006 and August 27, 2005
    
    
    3Condensed Consolidated Statements of Operations (unaudited)  For
the Three Months Ended May 27, 2006 and For the Three Months
Ended May 28, 2005
    
    
    4Condensed Consolidated Statements of Operations (unaudited)  For
the Nine Months Ended May 27, 2006 and For the Nine Months Ended
May 28, 2005
    
    
    5Condensed Consolidated Statements of Cash Flows (unaudited)  For
the Nine Months Ended May 27, 2006 and For the Nine Months Ended
May 28, 2005
    
    
    6Condensed Consolidated Statements of Stockholders Equity
(unaudited)  For the Nine Months Ended May 27, 2006
    
    
    7Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    8-20Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21-32Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    36Certification 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 CorporationMay 27, 2006
    
    
    August 27, 2005
    
    
    May 27, 2006
    
    
    August 27, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,300
    
    
    $
    4,324
    
    
    $
    5,783
    
    
    $
    4,093Accounts receivable, net
    
    
    71,609
    
    
    
    39,803
    
    
    
    71,609
    
    
    
    39,803Inventories, net
    
    
    25,353
    
    
    
    22,221
    
    
    
    25,353
    
    
    
    22,221Deferred tax asset
    
    
    6,760
    
    
    
    6,760
    
    
    
    6,760
    
    
    
    6,760Prepaid expenses and
other current assets, net
    
    
    21,476
    
    
    
    22,785
    
    
    
    21,476
    
    
    
    22,785Total current assets
    
    
    131,498
    
    
    
    95,893
    
    
    
    130,981
    
    
    
    95,662Property, plant and
equipment, net
    
    
    76,482
    
    
    
    75,943
    
    
    
    76,482
    
    
    
    75,943Goodwill
    
    
    184,565
    
    
    
    184,026
    
    
    
    184,565
    
    
    
    184,026Other intangible assets,
net
    
    
    143,165
    
    
    
    153,265
    
    
    
    140,092
    
    
    
    150,112Other assets
    
    
    4,087
    
    
    
    3,809
    
    
    
    4,087
    
    
    
    3,809Total assets
    
    $
    539,797
    
    
    $
    512,936
    
    
    $
    536,207
    
    
    $
    509,552LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank overdraft
    
    $
    5,025
    
    
    $
    3,730
    
    
    $
    5,025
    
    
    $
    3,730Accounts payable
    
    
    12,764
    
    
    
    13,959
    
    
    
    12,764
    
    
    
    13,959Customer deposits
    
    
    38,985
    
    
    
    17,762
    
    
    
    38,985
    
    
    
    17,762Accrued expenses
    
    
    38,469
    
    
    
    26,263
    
    
    
    38,458
    
    
    
    26,252Deferred revenue
    
    
    623
    
    
    
    1,004
    
    
    
    623
    
    
    
    1,004Accrued interest
    
    
    3,726
    
    
    
    7,370
    
    
    
    3,726
    
    
    
    7,370Current portion of
long-term debt
    
    
    1,090
    
    
    
    1,409
    
    
    
    1,090
    
    
    
    1,409Total current liabilities
    
    
    100,682
    
    
    
    71,497
    
    
    
    100,671
    
    
    
    71,486Long-term debt, net of
current portion
    
    
    367,363
    
    
    
    384,367
    
    
    
    255,693
    
    
    
    287,711Deferred tax liabilities
    
    
    31,826
    
    
    
    24,877
    
    
    
    37,264
    
    
    
    27,748Other long-term
liabilities
    
    
    6,669
    
    
    
    8,377
    
    
    
    6,240
    
    
    
    8,344Total liabilities
    
    
    506,540
    
    
    
    489,118
    
    
    
    399,868
    
    
    
    395,289Commitments and
contingenciesStockholders equity:Common stock
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    16,491
    
    
    
    16,491
    
    
    
    109,046
    
    
    
    102,046Accumulated earnings
    
    
    17,717
    
    
    
    8,278
    
    
    
    28,249
    
    
    
    13,173Accumulated other
comprehensive loss
    
    
    (956
    )
    
    
    (956
    )
    
    
    (956
    )
    
    
    (956
    )Total stockholders equity
    
    
    33,257
    
    
    
    23,818
    
    
    
    136,339
    
    
    
    114,263Total liabilities and
stockholders equity
    
    $
    539,797
    
    
    $
    512,936
    
    
    $
    536,207
    
    
    $
    509,552
  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 endedMay 27,
    
    
    May 28,
    
    
    May 27,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    140,164
    
    
    $
    137,123
    
    
    $
    140,164
    
    
    $
    137,123Cost of sales
    
    
    56,566
    
    
    
    56,527
    
    
    
    56,566
    
    
    
    56,527Gross profit
    
    
    83,598
    
    
    
    80,596
    
    
    
    83,598
    
    
    
    80,596Selling, general and
administrative expenses
    
    
    46,760
    
    
    
    43,928
    
    
    
    46,760
    
    
    
    43,928Operating income
    
    
    36,838
    
    
    
    36,668
    
    
    
    36,838
    
    
    
    36,668Interest expense
    
    
    8,910
    
    
    
    8,776
    
    
    
    5,980
    
    
    
    6,309Income before income taxes
    
    
    27,928
    
    
    
    27,892
    
    
    
    30,858
    
    
    
    30,359Provision for income taxes
    
    
    12,169
    
    
    
    12,299
    
    
    
    12,248
    
    
    
    12,144Net income
    
    $
    15,759
    
    
    $
    15,593
    
    
    $
    18,610
    
    
    $
    18,215
  4




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
  
 AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the nine
    
    
    For the ninemonths ended
    
    
    months endedMay 27,
    
    
    May 28,
    
    
    May 27,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    257,733
    
    
    $
    259,228
    
    
    $
    257,733
    
    
    $
    259,228Cost of sales
    
    
    103,336
    
    
    
    106,993
    
    
    
    103,336
    
    
    
    106,993Gross profit
    
    
    154,397
    
    
    
    152,235
    
    
    
    154,397
    
    
    
    152,235Selling, general and
administrative expenses
    
    
    111,658
    
    
    
    115,208
    
    
    
    111,658
    
    
    
    115,208Operating income
    
    
    42,739
    
    
    
    37,027
    
    
    
    42,739
    
    
    
    37,027Interest expense
    
    
    25,942
    
    
    
    23,066
    
    
    
    17,738
    
    
    
    17,797Income before income taxes
    
    
    16,797
    
    
    
    13,961
    
    
    
    25,001
    
    
    
    19,230Provision for income taxes
    
    
    7,358
    
    
    
    6,082
    
    
    
    9,925
    
    
    
    7,692Net income
    
    $
    9,439
    
    
    $
    7,879
    
    
    $
    15,076
    
    
    $
    11,538
  5




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
  
 AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the nine months ended
    
    
    For the nine months endedMay 27, 2006
    
    
    May 28, 2005
    
    
    May 27, 2006
    
    
    May 28, 2005Cash flows from operating activities:Net income
    
    $
    9,439
    
    
    $
    7,879
    
    
    $
    15,076
    
    
    $
    11,538Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    19,132
    
    
    
    18,975
    
    
    
    19,132
    
    
    
    18,975Deferred income taxes
    
    
    6,949
    
    
    
    5,900
    
    
    
    9,516
    
    
    
    7,510Amortization of debt discount and deferred
financing fees
    
    
    8,985
    
    
    
    6,422
    
    
    
    1,122
    
    
    
    1,153Recovery for doubtful accounts
    
    
    331
    
    
    
    574
    
    
    
    331
    
    
    
    574Loss on sale of plant, property and equipment
    
    
    90
    
    
    
    
    
    
    
    90
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (32,137
    )
    
    
    (28,834
    )
    
    
    (32,137
    )
    
    
    (28,834
    )Inventories, net
    
    
    (3,132
    )
    
    
    299
    
    
    
    (3,132
    )
    
    
    299Prepaid expenses and other current assets, net
    
    
    1,324
    
    
    
    3,621
    
    
    
    1,324
    
    
    
    3,621Other assets
    
    
    (817
    )
    
    
    (606
    )
    
    
    (817
    )
    
    
    (606
    )Customer deposits
    
    
    21,223
    
    
    
    18,054
    
    
    
    21,223
    
    
    
    18,054Deferred revenue
    
    
    (381
    )
    
    
    (5,293
    )
    
    
    (381
    )
    
    
    (5,293
    )Accounts payable, accrued expenses, and other
long-term liabilities
    
    
    5,659
    
    
    
    (326
    )
    
    
    5,263
    
    
    
    (345
    )Net cash provided by operating activities
    
    
    36,665
    
    
    
    26,665
    
    
    
    36,610
    
    
    
    26,646Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (10,878
    )
    
    
    (9,755
    )
    
    
    (10,878
    )
    
    
    (9,755
    )Net cash used in investing activities
    
    
    (10,878
    )
    
    
    (9,755
    )
    
    
    (10,878
    )
    
    
    (9,755
    )Cash flows from financing activities:Payments on revolver
    
    
    (25,250
    )
    
    
    (28,950
    )
    
    
    (25,250
    )
    
    
    (28,950
    )Proceeds from credit facility revolver
    
    
    25,250
    
    
    
    33,450
    
    
    
    25,250
    
    
    
    33,450Payments on term loan
    
    
    (32,337
    )
    
    
    (15,140
    )
    
    
    (32,337
    )
    
    
    (15,140
    )Proceeds from stock issuance
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    Deferred financing fees
    
    
    (269
    )
    
    
    (3,508
    )
    
    
    
    
    
    
    Capital contribution from Group Holdings
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    Redemption of 11.625% senior notes
    
    
    
    
    
    
    (6,075
    )
    
    
    
    
    
    
    (6,075
    )Proceeds from 10.25% notes
    
    
    
    
    
    
    89,269
    
    
    
    
    
    
    
    Distribution to stockholders
    
    
    
    
    
    
    (85,550
    )
    
    
    
    
    
    
    Change in bank overdraft
    
    
    1,295
    
    
    
    534
    
    
    
    1,295
    
    
    
    534Net cash used in financing activities
    
    
    (23,811
    )
    
    
    (15,970
    )
    
    
    (24,042
    )
    
    
    (16,181
    )Net increase in cash and cash equivalents
    
    
    1,976
    
    
    
    940
    
    
    
    1,690
    
    
    
    710Cash and cash equivalents, beginning of period
    
    
    4,324
    
    
    
    3,038
    
    
    
    4,093
    
    
    
    3,038Cash and cash equivalents, end of period
    
    $
    6,300
    
    
    $
    3,978
    
    
    $
    5,783
    
    
    $
    3,748Supplemental disclosureCash paid during the period for:Interest
    
    $
    20,347
    
    
    $
    20,939
    
    
    $
    20,347
    
    
    $
    20,939Income taxes
    
    $
    368
    
    
    $
    199
    
    
    $
    368
    
    
    $
    199
  6




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
  
 AccumulatedAdditional
    
    
    
    
    
    
    otherCommon Stock
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensiveShares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    TotalAAC Group Holding Corp.
    
    (Dollars in thousands)Balance, August 27, 2005
    
    
    505,460
    
    
    $
    5
    
    
    $
    16,491
    
    
    $
    8,278
    
    
    $
    (956
    )
    
    $
    23,818Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,439
    
    
    
    
    
    
    
    9,439Balance, May 27, 2006
    
    
    505,460
    
    
    $
    5
    
    
    $
    16,491
    
    
    $
    17,717
    
    
    $
    (956
    )
    
    $
    33,257
 AccumulateAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensiveShares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    TotalAmerican Achievement Corporation
    
    (Dollars in thousands)Balance, August 27, 2005
    
    
    100
    
    
    $
    
    
    
    $
    102,046
    
    
    $
    13,173
    
    
    $
    (956
    )
    
    $
    114,263Capital contribution
from Group Holdings
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    7,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,076
    
    
    
    
    
    
    
    15,076Balance, May 27, 2006
    
    
    100
    
    
    $
    
    
    
    $
    109,046
    
    
    $
    28,249
    
    
    $
    (956
    )
    
    $
    136,339
  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
 May 27, 2006
    
    
    August 27, 2005Raw materials
    
    $
    11,011
    
    
    $
    9,022Work in process
    
    
    9,315
    
    
    
    6,306Finished goods
    
    
    5,961
    
    
    
    7,098Less  Reserves
    
    
    (934
    )
    
    
    (205
    )$
    25,353
    
    
    $
    22,221
 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
 May 27, 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 May 27, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs and other
    
    
    7 to 8 years
    
    
    
    14,889
    
    
    
    (3,946
    )
    
    
    10,943Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (961
    )
    
    
    6,356Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (24,745
    )
    
    
    75,771$
    172,817
    
    
    $
    (29,652
    )
    
    $
    143,165At 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 May 27, 2006Trademarks
    
    Indefinite
    
    $
    50,095
    
    
    $
    
    
    
    $
    50,095Deferred financing costs and other
    
    
    7 to 8 years
    
    
    
    11,112
    
    
    
    (3,242
    )
    
    
    7,870Patents
    
    
    14 to 17 years
    
    
    
    7,317
    
    
    
    (961
    )
    
    
    6,356Customer lists and distribution contracts
    
    
    3 to 12 years
    
    
    
    100,516
    
    
    
    (24,745
    )
    
    
    75,771$
    169,040
    
    
    $
    (28,948
    )
    
    $
    140,092At 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.
 May 27, 2006
    
    
    August 27, 200510.25% Senior discount notes due
2012 (net of unamortized discount of
$27,330 and $34,844)
    
    $
    104,170
    
    
    $
    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
    
    
    106,783
    
    
    
    139,120Total
    
    
    368,453
    
    
    
    385,776Less current portion of long-term debt
    
    
    (1,090
    )
    
    
    (1,409
    )Total long-term debt
    
    $
    367,363
    
    
    $
    384,367
 11




---



##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 American Achievement Corporation
 May 27, 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
    
    
    106,783
    
    
    
    139,120Total
    
    
    256,783
    
    
    
    289,120Less current portion of long-term debt
    
    
    (1,090
    )
    
    
    (1,409
    )Total long-term debt
    
    $
    255,693
    
    
    $
    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
  Plant Closure
  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 endedMay 27, 2006
    
    
    May 28, 2005CBI post-
    
    
    
    
    
    
    CBI post-Taylor pension
    
    
    retirement
    
    
    Taylor pension
    
    
    retirementService costs, benefits attributed to
Service during the period
    
    $
    25
    
    
    $
    
    
    
    $
    19
    
    
    $
    Interest cost
    
    
    211
    
    
    
    32
    
    
    
    209
    
    
    
    37Expected return on assets
    
    
    (223
    )
    
    
    
    
    
    
    (208
    )
    
    
    Amortization of unrecognized net loss (gain)
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    (74
    )Amortization of unrecognized net prior
service costs
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    Net periodic postretirement benefit
cost (income)
    
    $
    13
    
    
    $
    (73
    )
    
    $
    20
    
    
    $
    (37
    )
 For the nine months ended
    
    
    For the nine months endedMay 27, 2006
    
    
    May 28, 2005CBI post-
    
    
    
    
    
    
    CBI post-Taylor pension
    
    
    retirement
    
    
    Taylor pension
    
    
    retirementService costs, benefits attributed to
Service during the period
    
    $
    74
    
    
    $
    
    
    
    $
    57
    
    
    $
    Interest cost
    
    
    633
    
    
    
    110
    
    
    
    627
    
    
    
    111Expected return on assets
    
    
    (669
    )
    
    
    
    
    
    
    (624
    )
    
    
    Amortization of unrecognized net loss (gain)
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    (222
    )Amortization of unrecognized net prior
service costs
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    Net periodic postretirement benefit
cost (income)
    
    $
    38
    
    
    $
    (150
    )
    
    $
    60
    
    
    $
    (111
    )
 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 May 27, 2006
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    37,656
    
    
    $
    6,644
    
    
    $
    206,331Yearbooks
    
    
    70,858
    
    
    
    25,155
    
    
    
    192,674Graduation Products
    
    
    23,800
    
    
    
    5,860
    
    
    
    67,336Achievement Publications
    
    
    1,145
    
    
    
    (635
    )
    
    
    38,657Other
    
    
    6,705
    
    
    
    (186
    )
    
    
    34,799Total
    
    $
    140,164
    
    
    $
    36,838
    
    
    $
    539,797
 American Achievement CorporationSegmentOperatingIncome
    
    
    SegmentThree Months Ended May 27, 2006
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    37,656
    
    
    $
    6,644
    
    
    $
    204,930Yearbooks
    
    
    70,858
    
    
    
    25,155
    
    
    
    191,401Graduation Products
    
    
    23,800
    
    
    
    5,860
    
    
    
    66,883Achievement Publications
    
    
    1,145
    
    
    
    (635
    )
    
    
    38,429Other
    
    
    6,705
    
    
    
    (186
    )
    
    
    34,564Total
    
    $
    140,164
    
    
    $
    36,838
    
    
    $
    536,207
 17




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 AAC Group Holding Corp.SegmentOperatingIncome
    
    
    SegmentThree Months Ended May 28, 2005
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    35,411
    
    
    $
    5,998
    
    
    $
    213,082Yearbooks
    
    
    73,362
    
    
    
    25,353
    
    
    
    193,480Graduation Products
    
    
    19,724
    
    
    
    4,700
    
    
    
    68,982Achievement Publications
    
    
    780
    
    
    
    (674
    )
    
    
    38,465Other
    
    
    7,846
    
    
    
    1,291
    
    
    
    35,784Total
    
    $
    137,123
    
    
    $
    36,668
    
    
    $
    549,793
 American Achievement CorporationSegmentOperatingIncome
    
    
    SegmentThree Months Ended May 28, 2005
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    35,411
    
    
    $
    5,998
    
    
    $
    211,718Yearbooks
    
    
    73,362
    
    
    
    25,353
    
    
    
    192,242Graduation Products
    
    
    19,724
    
    
    
    4,700
    
    
    
    68,541Achievement Publications
    
    
    780
    
    
    
    (674
    )
    
    
    38,243Other
    
    
    7,846
    
    
    
    1,291
    
    
    
    35,555Total
    
    $
    137,123
    
    
    $
    36,668
    
    
    $
    546,299
 AAC Group Holding Corp.SegmentOperatingIncome
    
    
    SegmentNine Months Ended May 27, 2006
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    103,715
    
    
    $
    17,350
    
    
    $
    206,331Yearbooks
    
    
    86,390
    
    
    
    19,025
    
    
    
    192,674Graduation Products
    
    
    42,641
    
    
    
    6,852
    
    
    
    67,336Achievement Publications
    
    
    8,661
    
    
    
    (479
    )
    
    
    38,657Other
    
    
    16,326
    
    
    
    (9
    )
    
    
    34,799Total
    
    $
    257,733
    
    
    $
    42,739
    
    
    $
    539,797
 American Achievement CorporationSegmentOperatingIncome
    
    
    SegmentNine Months Ended May 27, 2006
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    103,715
    
    
    $
    17,350
    
    
    $
    204,930Yearbooks
    
    
    86,390
    
    
    
    19,025
    
    
    
    191,401Graduation Products
    
    
    42,641
    
    
    
    6,852
    
    
    
    66,883Achievement Publications
    
    
    8,661
    
    
    
    (479
    )
    
    
    38,429Other
    
    
    16,326
    
    
    
    (9
    )
    
    
    34,564Total
    
    $
    257,733
    
    
    $
    42,739
    
    
    $
    536,207
 18




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 AAC Group Holding Corp.SegmentOperatingIncome
    
    
    SegmentNine Months Ended May 28, 2005
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    102,913
    
    
    $
    14,784
    
    
    $
    213,082Yearbooks
    
    
    89,291
    
    
    
    14,565
    
    
    
    193,480Graduation Products
    
    
    39,043
    
    
    
    5,816
    
    
    
    68,982Achievement Publications
    
    
    10,074
    
    
    
    829
    
    
    
    38,465Other
    
    
    17,907
    
    
    
    1,033
    
    
    
    35,784Total
    
    $
    259,228
    
    
    $
    37,027
    
    
    $
    549,793
 American Achievement CorporationSegmentOperatingIncome
    
    
    SegmentNine Months Ended May 28, 2005
    
    Net Sales
    
    
    (Loss)
    
    
    AssetsClass Rings
    
    $
    102,913
    
    
    $
    14,784
    
    
    $
    211,718Yearbooks
    
    
    89,291
    
    
    
    14,565
    
    
    
    192,242Graduation Products
    
    
    39,043
    
    
    
    5,816
    
    
    
    68,541Achievement Publications
    
    
    10,074
    
    
    
    829
    
    
    
    38,243Other
    
    
    17,907
    
    
    
    1,033
    
    
    
    35,555Total
    
    $
    259,228
    
    
    $
    37,027
    
    
    $
    546,299
 12. Recent Accounting Pronouncements
    19




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
  13. Subsequent Event
    20




---



##### 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
   21




---



##### Table of Contents



Company Background
    22




---



##### Table of Contents



Subsequent Event
    Critical Accounting Policies
  Sales Returns and Allowances.
 23




---



##### Table of Contents



Allowance for Doubtful Accounts and Reserve on Sales Representative Advances.
 Goodwill and Other Intangible Assets
 Long-lived Tangible and Intangible Assets with Definite Lives.
 24




---



##### Table of Contents



Revenue Recognition.
   Results of Operations
 Three Months Ended May 27, 2006 Compared to Three Months Ended May 28, 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
    
    
    NetMay 27, 2006
    
    
    Sales
    
    
    May 28, 2005
    
    
    Sales
    
    
    May 27, 2006
    
    
    Sales
    
    
    May 28, 2005
    
    
    SalesNet sales
    
    $
    140,164
    
    
    
    100.0
    %
    
    $
    137,123
    
    
    
    100.0
    %
    
    $
    140,164
    
    
    
    100.0
    %
    
    $
    137,123
    
    
    
    100.0
    %Cost of sales
    
    
    56,566
    
    
    
    40.4
    %
    
    
    56,527
    
    
    
    41.2
    %
    
    
    56,566
    
    
    
    40.4
    %
    
    
    56,527
    
    
    
    41.2
    %Gross profit
    
    
    83,598
    
    
    
    59.6
    %
    
    
    80,596
    
    
    
    58.8
    %
    
    
    83,598
    
    
    
    59.6
    %
    
    
    80,596
    
    
    
    58.8
    %Selling,
general and
administrative
expenses
    
    
    46,760
    
    
    
    33.3
    %
    
    
    43,928
    
    
    
    32.0
    %
    
    
    46,760
    
    
    
    33.3
    %
    
    
    43,928
    
    
    
    32.0
    %Operating income
    
    
    36,838
    
    
    
    26.3
    %
    
    
    36,668
    
    
    
    26.8
    %
    
    
    36,838
    
    
    
    26.3
    %
    
    
    36,668
    
    
    
    26.8
    %Interest expense
    
    
    8,910
    
    
    
    6.4
    %
    
    
    8,776
    
    
    
    6.4
    %
    
    
    5,980
    
    
    
    4.3
    %
    
    
    6,309
    
    
    
    4.6
    %Income before
income taxes
    
    
    27,928
    
    
    
    19.9
    %
    
    
    27,892
    
    
    
    20.4
    %
    
    
    30,858
    
    
    
    22.0
    %
    
    
    30,359
    
    
    
    22.2
    %Provision for
income taxes
    
    
    12,169
    
    
    
    8.7
    %
    
    
    12,299
    
    
    
    9.0
    %
    
    
    12,248
    
    
    
    8.7
    %
    
    
    12,144
    
    
    
    8.8
    %Net income
    
    $
    15,759
    
    
    
    11.2
    %
    
    $
    15,593
    
    
    
    11.4
    %
    
    $
    18,610
    
    
    
    13.3
    %
    
    $
    18,215
    
    
    
    13.4
    %
 Net Sales.
 25




---



##### Table of Contents



Class Rings.
 Yearbooks.
 Graduation Products.
 Achievement Publications.
 Other.
 Gross Profit.
 Selling, General and Administrative Expenses.
  Operating Income (Loss).
 26




---



##### Table of Contents



Interest Expense, Net.
  Provision for Income Taxes.
  Net Income.
 27




---



##### Table of Contents



Nine Months Ended May 27, 2006 Compared to Nine Months Ended May 28, 2005
  AAC Group Holding Corp.
    
    
    American Achievement CorporationFor the Nine
    
    
    % of
    
    
    For the Nine
    
    
    % of
    
    
    For the Nine
    
    
    % of
    
    
    For the Nine
    
    
    % ofMonths Ended
    
    
    Net
    
    
    Months Ended
    
    
    Net
    
    
    Months Ended
    
    
    Net
    
    
    Months Ended
    
    
    NetMay 27, 2006
    
    
    Sales
    
    
    May 28, 2005
    
    
    Sales
    
    
    May 27, 2006
    
    
    Sales
    
    
    May 28, 2005
    
    
    SalesNet sales
    
    $
    257,733
    
    
    
    100.0
    %
    
    $
    259,228
    
    
    
    100.0
    %
    
    $
    257,733
    
    
    
    100.0
    %
    
    $
    259,228
    
    
    
    100.0
    %Cost of sales
    
    
    103,336
    
    
    
    40.1
    %
    
    
    106,993
    
    
    
    41.3
    %
    
    
    103,336
    
    
    
    40.1
    %
    
    
    106,993
    
    
    
    41.3
    %Gross profit
    
    
    154,397
    
    
    
    59.9
    %
    
    
    152,235
    
    
    
    58.7
    %
    
    
    154,397
    
    
    
    59.9
    %
    
    
    152,235
    
    
    
    58.7
    %Selling,
general and
administrative
expenses
    
    
    111,658
    
    
    
    43.3
    %
    
    
    115,208
    
    
    
    44.4
    %
    
    
    111,658
    
    
    
    43.3
    %
    
    
    115,208
    
    
    
    44.4
    %Operating
income
    
    
    42,739
    
    
    
    16.6
    %
    
    
    37,027
    
    
    
    14.3
    %
    
    
    42,739
    
    
    
    16.6
    %
    
    
    37,027
    
    
    
    14.3
    %Interest
expense
    
    
    25,942
    
    
    
    10.1
    %
    
    
    23,066
    
    
    
    8.9
    %
    
    
    17,738
    
    
    
    6.9
    %
    
    
    17,797
    
    
    
    6.9
    %Income before
income taxes
    
    
    16,797
    
    
    
    6.5
    %
    
    
    13,961
    
    
    
    5.4
    %
    
    
    25,001
    
    
    
    9.7
    %
    
    
    19,230
    
    
    
    7.4
    %Provision for
income taxes
    
    
    7,358
    
    
    
    2.8
    %
    
    
    6,082
    
    
    
    2.4
    %
    
    
    9,925
    
    
    
    3.8
    %
    
    
    7,692
    
    
    
    3.0
    %Net income
    
    $
    9,439
    
    
    
    3.7
    %
    
    $
    7,879
    
    
    
    3.0
    %
    
    $
    15,076
    
    
    
    5.9
    %
    
    $
    11,538
    
    
    
    4.4
    %
 Net Sales.
 Class Rings.
 Yearbooks.
 Graduation Products.
 Achievement Publications.
 28




---



##### Table of Contents



Other.
 Gross Profit.
 Selling, General and Administrative Expenses.
  Operating Income (Loss).
 Interest Expense, Net.
 29




---



##### Table of Contents



Provision for Income Taxes.
  Net Income.
 Liquidity and Capital Resources
 Operating Activities
   Investing Activities
  Financing Activities
   30




---



##### Table of Contents



Capital Resources
    Off Balance-Sheet Obligations
 Gold Consignment Agreement.
 31




---



##### Table of Contents



Seasonality
 
  Recent Accounting Pronouncements
    32




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Gold
 Interest Rate Risk.
 Semi-Precious Stones.
 33




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
   34




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 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
 35




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##### Table of Contents



AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
 
 SIGNATURES
   AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENTCORPORATIONBy:
    /s/ DONALD J. PERCENTIDonald J. PercentiCHIEF EXECUTIVE OFFICER
(principal executive officer)By:
    /s/ SHERICE P. BENCHSherice P. BenchCHIEF FINANCIAL OFFICER
(principal financial officer) 36