form10q_3q09.htm

10-Q 1 form10q_3q09.htm FORM 10-Q Q3 FY09 form10q_3q09.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED May 30, 2009

⁭

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

COMMISSION FILE NUMBERS 333-121479 AND 333-84294

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		20-1854833
DELAWARE		13-4126506
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification Number)
organization)

7211 CIRCLE S ROAD

AUSTIN, TEXAS 78745

(Address of principal executive offices) (Zip Code)

Registrants’ Telephone Number, Including Area Code (512) 444-0571

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ⁭ No þ. Although the registrants are not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, the registrants have filed all reports for the preceding 12 months.

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

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

Large accelerated filer ⁭ Accelerated filer ⁭

Non-accelerated filer þ(do not check if smaller reporting company) Smaller reporting company ⁭

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes ⁭ No þ.

Number of shares outstanding of AAC Group Holding Corp. as of June 30, 2009: 100 shares of common stock.

Number of shares of American Achievement Corporation outstanding as of June 30, 2009: 100 shares of common stock.

This Form 10-Q is a combined quarterly report being filed separately by AAC Group Holding Corp. and American Achievement Corporation. Unless the context indicates otherwise, any reference in this report to “Intermediate Holdings” refers to AAC Group Holding Corp. and “AAC” refers to American Achievement Corporation, the indirect wholly-owned operating subsidiary of Intermediate Holdings. The “Company”, “we”, “us”, and “our” refer to AAC Group Holding Corp. together with American Achievement Corporation.

FOR THE QUARTERLY PERIOD ENDED MAY 30, 2009

INDEX

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes
Condensed Consolidated Balance Sheets (unaudited) — As of May 30, 2009 and August 30, 2008	3
Condensed Consolidated Statements of Operations (unaudited) — For the Three and Nine Months Ended May 30, 2009 and the Three and Nine Months Ended May 31, 2008	5
Condensed Consolidated Statements of Cash Flows (unaudited) — For the Nine Months Ended May 30, 2009 and the Nine Months Ended May 31, 2008	7
Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	32

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	32
Item 6. Exhibits	33

SIGNATURES	34

Certificate of Amendment of Certificate of Incorporation of AAC Group Holding Corp.
Certificate of Amendment of Certificate of Incorporation of American Achievement Corporation
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

Explanatory Note

This combined Form 10-Q is separately filed by AAC Group Holding Corp. and American Achievement Corporation. Each Registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such Registrant. Each Registrant hereto is not filing any information that does not relate to such Registrant, and therefore makes no representation as to any such information.

Unless the context indicates otherwise, any reference in this report to “Intermediate Holdings” refers to AAC Group Holding Corp. and “AAC” refers to American Achievement Corporation, the indirect wholly-owned operating subsidiary of Intermediate Holdings. The “Company”, “we”, “us”, and “our” refer to AAC Group Holding Corp. together with American Achievement Corporation.

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AAC GROUP HOLDING CORP.

Condensed Consolidated Balance Sheets

(unaudited)

	Intermediate Holdings
	May 30, 2009			August 30, 2008
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	15,332		$	9,746
Accounts receivable, net of allowances		75,648			36,920
Inventories		18,295			27,411
Deferred tax assets		4,222			12,196
Prepaid expenses and other current assets, net		13,221			19,395
Total current assets		126,718			105,668

Property, plant and equipment, net		61,862			68,477
Goodwill		171,323			171,073
Other intangible assets, net		89,464			97,000
Other assets, net		13,421			12,555
Total assets	$	462,788		$	454,773

LIABILITIES AND STOCKHOLDER'S EQUITY
Book overdraft	$	110		$	61
Accounts payable		10,438			10,900
Customer deposits		25,885			8,102
Accrued expenses		27,705			16,863
Deferred revenue		720			2,750
Accrued interest		4,369			5,722
Current portion of long-term debt		3,123			2,908
Total current liabilities		72,350			47,306

Long-term debt, net of current portion		325,254			352,998
Deferred tax liabilities		48,533			21,595
Other long-term liabilities		2,692			2,703
Total liabilities		448,829			424,602

Commitments and contingencies (Note 7)

Stockholder's equity:
Common stock		-			-
Additional (distributions in excess of) paid-in capital		(2,847	)		24,309
Accumulated earnings		14,317			3,153
Accumulated other comprehensive income		2,489			2,709
Total stockholder's equity		13,959			30,171

Total liabilities and stockholder's equity	$	462,788		$	454,773

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AMERICAN ACHIEVEMENT CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)

	AAC
	May 30, 2009		August 30, 2008
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	14,765	$	9,735
Accounts receivable, net of allowances		75,648		36,920
Inventories		18,295		27,411
Deferred tax assets		4,555		14,920
Prepaid expenses and other current assets, net		13,221		18,839
Total current assets		126,484		107,825

Property, plant and equipment, net		61,862		68,477
Goodwill		171,323		171,073
Other intangible assets, net		89,464		97,000
Other assets, net		11,939		10,739
Total assets	$	461,072	$	455,114

LIABILITIES AND STOCKHOLDER'S EQUITY
Book overdraft	$	110	$	61
Accounts payable		10,438		10,900
Customer deposits		25,885		8,102
Accrued expenses		27,836		16,852
Deferred revenue		720		2,750
Accrued interest		2,122		5,722
Current portion of long-term debt		3,123		2,908
Total current liabilities		70,234		47,295

Long-term debt, net of current portion		193,754		222,577
Deferred tax liabilities		66,909		39,580
Other long-term liabilities		2,659		2,675
Total liabilities		333,556		312,127

Commitments and contingencies (Note 7)

Stockholder's equity:
Common stock		-		-
Additional paid-in capital		75,316		109,211
Accumulated earnings		49,711		31,067
Accumulated other comprehensive income		2,489		2,709
Total stockholder's equity		127,516		142,987

Total liabilities and stockholder's equity	$	461,072	$	455,114

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AAC GROUP HOLDING CORP.

Condensed Consolidated Statements of Operations

(unaudited)

	Intermediate Holdings
	For the three months ended					For the nine months ended
	May 30, 2009		May 31, 2008			May 30, 2009		May 31, 2008
	(Dollars in thousands)

Net sales	$	144,842	$	157,142		$	250,169	$	269,710
Cost of sales		55,353		62,432			105,511		114,614
Gross profit		89,489		94,710			144,658		155,096
Selling, general and administrative expenses		44,256		50,094			101,775		111,184
Operating income		45,233		44,616			42,883		43,912
Interest expense, net		7,497		8,469			22,783		24,990
Income from continuing operations before income taxes		37,736		36,147			20,100		18,922
Provision for income taxes		16,574		16,846			8,936		9,306
Income from continuing operations		21,162		19,301			11,164		9,616
Discontinued operations:
Loss from discontinued operations before income taxes		-		(72	)		-		(7,200	)
Benefit for income taxes		-		(28	)		-		(2,815	)
Loss from discontinued operations		-		(44	)		-		(4,385	)
Net income	$	21,162	$	19,257		$	11,164	$	5,231

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERICAN ACHIEVEMENT CORPORATION

Condensed Consolidated Statements of Operations

(unaudited)

	AAC
	For the three months ended					For the nine months ended
	May 30, 2009		May 31, 2008			May 30, 2009		May 31, 2008
	(Dollars in thousands)

Net sales	$	144,842	$	157,142		$	250,169	$	269,710
Cost of sales		55,353		62,432			105,511		114,614
Gross profit		89,489		94,710			144,658		155,096
Selling, general and administrative expenses		44,256		50,094			101,775		111,184
Operating income		45,233		44,616			42,883		43,912
Interest expense, net		4,022		5,022			12,390		15,303
Income from continuing operations before income taxes		41,211		39,594			30,493		28,609
Provision for income taxes		15,969		16,012			11,849		11,664
Income from continuing operations		25,242		23,582			18,644		16,945
Discontinued operations:
Loss from discontinued operations before income taxes		-		(72	)		-		(7,200	)
Benefit for income taxes		-		(28	)		-		(2,815	)
Loss from discontinued operations		-		(44	)		-		(4,385	)
Net income	$	25,242	$	23,538		$	18,644	$	12,560

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AAC GROUP HOLDING CORP.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Intermediate Holdings
	For the nine months ended
	May 30, 2009			May 31, 2008
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	11,164		$	5,231
Adjustments to reconcile net income to net cash provided by operating activities:
Other charges		-			5,542
Depreciation and amortization		19,189			18,393
Deferred income taxes		7,493			5,033
Amortization of deferred financing fees		1,502			1,481
Accretion of interest on 10.25% senior discount notes		1,079			9,369
Loss (gain) on disposal of property, plant and equipment		8			(12	)
Allowance for doubtful accounts		234			736
Changes in assets and liabilities:
Accounts receivable		(38,962	)		(33,003	)
Inventories		9,154			10,539
Prepaid expenses and other current assets, net		6,174			2,750
Other assets, net		(1,591	)		2,198
Customer deposits		17,783			13,639
Deferred revenue		(2,030	)		(3,964	)
Accounts payable, accrued expenses, accrued interest and other long-term liabilities		8,338			8,091
Net cash provided by operating activities		39,535			46,023
Cash flows from investing activities:
Purchases of property, plant and equipment		(4,311	)		(11,037	)
Proceeds from sales of property, plant and equipment		-			61
Business acquisition, purchase price adjustment		(83	)		-
Net cash used in investing activities		(4,394	)		(10,976	)
Cash flows from financing activities:
Payments on revolving credit facility		(6,000	)		(21,905	)
Proceeds from revolving credit facility		6,000			14,100
Payments on term loan		(28,608	)		(11,395	)
Deferred financing fees		(1,396	)		-
Contribution of capital		400			-
Change in book overdraft		49			(3,419	)
Net cash used in financing activities		(29,555	)		(22,619	)
Net increase in cash and cash equivalents		5,586			12,428
Cash and cash equivalents, beginning of period		9,746			1,168
Cash and cash equivalents, end of period	$	15,332		$	13,596

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	21,575		$	17,475
Income taxes	$	945		$	914

Supplemental non-cash investing and financing activities disclosure:
Additions to property, plant and equipment included in accounts payable	$	286		$	74
Increase in goodwill for purchase price adjustment included in accounts payable and other long-term liabilities	$	167		$	-
Non-cash distribution of net operating loss deferred tax asset to American Achievement Group Holding Corp.	$	27,556		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERICAN ACHIEVEMENT CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

	AAC
	For the nine months ended
	May 30, 2009			May 31, 2008
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	18,644		$	12,560
Adjustments to reconcile net income to net cash provided by operating activities:
Other charges		-			5,542
Depreciation and amortization		19,189			18,393
Deferred income taxes		10,275			7,391
Amortization of deferred financing fees		1,168			1,147
Loss (gain) on disposal of property, plant and equipment		8			(12	)
Allowance for doubtful accounts		234			736
Changes in assets and liabilities:
Accounts receivable		(38,962	)		(33,003	)
Inventories		9,154			10,539
Prepaid expenses and other current assets, net		5,618			2,750
Other assets, net		(1,591	)		2,198
Customer deposits		17,783			13,639
Deferred revenue		(2,030	)		(3,964	)
Accounts payable, accrued expenses, accrued interest and other long-term liabilities		6,228			8,091
Net cash provided by operating activities		45,718			46,007
Cash flows from investing activities:
Purchases of property, plant and equipment		(4,311	)		(11,037	)
Proceeds from sales of property, plant and equipment		-			61
Business acquisition, purchase price adjustment		(83	)		-
Net cash used in investing activities		(4,394	)		(10,976	)
Cash flows from financing activities:
Payments on revolving credit facility		(6,000	)		(21,905	)
Proceeds from revolving credit facility		6,000			14,100
Payments on term loan		(28,608	)		(11,395	)
Deferred financing fees		(1,396	)		-
Distribution to Intermediate Holdings		(6,739	)		-
Contribution of capital		400			-
Change in book overdraft		49			(3,419	)
Net cash used in financing activities		(36,294	)		(22,619	)
Net increase in cash and cash equivalents		5,030			12,412
Cash and cash equivalents, beginning of period		9,735			620
Cash and cash equivalents, end of period	$	14,765		$	13,032

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	14,836		$	17,475
Income taxes	$	945		$	914
Supplemental non-cash investing and financing activities disclosure:
Additions to property, plant and equipment included in accounts payable	$	286		$	74
Increase in goodwill for purchase price adjustment included in accounts payable and other long-term liabilities	$	167		$	-
Non-cash distribution of net operating loss deferred tax asset to Intermediate Holdings	$	27,556		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

1. Summary of Organization and Significant Accounting Policies

Organization

The consolidated financial statements of AAC Group Holding Corp. (“Intermediate Holdings”) include the accounts of its indirect wholly-owned subsidiary, American Achievement Corporation (“AAC”), each of which are separate public reporting companies. Intermediate Holdings is a wholly-owned subsidiary of American Achievement Group Holding Corp. (“Parent Holdings”). On June 2, 2009, Intermediate Holdings became a wholly-owned subsidiary of American Achievement Intermediate Holding Corp, a newly formed wholly-owned subsidiary of Parent Holdings.

Intermediate Holdings and AAC are treated as entities under common control. Intermediate Holdings and AAC together with their consolidated subsidiaries are referred to as the “Company.” Unless separately stated, the notes herein relate to Intermediate Holdings and AAC.

Description of Business

The Company is a manufacturer and supplier of class rings, yearbooks and other graduation-related scholastic products for the high school, college, junior high school and elementary school markets and of recognition products, such as letter jackets, and affinity jewelry designed to commemorate significant events, achievements and affiliations. The Company markets its products and services primarily in the United States and operates in four reporting segments: class rings, yearbooks, graduation products and other. The Company’s corporate office is located in Austin, Texas and its manufacturing facilities are located in Austin, Dallas, El Paso and Waco, Texas; Louisville, Kentucky; Manhattan, Kansas; and Juarez, Mexico.

As described in Note 3, during the first quarter of fiscal year 2008, the Company decided to shut down its achievement publications segment. This segment sold achievement publications in the specialty directory publishing industry nationwide.

Consolidation

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Intermediate Holdings conducts all of its business indirectly through AAC and its subsidiaries. The consolidated financial statements of Intermediate Holdings include the accounts of its indirect wholly-owned subsidiary, AAC. Intermediate Holdings’ consolidated financial statements are substantially identical to AAC’s consolidated financial statements, with the exception of the 10.25% senior discount notes, additional interest expense related to the 10.25% senior discount notes, amortization of deferred financing costs, interest income on its cash balances and the related income taxes.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Operating results for the three and nine months ended May 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending August 29, 2009. The interim condensed consolidated financial statements and accompanying notes included herein should be read in conjunction with the consolidated financial statements for the year ended August 30, 2008 included in the Company’s Report on Form 10-K (File No. 333-84294, 333-121479 and 333-137067) filed on November 25, 2008.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recent Accounting Pronouncements

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The provisions of SFAS 165 are effective for the Company beginning with the fourth quarter of its fiscal year 2009. The Company does not expect the adoption of the standard to have a material impact on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS 157 are effective for the Company beginning with its fiscal year 2009. The adoption of the standard did not have a material impact on the Company’s financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106 and 132 (R)” (“SFAS 158”). SFAS 158 requires an employer to recognize the funded status of defined benefit postretirement plans as an asset or liability in the balance sheet and to recognize changes in that funded status in the year in which changes occur through comprehensive income. Additionally, SFAS 158 requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. The Company adopted the recognition and disclosure provisions of SFAS 158 in fiscal 2007. The measurement date provisions of SFAS 158 are effective for the Company beginning with its fiscal year 2009 and the Company will use a measurement date as of the end of its fiscal year for its defined benefit postretirement plans in fiscal 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for the Company for fiscal years beginning with its fiscal year 2009. The standard did not have a material impact on the Company’s financial position and results of operations.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

2. Comprehensive Income

The following amounts were included in determining comprehensive income for the three and nine months ended May 30, 2009 and May 31, 2008.

	For the three months ended							For the nine months ended
	May 30, 2009			May 31, 2008				May 30, 2009				May 31, 2008
Intermediate Holdings
Net income	$	21,162			$	19,257			$	11,164			$	5,231
Amortization of net actuarial gain and prior service costs - pension and postretirement plans, net of tax		(72	)			(73	)			(220	)			(223	)
Total comprehensive income	$	21,090			$	19,184			$	10,944			$	5,008

	For the three months ended							For the nine months ended
	May 30, 2009			May 31, 2008				May 30, 2009				May 31, 2008
AAC
Net income	$	25,242			$	23,538			$	18,644			$	12,560
Amortization of net actuarial gain and prior service costs - pension and postretirement plans, net of tax		(72	)			(73	)			(220	)			(223	)
Total comprehensive income	$	25,170			$	23,465			$	18,424			$	12,337

3. Discontinued Operations

On October 26, 2007, the Company announced a planned shutdown of the achievement publications segment. Operations of this segment have ceased and have been eliminated from the ongoing operations of the Company as a result of the shutdown. All activities in connection with the shutdown were completed prior to May 31, 2008, and the Company has not had any significant continuing involvement in this segment since then.

The results of operations of the achievement publications business are reported as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended May 31, 2008. Prior to the shutdown, the achievement publications business was included as the Company’s achievement publications reporting segment. Net sales and loss from discontinued operations for the three and nine months ended May 31, 2008 are as follows:

	For the three months ended			For the nine months ended
	May 31, 2008			May 31, 2008
Discontinued operations:
Net sales	$	-		$	1,758

Operating loss	$	(72	)	$	(7,200	)
Benefit for income taxes		(28	)		(2,815	)
Loss from discontinued operations	$	(44	)	$	(4,385	)

The Company recognized charges of $5.5 million during the nine months ended May 31, 2008 primarily related to the write-off of the remaining carrying value of tangible and intangible assets upon shutdown of the achievement publications segment. These charges are included in the loss from discontinued operations in the condensed consolidated statements of operations and in other charges in the condensed consolidated statements of cash flows. Also included in loss from discontinued operations for the nine months ended May 31, 2008, are $0.7 million of costs incurred for contract termination and employee termination costs related to the shutdown. All such costs have been paid.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

4. Inventories

	May 30, 2009			August 30, 2008

Raw materials	$	8,658		$	15,840
Work in process		5,057			5,431
Finished goods		5,422			6,540
Less—Reserves		(842	)		(400	)
	$	18,295		$	27,411

The Company’s cost of sales includes depreciation of $4.6 million and $4.0 million for the three months ended May 30, 2009 and May 31, 2008, respectively, and $8.7 million and $7.7 million for the nine months then ended, respectively.

5. Goodwill and Other Intangible Assets

Goodwill

Segment:	May 30, 2009		August 30, 2008
Class Rings	$	67,092	$	67,092
Yearbooks		65,241		65,241
Graduation Products		23,781		23,781
Other		15,209		14,959
Total	$	171,323	$	171,073

On January 6, 2009, Commemorative Brands, Inc. (“CBI”), a wholly owned subsidiary of AAC, entered into an amendment to the stock purchase agreement related to the acquisition of Powers Embroidery Inc. in fiscal 2007. The amended agreement provides for $0.3 million of additional purchase price instead of the provision in the original agreement that provided for up to $1.5 million additional purchase price payment that was contingent upon the acquired business achieving certain financial goals through August 2010. The $0.3 million of additional purchase price is to be paid over three years beginning January 2009, of which $0.1 million was paid during the nine months ended May 30, 2009.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Other Intangible Assets

	May 30, 2009
	Estimated	Gross		Accumulated				Net
	Useful Life	Asset		Amortization				Asset
Trademarks	Indefinite	$	36,826		$	-			$	36,826
Patents	14 to 17 years		7,317			(2,290	)			5,027
Customer lists and distribution contracts	3 to 12 years		98,340			(50,729	)			47,611

Total		$	142,483		$	(53,019	)		$	89,464

	August 30, 2008
	Estimated	Gross		Accumulated				Net
	Useful Life	Asset		Amortization				Asset
Trademarks	Indefinite	$	36,826		$	-			$	36,826
Patents	14 to 17 years		7,317			(1,960	)			5,357
Customer lists and distribution contracts	3 to 12 years		97,740			(42,923	)			54,817

Total		$	141,883		$	(44,883	)		$	97,000

Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the Company tests goodwill and indefinite-lived intangibles for impairment on an annual basis or more frequently if impairment indicators occur. If the fair value of each reporting unit exceeds its carrying value, goodwill is not considered to be impaired. The Company determines the fair value of each reporting unit using a discounted cash flow analysis to measure the present value of anticipated future net cash flows of the reporting unit. Significant judgments and assumptions including projecting future cash flows, determining appropriate discount rates and other assumptions are inherent in the discounted cash flow analysis. Actual results may vary from the assumptions used in the Company’s fair value calculations.

The recent and current weak economic conditions have had an unfavorable impact on the Company’s sales and results of operations, which is expected to continue for the rest of this fiscal year and into next year. This change in the Company’s forecasts constituted a triggering event requiring an interim impairment analysis as of February 28, 2009. At February 28, 2009, the estimated fair value of each of the Company’s reporting units exceeded its carrying value, thus indicating that no impairment existed as of that date. Significant judgments were required in the preparation of the forecasts. Unforeseen future events could adversely affect such forecasts and thereby the reported value of goodwill and trademarks in the future. There have been no material changes or triggering events since the date of this interim impairment analysis.

Total amortization on other intangible assets was $2.7 million and $3.2 million for the three months ended May 30, 2009 and May 31, 2008, respectively, and was $8.1 million and $8.4 million for the nine months ended May 30, 2009 and May 31, 2008, respectively, and is recorded as selling, general and administrative expenses. Estimated annual amortization expense is as follows:

Year	Amount
2009	$	10,849
2010		10,249
2011		10,249
2012		9,816
2013		9,220

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

6. Long-term Debt

	May 30, 2009				August 30, 2008
Intermediate Holdings
10.25% Senior discount notes due October 1, 2012 (net of unamortized discount of $0 and $1,079, respectively)		$	131,500		$	130,421
8.25% Senior subordinated notes due April 1, 2012			150,000			150,000
Senior secured credit facility:
Revolving credit facility due 2011			-			-
Term loan due 2011			46,877			75,485
Total			328,377			355,906
Less current portion of long-term debt			(3,123	)		(2,908	)
Total long-term debt		$	325,254		$	352,998

	May 30, 2009				August 30, 2008
AAC
8.25% Senior subordinated notes due April 1, 2012		$	150,000		$	150,000
Senior secured credit facility:
Revolving credit facility due 2011			-			-
Term loan due 2011			46,877			75,485
Total			196,877			225,485
Less current portion of long-term debt			(3,123	)		(2,908	)
Total long-term debt		$	193,754		$	222,577

Senior Secured Credit Facility

On May 20, 2009, the Company executed an amendment (the “Second Amendment”) to the senior secured credit facility (as amended, the “Amended Senior Credit Facility”). Among other things, the Second Amendment: (i) modified the existing $40 million revolving facility to a $25 million revolving facility available through March 25, 2011 and eliminated incremental facilities of up to $75 million available under the original agreement, (ii) increased interest rates, term loan quarterly amortization, and revolving commitment fees paid to lenders, (iii) modified the limitations on restricted payments, dividends or distributions, and permitted acquisitions, and (iv) modified those covenants relating to the maintenance of a maximum leverage ratio and minimum interest coverage ratio to be less restrictive for fiscal quarters beginning August 30, 2009.

In connection with the Second Amendment, the Company incurred costs totaling $2.5 million, of which $1.1 million was recorded as selling, general and administrative expense during the three months ended May 30, 2009, and $1.4 million are included in other assets and will be amortized over the remaining term of the Amended Senior Credit Facility.

The term loan of the Amended Senior Credit Facility is due in March 2011. Quarterly payments of $1.0 million are required beginning August 30, 2009 through February 28, 2011. The term loan of the Amended Senior Credit Facility has an interest rate based on the higher of the prime rate or 2.0%, plus points based on a calculated leverage ratio as defined in the agreement. The interest rate on the term loan of the Amended Senior Credit Facility was 6.25% at May 30, 2009. During the nine months ended May 30, 2009 and May 31, 2008, the Company paid down $28.6 million and $11.4 million of the term loan of the Amended Senior Credit Facility, of which $2.6 million and $0.9 million, respectively, were mandatory payments.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

The revolving credit facility matures in March 2011. Availability under the revolving credit facility is restricted to a total revolving commitment of $25.0 million as defined in the credit agreement governing the Amended Senior Credit Facility. Availability under the revolving credit facility as of May 30, 2009 was approximately $23.3 million with $1.7 million in letters of credit outstanding.

Advances under the revolving credit facility may be made as base rate loans or LIBOR loans at AAC’s election. Interest rates payable upon advances are based upon the higher of 3.0% or the base rate, which is derived from the Prime Rate or Federal Funds Effective Rate as defined in the credit agreement, or the higher of 2.0% or LIBOR depending on the type of loan AAC chooses, plus an applicable margin based on a calculated leverage ratio as defined in the agreement.

The Amended Senior Credit Facility contains restrictions on the ability of AAC to pay dividends and make certain other payments to Parent Holdings and its subsidiaries. Pursuant to each arrangement, AAC may, subject to certain limitations, pay dividends or make such payments in connection with (i) repurchases of certain capital stock of Parent Holdings and (ii) the payment by Parent Holdings of taxes, costs and other expenses required to maintain its legal existence and legal, accounting and other overhead costs in the ordinary course of business, (iii) the payment by Intermediate Holdings of interest on the 10.25% senior discount notes, and (iv) repayment, redemption or repurchase of indebtedness of Parent Holdings and Intermediate Holdings in an amount not to exceed $15.0 million.

AAC was in compliance with the Amended Senior Credit Facility’s covenants as of May 30, 2009.

10.25% Senior Discount Notes

Interest accrued on the 10.25% senior discount notes in the form of an increase in the accreted value of the notes through October 1, 2008. Thereafter, cash interest on the 10.25% senior discount notes accrues and is payable semiannually in arrears on April 1 and October 1 of each year, at a rate of 10.25% per annum. The initial interest payment of $6.7 million was funded by AAC on April 1, 2009, and was accounted for as a capital distribution from AAC and reflected as a reduction of AAC’s additional paid-in capital.

The following table represents the amount of interest income included in interest expense, net, for the three and nine months ended May 30, 2009 and May 31, 2008:

	For the three months ended				For the nine months ended
	May 30, 2009		May 31, 2008		May 30, 2009		May 31, 2008
Intermediate Holdings	$	48	$	143	$	271	$	491
AAC		48		140		271		475

7. Commitments and Contingencies

Pending Litigation

The Company currently is not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business. In management’s opinion, adverse decisions on these ordinary legal proceedings, individually or in the aggregate, would not have a materially adverse impact on the Company’s results of operations, financial condition or cash flows.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

8. Income Taxes

The Company had recorded a deferred tax benefit related to net operating losses with the expectation that the net operating loss carryforward would be used to offset future earnings at AAC. During the quarter ended February 28, 2009, $27.6 million of this deferred tax benefit was transferred from AAC to Intermediate Holdings to Parent Holdings to be utilized to offset income generated by Parent Holdings in the consolidated income tax return. This transfer has been accounted for as a distribution by the Company to Parent Holdings and was reflected as a reduction to additional paid-in capital and a reduction of deferred tax assets.

9. Postretirement Pension and Medical Benefits

CBI provides certain healthcare and life insurance benefits for former employees of L.G. Balfour Company, Inc. (“CBI Plan”). Certain hourly employees of Taylor Publishing Company (“Taylor”), a wholly owned subsidiary of AAC, are covered by a defined benefit pension plan (“TPC Plan”) established by Taylor. The benefits under the CBI Plan and TPC Plan are based primarily on the employees’ years of service and compensation near retirement. The CBI Plan was frozen to new entrants effective January 1991. Effective September 2003, the TPC Plan is open for enrollment only for certain hourly employees of Taylor. The funding policies for these plans are consistent with the funding requirements of federal laws and regulations.

For fiscal 2008, the measurement date for the CBI Plan was August 30, 2008, and the measurement date for the TPC Plan was June 30, 2008. The Company will use a measurement date as of the end of its fiscal year for both plans in fiscal 2009.

The net periodic postretirement benefit income includes the following components:

	For the three months ended
	May 30, 2009								May 31, 2008
					CBI post-								CBI post-
	Taylor pension				retirement				Taylor pension				retirement
Service costs, benefits attributed to service during the period		$	18			$	-			$	21			$	-
Interest cost			220				23				229				27
Expected return on assets			(264	)			-				(292	)			-
Amortization of unrecognized net gain			(7	)			(76	)			(9	)			(77	)
Amortization of unrecognized net prior service costs			-				(38	)			-				(38	)
Net periodic postretirement benefit income		$	(33	)		$	(91	)		$	(51	)		$	(88	)

	For the nine months ended
	May 30, 2009								May 31, 2008
					CBI post-								CBI post-
	Taylor pension				retirement				Taylor pension				retirement
Service costs, benefits attributed to service during the period		$	54			$	-			$	65			$	-
Interest cost			659				68				686				81
Expected return on assets			(793	)			-				(876	)			-
Amortization of unrecognized net gain			(19	)			(227	)			(27	)			(232	)
Amortization of unrecognized net prior service costs			-				(112	)			-				(112	)
Net periodic postretirement benefit income		$	(99	)		$	(271	)		$	(152	)		$	(263	)

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Amounts recognized in accumulated other comprehensive income consist of:

	May 30, 2009						August 30, 2008
	Taylor pension			CBI post-retirement			Taylor pension			CBI post-retirement
Net actuarial gain	$	(1,708	)	$	(1,729	)	$	(1,727	)	$	(1,956	)
Prior service cost		-			(595	)		-			(707	)
	$	(1,708	)	$	(2,324	)	$	(1,727	)	$	(2,663	)

The estimated net gain for the TPC Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost in fiscal year 2009 is $25 thousand. The estimated net gain and estimated prior service credit for the CBI Plan that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost in fiscal year 2009 are $0.3 million and $0.1 million, respectively.

10. Related-Party Transactions

On March 25, 2004, AAC entered into a management agreement with an affiliate of Fenway Partners pursuant to which AAC, among other things, agreed to pay such affiliate an annual fee equal to the greater of $3.0 million or 5% of the previous fiscal year’s EBITDA (as defined in the agreement). Amounts expensed by the Company related to the management agreement totaled $0.9 million for the three months ended May 30, 2009 and May 31, 2008 and $2.5 million for the nine months ended May 30, 2009 and May 31, 2008.

As of May 30, 2009 and August 30, 2008, the Company had prepaid management fees of approximately $0.2 million.

11. Business Segments

The Company’s operating segments, on-campus class rings and retail class rings, have been aggregated into one reporting segment, class rings, in accordance with paragraph 26.a. of SFAS 131. The other segment consists primarily of jewelry commemorating family events such as the birth of a child, military and fan affinity jewelry and related products, professional sports championship rings, commercial printing and recognition products such as letter jackets.

As discussed in Note 3, the achievement publications business was shut down during the first quarter of fiscal year 2008. This business historically was included as an additional reporting segment. As all of the results of operations of the achievement publications business are included in discontinued operations, they are not presented in the tables below.

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Assets not allocated to the operating segments as of August 30, 2008 represent affiliate receivables from Parent Holdings and are presented in the tables below. The affiliate receivables were fully repaid prior to February 28, 2009.

	Class				Graduation
	Rings		Yearbooks		Products		Other			Total
Three Months Ended May 30, 2009
Net sales	$	35,605	$	79,298	$	21,653	$	8,286		$	144,842
Segment operating income		6,212		34,106		4,649		266			45,233

Three Months Ended May 31, 2008
Net sales	$	40,339	$	80,675	$	25,645	$	10,483		$	157,142
Segment operating income (loss)		4,812		33,874		5,961		(31	)		44,616

Nine Months Ended May 30, 2009
Net sales	$	95,411	$	89,372	$	40,728	$	24,658		$	250,169
Segment operating income (loss)		11,144		25,500		6,632		(393	)		42,883

Nine Months Ended May 31, 2008
Net sales	$	105,855	$	92,630	$	44,587	$	26,638		$	269,710
Segment operating income (loss)		11,351		25,081		8,014		(534	)		43,912

	Intermediate Holdings
	Class				Graduation				Assets not
	Rings		Yearbooks		Products		Other		Allocated		Total
Segment assets
May 30, 2009	$	173,670	$	185,391	$	59,930	$	43,797	$	-	$	462,788
August 30, 2008		189,633		162,727		55,377		44,703		2,333		454,773

	AAC
	Class				Graduation				Assets not
	Rings		Yearbooks		Products		Other		Allocated		Total
Segment assets
May 30, 2009	$	172,938	$	184,863	$	59,778	$	43,493	$	-	$	461,072
August 30, 2008		189,939		163,139		55,541		44,718		1,777		455,114

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our condensed consolidated financial condition and results of operations should be read in conjunction with the information contained in our condensed consolidated financial statements and accompanying notes included elsewhere in this report. The condensed consolidated financial statements and the notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations (see Note 1 in our condensed consolidated financial statements). The following discussion includes forward looking statements that involve certain risks and uncertainties. See “Disclosure Regarding Forward Looking Statements.”

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This report contains “forward looking statements.” All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward looking statements. Forward looking statements give our current expectations and projections relating to the financial condition, results of operations, plans, objectives, future performance and business of our company. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

These forward looking statements are based on our expectations and beliefs concerning future events affecting us. They are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe that the expectations reflected in our forward looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.

Although management believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Any change in or adverse development, including the following factors, may impact the achievement of results in or accuracy of forward-looking statements:

·	the price of gold and precious, semiprecious and synthetic stones;

·	our access to students and consumers in schools;

·	the seasonality of our business;

·	regulatory and accounting rules;

·	our relationship with its independent sales representatives;

·	fashion and demographic trends;

·	general economic, business, and market trends and events, especially during peak buying seasons for our products;

·	our ability to respond to customer change orders and delivery schedules;

·	development and operating costs;

·	competitive pricing changes;

·	successful completion of management initiatives designed to achieve operating efficiencies;

·	our cash flows; and

·	our ability to draw down funds under its current bank financings and to enter into new bank financings.

The foregoing factors are not exhaustive. New factors may emerge or changes may occur that impact our operations and businesses. Forward-looking statements herein are expressly qualified by the foregoing or such other factors as may be applicable.

You should consider the risks described in our Form 10-K filed with the Securities and Exchange Commission on November 25, 2008 as you review this quarterly report.

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General

We are one of the leading manufacturers and suppliers of class rings, yearbooks, graduation products, and recognition products and affinity jewelry in the United States. We market and sell yearbooks to the college, high school, junior high school and elementary school markets. We primarily sell our class rings and graduation products, which include fine paper products and graduation accessories, in the high school, college and junior high school markets. We also sell jewelry commemorating family events such as the birth of a child, military and fan affinity jewelry and related products, professional sports championship rings, commercial printing and recognition products such as letter jackets.

Our ability to meet our debt service and other obligations depends in significant part on how successful we are in maintaining our core businesses and further implementing our business strategy. Our business plan envisions several long-term growth initiatives, including the development of new products. The components of our strategy are subject to significant business, economic and competitive uncertainties and contingencies.

Numerous raw materials are used in the manufacture of our products. Gold and other metals, precious, semi-precious and synthetic stones, paper products and ink comprise the bulk of the raw materials we utilize in the largest segments of our business. Prices of these materials, especially gold, continually fluctuate. We purchase a majority of our gold from a single supplier. We also purchase the majority of our precious, semi-precious and synthetic stones from a single supplier in Germany. We generally are able to pass on price increases in gold and stones to our customers as such increases are realized by us, however, this may not always be the case.

We face competition for most of our principal products. While the class ring, graduation products and yearbook markets were once highly concentrated and consisted primarily of a few large national manufacturers (of which we were one) advances in technology and the emergence of international manufacturing have significantly lowered the costs of entry. Major domestic mass merchant and jewelry chain retailers now effectively compete in the class ring business and the traditional yearbook and graduation products businesses now face considerable competition from regional and local printers and internet-based purveyors of yearbook and alternative web-based virtual products. Competition from alternative sales channels is robust in virtually all market categories.

We experience seasonal fluctuations in our net sales tied primarily to the school year. We recorded 50% of our fiscal year 2008 net sales in our third quarter. Class ring sales are highest during October through December and early spring, with many orders made for delivery to students before the winter holiday season. Graduation product sales are predominantly made during February through April prior to the April through June graduation season. Yearbook sales are highest during the months of April through June, as yearbooks are typically shipped prior to each school’s summer break. Our recognition and affinity product line sales are seasonal. The recognition and affinity product line sales are highest during the winter holiday season and in the period leading up to Mother’s Day. We have experienced operating losses during our first and fourth fiscal quarters, which includes the beginning of the school year and the summer months when school is not in session, thus reducing related shipment of products. In addition, our working capital requirements tend to exceed our operating cash flows from May through September.

We also have exposure to market risk relating to changes in interest rates on our variable rate debt. Our senior secured credit facility (revolver and term loan) is a variable rate arrangement.

Historically, growth in the class rings, yearbooks and graduation products market has been driven primarily by demographics. The U.S. Department of Education projects that the number of high school and college graduates will increase by an average of 6% and 16% nationally, respectively, over the time period from 2004 to 2017. Additionally, the U.S. Census Bureau projects that the total U.S. population will increase by 6% over the time period from 2007 to 2015. Both the increased population and the increased number of high school and college graduates should expand the market for our products.

Company Background

Our business was founded when the operations of ArtCarved, which were previously owned by CJC Holdings, Inc., and the operations of Balfour, which were previously owned by L.G. Balfour Company, Inc., were combined through various asset purchase agreements in December 1996. AAC was formed in June 2000 to serve as a holding company for these operations as well as any future acquisitions. In June 2000, we acquired the Taylor Senior Holding Company, the parent company of Taylor Publishing Company (“Taylor”), whose primary business is designing and printing student yearbooks. In July 2002, AAC acquired all the outstanding stock and warrants of Milestone Marketing, a marketer of class rings and other graduation products to the college market. In January 2004, AAC acquired C-B Graduation Announcements, a marketer of graduation products to the college market. In April 2007, Commemorative Brands, Inc. (“CBI”), a wholly-owned subsidiary of AAC, acquired all of the outstanding stock of BFJ Holdings, Inc. and its wholly owned subsidiary, Powers Embroidery, Inc. (“Powers”). Powers is a producer of quality letter jackets, chenille patches and other school spirit embroidery merchandise.

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As fully described under the “Significant Developments” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, during the first quarter of fiscal year 2008, we decided to shut down the operations of its achievement publications segment, which produced, marketed and sold publications that recognize the achievements of top students at the high school and college levels, as well as the nation’s most inspiring teachers. All shutdown activities were substantially complete prior to November 24, 2007 and were fully complete by May 31, 2008.

Basis of Presentation

We present financial information relating to Intermediate Holdings, AAC and its subsidiaries in this discussion and analysis. Intermediate Holdings owns 100% of the shares of common stock of AAC Holding Corp., which is the holder of 100% of the shares of common stock of AAC.

Other than debt obligations, cash, interest expense related to the debt obligations, amortization of deferred financing costs, interest income on cash balances, and the related income taxes, all other assets, liabilities, income, expenses and cash flows presented for all periods represent those of Intermediate Holdings’ wholly-owned indirect subsidiary AAC and the direct and indirect subsidiaries of AAC. Intermediate Holdings’ only direct subsidiary is AAC Holding Corp., whose sole asset is the stock of AAC. AAC and Intermediate Holdings are treated as entities under common control.

We use a 52/53-week fiscal year ending on the last Saturday of August.

Critical Accounting Policies

As of May 30, 2009, there have been no significant changes with regard to the critical accounting policies disclosed in our Annual Reports on Form 10-K for the year ended August 30, 2008. The policies disclosed included allowance for product returns, allowance for doubtful accounts and reserve on independent sales representative advances, goodwill and other intangible assets, long-lived tangible and intangible assets with definite lives, revenue recognition and income taxes.

Significant Developments

Amendment of Senior Secured Credit Facilities. As described in Note 6 in the Notes to Condensed Consolidated Financial Statements, on May 20, 2009, we executed an amendment (the “Second Amendment”), to our senior secured credit facility (as amended, the “Amended Senior Credit Facility”). Among other things, the Second Amendment: (i) modified the existing $40 million revolving facility to a $25 million revolving facility available through March 25, 2011 and eliminated incremental facilities of up to $75 million available under the agreement, (ii) increased interest rates, term loan quarterly amortization, and revolving commitment fees paid to lenders, (iii) modified the limitations on restricted payments, dividends or distributions, and permitted acquisitions, and (iv) modified those covenants relating to the maintenance of a maximum leverage ratio and minimum interest coverage ratio to be less restrictive for fiscal quarters beginning August 30, 2009.

In connection with the Second Amendment, we incurred costs totaling $2.5 million, of which $1.1 million was recorded as selling, general and administrative expense during the three months ended May 30, 2009, and $1.4 million is included in other assets and will be amortized over the remaining term of the Amended Senior Credit Facility.

Termination of Gold Consignment Agreement. On March 4, 2009, we received notice from The Bank of Nova Scotia electing to terminate the First Amended and Restated Agreement for Fee Consignment and Purchase of Gold dated March 25, 2004. The termination is pursuant to a provision in the agreement allowing either party to terminate the agreement upon 60 days written notice without cause. The termination was effective May 5, 2009. We do not anticipate replacing the agreement at this time and instead may use availability under our revolving credit facility as necessary to finance purchases of gold going forward.

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Discontinued Operations. In the first quarter of fiscal 2008, we recorded charges of approximately $5.5 million primarily related to the write-off of the remaining carrying value of tangible and intangible assets of the achievement publications segment and incurred approximately $0.7 million related to contract termination and employee severance costs as a consequence of the decision in October 2007 to shutdown the achievement publications business. These charges are included in loss from discontinued operations for the nine months ended May 31, 2008 in the accompanying condensed consolidated statements of operations.

The results of operations of the achievement publications business are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.

Parent Holdings Transactions. The following are transactions of American Achievement Group Holdings Corp. (“Parent Holdings”), the parent company of Intermediate Holdings . These transactions are not reflected in the accompanying condensed consolidated financial statements and had no impact on our financial position and results of operations, except as specifically referenced below.

On December 5, 2008, Parent Holdings and Herff Jones, Inc., together with the equity holders of Parent Holdings, announced that such parties had terminated the proposed transaction pursuant to which Parent Holdings would be sold to Herff Jones, Inc. Parent Holdings received proceeds in connection with that termination that, after considering transaction related costs incurred by Parent Holdings, amounted to net proceeds of approximately $26.5 million.

On February 25, 2009, Parent Holdings repurchased $104.3 million aggregate principal amount of its outstanding 12.75% Senior PIK Notes due October 1, 2012 (the “Parent Holdings Notes”) for an aggregate purchase price of $24.0 million. This repurchase was funded from the net proceeds received by Parent Holdings in connection with the aforementioned settlement. For no additional consideration, the sellers of the Parent Holdings Notes, representing a majority in principal amount of the Parent Holdings Notes, consented to a second supplemental indenture (“the Second Supplemental Indenture”), which was entered into on February 25, 2009, by Parent Holdings and the trustee under the indenture. The Second Supplemental Indenture removed substantially all of the restrictive and reporting covenants set forth in such indenture, as well as certain events of default and related provisions. Accordingly, Parent Holdings is no longer obligated to file reports with the Securities and Exchange Commission. As of May 30, 2009 there was approximately $113.1 million aggregate principal amount of Parent Holdings Notes outstanding.

Deferred tax benefits of net operating losses generated by AAC that will be utilized by Parent Holdings in the 2009 consolidated tax return to offset the income generated from the aforementioned settlement and repurchase transactions were transferred from AAC to Parent Holdings in the second quarter of 2009. This transfer was accounted for as a distribution by AAC to Intermediate Holdings to Parent Holdings which is reflected as a reduction to paid in capital and a reduction of a deferred tax asset at AAC and Intermediate Holdings.

On June 4, 2009, Parent Holdings commenced a tender offer to purchase any and all of the outstanding Parent Holdings Notes. The tender offer will expire at 11:59 p.m., New York City time, on July 17, 2009, unless further extended or earlier terminated. Parent Holdings intends to fund payment for the notes that are purchased in the tender offer with a combination of one or more of (i) cash borrowed by AAC under the Amended Senior Credit Facility and distributed to Parent Holdings, (ii) proceeds of the sale of new preferred stock by a newly formed subsidiary American Achievement Intermediate Holding Corp. and (iii) cash on hand. American Achievement Intermediate Holding Corp. is a subsidiary of Parent Holdings and the new parent company of Intermediate Holdings. Any preferred stock issued by American Achievement Intermediate Holding Corp. will be structurally senior to any remaining Parent Holdings Notes.

On June 4, 2009, Parent Holdings and American Achievement Intermediate Holding Corp. entered into a Securities Purchase Agreement with the Purchasers party thereto with respect to the issuance of shares of new preferred stock and warrants to purchase Parent Holdings’ common stock. Certain investors have already deposited proceeds for the issuance of preferred stock into escrow and may deposit additional proceeds in the future. The Purchase Agreement pursuant to which the new preferred stock will be issued contains restrictions on the ability of American Achievement Intermediate Holding Corp and its subsidiaries, including the Company, to incur additional debt or issue preferred stock; pay dividends or distributions on its capital stock, or redeem or repurchase its capital stock or subordinated debt; make certain investments; enter into sale and leaseback transactions; engage in transactions with affiliates; create liens on assets to secure debt; transfer or sell assets; guarantee debt; restrict dividend or other payments to the issuer; in the case of the issuer, consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries; and engage in unrelated businesses.

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Results of Operations

Three Months Ended May 30, 2009 Compared to Three Months Ended May 31, 2008

The following tables set forth selected information for Intermediate Holdings and AAC from our condensed consolidated statements of operations expressed on an actual basis and as a percentage of net sales:

	Intermediate Holdings
	For the Three		% of			For the Three			% of
(in thousands)	Months Ended		Net			Months Ended			Net
	May 30, 2009		Sales			May 31, 2008			Sales				Change
Net sales	$	144,842		100.0	%	$	157,142			100.0		%	$	(12,300	)
Cost of sales		55,353		38.2	%		62,432			39.7		%		(7,079	)
Gross profit		89,489		61.8	%		94,710			60.3		%		(5,221	)
Selling, general & administrative expenses		44,256		30.6	%		50,094			31.9		%		(5,838	)
Operating income		45,233		31.2	%		44,616			28.4		%		617
Interest expense, net		7,497		5.2	%		8,469			5.4		%		(972	)
Income from continuing operations before income taxes		37,736		26.0	%		36,147			23.0		%		1,589
Provision for income taxes		16,574		11.4	%		16,846			10.7		%		(272	)
Income from continuing operations		21,162		14.6	%		19,301			12.3		%		1,861
Discontinued operations:
Loss from discontinued operations before income taxes		-		-	%		(72	)		(0.0	)	%		72
Benefit for income taxes		-		-	%		(28	)		(0.0	)	%		28
Loss from discontinued operations		-		-	%		(44	)		(0.0	)	%		44
Net income	$	21,162		14.6	%	$	19,257			12.3		%	$	1,905

	AAC
	For the Three		% of				For the Three			% of
(in thousands)	Months Ended		Net				Months Ended			Net
	May 30, 2009		Sales				May 31, 2008			Sales				Change
Net sales	$	144,842		100.0		%	$	157,142			100.0		%	$	(12,300	)
Cost of sales		55,353		38.2		%		62,432			39.7		%		(7,079	)
Gross profit		89,489		61.8		%		94,710			60.3		%		(5,221	)
Selling, general & administrative expenses		44,256		30.6		%		50,094			31.9		%		(5,838	)
Operating income		45,233		31.2		%		44,616			28.4		%		617
Interest expense, net		4,022		2.8		%		5,022			3.2		%		(1,000	)
Income from continuing operations before income taxes		41,211		28.4		%		39,594			25.2		%		1,617
Provision for income taxes		15,969		(11.0	)	%		16,012			10.2		%		(43	)
Income from continuing operations		25,242		17.4		%		23,582			15.0		%		1,660
Discontinued operations:
Loss from discontinued operations before income taxes		-		-		%		(72	)		(0.0	)	%		72
Benefit for income taxes		-		-		%		(28	)		(0.0	)	%		28
Loss from discontinued operations		-		-		%		(44	)		(0.0	)	%		44
Net income	$	25,242		17.4		%	$	23,538			15.0		%	$	1,704

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We use a 52/53 week fiscal year. Fiscal year 2009 will consist of 52 weeks, whereas fiscal year 2008 consisted of 53 weeks. The additional week in fiscal year 2008 was included in the third quarter; therefore the three month period ended May 31, 2008 consisted of fourteen weeks as compared to the three month period ended May 30, 2009, which consisted of thirteen weeks. As a result, the current reporting period reflects one week less of net sales, expenses and operating income as compared to the same period of the prior fiscal year.

Net Sales. Net sales consist of product sales and are net of product returns and promotional discounts. Net sales decreased $12.3 million, or 7.8%, to $144.8 million for the three months ended May 30, 2009 from $157.1 million for the three months ended May 31, 2008. The following details the changes in net sales during such periods by business segment.

Class Rings. Net sales decreased $4.7 million to $35.6 million for the three months ended May 30, 2009 from $40.3 million for the three months ended May 31, 2008. The decrease in net sales in class ring sales was primarily a result of lower sales volumes and change in product mix from gold to other metals with lower selling prices due to softness in the economy.

Yearbooks. Net sales decreased $1.4 million to $79.3 million for the three months ended May 30, 2009 from $80.7 million for the three months ended May 31, 2008. The decrease in net sales was primarily the result of lower contract volume and a decrease in the average contract value from the third quarter of fiscal 2008 due to softness in the economy.

Graduation Products. Net sales decreased $4.0 million to $21.6 million for the three months ended May 30, 2009 from $25.6 million for the three months ended May 31, 2008. The decrease in net sales was primarily a result of lower sales volume due to softness in the economy and a result of timing of shipments between the second and third quarters of fiscal 2009 compared to the comparable quarters of fiscal 2008.

Other. Net sales decreased $2.2 million to $8.3 million for the three months ended May 30, 2009 from $10.5 million for the three months ended May 31, 2008. The decrease in net sales was primarily related to a decline in sales of personalized family jewelry and a change in product mix from gold to other metals due to softness in the economy.

Gross Profit. Gross margin represents gross profit as a percentage of net sales. Gross margin was 61.8% for the three months ended May 30, 2009, a 1.5 percentage point increase from 60.3% for the three months ended May 31, 2008. Overall, gross profit decreased $5.2 million. The decrease in gross profit was primarily a result of the sales declines and higher cost of gold, partially offset by cost savings from our manufacturing processes and other cost reduction measures.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.8 million, or 11.6%, to $44.3 million for the three months ended May 30, 2009 from $50.1 million for the three months ended May 31, 2008. Included in selling, general and administrative expenses are two sub-categories: selling and marketing expenses and general and administrative expenses.

Selling and marketing expenses decreased $4.0 million to $34.0 million or 23.5% of net sales, for the three months ended May 30, 2009 from $38.0 million or 24.2% of net sales, for the three months ended May 31, 2008 due to a decrease in commissions as a result of lower sales and due to decreased marketing expenditures.

General and administrative expenses for the three months ended May 30, 2009 were $10.3 million, or 7.1% of net sales, as compared to $12.1 million, or 7.7% of net sales, for the three months ended May 31, 2008. The decrease in general and administrative expenses is a result of reductions in spending including consulting and professional fees, partially offset by expenses incurred to amend our credit facility.

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Operating Income. As a result of the foregoing, operating income was $45.2 million, or 31.2% of net sales, for the three months ended May 30, 2009 as compared with operating income of $44.6 million, or 28.4% of net sales, for the three months ended May 31, 2008.

The class rings segment reported operating income of $6.2 million for the three months ended May 30, 2009 as compared with operating income of $4.8 million for the three months ended May 31, 2008. The yearbooks segment reported operating income of $34.1 million for the three months ended May 30, 2009 as compared with operating income of $33.9 million for the three months ended May 31, 2008. The graduation products segment reported operating income of $4.6 million for the three months ended May 30, 2009 as compared with operating income of $6.0 million for the three months ended May 31, 2008. The other segment reported operating income of $0.3 million for the three months ended May 30, 2009 as compared with an operating loss of $0.1 million for the three months ended May 31, 2008.

Interest Expense, Net. For Intermediate Holdings, net interest expense was $7.5 million for the three months ended May 30, 2009 and $8.5 million for the three months ended May 31, 2008. The average debt outstanding of Intermediate Holdings for the three months ended May 30, 2009 and the three months ended May 31, 2008 was $328 million and $349 million, respectively. The weighted average interest rate on debt outstanding of Intermediate Holdings for the three months ended May 30, 2009 and the three months ended May 31, 2008 was 8.4%.

For AAC, net interest expense was $4.0 million for the three months ended May 30, 2009 and $5.0 million for the three months ended May 31, 2008. The average debt outstanding of AAC for the three months ended May 30, 2009 and the three months ended May 31, 2008 was $197 million and $227 million, respectively. The weighted average interest rate on debt outstanding of AAC for the three months ended May 30, 2009 and the three months ended May 31, 2008 was 7.1% and 7.5%, respectively.

Provision for Income Taxes. For the three months ended May 30, 2009 and May 31, 2008, Intermediate Holdings recorded an income tax provision of $16.6 million and $16.8 million, respectively, which represents an effective tax rate of 44% and 47%, respectively. The effective tax rates vary from the statutory federal rate due to the impact of state income taxes and the non-deductibility of a portion of interest on high-yield debt. Intermediate Holdings’ effective rates for the three months ended May 30, 2009 and May 31, 2008 represent an estimate of the annual federal and state income tax rate.

For the three months ended May 30, 2009 and May 31, 2008, AAC recorded an income tax provision of $16.0 million and $16.0 million, respectively, which represents an effective tax rate of 39% and 40%, respectively. The effective tax rates vary from the statutory federal rate due to the impact of state income taxes. AAC’s effective rates for the three months ended May 30, 2009 and May 31, 2008 represent an estimate of the annual federal and state income tax rate.

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Nine Months Ended May 30, 2009 Compared to Nine Months Ended May 31, 2008

The following tables set forth selected information Intermediate Holdings and AAC from our condensed consolidated statements of operations expressed on an actual basis and as a percentage of net sales:

	Intermediate Holdings
	For the Nine		% of			For the Nine			% of
(in thousands)	Months Ended		Net			Months Ended			Net
	May 30, 2009		Sales			May 31, 2008			Sales				Change
Net sales	$	250,169		100.0	%	$	269,710			100.0		%	$	(19,541	)
Cost of sales		105,511		42.2	%		114,614			42.5		%		(9,103	)
Gross profit		144,658		57.8	%		155,096			57.5		%		(10,438	)
Selling, general & administrative expenses		101,775		40.7	%		111,184			41.2		%		(9,409	)
Operating income		42,883		17.1	%		43,912			16.3		%		(1,029	)
Interest expense, net		22,783		9.1	%		24,990			9.3		%		(2,207	)
Income from continuing operations before income taxes		20,100		8.0	%		18,922			7.0		%		1,178
Provision for income taxes		8,936		3.5	%		9,306			3.4		%		(370	)
Income from continuing operations		11,164		4.5	%		9,616			3.6		%		1,548
Discontinued operations:
Loss from discontinued operations before income taxes		-		-	%		(7,200	)		(2.7	)	%		7,200
Benefit for income taxes		-		-	%		(2,815	)		(1.0	)	%		2,815
Loss from discontinued operations		-		-	%		(4,385	)		(1.7	)	%		4,385
Net income	$	11,164		4.5	%	$	5,231			1.9		%	$	5,933

	AAC
	For the Nine		% of			For the Nine			% of
(in thousands)	Months Ended		Net			Months Ended			Net
	May 30, 2009		Sales			May 31, 2008			Sales				Change
Net sales	$	250,169		100.0	%	$	269,710			100.0		%	$	(19,541	)
Cost of sales		105,511		42.2	%		114,614			42.5		%		(9,103	)
Gross profit		144,658		57.8	%		155,096			57.5		%		(10,438	)
Selling, general & administrative expenses		101,775		40.7	%		111,184			41.2		%		(9,409	)
Operating income		42,883		17.1	%		43,912			16.3		%		(1,029	)
Interest expense, net		12,390		4.9	%		15,303			5.7		%		(2,913	)
Income from continuing operations before income taxes		30,493		12.2	%		28,609			10.6		%		1,884
Provision for income taxes		11,849		4.7	%		11,664			4.3		%		185
Income from continuing operations		18,644		7.5	%		16,945			6.3		%		1,699
Discontinued operations:
Loss from discontinued operations before income taxes		-		-	%		(7,200	)		(2.7	)	%		7,200
Benefit for income taxes		-		-	%		(2,815	)		(1.0	)	%		2,815
Loss from discontinued operations		-		-	%		(4,385	)		(1.7	)	%		4,385
Net income	$	18,644		7.5	%	$	12,560			4.7		%	$	6,084

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We use a 52/53 week fiscal year. Fiscal year 2009 will consist of 52 weeks, whereas fiscal year 2008 consisted of 53 weeks. The additional week in fiscal year 2008 was included in the third quarter; therefore the nine month period ended May 31, 2008 consisted of forty weeks as compared to the nine month period ended May 30, 2009, which consisted of thirty-nine weeks. As a result, the current reporting period reflects one week less of net sales, expenses and operating income as compared to the same period of the prior fiscal year.

Net Sales. Net sales consist of product sales and are net of product returns and promotional discounts. Net sales decreased $19.5 million, or 7.2%, to $250.2 million for the nine months ended May 30, 2009 from $269.7 million for the nine months ended May 31, 2008. The following details the changes in net sales during such periods by business segment.

Class Rings. Net sales decreased $10.5 million to $95.4 million for the nine months ended May 30, 2009 from $105.9 million for the nine months ended May 31, 2008. The decrease in net sales in class ring sales was primarily a result of lower sales volumes and change in product mix from gold to other metals with lower selling prices due to softness in the economy, partially offset by an increase in average selling price of college class rings due to an increase in gold prices.

Yearbooks. Net sales decreased $3.2 million to $89.4 million for the nine months ended May 30, 2009 from $92.6 million for the nine months ended May 31, 2008. The decrease in net sales was the result of timing of shipments between the fourth quarter of 2008 and the first quarter of 2009 and a result of softness in the economy.

Graduation Products. Net sales decreased $3.9 million to $40.7 million for the nine months ended May 30, 2009 from $44.6 million for the nine months ended May 31, 2008. The decrease in net sales was primarily the result of lower sales volume and product mix.

Other. Net sales decreased $1.9 million to $24.7 million for the nine months ended May 30, 2009 from $26.6 million for the nine months ended May 31, 2008. The decrease in net sales was primarily related to a decline in sales of personalized family jewelry due to softness in the economy, partially offset by an increase in professional championship rings.

Gross Profit. Gross margin represents gross profit as a percentage of net sales. Gross margin was 57.8% for the nine months ended May 30, 2009, a 0.3 percentage point increase from 57.5% for the nine months ended May 31, 2008. Overall, gross profit decreased $10.4 million. The decrease in gross profit was primarily a result of the sales declines and higher cost of gold, partially offset by cost savings from our manufacturing processes and cost reduction measures.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $9.4 million, or 8.5%, to $101.8 million for the nine months ended May 30, 2009 from $111.2 million for the nine months ended May 31, 2008. Included in selling, general and administrative expenses are two sub-categories: selling and marketing expenses and general and administrative expenses.

Selling and marketing expenses decreased $7.0 million to $71.6 million or 28.6% of net sales, for the nine months ended May 30, 2009 from $78.6 million or 29.1% of net sales, for the nine months ended May 31, 2008 due to decreased marketing expenditures and lower commissions, as a result of sales decreases.

General and administrative expenses for the nine months ended May 30, 2009 were $30.2 million, or 12.1% of net sales, as compared to $32.6 million, or 12.1% of net sales, for the nine months ended May 31, 2008. The decrease in general and administrative expenses was primarily the result of decreases in professional fees and consulting fees, partially offset by fees incurred to amend our credit facility.

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Operating Income. As a result of the foregoing, operating income was $42.9 million, or 17.1% of net sales, for the nine months ended May 30, 2009 as compared with operating income of $43.9 million, or 16.3% of net sales, for the nine months ended May 31, 2008.

The class rings segment reported operating income of $11.2 million for the nine months ended May 30, 2009 as compared with operating income of $11.4 million for the nine months ended May 31, 2008. The yearbooks segment reported operating income of $25.5 million for the nine months ended May 30, 2009 as compared with operating income of $25.0 million for the nine months ended May 31, 2008. The graduation products segment reported operating income of $6.6 million for the nine months ended May 30, 2009 as compared with operating income of $8.0 million for the nine months ended May 31, 2008. The other segment reported an operating loss of $0.4 million for the nine months ended May 30, 2009 as compared with operating loss of $0.5 million for the nine months ended May 31, 2008.

Interest Expense, Net. For Intermediate Holdings, net interest expense was $22.8 million for the nine months ended May 30, 2009 and $25.0 million for the nine months ended May 31, 2008. The average debt outstanding of Intermediate Holdings for the nine months ended May 30, 2009 and the nine months ended May 31, 2008 was $342 million and $361 million, respectively. The weighted average interest rate on debt outstanding of Intermediate Holdings for the nine months ended May 30, 2009 and the nine months ended May 31, 2008 was 8.3% and 8.5%, respectively.

For AAC, net interest expense was $12.4 million for the nine months ended May 30, 2009 and $15.3 million for the nine months ended May 31, 2008. The average debt outstanding of AAC for the nine months ended May 30, 2009 and the nine months ended May 31, 2008 was $211 million and $239 million, respectively. The weighted average interest rate on debt outstanding of AAC for the nine months ended May 30, 2009 and the nine months ended May 31, 2008 was 7.1% and 7.6%, respectively.

Provision for Income Taxes. For the nine months ended May 30, 2009 and May 31, 2008, Intermediate Holdings recorded an income tax provision of $8.9 million and $9.3 million, respectively, which represents an effective tax rate of 44% and 49%, respectively. The effective tax rates vary from the statutory federal rate due to the impact of state income taxes and the non-deductibility of a portion of interest on high-yield debt. Intermediate Holdings’ effective rates for the nine months ended May 30, 2009 and May 31, 2008 represent an estimate of the annual federal and state income tax rate.

For the nine months ended May 30, 2009 and May 31, 2008, AAC recorded an income tax provision of $11.8 million and $11.7 million, respectively, which represents an effective tax rate of 39% and 41%, respectively. The effective tax rates vary from the statutory federal rate due to the impact of state income taxes. AAC’s effective rates for the nine months ended May 30, 2009 and May 31, 2008 represent an estimate of the annual federal and state income tax rate.

Loss from Discontinued Operations. As described in “Significant Developments”, the results of operations of the achievement publications business are reported as discontinued operations. Loss from discontinued operations before income taxes during the nine months ended May 31, 2008 was $7.2 million and included charges of $5.5 million primarily related to the write-off of the remaining carrying value of tangible and intangible assets of the achievement publications segment and charges of approximately $0.7 million related to contract termination and employee severance costs.

Liquidity and Capital Resources

Operating Activities. Operating activities for Intermediate Holdings provided $39.5 million of cash for the nine months ended May 30, 2009 compared to cash provided of $46.0 million for the nine months ended May 31, 2008. Operating activities for AAC provided $45.7 million of cash for the nine months ended May 30, 2009 compared to cash provided of $46.0 million for the nine months ended May 31, 2008. The decrease in cash provided by operating activities during fiscal year 2009 compared to fiscal year 2008 was a result of increased working capital, partially offset by lower interest payments. Cash provided by operating activities in fiscal year 2008 was negatively impacted by the losses incurred and higher working capital requirements of the discontinued achievement publications segment. Cash provided by operating activities in fiscal 2009 for Intermediate Holdings was further reduced by required cash interest payments related to the 10.25% Notes.

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Investing Activities. Capital expenditures for the nine months ended May 30, 2009 were $4.3 million compared to capital expenditures of $11.0 million for the nine months ended May 31, 2008. Capital expenditures during the nine months ended May 30, 2009 are lower than the nine months ended May 31, 2008 mainly due to the purchase of printing presses during fiscal year 2008. Our projected capital expenditures for the entire fiscal year 2009 are expected to be between $6.0 million and $7.0 million.

Financing Activities. During the nine months ended May 30, 2009, cash was used to pay down $28.6 million of the term loan, of which $2.6 million were mandatory payments. During the nine months ended May 31, 2008, cash was used to pay down $11.4 million of the term loan, of which approximately $0.9 million were mandatory payments and there were net payments under the revolving credit facility of $7.8 million. During the nine months ended May 30, 2009, AAC paid $6.7 million related to an interest payment on the 10.25% senior discount notes of Intermediate Holdings which is reflected as a cash distribution to Intermediate Holdings.

Capital Resources. We have a significant amount of indebtedness. On May 30, 2009, Intermediate Holdings had total indebtedness of $328.4 million, of which $131.5 million was 10.25% senior discount notes, $150.0 million was 8.25% senior subordinated notes and $46.9 million was indebtedness under the existing senior secured credit facility. The Second Amendment to the Amended Senior Credit Facility modified the availability under the existing revolving facility from $40 million to $25 million and extended the term through March 25, 2011. We have $23.3 million in available revolving loan borrowings under the Amended Senior Credit Facility as of May 30, 2009. We are currently in compliance with financial covenants in all of the agreements governing our outstanding indebtedness.

The Second Amendment to the Amended Senior Credit Facility increased the base interest rate and applicable margin on our outstanding term loan effective May 20, 2009. The interest rate on the term loan was 6.25% at May 30, 2009.

Interest accrued on the 10.25% senior discount notes in the form of an increase in the accreted value of the notes through October 1, 2008. Thereafter, cash interest on the 10.25% senior discount notes accrues and is payable semiannually in arrears on April 1 and October 1 of each year, at a rate of 10.25% per annum. The initial interest payment of $6.7 million was made on April 1, 2009. This payment was funded by AAC, and was accounted for as a capital distribution from AAC and reflected as a reduction of AAC’s additional paid-in capital.

At May 30, 2009, Parent Holdings had indebtedness in addition to the indebtedness at Intermediate Holdings and AAC of $120.6 million, of which $113.1 million consisted of the Parent Holdings Notes and $7.5 million consisted of mandatory redeemable series A preferred stock of Parent Holdings.

Interest accrues on the Parent Holdings Notes at 16.75% per annum. Through April 2011, interest on such notes is payable in the form of additional notes semi-annually in arrears on April 1 and October 1 of each year. On October 1, 2011 and thereafter, interest will be payable in cash semi-annually in arrears on April 1 and October 1 of each year. The Parent Holdings Notes mature on October 1, 2012. At maturity, Parent Holdings is required to repay the notes at a repayment price of 103.188% of the aggregate principal amount thereof, plus accrued and unpaid interest through the maturity date.

The holders of the mandatory redeemable series A preferred stock of Parent Holdings are entitled to receive cumulative dividends at a rate of 14% per annum, when, as and if declared by the board of directors of Parent Holdings. The redemption obligation for the mandatory redeemable series A preferred stock of Parent Holdings matures in January 2013. Accumulated undeclared dividends at May 30, 2009 totaled $4.4 million.

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As described in “Significant Developments” above, on June 4, 2009, Parent Holdings commenced a tender offer to purchase additional outstanding Parent Holdings Notes. Payment for the notes that are purchased in the tender offer may be partially funded with cash borrowed by AAC under the Amended Senior Credit Facility and distributed to Parent Holdings. The Second Amendment to the Amended Senior Credit Facility allows AAC to make restricted payments to Parent Holdings in an amount not to exceed $15.0 million for the purpose of repayment, redemption or repurchase of indebtedness of Parent Holdings and Intermediate Holdings. As described in “Significant Developments” above, payment for the notes that are purchased in the tender offer will be partially funded with proceeds of the sale of Series A Preferred Stock of American Achievement Intermediate Holding Corp., a newly formed subsidiary of Parent Holdings.

We expect that cash generated from operating activities and availability under the senior secured credit facility will be our principal sources of liquidity. Due to the current unfavorable economic environment, we expect continued softness in sales for the rest of this year and into next year. We expect our productivity initiatives and cost containment measures to partially offset the impact of lower sales on our operating income. We expect most of our net operating loss carryforward will be utilized by the end of fiscal year 2009, which will impact our future cash outflows for income taxes. Based on our current and planned level of operations, we believe our cash flow from operations, available cash on hand and available borrowings under the senior secured credit facility will be adequate to meet our liquidity needs for at least the next twelve months.

Off Balance-Sheet Obligations

Gold Consignment Agreement. On March 25, 2004, we signed the First Amended and Restated Letter Agreement for Fee Consignment and Purchase of Gold with The Bank of Nova Scotia. Under this agreement, we had an ability to have on consignment gold with aggregate value less than or equal to the lowest of: (i) the dollar value of 27,000 troy ounces of gold, (ii) $14.2 million or (iii) a borrowing base, calculated based on a percentage of the gold held at our facilities and other approved locations, as specified by the agreement. Under the terms of this arrangement, we did not own the consigned gold nor did we have risk of loss related to price variance on such inventory until we paid The Bank of Nova Scotia for quantities purchased. Accordingly, we did not reflect the value of consigned gold in our inventory, nor did we reflect the corresponding liability for financial statement purposes.

On March 4, 2009, we received notice from The Bank of Nova Scotia electing to terminate the consignment agreement. The termination was pursuant to a provision in the agreement allowing either party to terminate the agreement upon 60 days written notice without cause. The termination was effective May 5, 2009. We do not anticipate replacing the consignment agreement at this time and instead may use availability under our revolving credit facility to finance purchases of gold going forward.

Letters of Credit. As of May 30, 2009, and August 30, 2008, we had commitments for $1.7 million and $2.1 million on letters of credit outstanding, respectively.

Seasonality

The seasonal nature of our various businesses tends to be tempered by our broad product mix. Class ring sales are highest during October through December and early spring, with many orders made for delivery to students before the winter holiday season. Graduation product sales are predominantly made during February through April prior to the April through June graduation season. Yearbook sales are highest during the months of April through June, as yearbooks are typically shipped prior to each school’s summer break. Our recognition and affinity product line sales are also seasonal, with highest sales during the winter holiday season and in the period leading up to Mother’s Day.

As a result of the foregoing, we have historically experienced operating losses during our first and fourth fiscal quarters, which includes the beginning of the school year and the summer months when school is not in session, thus reducing related shipment of products. In addition, our working capital requirements tend to exceed our operating cash flows from May through September.

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Recent Accounting Pronouncements

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The provisions of SFAS 165 are effective for us beginning with the fourth quarter of our fiscal year 2009. We do not expect the adoption of the standard to have a material impact on our financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS 157 are effective for us beginning with our fiscal year 2009. The adoption of the standard did not have a material impact on our financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106 and 132 (R)” (“SFAS 158”). SFAS 158 requires an employer to recognize the funded status of defined benefit postretirement plan as an asset or liability in the balance sheet and to recognize changes in that funded status in the year in which changes occur through comprehensive income. Additionally, SFAS 158 requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. We adopted the recognition and disclosure provisions of SFAS 158 in fiscal 2007. The measurement date provisions of SFAS 158 are effective for us beginning with our fiscal year 2009 and we will use a measurement date as of the end of our fiscal year for our defined benefit postretirement plans in fiscal 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for us beginning with our fiscal year 2009. The standard did not have a material impact on our financial position and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We have exposure to market risk relating to changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments. The Amended Senior Credit Facility (revolver and term loan) is a variable rate arrangement. The Second Amendment to the Amended Senior Credit Facility provides that the Eurodollar rate used in determining our interest rate shall not be less than 2.0%. Because current market rates are significantly below this threshold, our exposure to market rate risk is limited at this time. However, should market rates increase, each quarter point above the 2% threshold would result in a $0.2 million change in annual interest expense, assuming the entire revolving loan was drawn.

Currency Exchange Rate Risk. We purchase the majority of our precious, semi-precious and synthetic stones from a single supplier in Germany. We believe that all of our major competitors purchase their semi-precious stones from this same supplier. Each ten percent change in the Euro exchange rate would result in a $0.5 million annual change in cost of goods sold, assuming stone purchase levels approximate the levels of fiscal 2008.

Gold. Each ten percent change in the price of gold would result in a $3.6 million annual change in cost of goods sold, assuming gold purchase levels approximate the levels in fiscal 2008.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Our management evaluated, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report in enabling us to record, process, summarize and report information required to be included in the Company’s periodic SEC filings within the required time period, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. Additionally, our Chief Executive Officer and Chief Financial Officer determined that during our most recent fiscal quarter, there was no change in our internal control over financial reporting that has materially affected, or is likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we may be a party to lawsuits and administrative proceedings before various courts and government agencies. These lawsuits and proceedings may involve personal injury, contractual issues and other matters. We cannot predict the ultimate outcome of any pending or threatened litigation or of actual claims or possible claims.

We currently are not a party to any pending legal proceedings other than ordinary routine litigation incidental to our business. In management’s opinion, adverse decisions on these ordinary legal proceedings, individually or in the aggregate, would not have a materially adverse impact on our results of operations, financial condition or cash flows.

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ITEM 6. EXHIBITS

(a)

Exhibits


EXHIBIT
NUMBER		DESIGNATION
3.1		Amended and Restated Certificate of Incorporation of AAC Group Holding Corp. (incorporated by reference to Exhibit 3.1 to AAC Group Holding Corp.’s Form 8-K as filed on January 24, 2006).

3.2		Certificate of Amendment of Certificate of Incorporation of AAC Group Holding Corp., filed with the Delaware Secretary of State on December 28, 2007.

3.3		Certificate of Incorporation of American Achievement Corporation (incorporated by reference to Exhibit 3.1 to American Achievement Corporation’s Form S-4/A as filed on March 14, 2002).

3.4		Certificate of Amendment of Certificate of Incorporation of American Achievement Corporation, filed with the Delaware Secretary of State on December 28, 2007.

10.1		Second Amendment to Credit and Guaranty Agreement dated as of May 20, 2009, by and among American Achievement Corporation, the Guarantors, Goldman Sachs Credit Partners L.P. and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to AAC Group Holding Corp.'s Form 8-K as filed on May 21, 2009).

31.1		CEO Certification Accompanying Period Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		CFO Certification Accompanying Period Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		CEO Certification Accompanying Period Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		CFO Certification Accompanying Period Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

Date: July 10, 2009


		AAC GROUP HOLDING CORP.
		AMERICAN ACHIEVEMENT CORPORATION

		By:		/s/ DONALD J. PERCENTI
				Donald J. Percenti
				CHIEF EXECUTIVE OFFICER
				(principal executive officer)


		By:		/s/ KRIS G. RADHAKRISHNAN
				Kris G. Radhakrishnan
				CHIEF FINANCIAL OFFICER
				(principal financial officer)