##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended August 28,
    2004                                               
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

American Achievement Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 13-4126506                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|7211 Circle S Road
    Austin, Texas                               |  | 78745                                      
|(Address of principal executive
    offices)                       |  | (Zip Code)                                 

Registrants telephone number, including
area code

(512) 444-0571


Securities registered pursuant to
Section 12(b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|None                |  | None                                     

Securities registered pursuant to
Section 12(g) of the Act:

None


Indicate by check mark whether the registrant
(1) has 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 registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o.

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     þ (Not
Applicable)

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes o          No þ.

100 shares of common stock

(Number of shares outstanding as of
August 28, 2004)




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AMERICAN ACHIEVEMENT CORPORATION

FORM 10-K

For the Fiscal Year Ended August 28,
2004


INDEX

|                                                                       |  |                                                                                           |    |      |    | 
|---------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                       |  |                                                                                           |    | Page
|                                                                       |  |                                                                                           |    |     
|PART I                                                                
|Item 1.                                                                |  | Business                                                                                  |    |      | 2  | 
|Item 2.                                                                |  | Properties                                                                                |    |      | 10 | 
|Item 3.                                                                |  | Legal Proceedings                                                                         |    |      | 11 | 
|Item 4.                                                                |  | Submission of Matters to a
    Vote of Security Holders                                   |    |      | 12 | 
|PART II                                                               
|Item 5.                                                                |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |    |      | 12 | 
|Item 6.                                                                |  | Selected Financial Data                                                                   |    |      | 12 | 
|Item 7.                                                                |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |      | 14 | 
|Item 7A.                                                               |  | Quantitative and Qualitative
    Disclosures About Market Risks                           |    |      | 23 | 
|Item 8.                                                                |  | Financial Statements and
    Supplementary Data                                           |    |      | 26 | 
|Item 9.                                                                |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |    |      | 58 | 
|Item 9A.                                                               |  | Controls and Procedures                                                                   |    |      | 58 | 
|PART III                                                              
|Item 10.                                                               |  | Directors and Executive
    Officers of the Registrant                                    |    |      | 59 | 
|Item 11.                                                               |  | Executive Compensation                                                                    |    |      | 60 | 
|Item 12.                                                               |  | Security Ownership of
    Certain Beneficial Owners and Management                        |    |      | 62 | 
|Item 13.                                                               |  | Certain Relationships and
    Related Transactions                                        |    |      | 63 | 
|Item 14.                                                               |  | Principal Accountant Fees
    and Services                                                |    |      | 64 | 
|PART IV                                                               
|Item 15.                                                               |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                       |    |      | 64 | 
|Signatures                                                             |  |                                                                                           | 65 |     
|Third Amendment to Employment Agreement                               
|Statement Regarding Computation of Ratios of Earnings to Fixed Charges
|CEO Certification Pursuant to Section 302                             
|CFO Certification Pursuant to Section 302                             
|CEO Certification Pursuant to Section 906                             
|CFO Certification Pursuant to Section 906                             



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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This annual report contains forward-looking
statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. The words believe,
estimate, anticipate,
project, intend, expect and
similar expressions are intended to identify forward-looking
statements. All forward-looking statements involve some risks
and uncertainties. In light of these risks and uncertainties,
the forward-looking events discussed in this report might not
occur. Factors that may cause actual results or events to differ
materially from those contemplated by the forward-looking
statements include, among other things, the matters discussed
under Item 1. Business and the following
possibilities:



| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | future revenues are lower than expected;                                                                                                                             
|
| |  | increase in payroll or other costs and/or
    shortage of an adequate base of employees;                                                                             
|
| |  | loss of significant customers through bankruptcy,
    industry consolidation or other factors;                                                                       
|
| |  | inability to obtain additional capital due to
    covenant restrictions or other factors, and/or increase in debt
    levels beyond our ability to support repayment;
|
| |  | costs or difficulties relating to the integration
    of businesses that we acquire are greater than expected;                                                       
|
| |  | expected cost savings or revenues from our
    acquisitions are not fully realized or realized within the
    expected time frame;                                   
|
| |  | competitive pressures in the industry increase;                                                                                                                      
|
| |  | general economic conditions or conditions
    affecting our industry;                                                                                                
|
| |  | changes in the interest rate environment, and                                                                                                                        

You are cautioned not to place undue reliance on
forward-looking statements contained in this report as these
speak only as of its date. We undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise except as required by law.




PART I






|        |         
|------- | --------
|Item 1. | Business

General

We are one of the leading manufacturers and
suppliers of class rings, yearbooks, graduation products,
achievement publications and recognition and affinity jewelry,
each of which commemorates once-in-a-lifetime experiences. Our
two principal business segments are scholastic products and
recognition and affinity products. The scholastic products
division, which serves the high school, college and, to a lesser
extent, elementary and junior high school markets, produces,
markets and sells class rings, yearbooks and graduation
products, and accounted for approximately 88% of our total net
sales for the combined year ended August 28, 2004. The
recognition and affinity products division produces, markets and
sells achievement publications and recognition and affinity
jewelry. Our achievement publications consist of various titles
including the Whos Who brand and The National Deans
List, and our recognition and affinity jewelry products include
family jewelry and sports championship rings.

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 in December 1996.
On June 27, 2000, American Achievement Corporation
(formerly known as Commemorative Brands Holding Corporation)
(the Company) was formed as a holding company for
the Commemorative Brands, Inc. (CBI) operations and
future acquisitions. Since then, we have made several strategic
acquisitions and have introduced new, complementary products
across our

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brands and product lines to enhance our market
position. On March 25, 2004, AAC Acquisition Corp. merged
with and into the Company, with the Company continuing as the
surviving corporation and a wholly-owned subsidiary of AAC
Holding Corp. (the Merger).


|                             |  |               |  |             |      |                       |  |                                                                                                                                                                                                                                                                                                               
|---------------------------- |  | ------------- |  | ----------- | ---- | --------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Company                      |  | Acquired      |  | Established |      | Acquisition Rationale
|                             |  |               |  |             |      |                      
|Balfour                      |  | December 1996 |  |             | 1913 |                       |  | Established a leading position in the high school
    and college class ring markets and in the graduation products
    market, with a network of independent sales representatives who
    market products directly in-school. Also combined with ArtCarved
    to provide more efficient ring manufacturing.
|ArtCarved                    |  | December 1996 |  |             | 1941 |                       |  | Combined with Balfour to further strengthen our
    position in both the high school and college class rings markets
    and to expand distribution to retail stores and college
    bookstores.                                                                                                              
|Taylor Publishing            |  | July 2000     |  |             | 1914 |                       |  | Established a leadership position as a publisher
    of scholastic yearbooks. The addition of Taylor created a scale
    competitor to better capitalize on opportunities in the
    scholastic products market and provided us with significant
    cross-selling opportunities.                             
|ECI                          |  | March 2001    |  |             | 1967 |                       |  | Established a leadership position in the
    achievement directory publishing niche.                                                                                                                                                                                                                          
|Milestone                    |  | July 2002     |  |             | 1993 |                       |  | Reinforced our position as a market leader in
    commemorative products, and brought a complementary line of
    clients and products to add to our pre-existing line in the
    college graduation product market.                                                                                          
|C-B Graduation Announcements |  | January 2004  |  |             | 1994 |                       |  | Reinforced our position as a market leader in
    commemorative products, and brought a complementary line of
    clients and products to add to our pre-existing line in the
    college graduation product market.                                                                                          

Scholastic Products

Class Rings.We
believe that we are the second largest provider of high school
class rings and the largest provider of college class rings. We
represent approximately 35% of the class ring market and sell
class rings to students at over 5,500 junior high schools,
high schools, colleges and universities. We believe that we are
also the leading supplier of high school class rings to retail
stores with a market share of approximately 90%. Our class rings
are sold under the ArtCarved, Balfour, Keystone, Master Class
Rings and R. Johns brand names. For most of the schools
that we serve, we are the sole on-campus class ring supplier.
Our independent sales representatives operate under exclusive
contracts with us and coordinate ring design, promotion and
order processing. We offer over 100 styles of highly
personalized class rings with more than 400 designs, and
have an inventory of over 650,000 unique proprietary ring
dies.

Yearbooks.We are a
leading provider of yearbooks. We represent approximately 20% of
the yearbook market and sell yearbooks to students at over
7,250 schools. All of our yearbooks are sold under the
Taylor Publishing brand name. We typically enter into one-year
contracts with schools, although some

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of our contracts are multi-year agreements. Our
independent sales representatives operate under exclusive
contracts with us and develop strong relationships with schools
as they assist students and faculty advisors throughout the
design process and provide technical and marketing support. We
pioneered many of the industrys major advances in yearbook
systems and design. Most recently, we were the first yearbook
provider to fully integrate digital technology throughout our
production process, which has led to increased output speed and
enhanced print quality.


Graduation Products.We offer a full array of graduation products to high school and
college students through our network of independent class ring
sales representatives, as well as through college bookstores.
Our graduation product line includes personalized graduation
announcements, name cards, thank you notes, diplomas, mini
diplomas, diploma covers, certificates, appreciation gifts, and
other fine paper accessory items. In addition to our graduation
accessories, we also offer caps and gowns. All of our graduation
products are sold under the ArtCarved and Balfour brand names.

Recognition and Affinity Products

Achievement
Publications.We believe that we are
the leading provider of academic achievement directories. Our
publications recognize the achievements of top high school and
college students, as well as the nations most inspiring
high school teachers. We currently publish four achievement
publications, including Whos Who Among American High
School Students, Whos Who Among American High School
Students  Sports Edition, The National Deans
List and Whos Who Among Americas Teachers. We
believe that each of our publications is the leading publication
in its respective market.

Recognition and Affinity
Jewelry.Our recognition and affinity
jewelry products include products that commemorate
accomplishments within organizations and associations,
celebrations of family events, such as the birth of a child, and
fan affinity jewelry. We also provide sports championship
jewelry for professional teams and have produced many World
Series, Super Bowl and Stanley Cup rings. We market our
personalized family jewelry under the Celebrations of Life,
Generations of Love and Namesake brand names. Our licensed
consumer sports jewelry and professional sports championship
jewelry are marketed under the Balfour Sports and the Balfour
and Keepsake brand names, respectively.

Our Scholastic Products

Our scholastic products business segment consists
of three principal categories: class rings, yearbooks and
graduation products. Sales in this segment were
$275.7 million and comprised approximately 88% of our total
net sales for the combined year ended August 28, 2004.
Sales in this segment were $269.1 million and
$269.4 million for the years ended 2003 and 2002,
respectively. See notes to our consolidated financial statements
for additional information related to our scholastic products.

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The table below sets forth our principal product
lines, brand names and the distribution channels through which
we sell our scholastic products.

|                                |  |                      |  |                           
|------------------------------- |  | -------------------- |  | --------------------------
|Product Lines                   |  | Brand Names          |  | Distribution Channel      
|                                |  |                      |  |                           
|High school class rings         |  | ArtCarved            |  | Independent jewelry stores
|                                |  |                      |  | Jewelry chains            
|                                |  | Balfour              |  | On-campus                 
|                                |  | Keystone Class Rings |  | Mass merchandisers        
|                                |  | Master Class Rings   |  | Mass merchandisers        
|                                |  | R. Johns             |  | Mass merchandisers        
|                                |  |                      |  | Independent jewelry stores
|College class rings             |  | ArtCarved            |  | College bookstores        
|                                |  | Balfour              |  | College bookstores        
|                                |  |                      |  | Direct marketing          
|Yearbooks                       |  | Taylor Publishing    |  | On-campus                 
|High school graduation products |  | Balfour              |  | On-campus                 
|College graduation products     |  | ArtCarved            |  | College bookstores        
|                                |  | Balfour              |  | College bookstores        
|                                |  |                      |  | Direct marketing          

CLASS RINGS

We manufacture class rings for high school,
college and university students and, to a lesser extent, junior
high school students and military personnel. Our rings are
marketed under the various brand names, including ArtCarved and
Balfour. Our ArtCarved and Balfour brand names have been
identified with class rings for over 63 years and
90 years, respectively. During fiscal 2004, we sold rings
to students at over 5,500 junior high schools, high schools,
colleges and universities. We believe we are the second largest
provider of high school class rings and the largest provider of
college class rings. In addition, we believe that we had the
leading market share in class ring sales through retail stores
during that same period. Our school retention rates have
averaged in excess of 84% for high school class rings over the
past three years.

We offer over 100 styles of class rings ranging
from traditional to highly stylish and fashion-oriented designs.
Our rings are available in precious or nonprecious metal, and
most are available with a choice of more than 50 different types
of stones in each of several different cuts. More than 400
designs can be placed on or under the stone and emblems of over
100 activities, sports or achievements can appear on the side of
the rings in addition to school crests and mascots. As a result,
students can design highly personalized rings to commemorate
their school experience.

We manufacture all of our rings at our own
facilities, and each ring is custom manufactured. We maintain an
inventory of more than 650,000 unique proprietary ring dies that
would be expensive and time consuming to replicate. The
production process takes approximately two to eight weeks from
receipt of the customers order to product shipment,
depending on style, option selections and new or custom tooling
requirements. We use computer aided design software to quickly
and cost-effectively convert new custom designs such as school
seals, mascots and activities into physical tools capable of
producing rings in large quantities. Rings are produced only
upon the receipt of a customer order and deposit, which reduces
our credit risk. Class ring products contributed 40%, 42% and
42% of our net sales in the years ended 2004, 2003, and 2002,
respectively.

YEARBOOKS

We sell yearbooks primarily to high school and
college students. We also publish yearbooks for elementary and
junior high schools, as well as specialty military yearbooks,
which, for example, commemorate naval tours of duty at sea.
During fiscal 2004, we sold yearbooks to over 7,250 schools. We
believe we accounted for approximately 20% of the yearbook
market during fiscal 2004 and were a leading

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yearbook publisher. Our school retention rates
for yearbooks have averaged in excess of 84% over the past three
years.


We publish yearbooks in our own facilities and
believe that we are a technology leader. Since 1993, we have
made significant expenditures on proprietary software and
hardware to support electronic platforms for creating,
transmitting and managing yearbook production and printing
technology. We also offer full production support for
off-the-shelf desktop publishing tools. In the last three fiscal
years we have upgraded our printing presses and fully integrated
digital technology throughout our production process to, among
other things, increase the speed of output and automatically
monitor ink flow and control color composition. The foregoing
technology upgrades and enhancements have enabled us to reduce
manufacturing costs and improve on-time delivery, performance
and print quality. Yearbook products contributed 35%, 34% and
36% of our net sales in the years ended 2004, 2003, and 2002,
respectively.

GRADUATION PRODUCTS

Graduation products include personalized
graduation announcements, name cards, thank-you notes, diplomas,
mini diplomas, diploma covers, certificates, appreciation gifts
and other fine paper accessory items. All of our graduation
products are personalized to some degree and have short
production runs and cycles. We manufacture these products at our
own facilities and distribute them through our independent high
school class ring sales representatives and college bookstores.
As part of our graduation product line, we also offer caps and
gowns for high school and college students.

We recently enhanced our college website to
enable students and their parents to order graduation products
online. We believe that, over time, this will increase sales of
our graduation products and, in particular, personalized college
announcements that include a students name, degree and
other personal information in the text of the announcement. We
also intend to leverage our existing channels of distribution
and, in particular, our presence in college bookstores, to
further increase sales of these products. Graduation products
contributed 13%, 11% and 11% of our net sales in the years ended
2004, 2003, and 2002, respectively.

Our Recognition and Affinity
Products

Our recognition and affinity products segment
consists of two categories: achievement publications and
recognition and affinity jewelry. The latter category includes
affinity group, personalized family, fan affinity sports and
professional sports championship jewelry. Sales in this segment
were $38.4 million and comprised approximately 12% of our
total net sales for the combined year ended August 28,
2004. Sales in this segment were $39.3 million and
$35.0 million for the years ended 2003 and 2002,
respectively. See notes to our consolidated financial statements
for additional information related to our recognition and
affinity products.

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The table below sets forth the principal product
lines and brand names of our recognition and affinity products
and the distribution channels through which we sell these
products.

|                                         |  |                                        |  |                                          
|---------------------------------------- |  | -------------------------------------- |  | -----------------------------------------
|Product Lines                            |  | Brand Names                            |  | Distribution Channel                     
|                                         |  |                                        |  |                                          
|Achievement Publications                 |  | Whos Who
    The National Deans List |  | Direct marketing
    Direct marketing    
|Affinity Group Jewelry                   |  | Keepsake
    R. Johns                  |  | Direct marketing
    Direct marketing    
|Personalized Family Jewelry              |  | Celebrations of Life                   |  | Independent jewelry stores               
|                                         |  |                                        |  | Jewelry chains                           
|                                         |  | Generations of Love
    Namesake       |  | Mass merchandisers
    Mass merchandisers
|Fan Affinity Sports Jewelry              |  | Balfour Sports                         |  | Mass merchandisers                       
|                                         |  |                                        |  | Catalogues                               
|Professional Sports Championship Jewelry |  | Balfour                                |  | Direct marketing                         

ACHIEVEMENT PUBLICATIONS

We produce the following four achievement
publications:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Whos Who Among American High School
    Students.First published in 1967,
    this annual publication is the largest academic achievement
    publication in the nation honoring high-achieving high school
    students. The 1st edition recognized approximately
    13,000 students from approximately 4,000 high schools.
    The current 37th edition honors approximately
    720,000 students, from freshmen through seniors. Nominees
    represent over 22,000 of the nations approximately
    23,000 private, public and parochial high schools on the
    basis of academic achievement, class rank and extracurricular
    activities.
|
| |  | Whos Who Among American High School
    Students  Sports Edition.Introduced in 2002, this annual publication, which recognizes
    high-achieving high school athletes, represented 50% of its
    market in 2003. The current 3rd edition of this publication
    honors approximately 44,000 students from approximately
    2,400 high schools.                                                                                                                                                                                                                                                                                                 
|
| |  | The National Deans
    List.First published in 1978, this
    publication is the largest annual recognition publication in the
    nation honoring exceptional college students. The
    1st edition recognized over 25,000 students from
    approximately 700 universities. The most recent
    27th edition honors over 247,000 high-achieving
    students, representing in excess of 2,500 colleges and
    universities throughout the country.                                                                                                                                                                                               
|
| |  | Whos Who Among Americas
    Teachers.First published in 1990,
    this publication pays tribute to the countrys most
    inspiring high school teachers, who are nominated for inclusion
    by current and/or former Whos Who honorees.
    Historically published every two years, the 8th edition was
    published in 2004 and honored approximately 159,000 outstanding
    teachers. As of August 2004, this publication will be produced
    annually.                                                                                                                                                                                  

We also sell related products, including plaques,
certificates, gold and silver pins and charms, mugs, key chains
and paper weights, which commemorate a students or
teachers inclusion in one of our achievement publications.
The primary customer base for our achievement publications and
related products are the students and teachers featured in the
publications and their families. We have an established network
of nomination sources that we utilize to identify students and
teachers for recognition. Students and teachers are not required
to purchase publications in order to be included in them.
Printing for our achievement publications is outsourced.

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RECOGNITION AND AFFINITY JEWELRY

Recognition and affinity jewelry consist of the
following product categories:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Affinity Group
    Jewelry.Affinity group jewelry is
    sold to members of large groups and associations. The jewelry
    features emblems of, and otherwise commemorates accomplishments
    within, the group. For example, through our Keepsake brand, we
    provide affinity ring awards to the American Bowling Congress,
    including recognition rings for bowlers who score a perfect
    300 game. Through our R. Johns brand, we
    provide affinity rings to military personnel that recognize
    affiliation and completion of specialized training ranging from
    basic training to special forces.                                                                                                                                                                                                                                                                                                                            
|
| |  | Personalized Family
    Jewelry.Our family jewelry products
    include rings commemorating childrens birth dates, which
    feature a level of personalization, such as birthstones and
    names, that distinguishes us from our competitors. We also sell
    other personalized jewelry, such as necklaces and bracelets,
    designed to commemorate family events. We started our family
    jewelry business in fiscal 1997 and, by the end of fiscal 2004,
    had grown this business to $8.4 million in net sales by
    leveraging our existing distribution channels. We intend to
    further grow our family jewelry business through product
    extensions, including baby rings for scrapbooks,
    grandmothers products such as pins and pendants,
    daughters rings and Sweet 16 memorabilia.
    We provide personalized family jewelry under our Celebrations of
    Life, Generations of Love and Namesake brand names.
|
| |  | Fan Affinity Sports
    Jewelry.We produce a variety of
    sports team affiliation products. For example, we manufacture
    Balfour Sports brand National Football League rings, pendants,
    paperweights and coasters reflecting team logos, mascots and
    colors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Professional Sports Championship
    Jewelry.We provide sports
    championship jewelry for professional teams and their members
    and have, for example, produced several World Series, Super Bowl
    and Stanley Cup rings, including all the rings for the New York
    Yankees 26 championships, and the 1999 Japanese World
    Series ring. We provide sports championship jewelry under the
    Balfour brand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Sales and Marketing

We have over 225 independent high school
class ring and approximately 200 independent yearbook sales
representatives, with average tenures with our Company of
approximately 12 and 9 years, respectively. We also have
approximately 35 employee college class ring sales
representatives and a number of part-time employees. We
compensate our independent sales representatives on a commission
basis. Most independent sales representatives also receive a
monthly draw against commissions earned, although all expenses,
including promotional materials made available by us, are the
responsibility of the representative. Our independent sales
representatives operate under exclusive contracts that include
non-compete arrangements. Employee sales representatives receive
a combination of salary and sales incentives.

At the high school level, class rings are sold
through two distribution channels: independent sales
representatives selling directly to students and retail stores,
which include independent jewelry stores, jewelry chains and
mass merchandisers. Our high school class rings are sold by
approximately 5,000 independent jewelry retailers, many of
the nations largest jewelry chains, including Zales,
Gordons and Sterling, and mass merchandisers, including
Wal-Mart. We sell different brands and product lines in retail
stores in order to enable them to differentiate their products
from those sold by us directly to students at schools. College
rings are sold primarily through college bookstores and colleges
by our employee sales representatives. Historically, college
bookstores have been owned and operated by academic
institutions. Over the last several years, an increasing number
of college bookstores have been leased to contract operators,
primarily Barnes and Noble Bookstores and Follett Corporation,
with which we have longstanding relationships. Decisions to
include our products are typically made on a national basis by
each bookstore operator.

Yearbooks are produced under an exclusive
contract with the school for the academic year and are sold
directly to students by the school. Under the terms of the
contract, the school agrees to pay us a base

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price for producing the yearbook. This price
typically increases before production as a result of
enhancements to the contract specifications, such as additional
color pages. Our independent yearbook sales representatives call
on schools at the contract stage. Thereafter, they coordinate
between the schools yearbook committee and our customer
service and plant employees to ensure satisfactory quality and
service.


Graduation products are sold directly to students
through our network of independent high school class ring sales
representatives and in college bookstores and colleges through
our network of employee sales representatives. Achievement
publications are sold through direct marketing. Other affinity
products are sold through a variety of distribution channels,
including team stores, catalogs and retail stores. These
products are sold to wholesale accounts through employee sales
representatives.

Intellectual Property

We have trademarks, patents and licenses that in
the aggregate are an important part of our business. However, we
do not regard our business as being materially dependent upon
any single trademark, patent or license. We have trademark
registration applications pending and intend to pursue other
registrations as appropriate to establish and preserve our
intellectual property rights.

We market our products under many trademarked
brand names, some of which rank among the most recognized and
respected names in the jewelry industry. Generally, a trademark
registration will remain in effect so long as the trademark
remains in use by the registered holder and any required
renewals are obtained. We own several patented ring designs and
business process patents. We also have non-exclusive licensing
arrangements with the National Football League and numerous
colleges and universities under which we have the right to use
the name and other trademarks and logos of such entities on our
products.

The following items are registered pursuant to
applicable intellectual property laws and are the property of
American Achievement or its subsidiaries: American
Achievement Corporation, ArtCarved,
Balfour, Class Rings, Ltd,
Keystone, Master Class Rings,
R. Johns, Keepsake, Taylor
Publishing, Whos Who, The National
Deans List, Celebrations of Life,
Generations of Love, Namesake and the
various logos related to the foregoing brands.

Competition

The scholastic products market is highly
concentrated and consists primarily of a few large national
participants. Our principal competitors in the class ring market
are Jostens, Inc. and Herff Jones, Inc., which compete with us
nationally across all product lines. Our principal competitors
in the yearbook and graduation products markets are Jostens,
Herff Jones and Walsworth Publishing Company. All competitors in
the scholastic products market compete primarily on the basis of
quality, marketing and customer service and, to a lesser extent,
price.

We have limited competition for our student
achievement publications, with only a small percentage of the
high school and college students included in our publications
also included in the publications of our competitors. We have no
direct competition in the teacher recognition market. Our
affinity group jewelry products, fan affinity sports jewelry and
products and our professional sports championship jewelry
businesses compete with Jostens and, to a lesser extent, with
various other companies. Our personalized family jewelry
products compete mainly with smaller regional companies. We
compete with our affinity product competitors primarily on the
basis of quality, marketing, customer service and price.

Raw Material and Suppliers

Numerous raw materials are used in the
manufacture of our products. Gold, 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. Our raw materials are purchased from multiple
suppliers at market prices, except that we purchase
substantially all synthetic and semi-precious stones from a
single supplier who we believe supplies substantially all of
these types of stones to almost all of the class ring

9



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##### Table of Contents



manufacturers in the United States. Synthetic and
semi-precious stones are available from other suppliers,
although switching to these suppliers could result in additional
costs to us.


We periodically reset our prices to reflect the
then current prices of raw materials. In addition, we engage in
various hedging transactions to reduce the effects of
fluctuations in the price of gold. We also negotiate paper
prices on an annual basis so that we are able to estimate
yearbook costs with greater certainty.

Backlog

Because of the nature of our business, all orders
(except yearbooks) are generally filled between two and eight
weeks after the time of placement. We enter into yearbook
contracts several months prior to delivery. While yearbook base
prices are established at the time of order, final prices are
often not calculated at that time since the content typically
changes prior to publication. We estimate (calculated on the
basis of the base price of yearbooks ordered) that the backlog
of orders related to continuing operations was approximately
$96.4 million as of August 28, 2004, almost
exclusively related to student yearbooks. We expect
substantially all of this backlog to be filled in fiscal 2005.

Employees

Given the seasonality of our business, the number
of our employees fluctuates throughout the year, with the number
typically being highest during September through May and lowest
from June to August. As of August 28, 2004, we had
approximately 2,170 employees. We believe that our employee
relations are good.

Some of our production employees are represented
by unions. Hourly production and maintenance employees located
at our Austin, Texas manufacturing facility are represented by
the United Brotherhood of Carpenters and Joiners Union. The
United Brotherhood of Carpenters and Joiners Union signed a
collective bargaining agreement that will expire in May of 2006.
Some hourly production employees at our Dallas facility are
represented by the Graphics Communication International Union.
We have two collective bargaining agreements in place with the
Graphics Communication International Union. One agreement
expires in July 2006 and the other in February 2007.






|        |           
|------- | ----------
|Item 2. | Properties

Our headquarters and principal executive offices
are located at 7211 Circle S Road, Austin, Texas. We believe
that our facilities are suitable for their purpose and adequate
to support our business. The extent of utilization of individual
facilities varies due to the seasonal nature of our business.

10



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##### Table of Contents



A summary of the physical properties that we use
are as follows:

|                     |  |                                           |  |          |        |                |  |  |         | 
|-------------------- |  | ----------------------------------------- |  | -------- | ------ | -------------- |  |  | ------- | 
|                     |  |                                           |  | Leased   |        |               
|Approximate Location |  | Type of Property                          |  | or Owned |        | Square Footage
|                     |  |                                           |  |          |        |               
|Austin, TX           |  | Corporate headquarters                    |  |          | Owned  |                |  |  | 23,000  | 
|Austin, TX           |  | Jewelry manufacturing and administration  |  |          | Owned  |                |  |  | 108,000 | 
|Austin, TX           |  | Warehouse facility                        |  |          | Leased |                |  |  | 36,600  | 
|Austin, TX           |  | Achievement publication administration    |  |          | Leased |                |  |  | 6,100   | 
|Dallas, TX           |  | Yearbook administration and manufacturing |  |          | Owned  |                |  |  | 327,000 | 
|Dallas, TX           |  | Yearbook administration                   |  |          | Leased |                |  |  | 1,300   | 
|El Paso, TX          |  | Yearbook pre-press                        |  |          | Leased |                |  |  | 52,000  | 
|El Paso, TX          |  | Jewelry manufacturing                     |  |          | Leased |                |  |  | 20,000  | 
|Lubbock, TX          |  | Jewelry administration                    |  |          | Leased |                |  |  | 300     | 
|San Angelo, TX       |  | Yearbook pre-press, press, bindery        |  |          | Leased |                |  |  | 55,000  | 
|Malvern, PA          |  | Yearbook press, bindery                   |  |          | Leased |                |  |  | 41,000  | 
|Louisville, KY       |  | Graduation products manufacturing         |  |          | Leased |                |  |  | 100,000 | 
|Manhattan, KS        |  | Graduation products manufacturing         |  |          | Leased |                |  |  | 10,000  | 
|Juarez, Mexico       |  | Jewelry manufacturing                     |  |          | Leased |                |  |  | 20,000  | 






|        |                  
|------- | -----------------
|Item 3. | 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.
However, we believe resulting liabilities, if any, will not have
a material adverse impact upon our results of operations,
financial condition or cash flow.

On February 11, 2004, Frederick Goldman,
Inc., or the licensee, filed an arbitration claim against our
subsidiary Commemorative Brands, Inc., or CBI, alleging, among
other things, that CBI had improperly attempted to convert an
exclusive license CBI granted to the licensee to a non-exclusive
license. In addition, on February 10, 2004, the licensee
commenced a lawsuit in federal district court in New York
against CBI alleging that CBI breached the license agreement by
granting to third parties rights in violation of the
licensees exclusive rights under the license agreement.
The district court claim seeks injunctive and monetary relief.
No discovery has been conducted to date, therefore, at this
time, it is not possible to predict with certainty the outcome
of these unresolved legal matters or the range of possible loss
or recovery. We intend to defend ourselves vigorously in these
proceedings. However, we cannot give any assurances regarding
the outcome of these proceedings, and an adverse outcome could
be material to us.

On August 2, 2004, our subsidiary Taylor
Publishing filed a motion in United States Bankruptcy Court,
Eastern District of Virginia, Norfolk Division, Case
No. 03-75562-SCS to recover certain data and documents
pursuant to a teleservices contract between Taylor Publishing
and Abacus Communications, LC (Abacus), the
chapter 11 debtor. Subsequent to court approval of Abacus
turning over the documents and data requested, Abacus filed a
counterclaim against Taylor Publishing for approximately
$840,000 plus interest for unpaid billings that it claims are
owed under the teleservices contract with Taylor Publishing.
Taylor Publishing denies that it is liable to pay such amount
and has asserted that such amounts are in excess of the amounts
owed by Taylor Publishing. In the action, our subsidiary Taylor
Publishing has also filed a claim against Abacus for damages as
a result of Abacus refusal to release the data and
information. The action is in the discovery stage and we is
unable to make a determination of the outcome at this time or
the range of possible loss or recovery. We intend to defend
ourselves vigorously in these proceedings. However, we cannot
give any assurances regarding the outcome of these proceedings,
and an adverse outcome could be material to us.

11



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##### Table of Contents



Environmental

We are subject to applicable federal, state and
local laws, ordinances and regulations that establish various
health and environmental quality standards. Past and present
manufacturing operations subject us to environmental laws and
regulations that seek to protect human health or the
environment, governing among other things the use, handling and
disposal or recycling of, or exposure to, hazardous or toxic
substances, the remediation of contaminated sites, emissions
into the air and the discharge of wastewaters. We believe that
our business, operations and facilities are in substantial
compliance with all material environmental laws and regulations,
many of which provide for substantial fines and criminal
sanctions for violations. We believe that we may have adequate
environmental insurance and indemnities to sufficiently cover
any currently known material environmental liabilities and that
we do not currently face environmental liabilities that could
have a material adverse affect on our financial condition or
results of operations.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

There is no established public trading market for
our common stock, par value $0.01 per share. At
August 28, 2004, there was one holder of record of our
common stock.

On March 25, 2004, as part of the Merger
discussed in Note 2 of Item 8. Financial Statements and
Supplementary Data, a subsidiary of AAC Holding Corp. merged
with and into our company, with our company continuing as the
surviving corporation and a wholly owned subsidiary of AAC
Holding Corp. There is no established trading market for our
capital stock. At August 28, 2004, all of our capital stock
was held by AAC Holding Corp.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following table presents summary historical
financial and other data for American Achievement Corporation
and should be read in conjunction with our financial statements
and the notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in Item 7 herein.

Our predecessor Company for the period from
August 26, 2000 to March 25, 2004 is the business as
it existed prior to the Merger with AAC Acquisition Corp. We
completed the Merger as of March 25, 2004, and as a result
of adjustments to the carrying value of assets and liabilities
resulting from the Merger, the financial position and results of
operations for periods subsequent to the Merger may not be
comparable to those of our predecessor Company.

12



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##### Table of Contents



The summary historical financial data as at and
for the fiscal year ended August 26, 2000, August 25,
2001, August 31, 2002, August 30, 2003, the period
from August 31, 2003 to March 25, 2004 and the period
from March 26, 2004 to August 28, 2004 is derived from
the audited financial statements.

|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |         | 
|------------------------------------------------------------ | ---------------- | --------------- | ------- | --------------- |  | ----------------- | ------- | ---------- |  | ---------- | ------- | ---------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                             |                  |                 |         |                
|                                                             |                  | Successor       |         | Predecessor    
|                                                             |                  |                 |         |                
|                                                             |                  |                 |         |                 |  |                  
|                                                             |                  | The Period from |         | The Period from |  | Fiscal Year Ended
|                                                             |                  | March 26, 2004  |         | August 31, 2003 |  |                  
|                                                             |                  | to August 28,   |         | to March 25,    |  | August 30,        |         | August 31, |  | August 25, |         | August 26,
|                                                             |                  | 2004(1)         |         | 2004            |  | 2003              |         | 2002(2)    |  | 2001(3)    |         | 2000(4)   
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |           
|STATEMENT OF OPERATIONS DATA:                                |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|Net sales                                                    |                  | $               | 167,350 |                 |  | $                 | 146,721 |            |  | $          | 308,431 |            |  | $ | 304,378 |         |  | $ | 281,053 |         |  | $ | 182,285 |        
|Cost of sales                                                |                  |                 | 83,521  |                 |  |                   | 59,857  |            |  |            | 139,170 |            |  |   | 146,898 |         |  |   | 142,164 |         |  |   | 80,929  |        
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|                                                             | Gross profit     |                 |         | 83,829          |  |                   |         | 86,864     |  |            |         | 169,261    |  |   |         | 157,480 |  |   |         | 138,889 |  |   |         | 101,356 | 
|Selling, general and administrative expenses                 |                  |                 | 62,647  |                 |  |                   | 74,992  |            |  |            | 129,423 |            |  |   | 129,734 |         |  |   | 119,972 |         |  |   | 85,559  |        
|Loss (gain) on extinguishment of debt                        |                  |                 |        |                 |  |                   |        |            |  |            |        |            |  |   | 5,650   |         |  |   |        |         |  |   | (6,695  | )      
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|                                                             | Operating income |                 |         | 21,182          |  |                   |         | 11,872     |  |            |         | 39,838     |  |   |         | 22,096  |  |   |         | 18,917  |  |   |         | 22,492  | 
|Interest expense                                             |                  |                 | 10,257  |                 |  |                   | 16,455  |            |  |            | 28,940  |            |  |   | 26,026  |         |  |   | 22,846  |         |  |   | 15,691  |        
|Other expense                                                |                  |                 |        |                 |  |                   |        |            |  |            |        |            |  |   | 2,783   |         |  |   |        |         |  |   |        |        
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|Income (loss) before                                         |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|income taxes                                                 |                  |                 | 10,925  |                 |  |                   | (4,583  | )          |  |            | 10,898  |            |  |   | (6,713  | )       |  |   | (3,929  | )       |  |   | 6,801   |        
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|Provision (benefit) for income taxes                         |                  |                 | 4,459   |                 |  |                   |        |            |  |            | 132     |            |  |   | (1,171  | )       |  |   | (1,443  | )       |  |   | 333     |        
|Cumulative effect of change in accounting
    principle-loss |                  |                 |        |                 |  |                   |        |            |  |            |        |            |  |   |        |         |  |   | 1,835   |         |  |   |        |        
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|Net income (loss)                                            |                  | $               | 6,466   |                 |  | $                 | (4,583  | )          |  | $          | 10,766  |            |  | $ | (5,542  | )       |  | $ | (4,321  | )       |  | $ | 6,468   |        
|                                                             |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|BALANCE SHEET DATA (AT END OF PERIOD):                       |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|Total assets                                                 |                  | $               | 530,986 |                 |  | $                 | 553,589 |            |  | $          | 395,501 |            |  | $ | 401,626 |         |  | $ | 384,971 |         |  | $ | 326,553 |        
|Total debt(5)                                                |                  |                 | 310,658 |                 |  |                   | 313,040 |            |  |            | 226,710 |            |  |   | 242,117 |         |  |   | 223,609 |         |  |   | 191,253 |        
|Total stockholders equity                                   |                  |                 | 108,512 |                 |  |                   | 102,046 |            |  |            | 71,843  |            |  |   | 65,254  |         |  |   | 70,828  |         |  |   | 63,098  |        
|OTHER DATA:                                                  |                  |                 |         |                 |  |                   |         |            |  |            |         |            |  |   |         |         |  |   |         |         |  |   |         |        
|EBITDA(6)                                                    |                  |                 | 31,526  |                 |  |                   | 20,402  |            |  |            | 53,987  |            |  |   | 39,025  |         |  |   | 34,668  |         |  |   | 31,592  |        
|Capital expenditures                                         |                  |                 | 3,665   |                 |  |                   | 12,793  |            |  |            | 11,243  |            |  |   | 14,247  |         |  |   | 7,499   |         |  |   | 5,087   |        
|Depreciation and amortization                                |                  |                 | 10,344  |                 |  |                   | 8,530   |            |  |            | 14,149  |            |  |   | 19,712  |         |  |   | 17,586  |         |  |   | 9,100   |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During the period from March 26, 2004 to
    August 28, 2004, we recognized in its consolidated
    statement of operations approximately $6.4 million of
    excess purchase price allocated to inventory as cost of sales
    and approximately $4.3 million of additional amortization
    expense of intangible assets as selling, general and
    administrative expenses, as compared to its historical basis of
    accounting prior to the Merger.
|   
|(2) | Includes the results of operations for Milestone
    Marketing Incorporated, or Milestone, from July 15, 2002,
    the date of our acquisition of Milestone.                                                                                                                                                                                                                                                                                              
|   
|(3) | Includes the results of operations for
    Educational Communications, Inc., or ECI, from March 30,
    2001, the date of our acquisition of ECI. ECI sales are highly
    seasonal, with most shipments during the first four months of
    our fiscal year. In addition, in September 2002, subsequent to
    the issuance of our financial statements for the year ended
    August 25, 2001, our management determined that we                        

13



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | should have (i) changed our revenue
    recognition on certain sales to independent sales
    representatives in order to comply with the provisions of SEC
    Staff Accounting Bulletin No. 101, effective
    August 27, 2000, and (ii) recognized an income tax
    benefit related to a net operating loss carryback attributable
    to one of our subsidiaries during the year ended August 25,
    2001. As a result, the consolidated financial statements for the
    year ended August 25, 2001 were restated.                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Includes the results of Taylor Publishing from
    July 27, 2000, the date of our acquisition of Taylor
    Publishing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(5) | Excludes (i) approximately
    $5.2 million, $4.5 million, $4.3 million,
    $4.9 million, $2.5 million, and $5.7 million of
    bank overdrafts and (ii) approximately $0.0,
    $0.1 million, $0.1 million, $2.2 million,
    $4.5 million, and $3.9 million of capital lease
    obligations, in each case, as of August 26, 2000,
    August 25, 2001, August 31, 2002, August 30,
    2003, March 25, 2004 and August 28, 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) | EBITDA represents net income (loss) before
    interest expense, income taxes, depreciation and amortization.
    EBITDA does not represent net income or cash flows from
    operations, as these terms are defined under generally accepted
    accounting principles, and should not be considered as an
    alternative to net income as an indicator of our operating
    performance or to cash flows as a measure of liquidity. We
    consider EBITDA to be a key indicator of operating performance.
    We have included information concerning EBITDA because we use
    such information in the calculation of our annual management
    fee, in our review of the performance of our management and in
    our review of the performance of our business. EBITDA as
    presented herein are not necessarily comparable to similarly
    titled measures reported by other companies.

A reconciliation of net income (loss) to EBITDA
is included below:

|                  |                                       |                 |        |                 |  |                   |        |            |  |            |        |            |  |   |        |        |   |   |        |        |   |   |        |        | 
|----------------- | ------------------------------------- | --------------- | ------ | --------------- |  | ----------------- | ------ | ---------- |  | ---------- | ------ | ---------- |  | - | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | 
|                  |                                       |                 |        |                
|                  |                                       | Successor       |        | Predecessor    
|                  |                                       |                 |        |                
|                  |                                       |                 |        |                 |  |                  
|                  |                                       | The Period from |        | The Period from |  | Fiscal Year Ended
|                  |                                       | March 26, 2004  |        | August 31, 2003 |  |                  
|                  |                                       | to August 28,   |        | to March 25,    |  | August 30,        |        | August 31, |  | August 25, |        | August 26,
|                  |                                       | 2004(a)         |        | 2004            |  | 2003              |        | 2002       |  | 2001       |        | 2000      
|                  |                                       |                 |        |                 |  |                   |        |            |  |            |        |           
|Net income (loss) |                                       | $               | 6,466  |                 |  | $                 | (4,583 | )          |  | $          | 10,766 |            |  | $ | (5,542 | )      |   | $ | (4,321 | )      |   | $ | 6,468  |       
|                  | Interest expense                      |                 |        | 10,257          |  |                   |        | 16,455     |  |            |        | 28,940     |  |   |        | 26,026 |   |   |        | 22,846 |   |   |        | 15,691 | 
|                  | Provision (benefit) for income taxes  |                 |        | 4,459           |  |                   |        |           |  |            |        | 132        |  |   |        | (1,171 | ) |   |        | (1,443 | ) |   |        | 333    | 
|                  | Depreciation and amortization expense |                 |        | 10,344          |  |                   |        | 8,530      |  |            |        | 14,149     |  |   |        | 19,712 |   |   |        | 17,586 |   |   |        | 9,100  | 
|                  |                                       |                 |        |                 |  |                   |        |            |  |            |        |            |  |   |        |        |   |   |        |        |   |   |        |       
|EBITDA            |                                       | $               | 31,526 |                 |  | $                 | 20,402 |            |  | $          | 53,987 |            |  | $ | 39,025 |        |   | $ | 34,668 |        |   | $ | 31,592 |       
|                  |                                       |                 |        |                 |  |                   |        |            |  |            |        |            |  |   |        |        |   |   |        |        |   |   |        |       



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | During the period from March 26, 2004 to
    August 28, 2004, we recognized in its consolidated
    statement of operations approximately $6.4 million of
    excess purchase price allocated to inventory as cost of sales
    and approximately $4.3 million of additional amortization
    expense of intangible assets as selling, general and
    administrative expenses, as compared to its historical basis of
    accounting prior to the Merger.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion of our financial
condition and results of operations should be read together with
our consolidated financial statements and the accompanying notes
included with this report. For the ease of comparison purposes,
financial data for the period of August 31, 2003 through
March 25, 2004 has been added to financial data for the
periods from March 26, 2004 to August 28, 2004, to
arrive at a fiscal year combined period ended August 28,
2004. This period may be referred to herein as the
combined year ended August 28, 2004 or the
combined fiscal 2004. The Consolidated Financial
Statements, and the notes thereto, have been prepared in
accordance with U.S. GAAP. In reviewing this comparative
financial information, readers should remember that Predecessor
period results of operations do not reflect the

14



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##### Table of Contents



effects of the acquisition and the application
of purchase accounting. All amounts are in U.S. Dollars
except otherwise indicated.


General

We are one of the leading manufacturers and
suppliers of class rings, yearbooks, graduation products,
achievement publications and recognition and affinity jewelry.
Our two principal business segments are scholastic products and
recognition and affinity products. The scholastic products
division, which serves the high school, college and, to a lesser
extent, elementary and junior high school markets, produces,
markets and sells class rings, yearbooks and graduation
products. The recognition and affinity products division
produces, markets and sells achievement publications and
recognition and affinity jewelry. Our achievement publications
consist of various titles including the Whos Who brand and
The National Deans List, and our recognition and affinity
jewelry products include military rings, family jewelry and
sports championship rings.

Company Background

Our predecessor was formed in March 1996 for
the purpose of acquiring substantially all of 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. These acquisitions were
consummated in December 1996. American Achievement
Corporation was formed in June 2000 to serve as a holding
company for our predecessor as well as any future acquisitions.
In June 2000, we acquired the Taylor Senior Holding
Company, the parent company of Taylor Publishing Company, or
Taylor, whose primary business was designing and printing
student yearbooks. In March 2001, we acquired all of the
capital stock of Educational Communications, Inc. or ECI, which
publishes achievement publications. In July 2002, we
acquired all the outstanding stock and warrants of Milestone
Marketing Incorporated, or Milestone, a marketer of class rings
and other graduation products to the college market. In
January 2004, we acquired C-B Graduation
Announcements, a marketer of graduation products to the college
market.

On March 25, 2004, AAC Acquisition Corp.
merged with and into American Achievement Corporation, with
American Achievement Corporation continuing as the surviving
corporation and a wholly-owned subsidiary of AAC Holding Corp.
(the Merger). The Merger was financed by a cash
equity investment in our parent by an investor group led by
Fenway Partners Capital Fund II, L.P., borrowings under our
senior secured credit facility and the issuance of notes.

Beginning on March 25, 2004, we accounted
for the Merger as a purchase in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) 141,
Business Combinations, which results in a new
valuation of our assets and liabilities based upon the fair
values as of the date of the Merger. As required under SEC Staff
Accounting Bulletin No. 54, Push Down Basis of
Accounting Required in Certain Limited Circumstances, we
have reflected all applicable purchase accounting adjustments in
the consolidated financial statements covering periods
subsequent to the Merger. As required, we have established a new
basis for assets and liabilities based on the amount paid for
ownership at March 25, 2004. Accordingly, the purchase
price of $419.2 million was allocated to the assets and
liabilities based on their relative fair values.

We estimated the fair value of our assets and
liabilities, including intangible assets and property, plant and
equipment, as of the Merger date and utilizing information
available at the time the unaudited consolidated financial
statements were prepared, including outside third party
appraisals. These estimates are subject to refinement until all
pertinent information is finalized.

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The purchase price was as follows (in thousands):

|                                               |                     |  |          |   |  |   |         |         | 
|---------------------------------------------- | ------------------- |  | -------- | - |  | - | ------- | ------- | 
|Purchase price                                 |                     |  |          |   |  | $ | 419,200 |        
|Assets acquired                                |                     |  | 422,456  |   |  |   |         |        
|Liabilities assumed                            |                     |  | (125,731 | ) |  |   |         |        
|                                               |                     |  |          |   |  |   |         |        
|                                               | Net assets acquired |  |          |   |  |   |         | 296,725 | 
|                                               |                     |  |          |   |  |   |         |        
|Excess purchase price over net assets acquired |                     |  |          |   |  | $ | 122,475 |        
|                                               |                     |  |          |   |  |   |         |        

We have preliminarily allocated the purchase
price in the Merger as follows (in thousands):

|                              |                      |   |          |         | 
|----------------------------- | -------------------- | - | -------- | ------- | 
|Current assets                |                      | $ | 123,407  |        
|Property, plant and equipment |                      |   | 78,301   |        
|Goodwill                      |                      |   | 181,361  |        
|Intangible assets             |                      |   | 157,928  |        
|Other assets                  |                      |   | 15,390   |        
|Current liabilities           |                      |   | (116,102 | )      
|Long-term debt                |                      |   | 7,075    |        
|Deferred income taxes         |                      |   | (12,043  | )      
|Other long-term liabilities   |                      |   | (16,117  | )      
|                              |                      |   |          |        
|                              | Total purchase price |   | $        | 419,200 | 
|                              |                      |   |          |        

As a result of the Merger, we have reflected a
pre-Merger period from August 31, 2003 to March 25,
2004 (Predecessor) and a post-Merger period from
March 26, 2004 to August 28, 2004
(Successor) in our condensed consolidated financial
statements for fiscal 2004.

During the period from March 26, 2004 to
August 28, 2004, we recognized in our consolidated
statements of operations approximately $6.4 million of
excess purchase price allocated to inventory as cost of sales
and approximately $4.3 million of additional amortization
expense of intangible assets as selling, general and
administrative expenses, all as compared to our historical basis
of accounting prior to the Merger.

Critical Accounting Policies

We prepare our consolidated financial statements
in conformity with accounting principles generally accepted in
the United States of America. As such, we are required to make
certain estimates, judgments and assumptions that we believe are
reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods
presented. The significant accounting policies which we believe
are the most critical to aid in fully understanding and
evaluating our reported financial results include the following:

Revenue Recognition.We make estimates of provisions for sales returns and warranty
costs are recorded at the time of sale based on historical
information and current trends.

Sales Returns and
Allowances.We make estimates of
potential future product returns related to current period
product revenue. We analyze the previous five years
average historical returns, current economic trends and changes
in customer demand and acceptance of our products when
evaluating the adequacy of the sales returns and allowances.
Significant management judgments and estimates must be made and
used in connection with establishing the sales returns and
allowances in any accounting period. Material differences could
result in the amount and timing of our revenue for any period if
we made different judgments or utilized different estimates.

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Allowance for Doubtful Accounts and Reserve on
Sales Representative Advances.We make
estimates of potentially uncollectible customer accounts
receivable and receivables arising from sales representative
draws paid in excess of earned commissions. Our reserves are
based on an analysis of individual customer and salesperson
accounts and historical write-off experience. Our analysis
includes the age of the receivable, customer or salesperson
creditworthiness and general economic conditions. We believe the
results could be materially different if historical trends do
not reflect actual results or if economic conditions worsened.

Goodwill and Other Intangible
Assets.We account for our long-lived
assets with indefinite lives under Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142),
which addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 also
provides that intangible assets with finite useful lives be
amortized and that goodwill and intangible assets with
indefinite lives will not be amortized, but will rather be
tested for impairment upon adoption and on an annual basis
thereafter. In applying this standard, assets are grouped and
evaluated at the lowest level for which there are identifiable
cash flows that are largely independent of the cash flows of
other groups of assets. We consider historical performance and
future estimated results in evaluation of impairment. If the
carrying amount of the asset exceeds expected undiscounted
future cash flows, we measure the amount of impairment by
comparing the carrying amount of the asset to its fair value,
generally measured by discounting expected future cash flows at
the rate we utilize to evaluate potential investments. As of the
Merger, a third party valuation was used in formulating our
other intangible assets values and the residual goodwill.

Long-lived Tangible and Intangible Assets with
Definite Lives.We test our long-lived
tangible and intangible assets with definite lives for
impairment under Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which requires us to review long-lived
tangible and intangible assets with definite lives whenever
events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. Recoverability of these
assets is measured by comparison of its carrying amount to
future undiscounted cash flows the assets are expected to
generate. If long-lived assets are considered to be impaired,
the impairment to be recognized equals the amount by which the
carrying value of the assets exceeds its fair market value and
is recorded in the period the determination is made. In applying
this standard, assets are grouped and evaluated at the lowest
level for which there are identifiable cash flows that are
largely independent of the cash flows of other groups of assets.
We consider historical performance and future estimated results
in evaluation of impairment. If the carrying amount of the asset
exceeds expected undiscounted future cash flows, we measure the
amount of impairment by comparing the carrying amount of the
asset to its fair value, generally measured by discounting
expected future cash flows at the rate we utilize to evaluate
potential investments. As of the Merger, a third party valuation
was used in formulating our long-lived tangible and intangible
assets with definite lives.

Results of Operations

Our consolidated financial statements for the
predecessor period from August 31, 2003 through
March 25, 2004, were prepared using our historical basis of
accounting. As a result of the Merger, we applied purchase
accounting as discussed above under Company
Background. Although a new basis of accounting began on
March 26, 2004, we have presented results for the fiscal
year ended August 28, 2004 on a combined basis as we
believe this presentation facilitates the comparison of our
results with the

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corresponding periods for fiscal years 2003 and
2002. The following table sets forth selected information from
our consolidated financial statements of operations, expressed
as a percentage of net sales:


|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |      |   
|-------------------------------------------------------------- | --------------------------------- | -------------- | ----- | ----------------- |  | ---------- | ----- | ----------------- | - | ----------------- | ----- | -------- |  | ---------- | ----- | -------- | - | - | ----- | ----- |  |  | ----- | ---- | - | - | ----- | ----- | - |  | ----- | ---- | --
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                  
|                                                               |                                   | (Successor)    |       | (Predecessor)     |  |            |       |                   |   | (Predecessor)    
|                                                               |                                   |                |       |                   |  |            |       |                  
|                                                               |                                   |                |       | Combined          |  |           
|                                                               |                                   | For the Period |       | Fiscal Year Ended |  |           
|                                                               |                                   |                |       |                   |  |            |       |                  
|                                                               |                                   | March 26,      |       | August 31,        |  |            |       | Fiscal Year Ended |   | Fiscal Year Ended
|                                                               |                                   | 2004          |       | 2003             |  |            |       |                   |   |                  
|                                                               |                                   | August 28,     |       | March 25,         |  | August 28, |       | % of Net          |   | August 30,        |       | % of Net |  | August 31, |       | % of Net
|                                                               |                                   | 2004           |       | 2004              |  | 2004       |       | Sales             |   | 2003              |       | Sales    |  | 2002       |       | Sales   
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |         
|Net sales                                                      |                                   | $              | 167.4 |                   |  | $          | 146.7 |                   |   | $                 | 314.1 |          |  |            | 100.0 | %        |   | $ | 308.4 |       |  |  | 100.0 | %    |   | $ | 304.4 |       |   |  | 100.0 | %   
|Cost of sales                                                  |                                   |                | 83.5  |                   |  |            | 59.9  |                   |   |                   | 143.4 |          |  |            | 45.7  |          |   |   | 139.2 |       |  |  | 45.1  |      |   |   | 146.9 |       |   |  | 48.3  |     
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |     
|                                                               | Gross profit                      |                |       | 83.9              |  |            |       | 86.8              |   |                   |       | 170.7    |  |            |       | 54.3     |   |   |       | 169.2 |  |  |       | 54.9 |   |   |       | 157.5 |   |  |       | 51.7 |   
|Selling, general and administrative expense                    |                                   |                | 62.7  |                   |  |            | 74.9  |                   |   |                   | 137.6 |          |  |            | 43.8  |          |   |   | 129.4 |       |  |  | 42.0  |      |   |   | 129.7 |       |   |  | 42.6  |     
|Loss on extinguishment of debt                                 |                                   |                |      |                   |  |            |      |                   |   |                   |      |          |  |            |      |          |   |   |      |       |  |  |      |      |   |   | 5.6   |       |   |  | 1.8   |     
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |     
|                                                               | Operating income                  |                |       | 21.2              |  |            |       | 11.9              |   |                   |       | 33.1     |  |            |       | 10.5     |   |   |       | 39.8  |  |  |       | 12.9 |   |   |       | 22.1  |   |  |       | 7.3  |   
|Interest expense                                               |                                   |                | 10.2  |                   |  |            | 16.5  |                   |   |                   | 26.7  |          |  |            | 8.5   |          |   |   | 28.9  |       |  |  | 9.4   |      |   |   | 26.0  |       |   |  | 8.6   |     
|Other expense                                                  |                                   |                |      |                   |  |            |      |                   |   |                   |      |          |  |            |      |          |   |   |      |       |  |  |      |      |   |   | 2.8   |       |   |  | 0.9   |     
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |     
|                                                               | Income (loss) before income taxes |                |       | 11.0              |  |            |       | (4.6              | ) |                   |       | 6.4      |  |            |       | 2.0      |   |   |       | 10.9  |  |  |       | 3.5  |   |   |       | (6.7  | ) |  |       | (2.2 | ) 
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |     
|Provision (benefit) for income taxes                           |                                   |                | 4.5   |                   |  |            |      |                   |   |                   | 4.5   |          |  |            | 1.4   |          |   |   | 0.1   |       |  |  |      |      |   |   | (1.2  | )     |   |  | (0.4  | )   
|Cumulative effect of change in accounting
    principle  loss |                                   |                |      |                   |  |            |      |                   |   |                   |      |          |  |            |      |          |   |   |      |       |  |  |      |      |   |   |      |       |   |  |      |     
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |     
|                                                               | Net income (loss)                 |                | $     | 6.5               |  |            | $     | (4.6              | ) |                   | $     | 1.9      |  |            |       | 0.6      | % |   | $     | 10.8  |  |  |       | 3.5  | % |   | $     | (5.5  | ) |  |       | (1.8 | )%
|                                                               |                                   |                |       |                   |  |            |       |                   |   |                   |       |          |  |            |       |          |   |   |       |       |  |  |       |      |   |   |       |       |   |  |       |     



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the Period March 26, 2004 to
    August 28, 2004 (Successor) and For the Period
    August 31, 2003 to March 25, 2004 (Predecessor)
    Combined, Compared to Year Ended August 30, 2003
    (Predecessor)

Net Sales.Net sales
increased $5.7 million, or 1.8%, to $314.1 million for
the combined fiscal 2004 from $308.4 million for the fiscal
2003. The increase in net sales was due to increased high school
on-campus ring, yearbook, and graduation product shipments,
offset by lower sales volumes in college rings, retail high
school rings and recognition and affinity products.

The following details the changes in net sales
during such periods by business segment.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Scholastic Products.Net sales increased $6.6 million or 2.4% to
    $275.7 million for the combined fiscal 2004 from
    $269.1 million for the fiscal 2003. The increase in net
    sales was the result of a $9.5 million or 3.5% increase in
    high school on-campus rings, yearbooks, and graduation products
    as a result of increased unit shipments and price increases.
    Graduation products increased an additional $2.9 million or
    1.1% as a result of the C-B Graduation Announcements
    acquisition. These increases were offset by a 0.9% decline in
    retail high school shipments as well as a 1.3% decline in
    college ring shipments.
|
| |  | Recognition and Affinity
    Products.Net sales decreased
    $0.9 million or 2.3% to $38.4 million for the combined
    fiscal 2004 from $39.3 million for the fiscal 2003. The
    decrease was primarily the result of a $1.3 million
    decrease in sales of specialty products offset by an increase in
    family jewelry.                                                                                                                                                                                                                                                                                                                                        

Gross Profit.Gross
margin represents gross profit as a percentage of net sales.
Gross margin was 54.3% for the combined fiscal 2004, a
0.6 percentage point decrease from 54.9% for the fiscal
2003. Gross profit increased $1.5 million to
$170.7 million for the combined fiscal 2004 from
$169.2 million for the

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fiscal 2003. The decrease in the gross margin
percentage was a result of a purchase accounting inventory
step-up adjustment of $6.4 million. Excluding the
$6.4 million impact of purchase accounting, the increase in
gross profit was primarily a result of the efficiencies in the
yearbook and graduation product manufacturing facilities, as
well as improvements in the achievement publication margins. The
major improvement was a result of yearbook efficiency gains in
the pre-press and press area due to investments made in the page
production software and printing equipment. The increase was
partially offset by increased material costs in the ring
manufacturing plant as a result of gold price increases and
unfavorable currency fluctuations associated with the Euro
denominated purchase of precious, semi-precious and synthetic
stones.


Selling, General and Administrative
Expenses.Selling, general and
administrative expenses increased $8.2 million, or 6.3%, to
$137.6 million for the combined fiscal 2004 from
$129.4 million for the fiscal 2003. As a percentage of net
sales, selling, general and administrative expenses were 43.8%
for the combined fiscal 2004, a 1.8 percentage point
increase from 42.0% for the fiscal 2003.

Selling, general and administrative expenses
include two sub-categories: selling and marketing expenses and
general and administrative expenses. Selling and marketing
expenses increased $3.6 million, or 3.7%, to
$100.1 million for the combined fiscal 2004 from
$96.5 million for the fiscal 2003. Of this increase,
$2.5 million was due to increased mailing and printing
costs related to publishing two editions of the National
Deans List the first in November 2003 and the second in
August 2004, as well as higher mailing costs associated
with the high school publication as a result of the first
marketing effort timing coinciding with the beginning of the
United States Iraqi conflict. The remaining increase was mainly
a result of increased commission expense directly related to the
high school on-campus increase in net sales. General and
administrative expenses increased $4.6 million or 13.9%, to
$37.5 million, or 12.0% of net sales for the combined
fiscal 2004, as compared to $32.9 million, or 10.7% of net
sales, for the fiscal 2003. The increase in general and
administrative expense is a result of the impact of purchase
accounting increasing amortization expense by $4.3 million.

Operating Income
(Loss).As a result of the foregoing,
operating income was $33.1 million, or 10.5% of net sales
for combined fiscal 2004, as compared with operating income of
$39.8 million, or 12.9% of net sales, for fiscal 2003.
Operating income for the combined fiscal 2004 includes a
negative impact of $10.7 million due to purchase
accounting. The scholastic products segment reported operating
income of $28.7 million for the combined fiscal 2004,
compared to operating income of $30.3 million for fiscal
2003. The recognition and affinity products segment reported
operating income of $4.4 million for the combined fiscal
2004, compared to operating income of $9.5 million for
fiscal 2003.

Interest Expense.Interest expense was $26.7 million for the combined fiscal
2004 and $28.9 million for fiscal 2003. The average debt
outstanding was $264.7 million for the combined fiscal 2004
compared to $235.9 million for fiscal 2003. The weighted
average interest rate on debt outstanding was 10.1% for the
combined fiscal 2004 compared to 12.3% for fiscal 2003.

Provision (Benefit) for Income
Taxes.For the combined fiscal 2004,
we recognized a tax provision of $4.5 million compared to a
tax provision of $0.1 million for fiscal 2003. For the
period from March 26, 2004 to August 28, 2004, our tax
rates were calculated based on a 35% federal and 4% state tax
rates, for an overall effective tax rate of 39%. The tax rate
for the period March 26, 2004 to August 28, 2004
reflects the creation of a net deferred tax liability as a
result of the purchase accounting adjustments made in connection
with the Merger. For the period August 31, 2003 to
March 25, 2004, no net federal income tax benefit is
reflected in the statement of operations for net operating
losses to be carried forward since realization of the potential
benefit of net operating loss carry-forwards is not considered
to be more likely than not. Although state taxes are expected
for the combined fiscal 2004, no benefit has been recorded for
the period from August 31, 2003 to March 25, 2004 due
to the valuation allowance. For fiscal 2003, the effective tax
rate reflects the state tax expense expected for the year.

Net Income (loss).As a result of the foregoing, we reported net income of
$1.9 million for the combined fiscal 2004 as compared to
net income of $10.8 million for fiscal 2003.

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| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Fiscal Year Ended August 30, 2003
    Compared To Fiscal Year Ended August 31, 2002

Net Sales.Net sales
increased $4.0 million, or 1.3%, to $308.4 million in
fiscal 2003, from $304.4 million in fiscal 2002. This
increase was due primarily to the inclusion of $5.4 million
of net sales from Milestone in fiscal 2003, which was acquired
effective July 15, 2002, compared to $1.0 million of
Milestone net sales being included in our results in fiscal
2002, and an increase in sales of $3.9 million from ECI,
primarily as a result of our publication of ECIs teachers
publication in fiscal 2003. These increases were partially
offset by a decrease in yearbook sales of $3.9 million,
largely as a result of the fourth quarter of fiscal 2002
containing an extra week.

The following details the changes in net sales
during such periods by business segment.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Scholastic Products.Net sales decreased slightly to $269.1 million in fiscal
    2003 from $269.4 million in fiscal 2002. Of this decrease,
    $3.9 million was due to a decrease in yearbook contracts
    and $1.4 million was due to a decrease in unit volumes of
    high school and college class rings. These decreases were offset
    by a $4.4 million increase in Milestone net sales and a
    $0.7 million increase in graduation products.
|
| |  | Recognition and Affinity
    Products.Net sales increased
    $4.3 million to $39.3 million in fiscal 2003 from
    $35.0 million in fiscal 2002. The increase was primarily
    the result of a $3.9 million increase in net sales
    attributable to ECI and $2.8 million in increased sales of
    specialty products, partially offset by a $2.2 million
    decrease resulting from the discontinuation of reunion services
    in fiscal 2002.    

Gross Profit.Gross
margin was 54.9% in 2003, a 3.2 percentage point increase
from 51.7% in 2002. The gross margin increase in fiscal 2003 was
the result of an increase in margins for yearbooks associated
with the implementation of new technology and class rings due to
increased labor efficiencies as well as the introduction of the
new white metal ring base. Gross profit gains were partially
offset by a decrease resulting from the discontinuation of
reunion services in fiscal 2002.

Selling, General and Administrative
Expenses.Selling, general and
administrative expenses decreased $0.3 million to
$129.4 million in fiscal 2003 from $129.7 million in
fiscal 2002. As a percentage of net sales, selling, general and
administrative expenses decreased 0.6 percentage points in
fiscal 2003, compared to fiscal 2002. Selling and marketing
expenses were $96.5 million, or 31.3% of net sales, in
fiscal 2003, compared to $90.6 million, or 29.8% of net
sales, in fiscal 2002. The increase in selling and marketing
expenses was largely a result of increased marketing efforts for
class rings, yearbooks and graduation products, an increase as a
result of the Milestone acquisition, and increased marketing
costs related to ECIs teachers publication. General and
administrative expenses in fiscal 2003 were $32.9 million,
or 10.7% of net sales, compared to $39.1 million, or 12.9%
of net sales, in 2002. The decrease in general and
administrative expenses as a percentage of net sales was
primarily the result of a $5.6 million decrease related to
the adoption of SFAS No. 142, in which goodwill and
trademarks are no longer amortized.

Loss on Extinguishment of
Debt.In conjunction with the issuance
of our existing unsecured senior notes and entering into our
existing senior secured credit facility on February 20,
2002, we paid off the then outstanding term loans and revolver
under our former credit facility, as well as our bridge notes to
affiliates. As a result, a loss of $5.7 million was
recognized in fiscal 2002 relating to the write-off of
unamortized deferred financing costs.

Operating Income.As
a result of the foregoing, operating income was
$39.8 million, or 12.9% of net sales, in fiscal 2003,
compared with $22.1 million, or 7.3% of net sales, in
fiscal 2002. The scholastic products segment reported operating
income of $30.3 million and the recognition and affinity
products segment reported operating income of $9.5 million
for fiscal 2003. The adoption of SFAS No. 145 required
us to reclassify the $5.7 million loss from extinguishment
of debt from extraordinary items into operating expenses for
fiscal 2002.

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Interest Expense,
Net.Net interest expense was
$28.9 million in fiscal 2003 and $26.0 million in
fiscal 2002. The average daily debt outstanding in fiscal 2003
and in fiscal 2002 was $235.9 million and
$225.7 million, respectively. The weighted average interest
rate on debt outstanding in fiscal 2003 and in fiscal 2002 was
12.3% and 11.5%, respectively.

Other Expense.Other
expense was $0 for fiscal 2003 and $2.8 million for fiscal
2002. Of the $2.8 million in fiscal 2002, $2.6 million
was a result of the termination and reclassification of interest
rate swaps that were entered into in conjunction with the
issuance of the existing unsecured senior notes and the entering
into of the existing senior secured credit facility on
February 20, 2002. The remaining interest rate swap
agreement represented a notional amount of $25 million that
was classified as a trading derivative in fiscal 2002. As such,
changes in the fair value of this derivative resulted in a
charge of $0.2 million for fiscal 2002. As of
August 31, 2002, the fair value of this derivative
represented a liability of approximately $0.9 million, and
the contract expired during fiscal 2003.

Provision (Benefit) for Income
Taxes.For fiscal 2003 and fiscal
2002, we recorded an income tax provision of $0.1 million
and an income tax benefit of $1.2 million, respectively.
Our provision in fiscal 2003 relates to state income taxes. No
net federal income tax expense was reported for fiscal 2003 due
to a tax loss that was expected for the year. Our benefit in
fiscal 2002 related to the net operating loss carryback
generated in fiscal 2002 and prior years attributable to losses
realized by Taylor Senior Holding Company. No net federal income
tax benefit was reflected in the statement of operations for
fiscal 2003 for net operating losses to be carried forward since
realization of the potential benefit of net operating loss
carry-forwards was not considered to be more likely than not.

Net Income (Loss).As a result of the foregoing, we reported net income of
$10.8 million in fiscal 2003, compared to a net loss of
$5.5 million in fiscal 2002.

Liquidity and Capital Resources

Operating
Activities.Operating activities
provided $36.8 million of cash during the combined fiscal
2004, compared to $26.5 million during the fiscal 2003. The
improvement in cash provided by operating activities during the
fiscal 2004 was primarily attributable to changes in inventories
of $5.2 million, accounts payable, accrued expenses, and
other long-term liabilities of $20.2 million, and deferred
revenue of $1.8 million, partially offset by changes in net
income (net of non-cash items) of $4.4 million, accounts
receivable of $2.0 million and prepaid expenses and other
assets of $10.5 million.

Operating activities provided $26.5 million
of cash during fiscal 2003, compared to $23.3 million
during fiscal 2002. The improvement in cash provided by
operating activities in 2003 was primarily driven by higher net
income, as well as decreases in receivables and inventory.

Investing
Activities.Capital expenditures in
the combined fiscal 2004, fiscal 2003, and fiscal 2002 were
$16.5 million, $11.2 million, and $14.2 million,
respectively. The increases in capital expenditures in fiscal
2004, 2003 and fiscal 2002 were primarily attributable to
purchases of new printing presses and fully integrating digital
technology throughout our yearbook production process. Also
affecting investing activities in the combined fiscal 2004 was
the C-B Graduation Announcements acquisition and the Merger. In
fiscal 2002 investing activities were affected by the Milestone
acquisition. Our projected capital expenditures for fiscal 2005
are expected to be approximately $14 million.

Financing
Activities.Net cash provided by
financing activities was $90.4 million for the combined
fiscal 2004 compared to net cash used of $15.1 million for
the fiscal 2003. For the fiscal 2004, cash provided by financing
activities was used to pay off existing debt and equity holders
as part of the Merger. Net cash used in financing activities in
fiscal 2003 was $15.1 million, which was primarily used to
repay revolver borrowings. Net cash provided from financing
activities in fiscal 2002 was $4.7 million.

Capital Resources.In February 2002 of fiscal 2002, we issued $177.0 million
of unsecured senior notes due 2007 and entered into a
$40.0 million senior secured revolving credit facility. At
that time, we repaid in full all outstanding term loans and
revolving loans under the former credit agreement, as well as
the outstanding bridge note, and settled all but
$25.0 million (notional amount) of our interest rate swap

21



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agreements. As of the date of the Merger, we
repaid in full all amounts outstanding under this senior secured
revolving credit facility and $170.0 million of the
unsecured senior notes due 2007.


In connection with the Merger, we entered into
our existing $195.0 million senior secured credit facility
and issued $150.0 million of the 8.25% senior subordinated
notes. Certain provisions of these financing arrangements are
described below.

Our senior secured credit facility provides a
$155.0 million term loan, maturing in 2011, and up to
$40.0 million in available revolving loan borrowings,
maturing in 2010. As of August 28, 2004, the revolver was
undrawn. Our senior secured credit facility imposes certain
restrictions on us, including restrictions on our ability to
incur indebtedness, pay dividends, make investments, grant
liens, sell assets and engage in certain other activities. In
addition, our senior secured credit facility contains financial
covenants and maintenance tests, including a minimum interest
coverage test and a maximum total leverage test, and restrictive
covenants, including restrictions on our ability to make capital
expenditures. Our senior secured credit facility is secured by
substantially all of our assets, is guaranteed by and secured by
the assets of certain of our existing and future domestic
subsidiaries, if any, and by a pledge of all of the capital
stock of certain of our existing and future domestic
subsidiaries, if any. Our senior secured credit facility is also
guaranteed by our parent, AAC Holding Corp.

We are required to pay cash interest on the 8.25%
notes semi-annually in arrears on April 1 and October 1 of each
year. The 8.25% notes have no scheduled amortization and mature
on April 1, 2012. The indenture governing the 8.25% notes
contains certain restrictions on us, including restrictions on
our ability to incur indebtedness, pay dividends, make
investments, grant liens, sell assets and engage in certain
other activities. The 8.25% notes are guaranteed by certain of
our existing and future domestic subsidiaries.

We expect that cash generated from operating
activities and availability under our new senior secured credit
facility will be our principal sources of liquidity. Based on
our current level of operations and anticipated cost savings and
operational improvements, we believe our cash flow from
operations, available cash and available borrowings under our
senior secured credit facility will be adequate to meet our
liquidity needs for at least the next twelve months. We cannot
assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost
savings and operating improvements will be realized on schedule
or that future borrowings will be available to us under our
senior secured credit facility in amounts sufficient to enable
us to repay our indebtedness, including the notes, or to fund
our other liquidity needs.

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 have 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 and (iii) a borrowing base,
calculated based on a percentage of the value of gold held at
our facilities and other approved locations, as specified by the
agreement. Under the terms of this arrangement, we do not own
the consigned gold nor do we have risk of loss related to such
inventory until we pay The Bank of Nova Scotia for quantities
purchased. Accordingly, we do not reflect the value of consigned
gold in our inventory, nor do we reflect the corresponding
liability for financial statement purposes. As of
August 28, 2004 and August 30, 2003, we held
approximately 19,461 ounces and 17,780 ounces of gold,
respectively, with values of $7.9 million and
$6.7 million, respectively.

The agreement can be terminated by either us or
The Bank of Nova Scotia with 60 days prior written notice
to the other party.

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Contractual Obligations

As of August 28, 2004, the due dates and
amounts of our contractual obligations are as follows (in
thousands):

|                                |  |        |        |        |  |        |        |        |  |        |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |         | 
|------------------------------- |  | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ------ | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                |  | Fiscal |        | Fiscal |  | Fiscal |        | Fiscal |  | Fiscal |        |            |  |      
|                                |  | 2005   |        | 2006   |  | 2007   |        | 2008   |  | 2009   |        | Thereafter |  | Total
|                                |  |        |        |        |  |        |        |        |  |        |        |            |  |      
|8 1/4% Senior subordinated debt |  | $      |       |        |  | $      |       |        |  | $      |       |            |  | $     |       |  |  | $ |       |  |  | $ | 150,000 |  |  | $ | 150,000 | 
|11 5/8% Senior unsecured notes  |  |        |       |        |  |        |       |        |  |        | 6,045  |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   | 6,045   | 
|Interest on fixed rate debt     |  |        | 13,081 |        |  |        | 13,081 |        |  |        | 12,728 |            |  |       | 12,375 |  |  |   | 12,375 |  |  |   | 31,969  |  |  |   | 95,609  | 
|Term loan(a)                    |  |        | 1,550  |        |  |        | 1,550  |        |  |        | 1,550  |            |  |       | 1,550  |  |  |   | 1,550  |  |  |   | 146,863 |  |  |   | 154,613 | 
|Operating leases(b)             |  |        | 2,206  |        |  |        | 1,835  |        |  |        | 1,322  |            |  |       | 817    |  |  |   | 315    |  |  |   | 2,404   |  |  |   | 8,899   | 
|Capital leases(c)               |  |        | 1,387  |        |  |        | 1,349  |        |  |        | 1,332  |            |  |       | 174    |  |  |   |       |  |  |   |        |  |  |   | 4,242   | 
|                                |  |        |        |        |  |        |        |        |  |        |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |         | 
|Total                           |  | $      | 18,224 |        |  | $      | 17,815 |        |  | $      | 22,977 |            |  | $     | 14,916 |  |  | $ | 14,240 |  |  | $ | 331,236 |  |  | $ | 419,408 | 
|                                |  |        |        |        |  |        |        |        |  |        |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |         | 



---



|    |  |                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | No interest expense has been included on our
    obligations with variable interest rates.                                                                                                 
|   
|(b) |  | Some of our rental property leases contain
    options to renew the leased space for periods up to an
    additional ten years.                                                            
|   
|(c) |  | The total balance of gross capital lease assets
    is $5,022 as of August 28, 2004 and $2,797 as of
    August 30, 2003, with accumulated depreciation of $284 and
    $292, respectively.

In addition, we entered into a new management
agreement with an affiliate of Fenway Partners pursuant to which
we, 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).

Seasonality

The seasonal natures of our various businesses
tend to be tempered by our broad product mix. Class ring sales
are highest during October through December, with most 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 May through
June, as yearbooks are typically shipped prior to each
schools summer break. Our recognition and affinity product
line sales are also seasonal. The majority of our achievement
publications are shipped in November and August of each year.
The remaining recognition and affinity product line sales are
highest 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 fourth
fiscal quarter, which includes 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 April through August.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risks

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. Our senior secured credit
facility (revolver and term loan) and existing gold consignment
agreement are variable rate arrangements. The interest rates are
based on a floating benchmark rate (such as LIBOR or the Federal
Funds rate) plus a fixed spread. Our other financial instruments
subject to interest rate risk consist of long-term debt and
notional amount under the gold consignment agreement. With
respect to our new senior secured credit facility, each bearing
interest at

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variable rates, each quarter point change in
interest rates would result in a $0.5 million change in
annual interest expense on the senior secured credit facility,
assuming the entire revolving loan was drawn.


Semi-Precious
Stones.We purchase the majority of
our semi-precious stones from a single source supplier in
Germany. We believe that all of our major competitors purchase
their semi-precious stones from this same supplier. The prices
for these products are denominated in Euros. In order to hedge
market risk, we have from time-to-time purchased forward
currency contracts. Each ten percent change in the Euro
rate would result in a $0.8 million change in cost of goods
sold, assuming stone purchase levels approximate the levels in
the combined fiscal 2004. During the combined fiscal 2004, we
did not purchase any Euro forward contracts and did not have any
such contracts outstanding.

Gold.We purchase
all of our gold from The Bank of Nova Scotia through our
existing gold consignment agreement described above. We consign
the majority of our gold and pay for gold as our products are
shipped to customers. Each ten percent change the price of
gold would result in a $2.3 million change in cost of goods
sold, assuming gold purchase levels approximate the levels in
the combined fiscal 2004. As of August 28, 2004, we had
hedged most of our gold requirements for the fiscal year 2005
through the purchase of gold options.

Recent Accounting Pronouncements

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. This statement requires, among
other things, that gains and losses on the early extinguishments
of debt be classified as extraordinary only if they meet the
criteria for extraordinary treatment set forth in Accounting
Principles Board Opinion No. 30. The provisions of this
statement related to classification of gains and losses on the
early extinguishments of debt became effective for fiscal years
beginning after May 15, 2002. The adoption of
SFAS No. 145 required us to reclassify certain items
from extraordinary items into operating income (loss).

In June 2002, SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, was issued, which addressed financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). This statement requires recognition of a
liability for a cost associated with an exit or disposal
activity when the liability is incurred as opposed to the date
of an entitys commitment to an exit plan or disposal
activity. The adoption of SFAS No. 146 in January 2003
did not have a significant impact on our financial statements.

In December 2002, SFAS 148 was issued, which
amended SFAS 123, to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. It also
amended the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. Certain disclosure requirements were effective
for us beginning December 15, 2002 and we have complied
with those requirements. The adoption of the additional
reporting requirements of SFAS 148 in December 2002 did not
have a significant impact on our financial statements.

In December 2002, FASB Interpretation
No. 45, or FIN 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34, was issued, which addressed
the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligation under
guarantees and clarifies the requirements related to the
recognition of a liability by a guarantor at the inception of a
guarantee for the obligations the guarantor has undertaken in
issuing that guarantee. The adoption of FIN 45 in December
2002 did not have a significant impact on our financial
statements.

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In April 2003, SFAS No. 149, or
SFAS 149, Amendments of Statement 133 on
Derivative Instruments and Hedging Activities, was issued,
which amended and clarifies financial accounting and reporting
for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The adoption of
SFAS 149 in the third quarter of fiscal 2003 did not have a
significant impact on our financial statements.

In May 2003, SFAS No. 150, or
SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity, was issued, which established standards for how an
issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. We adopted
SFAS 150 beginning in September 2003. The adoption of this
standard did not have a significant impact on our financial
statements.

In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. In December 2003, the FASB
revised FIN No. 46 to reflect decisions it made regarding a
number of implementation issues. FIN No. 46, as revised,
requires that the primary beneficiary of a variable interest
entity, or VIE, consolidate the entity even if the primary
beneficiary does not have a majority voting interest. This
Interpretation applies to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support. This Interpretation also
identifies those situations where a controlling financial
interest may be achieved through arrangements that do not
involve voting interests. The Interpretation also establishes
additional disclosures which are required regarding an
enterprises involvement with a VIE when it is not the
primary beneficiary. The requirements of this Interpretation are
required to be applied to any VIE created after January 31,
2003. We adopted FIN 46 in the first quarter of fiscal year
2004. The adoption of this standard did not have a significant
impact on our financial statements.

In December 2003, the FASB amended
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. The amendment
revised employers disclosures about pension plans and
other post retirement benefit plans to require additional
disclosures to those in the original SFAS No. 132
about the assets, obligations, cash flows, and net periodic
benefit cost of defined pension plans and other defined benefit
postretirement plans. We adopted the additional disclosure
requirements in the third quarter of fiscal 2004.

In December 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation 46R
(FIN 46R), a revision to Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46R
clarifies some of the provisions of FIN 46 and exempts
certain entities from its requirements. FIN 46R is
effective at the end of the first interim period ending after
March 15, 2004. Entities that have adopted FIN 46
prior to this effective date can continue to apply the
provisions of FIN 46 until the effective date of
FIN 46R or elect early adoption of FIN 46R. The
adoption of FIN 46 and FIN 46R did not have a
significant impact on our financial statements.

On December 8, 2003, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law. The Act will provide
plan sponsors a federal subsidy for certain qualifying
prescription drug benefits covered under the sponsors
postretirement health care plans. In accordance with Financial
Accounting Standards Board (FASB) Staff Position
(FSP) 106-1, all amounts are presented without reflecting
any potential effects of the Act. On May 19, 2004, the FASB
issued FSP 106-2, which requires measures of the
accumulated postretirement benefit obligation and net periodic
postretirement benefit cost to reflect the effects of the Act in
the first interim period beginning after June 15, 2004. We
do not expect the adoption of the Act to have a significant
impact on our consolidated financial statements.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Stockholders of

American Achievement Corporation


We have audited the accompanying consolidated
balance sheets of American Achievement Corporation and
subsidiaries (the Company) as of August 28,
2004 (Successor) and August 30, 2003 (Predecessor) and the
related consolidated statements of operations,
stockholders equity, and cash flows for the period from
March 26, 2004 to August 28, 2004 (Successor, five
months), from August 31, 2003 to March 25, 2004
(Predecessor, seven months) and for each of the two fiscal years
in the period ended August 30, 2003. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as of August 28, 2004 and
August 30, 2003, and the results of its operations and its
cash flows for the periods from March 26, 2004 to
August 28, 2004, from August 31, 2003 to
March 25, 2004 and for each of the two fiscal years in the
period ended August 30, 2003, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangible assets as of
September 1, 2002 upon the adoption of Statement of
Financial Accounting Standard No. 142, Goodwill and
Other Intangible Assets.

/s/ DELOITTE & TOUCHE LLP

Austin, Texas

October 29, 2004


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AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |         |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- |  | ------- | ------- | ------- | 
|                                           |                                                                                                                                                                                             | (Successor)                                |         | (Predecessor)
|                                           |                                                                                                                                                                                             |                                            |         |              
|                                           |                                                                                                                                                                                             | August 28,                                 |         | August 30,   
|                                           |                                                                                                                                                                                             | 2004                                       |         | 2003         
|                                           |                                                                                                                                                                                             |                                            |         |              
|ASSETS                                    
|CURRENT ASSETS:                            |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           | Cash and cash equivalents                                                                                                                                                                   |                                            | $       | 3,038         |         |  | $       | 1,735   |        
|                                           | Accounts receivable, net of allowance for
    doubtful accounts of $2,862 and $3,242, respectively                                                                                          |                                            |         | 43,321        |         |  |         | 44,193  |        
|                                           | Inventories, net                                                                                                                                                                            |                                            |         | 23,023        |         |  |         | 23,310  |        
|                                           | Deferred tax asset                                                                                                                                                                          |                                            |         | 10,165        |         |  |         | 6,378   |        
|                                           | Prepaid expenses and other current assets, net                                                                                                                                              |                                            |         | 26,230        |         |  |         | 23,939  |        
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           |                                                                                                                                                                                             | Total current assets                       |         |               | 105,777 |  |         |         | 99,555  | 
|PROPERTY, PLANT AND EQUIPMENT, net         |                                                                                                                                                                                             |                                            | 76,565  |               |         |  | 65,307  |        
|GOODWILL                                   |                                                                                                                                                                                             |                                            | 182,080 |               |         |  | 162,059 |        
|Other intangible assets, net               |                                                                                                                                                                                             |                                            | 163,473 |               |         |  | 60,214  |        
|OTHER ASSETS                               |                                                                                                                                                                                             |                                            | 3,091   |               |         |  | 8,366   |        
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           |                                                                                                                                                                                             | Total assets                               |         | $             | 530,986 |  |         | $       | 395,501 | 
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                          
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|CURRENT LIABILITIES:                       |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           | Bank overdraft                                                                                                                                                                              |                                            | $       | 5,733         |         |  | $       | 4,877   |        
|                                           | Accounts payable                                                                                                                                                                            |                                            |         | 9,842         |         |  |         | 6,564   |        
|                                           | Customer deposits                                                                                                                                                                           |                                            |         | 17,807        |         |  |         | 21,393  |        
|                                           | Accrued expenses                                                                                                                                                                            |                                            |         | 29,814        |         |  |         | 26,106  |        
|                                           | Accrued management fee  related party                                                                                                                                                      |                                            |         | 500           |         |  |         | 750     |        
|                                           | Deferred revenue                                                                                                                                                                            |                                            |         | 5,503         |         |  |         | 5,123   |        
|                                           | Accrued interest                                                                                                                                                                            |                                            |         | 7,334         |         |  |         | 4,231   |        
|                                           | Current portion of long-term debt                                                                                                                                                           |                                            |         | 1,550         |         |  |         |        |        
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           |                                                                                                                                                                                             | Total current liabilities                  |         |               | 78,083  |  |         |         | 69,044  | 
|LONG-TERM DEBT, net of current portion     |                                                                                                                                                                                             |                                            | 309,108 |               |         |  | 226,710 |        
|Deferred income taxes                      |                                                                                                                                                                                             |                                            | 25,844  |               |         |  | 6,378   |        
|OTHER LONG-TERM LIABILITIES                |                                                                                                                                                                                             |                                            | 9,439   |               |         |  | 3,476   |        
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           |                                                                                                                                                                                             | Total liabilities                          |         |               | 422,474 |  |         |         | 305,608 | 
|REDEEMABLE MINORITY INTEREST IN SUBSIDIARY |                                                                                                                                                                                             |                                            |        |               |         |  | 18,050  |        
|COMMITMENTS AND CONTINGENCIES              |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|STOCKHOLDERS EQUITY:                      |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           | Preferred stock, $.01 par value,
    1,200,000 shares authorized, 1,007,366 shares issued
    and outstanding at August 30, 2003; liquidation preference
    of $100,737 at August 30, 2003 |                                            |         |              |         |  |         | 10      |        
|                                           | Common stock, $.01 par value,
    1,250,000 shares authorized, 1,015,426 and
    809,775 shares issued and outstanding, respectively                                                        |                                            |         | 10            |         |  |         | 8       |        
|                                           | Additional paid-in capital                                                                                                                                                                  |                                            |         | 102,036       |         |  |         | 95,350  |        
|                                           | Accumulated earnings (deficit)                                                                                                                                                              |                                            |         | 6,466         |         |  |         | (18,375 | )      
|                                           | Accumulated other comprehensive loss                                                                                                                                                        |                                            |         |              |         |  |         | (5,150  | )      
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           |                                                                                                                                                                                             | Total stockholders equity                 |         |               | 108,512 |  |         |         | 71,843  | 
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        
|                                           |                                                                                                                                                                                             | Total liabilities and stockholders equity |         | $             | 530,986 |  |         | $       | 395,501 | 
|                                           |                                                                                                                                                                                             |                                            |         |               |         |  |         |        

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

27



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Dollars in thousands)


|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |         |  
|-------------------------------------------- | ------------------------------------------------------- | --------------- | ------- | ------------------ | - | ---------- | ------- | ---------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                             |                                                         |                 |         |                   
|                                             |                                                         | (Successor)     |         | (Predecessor)     
|                                             |                                                         |                 |         |                   
|                                             |                                                         |                 |         |                   
|                                             |                                                         | For the Period  |         | For the Year Ended
|                                             |                                                         |                 |         |                   
|                                             |                                                         | March 26, 2004- |         | August 31, 2003-   |   | August 30, |         | August 31,
|                                             |                                                         | August 28, 2004 |         | March 25, 2004     |   | 2003       |         | 2002      
|                                             |                                                         |                 |         |                    |   |            |         |           
|Net sales                                    |                                                         | $               | 167,350 |                    |   | $          | 146,721 |            |   | $ | 308,431 |         |   | $ | 304,378 |        
|Cost of sales                                |                                                         |                 | 83,521  |                    |   |            | 59,857  |            |   |   | 139,170 |         |   |   | 146,898 |        
|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |        
|                                             | Gross profit                                            |                 |         | 83,829             |   |            |         | 86,864     |   |   |         | 169,261 |   |   |         | 157,480 |  
|Selling, general and administrative expenses |                                                         |                 | 62,647  |                    |   |            | 74,992  |            |   |   | 129,423 |         |   |   | 129,734 |        
|Loss on extinguishment of debt               |                                                         |                 |        |                    |   |            |        |            |   |   |        |         |   |   | (5,650  | )      
|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |        
|                                             | Operating income                                        |                 |         | 21,182             |   |            |         | 11,872     |   |   |         | 39,838  |   |   |         | 22,096  |  
|Interest expense                             |                                                         |                 | 10,257  |                    |   |            | 16,455  |            |   |   | 28,940  |         |   |   | 26,026  |        
|Other expense                                |                                                         |                 |        |                    |   |            |        |            |   |   |        |         |   |   | 2,783   |        
|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |        
|                                             | Income (loss) before income taxes                       |                 |         | 10,925             |   |            |         | (4,583     | ) |   |         | 10,898  |   |   |         | (6,713  | )
|                                             | Benefit (provision) for income taxes                    |                 |         | (4,459             | ) |            |         |           |   |   |         | (132    | ) |   |         | 1,171   |  
|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |        
|                                             | Net income (loss)                                       |                 |         | 6,466              |   |            |         | (4,583     | ) |   |         | 10,766  |   |   |         | (5,542  | )
|Preferred dividends                          |                                                         |                 |        |                    |   |            | (700    | )          |   |   | (1,200  | )       |   |   | (1,200  | )      
|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |        
|                                             | Net income (loss) applicable to common
    stockholders |                 | $       | 6,466              |   |            | $       | (5,283     | ) |   | $       | 9,566   |   |   | $       | (6,742  | )
|                                             |                                                         |                 |         |                    |   |            |         |            |   |   |         |         |   |   |         |        

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

28



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Dollars in thousands)


|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |          |         |        |  
|----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------ | ------ | ---------- | ----- | ---------- | -------- | ------- | ----- | ------- | ------- | ------ | ------ | -------- | ------- | ------ | -
|                                                            |                                                                                                        |                                                               |                                                                         |                   
|                                                            |                                                                                                        | (Successor)                                                   |                                                                         | (Predecessor)     
|                                                            |                                                                                                        |                                                               |                                                                         |                   
|                                                            |                                                                                                        |                                                               |                                                                         |                   
|                                                            |                                                                                                        | For the Period                                                |                                                                         | For the Year Ended
|                                                            |                                                                                                        |                                                               |                                                                         |                   
|                                                            |                                                                                                        | March 26, 2004-                                               |                                                                         | August 31, 2003-   |        | August 30, |       | August 31,
|                                                            |                                                                                                        | August 28, 2004                                               |                                                                         | March 25, 2004     |        | 2003       |       | 2002      
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                       |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Net income (loss)                                                                                      |                                                               | $                                                                       | 6,466              |        |            | $     | (4,583     | )        |         | $     | 10,766  |         |        | $      | (5,542   | )      
|                                                            | Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |          |        
|                                                            |                                                                                                        | Depreciation and amortization                                 |                                                                         |                    | 10,344 |            |       |            | 8,530    |         |       |         | 14,149  |        |        |          | 19,712  |       
|                                                            |                                                                                                        | Deferred income taxes                                         |                                                                         |                    | 4,309  |            |       |            |         |         |       |         |        |        |        |          |        |       
|                                                            |                                                                                                        | Loss on extinguishment of debt                                |                                                                         |                    |       |            |       |            |         |         |       |         |        |        |        |          | 5,650   |       
|                                                            |                                                                                                        | Amortization of debt discount and deferred
    financing fees |                                                                         |                    | 629    |            |       |            | 1,197    |         |       |         | 2,051   |        |        |          | 1,355   |       
|                                                            |                                                                                                        | Unrealized loss on free-standing derivative                   |                                                                         |                    |       |            |       |            |         |         |       |         |        |        |        |          | 182     |       
|                                                            |                                                                                                        | Provision for doubtful accounts                               |                                                                         |                    | (236   | )          |       |            | (144     | )       |       |         | (376    | )      |        |          | 145     |       
|                                                            |                                                                                                        | Changes in assets and liabilities:                            |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |          |         |       
|                                                            |                                                                                                        |                                                               | Accounts receivable                                                     |                    |        | (1,506     | )     |            |          | 2,758   |       |         |         | 2,469  |        |          |         | 3,582  |  
|                                                            |                                                                                                        |                                                               | Inventories, net                                                        |                    |        | 26,266     |       |            |          | (18,963 | )     |         |         | 2,117  |        |          |         | 1,380  |  
|                                                            |                                                                                                        |                                                               | Income tax receivable                                                   |                    |        |           |       |            |          |        |       |         |         | 738    |        |          |         | 38     |  
|                                                            |                                                                                                        |                                                               | Prepaid expenses and other current assets, net                          |                    |        | (16,262    | )     |            |          | 2,573   |       |         |         | (2,296 | )      |          |         | (5,057 | )
|                                                            |                                                                                                        |                                                               | Other assets                                                            |                    |        | 810        |       |            |          | (959    | )     |         |         | (1,043 | )      |          |         | (739   | )
|                                                            |                                                                                                        |                                                               | Deferred revenue                                                        |                    |        | 2,615      |       |            |          | (2,235  | )     |         |         | (1,392 | )      |          |         | (284   | )
|                                                            |                                                                                                        |                                                               | Accounts payable, accrued expenses, and other
    long-term liabilities |                    |        | (36,862    | )     |            |          | 52,053  |       |         |         | (685   | )      |          |         | 2,888  |  
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Net cash provided by (used in) operating
    activities                                                |                                                               |                                                                         | (3,427             | )      |            |       | 40,227     |          |         |       | 26,498  |         |        |        | 23,310   |        
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                       |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Purchases of property, plant and equipment                                                             |                                                               |                                                                         | (3,665             | )      |            |       | (12,793    | )        |         |       | (11,243 | )       |        |        | (14,247  | )      
|                                                            | Sale of property, plant and equipment                                                                  |                                                               |                                                                         |                   |        |            |       |           |          |         |       |        |         |        |        | 673      |        
|                                                            | Acquisitions of businesses, net of cash acquired                                                       |                                                               |                                                                         |                   |        |            |       | (109,406   | )        |         |       |        |         |        |        | (15,502  | )      
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            |                                                                                                        | Net cash used in investing activities                         |                                                                         |                    | (3,665 | )          |       |            | (122,199 | )       |       |         | (11,243 | )      |        |          | (29,076 | )     
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                       |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Proceeds from revolver                                                                                 |                                                               |                                                                         |                   |        |            |       | 4,000      |          |         |       | 47,500  | )       |        |        | 56,905   |        
|                                                            | Payments on revolver                                                                                   |                                                               |                                                                         |                   |        |            |       | (13,500    | )        |         |       | (63,175 | )       |        |        | (65,589  | )      
|                                                            | Proceeds of common stock issuance                                                                      |                                                               |                                                                         |                   |        |            |       | 102,046    |          |         |       | 40      |         |        |        |         |        
|                                                            | Proceeds from term loan                                                                                |                                                               |                                                                         | (387               | )      |            |       | 155,000    |          |         |       |        |         |        |        |         |        
|                                                            | Proceeds from 8.25% senior subordinated notes                                                          |                                                               |                                                                         |                   |        |            |       | 150,000    |          |         |       |        |         |        |        |         |        
|                                                            | Proceeds from credit facility revolver                                                                 |                                                               |                                                                         | 5,000              |        |            |       | 2,000      |          |         |       |        |         |        |        |         |        
|                                                            | Payments on credit facility revolver                                                                   |                                                               |                                                                         | (7,000             | )      |            |       |           |          |         |       |        |         |        |        |         |        
|                                                            | Redemption of common and preferred stock                                                               |                                                               |                                                                         |                   |        |            |       | (95,368    | )        |         |       |        |         |        |        |         |        
|                                                            | Redemption of 11% senior subordinated notes                                                            |                                                               |                                                                         |                   |        |            |       | (41,355    | )        |         |       |        |         |        |        |         |        
|                                                            | Redemption of 11 5/8% senior unsecured
    notes                                                       |                                                               |                                                                         |                   |        |            |       | (170,925   | )        |         |       |        |         |        |        |         |        
|                                                            | Payments on term loan facility                                                                         |                                                               |                                                                         |                   |        |            |       |           |          |         |       |        |         |        |        | (121,400 | )      
|                                                            | Proceeds from debt issuance, net of costs                                                              |                                                               |                                                                         |                   |        |            |       |           |          |         |       |        |         |        |        | 166,612  |        
|                                                            | Payment of bridge notes to affiliate                                                                   |                                                               |                                                                         |                   |        |            |       |           |          |         |       |        |         |        |        | (28,383  | )      
|                                                            | Repayment of interest rate swaps                                                                       |                                                               |                                                                         |                   |        |            |       |           |          |         |       |        |         |        |        | (3,279   | )      
|                                                            | Change in bank overdraft                                                                               |                                                               |                                                                         | 3,252              |        |            |       | (2,396     | )        |         |       | 553     |         |        |        | (174     | )      
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            |                                                                                                        | Net cash provided by (used in) financing
    activities       |                                                                         |                    | 865    |            |       |            | 89,502   |         |       |         | (15,082 | )      |        |          | 4,692   | )     
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS    |                                                                                                        |                                                               | (6,227                                                                  | )                  |        |            | 7,530 |            |          |         | 173   |         |         |        | (1,074 | )       
|CASH AND CASH EQUIVALENTS, beginning of period              |                                                                                                        |                                                               | 9,265                                                                   |                    |        |            | 1,735 |            |          |         | 1,562 |         |         |        | 2,636  |         
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|CASH AND CASH EQUIVALENTS, end of period                    |                                                                                                        | $                                                             | 3,038                                                                   |                    |        | $          | 9,265 |            |          | $       | 1,735 |         |         | $      | 1,562  |         
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|SUPPLEMENTAL DISCLOSURE                                     |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Cash paid during the period for:                                                                       |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |          |        
|                                                            |                                                                                                        | Interest                                                      |                                                                         | $                  | 2,567  |            |       | $          | 18,873   |         |       | $       | 26,790  |        |        | $        | 24,001  |       
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            |                                                                                                        | Income taxes                                                  |                                                                         | $                  | 88     |            |       | $          | 178      |         |       | $       | 133     |        |        | $        | 802     |       
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
    ACTIVITIES |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Accrued preferred stock dividends                                                                      |                                                               | $                                                                       |                   |        |            | $     | 700        |          |         | $     | 1,200   |         |        | $      | 1,200    |        
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         
|                                                            | Issuance of preferred stock in settlement of
    obligation                                            |                                                               | $                                                                       |                   |        |            | $     |           |          |         | $     |        |         |        | $      | 550      |        
|                                                            |                                                                                                        |                                                               |                                                                         |                    |        |            |       |            |          |         |       |         |         |        |        |         

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

29



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(Dollars in thousands)


|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------- |  | --------------- | ---------- | ------------ |  | ---------- | --- | ------------- |  | ----------- | --------- | ----------- |  | --------- | -- | ----- |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                              |  |                 |            |              |  |            |     |               |  |             |           | Accumulated |  |           |    |      
|                                                              |  |                 |            |              |  |            |     | Other         |  |             |           |            
|                                                              |  | Preferred Stock |            | Common Stock |  | Additional |     | Comprehensive |  | Accumulated |           |            
|                                                              |  |                 |            |              |  | Paid-in    |     | Income        |  | Earnings    |           |            
|                                                              |  | Shares          |            | Amount       |  | Shares     |     | Amount        |  | Capital     |           | (Loss)      |  | (Deficit) |    | Total
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |      
|BALANCE, August 25, 2001 (Predecessor)                        |  |                 | 1,001,347  |              |  | $          | 10  |               |  |             | 809,351   |             |  | $         | 8  |       |  | $ | 94,760  |   |  | $ | (2,751 | ) |  | $ | (21,199 | ) |  | $ | 70,828  |  
|Comprehensive loss                                           |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Net loss                                                      |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  |   | (5,542  | ) |  |   | (5,542  | )
|Adjustment to minimum pension liability                       |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | (1,614 | ) |  |   |        |   |  |   | (1,614  | )
|Change in effective portion of derivative loss                |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | (377   | ) |  |   |        |   |  |   | (377    | )
|Reclassification into earnings for derivative
    termination |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | 2,609  |   |  |   |        |   |  |   | 2,609   |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Total comprehensive income (loss)                             |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | 618    |   |  |   | (5,542  | ) |  |   | (4,924  | )
|Accrued dividends on minority interest in CBI                 |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  |   | (1,200  | ) |  |   | (1,200  | )
|Issuance of American Achievement Series A
    Preferred Stock |  |                 | 5,500      |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   | 550     |   |  |   |       |   |  |   |        |   |  |   | 550     |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|BALANCE, August 31, 2002 (Predecessor)                        |  |                 | 1,006,847  |              |  | $          | 10  |               |  |             | 809,351   |             |  | $         | 8  |       |  | $ | 95,310  |   |  | $ | (2,133 | ) |  | $ | (27,941 | ) |  | $ | 65,254  |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Comprehensive income                                         |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Net income                                                    |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  |   | 10,766  |   |  |   | 10,766  |  
|Adjustment to minimum pension liability                       |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | (3,017 | ) |  |   |        |   |  |   | (3,017  | )
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Total comprehensive income (loss)                             |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | (3,017 | ) |  |   | 10,766  |   |  |   | 7,749   |  
|Accrued dividends on minority interest in CBI                 |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  |   | (1,200  | ) |  |   | (1,200  | )
|Issuance of stock                                             |  |                 | 519        |              |  |            |    |               |  |             | 424       |             |  |           |   |       |  |   | 40      |   |  |   |       |   |  |   |        |   |  |   | 40      |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|BALANCE, August 30, 2003 (Predecessor)                        |  |                 | 1,007,366  |              |  | $          | 10  |               |  |             | 809,775   |             |  | $         | 8  |       |  | $ | 95,350  |   |  | $ | (5,150 | ) |  | $ | (18,375 | ) |  | $ | 71,843  |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Comprehensive loss                                           |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Net loss                                                      |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  |   | (4,583  | ) |  |   | (4,583  | )
|Adjustment to minimum pension liability                       |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | 40     |   |  |   |        |   |  |   | 40      |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                      |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | 40     |   |  |   | (4,583  | ) |  |   | (4,543  | )
|Accrued dividends on minority interest in CBI                 |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  |   | (700    | ) |  |   | (700    | )
|Repurchase of common and preferred stock                      |  |                 | (1,007,366 | )            |  |            | (10 | )             |  |             | (809,775  | )           |  |           | (8 | )     |  |   | (95,350 | ) |  |   |       |   |  |   |        |   |  |   | (95,368 | )
|Issuance of common stock                                      |  |                 |            |              |  |            |     |               |  |             | 1,015,426 |             |  |           | 10 |       |  |   | 102,036 |   |  |   |       |   |  |   |        |   |  |   | 102,046 |  
|Effect of purchase accounting                                 |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   | 5,110  |   |  |   | 23,658  |   |  |   | 28,768  |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|BALANCE, March 25, 2004 (Predecessor)                         |  |                 |           |              |  | $          |    |               |  |             | 1,015,426 |             |  | $         | 10 |       |  | $ | 102,036 |   |  | $ |       |   |  | $ |        |   |  | $ | 102,046 |  
|Net income                                                    |  |                 |           |              |  |            |    |               |  |             |          |             |  |           |   |       |  |   |        |   |  |   |       |   |  | $ | 6,466   |   |  | $ | 6,466   |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|BALANCE, August 28, 2004 (Successor)                          |  |                 |           |              |  | $          |    |               |  |             | 1,015,426 |             |  | $         | 10 |       |  | $ | 102,036 |   |  | $ |       |   |  | $ | 6,466   |   |  | $ | 108,512 |  
|                                                              |  |                 |            |              |  |            |     |               |  |             |           |             |  |           |    |       |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  

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

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Dollars in thousands)




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Summary of Organization and Significant
    Accounting Policies

American Achievement Corporation, a Delaware
corporation (together with its subsidiaries, AAC or
the Company), is a manufacturer and supplier of
class rings, yearbooks and other graduation-related scholastic
products for the high school and college markets and
manufactures and markets recognition and affinity jewelry
designed to commemorate significant events, achievements and
affiliations. The Company also operates a division which sells
achievement publications in the specialty directory publishing
industry nationwide. The Company markets its products and
services primarily in the United States and operates in two
reporting segments, scholastic products and recognition and
affinity products. The Companys corporate offices and
primary manufacturing facilities are located in Austin and
Dallas, Texas.

BASIS OF PRESENTATION

The consolidated financial statements for the
predecessor period from August 31, 2003 through
March 25, 2004 were prepared using the historical basis of
accounting. As a result of the merger transaction as discussed
in Note 2, the Company applied purchase accounting and a
new basis of accounting began on March 26, 2004. The
Company has reflected a predecessor period from August 31,
2003 to March 25, 2004 and a successor period from
March 26, 2004 to August 28, 2004 in the
Companys consolidated financial statements for fiscal 2004.

FISCAL YEAR-END

The Company uses a 52/53-week fiscal year ending
on the last Saturday of August.

CONSOLIDATION

The consolidated financial statements include the
accounts of American Achievement Corporation (the
Company) and its direct and indirect subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.

The 8 1/4% Senior Subordinated Notes
Due 2012 (the Senior Sub Notes) are guaranteed by
certain direct and indirect domestic subsidiaries of the
Company. The guarantees by the guarantor subsidiaries are full,
unconditional, and joint and several. American Achievement
Corporation is a holding Company with no independent assets or
operations other than its investment in its subsidiaries.

CHANGE IN ACCOUNTING PRINCIPLE

Effective September 1, 2002, the Company
adopted Statement of Financial Accounts Standards No. 142
Goodwill and Other Intangible Assets
(SFAS 142), which revises the accounting for
purchased goodwill and intangible assets with indefinite lives.
This statement was applied to all goodwill and other intangible
assets with indefinite lives recognized on the balance sheet,
regardless of when those assets were initially recorded. Upon
its adoption, the Company no longer amortized its goodwill or
trademarks.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include highly liquid
investments with original maturities of three months or less.

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AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company makes estimates of potentially
uncollectible customer accounts receivable. The Company believes
that its credit risk for these receivables is limited because of
its large number of customers and the relatively small account
balances for most of its customers. The Company evaluates the
adequacy of the allowance on a periodic basis. The evaluation
includes historical loss experience, length of time receivables
are past due, adverse situations that may affect a
customers ability to repay and prevailing economic
conditions. The Company makes adjustments to the allowance
balance if the evaluation of allowance requirements differs from
the actual aggregate reserve. This evaluation is inherently
subjective and estimates may be revised as more information
becomes available.

INVENTORIES

Inventories, which include raw materials, labor
and manufacturing overhead, are stated at the lower of cost or
market using the first-in, first-out (FIFO) method, net of
allowance for obsolete inventory.

SALES REPRESENTATIVE ADVANCES AND RELATED
RESERVE

The Company advances funds to independent sales
representatives as prepaid commissions against anticipated
earnings. Such amounts are repaid by the independent sales
representatives through earned commissions on product sales. The
Company provides reserves to cover those amounts which it
estimates to be uncollectible. These amounts are included in
prepaid expenses and other current assets in the accompanying
consolidated balance sheets.

The Company advances funds to new sales
representatives in order to open up new sales territories or
makes payments to predecessor sales representatives on behalf of
successor sales representatives. Such amounts are repaid by the
sales representatives through earned commissions on product
sales. The Company provides reserves to cover those amounts that
it estimates to be uncollectible.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at
historical cost for the predecessor period through
March 25, 2004, at which time the Company adjusted property
and equipment to fair value in accordance with purchase
accounting. Property, plant and equipment are stated at cost,
net of accumulated depreciation. Maintenance, repairs and minor
replacements are charged against operations as incurred; major
replacements and betterments are capitalized. The cost of assets
sold or retired and the related accumulated depreciation are
removed from the accounts at the time of disposition, and any
resulting gain or loss is reflected as other income or expense
for the period. Depreciation is provided principally using the
straight-line method based on estimated useful lives of the
assets as follows:

|                           |  |               
|-------------------------- |  | --------------
|Description                |  | Useful Life   
|                           |  |               
|Buildings and improvements |  | 10 to 25 years
|Tools and dies             |  | 8 years       
|Machinery and equipment    |  | 2 to 10 years 
|Leasehold improvements     |  | Term of lease 

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets are
originally recorded at their fair values at the date of
acquisition. Goodwill and indefinite-lived intangibles are no
longer amortized, but are tested annually for impairment, or
more frequently if impairment indicators occur. Prior to fiscal
2002, goodwill and intangibles were amortized over their
estimated useful lives, not to exceed a period of forty years.
Definite-lived intangibles are amortized over their estimated
useful lives and are evaluated for impairment annually, or more
frequently if impairment indicators are present, using a process
similar to that used to test other long-lived assets for
impairment.

The impact of the implementation of
SFAS No. 142 is as follows:

|                           |                             |                 |       |                  |  |            |        |            |  |   |        |   |  |   |        |       | 
|-------------------------- | --------------------------- | --------------- | ----- | ---------------- |  | ---------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | ----- | 
|                           |                             |                 |       |                  |  | For the    |        | For the   
|                           |                             | For the Period  |       | For the Period   |  | Year Ended |        | Year Ended
|                           |                             |                 |       |                  |  |            |        |           
|                           |                             | March 26, 2004- |       | August 31, 2003- |  | August 30, |        | August 31,
|                           |                             | August 28, 2004 |       | March 25, 2004   |  | 2003       |        | 2002      
|                           |                             |                 |       |                  |  |            |        |           
|Reported net income (loss) |                             | $               | 6,466 |                  |  | $          | (4,583 | )          |  | $ | 10,766 |   |  | $ | (5,542 | )    
|                           | Add: goodwill amortization  |                 |       |                 |  |            |        |           |  |   |        |  |  |   |        | 4,013 | 
|                           | Add: trademark amortization |                 |       |                 |  |            |        |           |  |   |        |  |  |   |        | 1,544 | 
|                           |                             |                 |       |                  |  |            |        |            |  |   |        |   |  |   |        |      
|Pro forma net income       |                             | $               | 6,466 |                  |  | $          | (4,583 | )          |  | $ | 10,766 |   |  | $ | 15     |      
|                           |                             |                 |       |                  |  |            |        |            |  |   |        |   |  |   |        |      

IMPAIRMENT OF LONG-LIVED ASSETS

SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, requires an
entity to review long-lived tangible and intangible assets with
definite lives for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not
be recoverable. Recoverability of these assets is measured by
comparison of its carrying amount to future undiscounted cash
flows the assets are expected to generate. If long-lived assets
are considered to be impaired, the impairment to be recognized
equals the amount by which the carrying value of the assets
exceeds its fair market value and is recorded in the period the
determination was made. In applying SFAS 144, assets are
grouped and evaluated at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. The Company considers
historical performance and future estimated results in its
evaluation of impairment. If the carrying amount of the asset
exceeds expected undiscounted future cash flows, the Company
measures the amount of impairment by comparing the carrying
amount of the asset to its fair value, generally measured by
discounting expected future cash flows at the rate it utilizes
to evaluate potential investments.

CUSTOMER DEPOSITS

Amounts received from customers in the form of
cash down payments to purchase goods are recorded as a liability
until the goods are delivered.

INCOME TAXES

In accordance with SFAS No. 109,
Accounting for Income Taxes, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are
recognized net

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of any valuation allowance. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the
enactment date.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Companys financial instruments consist
primarily of cash and cash equivalents, accounts receivable,
bank overdraft, accounts payable and long-term debt (including
current maturities). The carrying amounts of the Companys
cash and cash equivalents, accounts receivable, bank overdraft
and accounts payable approximate fair value due to their
short-term nature. The fair value of the Companys
long-term debt approximates the recorded amount based on current
rates available to the Company for debt with the same or similar
terms.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, beginning on August 27, 2000.
SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and hedging activities.
SFAS No. 133 requires that an entity recognize
derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.
The adoption of SFAS No. 133 did not have a material
effect on the Companys financial statements.

The Company designates its derivatives based upon
criteria established by SFAS No. 133. For a derivative
designated as a fair value hedge, the gain or loss is recognized
in earnings in the period of change together with the offsetting
loss or gain on the hedged item attributed to the risk being
hedged. For a derivative designated as a cash flow hedge, the
effective portion of the derivatives gain or loss is
initially reported as a component of accumulated other
comprehensive income (loss) and subsequently reclassified into
earnings when the hedged exposure affects earnings. The
ineffective portion of the gain or loss is reported in earnings
immediately.

Trading derivatives are reflected in other
current liabilities at their fair value with any changes in fair
value being reported in other income or expense.

STOCK-BASED COMPENSATION

The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of
SFAS No. 123 (SFAS 123),
Accounting for Stock-Based Compensation, as amended
by SFAS No. 148 (SFAS 148),
Accounting for Stock-Based Compensation 
Transition and Disclosure an amendment of FASB Statement
No. 123. The Company accounts for stock-based
employee compensation arrangements in accordance with the
provisions of Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Issued
to Employees and complies with the disclosure provisions
of SFAS 123, as amended by SFAS 148.

Had compensation expense for the stock plans been
determined based on the fair value at the grant date for options
granted in the period August 31, 2003 to March 25,
2004 and fiscal years ended 2003 and

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AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002 consistent with the provisions of
SFAS 123, as amended by SFAS 148, the pro forma net
income (loss) would have been reported as follows:

|                                                                 |  |                  |        |              |  |              |        |  |  |   |        |  
|---------------------------------------------------------------- |  | ---------------- | ------ | ------------ |  | ------------ | ------ |  |  | - | ------ | -
|                                                                 |  |                 
|                                                                 |  | (Predecessor)   
|                                                                 |  |                 
|                                                                 |  | For the Period   |        | For the Year |  | For the Year
|                                                                 |  | August 31, 2003- |        | Ended        |  | Ended       
|                                                                 |  | March 25,        |        | August 30,   |  | August 31,  
|                                                                 |  | 2004             |        | 2003         |  | 2002        
|                                                                 |  |                  |        |              |  |             
|Net income (loss)                                                |  | $                | (4,583 | )            |  | $            | 10,766 |  |  | $ | (5,542 | )
|Less: stock-based compensation expense, net of
    related taxes |  |                  | 11     |              |  |              | 30     |  |  |   | 8      |  
|                                                                 |  |                  |        |              |  |              |        |  |  |   |        |  
|Net income (loss)  pro forma                                    |  | $                | (4,594 | )            |  | $            | 10,736 |  |  | $ | (5,550 | )
|                                                                 |  |                  |        |              |  |              |        |  |  |   |        |  

The Company did not have any options outstanding
during the period March 26, 2004 to August 28, 2004.

The fair value of each option grant is estimated
at the date of grant using the period August 31, 2003 to
March 25, 2004 and fiscal years ended 2003 and 2002:

|                        |  |                |          |              |  |              |          |  |  |  |          | 
|----------------------- |  | -------------- | -------- | ------------ |  | ------------ | -------- |  |  |  | -------- | 
|                        |  |                |          | For the Year |  | For the Year
|                        |  | For the Period |          | Ended        |  | Ended       
|                        |  | March 25,      |          | August 30,   |  | August 31,  
|                        |  | 2004           |          | 2003         |  | 2002        
|                        |  |                |          |              |  |             
|Risk-free interest rate |  |                | 3.93%    |              |  |              | 3.93%    |  |  |  | 4.88%    | 
|Expected life           |  |                | 10 years |              |  |              | 10 years |  |  |  | 10 years | 
|Volatility              |  |                | 25%      |              |  |              | 25%      |  |  |  | 28%      | 
|Dividend yield          |  |                |         |              |  |              |         |  |  |  |         | 

REVENUE RECOGNITION AND WARRANTY
COSTS

The Companys revenues from product sales,
excluding revenue through independent sales representatives, are
recognized at the time the product is shipped, the risks and
rewards of ownership have passed to the customer and
collectibility is reasonably assured. Provisions for sales
returns, warranty costs and rebate expenses are recorded at the
time of sale based upon historical information and current
trends.

The Companys accounting method for
recognizing revenue and related gross profit on sales to
independent sales representatives, along with commissions to
independent sales representatives that are directly related to
the revenue is deferred until the independent sales
representative delivers the product and title passes to the
Companys end customer.

The Company recognizes revenues on its publishing
operations based upon the completed contract method, and revenue
is recognized when the products are shipped.

Provisions for warranty costs related to the
Companys products, sales returns and uncollectible amounts
are recorded based on historical information and current trends.

SEASONALITY

The seasonal natures of the Companys
various businesses tend to be tempered by its broad product mix.
Class ring sales are highest during October through December,
with most 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 May through June, as yearbooks are typically shipped prior to
each schools summer

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AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

break. The Companys recognition and
affinity product line sales are also seasonal. The majority of
the Companys achievement publications are shipped in
November and August of each year. The remaining recognition and
affinity product line sales are highest during the winter
holiday season and in the period leading up to Mothers Day.

As a result of the foregoing, the Company has
historically experienced operating losses during our fourth
fiscal quarter, which includes the summer months when school is
not in session, thus reducing related shipment of products. In
addition, the Companys working capital requirements tend
to exceed its operating cash flows from April through August.

CONCENTRATION OF CREDIT RISK

Credit is extended to certain industries, such as
educational and retail, which may be affected by changes in
economic or other external conditions. The Companys policy
is to manage its exposure to credit risk through credit
approvals and limits.

SHIPPING AND HANDLING FEES

In accordance with Emerging Issues Task Force
(EITF) Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs, the Company recognizes as revenue
amounts billed to customers related to shipping and handling,
with the related expense recorded as a component of cost of
sales.

SUPPLIER CONCENTRATION

The Company purchases substantially all synthetic
and semi-precious stones from a single supplier located in
Germany.

ADVERTISING

The Company expenses advertising costs as
incurred; however in accordance with AICPA Statement of
Position 93-7 Reporting on Advertising Costs
the Company defers certain advertising costs until the first
time the advertising takes place. These deferred advertising
costs are included in prepaid expenses and other current assets.

Selling, general and administrative expenses for
the Company include advertising expenses of $2,446, for the
period from March 26, 2004 to August 28, 2004 and
$5,260 for the period August 31, 2003 to March 25,
2004 and $7,204 and $6,905 for the years ended, August 30,
2003 and August 31, 2002, respectively.

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.

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

RECLASSIFICATIONS

Certain reclassifications of prior-year balances
have been made to conform to the current-year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. This statement requires, among
other things, that gains and losses on the early extinguishments
of debt be classified as extraordinary only if they meet the
criteria for extraordinary treatment set forth in Accounting
Principles Board Opinion No. 30. The provisions of this
statement related to classification of gains and losses on the
early extinguishments of debt became effective for fiscal years
beginning after May 15, 2002. The adoption of
SFAS No. 145 required the Company to reclassify
certain items from extraordinary items into operating income
(loss).

In June 2002, SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, was issued, which addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). This statement requires recognition of a
liability for a cost associated with an exit or disposal
activity when the liability is incurred as opposed to the date
of an entitys commitment to an exit plan or disposal
activity. The adoption of SFAS No. 146 in January 2003
did not have a significant impact on the Companys
financial statements.

In December 2002, SFAS 148 was issued, which
amends SFAS 123, to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. It also
amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. Certain disclosure requirements were effective
for the Company beginning December 15, 2002 and the Company
has complied with those requirements. The adoption of the
additional reporting requirements of SFAS 148 in December
2002 did not have a significant impact on the Companys
financial statements.

In December 2002, FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34, was issued, which addresses
the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligation under
guarantees and clarifies the requirements related to the
recognition of a liability by a guarantor at the inception of a
guarantee for the obligations the guarantor has undertaken in
issuing that guarantee. The adoption of FIN 45 in December
2002 did not have a significant impact on the Companys
financial statements.

In April 2003, SFAS No. 149
(SFAS 149), Amendments of
Statement 133 on Derivative Instruments and Hedging
Activities, was issued, which amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities. The adoption of SFAS 149 in the third
quarter of the fiscal year ended 2003 did not have a significant
impact on the Companys financial statements.

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 2003, SFAS No. 150
(SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities
and Equity, was issued, which establishes standards for
how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
The Company adopted SFAS 150 during the first quarter of
fiscal year 2004. The adoption of this standard did not have a
significant impact on the Companys financial statements.

In January 2003, the FASB issued FIN No. 46
Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. In December 2003, the FASB
revised FIN No. 46 to reflect decisions it made
regarding a number of implementation issues.
FIN No. 46, as revised, requires that the primary
beneficiary of a variable interest entity (VIE) consolidate the
entity even if the primary beneficiary does not have a majority
voting interest. This Interpretation applies to certain entities
in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without
additional subordinated financial support. This Interpretation
also identifies those situations where a controlling financial
interest may be achieved through arrangements that do not
involve voting interests. The Interpretation also establishes
additional disclosures which are required regarding an
enterprises involvement with a VIE when it is not the
primary beneficiary. The requirements of this Interpretation are
required to be applied to any VIE created after January 31,
2003. The Company adopted FIN 46 in the first quarter of
fiscal year 2004. The adoption of this standard did not have a
significant impact on the Companys financial statements.

In December 2003, the FASB amended
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. The amendment
revised employers disclosures about pension plans and
other post retirement benefit plans to require additional
disclosures to those in the original SFAS No. 132
about the assets, obligations, cash flows, and net periodic
benefit cost of defined pension plans and other defined benefit
postretirement plans. The Company adopted the additional
disclosure requirements in the third quarter of fiscal 2004.

In December 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation 46R (FIN 46R),
a revision to Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46R
clarifies some of the provisions of FIN 46 and exempts
certain entities from its requirements. FIN 46R is
effective at the end of the first interim period ending after
March 15, 2004. Entities that have adopted FIN 46
prior to this effective date can continue to apply the
provisions of FIN 46 until the effective date of
FIN 46R or elect early adoption of FIN 46R. The
adoption of FIN 46 and FIN 46R did not have a
significant impact on the Companys financial statements.

On December 8, 2003, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law. The Act will provide
plan sponsors a federal subsidy for certain qualifying
prescription drug benefits covered under the sponsors
postretirement health care plans. In accordance with Financial
Accounting Standards Board (FASB) Staff Position
(FSP) 106-1, all amounts are presented without reflecting
any potential effects of the Act. On May 19, 2004, the FASB
issued FSP 106-2, which requires measures of the
accumulated postretirement benefit obligation and net periodic
postretirement benefit cost to reflect the effects of the Act in
the first interim period beginning after June 15, 2004. The
Company does not expect the adoption of the Act to have a
significant impact on its consolidated financial statements.



|   |       
|-- | ------
|2. | Merger

The Merger was financed by a cash equity
investment in Holdings by an investor group led by Fenway
Partners of $102.0 million, the borrowing by the Company of
$155.0 million under a seven-year term loan and
$2.0 million under a six-year revolving loan, each under
the Companys new senior secured credit facility, the
issuance by the Company of $150.0 million aggregate
principal amount of 8.25% senior subordinated notes due
2012, and the untendered Senior Unsecured Notes of
$6.0 million. Proceeds of

38



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

these financing arrangements were used to redeem
the outstanding Series A Preferred Stock, refinance the
Companys existing indebtedness, including the redemption
of the outstanding Senior Notes of $41.4 million and
completion of a debt tender offer to acquire all of the existing
Senior Notes, and pay transaction costs and expenses. Pursuant
to the debt tender offer, the Company retired
$170.9 million of outstanding Senior Unsecured Notes for an
aggregate of $193.8 million and eliminated substantially
all of the restrictive covenants associated with such notes. In
addition, as part of the Merger, the Company terminated its
existing Senior Secured Credit Facility and terminated its
management contract with its previous owners. The Company also
entered into an amendment of its existing gold consignment
agreement and entered into a new management agreement with an
affiliate of Fenway Partners.

Beginning on March 26, 2004, the Company
accounted for the Merger as a purchase in accordance with the
provisions of Statement of Financial Accounting Standards
(SFAS) 141, Business Combinations,which
results in a new valuation for the assets and liabilities of the
Company based upon the fair values as of the date of the Merger.
As required under SEC Staff Accounting Bulletin No. 54,
Push Down Basis of Accounting Required in Certain
Limited Circumstances,the Company has reflected all
applicable purchase accounting adjustments in the consolidated
financial statements covering periods subsequent to the Merger.
As required, the Company has established a new basis for assets
and liabilities based on the amount paid for ownership at
March 25, 2004. Accordingly, the purchase price of
$419.2 million was allocated to the assets and liabilities
based on their relative fair values.

The purchase price was as follows:

|                                               |                     |  |          |   |  |   |         |         | 
|---------------------------------------------- | ------------------- |  | -------- | - |  | - | ------- | ------- | 
|Purchase price                                 |                     |  |          |   |  | $ | 419,200 |        
|Assets acquired                                |                     |  | 422,456  |   |  |   |         |        
|Liabilities assumed                            |                     |  | (125,731 | ) |  |   |         |        
|                                               |                     |  |          |   |  |   |         |        
|                                               | Net assets acquired |  |          |   |  |   |         | 296,725 | 
|                                               |                     |  |          |   |  |   |         |        
|Excess purchase price over net assets acquired |                     |  |          |   |  | $ | 122,475 |        
|                                               |                     |  |          |   |  |   |         |        

The Company has preliminarily allocated the
purchase price in the Merger as follows:

|                              |                      |   |          |         | 
|----------------------------- | -------------------- | - | -------- | ------- | 
|Current assets                |                      | $ | 123,407  |        
|Property, plant and equipment |                      |   | 78,301   |        
|Goodwill                      |                      |   | 181,361  |        
|Intangible assets             |                      |   | 157,928  |        
|Other assets                  |                      |   | 15,390   |        
|Current liabilities           |                      |   | (116,102 | )      
|Long-term debt                |                      |   | 7,075    |        
|Deferred income taxes         |                      |   | (12,043  | )      
|Other long-term liabilities   |                      |   | (16,117  | )      
|                              |                      |   |          |        
|                              | Total purchase price |   | $        | 419,200 | 
|                              |                      |   |          |        

During the period from March 26, 2004 to
August 28, 2004, the Company recognized in its consolidated
statements of operations approximately $6.4 million of
excess purchase price allocated to inventory as cost of sales
and approximately $4.3 million of additional amortization
expense of intangible assets as selling, general and
administrative expenses, all as compared to its historical basis
of accounting prior to the Merger.

39



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                            
|-- | ---------------------------
|3. | Comprehensive Income (Loss)

Beginning with fiscal year 2001, the effective
portion of the loss on derivatives and unrecognized losses on
accrued minimum pension liabilities were included in other
comprehensive income (loss). The following amounts were included
in determining the Companys comprehensive income (loss)
for the periods March 26, 2004 to August 28, 2004 and
August 31, 2003 to March 25, 2004 and years ended
August 30, 2003 and August 31, 2002.

|                                                          |  |                 |       |                  |  |               |        |               |  |   |        |   |  |   |        |  
|--------------------------------------------------------- |  | --------------- | ----- | ---------------- |  | ------------- | ------ | ------------- |  | - | ------ | - |  | - | ------ | -
|                                                          |  | (Successor)     |       | (Predecessor)    |  | (Predecessor) |        | (Predecessor)
|                                                          |  |                 |       |                  |  |               |        |              
|                                                          |  | For the Period  |       | For the Period   |  | For the Year  |        | For the Year 
|                                                          |  | March 26, 2004- |       | August 31, 2003- |  | Ended         |        | Ended        
|                                                          |  | August 28,      |       | March 25,        |  | August 30,    |        | August 31,   
|                                                          |  | 2004            |       | 2004             |  | 2003          |        | 2002         
|                                                          |  |                 |       |                  |  |               |        |              
|Net income (loss)                                         |  | $               | 6,466 |                  |  | $             | (4,583 | )             |  | $ | 10,766 |   |  | $ | (5,542 | )
|Reclass into earnings for derivative
    reclassification |  |                 |      |                  |  |               |       |               |  |   |       |   |  |   | (377   | )
|Reclass into earnings for derivative termination          |  |                 |      |                  |  |               |       |               |  |   |       |   |  |   | 2,609  |  
|Adjustment in minimum pension liability                   |  |                 |      |                  |  |               | (40    | )             |  |   | (3,017 | ) |  |   | (1,614 | )
|                                                          |  |                 |       |                  |  |               |        |               |  |   |        |   |  |   |        |  
|Total comprehensive income (loss)                         |  | $               | 6,466 |                  |  | $             | (4,543 | )             |  | $ | 7,749  |   |  | $ | (4,924 | )
|                                                          |  |                 |       |                  |  |               |        |               |  |   |        |   |  |   |        |  

In conjunction with the Merger, the Company reset
its comprehensive income (loss) balance to $0 for purchase
accounting treatment.

As of August 28, 2004 and August 30,
2003 the Company no longer held any derivatives considered to be
cash flow hedges.



|   |                         
|-- | ------------------------
|4. | Significant Acquisitions

Effective July 15, 2002, American
Achievement purchased all the outstanding stock and warrants of
Milestone for a total purchase price of $16.3 million. The
acquisition of Milestone was accounted for using the purchase
method of accounting and, accordingly, the purchase price has
been allocated to assets acquired and liabilities assumed based
upon estimated fair values. Milestone is a specialty marketer of
class rings and other graduation products to the college market.
Effective December 31, 2002, Milestone merged into CBI,
with CBI as the surviving entity. In conjunction with the
merger, for each share of Milestone common stock held by the
Company, the Company received one share of CBI common stock. The
existing common stock and warrants of Milestone were cancelled
in connection with this transaction.

The estimated fair value of assets acquired and
liabilities assumed relating to the Milestone acquisition is
summarized below:

|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|Working capital deficit       |  | $ | (2,413 | )
|Property, plant and equipment |  |   | 113    |  
|Other intangibles             |  |   | 2,500  |  
|Goodwill                      |  |   | 16,047 |  
|Other long-term assets        |  |   | 28     |  
|                              |  |   |        |  
|                              |  | $ | 16,275 |  
|                              |  |   |        |  

40



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During the year ended August 30, 2003,
goodwill was increased by approximately $378 primarily related
to fees incurred for professional services in connection with
the Milestone acquisition. Goodwill and trademarks related to
Milestone are not amortized in accordance with
SFAS No. 142.

The following unaudited pro forma data summarizes
the results of operations for the years indicated as if the
Milestone acquisition had been completed as of the beginning of
the year ended August 31, 2002:

|                                                        |  |             |         |  
|------------------------------------------------------- |  | ----------- | ------- | -
|                                                        |  | August 31, 
|                                                        |  | 2002       
|                                                        |  |            
|                                                        |  | (Unaudited)
|Net sales                                               |  | $           | 310,275 |  
|Operating income (loss)                                 |  |             | (8,273  | )
|Net income (loss) applicable to common
    stockholders |  |             | (9,473  | )

Effective January 30, 2004, the Company
acquired the assets of C-B Graduation Announcements, LLC, a
producer of personalized graduation announcements and related
accessories (the C-B Graduation Announcements
Acquisition). The maximum purchase price payable in
connection with this acquisition was approximately
$5.9 million in cash, of which approximately
$5.0 million was paid at closing (including
$1.0 million placed in escrow), with the escrowed amount
and balance of the purchase price to be paid pending a
post-closing purchase price adjustment. The C-B Graduation
Announcements Acquisition was accounted for using the purchase
method of accounting. Pro forma results of operations have not
been presented since the effect of the C-B Graduation
Announcements Acquisition on the Companys financial
position and results of operations is not material.



|   |                 
|-- | ----------------
|5. | Inventories, Net

A summary of inventories, net is as follows:

|                |  |             |        |               |  |   |        |  
|--------------- |  | ----------- | ------ | ------------- |  | - | ------ | -
|                |  | (Successor) |        | (Predecessor)
|                |  |             |        |              
|                |  | August 28,  |        | August 30,   
|                |  | 2004        |        | 2003         
|                |  |             |        |              
|Raw materials   |  | $           | 8,853  |               |  | $ | 7,876  |  
|Work in process |  |             | 7,380  |               |  |   | 8,043  |  
|Finished goods  |  |             | 6,978  |               |  |   | 7,632  |  
|Less  Reserves |  |             | (188   | )             |  |   | (241   | )
|                |  |             |        |               |  |   |        |  
|                |  | $           | 23,023 |               |  | $ | 23,310 |  
|                |  |             |        |               |  |   |        |  

Cost of sales includes depreciation and
amortization of $3,878 for the period from March 26, 2004
to August 28, 2004 and $5,062 for the period from
August 31, 2003 to March 25, 2004 and $8,955 and
$8,406 for the fiscal years ended 2003 and 2002, respectively.

Under the Companys gold consignment
financing arrangement, the Company has the ability to have on
consignment the lowest of the dollar value of 27,000 troy ounces
of gold, $14.2 million or a borrowing base, determined
based upon a percentage of gold located at the Companys
facilities and other approved locations, as specified by the
agreement. The Company expensed consignment fees of $180 for the
period from August 31, 2003 to March 25, 2004 and $161
for the period from March 26, 2004 to August 28, 2004
and $319 and $258 for the years ended August 30, 2003 and
August 31, 2002, respectively. Under the terms of the
consignment arrangement, the Company does not own the consigned
gold nor does it have risk of loss related to such inventory
until the money is received by the bank from the Company in
payment for the gold purchased. Accordingly, the Company does
not include the value of consigned gold in its inventory or the
corresponding liability for financial statement purposes. As of
August 28, 2004 and August 30, 2003, the Company held
approximately 19,460 ounces and 17,780 ounces,
respectively, of gold

41



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

valued at approximately $7.9 million and
$6.7 million, respectively, on consignment. The gold
consignment agreement does not have a stated period and it can
be terminated by either party upon 60 days written notice.



|   |                                                   
|-- | --------------------------------------------------
|6. | Prepaid Expenses and Other Current Assets,
    Net

Prepaid expenses and other current assets, net
consist of the following:

|                                                    |  |             |        |               |  |   |        |  
|--------------------------------------------------- |  | ----------- | ------ | ------------- |  | - | ------ | -
|                                                    |  | (Successor) |        | (Predecessor)
|                                                    |  |             |        |              
|                                                    |  | August 28,  |        | August 30,   
|                                                    |  | 2004        |        | 2003         
|                                                    |  |             |        |              
|Sales representative advances                       |  | $           | 12,247 |               |  | $ | 10,350 |  
|Less  reserve on sales representative
    advances |  |             | (2,383 | )             |  |   | (2,516 | )
|Deferred publication and ring costs                 |  |             | 7,174  |               |  |   | 8,376  |  
|Prepaid advertising and promotional materials       |  |             | 5,276  |               |  |   | 2,580  |  
|Other                                               |  |             | 3,916  |               |  |   | 5,149  |  
|                                                    |  |             |        |               |  |   |        |  
|                                                    |  | $           | 26,230 |               |  | $ | 23,939 |  
|                                                    |  |             |        |               |  |   |        |  

Included in other current assets as of
August 28, 2004 and August 30, 2003, is approximately
$596 and $641, respectively, paid for options to purchase gold.
The outstanding options at August 28, 2004, expire in
various amounts through May 31, 2005. The Company carries
these gold options at cost.



|   |                                   
|-- | ----------------------------------
|7. | Property, Plant and Equipment, Net

Property, plant and equipment, net consist of the
following:

|                                   |       |             |        |               |  |   |         |         | 
|---------------------------------- | ----- | ----------- | ------ | ------------- |  | - | ------- | ------- | 
|                                   |       | (Successor) |        | (Predecessor)
|                                   |       |             |        |              
|                                   |       | August 28,  |        | August 30,   
|                                   |       | 2004        |        | 2003         
|                                   |       |             |        |              
|Land                               |       | $           | 9,550  |               |  | $ | 6,097   |        
|Buildings and improvements         |       |             | 7,752  |               |  |   | 12,725  |        
|Tools and dies                     |       |             | 20,216 |               |  |   | 30,895  |        
|Machinery and equipment            |       |             | 40,091 |               |  |   | 58,649  |        
|Construction in progress           |       |             | 4,357  |               |  |   | 3,256   |        
|                                   |       |             |        |               |  |   |         |        
|                                   | Total |             |        | 81,966        |  |   |         | 111,622 | 
|Less  accumulated depreciation    |       |             | (5,401 | )             |  |   | (46,315 | )      
|                                   |       |             |        |               |  |   |         |        
|Property, plant and equipment, net |       | $           | 76,565 |               |  | $ | 65,307  |        
|                                   |       |             |        |               |  |   |         |        

Property, plant and equipment are stated at
historical cost for the predecessor period through
March 25, 2004, at which time the Company adjusted property
and equipment to fair value in accordance with purchase
accounting. Depreciation expense recorded in the accompanying
consolidated statements of operations was $5,401 for the period
March 26, 2004 to August 28, 2004 and $7,406 for the
period August 31, 2003 to March 25, 2004 and $12,568
and $11,941 for the years ended August 30, 2003, and
August 31, 2002, respectively.

42



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                     
|-- | ------------------------------------
|8. | Goodwill and Other Intangible Assets



| |         
| | --------
| | Goodwill

The changes in the net carrying amount of
goodwill were as follows:

|                               |                                     |             |         |               |  |            |         |       |  |   |         |       | 
|------------------------------ | ----------------------------------- | ----------- | ------- | ------------- |  | ---------- | ------- | ----- |  | - | ------- | ----- | 
|                               |                                     |             |         |              
|                               |                                     | (Successor) |         | (Predecessor)
|                               |                                     |             |         |              
|                               |                                     | August 28,  |         | March 25,     |  | August 30,
|                               |                                     | 2004        |         | 2004          |  | 2003      
|                               |                                     |             |         |               |  |           
|Balance at beginning of period |                                     | $           | 166,444 |               |  | $          | 162,059 |       |  | $ | 159,308 |      
|                               | Goodwill acquired during the period |             |         |              |  |            |         | 4,385 |  |   |         | 2,751 | 
|                               | Purchase price adjustments          |             |         | 15,636        |  |            |         |      |  |   |         |      | 
|                               |                                     |             |         |               |  |            |         |       |  |   |         |      
|Balance at end of period       |                                     | $           | 182,080 |               |  | $          | 166,444 |       |  | $ | 162,059 |      
|                               |                                     |             |         |               |  |            |         |       |  |   |         |      



| |                        
| | -----------------------
| | Other Intangible Assets

Other intangible assets consisted of the
following:

|                                 |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |        | 
|-------------------------------- | ----------------------------------------- | ----------- |  | --------------- |  | ------------ | ------- | --------- |  | - | ------- | ------ | - | - | ------- | ------ | 
|                                 |                                           | Estimated   |  | Gross           |  | Accumulated  |         |          
|                                 |                                           | Useful Life |  | Asset           |  | Amortization |         | Net Asset
|                                 |                                           |             |  |                 |  |              |         |          
|At August 28, 2004 (Successor)   |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |       
|                                 | Trademarks                                |             |  | Indefinite      |  |              | $       | 50,095    |  |   | $       |       |   |   | $       | 50,095 | 
|                                 | Deferred financing costs and other        |             |  | 7 to 8 years    |  |              |         | 11,112    |  |   |         | (624   | ) |   |         | 10,488 | 
|                                 | Patents                                   |             |  | 14 to 17  years |  |              |         | 7,317     |  |   |         | (185   | ) |   |         | 7,132  | 
|                                 | Customer lists and distribution contracts |             |  | 3 to 12 years   |  |              |         | 100,516   |  |   |         | (4,758 | ) |   |         | 95,758 | 
|                                 |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |       
|                                 |                                           |             |  |                 |  | $            | 169,040 |           |  | $ | (5,567  | )      |   | $ | 163,473 |       
|                                 |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |       
|At August 30, 2003 (Predecessor) |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |       
|                                 | Trademarks                                |             |  | Indefinite      |  |              | $       | 47,340    |  |   |         | (5,485 | ) |   | $       | 41,855 | 
|                                 | Deferred financing costs and other        |             |  | 1 to 7 years    |  |              |         | 10,344    |  |   |         | (3,286 | ) |   |         | 7,058  | 
|                                 | Customer lists and distribution contracts |             |  | 5 to 12 years   |  |              |         | 16,072    |  |   |         | (4,771 | ) |   |         | 11,301 | 
|                                 |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |       
|                                 |                                           |             |  |                 |  | $            | 73,756  |           |  | $ | (13,542 | )      |   | $ | 60,214  |       
|                                 |                                           |             |  |                 |  |              |         |           |  |   |         |        |   |   |         |       

Total amortization on other intangible assets was
$5,567 for the period March 26, 2004 to August 28,
2004 and $2,156 for the period August 31, 2003 to
March 25, 2004 and $3,361 and $2,200 for the years ended
August 30, 2003 and August 31, 2002, respectively, of
which amortization on deferred financing costs is recorded as
interest expense and amortization on patents and customer lists
and distribution contracts is recorded as amortization expense.
Estimated annual amortization expense for fiscal years ended
2005 through 2009 is approximately $13.4 million each year.

The increase in goodwill and other intangible
assets is predominantly attributable to the effect of purchase
accounting in connection with the merger as discussed in
Note 2. In addition, the Company acquired the net assets of
C-B Graduation Announcements in January 2004 for
$5.0 million in cash. The purchase price allocation was
$0.6 million to net tangible assets and $4.4 million
to goodwill. Acquisitions are accounted for as purchases and,
accordingly, have been included in the Companys
consolidated results of operations since the acquisition date.
Purchase price allocations are subject to refinement until all
pertinent information regarding the acquisition is obtained.

43



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                 
|-- | ----------------
|9. | Accrued Expenses

Accrued expenses consists of the following:

|                                                         |  |             |        |               |  |   |        | 
|-------------------------------------------------------- |  | ----------- | ------ | ------------- |  | - | ------ | 
|                                                         |  | (Successor) |        | (Predecessor)
|                                                         |  |             |        |              
|                                                         |  | August 28,  |        | August 30,   
|                                                         |  | 2004        |        | 2003         
|                                                         |  |             |        |              
|Commissions and royalties                                |  | $           | 9,005  |               |  | $ | 8,397  | 
|Compensation and related costs                           |  |             | 7,744  |               |  |   | 7,456  | 
|Accumulated pension and postretirement benefit
    costs |  |             | 4,875  |               |  |   | 5,361  | 
|Accrued sales and property taxes                         |  |             | 1,795  |               |  |   | 1,493  | 
|Accrued workmans compensation and medical
    claims    |  |             | 1,751  |               |  |   | 1,249  | 
|Capital lease obligations, short term                    |  |             | 1,230  |               |  |   | 520    | 
|Other                                                    |  |             | 3,414  |               |  |   | 1,630  | 
|                                                         |  |             |        |               |  |   |        | 
|                                                         |  | $           | 29,814 |               |  | $ | 26,106 | 
|                                                         |  |             |        |               |  |   |        | 



|    |               
|--- | --------------
|10. | Long-Term Debt

Long-term debt consists of the following:

|                                                                                            |                                        |             |         |               |   |   |         |         | 
|------------------------------------------------------------------------------------------- | -------------------------------------- | ----------- | ------- | ------------- | - | - | ------- | ------- | 
|                                                                                            |                                        | (Successor) |         | (Predecessor)
|                                                                                            |                                        |             |         |              
|                                                                                            |                                        | August 28,  |         | August 30,   
|                                                                                            |                                        | 2004        |         | 2003         
|                                                                                            |                                        |             |         |              
|8 1/4% Senior subordinated notes due
    2012                                               |                                        | $           | 150,000 |               |   | $ |        |        
|11 5/8% Senior unsecured notes due 2007
    (net of unamortized discount of $30 and $1,145) |                                        |             | 6,045   |               |   |   | 175,855 |        
|11% Senior subordinated notes due 2007                                                      |                                        |             |        |               |   |   | 41,355  |        
|Senior secured credit facility                                                              |                                        |             |         |               |   |   |         |        
|                                                                                            | Revolving credit facility due 2010     |             |         |              |   |   |         |        | 
|                                                                                            | Term loan due 2011                     |             |         | 154,613       |   |   |         |        | 
|Former senior secured credit facility                                                       |                                        |             |        |               |   |   | 9,500   |        
|                                                                                            |                                        |             |         |               |   |   |         |        
|                                                                                            | Total                                  |             |         | 310,658       |   |   |         | 226,710 | 
|                                                                                            | Less current portion of long-term debt |             |         | (1,550        | ) |   |         |        | 
|                                                                                            |                                        |             |         |               |   |   |         |        
|Total long-term debt                                                                        |                                        | $           | 309,108 |               |   | $ | 226,710 |        
|                                                                                            |                                        |             |         |               |   |   |         |        



| |                                     
| | ------------------------------------
| | 8 1/4% Senior Subordinated
    Notes

On March 25, 2004, the Company issued
$150 million of senior subordinated notes (the Senior
Sub Notes) due in 2012. The Senior Sub Notes bear interest
at a stated rate of 8 1/4%. The Senior Sub Notes are
unsecured senior subordinated obligations and are subordinated
in right of payment to all of the Companys existing and
future senior indebtedness, including obligations under the
Companys Senior Secured Credit Facility (as defined
below), pari passu in right of payment with any of the
Companys future senior subordinated indebtedness and
senior in right of payment to any of the Companys future
subordinated indebtedness. The Senior Sub Notes are guaranteed
by certain of the Companys existing domestic subsidiaries,
and will be guaranteed by certain of the Companys future
domestic subsidiaries. The guarantees are subordinated in right
of payment to all existing and future senior indebtedness of the
applicable guarantor, pari passu in right of payment with any
future senior subordinated debt of such guarantor and senior in
right of payment to any future subordinated indebtedness of such
guarantor.

44



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company may not redeem the Senior Sub Notes
until on or after April 1, 2008, except that the Company,
in connection with certain equity offerings, may redeem up to
35 percent of the Senior Sub Notes before the third
anniversary of the issue date of the Senior Sub Notes as long as
(a) the Company pays a specified percentage of the
principal amount of the Senior Sub Notes, plus interest,
(b) the Company redeems the Senior Sub Notes within
90 days of completing a public equity offering and
(c) at least 65 percent of the aggregate principal
amount of the Senior Sub Notes originally issued remains
outstanding afterward.

If a change in control as defined in the
indenture relating to the Senior Sub Notes (the AAC
Indenture) occurs, the Company must give the holders of
the Senior Sub Notes the opportunity to sell their Senior Sub
Notes to the Company at 101 percent of the principal amount
of the Senior Sub Notes, plus accrued interest.

The Senior Sub Notes contain customary negative
covenants and restrictions on actions by the Company and its
subsidiaries including, without limitation, restrictions on
additional indebtedness, investments, asset dispositions outside
the ordinary course of business, liens, and transactions with
affiliates, among other restrictions (as defined in the AAC
Indenture). In addition, the Senior Sub Notes contain covenants,
which restrict the declaration or payment of dividends by the
Company and/or its subsidiaries (as defined in the AAC
Indenture). The Company was in compliance with the Senior Sub
Notes covenants as of August 28, 2004.



| |                                   
| | ----------------------------------
| | 11 5/8% Senior Unsecured
    Notes

On February 20, 2002, the Company issued
$177 million of senior unsecured notes (the Unsecured
Notes) due in 2007. The Unsecured Notes bear interest at a
stated rate of 11 5/8%. The Unsecured Notes were issued at
a discount of 0.872% resulting in net proceeds of approximately
$175.5 million before considering financing costs. The
effective rate of the Unsecured Notes after discount is
approximately 13.0%. The Unsecured Notes rank pari passu with
the Companys existing and future senior indebtedness,
including obligations under the Companys Senior Secured
Credit Facility (as defined below). The Unsecured Notes are
guaranteed by the Companys domestic subsidiaries, and the
guarantees rank pari passu with the existing Senior Subordinated
Notes and future senior debt of the Company and its
subsidiaries. The Unsecured Notes and the guarantees on the
Unsecured Notes are effectively subordinated to any of the
Companys secured debt.

On March 25, 2004, as discussed in
Note 2, pursuant to the debt tender offer for the Unsecured
Notes, the Company retired $170.9 million of outstanding
Unsecured Notes for an aggregate $193.8 million and
eliminated substantially all of the restrictive covenants
associated with such notes. The remaining $6.0 million of
Unsecured Notes outstanding will be redeemable by the Company on
or after January 1, 2005 at its option at 105.813% of the
principal amount thereof (plus accrued and unpaid interest). The
Company was in compliance with the remaining covenants in the
Unsecured Notes as of August 28, 2004.



| |                                  
| | ---------------------------------
| | 11% Senior Subordinated
    Notes

Commemorative Brands, Inc.s
(CBI) 11% senior subordinated notes (the
Subordinated Notes) were to mature on
January 15, 2007. The Subordinated Notes were redeemable at
the option of CBI in whole or in part, at any time on or after
January 15, 2002, at specified redemption prices ranging
from 105.5 percent of the principal amount thereof if
redeemed during 2002 and declining to 100 percent of the
principal amount thereof if redeemed during the year 2005 or
thereafter, plus accrued and unpaid interest and Liquidated
Damages as defined in the indenture relating to the Subordinated
Notes, as amended (the CBI Indenture), if any,
thereon to the date of redemption.

45



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On March 25, 2004, as discussed in
Note 2, the Company redeemed all of the outstanding
Subordinated Notes for an aggregate of $42.1 million.

NEW SENIOR SECURED CREDIT FACILITY

In conjunction with the consummation of the
Merger, on March 25, 2004, the Company entered into a
$155 million term loan (the Term Loan) and an
up to $40 million senior revolving credit facility (the
Senior Revolving Credit Facility) with various
financial institutions. The Term Loan and Revolving Credit
Facility are secured by a first priority security interest in
all existing and after-acquired assets of the Company, Holdings
and certain of the Companys direct and indirect domestic
subsidiaries existing and after-acquired assets,
including, without limitation, real property and all of the
capital stock owned by the Company, Holdings, and certain of the
Companys direct and indirect domestic subsidiaries
(including certain capital stock of their direct foreign
subsidiaries only to the extent permitted by applicable law).
All of the Companys obligations under the Term Loan and
Revolving Credit Facility are fully and unconditionally
guaranteed by Holdings and certain of the Companys direct
and indirect domestic subsidiaries.

The Term Loan is due in March 2011. Quarterly
payments of $388 are made through 2011. The Term Loan has an
interest rate based on the prime rate, plus points based on a
calculated leverage ratio. The weighted average interest rate on
the Term Loan was approximately 4.1% at August 28, 2004.

The Senior Revolving Credit Facility matures in
March 2010. Availability under the Senior Revolving Credit
Facility is restricted to a total revolving commitment of
$40 million as defined in the credit agreement under the
Senior Secured Credit Facility (the Credit
Agreement). Availability under the Senior Revolving Credit
Facility as of August 28, 2004 was approximately
$37.6 million with $0 borrowings and $2.4 million in
letters of credit outstanding.

Advances under the Senior Revolving Credit
Facility may be made as base rate loans or LIBOR loans at the
Companys election (except for the initial loans which
were base rate loans). Interest rates payable upon advances are
based upon the base rate or LIBOR depending on the type of loan
the Company chooses, plus an applicable margin based upon a
consolidated leverage ratio of certain outstanding indebtedness
to EBITDA (to be calculated in accordance with the terms
specified in the Credit Agreement).

FORMER SENIOR SECURED CREDIT
FACILITY

In conjunction with the issuance of the Unsecured
Notes, on February 20, 2002, the Company entered into a
$40 million senior revolving credit facility (the
Senior Secured Credit Facility) with various
financial institutions, with all of the Companys current
domestic subsidiaries as guarantors. Loans made pursuant to the
Senior Secured Credit Facility were secured by a first priority
security interest in substantially all of the Companys and
the Companys domestic subsidiaries assets and in all
of the Companys domestic subsidiaries capital stock.

On March 25, 2004, as discussed in
Note 2, the Company terminated its existing Senior Secured
Credit Facility.

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys long-term debt outstanding as
of August 28, 2004 matures as follows:

|                   |                                        |          |         |         |  
|------------------ | -------------------------------------- | -------- | ------- | ------- | -
|                   |                                        | Amount  
|Fiscal Year Ending |                                        | Maturing
|                   |                                        |         
|2005               |                                        | $        | 1,550   |        
|2006               |                                        |          | 1,550   |        
|2007               |                                        |          | 7,595   |        
|2008               |                                        |          | 1,550   |        
|2009               |                                        |          | 1,550   |        
|Thereafter         |                                        |          | 296,863 |        
|                   |                                        |          |         |        
|                   | Total                                  |          |         | 310,658 |  
|                   | Less current portion of long-term debt |          |         | (1,550  | )
|                   |                                        |          |         |        
|                   |                                        | $        | 309,108 |        
|                   |                                        |          |         |        

The weighted average interest rate on debt
outstanding as of August 28, 2004 and August 30, 2003
was 10.1% and 12.3%, respectively.

The Companys management believes the
carrying amount of long-term debt approximates fair value as of
August 28, 2004 and August 30, 2003, based upon
current rates offered for debt with the same or similar debt
terms.



|    |                                 
|--- | --------------------------------
|11. | Derivative Financial Information

The Company has held interest rate swap
agreements in place with the intent of managing its exposure to
interest rate risk on its existing debt obligations. The Company
had four outstanding agreements to effectively convert
LIBOR-based variable rate debt to fixed rate debt based on a
total notional amount of $62.5 million. On
February 20, 2002, in conjunction with the issuance of the
Unsecured Notes and entrance into the Senior Secured Credit
Facility, the Company paid off the then outstanding term loans
and revolver under the former credit facility, the bridge notes
to affiliates, and settled all but $25 million in notional
amount of the interest rate swap agreements.

During the year ended August 31, 2002, the
Company recorded a charge to other expense for approximately
$2.6 million due to the termination of the interest rate
swap agreements and the reclassification of the remaining
interest rate swap agreement, representing a notional amount of
$25 million, as a trading derivative. The trading
derivative was recorded at its fair value, with any changes in
fair value being reported in income, and matured in March 2003.
The Company recorded a charge to other expense of approximately
$0.2 million due to changes in fair value for the year
ended August 31, 2002.

As of August 28, 2004 and August 31,
2003, the Company did not have any derivatives in place.

47



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies

LEASES

Certain Company facilities and equipment are
leased under agreements expiring at various dates through 2018.
The Companys commitments under the noncancellable portion
of all operating and capital leases for each of the five years
ending after August 28, 2004 and thereafter are
approximately as follows:

|                   |  |           |       |         |  |   |       |  
|------------------ |  | --------- | ----- | ------- |  | - | ----- | -
|                   |  | Operating |       |        
|Fiscal Year Ending |  | Expense   |       | Capital
|                   |  |           |       |        
|2005               |  | $         | 2,206 |         |  | $ | 1,387 |  
|2006               |  |           | 1,835 |         |  |   | 1,349 |  
|2007               |  |           | 1,322 |         |  |   | 1,332 |  
|2008               |  |           | 817   |         |  |   | 174   |  
|2009               |  |           | 315   |         |  |   |      |  
|Thereafter         |  |           | 2,404 |         |  |   |      |  
|Interest           |  |           |      |         |  |   | (297  | )
|                   |  |           |       |         |  |   |       |  
|                   |  | $         | 8,899 |         |  | $ | 3,945 |  
|                   |  |           |       |         |  |   |       |  

Some of the Companys rental property leases
contain options to renew the leased space for periods up to an
additional ten years.

The total balance of gross capital lease assets
is $5,022 as of August 28, 2004 and $2,797 as of
August 30, 2003, with accumulated depreciation of $284 and
$292, respectively.

Lease and rental expense included in the
accompanying consolidated statements of operations was $1,407
for the period March 26, 2004 to August 28, 2004 and
$2,506 for the period August 31, 2003 to March 25,
2004 and $3,931 and $3,332 for the years ended August 30,
2003 and August 31, 2002, respectively.

PENDING LITIGATION

On February 11, 2004, Frederick Goldman,
Inc. (the Licensee) filed an arbitration claim
against the Companys subsidiary, CBI, alleging, among
other things, that CBI had improperly attempted to convert an
exclusive license CBI granted to the Licensee to a non-exclusive
license. In addition, on February 10, 2004, the Licensee
commenced a lawsuit in federal district court in New York
against CBI alleging that CBI breached the license agreement by
granting third parties rights in violation of the
Licensees exclusive rights under the license agreement.
The district court claim seeks injunctive and monetary relief.
No discovery has been conducted to date, therefore, at this
time, it is not possible to predict with certainty the outcome
of these unresolved legal matters or the range of possible loss
or recovery. However, the Company intends to defend itself
vigorously in these proceedings.

On August 2, 2004, the Companys
subsidiary Taylor Publishing filed a motion in United States
Bankruptcy Court, Eastern District of Virginia, Norfolk
Division, Case No. 03-75562-SCS to recover certain data and
documents pursuant to a teleservices contract between Taylor
Publishing and Abacus Communications, LC (Abacus),
the chapter 11 debtor. Subsequent to court approval of
Abacus turning over the documents and data requested, Abacus
filed a counterclaim against Taylor Publishing for approximately
$840,000 plus interest for unpaid billings that it claims are
owed under the teleservices contract with Taylor Publishing.
Taylor Publishing denies that it is liable to pay such amount
and has asserted that such amounts are in excess of the amounts
owed by Taylor Publishing. In the action, the

48



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys subsidiary Taylor Publishing has
also filed a claim against Abacus for damages as a result of
Abacus refusal to release the data and information. The
action is in the discovery stage and the Company is unable to
make a determination of the outcome at this time or the range of
possible loss or recovery. The Company intends to defend itself
vigorously in these proceedings.

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

EMPLOYMENT CONTRACTS

The Company has employment agreements with its
executive officers, the terms of which expire at various times
through August 2005. Unless terminated, one executive
officers employment agreement adds one day to the term for
each day that passes, and accordingly, there are always two
years remaining on the term. The remaining executive
officers terms will be automatically extended for an
additional one year term. Such agreements, which have been
revised from time-to-time, provide for minimum salary levels,
adjusted annually for cost-of-living changes, as well as for
incentive bonuses for a certain executive that are payable if
specific management goals are attained. The aggregate commitment
for future salaries as of August 28, 2004, excluding
bonuses, was approximately $2.4 million.



|    |                                   
|--- | ----------------------------------
|13. | Employee Compensation and Benefits

POSTRETIREMENT PENSION AND MEDICAL
BENEFITS

CBI provides certain healthcare and life
insurance benefits for former employees of the L.G. Balfour
(CBI Plan). Certain hourly employees of Taylor
are covered by a defined benefit pension plan
(TPC Plan) established by Taylor. The benefits
under the CBI and TPC Plans are based primarily on the
employees years of service and compensation near
retirement. The funding policies for these plans are consistent
with the funding requirements of federal laws and regulations.

49



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the funded status
of each plan:

|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |        |  
|------------------------------------------------------------------ | -------------------------------------------------------------------- | --------------- | ------ | --------------- | - | ------- | ------ | -------------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                   |                                                                      |                 |        |                
|                                                                   |                                                                      | (Successor)     |        | (Predecessor)  
|                                                                   |                                                                      |                 |        |                
|                                                                   |                                                                      |                 |        |                
|                                                                   |                                                                      | August 28, 2004 |        | August 30, 2003
|                                                                   |                                                                      |                 |        |                
|                                                                   |                                                                      | Taylor          |        | CBI             |   | Taylor  |        | CBI           
|                                                                   |                                                                      | Pension         |        | Postretirement  |   | Pension |        | Postretirement
|                                                                   |                                                                      |                 |        |                 |   |         |        |               
|Change in benefit obligation:                                      |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Obligation beginning of the year                                   |                                                                      | $               | 14,216 |                 |   | $       | 4,703  |                |   | $ | 10,851 |        |   | $ | 3,341  |       
|Service cost                                                       |                                                                      |                 | 86     |                 |   |         |       |                |   |   | 397    |        |   |   |       |       
|Interest cost                                                      |                                                                      |                 | 83482  |                 |   |         | 274    |                |   |   | 781    |        |   |   | 282    |       
|Actuarial loss (gain)                                              |                                                                      |                 | (1,348 | )               |   |         | 2,816  |                |   |   | 462    |        |   |   | 1,609  |       
|Benefit payments                                                   |                                                                      |                 | (649   | )               |   |         | (607   | )              |   |   | (542   | )      |   |   | (529   | )     
|Change in discount rate                                            |                                                                      |                 | 525    |                 |   |         |       |                |   |   | 2,267  |        |   |   |       |       
|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Obligation, end of year                                            |                                                                      | $               | 13,664 |                 |   | $       | 7,186  |                |   | $ | 14,216 |        |   | $ | 4,703  |       
|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Change in fair value of plan assets:                               |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Fair value of plan assets, beginning of year                       |                                                                      | $               | 9,461  |                 |   | $       |       |                |   | $ | 8,902  |        |   | $ |       |       
|Actual return of plan assets                                       |                                                                      |                 | 762    |                 |   |         |       |                |   |   | 391    |        |   |   |       |       
|Employer contributions                                             |                                                                      |                 | 627    |                 |   |         | 607    |                |   |   | 710    |        |   |   | 529    |       
|Benefit payments                                                   |                                                                      |                 | (649   | )               |   |         | (607   | )              |   |   | (542   | )      |   |   | (529   | )     
|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Fair value of plan assets, end of year                             |                                                                      | $               | 10,201 |                 |   | $       |       |                |   | $ | 9,461  |        |   | $ |       |       
|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Plan assets at fair value                                         |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|                                                                   | Unfunded accumulated benefit obligation in excess
    of plan assets |                 | $      | (3,692          | ) |         | $      | (7,185         | ) |   | $      | (4,755 | ) |   | $      | (4,703 | )
|                                                                   | Unrecognized net loss (gain)                                         |                 |        | (877            | ) |         |        |               |   |   |        |       |   |   |        | 1,400  |  
|                                                                   | Unrecognized prior service costs                                     |                 |        |                |   |         |        |               |   |   |        |       |   |   |        | 1,731  |  
|                                                                   | Contributions from measurement date to period end                    |                 |        | 230             |   |         |        |               |   |   |        |       |   |   |        |       |  
|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       
|Accumulated postretirement benefit cost, current
    and long-term |                                                                      | $               | (4,339 | )               |   | $       | (7,185 | )              |   | $ | (4,755 | )      |   | $ | (1,572 | )     
|                                                                   |                                                                      |                 |        |                 |   |         |        |                |   |   |        |        |   |   |        |       

50



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The net periodic postretirement benefit cost
includes the following components:

|                                                                    |  |                  |      |                   |  |                 |     |                 |  |         |      |                |  |         |     |                |  |   |      |   |  |   |     |  |  |   |      |   |  |   |     |  
|------------------------------------------------------------------- |  | ---------------- | ---- | ----------------- |  | --------------- | --- | --------------- |  | ------- | ---- | -------------- |  | ------- | --- | -------------- |  | - | ---- | - |  | - | --- |  |  | - | ---- | - |  | - | --- | -
|                                                                    |  |                  |      |                   |  |                 |     |                 |  |         |      |               
|                                                                    |  | (Successor)      |      | (Predecessor)     |  |                 |     |                 |  |         |      |               
|                                                                    |  |                  |      |                   |  |                 |     |                
|                                                                    |  |                  |      |                   |  | (Successor)     |     | (Predecessor)  
|                                                                    |  | For the Period   |      | For the Period    |  |                 |     |                
|                                                                    |  | March 26, 2004  |      | August 31, 2003  |  |                 |     |                
|                                                                    |  | August 28, 2004  |      | March 25, 2004    |  | August 30, 2003 |     | August 31, 2002
|                                                                    |  |                  |      |                   |  |                 |     |                
|                                                                    |  | Taylor           |      | CBI               |  | Taylor          |     | CBI             |  | Taylor  |      | CBI            |  | Taylor  |     | CBI           
|                                                                    |  | Pension          |      | Postretirement    |  | Pension         |     | Postretirement  |  | Pension |      | Postretirement |  | Pension |     | Postretirement
|                                                                    |  |                  |      |                   |  |                 |     |                 |  |         |      |                |  |         |     |               
|Service costs, benefits attributed to service
    during the period |  | $                | 21   |                   |  | $               |    |                 |  | $       | 65   |                |  | $       |    |                |  | $ | 397  |   |  | $ |    |  |  | $ | 349  |   |  | $ |    |  
|Interest cost                                                       |  |                  | 207  |                   |  |                 | 104 |                 |  |         | 627  |                |  |         | 170 |                |  |   | 781  |   |  |   | 282 |  |  |   | 729  |   |  |   | 240 |  
|Expected return on assets                                           |  |                  | (195 | )                 |  |                 |    |                 |  |         | (631 | )              |  |         |    |                |  |   | (814 | ) |  |   |    |  |  |   | (769 | ) |  |   |    |  
|Amortization of unrecognized net loss (gain)                        |  |                  |     |                   |  |                 | 9   |                 |  |         | 162  |                |  |         | 83  |                |  |   | 68   |   |  |   | 33  |  |  |   | 1    |   |  |   | (2  | )
|Amortization of unrecognized net prior service
    costs            |  |                  |     |                   |  |                 | 16  |                 |  |         |     |                |  |         | 154 |                |  |   |     |   |  |   | 291 |  |  |   |     |   |  |   | 291 |  
|                                                                    |  |                  |      |                   |  |                 |     |                 |  |         |      |                |  |         |     |                |  |   |      |   |  |   |     |  |  |   |      |   |  |   |     |  
|Net periodic postretirement benefit cost                            |  | $                | 33   |                   |  | $               | 129 |                 |  | $       | 223  |                |  | $       | 407 |                |  | $ | 432  |   |  | $ | 606 |  |  | $ | 310  |   |  | $ | 529 |  
|                                                                    |  |                  |      |                   |  |                 |     |                 |  |         |      |                |  |         |     |                |  |   |      |   |  |   |     |  |  |   |      |   |  |   |     |  

Amounts recognized in the consolidated balance
sheet are as follows:

|                                     |  |                 |       |                 |  |         |       |                |  |   |        |   |  |   |       | 
|------------------------------------ |  | --------------- | ----- | --------------- |  | ------- | ----- | -------------- |  | - | ------ | - |  | - | ----- | 
|                                     |  |                 |       |                
|                                     |  | (Successor)     |       | (Predecessor)  
|                                     |  |                 |       |                
|                                     |  |                 |       |                
|                                     |  | August 28, 2004 |       | August 30, 2003
|                                     |  |                 |       |                
|                                     |  | Taylor          |       | CBI             |  | Taylor  |       | CBI           
|                                     |  | Pension         |       | Postretirement  |  | Pension |       | Postretirement
|                                     |  |                 |       |                 |  |         |       |               
|Accumulated benefit liability        |  | $               | 4,339 |                 |  | $       | 7,185 |                |  | $ | 4,755  |   |  | $ | 1,572 | 
|Accumulated other comprehensive loss |  |                 |      |                 |  |         |      |                |  |   | (5,150 | ) |  |   |      | 

The weighted average discount rate used in
determining the accumulated postretirement benefit obligation
for CBI was 3.5 percent for the periods March 26, 2004
to August 28, 2004 and August 31, 2003 to
March 25, 2004 and 6.25 percent for the fiscal year
ended 2003 and 7.25 percent compounded annually for fiscal
year ended 2002. As the plan is unfunded, no assumption was
needed as to the long-term rate of return on assets.

For measurement purposes for the CBI plan, a
10 percent annual rate of increase in the per capita cost
of covered healthcare benefits was assumed for the periods
March 26, 2004 to August 28, 2004 and August 31,
2003 to March 25, 2004 and fiscal year 2003 grading down to
5.5 percent in year 2008 and grading down to
4.5 percent in year 2009, respectively, while in fiscal
year 2002, this rate was 5 percent. The healthcare cost
trend rate assumption has a significant effect on the amounts
reported. Increasing (or decreasing) the assumed healthcare cost
trend rate one percentage point in each year would increase (or
decrease) the accumulated postretirement benefit obligation by
$292, or 4 percent, and by $298, or 6 percent, as of
August 28, 2004, and August 30, 2003, respectively,
and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost by $7, or
7 percent, for the period March 26, 2004 to
August 28, 2004, by $11, or 7 percent, for the period
August 31, 2003 to March 25, 2004, and by $16, or
6 percent, for the fiscal year ended 2003.

For measurement purposes for the TPC Plan, the
weighted average discount rate used in determining the
accumulated postretirement benefit obligation was
6.25 percent as of August 28, 2004 and
5.75 percent as of March 25, 2004 and 6.0 percent
as of August 30, 2003 and August 31, 2002; the
long-term rate of return on plan assets was 8.0 percent as
of August 28, 2004 and 9.0 percent as of
March 25, 2004, August 30, 2003, and August 31,
2002; and the annual salary increases were assumed to be
3.25 percent as of August 28, 2004 and March 25,
2004 and 4.5 percent as of August 30, 2003 and
August 31, 2002.

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AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The weighted-average asset allocations for TPC
Plan as of the measurement date of 2004 and 2003, by asset
category, are as follows:

|                  |  |      |       |      |  |        |       |   |  |  |             |  
|----------------- |  | ---- | ----- | ---- |  | ------ | ----- | - |  |  | ----------- | -
|Asset Category    |  | 2004 |       | 2003 |  | Target
|                  |  |      |       |      |  |       
|Equity securities |  |      | 66.0  | %    |  |        | 60.0  | % |  |  | 40.0  60.0 | %
|Debt securities   |  |      | 34.0  | %    |  |        | 40.0  | % |  |  | 25.0  40.0 | %
|Real estate       |  |      |      |      |  |        |      |   |  |  | 5.0  15.0  | %
|Other             |  |      |      |      |  |        |      |   |  |  | 5.0  15.0  | %
|                  |  |      |       |      |  |        |       |   |  |  |             |  
|                  |  |      | 100.0 | %    |  |        | 100.0 | % |  |  | 100.0       | %
|                  |  |      |       |      |  |        |       |   |  |  |             |  

The expected long-term rate of return of the
plans total assets is based on the expected return of each
of the above categories, weighted based on the target allocation
for each class. Long-term historical relationships between
equity and debt securities are considered, along with the
general investment principles for assets of higher volatility
generating higher returns over the long-term, and consideration
of current market factors such as inflation and interest rates.
Equity securities are expected to return 10% to 11% over the
long-term, while debt securities are expected to return between
4% and 7%.

The Companys projected contributions
include $1.5 million to the TPC Plan in 2005. The actual
amount of contributions is dependent upon the actual return on
plan assets. Future benefit payments for the TPC Plan, which
reflect expected future service, as appropriate, are expected to
be paid as follows for each of the fiscal years ending:

|          |  |   |       | 
|--------- |  | - | ----- | 
|2005      |  | $ | 600   | 
|2006      |  |   | 640   | 
|2007      |  |   | 660   | 
|2008      |  |   | 700   | 
|2009      |  |   | 740   | 
|2010-2014 |  |   | 4,210 | 

The policy, as established by the Corporate
Pension Committee, is to provide for growth of capital with a
moderate level of volatility by investing assets per the target
allocations stated above for equity and debt securities. Equity
investments are diversified across U.S. and non-U.S. stocks
as well as growth and value funds with small and large
capitalizations. The asset allocation, investment risk,
investment performance and the investment policy is reviewed on
at least a semi-annual basis to determine if any changes are
needed. The Company employs the services of a leading global
financial services firm that possesses the necessary specialized
research facilities, skilled manpower and expertise to advise on
their views of important developments within the economy and
securities markets and recommend actions when appropriate,
taking into consideration the stated policies and objectives.

EXECUTIVE STOCK AWARD

Pursuant to an employment agreement entered into
between the Company and its chief executive officer in July
1999, the board of directors authorized the issuance of
5,500 shares of Series A preferred stock to the
Companys chief executive officer as discretionary
compensation in August 2001. Accordingly, the Company recorded a
compensation charge of approximately $550 related to this award
in 2001. These shares were issued to the Companys chief
executive officer during the year ended August 31, 2002.
These shares were redeemed as part of the Merger discussed in
Note 2.

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AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

AMERICAN ACHIEVEMENT CORPORATION 401(K)
PLAN

Effective January 1, 2002, the Taylor 401(K)
Plan and the CBI 401(K) Plan were merged into the American
Achievement Corporation 401(K) Plan (Plan). The plan
covers substantially all nonunion employees of the Company. The
plan matches 50 percent of participants voluntary
contributions up to a discretionary percent determined by the
Company. The discretionary percentage in effect for the Plan
years ended December 31, 2003 and December 31, 2002
was up to 3 percent for hourly employees and up to
4 percent for salaried and office hourly employees. AAC
made contributions of approximately $328 for the period
March 26, 2004 to August 28, 2004 and $418 for the
period August 31, 2003 to March 25, 2004 and $779 for
the fiscal year ended August 30, 2003.



|    |             
|--- | ------------
|14. | Income Taxes

The Company and its wholly-owned and majority
owned domestic subsidiaries file a consolidated federal income
tax return. The (provision) benefit for income taxes
reflected in the consolidated statements of operations consists
of the following:

|          |          |                      |        |                   |   |               |   |               |  |   |      |      |   |   |       |       |  
|--------- | -------- | -------------------- | ------ | ----------------- | - | ------------- | - | ------------- |  | - | ---- | ---- | - | - | ----- | ----- | -
|          |          | (Successor)          |        | (Predecessor)     |   | (Predecessor) |   | (Predecessor)
|          |          |                      |        |                   |   |               |   |              
|          |          |                      |        |                  
|          |          | For the Period Ended |        | Fiscal Year Ended
|          |          |                      |        |                  
|          |          | March 26, 2004-      |        | August 31, 2003-  |   | August 30,    |   | August 31,   
|          |          | August 28, 2004      |        | March 25, 2004    |   | 2003          |   | 2002         
|          |          |                      |        |                   |   |               |   |              
|Federal  |          |                      |        |                   |   |               |   |               |  |   |      |      |   |   |       |      
|          | Current  |                      | $      |                  |   |               | $ |              |  |   | $    |     |   |   | $     | 1,444 |  
|          | Deferred |                      |        | (3,867            | ) |               |   |              |  |   |      |     |   |   |       |      |  
|State    |          |                      |        |                   |   |               |   |               |  |   |      |      |   |   |       |      
|          | Current  |                      |        | (150              | ) |               |   |              |  |   |      | (132 | ) |   |       | (273  | )
|          | Deferred |                      |        | (442              | ) |               |   |              |  |   |      |     |   |   |       |      |  
|          |          |                      |        |                   |   |               |   |               |  |   |      |      |   |   |       |      
|          |          | $                    | (4,459 | )                 |   | $             |  |               |  | $ | (132 | )    |   | $ | 1,171 |      
|          |          |                      |        |                   |   |               |   |               |  |   |      |      |   |   |       |      

The (provision) benefit for income taxes
differs from the amount that would be computed if the income
(loss) before income taxes were multiplied by the federal income
tax rate (statutory rate) as follows:

|                                                       |                                      |                      |        |                   |   |            |        |            |  |   |        |      |   |   |      |       | 
|------------------------------------------------------ | ------------------------------------ | -------------------- | ------ | ----------------- | - | ---------- | ------ | ---------- |  | - | ------ | ---- | - | - | ---- | ----- | 
|                                                       |                                      |                      |        |                  
|                                                       |                                      | (Successor)          |        | (Predecessor)    
|                                                       |                                      |                      |        |                  
|                                                       |                                      |                      |        |                  
|                                                       |                                      | For the Period Ended |        | Fiscal Year Ended
|                                                       |                                      |                      |        |                  
|                                                       |                                      | March 26, 2004-      |        | August 31, 2003-  |   | August 30, |        | August 31,
|                                                       |                                      | August 28, 2004      |        | March 25, 2004    |   | 2003       |        | 2002      
|                                                       |                                      |                      |        |                   |   |            |        |           
|Computed tax (provision) benefit at
    statutory rate |                                      | $                    | (3,824 | )                 |   | $          | (1,605 | )          |  | $ | (3,705 | )    |   | $ | 361  |      
|State taxes, net of federal benefit                    |                                      |                      | (592   | )                 |   |            | (272   | )          |  |   | (87    | )    |   |   | (180 | )    
|Change in valuation allowance and other                |                                      |                      | (43    | )                 |   |            | 1,877  |            |  |   | 3,660  |      |   |   | 990  |      
|                                                       |                                      |                      |        |                   |   |            |        |            |  |   |        |      |   |   |      |      
|                                                       | Total income tax (provision) benefit |                      | $      | (4,459            | ) |            | $      |           |  |   | $      | (132 | ) |   | $    | 1,171 | 
|                                                       |                                      |                      |        |                   |   |            |        |            |  |   |        |      |   |   |      |      

53



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred tax assets and liabilities consist of
the following:

|                         |                                       |            |   |            |   |  |        |        | 
|------------------------ | ------------------------------------- | ---------- | - | ---------- | - |  | ------ | ------ | 
|                         |                                       | August 28, |   | August 30,
|                         |                                       | 2004       |   | 2003      
|                         |                                       |            |   |           
|Deferred tax assets      |                                       |            |   |            |   |  |        |       
|                         | Allowances and reserves               |            | $ | 1,947      |   |  | $      | 1,979  | 
|                         | Net operating loss carryforwards      |            |   | 44,638     |   |  |        | 28,149 | 
|                         | Accrued liabilities and other         |            |   | 8,632      |   |  |        | 6,390  | 
|                         |                                       |            |   |            |   |  |        |       
|                         | Total deferred tax assets             |            |   | 55,217     |   |  |        | 36,518 | 
|Less valuation allowance |                                       |            |  |            |   |  | (5,324 | )     
|                         |                                       |            |   |            |   |  |        |       
|                         | Net deferred tax assets               |            |   | 55,217     |   |  |        | 31,194 | 
|                         |                                       |            |   |            |   |  |        |       
|Deferred tax liabilities |                                       |            |   |            |   |  |        |       
|                         | Depreciation                          |            |   | 11,511     |   |  |        | 7,866  | 
|                         | Amortization of intangibles           |            |   | 58,971     |   |  |        | 23,074 | 
|                         | Prepaids and other                    |            |   | 414        |   |  |        | 254    | 
|                         |                                       |            |   |            |   |  |        |       
|                         | Total deferred tax liabilities        |            |   | 70,896     |   |  |        | 31,194 | 
|                         |                                       |            |   |            |   |  |        |       
|                         | Net deferred tax assets (liabilities) |            | $ | (15,679    | ) |  | $      |       | 
|                         |                                       |            |   |            |   |  |        |       

Upon the Merger on March 25, 2004, the
Company recorded a net deferred tax liability of approximately
$11.4 million due to differences between book and tax basis
of acquired assets and assumed liabilities and historical
differences between book and tax basis that were previously
offset by a valuation allowance. For tax reporting purposes, the
Company has a U.S. net operating loss carryforward of
approximately $114 million as of August 28, 2004.
Utilization of the net operating loss carryforwards is
contingent on the Companys ability to generate income in
the future and may be subject to an annual limitation due to the
change in ownership provisions of the IRC, as
amended. The net operating loss carryforwards will expire in
various years through 2024 if not previously utilized. The
annual limitation may result in the expiration of the net
operating losses before utilization.



|    |                     
|--- | --------------------
|15. | Stockholders Equity

On March 25, 2004, as part of the Merger
discussed in Note 2, the Companys parent company
issued substantially all of its outstanding equity interests to
an investor group led by Fenway Partners for
$102.0 million. All previously issued shares of preferred
stock or common stock of the Company, and all warrants, options
and other rights to acquire preferred stock or common stock of
the Company (including the right and option in the employment
agreement described below) were redeemed, cancelled or exchanged
as part of the Merger discussed in Note 2.

Pursuant to an employment agreement entered into
between the Company and its chief executive officer in July
1999, as amended on February 1, 2002, if the Company
achieves certain EBITDA targets as defined by the agreement at
any point from 2002 through 2004, the chief executive is
entitled to receive up to a total of $1 million in face
value of the Companys Series A Preferred Stock. In
addition, the plan provided for the immediate issuance of an
option to purchase 12,500 shares of the Companys
common stock with a discretionary option to purchase shares. An
option to purchase 12,500 shares was granted in 2002
pursuant to this plan. This option was granted at or above fair
market value; thus, no compensation expense was recognized. The
executive is also entitled to receive discretionary bonuses as
directed by the Board of Directors up to $300 annually, all of
which is accrued as of August 28, 2004.

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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

STOCK-BASED COMPENSATION PLAN

As discussed above, on March 25, 2004, as
part of the Merger, all options to acquire preferred stock or
common stock of the Company were redeemed, cancelled or
exchanged.

During the year ended August 31, 2002, the
Company issued an option to purchase 12,500 shares of
common stock to an executive where terms of the option are the
same as provided for in the Companys 2000 Stock Option
Plan, with the exception that the option vested on the date of
grant.

During the year ended August 30, 2003, the
Company issued options to employees to
purchase 28,500 shares of Common and to a director to
purchase 1,059 shares of Common. The weighted average
exercise price of these grants were $6.22 per share. A
portion of the options, 10,000, vested on the grant date, with
the remaining options vesting ratably over a four year period.

No options were granted by the Company during the
period August 31, 2003 to March 25, 2004 and during
the period March 26, 2004 and August 28, 2004.

Incentive stock options for 94,859 shares
and nonqualified stock options for 2,933 shares of the
Companys common stock were outstanding as of
August 30, 2003. The weighted average remaining contractual
life of all outstanding options was 7.59 years at
August 30, 2003. A summary of the status of the
Companys 2000 Stock Option Plan as of March 25, 2004,
August 30, 2003 and August 31, 2002, and changes
during the periods then ended are presented below:

|                                                                     |  |                    |         |                 |  |                 |      |          |  |           |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|-------------------------------------------------------------------- |  | ------------------ | ------- | --------------- |  | --------------- | ---- | -------- |  | --------- | ------ | -------- |  | - | ---- |  |  |  | ------ | - |  | - | ---- | 
|                                                                     |  |                    |         |                 |  |                 |      |          |  |          
|                                                                     |  | August 30, 2003 to |         |                 |  |                
|                                                                     |  | March 25, 2004     |         | August 30, 2003 |  | August 31, 2002
|                                                                     |  |                    |         |                 |  |                
|                                                                     |  |                    |         | Weighted        |  |                 |      | Weighted |  |           |        | Weighted
|                                                                     |  | Shares of          |         | Average         |  | Shares of       |      | Average  |  | Shares of |        | Average 
|                                                                     |  | Common             |         | Exercise        |  | Common          |      | Exercise |  | Common    |        | Exercise
|                                                                     |  | Stock              |         | Price           |  | Stock           |      | Price    |  | Stock     |        | Price   
|                                                                     |  |                    |         |                 |  |                 |      |          |  |           |        |         
|Outstanding at beginning of period                                   |  |                    | 97,792  |                 |  | $               | 4.50 |          |  |           | 72,083 |          |  | $ | 3.86 |  |  |  | 30,858 |   |  | $ | 7.02 | 
|Granted                                                              |  |                    |        |                 |  |                 |     |          |  |           | 29,559 |          |  |   | 6.22 |  |  |  | 41,613 |   |  |   | 1.51 | 
|Exercised                                                            |  |                    |        |                 |  |                 |     |          |  |           |       |          |  |   |     |  |  |  |       |   |  |   |     | 
|Canceled                                                             |  |                    | (1,138  | )               |  |                 | 3.39 |          |  |           | (3,850 | )        |  |   | 3.18 |  |  |  | (388   | ) |  |   | 7.02 | 
|Conversion of options at merger                                      |  |                    | (96,654 | )               |  |                 |     |          |  |           |       |          |  |   |     |  |  |  |       |   |  |   |     | 
|                                                                     |  |                    |         |                 |  |                 |      |          |  |           |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|Outstanding at end of period                                         |  |                    |        |                 |  | $               |     |          |  |           | 97,792 |          |  | $ | 4.50 |  |  |  | 72,083 |   |  | $ | 3.86 | 
|                                                                     |  |                    |         |                 |  |                 |      |          |  |           |        |          |  |   |      |  |  |  |        |   |  |   |      | 
|Options exercisable at period-end                                    |  |                    |        |                 |  | $               |     |          |  |           | 58,413 |          |  | $ | 5.08 |  |  |  | 42,582 |   |  | $ | 5.40 | 
|Weighted average fair value of options granted
    during the period |  |                    |         |                 |  | $               |     |          |  |           |        |          |  | $ | 2.64 |  |  |  |        |   |  | $ | 0.76 | 

The fair value of each grant was estimated on the
date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants
in the fiscal years ended 2003 and 2002: dividend yield of nil;
expected volatility of 25.00% and 27.99%, respectively;
risk-free interest rate of 3.93% and 4.88%, respectively; and
expected life of 10 years. The Black-Scholes option pricing
model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the
input of highly subjective assumptions, including expected stock
price volatility. Because the Companys stock options have
characteristics significantly different from those of traded
options and because changes in the

55



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subjective input assumptions can materially
affect the fair value estimate, in managements opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.



|    |                           
|--- | --------------------------
|16. | Related-Party Transactions

Amounts paid under a management agreement with
Castle Harlan, Inc. totaled $2,250 for the period
August 31, 2003 to March 25, 2004 and $3,000 and
$2,638 for the years ended August 30, 2003 and
August 31, 2002, respectively.

On March 25, 2004 upon consummation of the
Merger, the Company entered into a new management agreement with
an affiliate of Fenway Partners pursuant to which the Company,
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
paid under the new management agreement totaled $800 for the
period March 26, 2004 to August 28, 2004.

As of August 28, 2004 and August 30,
2003, the Company had accrued management fees of approximately
$500 and $750, respectively.



|    |                  
|--- | -----------------
|17. | Business Segments

The Company operates in two reportable business
segments: scholastic products and recognition and affinity
products. The principal products sold in the scholastic segment
are class rings, yearbooks and graduation products, which
include fine paper products and graduation accessories. The
scholastic segment primarily serves the high school and college
markets. Class ring products contributed 40%, 42% and 42% of our
net sales for the years ended 2004, 2003 and 2002. Yearbook
products contributed 35%, 34% and 36% of our net sales for the
years ended 2004, 2003 and 2002. Graduation products contributed
13%, 11% and 11% of our net sales for the years ended 2004, 2003
and 2002. The recognition and affinity segment includes
publications that recognize the academic achievement of top
students at the high school and college levels, jewelry
commemorating family events, fan affinity jewelry and related
products, and professional sports championship rings.

|                              |  |                                 |         |                                  |  |       |        |            |  |              |         |       |  |   |         |  |  |   |        |  |  |   |         | 
|----------------------------- |  | ------------------------------- | ------- | -------------------------------- |  | ----- | ------ | ---------- |  | ------------ | ------- | ----- |  | - | ------- |  |  | - | ------ |  |  | - | ------- | 
|                              |  |                                 |         |                                 
|                              |  | (Successor)                     |         | (Predecessor)                   
|                              |  |                                 |         |                                 
|                              |  |                                 |         |                                 
|                              |  | For the Period March 26, 2004  |         | For the Period August 31, 2003 
|                              |  | August 28, 2004                 |         | March 25, 2004                  
|                              |  |                                 |         |                                 
|                              |  |                                 |         | Recognition                      |  |       |        |            |  | Recognition  |         |      
|Year Ended August 28, 2004    |  | Scholastic                      |         | and Affinity                     |  | Total |        | Scholastic |  | and Affinity |         | Total
|                              |  |                                 |         |                                  |  |       |        |            |  |              |         |      
|Net sales                     |  | $                               | 150,485 |                                  |  | $     | 16,865 |            |  | $            | 167,350 |       |  | $ | 125,215 |  |  | $ | 21,506 |  |  | $ | 146,721 | 
|Interest expense, net         |  |                                 | 9,231   |                                  |  |       | 1,026  |            |  |              | 10,257  |       |  |   | 14,810  |  |  |   | 1,645  |  |  |   | 16,455  | 
|Depreciation and amortization |  |                                 | 8,246   |                                  |  |       | 2,098  |            |  |              | 10,344  |       |  |   | 7,677   |  |  |   | 853    |  |  |   | 8,530   | 
|Segment operating income      |  |                                 | 20,462  |                                  |  |       | 720    |            |  |              | 21,182  |       |  |   | 8,193   |  |  |   | 3,679  |  |  |   | 11,872  | 
|Capital expenditures          |  |                                 | 3,047   |                                  |  |       | 618    |            |  |              | 3,665   |       |  |   | 10,858  |  |  |   | 1,935  |  |  |   | 12,793  | 
|Trademarks                    |  |                                 | 30,695  |                                  |  |       | 19,400 |            |  |              | 50,095  |       |  |   |         |  |  |   |        |  |  |   |         | 
|Goodwill                      |  |                                 | 163,872 |                                  |  |       | 18,208 |            |  |              | 182,080 |       |  |   |         |  |  |   |        |  |  |   |         | 
|Other intangible assets, net  |  |                                 | 97,523  |                                  |  |       | 15,855 |            |  |              | 113,378 |       |  |   |         |  |  |   |        |  |  |   |         | 
|Segment assets                |  |                                 | 444,670 |                                  |  |       | 86,316 |            |  |              | 530,986 |       |  |   |         |  |  |   |        |  |  |   |         | 

56



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##### Table of Contents



AMERICAN ACHIEVEMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |  |                            |         |              |  |       |        |  |  |   |         | 
|----------------------------- |  | -------------------------- | ------- | ------------ |  | ----- | ------ |  |  | - | ------- | 
|                              |  |                           
|                              |  | (Predecessor)             
|                              |  |                           
|                              |  |                           
|                              |  | Year Ended August 30, 2003
|                              |  |                           
|                              |  |                            |         | Recognition  |  |      
|Year Ended August 30, 2003    |  | Scholastic                 |         | and Affinity |  | Total
|                              |  |                            |         |              |  |      
|Net sales                     |  | $                          | 269,146 |              |  | $     | 39,285 |  |  | $ | 308,431 | 
|Interest expense, net         |  |                            | 26,046  |              |  |       | 2,894  |  |  |   | 28,940  | 
|Depreciation and amortization |  |                            | 12,137  |              |  |       | 2,012  |  |  |   | 14,149  | 
|Segment operating income      |  |                            | 30,310  |              |  |       | 9,528  |  |  |   | 39,838  | 
|Capital expenditures          |  |                            | 10,099  |              |  |       | 1,144  |  |  |   | 11,243  | 
|Trademarks                    |  |                            | 24,708  |              |  |       | 17,147 |  |  |   | 41,855  | 
|Goodwill                      |  |                            | 115,074 |              |  |       | 46,985 |  |  |   | 162,059 | 
|Other intangible assets, net  |  |                            | 16,260  |              |  |       | 2,099  |  |  |   | 18,359  | 
|Segment assets                |  |                            | 305,669 |              |  |       | 89,832 |  |  |   | 395,501 | 

|                              |  |                            |         |              |  |       |        |  |  |   |         | 
|----------------------------- |  | -------------------------- | ------- | ------------ |  | ----- | ------ |  |  | - | ------- | 
|                              |  |                           
|                              |  | (Predecessor)             
|                              |  |                           
|                              |  |                           
|                              |  | Year Ended August 31, 2002
|                              |  |                           
|                              |  |                            |         | Recognition  |  |      
|Year Ended August 31, 2002    |  | Scholastic                 |         | and Affinity |  | Total
|                              |  |                            |         |              |  |      
|Net sales                     |  | $                          | 269,362 |              |  | $     | 35,016 |  |  | $ | 304,378 | 
|Interest expense, net         |  |                            | 19,371  |              |  |       | 6,655  |  |  |   | 26,026  | 
|Depreciation and amortization |  |                            | 15,547  |              |  |       | 4,165  |  |  |   | 19,712  | 
|Segment operating income      |  |                            | 18,187  |              |  |       | 3,909  |  |  |   | 22,096  | 
|Capital expenditures          |  |                            | 12,754  |              |  |       | 1,493  |  |  |   | 14,247  | 
|Trademarks                    |  |                            | 24,708  |              |  |       | 17,147 |  |  |   | 41,855  | 
|Goodwill                      |  |                            | 112,598 |              |  |       | 46,710 |  |  |   | 159,308 | 
|Other intangible assets, net  |  |                            | 20,796  |              |  |       | 3,103  |  |  |   | 23,899  | 
|Segment assets                |  |                            | 310,453 |              |  |       | 91,173 |  |  |   | 401,626 | 

The Companys reportable segments are
strategic business units that offer products to different
consumer segments. Each segment is managed separately because
each business requires different marketing strategies. The
Company evaluates the performance of each segment based on the
income or loss from operations before income taxes noted as
Segment operating income above.

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

On April 25, 2002, we dismissed Arthur
Andersen LLP (Arthur Andersen or AA) as
our independent auditors. The dismissal of AA was recommended by
an Audit Committee and approved by our Board of Directors. We
engaged Deloitte & Touche LLP to serve as the
Companys independent auditors for the fiscal year 2002.

Arthur Andersens reports on our
consolidated financial statements for each of the fiscal years
ended August 25, 2001 and August 26, 2000 did not
contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or
accounting principles.

During the fiscal years ended August 25,
2001 and August 26, 2000, and through April 25, 2002,
there were no disagreements with Arthur Andersen on any matters
of accounting principles or practices, financial statement
disclosures, or auditing scope or procedures which, if not
resolved to AAs satisfaction, would have caused them to
make reference to the subject matter of the disagreements in
connection with their report on our consolidated financial
statements for such years; and there were no reportable events
as defined in Item 304(a)(1)(v) of Regulation S-K of
the Securities Exchange Act of 1934.

During the fiscal years ended August 26,
2000 and August 25, 2001, and through April 25, 2002,
we did not consult with Deloitte & Touche, LLP
regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our consolidated
financial statements, or any other matters or reportable events
as set forth in Items 304(a)(1)(v) of Regulation S-K.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

As of the end of the period covered by this
report we carried out an evaluation, under the supervision and
with the participation of our management, including our
President and Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure control and procedures pursuant to Rule 13a-14
under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon this evaluation, our
President and Chief Executive Officer and our Chief Financial
Officer concluded that, as of the end of such period, our
disclosure controls and procedures were adequate to ensure that
information required to be disclosed by us in the reports filed
or submitted by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms.

Additionally, our President and Chief Executive
Officer and Chief Financial Officer determined that there were
no significant changes in our internal controls or in other
factors during our most recent fiscal quarter that could
significantly affect our internal controls subsequent to the
date of their evaluation.

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PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The following table sets forth information
regarding our executive officers and directors.

|                     |  |     |    |          |  |                                                                    
|-------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|David G. Fiore       |  |     | 57 |          |  | President and Chief Executive Officer, Director                    
|Sherice P. Bench     |  |     | 45 |          |  | Chief Financial Officer, Secretary and Treasurer                   
|Charlyn A. Daugherty |  |     | 56 |          |  | Senior Vice President  Manufacturing
    Operations               
|Parke H. Davis       |  |     | 62 |          |  | Senior Vice President  Retail Products                            
|Donald A. Percenti   |  |     | 48 |          |  | Senior Vice President  OnCampus and
    General Manager  Printing
|Peter Lamm           |  |     | 53 |          |  | Director                                                           
|Mac LaFollette       |  |     | 40 |          |  | Director                                                           
|W. Gregg Smart       |  |     | 44 |          |  | Director                                                           
|Sanjay Morey         |  |     | 33 |          |  | Director                                                           

David G. Fiorebecame our President and Chief
Executive Officer and a director in July 2000, and since August
1999 had been President and CEO and a director of our
predecessor. Prior to joining our predecessor, Mr. Fiore
was the President and CEO of Reliant Building Products, Inc.
from 1992 to 1998. From 1988 to 1992, Mr. Fiore was the
President and CEO of CalTex Industries, Inc. and held the
positions of Division General Manager, VP of Manufacturing and
Director of Marketing with the Atlas Powder Company from 1977 to
1988.

Sherice P. Benchhas
been our Secretary and Treasurer since July 2000 and became our
Chief Financial Officer in August 2001. From July 2000 to August
2001, Ms. Bench was CFO of our predecessor. From 1996 to
July 2000, Ms. Bench was Vice President and Controller of
our predecessor. From 1989 to 1996, Ms. Bench was Vice
President Finance and Controller for CJC Holdings, the prior
owner of ArtCarved. Prior to that time, Ms. Bench was
employed as an audit manager with Arthur Andersen LLP.

Charlyn A. Daughertyhas been Senior Vice
President  Manufacturing Operations since 1999. From
1996 to 1999, she was Vice President  Manufacturing
of our predecessor and from 1989 to 1996, she was
President  Manufacturing Division of CJC Holdings.
Prior to 1989, Ms. Daugherty was Administrative Vice
President of R. Johns, Ltd.

Parke H. Davishas
been Senior Vice President  Retail Products since
1996. From 1991 to 1996, Mr. Davis was
President  Class Ring Division of CJC Holdings
and before that served as its President  Keepsake
Division and its President  College Class Ring
Sales.

Donald A. Percentihas been Senior Vice
President  OnCampus and General Manager 
Printing since 1996. From 1991 to 1996, he was Vice
President  Sales and Marketing of L.G. Balfour
Company, the prior owner of Balfour. From 1977 to 1991,
Mr. Percenti was employed by Balfour in various capacities.

Peter Lammbecame a
director following consummation of the Merger. He is the
Chairman and Chief Executive Office of Fenway Partners.
Mr. Lamm founded Fenway Partners in 1994. He was previously
a General Partner of the investment partnerships managed by
Butler Capital Corporation and a Managing Director of BCC. Prior
to joining Butler Capital in 1982, Mr. Lamm was involved in
launching Photoquick of America, Inc., a family business.
Mr. Lamm received an M.B.A. from Columbia University School
of Business and a B.A. in English Literature from Boston
University. Mr. Lamm is also a member of the board of
directors of our parent.

Mac LaFollettebecame a director following
consummation of the Merger. He is a Managing Director of Fenway
Partners. Prior to joining Fenway Partners in 2000,
Mr. LaFollette was a Director in the Leveraged Finance
group at Credit Suisse First Boston. At First Boston, he
identified leveraged buyout transactions for financial sponsors
and financed LBOs in the bank market and the high yield market.
Prior

59



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to joining First Boston, he worked in the Latin
America Investment Banking Group at UBS. Mr. LaFollette
received an M.B.A. from Harvard Business School and an A.B. from
Harvard College. Mr. LaFollette is also a member of the
board of directors of our parent.


W. Gregg Smartbecame a director following
consummation of the Merger. He is a Senior Managing Director and
the Chief Operating Officer of Fenway Partners. Prior to joining
Fenway Partners in July 1999, Mr. Smart spent 13 years
at Merrill Lynch & Co. where he was most recently a
Managing Director in the Financial Sponsors Group. Prior to
joining Merrill Lynch & Co., Mr. Smart was with
First Union National Bank. Mr. Smart received an M.B.A.
from the Wharton School and a B.A. in Economics from Davidson
College. Mr. Smart is also a member of the board of
directors of our parent.

Sanjay Moreybecame
a director following consummation of the Merger. He is an
Associate at Fenway Partners. Prior to joining Fenway Partners
in 2001, Mr. Morey was an Associate at Freeman
Spogli & Co. Previously, Mr. Morey worked for
Salomon Brothers. Mr. Morey received an M.B.A. from Harvard
Business School and a B.A. in Economics magna cum laude and Phi
Beta Kappa distinction from U.C.L.A. Mr. Morey is also a
member of the board of directors of our parent.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The following table sets forth compensation
information for each person who served as our Chief Executive
Officer during 2004 and our four other executive officers who
were the most highly compensated for the year ended
December 31, 2004. We refer to these individuals
collectively as our named executive officers.

|                            |                            |                        |      |                     |  |                        |         |                 |  |            |           |            |  |           |   |                       |  |  |   |         |  |  |   |        |  |   |   |   |  |   |         |   | 
|--------------------------- | -------------------------- | ---------------------- | ---- | ------------------- |  | ---------------------- | ------- | --------------- |  | ---------- | --------- | ---------- |  | --------- | - | --------------------- |  |  | - | ------- |  |  | - | ------ |  | - | - | - |  | - | ------- | - | 
|                            |                            |                        |      |                     |  |                        |         |                 |  |            |           |           
|                            |                            |                        |      |                     |  | Long-Term Compensation |         |                
|                            |                            |                        |      | Annual Compensation |  |                        |         |                
|                            |                            |                        |      |                     |  | Restricted             |         | Securities      |  |            |           |           
|                            |                            |                        |      |                     |  | Other Annual           |         | Stock           |  | Underlying |           | LTIP       |  | All Other
|Name and Principal Position |                            | Year(1)                |      | Salary              |  | Bonus(2)               |         | Compensation(3) |  | Awards     |           | Options(#) |  | Payouts   |   | Compensation(4)(5)(6)
|                            |                            |                        |      |                     |  |                        |         |                 |  |            |           |            |  |           |   |                      
|                            |                            |                       
|                            |                            | (Dollars in thousands)
|David G. Fiore              |                            |                        | 2004 |                     |  | $                      | 426,731 |                 |  | $          | 2,072,000 |            |  |           |  |                       |  |  | 0 |         |  |  | 0 |        |  | $ | 0 |   |  | $ | 953,594 |  
|                            | President and Chief        |                        |      | 2003                |  |                        | $       | 378,847         |  |            | $         | 300,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 0      |  |   | $ | 0 |  |   |         |  | 
|                            | Executive Officer          |                        |      | 2002                |  |                        | $       | 361,617         |  |            | $         | 300,000    |  |           |   |                      |  |  | $ | 936,088 |  |  |   | 22,500 |  |   | $ | 0 |  |   |         |  | 
|Sherice P. Bench            |                            |                        | 2004 |                     |  | $                      | 230,195 |                 |  | $          | 415,000   |            |  |           |  |                       |  |  | 0 |         |  |  | 0 |        |  | $ | 0 |   |  | $ | 250,262 |  
|                            | Chief Financial            |                        |      | 2003                |  |                        | $       | 196,538         |  |            | $         | 115,050    |  |           |   |                      |  |  |   | 0       |  |  |   | 0      |  |   | $ | 0 |  |   |         |  | 
|                            | Officer                    |                        |      | 2002                |  |                        | $       | 182,019         |  |            | $         | 115,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 7,966  |  |   | $ | 0 |  |   |         |  | 
|Charlyn A. Daugherty        |                            |                        | 2004 |                     |  | $                      | 209,616 |                 |  | $          | 400,000   |            |  |           |  |                       |  |  | 0 |         |  |  | 0 |        |  | $ | 0 |   |  | $ | 241,132 |  
|                            | Senior Vice President     |                        |      | 2003                |  |                        | $       | 191,154         |  |            | $         | 105,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 0      |  |   | $ | 0 |  |   |         |  | 
|                            | Manufacturing              |                        |      | 2002                |  |                        | $       | 185,292         |  |            | $         | 106,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 6,243  |  |   | $ | 0 |  |   |         |  | 
|                            | Operations                 |                        |      |                     |  |                        |         |                 |  |            |           |            |  |           |   |                       |  |  |   |         |  |  |   |        |  |   |   |   |  |   |         |   | 
|Parke H. Davis              |                            |                        | 2004 |                     |  | $                      | 230,385 |                 |  | $          | 390,000   |            |  |           |  |                       |  |  | 0 |         |  |  | 0 |        |  | $ | 0 |   |  | $ | 241,132 |  
|                            | Senior Vice President     |                        |      | 2003                |  |                        | $       | 207,308         |  |            | $         | 108,650    |  |           |   |                      |  |  |   | 0       |  |  |   | 0      |  |   | $ | 0 |  |   |         |  | 
|                            | Retail Sales               |                        |      | 2002                |  |                        | $       | 200,769         |  |            | $         | 108,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 6,243  |  |   | $ | 0 |  |   |         |  | 
|Donald A. Percenti          |                            |                        | 2004 |                     |  | $                      | 258,200 |                 |  | $          | 430,000   |            |  |           |  |                       |  |  | 0 |         |  |  | 0 |        |  | $ | 0 |   |  | $ | 241,132 |  
|                            | Senior Vice President     |                        |      | 2003                |  |                        | $       | 236,847         |  |            | $         | 141,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 0      |  |   | $ | 0 |  |   |         |  | 
|                            | OnCampus and               |                        |      | 2002                |  |                        | $       | 217,693         |  |            | $         | 111,000    |  |           |   |                      |  |  |   | 0       |  |  |   | 6,243  |  |   | $ | 0 |  |   |         |  | 
|                            | General Manager  Printing |                        |      |                     |  |                        |         |                 |  |            |           |            |  |           |   |                       |  |  |   |         |  |  |   |        |  |   |   |   |  |   |         |   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our 2004 fiscal year ended on August 28,
    2004. Fiscal year 2003 ended on August 30, 2003 and fiscal
    year 2002 ended on August 31, 2002. Executive compensation
    for 2004, 2003, and 2002 is for the twelve months ended
    December 31 of each year and based on current compensation.                                                                                                                                                                                                                                               
|   
|(2) | Amounts in 2004 include payment under the
    Management Incentive bonus program as follows: Mr. Fiore:
    $300,000; Ms. Bench: $135,000; Ms. Daugherty:
    $120,000; Mr. Davis $110,000; Mr. Percenti: $150,000.
    Amounts in 2004 also includes a success bonus paid as of the
    date of the Merger as follows: Mr. Fiore: $1,772,000;
    Ms. Bench: $280,000; Ms. Daugherty: $280,000;
    Mr. Davis: $280,000; Mr. Percenti: $280,000. Amounts
    in 2003 and 2002 include payments under the Management Incentive
    bonus program.
|   
|(3) | The prerequisites and other personal benefits,
    securities or property received by the named executive officers
    did not exceed $50,000 or 10% of the total annual salary and
    bonus reported for the named                                                                                                                                                                                                                                                                                                                             

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | executive officers in cash of 2004, 2003 and
    2002. In 2002, we have paid $386,088 in taxes associated with
    the receipt by Mr. Fiore in 2002 of 5,500 shares of
    our series A preferred stock.                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(4) | Each of the named executive officers have term
    life insurance policies equal to two-times their base salary
    (maximum of $500,000) in the years 2004, 2003 and 2002 and
    one-times their base salary in the year 2001 with a benefit
    payable to a beneficiary selected by the named executive officer
    upon his or her death. We have paid the annual premiums on such
    policies in each of 2004, 2003, and 2002. The annual premium
    does not exceed $910 for any named executive officer. No named
    executive officer is entitled to any cash surrender value in
    such policies.
|   
|(5) | During 2002 due to the increased concerns after
    September 11, 2001, and the increased travel requirements
    of Mr. Fiore, Mrs. Bench and thirteen other officers
    and executives of the Company, AAC purchased a travel accident
    policy covering Mr. Fiore and Mrs. Bench in the amount
    of $2,500,000 each and $250,000 each for the other 13 named
    executives for a total three year premium of $4,777. The
    beneficiaries of the policy are to be named by the employee, and
    no named executive is entitled to any cash surrender value in
    such policies.                    
|   
|(6) | Amounts in 2004 include cancellation of stock
    options in connection with the Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Employment Agreements

David G. Fiore.Mr. Fiore has an employment agreement with us, pursuant to
which he serves as our Chief Executive Officer and President and
as a member of our Board of Directors. The initial term of his
employment agreement was for two years from August 2, 1999.
Unless otherwise terminated, Mr. Fiores employment
agreement adds one day to the term for each day that passes, and
accordingly, there are always two years remaining on the term.
The employment agreement provides Mr. Fiore with an annual
base salary of no less than $300,000. Under his employment
agreement, Mr. Fiores salary is subject to such
increases as our Board of Directors may determine from time to
time. Mr. Fiores employment agreement provides for
various bonuses to be paid to him. Mr. Fiore is paid an
annual bonus up to $200,000, determined by our Board of
Directors, based upon the achievement of certain EBITDA targets.
Mr. Fiore is also entitled to long-term incentive bonuses
in the form of various stock grants if we achieve certain EBITDA
targets as provided for in his employment agreement. These stock
grants are fully vested when granted. At the discretion of the
compensation committee of our Board of Directors, we also may
pay Mr. Fiore a discretionary bonus each year in an amount
of up to $100,000.

Mr. Fiores employment agreement
provides that in the event his employment is terminated without
substantial cause or he terminates his employment
for good reason (each as defined in his employment
agreement), he will be entitled to receive his salary for the
remainder of the term under the employment agreement, plus the
portion of the annual bonus actually earned through the date of
termination, plus the long-term incentive bonus. Mr. Fiore
and covered family members will also be entitled to health
benefits for 24 months, or until they become covered under
a new employee health plan at no cost to Mr. Fiore.

Mr. Fiores amended employment
agreement further provides that he may terminate his employment
six months after a change in control (as defined in
his employment agreement), expiring December 31, 2004. Upon
such termination, Mr. Fiore will be paid $450,000.

Sherice P. Bench.Ms. Bench has an employment agreement with CBI, effective
as of December 16, 1996, pursuant to which she serves as
our Chief Financial Officer. The initial term of her employment
agreement was for two years, which can be automatically extended
for additional one year terms on December 15th of each
succeeding year thereafter unless earlier terminated by us upon
not less than 60 days prior notice. The current term
of her employment agreement expires on December 15, 2004.
Ms. Bench is entitled to participate in such employee
benefit programs, plans and policies (including incentive bonus
plans and incentive stock option plans) as we maintain and as
may be established for our employees from time-to-time on the
same basis as other executive employees are entitled to
participate.

Ms. Benchs employment agreement
provides that in the event her employment is terminated without
substantial cause (as defined in her employment
agreement), she will be entitled to receive 39 bi-weekly
severance payments equal to the average of her bi-weekly
compensation in effect within the two years

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preceding her termination, accrued but unused
vacation, and any accrued bonus. She will also be entitled to
elect the continuation of health benefits at our cost.
Ms. Benchs employment agreement does not provide her
with any payments that are contingent upon a change in
control.


Other Employment
Agreements.Charlyn A. Daugherty,
Donald A. Percenti and Parke H. Davis each have an employment
agreement with CBI and Ronald Brostrom and G. Page Singletary
have employment agreements with Milestone Marketing
Incorporated, which were assigned to CBI. The initial term of
each respective employment agreement was for three years, which
can be automatically extended for additional one year terms on
December 15th of each succeeding year thereafter unless
earlier terminated by us upon not less than 60 days
prior notice for Ms. Daugherty and Messrs. Davis and
Percenti and on the 15th of July for Messrs. Brostrom and
Singletary. The current term of each of their employment
agreements expires on December 15, 2003 for
Ms. Daugherty, Messrs. Davis and Percenti, and on
July 15, 2005 for Messrs. Brostrom and Singletary.
Ms. Daugherty and Messrs. Davis, Percenti, Brostrom
and Singletary are entitled to participate in such employee
benefit programs, plans and policies 60 (including incentive
bonus plans and incentive stock option plans) as we maintain and
as may be established for our employees from time-to-time on the
same basis as other executive employees are entitled to
participate.

Each of the above-described employment agreements
for Ms. Daugherty, Messrs. Davis and Percenti provide
that in the event of their termination of employment without
cause (as defined in each of their respective
employment agreements), the terminated employee will be entitled
to receive 18 months of severance payments equal to the
average of such employees bi-weekly compensation in effect
within the two years preceding their termination, accrued but
unused vacation and any accrued bonuses. In the event the
employment of Messrs. Brostrom or Singletary is terminated
without cause, he will receive bi-weekly severance
payments equal to his bi-weekly compensation as of the date of
termination until the end of the initial term or one year from
date of termination, accrued but unused vacation, and any
accrued bonus. Such employee will also be entitled to elect the
continuation of health benefits at our cost. None of the
above-described employment agreements provide any payments that
are contingent upon a change of control.

The employment agreements, which have been
revised from time-to-time, provide for minimum salary levels,
adjusted annually for cost-of-living changes, as well as for
incentive bonuses for a certain executive that are payable if
specific management goals are attained. The aggregate commitment
for future salaries as of August 28, 2004, excluding
bonuses, was approximately $2.4 million.

Board Committees

Our board of directors directs the management of
our business and affairs as provided by Delaware law and
conducts its business through meetings of the full board of
directors and two standing committees: the audit committee and
the compensation committee. In addition, from time to time,
other committees may be established under the direction of the
board of directors when necessary to address specific issues.

The duties and responsibilities of the audit
committee will include recommending to the board of directors
the appointment or termination of the engagement of our
independent public accountants, otherwise overseeing the
independent registered public accounting firm relationship,
reviewing our significant accounting policies and internal
controls and reporting its recommendations and findings to the
full board of directors. The compensation committee will review
and approve the compensation of our chief executive officer and
administer any cash or equity incentive plan approved by our
board of directors.

Director Compensation

The members of our board of directors are not
separately compensated for their services as directors, other
than reimbursement for out-of-pocket expenses incurred in
connection with rendering such services.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

American Achievement Corporation has 100 shares
of common stock issued and outstanding, all of which are owned
by AAC Holding Corp. The following table provides certain
information as of

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November 1, 2004 with respect to the
beneficial ownership of the interests of our parent, AAC Holding
Corp., by (i) each holder known by us who beneficially owns
5% or more of the outstanding equity interests of our parent,
(ii) each of the members of the board of directors of our
parent, (iii) each of our named executive officers, and
(iv) all of the members of the board of managers of our
parents general partner and our executive officers as a
group. Unless otherwise indicated in a footnote, the business
address of each person is our corporate address.


|                                                                  |                                           |        |         |            |  |  |      |  | 
|----------------------------------------------------------------- | ----------------------------------------- | ------ | ------- | ---------- |  |  | ---- |  | 
|                                                                  |                                           | Shares |         | Percentage
|                                                                  |                                           |        |         |           
|American Achievement Holdings LLC(1)                              |                                           |        | 863,534 |            |  |  | 85.0 | 
|                                                                  | c/o Fenway Partners, Inc.                 |        |         |            |  |  |      |  | 
|                                                                  | 152 West 57th Street                      |        |         |            |  |  |      |  | 
|                                                                  | New York, NY 10019                        |        |         |            |  |  |      |  | 
|Investors related to J.P.Morgan Investment
    Management Inc.(2) |                                           |        | 146,992 |            |  |  | 14.5 | 
|                                                                  | c/o J.P.Morgan Investment Management Inc. |        |         |            |  |  |      |  | 
|                                                                  | 522 Fifth Avenue                          |        |         |            |  |  |      |  | 
|                                                                  | New York, New York 10036                  |        |         |            |  |  |      |  | 
|Mac LaFollette                                                    |                                           |        |        |            |  |  |     | 
|Peter Lamm(3)                                                     |                                           |        | 863,534 |            |  |  | 85.0 | 
|W. Gregg Smart                                                    |                                           |        |        |            |  |  |     | 
|Sanjay Morey                                                      |                                           |        |        |            |  |  |     | 
|David G. Fiore                                                    |                                           |        |        |            |  |  |     | 
|Sherice P. Bench                                                  |                                           |        |        |            |  |  |     | 
|Charlyn A. Daugherty                                              |                                           |        |        |            |  |  |     | 
|Parke H. Davis                                                    |                                           |        |        |            |  |  |     | 
|Donald A. Percenti                                                |                                           |        |        |            |  |  |     | 
|All executive officers and directors as a group
    (9 persons)   |                                           |        | 863,534 |            |  |  | 85.0 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the voting interest of American
    Achievement Holdings LLC are held by Fenway Partners Capital
    Fund II, L.P., FPIP, LLC and FPIP Trust, LLC, each of which
    are affiliates of Fenway Partners, Inc. Accordingly, such
    entities may be deemed to beneficially own the shares of common
    stock held by American Achievement LLC. Each of such entities
    disclaims beneficial ownership of such shares except to the
    extent of its precuniary interest therein.                
|   
|(2) | The various investors include J.P.Morgan
    U.S. Direct Corporate Finance Institutional
    Investors II LLC, which holds 140,729 shares of common
    stock, J.P. Morgan U.S. Direct Corporate Finance
    Private Investors II LLC, which holds 5,528 shares of
    common stock, and 522 Fifth Ave Fund, L.P., which holds
    735 shares of common stock.                                                                                                                                            
|   
|(3) | Mr. Lamm is a founder of Fenway Partners,
    Inc. a managing member of Fenway Partners II LLC, the
    general partner of Fenway Partners Capital Fund II, L.P.,
    and is a managing member of each of FPIP, LLC and FPIP Trust,
    LLC. Accordingly, Mr. Lamm may be deemed to beneficially
    own the shares of common stock held by American Achievement
    Holdings LLC. Mr. Lamm disclaims beneficial ownership of
    such shares except to the extent of his pecuniary interests
    therein.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Our parent and our company entered into a
management agreement with Fenway Partners, Inc., an affiliate of
Fenway Partners Capital Fund II, L.P., pursuant to which
Fenway Partners, Inc. provides management and other advisory
services. Pursuant to this agreement, Fenway Partners, Inc.
receives an aggregate annual management fee equal to the greater
of $3.0 million or 5% of the previous fiscal years
EBITDA. EBITDA is defined in the management agreement as
earnings before interest, taxes, depreciation, amortization,
restructuring charges, management fees and other one-time
non-recurring charges. In addition, the management agreement
provides that Fenway Partners, Inc. will also receive customary
fees in connection with certain subsequent financing and
acquisition transactions. The management agreement includes
customary indemnification provisions in favor of Fenway
Partners, Inc. and its affiliates. Although the indenture
governing the notes permits the payments under the management

63



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##### Table of Contents



agreement, such payments will be restricted
during an event of default under the notes. Amounts paid under
the new management agreement totaled approximately $800,000 for
the period March 26, 2004 to August 28, 2004. As of
August 28, 2004, our company had accrued management fees of
$500,000.


Amounts paid under a management agreement with
our former owner totaled $2,250,000 for the period
August 31, 2003 to March 25, 2004. As of
August 30, 2003, the Company had accrued management fees of
$750,000.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The following table sets forth the aggregate fees
billed to the Company for the periods March 26, 2004 to
August 28, 2004 and August 31, 2003 to March 25,
2004 and the fiscal year 2003 by Deloitte & Touche LLP:

|           |                    |                    |         |                   |  |                 |         |                        |  |                   |         |                 |  |  |     |    |   |  |     |    |   |  |     |    |  
|---------- | ------------------ | ------------------ | ------- | ----------------- |  | --------------- | ------- | ---------------------- |  | ----------------- | ------- | --------------- |  |  | --- | -- | - |  | --- | -- | - |  | --- | -- | -
|           |                    |                    |         |                   |  |                 |         |                       
|           |                    |                    |         |                   |  |                 |         | Percentage of Services
|           |                    |                    |         |                   |  |                 |         |                       
|           |                    |                    |         |                   |  |                 |         |                        |  |                  
|           |                    |                    |         |                   |  | For the Period  |         |                       
|           |                    | For the Period     |         |                   |  |                 |         |                       
|           |                    |                    |         | For the Year      |  | March 26, 2004  |         |                        |  | For the Year     
|           |                    | March 26, 2004     |         | August 31, 2003   |  | Ended           |         | to August 28,          |  | August 31, 2003   |         | Ended          
|           |                    | to August 31, 2004 |         | to March 25, 2004 |  | August 30, 2003 |         | 2004                   |  | to March 25, 2004 |         | August 30, 2003
|           |                    |                    |         |                   |  |                 |         |                        |  |                   |         |                
|           | Audit fees         |                    | $       | 205,000           |  |                 | $       | 194,000                |  |                   | $       | 227,000         |  |  |     | 48 | % |  |     | 82 | % |  |     | 36 | %
|           | Audit-related fees |                    |         | 84,000            |  |                 |         |                       |  |                   |         | 181,000         |  |  |     | 20 | % |  |     |   |   |  |     | 29 | %
|           | Tax fees           |                    |         | 137,000           |  |                 |         | 31,000                 |  |                   |         | 180,000         |  |  |     | 32 | % |  |     | 13 | % |  |     | 29 | %
|           | All other fees     |                    |         |                  |  |                 |         | 11,000                 |  |                   |         | 35,000          |  |  |     |   |   |  |     | 5  | % |  |     | 6  | %
|Total fees |                    | $                  | 426,000 |                   |  | $               | 236,000 |                        |  | $                 | 623,000 |                 |  |  | 100 | %  |   |  | 100 | %  |   |  | 100 | % 

The Audit Fees billed during the
periods March 26, 2004 to August 28, 2004 and
August 31, 2003 to March 25, 2004 and the fiscal year
ended 2003 were for professional services rendered for the audit
of our financial statements. Audit-Related Fees were
for services related to accounting consultation of the Merger
and related filings with the Securities and Exchange Commission
for the period March 26, 2004 to August 28, 2004 and
various acquisition related services for the fiscal year ended
2003. Tax Fees consist of fees billed for
professional services rendered for tax compliance, tax advice,
and tax planning. All other fees primarily relate to
the audit of pension and postretirement plans.

The Audit Committee has adopted a policy for the
pre-approval of all audit and non-audit services to be performed
for the Company by its independent registered public accounting
firm. The Audit Committee has considered the role of Deloitte
& Touche LLP in providing audit, audit-related and tax
services to the Company and has concluded that such services are
compatible with Deloitte & Touche LLPs role as the
Companys independent registered public accounting firm.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) Exhibits and Financial Statement
Schedules

The following documents are filed as part of this
report.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Consolidated Financial Statements. See
    Index to Consolidated Financial
    Statements  Item 8.                                              
|
| | 2. Financial Statement Schedules. Report of
    Independent Registered Public Accounting Firm and
    Schedule II  Valuation and Qualifying Accounts.
|
| | 3. Exhibits. See
    Exhibit Index.                                                                                                                 

64



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                 
| | --------------------------------
| | AMERICAN ACHIEVEMENT CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ DAVID G. FIORE

| |                        
| | -----------------------
| |                        
| | David G. Fiore         
| | Chief Executive Officer



| |     |                     
| | --- | --------------------
| | By: | /s/ SHERICE P. BENCH

| |                        
| | -----------------------
| |                        
| | Sherice P. Bench       
| | Chief Financial Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities indicated on November 4, 2004.

|                                 |  |                         |  | 
|-------------------------------- |  | ----------------------- |  | 
|                                
|/s/ DAVID G. FIOREDavid G. Fiore |  | Chief Executive Officer
|                                
|/s/ PETER LAMMPeter Lamm         |  | Director               
|                                
|/s/ MAC LAFOLLETTEMac LaFollette |  | Director               
|                                
|/s/ W. GREGG SMARTW. Gregg Smart |  | Director               
|                                
|/s/ SANJAY MOREYSanjay Morey     |  | Director               

65



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Stockholders of

American Achievement Corporation


We have audited the consolidated financial
statements of American Achievement Corporation and Subsidiaries
(the Company) as of August 28, 2004 (Successor)
and August 30, 2003 (Predecessor), and the periods from
March 26, 2004 to August 28, 2004 (Successor, five
months), from August 31, 2003 to March 25, 2004
(Predecessor, seven months) and for each of the two fiscal years
in the period ended August 30, 2003, and have issued our
report thereon dated October 29, 2004 (included elsewhere
in this Form 10-K). Our audits also included the
consolidated financial statement schedule listed in
Item 15(a)(2) of this Form 10-K. This consolidated
financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an
opinion based on our audits.

In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Austin, Texas

October 29, 2004


66



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##### Table of Contents



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

AMERICAN ACHIEVEMENT CORPORATION

|                                                         |                                      |                |   |                  |  |       |   |            |  |            |  |      |   |  |   |        |      |  |   |       | 
|-------------------------------------------------------- | ------------------------------------ | -------------- | - | ---------------- |  | ----- | - | ---------- |  | ---------- |  | ---- | - |  | - | ------ | ---- |  | - | ----- | 
|                                                         |                                      | Balance at     |   |                  |  |       |   |            |  | Balance at
|                                                         |                                      | Beginning of   |   | Charged to Costs |  |       |   |            |  | End of    
|                                                         |                                      | Period         |   | and Expenses     |  | Other |   | Write-offs |  | Period    
|                                                         |                                      |                |   |                  |  |       |   |            |  |           
|                                                         |                                      |               
|                                                         |                                      | (In thousands)
|Reserves and allowances deducted from asset
    accounts |                                      |                |   |                  |  |       |   |            |  |            |  |      |   |  |   |        |      |  |   |      
|                                                         |                                      |                |   |                  |  |       |   |            |  |            |  |      |   |  |   |        |      |  |   |      
|Reserve on sales representative
    advances             |                                      |                |   |                  |  |       |   |            |  |            |  |      |   |  |   |        |      |  |   |      
|                                                         | March 26, 2004  August 28,
    2004 |                | $ | 2,254            |  |       | $ | 1,205      |  |            |  |     |   |  | $ | (1,076 | )(1) |  | $ | 2,383 | 
|                                                         | August 31, 2003  March 25,
    2004 |                |   | 2,516            |  |       |   | 813        |  |            |  |     |   |  |   | (1,075 | )(1) |  |   | 2,254 | 
|                                                         | Year ended August 30, 2003           |                |   | 2,843            |  |       |   | 2,335      |  |            |  |     |   |  |   | (2,662 | )(1) |  |   | 2,516 | 
|                                                         | Year ended August 31, 2002           |                |   | 3,004            |  |       |   | 2,499      |  |            |  |     |   |  |   | (2,660 | )(1) |  |   | 2,843 | 
|Allowance for doubtful accounts                          |                                      |                |   |                  |  |       |   |            |  |            |  |      |   |  |   |        |      |  |   |      
|                                                         | March 26, 2004  August 28,
    2004 |                |   | 3,098            |  |       |   | 3,790      |  |            |  | 123  |   |  |   | (4,150 | )    |  |   | 2,861 | 
|                                                         | August 31, 2003  March 25,
    2004 |                |   | 3,242            |  |       |   | 3,445      |  |            |  | (160 | ) |  |   | (3,429 | )    |  |   | 3,098 | 
|                                                         | Year ended August 30, 2003           |                |   | 3,525            |  |       |   | 7,178      |  |            |  | 145  |   |  |   | (7,606 | )    |  |   | 3,242 | 
|                                                         | Year ended August 31, 2002           |                |   | 3,076            |  |       |   | 8,955      |  |            |  | 38   |   |  |   | (8,544 | )    |  |   | 3,525 | 



---



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents principally write-offs of terminated
    sales representative amounts and forgiveness of amounts by the
    Company.

67



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##### Table of Contents



EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Designation
|        |    |            
|        | 2  | .1          |  | Agreement and Plan of Merger by and among AAC
    Holding Corp., AAC Acquisition Corp., American Achievement
    Corporation and The Stockholders Party Hereto dated as of
    December 24, 2003****                                   
|        | 3  | .1          |  | Certificate of Incorporation of American
    Achievement Corporation with all amendments (f/k/a Commemorative
    Brands Holding Corp.)**                                                                                              
|        | 3  | .2          |  | By-Laws of American Achievement Corporation
    (f/k/a Commemorative Brands Holding Corp.)**                                                                                                                                           
|        | 3  | .3          |  | Certificate of Incorporation of Commemorative
    Brands, Inc. with all amendments (f/k/a Scholastic Brands, Inc.,
    Class Rings, Inc. and Keepsake Jewelry, Inc.)**                                                                 
|        | 3  | .4          |  | By-Laws of Commemorative Brands, Inc. (f/k/a
    Scholastic Brands, Inc., Class Rings, Inc. and Keepsake Jewelry,
    Inc.)**                                                                                                          
|        | 3  | .5          |  | Certificate of Incorporation of CBI North
    America, Inc. with all amendments (f/k/a CBI North America,
    Inc.)**                                                                                                                  
|        | 3  | .6          |  | By-Laws of CBI North America, Inc. with all
    amendments (f/k/a CBI North America, Inc.)**                                                                                                                                           
|        | 3  | .7          |  | Certificate of Incorporation of Taylor Senior
    Holding Corp.**                                                                                                                                                                      
|        | 3  | .8          |  | By-Laws of Taylor Senior Holding Corp.**                                                                                                                                                                                               
|        | 3  | .9          |  | Amended and Restated Certificate of Incorporation
    of TP Holding Corp. (f/k/a TP Acquisition Corp.)**                                                                                                                               
|        | 3  | .10         |  | By-Laws of TP Holding Corp. (f/k/a TP Acquisition
    Corp.)**                                                                                                                                                                         
|        | 3  | .11         |  | Certificate of Incorporation of Taylor Publishing
    Company with all amendments (f/k/a Taylor Publishing Company of
    Delaware)**                                                                                                  
|        | 3  | .12         |  | By-Laws of Taylor Publishing Company (f/k/a
    Taylor Publishing Company of Delaware)**                                                                                                                                               
|        | 3  | .13         |  | Certificate of Limited Partnership of Taylor
    Publishing Manufacturing, L.P.***                                                                                                                                                     
|        | 3  | .14         |  | Taylor Publishing Manufacturing, L.P. Limited
    Partnership Agreement***                                                                                                                                                             
|        | 3  | .15         |  | Articles of Incorporation of Educational
    Communications, Inc. with all amendments (f/k/a Merit Publishing
    Company)**                                                                                                           
|        | 3  | .16         |  | By-Laws of Educational Communications, Inc.**                                                                                                                                                                                          
|        | 3  | .17         |  | Certificate of Formation of Taylor Manufacturing
    Holdings, LLC***                                                                                                                                                                  
|        | 3  | .18         |  | Limited Liability Company Agreement of Taylor
    Manufacturing Holdings, LLC***                                                                                                                                                       
|        | 4  | .1          |  | Indenture, dated as of February 20, 2002,
    among American Achievement Corporation, The Bank of
    New York, as Trustee, and the Guarantors**                                                                                       
|        | 4  | .2          |  | First Supplemental Indenture, dated as of
    July 17, 2003, among American Achievement Corporation, The
    Bank of New York, as Trustee, and the Additional
    Guarantors***                                                        
|        | 4  | .3          |  | Second Supplemental Indenture, dated as of
    December 24, 2002, among American Achievement Corporation,
    The Bank of New York, as Trustee, and the Additional
    Guarantors***                                                   
|        | 4  | .4          |  | Third Supplemental Indenture, dated as of
    March 15, 2004, among American Achievement Corporation, the
    Guarantors, and The Bank of New York****                                                                                 
|        | 4  | .5          |  | Indenture, dated as of March 25, 2004, among
    The Bank of New York, as Trustee, and the Guarantors****                                                                                                                              
|        | 4  | .6          |  | Form of 8.25% Senior Subordinated Notes due
    April 1, 2012 (Included in Exhibit 4.5)                                                                                                                                                
|        | 10 | .1          |  | Exchange and Registration Rights Agreement, dated
    March 25, 2004, among American Achievement Corporation, the
    Guarantors, and the Purchasers****                                                                               
|        | 10 | .2          |  | Credit Agreement, dated March 25, 2004, by
    and among American Achievement Corporation, the Guarantors,
    Goldman Sachs Credit Partners L.P., Deutsche Bank A.G.,
    Cayman Islands Branch, and Deutsche Bank Securities Inc.****
|        | 10 | .3          |  | Pledge and Security Agreement between the
    Guarantors and Goldman Sachs Credit Partners L.P., dated
    March 25, 2004.****                                                                                                         



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                           
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Designation
|        |    |            
|        | 10 | .4          |  | Intercreditor Agreement between Goldman Sachs
    Credit Partners L.P., the Secured Parties, and The Bank of Nova
    Scotia, dated March 25, 2004.****                                   
|        | 10 | .5          |  | First Amended and Restated Letter Agreement for
    Fee Consignment and Purchase of Gold between Commemorative
    Brands, Inc. and The Bank of Nova Scotia, dated March 25,
    2004.****
|        | 10 | .6          |  | Letter Agreement for Addition of Approved
    Inventory Locations between Commemorative Brands, Inc. and The
    Bank of Nova Scotia, dated June 9, 2004.****                             
|        | 10 | .7          |  | Management Advisory Agreement by and between AAC
    Holding Corp., American Achievement Corporation, and Fenway
    Partners, Inc., dated March 25, 2004.****                            
|        | 10 | .8          |  | Employment Agreement, dated as of July 13,
    1999 by and between Commemorative Brands, Inc. and David G.
    Fiore**                                                                    
|        | 10 | .9          |  | First Amendment to the Employment Agreement by
    and between Commemorative Brands, Inc. and David G. Fiore dated
    February 1, 2002**                                                 
|        | 10 | .10         |  | Second Amendment to the Employment Agreement by
    and between the Registrant and David G. Fiore dated
    December 23, 2003*****                                                        
|        | 10 | .11         |  | Employment Agreement, dated as of
    December 16, 1996 by and between Commemorative Brands, Inc.
    and Sherice P. Bench, as amended**                                                  
|        | 10 | .12         |  | First Amendment to the Employment Agreement by
    and between Commemorative Brands, Inc. and Sherice P. Bench,
    dated July 2, 1999*****                                               
|        | 10 | .13         |  | Second Amendment to the Employment Agreement by
    and between Commemorative Brands, Inc. and Sherice P. Bench
    dated April 9, 2004*****                                              
|        | 10 | .14         |  | Employment Agreement, dated as of
    December 16, 1996 by and between Commemorative Brands, Inc.
    and Donald J. Percenti**                                                            
|        | 10 | .15         |  | First Amendment to the Employment Agreement by
    and between Commemorative Brands, Inc. and Donald J. Percenti
    dated April 9, 2004*****                                             
|        | 10 | .16         |  | Employment Agreement, dated as of
    December 16, 1996 by and between Commemorative Brands, Inc.
    and Charlyn A. Cook**                                                               
|        | 10 | .17         |  | First Amendment to the Employment Agreement by
    and between Commemorative Brands, Inc. and Charlyn Daugherty
    dated April 9, 2004*****                                              
|        | 10 | .18         |  | First Amendment to the Employment Agreement by
    and between Commemorative Brands, Inc. and Parke Davis dated
    April 9, 2004*****                                                    
|        | 10 | .19         |  | Third Amendment to the Employment Agreement by
    and between the Registrant and David G. Fiore dated
    October 21, 2004.                                                              
|        | 12 | .1          |  | Statement regarding Computation of Ratios of
    Earnings to Fixed Charges                                                                                                                
|        | 21 | .1          |  | Subsidiaries of American Achievement
    Corporation*****                                                                                                                                 
|        | 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                                                                                



---



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| | * | Incorporated by reference to the corresponding
    Exhibit number of the Registrant Report on Form 8-K, dated
    July 30, 2002.



| |    |                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Incorporated by reference to the corresponding
    Exhibit number of the Registrant Amended Registration Statement
    on Form S-4/ A, dated April 5, 2002.



| |     |                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------
| | *** | Incorporated by reference to the corresponding
    Exhibit number the Registrant Report on Form 10-K, dated
    November 17, 2003.



---



##### Table of Contents





| |      |                                                                                                                                  
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------
| | **** | Incorporated by reference to the corresponding
    Exhibit number of the Registrant Report on Form 10-Q, dated
    July 13, 2004.



|      |                                                                                                                                 
|----- | --------------------------------------------------------------------------------------------------------------------------------
|***** | Incorporated by reference to the corresponding
    Exhibit number of the Registrant Report on Form S-4, dated
    July 22, 2004.