January 14, 2005
David G. Fiore
President and Chief Executive Officer
AAC Group Holding Corp.
7211 Circle S Road
Austin, Texas 78745
Re: AAC Group Holding Corp.
Form S-4 filed December 21, 2004
File No. 333-121479
American Achievement Corporation
Form 10-K for fiscal year ended August 28, 2004
Form 10-Q for the quarter ended November 27, 2004
File No. 333-84294
Dear Mr. Fiore:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-4
General
1. Please revise your supplemental letter to the staff to include
representations contained in the Shearman & Sterling no-action
letter. For example, please provide a representation that the
issuer
or any affiliate of the issuer has not entered into any
arrangement
or understanding with any broker-dealer participating in the
exchange
offer to distribute the exchange securities. See Shearman &
Sterling, SEC No-Action Letter (July 2, 1993).
`2. Please confirm supplementally that the offer will be open for
at
least 20 full business days to ensure compliance with Rule 14e-
1(a).
Further, please confirm that the expiration date will be included
in
the final prospectus disseminated to security holders and filed
pursuant to the applicable provisions of Rule 424.
3. At present, it appears that the offer may be open for less than
the twenty business days because the offer expires at 5:00 p.m.
instead of midnight on what may ultimately be the twentieth
business
day following commencement. See Question and Answer Eight in
Exchange Act Release No. 16623 (March 5, 1980). Please confirm
that
the offer will be open at least through midnight on the twentieth
business day.
4. We note the information provided in Exhibit 12.1. Please
include
the ratio of earning to fixed charges disclosure in the forepart
of
the prospectus. See Item 503(d) of Regulation S-K.
`
Inside Front Cover
The forepart of your document should consist of the cover page,
summary and risk factors. Please move the two paragraphs to a
more
appropriate location. For instance, we would not object to
placing
this information in the "Where You Can Find More Information"
section
of the prospectus. It is unclear why you have included the first
paragraph regarding incorporation by reference since you have not
included information by incorporating by reference. Also, please
relocate the two paragraphs following the table of contents.5.
Summary Historical and Pro Forma Financial Information, page 10
6. You state that EBITDA is, "instrumental in the determination of
compliance with certain financial covenants in the senior secured
credit facility." Please tell us what you mean by this statement.
This implies that EBITDA is used as a liquidity measure. If
EBITDA
is a liquidity measure, Item 10(e)(1)(i) of Regulation S-K
requires
you to reconcile the measure with the most directly comparable
financial measure calculated and presented in accordance with
GAAP.
You include a reconciliation of EBITDA to Net Income as a
financial
measure, but if EBITDA is also used as a liquidity measure, you
should reconcile to operating cash flows or whatever directly
comparable cash flow measure exists in GAAP.
7. We note that you present EBITDA as a measure of operating
performance. Revise your disclosures to discuss how you compensate
for the material limitations you have disclosed as well as why you
believe that the measure is useful to investors. See Question 8
from
the Frequently Asked Questions Regarding the Use of Non-GAAP
Financial Measures, which can be found on the SEC website.
Risk Factors, page 12
8. Please delete your statements in the introductory paragraph
that
the risks described are not the only ones that you face and that
other risks and uncertainties not presently known or believed to
be
immaterial may adversely affect your financial condition, results
of
operations or cash flow. You are required to disclose all risks
that
are material at this time. Please revise.
9. Consider including a risk factor relating to unfavorable
currency
fluctuations associated with the Euro denominated purchase of
precious, semi-precious and synthetic stones. Also, consider
discussing fluctuations in gold prices in the risk factor section.
AAC Group Holding Corp. is the sole obligor under the notes . . .,
page 12
10. Please revise this risk factor subheading to concisely state
the
risk to your company. In the subheading, you should indicate that
the terms of the credit agreement and American Achievement
Corporation`s 8.25% senior subordinated notes currently prohibit
or
restrict it from paying dividends or making payments to you. Also
indicate clearly and concisely in the text of the risk factor that
if
this indebtedness remains in place when you are required to begin
making cash interest payments on April 1, 2009, you would likely
be
prohibited from doing so.
Many of our products or components of our products are provided by
..
.. ., page 17
11. Please specify whether you have long-term contracts with your
single supplier.
Industry and Market Data, page 20
We note your language referring to the accuracy of the estimates
in
the registration statement. Please note that you are responsible
for
the entire content of the registration statement and cannot
include
language that can be interpreted as a disclaimer of the
information
contained in the filing. Please revise.12.
`
Terms of the Exchange Offer, page 22
13. In the fourth paragraph you disclose specified circumstances
in
which tendered outstanding notes may not be accepted for exchange,
including because of an invalid tender, the occurrence of events
discussed under conditions to the exchange offer, "or otherwise."
All offer conditions must be clearly and explicitly described in
the
offering materials. Therefore, clarify the meaning of "or
otherwise"
in this context.
Expiration Date; Extensions; Amendments, page 22
We note your reservation of the right to amend the terms of the
offer. Please revise to indicate that, in the event of a material
change in the offer, including the waiver of a material condition,
you will extend the offer period if necessary so that at least
five
business days remain in the offer following notice of the material
change.14.
Procedures for Tendering, page 23
15. We note the disclosure indicating you will return any initial
notes not accepted for exchange "as soon as practicable" following
the expiration date. Please note that rule 14e-1(c) requires you
to
exchange the outstanding notes or return them "promptly" upon
termination or withdrawal of the offer. Please revise here, on
page
22 and throughout your document, including the letter of
transmittal.
Conditions to the Exchange Offer, page 26
16. All offer conditions, except those related to the receipt of
government regulatory approvals necessary to consummate the offer,
must be satisfied or waived at or before the expiration of the
offer,
not merely before the acceptance of the outstanding notes for
exchange. Please revise the language accordingly.
17. In the second paragraph in this section on page 26 you state
that
you may waive the conditions "at any time" and "from time to
time."
Please revise to clarify that you may waive the conditions before
the
expiration of the offer only.
18. We note that you may determine in your sole discretion whether
certain offer conditions have occurred or are satisfied. Please
revise to include an objective standard for the determination of
whether a condition has been satisfied.
Selected Financial Information and Other Data, page 30
19. Revise your table to add a column presenting pro form
information.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 37
20. Please include additional disclosure in an introductory or
overview section to facilitate an investor`s understanding of your
financial condition and operating results. You should discuss
known
material trends and uncertainties that could affect your business.
For example, you should consider discussing the effects of
fluctuations in the price of gold and the exchange rate between
the
dollar and Euro, litigation relating to ECI and your ability to
pay
indebtedness. Disclose the material opportunities, challenges and
risks that you have encountered in the periods covered by the
financial statements and those that you expect to affect your
business going forward. Also, please discuss any key indicators
that
management uses to analyze the company on a short and long-term
basis. See SEC Release No. 33-8350 and Item 303 of Regulation S-
K.
Critical Accounting Policies, page 39
Revenue Recognition
21. Revise your disclosures to present a more robust discussion as
to
why this is a critical accounting policy. For example, you could
discuss the provisions for sales returns and warranty costs both
on a
total cost basis as well as on a percentage of revenues. Your
discussion could further address variances that have occurred in
historic results, trends and future expectations, as well as the
impact to the statement of operations resulting from hypothetical
changes. This comment is equally applicable to your discussion of
the
allowance for doubtful accounts.
Goodwill and Other Intangible Assets, page 39
22. It does not appear that your critical accounting policy is in
compliance with GAAP. Please revise your disclosure here as well
as
in the notes to your financial statement. Confirm to us that when
you
perform the annual impairment test for goodwill and intangible
assets
with indefinite useful lives you apply the guidance found in
paragraphs 17, 19 and 20 of SFAS 142. Further, revise your
discussion
in the critical accounting policies section to quantify the amount
of
goodwill and indefinite lived intangible assets that you have,
highlight the significance of the amount of these assets relative
to
total assets and equity, and highlight the importance of
maintaining
the fair value of your reporting units. Any known trends that may
impact the fair value of your business and their potential impact
on
your company`s goodwill and intangible assets should be discussed
as
well.
Results of Operations, page 40
23. We note that you have combined the results of operations for
the
predecessor and the successor to create a combined fiscal year
ended
August 28, 2004. This presentation is not appropriate below the
level
of gross profit as a result of the change in basis. Revise your
presentation to discuss each stub period separately. You may
discuss
sales and gross margins on a combined basis and compare these
figures
with the prior year. Additionally, you may present and discuss the
pro forma results of operations for the most recent fiscal year.
Fiscal Year Ended August 30, 2003 Compared to Fiscal Year Ended
August 31, 2002
24. Quantify the contribution to the change in gross profit
resulting
from the discontinuation of reunion services, the increase in
margins
at yearbooks, and the increase in margins from class rings.
25. Quantify the contribution to the increase in selling and
marketing costs that resulted from the Milestone Marketing
acquisition, the ECI teachers publication, and the other increased
marketing efforts noted.
Liquidity and Capital Resources, page 44
26. Discuss acquisitions under `Investment Activities.` Also,
make
sure net cash expenditures for inventing activities includes cash
used for acquisitions of businesses.
Capital Resources, page 44
27. Please specify whether you are currently in compliance with
the
financial covenants in all of your outstanding indebtedness.
Business, page 49
28. Please expand your business description to include all the
information required by Item 101(a) of Regulation S-K.
29. Please provide support for your statements of leadership and
industry statistics. As a few examples, we note the following:
* "We are one of the leading manufacturers and suppliers of class
rings . . .," "General" section on page 49;
* "We believe that we are the second largest provider of high
school
class rings . . .," "Class Rings" section on page 49;
* "We believe that we are the leading provider of academic
achievement . . .," "Achievement Publications" section on page 49;
* "We believe that this market represents approximately $1.5
billion
of annual revenues," "Industry Overview" section on page 50;
* Your statement that you were the first yearbook provider to
fully
integrate digital technology throughout your production process,
"Leader in Product and Process Innovation" section on page 51; and
* Your belief that you are a technology leader, "Yearbooks"
section
on page 54.
Please mark your supplemental support or provide page references
in
your response to the sections upon which you rely.
Management, page 61
30. Describe briefly any arrangement pursuant to which the
directors
have been named as directors. See Item 401(a) of Regulation S-K.
We
note disclosure in the "Arrangements with Our Investors" section
on
page 66.
Principal Stockholders, page 65
31. Please disclose the natural person(s) or public company that
has
the ultimate voting or investment control over the shares held by
each shareholder in this section.
Certain Related Party Transactions, page 66
Please specify that one of your directors, Peter Lamm, is the
general
partner of the fund. 32.
33. Identify the recipient of the payments under the management
agreement with the former owner.
34. We note the disclosure under the section entitled
"Arrangements
with Management" regarding the cash bonuses paid to management in
exchange for equity interests. Please tell us whether any of
these
bonus payments have been included in the executive compensation
table
on page 63. If not, please tell us why you believe it is
appropriate
to exclude them.
Description of Exchange Notes, page 70
35. The statement in the third paragraph in this section that
terms
not defined below have the meanings assigned to them in the
indenture
is not helpful. Please ensure your disclosure is clear in this
document.
No Personal Liability of Directors, Officers Employees and
Stockholders, page 91
36. We note your disclosure under this section concerning the
waiver
of liabilities. Eliminate the statement that the waiver and
release
are "part of the consideration" for issuance of the notes. Please
also expand this section to more clearly explain what liabilities
note holders are waiving. We may have further comment.
Legal Matters, page 115
37. Please state that counsel will opine as to the validity and
"enforceability" of the new notes.
Consolidated Financial Statements and Notes to Consolidated
Financial
Statements
General
38. Update your historical and pro forma financial statements
through
the most recent interim period. See Regulation S-X Rule 3-01 and
Article 11.
39. Revise your financial statements to separate the results of
the
predecessor and the successor by a heavy black line and include a
headnote that discloses that the lack of comparability.
Note 1: Summary of Organization and Significant Accounting
Policies,
F-7
General
40. Include Schedule II for all valuation and qualifying accounts
in
accordance with Rules 5-04 and 12-09 of Regulation S-X.
Specifically, include a Schedule II for the allowance for doubtful
accounts, allowance for obsolete inventory, sales returns and
allowances, and any other valuation and qualifying accounts held
by
the Company.
Revenue Recognition and Warranty Costs
41. To the extent you recognize revenues upon shipment, please
also
disclose whether your stated shipping terms are FOB shipping point
or
FOB destination and when title passes from you to your customer.
Unless obvious, please explain to us why sales recognition is
appropriate upon shipment, rather than upon delivery to and
acceptance by the customer.
42. Revise your notes to present the disclosures required by
paragraph 14(b) of FIN 45.
Note 6: Prepaid Expenses and Other Current Assets, Net, F-18
43. Tell us why gold options are stated at cost and not at fair
market value in accordance with FAS 133.
Note 8: Goodwill and Other Intangible Assets, F-19
44. Tell us in more detail what specifically is included in
customer
lists and distribution contracts, the amortization period for each
individually material item, and how you determined that the
amortization period was reasonable.
45. It appears that you acquired a backlog. Tell us whether you
allocated any portion of the purchase price from the March 26,
2004
transaction to that backlog. See SFAS 141 paragraph A14.
46. Tell us what specific trademarks are included as indefinite
lived
intangible assets. Tell us how you determined that an indefinite
life
was appropriate.
47. Revise the table presenting goodwill to comply with paragraph
45
of SFAS 142, which requires presentation on a segment basis.
Note 10: Long-term Debt, F-21
48. Tell us how you accounted for early extinguishment of debt.
Specifically, amend your disclosure to discuss how you accounted
for
the early extinguishment of the 11 5/8% senior unsecured notes of
$170.9 million and senior notes of $41.4 million as part of the
debt
tender offer on March 25, 2004.
49. We note that there is a security interest in assets of the
company and its subsidiaries. Revise your disclosure to quantify
the
amount of assets that are subject to lien. See Regulation S-X Rule
4-
08(b).
50. Provide more comprehensive disclosures regarding the
restrictions
on your subsidiaries to pay dividends to the parent company. See
Regulation S-X Rule 4-08(e)(3).
Note 12: Commitments and Contingencies, F-24
Leases
51. Disclose where capital leases assets and related obligations
are
included on the balance sheet.
Pending Litigation
52. Regarding the lawsuit with Frederick Goldman, we note that as
part of your disclosures in your Form 10-K pursuant to Item 103 of
Regulation S-K, you state that the plaintiff is seeking monetary
relief. Tell us in more detail what monetary relief is sought as
part
of the lawsuit in the federal district court in New York.
Note 14: Income Taxes, F-29
53. Separate deferred tax assets and liabilities into current and
long-term per FAS 109 paragraph 41 in the schedule at the bottom
of
page F-30. The assets and liabilities are separated into current
and
long-term on the balance sheet but not in the footnote.
Note 17: Business Segments, F-33
54. We note that you include the sales of several different types
of
products in the Scholastic segment. Tell us in more detail how you
determined that your business has two reportable segments. Tell us
whether you aggregate operating segments to create the Scholastic
reportable segment. If you do aggregate operating segments, tell
us
how you determined that you have properly aggregated operating
segments into one reportable segment.
``Exhibit 99.1
Letter of Transmittal
55. Please delete the language in the letter of transmittal
requiring
the note holder to acknowledge that he/she has "read" all of the
terms of the exchange offer.
Please include a representation that any broker-dealer
participating
in the exchange offer has not entered into any arrangement or
understanding with the issuer or an affiliate of the issuer to
distribute the exchange notes. See Shearman & Sterling, SEC No-
Action Letter (July 2, 1993).56.
American Achievement Corporation
Form 10-K for fiscal year ended August 28, 2004
57. Please apply the above comments to your Form 10-K where
applicable.
Item 9A. Controls and Procedures, page 58
58. Item 307 of Regulation S-K requires that your certifying
officers
disclose their conclusions regarding the effectiveness (not
adequacy)
of your disclosure controls and procedures "as of the end of the
period covered by the report." Please revise here and in your
Form
10-Q for the quarter ended November 27, 2004.
We note your disclosure that your "President and Chief Executive
Officer and Chief Financial Officer concluded that, as of the end
of
such period, [y]our disclosure controls and procedures were
adequate
to ensure that the information required to be disclosed by [you]
in
the reports filed or submitted by [you] under the Exchange Act is
recorded, processed, summarized and reported within the time
periods
specified in the SEC`s rules and forms." Revise to clarify, if
true,
that your officers concluded that your disclosure controls and
procedures are also effective to ensure that information required
to
be disclosed in the reports that you file or submit under the
Exchange Act is accumulated and communicated to your management,
including your chief executive officer and chief financial
officer,
to allow timely decisions regarding required disclosure. See
Exchange Act Rule 13a-15(e). Also refer to Rule 13e-15(e) instead
of
Rule 13e-14.59.
Item 10. Directors and Executive Officers, page 59
60. Please provide the disclosure required by Item 401(h) of
Regulation S-K regarding audit committee financial experts.
61. Please provide the disclosure required by Item 406 of
Regulation
S-K. Refer to Item 10 of Form 10-K.
****
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose
the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Dave Irving at (202) 942-1920 or Mike Moran,
Accounting Branch Chief, at (202) 942-2823 if you have questions
regarding comments on the financial statements and related
matters.
Please direct any other questions to Howard M. Baik at (202) 942-
1963
or to Ellie Quarles, Special Counsel, at (202) 942-1859.
Sincerely,
H. Christopher Owings
Assistant Director
cc (via fax): Joel F. Freedman, Esq.
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David G. Fiore
AAC Group Holding Corp.
January 14, 2005
Page 9