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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 27, 2005


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

Commission file numbers 333-121479 and 333-84294

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

(Exact Name of Registrant as Specified in its Charter)


DELAWARE DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		20-1854833 13-4126506 (I.R.S. Employer Identification Number)

7211 CIRCLE S ROAD
AUSTIN, TEXAS 78745


(Address of Principal Executive Offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant AAC Group Holding Corp. is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ No o

Indicate by check mark if the registrant American Achievement Corporation is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes 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 registrants’ 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. o

Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2). Yes o No þ.

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

Number of shares of AAC Group Holding Corp. outstanding as of August 27, 2005: 505,460 shares of common stock.

Number of shares of American Achievement Corporation outstanding as of August 27, 2005: 100 shares of common stock.

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

PART I

Item 1. Business

Registrants

AAC Group Holding Corp. (“Group Holdings”), formed in November 2004, owns 100% of the shares of common stock of AAC Holding Corp., which is the holder of 100% of the shares of common stock of American Achievement Corporation (“AAC”). Group Holdings conducts all of its business through AAC and its subsidiaries.

General

We are one of the leading manufacturers and suppliers of class rings, yearbooks, graduation products, achievement publications and recognition and affinity jewelry in the United States. We serve the high school, college and, to a lesser extent, elementary and junior high school markets. We market and sell yearbooks in all of the markets we serve. We primarily sell our class rings and graduation products, which include fine paper products and graduation accessories, in the high school, college and junior high school markets. Our achievement publications segment produces, markets, and sells publications that recognize the achievements of top students at the high school and college levels, as well as the nation’s most inspiring teachers. It consists of various titles including the Who’s Who brand and The National Dean’s List. Our other segment consists primarily of jewelry commemorating family events such as the birth of a child, fan affinity jewelry and related products and professional sports championship rings such as World Series rings.

Company Background

Our business was founded when the operations of ArtCarved, which were previously owned by CJC Holdings, Inc., and the operations of Balfour, which were previously owned by L. G. Balfour Company, Inc., were combined in December 1996. AAC was formed in June 2000 to serve as a holding company for these operations as well as any future acquisitions. In June 2000, we acquired the Taylor Senior Holding Company, the parent company of Taylor Publishing, whose primary business was designing and printing student yearbooks. In March 2001, AAC acquired all of the capital stock of ECI, which publishes achievement publications. In July 2002, AAC acquired all the outstanding stock and warrants of Milestone Marketing, a marketer of class rings and other graduation products to the college market. In January 2004, AAC acquired C-B Graduation Announcements, a marketer of graduation products to the college market.

On March 25, 2004, AAC Acquisition Corp., a wholly owned subsidiary of AAC Holding Corp., merged with and into AAC (the “Merger”), with AAC continuing as the surviving corporation and a wholly-owned subsidiary of AAC Holding Corp. AAC Holding Corp. is a wholly owned subsidiary of Group Holdings. The Merger was financed by a cash equity investment by an investor group led by Fenway Partners Capital Fund II, L.P., borrowings under AAC’s senior secured credit facility and the issuance of AAC’s 8.25% senior subordinated notes due 2012. As a result of the Merger, we have reflected pre-Merger periods (“Predecessor”) for results of operations prior to March 25, 2004 and post-Merger periods (“Successor”) for results of operations subsequent to March 25, 2004 in our consolidated financial information and statements.

On November 16, 2004, Group Holdings issued $131.5 million aggregate principal amount at maturity of 10.25% senior discount notes due 2012, generating net proceeds of $89.3 million. Group Holdings is the sole obligor of these notes. The net proceeds of this offering were used as a distribution to stockholders through the repurchase of shares of Group Holdings’ common stock from its stockholders. Other than this debt obligation, related deferred issuance costs and associated accrued liabilities, and related interest expense, net of taxes, all other assets, liabilities, income expenses and cash flows presented for all periods represent those of Group Holdings’ wholly-owned indirect subsidiary AAC and the direct and indirect subsidiaries of AAC. Group Holdings’ only direct subsidiary is AAC Holding Corp., whose sole asset is AAC. AAC and Group Holdings are treated as entities under common control.

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. 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 14% 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 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 have made major advances in yearbook systems and design. Most recently, we believe 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 fine paper accessories, we also offer caps and gowns. All of our graduation products are sold under the ArtCarved and Balfour brand names.

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 five 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, Who’s Who Among America’s Teachers and The Chancellor’s List. 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. Our licensed consumer sports jewelry and professional sports championship jewelry are marketed under the Balfour Sports and the Balfour and Keepsake brand names, respectively. We market our personalized family jewelry under the Celebrations of Life, Generations of Love and Namesake brand names.

Our Product Business Segments

Our product business segments consist of five principal categories: Class Rings, Yearbooks, Graduation Products, Achievement Publications and Other. Sales for these segments for the most recent three fiscal years were:


($ in thousands)	Fiscal Year Ended
Segment	2005		2004*		2003
Class Rings	$	120,662	$	122,525	$	127,624
Yearbooks		112,432		111,345		105,038
Graduation Products		40,854		39,666		34,736
Achievement Publications		20,110		19,956		20,122
Other		21,570		20,579		20,911

Total	$	315,628	$	314,071	$	308,431


*		Fiscal year ended 2004 represents the combined periods of August 31, 2003 to March 25, 2004 (date of the Merger) and March 26, 2004 to August 28, 2004.

The table below sets forth our principal product lines, various brand names and the distribution channels through which we sell our 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	Direct marketing
		College bookstores

Achievement Publications:	Who’s Who	Direct marketing
	The National Dean’s List	Direct marketing

Affinity Group Jewelry:	Keepsake	Direct marketing
	R. Johns	Direct marketing
	Balfour	Direct marketing

Personalized Family Jewelry:	Celebrations of Life	Independent jewelry stores
		Jewelry chains
	Generations of Love	Mass merchandisers
	Namesake	Mass merchandisers

Fan Affinity Sports Jewelry:	Balfour Sports	Mass merchandisers
		Catalogues

Professional Sports Championship Jewelry:	Balfour	Direct marketing

Class Rings

We manufacture class rings for high school, college and university students and, to a lesser extent, junior high school students. Our rings are marketed under various brand names, including ArtCarved and Balfour. Our ArtCarved and Balfour brand names have been identified with class rings for over 64 years and 91 years, respectively. During fiscal 2005, we sold rings to students at over 5,500 junior high schools, high schools, colleges and universities. In addition, we believe that we had the leading market share in class ring sales through retail stores during that same period. We believe we are the second largest provider of high school class rings and the largest provider of college class rings. 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 experiences.

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 receipt of a customer order and deposit, which

reduces our credit risk. Class ring products contributed 38%, 39% and 41% of our net sales in the fiscal years ended 2005, 2004 and 2003, 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 2005, we sold yearbooks to over 7,150 schools. We believe we accounted for approximately 14% of the yearbook market during fiscal 2005 and were a leading 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. 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 36%, 36% and 34% of our net sales in the fiscal years ended 2005, 2004 and 2003, 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%, 13% and 11% of our net sales in the years ended 2005, 2004 and 2003, respectively.

Achievement Publications

We produce the following five achievement publications:

	o		*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 38^th edition honors approximately 600,000 students, from freshmen through seniors. Nominees represent over 21,000 of the nation’s 23,000 private, public and parochial high schools on the basis of academic achievement, class rank and extracurricular activites.

	o		*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 third edition of this publication honors approximately 45,000 students from 2,400 high schools.

	o		*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 28^thedition honors almost 240,000 high-achieving students, representing in excess of 2,500 colleges and universities throughout the country.

	o		*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 or former “Who’s Who” honorees. The 9^th edition was published in 2005 and honored over 235,000 outstanding teachers.

	o		*The Chancellor’s List.* First published in 2005, this publication provides recognition for the positive academic achievements of qualified graduate level students. The inaugural edition recognized over 30,000 students from approximately 700 universities.

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. Achievement Publication products contributed 6%, 6% and 7% of our net sales in the years ended 2005, 2004 and 2003, respectively.

Other

Our other products are primarily recognition and affinity jewelry, which consist of the following product categories:

	o		*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 Balfour brand, we provide affinity rings to military personnel that recognize affiliation and completion of specialized training ranging from basic training to special forces.

	o		*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 2005, had grown this business to $9.2 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.

	o		*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.

	o		*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 of the rings for the New York Yankees’ 26 championships, as well as 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 over 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 whom 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 each 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 price for producing the yearbook. This price typically increases between order receipt and 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 jewelry and publications. 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 AAC 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 class rings, yearbooks and graduation 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, as only a small percentage of the high school and college students included in our publications are 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 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 $100.7 million as of August 27, 2005, almost exclusively related to student yearbooks. We expect substantially all of this backlog to be filled in fiscal 2006.

Employees

Given the seasonality of our business, the size of our employee base fluctuates throughout the year, with the number typically being highest during September through May and lowest from June to August. As of August 27, 2005, we had approximately 1,930 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.

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


Approximate Location	Type of Property	Leased or Owned	Square Footage
Austin, TX	Corporate headquarters	Owned		23,000
Austin, TX	Jewelry manufacturing and	Owned		108,000
	administration
Austin, TX	Warehouse facility	Leased		38,600
Austin, TX	Achievement publication	Leased		6,100
	administration
Dallas, TX	Yearbook administration and	Owned		327,000
	manufacturing
El Paso, TX	Yearbook pre-press	Leased		50,000
El Paso, TX	Jewelry manufacturing	Leased		20,000
Lubbock, TX	Jewelry administration	Leased		300
San Angelo, TX	Yearbook pre-press, press,	Leased		55,000
	bindery
Louisville, KY	Graduation products	Leased		100,000
	manufacturing
Manhattan, KS	Graduation products	Leased		10,000
	manufacturing
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, for an unspecified monetary amount alleging, among other things, that CBI had improperly attempted to convert an exclusive license CBI granted to the licensee to a non-exclusive license. The arbitration proceedings have concluded with the arbitrator ruling that the licensee has an 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. The licensee has not specified the exact amount of monetary relief it seeks but has asked for an amount not less than $10.0 million. Trial in this action is currently scheduled to commence in or about February 2007. We are presently unable to assess the likelihood of an adverse judgment or assess the likely range of possible loss to the Company.

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, or 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. In February 2005, we reached a settlement with Abacus, which did not have a material impact upon our results of operations, financial condition or cash flow.

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 Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Neither Group Holdings nor AAC has publicly traded stock.

Item 6. Selected Financial Data

Group Holdings was not formed until November of 2004. Other than its debt obligation, related deferred issuance costs and associated accrued liabilities, and related interest expense, net of taxes, all other assets, liabilities, income expenses and cash flows presented for all periods represent those of Group Holdings’ wholly-owned indirect subsidiary AAC and the direct and indirect subsidiaries of AAC.

The Predecessor referred to in the table below is our business as it existed prior to the consummation of the Merger. 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.

The summary historical consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto appearing elsewhere in this report. The summary historical consolidated financial data set forth below for, and as of the end of, the fiscal years ended August 25, 2001, August 31, 2002, August 30, 2003 and the period from August 31, 2003 to March 25, 2004 have been derived from the Predecessor audited consolidated financial statements. The summary historical consolidated financial data set forth below for and as of the period from March 26, 2004 through August 28, 2004 and the fiscal year ended August 27, 2005 has been derived from the Successor audited consolidated financial statements.


	AAC Group
	Holding Corp.			American Achievement Corporation
				Successor						Predecessor
	Fiscal Year			Fiscal Year
	Ended			Ended									Fiscal Year Ended
										The period from
							The period from			August 31, 2003
							March 26, 2004			to
	August 27,			August 27,			to August 28,			March 25,			August 30,			August 31,			August 25,
	2005			2005			2004(1)			2004(2)			2003			2002(3)			2001(4)
Statement of Operations Data:
Net sales	$	315,628		$	315,628		$	167,350		$	146,721		$	308,431		$	304,378		$	281,053
Cost of sales		134,998			134,998			83,521			59,857			139,170			146,898			142,164


Gross profit		180,630			180,630			83,829			86,864			169,261			157,480			138,889
Selling, general and administrative expenses		144,882			144,882			62,647			74,992			129,423			129,734			119,972
Loss (gain) on extinguishment of debt		—			—			—			—			—			5,650			—


Operating income		35,748			35,748			21,182			11,872			39,838			22,096			18,917
Interest expense		31,271			23,497			10,257			16,455			28,940			26,026			22,846
Other expense		—			—			—			—			—			2,783			—


Income (loss) before income taxes		4,477			12,251			10,925			(4,583	)		10,898			(6,713	)		(3,929	)


Benefit (provision) for income taxes		(2,192	)		(4,995	)		(4,459	)		—			(132	)		1,171			1,443
Cumulative effect of change in accounting principle–loss		—			—			—			—			—			—			1,835


Net income (loss)	$	2,285		$	7,256		$	6,466		$	(4,583	)	$	10,766		$	(5,542	)	$	(4,321	)


Balance Sheet Data (at end of period):
Total assets	$	512,859		$	509,475		$	530,986		$	553,589		$	395,501		$	401,626		$	384,971
Total debt(5)		392,222			308,250			320,337			319,985			233,805			246,509			228,223
Total stockholders’ equity		24,291			114,812			108,512			102,046			71,843			65,254			70,828

Other Data:
EBITDA(6)		61,029			61,029			31,526			20,402			53,987			39,025			34,668
Capital expenditures		12,795			12,795			3,665			12,793			11,243			14,247			7,499
Depreciation and amortization		25,281			25,281			10,344			8,530			14,149			19,712			17,586


(1)		During the period from March 26, 2004 to August 28, 2004, AAC 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 C-B Graduation Announcements from January 30, 2004, the date of our acquisition of C-B Graduation Announcements.

(3)		Includes the results of operations for Milestone Marketing Incorporated, or Milestone, from July 15, 2002, the date of our acquisition of Milestone.

(4)		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.

(5)		Total debt includes all borrowings outstanding under notes, credit facilities, bank overdrafts and capital lease obligations.

(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.

The following sets forth a reconciliation of net income (loss) to EBITDA and operating cash flow:


	AAC Group
	Holding Corp.			American Achievement Corporation
				Successor						Predecessor
	Fiscal Year			Fiscal Year
	Ended			Ended									Fiscal Year Ended
							The period			The period
							from March			from August
							26, 2004 to			31, 2003 to
	August 27,			August 27,			August 28,			March 25,			August 30,			August 31,			August 25,
	2005			2005			2004(a)			2004			2003			2002			2001
Net income (loss)	$	2,285		$	7,256		$	6,466		$	(4,583	)	$	10,766		$	(5,542	)	$	(4,321	)


Interest expense, net		31,271			23,497			10,257			16,455			28,940			26,026			22,846
Provision (benefit) for income taxes		2,192			4,995			4,459			—			132			(1,171	)		(1,443	)

Depreciation and amortization expense		25,281			25,281			10,344			8,530			14,149			19,712			17,586

EBITDA	$	61,029		$	61,029		$	31,526		$	20,402		$	53,987		$	39,025		$	34,668


Changes in assets and liabilities	$	(4,770	)	$	(1,306	)	$	(24,939	)	$	35,227		$	(92	)	$	1,808		$	(6,761	)
Deferred income taxes		1,975			4,770			4,309			—			—			—			—
Interest expense, net		(31,271	)		(23,497	)		(10,257	)		(16,455	)		(28,940	)		(26,026	)		(22,846	)
Income tax (provision) benefit		(2,192	)		(4,995	)		(4,459	)		—			(132	)		1,171			1,443
Amortization of debt discount and deferred financing fees		1,882			1,527			629			1,197			2,051			145			1,534
Accretion of interest on 10.25% senior discount notes		7,387			—			—			—			—			—			—
Provision for doubtful accounts		(107	)		(107	)		(236	)		(144	)		(376	)		1,355			383
Loss on extinguishment of debt		—			—			—			—			—			5,650			—
Unrealized loss on free-standing derivative		—			—			—			—			—			182			—
Cumulative effect of change in accounting principle		—			—			—			—			—			—			1,835

Net cash provided by (used in) operating activities	$	33,933		$	37,421		$	(3,427	)	$	40,227		$	26,498		$	23,310		$	10,256


(a)		During the period from March 26, 2004 to August 28, 2004, we recognized in our 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, respectively, as compared to our historical basis of accounting prior to the Merger.

We consider EBITDA to be a key indicator of operating performance as it and similar measures are instrumental in the determination of compliance with certain financial covenants in the senior secured credit facility, and is used by our management in the calculation of the aggregate fee payable under our management agreement and in determining a portion of compensation for certain of our employees. We also believe that EBITDA is useful to investors in evaluating the value of companies in general, and in evaluating the liquidity of companies with debt service obligations and their ability to service their indebtedness.

EBITDA is not a defined term under GAAP and should not be considered an alternative to operating income or net income as a measure of operating results or cash flows as a measure of liquidity. EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, EBITDA: (i) does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) does not reflect changes in, or cash requirements for, our working capital needs; (iii) does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; (iv) excludes tax payments that represent a reduction in cash available to us; and (v) does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future. Despite these limitations, we believe that EBITDA is useful, however, since it provides investors with additional information not available in a GAAP presentation. To compensate for these limitations, however, we rely primarily on our GAAP results and use EBITDA only supplementally.

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 elsewhere in this report. For ease of comparison purposes, pro forma adjustments for the Merger and the C-B Graduation Announcements Acquisition have been added to financial data for the periods August 31, 2003 through March 25, 2004 and March 26, 2004 to August 28, 2004, to arrive at a fiscal year pro forma period ended August 28, 2004. This period may be referred to herein as the “pro forma year ended August 28, 2004,” or the “pro forma 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 effects of the Merger and the application of purchase accounting. All amounts are in U.S. Dollars except otherwise indicated.

Uncertainty of Forward Looking Statements and Information

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

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

Basis of Presentation

We present financial information relating to AAC and its subsidiaries in this discussion and analysis. AAC’s consolidated financial statements are substantially identical to what Group Holding’s consolidated financial statements would look like had Group Holdings prepared separate financial statements. Group Holdings owns 100% of the shares of common stock of AAC Holding Corp., which is the holder of 100% of the shares of common stock of AAC. Group Holdings conducts all of its business through AAC and its subsidiaries. The consolidated financial statements of Group Holdings include the accounts of its indirect wholly-owned subsidiary, AAC. Group Holdings was formed on November 8, 2004. On November 16, 2004, the stockholders of AAC Holding Corp. participated in an exchange, pursuant to which they exchanged their shares of common stock in AAC Holding Corp. for a like amount of shares in Group Holdings. Following the exchange, AAC Holding Corp. became a wholly-owned subsidiary of Group Holdings.

General

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

Numerous raw materials are used in the manufacture of our products. Gold, precious, semiprecious and synthetic stones, paper products and ink comprise the bulk of the raw materials we utilize in the largest segments of our business. Prices of these materials, especially gold, continually fluctuate. We purchase all of our gold from a single supplier, The Bank of Nova Scotia, through our existing gold consignment agreement. We consign the majority of our gold and pay for gold as

our products are shipped to customers. We also purchase the majority of our semi-precious stones from a single supplier in Germany. The prices for these products are denominated in Euros. We generally are able to pass on price increases in gold and stones to our customers as such increases are realized by us, however, this may not always be the case. Gold prices have increased and the U.S. dollar has stabilized as compared to the Euro during the first quarter of our fiscal year 2006. We expect these trends to continue at least through the end of our fiscal year 2006, and perhaps thereafter.

We face strong competition for most of our principal products. The class ring and yearbook markets are highly concentrated and consist primarily of a few national manufacturers (of which we are one) and, to a significantly lesser extent, small regional competitors. Our achievement publication products compete with one national manufacturer and, to a lesser extent, with various other companies. We believe that it would be costly and time-consuming for new competitors to replicate the production and distribution capabilities necessary to compete effectively in this market, and as a result, there have been no major new competitors in the last 60 years.

We experience seasonal fluctuations in our net sales tied primarily to the school year. We recorded 43% of our fiscal year 2005 net sales in our third quarter. 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 April through June, as yearbooks are typically shipped prior to each school’s summer break. 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.

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

Historically, growth in the class rings, yearbooks and graduation products market has been driven primarily by demographics. The U.S. Department of Education projects that the number of high school and college graduates will grow by an average of 2.1% and 1.7% per year, respectively, from 2004 to 2008. Additionally, the U.S. Census Bureau projects that the total U.S. population will increase by 9.5% between 2000 and 2010. Both the increased population, and the increased number of high school and college graduates should expand the market for our products.

Company Background

On March 25, 2004, AAC Acquisition Corp., a wholly owned subsidiary of AAC Holding Corp., merged with and into AAC, with AAC continuing as the surviving corporation and a wholly-owned subsidiary of AAC Holding Corp. AAC Holding Corp. is a wholly owned subsidiary of Group Holdings. The Merger was financed by a cash equity investment by an investor group led by Fenway Partners Capital Fund II, L.P., borrowings under AAC’s senior secured credit facility and the issuance of AAC’s 8.25% senior subordinated notes due 2012.

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 utilized information available at the time, including outside third party appraisals.

The purchase price was as follows (in thousands):


Purchase price	$	419,200
Assets acquired		197,714
Liabilities assumed		(125,731	)

Net assets acquired		71,983

Excess purchase price over net assets acquired	$	347,217

We have 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	)
Deferred income taxes		(12,043	)
Other long-term liabilities		(9,042	)

Total purchase price	$	419,200

As a result of the Merger, we have reflected pre-Merger periods (“Predecessor”) for results of operations prior to March 25, 2004 and post-Merger periods (“Successor”) for results of operations subsequent to March 25, 2004 in our consolidated financial information and statements.

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:

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. Product returns as a percentage of net sales have been 0.9%, 1.8% and 1.9% for the fiscal years ended 2005, 2004 and 2003, respectively. Product warranty costs as a percentage of net sales have been 0.3%, 0.3% and 0.2% for the fiscal years ended 2005, 2004 and 2003, respectively. A ten percent increase in product returns and product warranty costs would result in a reduction of annual net sales of approximately $0.3 million and $0.1 million, respectively, based on fiscal year end 2005 rates. Material differences could result in the amount and timing of our revenue for any period if we made different judgments or utilized different estimates.

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. Write-offs of doubtful accounts as a percentage of net sales have been 0.4%, 0.6% and 0.5% for the fiscal years ended 2005, 2004 and 2003, respectively. Write-offs of sales representative advances as a percentage of net sales have been 0.5%, 0.7% and 0.9% for the fiscal years ended 2005, 2004 and 2003, respectively. A ten percent increase in write-offs of doubtful accounts and sales representative advances would result in a reduction of annual net sales of approximately $0.2 million and $0.2 million, respectively, based on fiscal year ended 2005 rates. We believe that our 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 SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). Under SFAS No. 142 we are required to test goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if impairment indicators occur. The impairment test requires management to make judgments in connection with identifying reporting units, assigning assets and liabilities to reporting units and determining fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include projecting future cash flows, determining appropriate discount rates and other assumptions. The projections are based on historical performance and future estimated results. As of August 27, 2005, a third party valuation, among other factors, was used by management in its impairment analysis of other intangible assets values and the residual goodwill.

We believe that we had no impairment as of August 27, 2005 and August 28, 2004; however, unforeseen future events could adversely affect the reported value of goodwill and indefinite-lived intangible assets. As of August 27, 2005, goodwill and indefinite-lived intangible assets totaled $234.1 million and represented 46% of total assets and 204% of equity.

Long-lived Tangible and Intangible Assets with Definite Lives. We test our long-lived tangible and intangible assets with definite lives for impairment under SFAS 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 the 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 August 27, 2005, a third party valuation, among other factors, was used in its impairment analysis of long-lived tangible and intangible assets with definite lives.

We believe that we had no impairment as of August 27, 2005 and August 28, 2004; however, unforeseen future events could adversely affect the reported value of long-lived tangible and intangible assets with definite lives. As of August 27, 2005, long-lived tangible and intangible assets with definite lives totaled approximately $100.0 million and represented 20% of total assets and 87% of equity.

Results of Operations

AAC’s 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.” Since a new basis of accounting began on March 26, 2004, we have presented results for the fiscal year ended August 28, 2004 on a pro forma unaudited basis as we believe this presentation facilitates the comparison of our results with the corresponding periods for fiscal years 2005 and 2003. The pro forma unaudited results of the fiscal year ended August 28, 2004 include pro forma adjustments related to the Merger and the acquisition of C-B Announcements, as if these events occurred on the first day of our fiscal year ended August 28, 2004. The pro forma adjustments related to the merger are $0.4 million of depreciation expense included in cost of sales, $5.6 million of amortization and depreciation expense included in selling, marketing and administrative expense and $2.6 million of interest expense. The C-B Announcements pro forma adjustments include $1.0 million of net sales, $0.2 million of cost of sales and $0.7 million of selling, general and administrative expense. In addition, a pro forma tax benefit of $3.2 million is recorded. AAC’s comparative results are presented and discussed for fiscal year 2005, pro forma fiscal year 2004, and fiscal year 2003, while Group Holdings results for fiscal year 2005 are presented.

Fiscal Year Ended August 27, 2005 Compared to Pro Forma Fiscal Year Ended August 28, 2004


	AAC Group Holding Corp.					American Achievement Corporation
						(Successor)										(Predecessor)
											For the period
											March 26,		August 31,
			% of					% of			2004 —		2003 —			Pro Forma		% of			Fiscal year		% of
	Fiscal year ended		Net			Fiscal year ended		Net			August 28,		March 25,			Fiscal Year Ended		Net			ended August 30,		Net
	August 27, 2005		Sales			August 27, 2005		Sales			2004		2004			August 28, 2004		Sales			2003		Sales
Net sales	$	315.6		100.0	%	$	315.6		100.0	%	$	167.4	$	146.7		$	315.1		100.0	%	$	308.4		100.0	%
Cost of sales		135.0		42.8	%		135.0		42.8	%		83.5		59.9			144.0		45.7	%		139.2		45.1	%

Gross profit		180.6		57.2	%		180.6		57.2	%		83.9		86.8			171.1		54.3	%		169.2		54.9	%
Selling, general and administrative expenses		144.8		45.9	%		144.8		45.8	%		62.7		74.9			143.9		45.7	%		129.4		42.0	%

Operating income		35.8		11.3	%		35.8		11.4	%		21.2		11.9			27.2		8.6	%		39.8		12.9	%
Interest expense		31.3		9.9	%		23.5		7.5	%		10.2		16.5			24.1		7.6	%		28.9		9.4	%


Income (loss) before income taxes		4.5		1.4	%		12.3		3.9	%		11.0		(4.6	)		3.1		1.0	%		10.9		3.5	%
Provision for income taxes		2.2		0.7	%		5.0		1.6	%		4.5		—			1.2		0.4	%		0.1		—	%


Net income (loss)	$	2.3		0.7	%	$	7.3		2.3	%	$	6.5	$	(4.6	)	$	1.9		0.6	%	$	10.8		3.5	%

Net Sales. Net sales consist of product sales and are net of product returns and promotional discounts. Net sales increased $0.5 million, or 0.1%, to $315.6 million for fiscal 2005 from $315.1 million for the pro forma fiscal 2004. This increase in net sales was mainly due to increases in yearbooks and affinity jewelry shipments, partially offset by a decline in class rings.

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

Class Rings. Net sales decreased $1.8 million to $120.7 million for fiscal 2005 from $122.5 million for the pro forma fiscal 2004. The decrease in net sales was the result of a $1.6 million decline in shipments of retail high school class rings and a $1.4 million decline in shipments of college class rings. The decline was partially offset by an increase in high school on-campus class ring shipments. During the fiscal year ended 2005, the Company changed its contractual agreements with its independent sales representatives, whereby the independent sales representatives assume the risks and rewards of ownership at the time the product is shipped. Prior to this change, recognition of revenue and related gross profit on sales to independent sales representatives, along with commissions to independent sales representatives that were directly related to the revenue, was deferred until the independent sales representative delivered the product and title passed to the Company’s end customer. As a result of the change in contractual agreement, high school on-campus class rings increased $5.5 million related to deferred revenue, which was partially offset by a $1.6 million decline in shipments and a $2.7 million decline in timing of shipments.

Yearbooks. Net sales increased $1.1 million to $112.4 million for fiscal 2005 from $111.3 million for the pro forma fiscal 2004. The increase in net sales was the result of an increase in the average price of yearbooks.

Graduation Products. Net sales increased $0.1 million to $40.8 million for fiscal 2005 from $40.7 million for the pro forma fiscal 2004. The increase in net sales was the result of an increase in shipments of graduation products.

Achievement Publications. Net sales increased $0.1 million to $20.1 million for fiscal 2005 from $20.0 million for the pro forma fiscal 2004. The increase in net sales was the result of an increase in the publication sales of Who’s Who Among America’s Teachers, our publication honoring exceptional teachers. This increase was partially offset by a decline in The National Dean’s List sales, our publication honoring exceptional college students, as a result of this publication being published once in fiscal 2005, while in the pro forma fiscal 2004, the book was published in November 2003 and August 2004.

Other. Net sales increased $1.0 million to $21.6 million for fiscal 2005 from $20.6 million for the pro forma fiscal 2004. The increase in net sales was mainly the result of increased ring shipments of family jewelry.

Gross Profit. Gross margin represents gross profit as a percentage of net sales. Gross margin was 57.2% for fiscal 2005, a 2.9 percentage point increase from 54.3% for the pro forma fiscal 2004. Overall, gross profit increased $9.5 million. The increase in the gross margin percentage was partially a result of a purchase accounting inventory step-up adjustment of $6.4 million in the pro forma 2004, which did not impact fiscal 2005. The remaining increase was a result of continued efficiency gains in both our yearbook and graduation products manufacturing facilities as a result of capital investments in printing equipment and technology. Gross profit margins also increased in the other business segment as a result of product mix. The increase was partially offset by a decline in the ring gross profit margins and, to a lesser extent, achievement publications margins. The decline in ring gross profit margins was the result of product mix shift and increased gold prices.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.9 million to $144.8 million for fiscal 2005 from $143.9 million for the pro forma fiscal 2004. Included in selling, general and administrative expenses are two sub-categories: selling and marketing expenses and general and administrative expenses. Selling and marketing expenses decreased $1.1 million to $99.7 million or 31.5% of net sales, for fiscal 2005 from $100.8 million or 32.0% of net sales, for the pro forma fiscal 2004. The decrease in selling and marketing expenses was primarily the result of decreased marketing expenses of class rings and achievement publications, offset by increased marketing costs of yearbooks.

General and administrative expenses for fiscal 2005 were $45.1 million, or 14.3% of net sales, as compared to $43.1 million, or 13.7% of net sales, for the pro forma fiscal 2004. The increase in general and administrative expenses was the result of a management bonus of $2.2 million.

Operating Income (Loss). As a result of the foregoing, operating income was $35.8 million, or 11.3% of net sales, for fiscal 2005 as compared with operating income of $27.2 million, or 8.6% of net sales, for the pro forma fiscal 2004. Operating income for fiscal 2005 includes a management bonus of $2.2 million. Operating income for the pro forma fiscal 2004 included a negative impact of $6.4 million inventory step up due to purchase accounting. The class rings segment reported operating income of $10.8 million for fiscal 2005 as compared with operating income of $9.5 million for the pro forma fiscal 2004. The yearbooks segment reported operating income of $16.6 million for fiscal 2005 as compared with operating income of $10.5 million for the pro forma fiscal 2004. The graduation products segment reported operating income of $3.7 million for fiscal 2005 as compared with operating income of $3.2 million for the pro forma fiscal 2004. The achievement publications segment reported operating income of $4.9 million for fiscal 2005 as compared with operating income of $5.7 million for the pro forma fiscal 2004. The other segment reported an operating loss of $0.2 million for fiscal 2005 as compared with an operating loss of $1.7 million for the pro forma fiscal 2004.

Interest Expense, Net. For AAC, net interest expense was $23.5 million for fiscal 2005 and $24.1 million for the pro forma fiscal 2004. The average debt outstanding of AAC for fiscal 2005 and the pro forma fiscal 2004 was $311 million and $318 million, respectively. The weighted average interest rate on debt outstanding of AAC for fiscal 2005 and the pro forma fiscal 2004 was 7.1% and 7.5%, respectively.

For Group Holdings, net interest expense was $31.3 million for fiscal 2005. The average debt outstanding of Group Holdings for fiscal 2005 was $385 million. The weighted average interest rate on debt outstanding of Group Holdings for fiscal 2005 was 7.7%.

Provision for Income Taxes. For fiscal 2005 and the pro forma fiscal 2004, AAC recorded an income tax provision of $5.0 million and $1.2 million, respectively, which represents an effective tax rate of 41% and 39%, respectively. The effective tax rate for the successor periods of fiscal 2005 and March 26, 2004 through August 28, 2004 of 41% exceeds the statutory federal tax rate due to the impact of state income taxes. For the predecessor period August 30, 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 was not considered to be more likely

than not at that time, so a valuation allowance was recorded at that time against this deferred tax asset. As a result of the Merger, the Successor Company had sufficient deferred tax liabilities to allow the valuation allowance to be eliminiated.

For fiscal 2005, Group Holdings recorded an income tax provision of $2.2 million, which represents an effective tax rate of 49%. This 49% effective tax rate exceeds the statutory federal rate due to the impact of state income taxes and the non-deductibility of a portion of its interest on high-yield debt.

Net Income. As a result of the foregoing, AAC reported net income of $7.3 million for fiscal 2005 as compared to net income of $1.9 million for the pro forma fiscal 2004. As a result of the foregoing, Group Holdings reported net income of $2.3 million for fiscal 2005.

AAC — For the Period March 26, 2004 to August 28, 2004 (Successor)

Net sales were $167.4 million and cost of sales were $83.5 million for the successor period from March 26, 2004 to August 28, 2004. Gross profit was $83.9 million, or 50.1% of net sales for the same period. The decline in gross profit as a percentage of sales for the successor period versus the predecessor period was primarily a result of a purchase accounting inventory step-up adjustment of $6.4 million recorded in the successor period. Selling, general and administrative expenses were $62.7 million for the successor period. Operating income was $21.2 million for the same period. The increase in operating income for the successor period versus the predecessor period relates primarily to the seasonality of our graduation and yearbook products being shipped in the April through June time frame. Interest expense was $10.2 million for the successor period. The decrease in interest expense in the successor period versus the predecessor period was primarily due to the lower interest rate on the new debt associated with the Merger and the successor period containing only five operating months versus the seven months of the predecessor period. We recognized a $4.5 million tax provision for the successor period. 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 reflects the creation of a net deferred tax liability as a result of the purchase accounting adjustments made in connection with the Merger. As a result of the foregoing, net income for the successor period was $6.5 million.

AAC — For the Period August 31, 2003 to March 25, 2004 (Predecessor)

Net sales were $146.7 million and cost of sales were $59.9 million for the predecessor period from August 31, 2003 to March 25, 2004. Gross profit was $86.8 million, or 59.2% of net sales for the same period. Selling, general and administrative expenses were $74.9 million for the predecessor period. Operating income was $11.9 million for the same period. Interest expense was $16.5 million for the predecessor period. 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. As a result of the foregoing, net loss for the Predecessor period was $4.6 million.

AAC — For the Pro Forma Year Ended August 28, 2004 (unaudited) Compared to Year Ended August 30, 2003

Net Sales. Net sales increased $6.7 million, or 2.2%, to $315.1 million for the pro forma fiscal 2004 from $308.4 million for the fiscal 2003. The increase in net sales was due to increased yearbook and graduation product shipments, offset by lower sales volumes in class rings.

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

Class Rings. Net sales decreased $5.1 million to $122.5 million for the pro forma fiscal 2004 from $127.6 million for fiscal 2003. The decrease in net sales was the result of a $2.9 million decline in sales of retail high school rings and a $3.4 million decline in college rings sales. The decline was offset by a $1.2 million increase in high school on-campus rings.

Yearbooks. Net sales increased $6.3 million to $111.3 million for the pro forma fiscal 2004 from $105.0 million for fiscal 2003. The increase in net sales was the result of an increase in yearbook shipments.

Graduation Products. Net sales increased $6.0 million to $40.7 million for the pro forma fiscal 2004 from $34.7 million for fiscal 2003. The favorability in net sales was the result of an increase in shipments of graduation products, of which $3.9 million was directly related to the C-B Graduation Announcements acquisition.

Achievement Publications. Net sales decreased $0.1 million to $20.0 million for the pro forma fiscal 2004 from $20.1 million for fiscal 2003.

Other. Net sales decreased $0.3 million to $20.6 million for the pro forma fiscal 2004 from $20.9 million for fiscal 2003. The decrease in net 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 pro forma fiscal 2004, a 0.6 percentage point decrease from 54.9% for fiscal 2003. Gross profit increased $1.9 million to $171.1 million for the pro forma fiscal 2004 from $169.2 million for 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 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 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 $14.5 million, or 11.2%, to $143.9 million for the pro forma fiscal 2004 from $129.4 million for fiscal 2003. As a percentage of net sales, selling, general and administrative expenses were 45.7% for the combined fiscal 2004, representing a 3.7 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 $4.3 million, or 4.5%, to $100.8 million for the pro forma fiscal 2004 from $96.5 million for 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 versus only one edition published in fiscal 2003, 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. This resulted in secondary and additional mailings. 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 $10.2 million, or 31.0%, to $43.1 million, or 13.7% of net sales for the pro forma 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 $10.1 million.

Operating Income. As a result of the foregoing, operating income was $27.2 million, or 8.6% of net sales for pro forma fiscal 2004, as compared with operating income of $39.8 million, or 12.9% of net sales, for fiscal 2003. Operating income for the pro forma fiscal 2004 includes a negative impact of $16.5 million due to increasing amortization expense and the inventory step-up. The class rings segment reported operating income of $9.5 million for the pro forma fiscal 2004 as compared with operating income of $16.4 million for fiscal 2003, of which pro forma fiscal 2004 includes a negative impact due to purchase accounting increasing amortization expense by $3.9 million and a $1.0 million inventory step-up. The yearbooks segment reported operating income of $10.5 million for the pro forma 2004 as compared with operating income of $10.2 million for fiscal 2003, of which pro forma fiscal 2004 includes a negative impact due to purchase accounting increasing amortization expense by $3.6 million and a $4.9 million inventory step-up. The graduation products segment reported operating income of $3.2 million for the pro forma fiscal 2004 as compared with operating income of $3.8 million for fiscal 2003, of which pro forma fiscal 2004 includes a negative impact due to purchase accounting increasing amortization expense by $1.3 million and a $0.3 million inventory step-up. The achievement publications segment reported operating income of $5.7 million for the pro forma fiscal 2004 as compared with operating income of $8.7 million for fiscal 2003, of which pro forma fiscal 2004 includes a negative impact of $0.6 million due to purchase accounting increasing amortization expense. The other segment reported an operating loss of $1.7 million for the pro forma fiscal 2004 as compared with operating income of $0.8 million for fiscal 2003, of which pro forma fiscal 2004 includes a negative impact due to purchase accounting increasing amortization expense by $0.7 million and a $0.2 million inventory step-up.

Interest Expense. Interest expense was $24.1 million for the pro forma fiscal 2004 and $28.9 million for fiscal 2003. The average debt outstanding was $317.7 million for the pro forma fiscal 2004 compared to $235.9 million for fiscal 2003. The weighted average interest rate on debt outstanding was 7.5% for the pro forma fiscal 2004 compared to 12.3% for fiscal 2003.

Provision for Income Taxes. For the pro forma fiscal 2004, we recognized a tax provision of $1.2 million compared to a tax provision of $0.1 million for fiscal 2003. For the pro forma fiscal 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 pro forma fiscal 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 fiscal 2003, the effective tax rate reflects the state tax expense expected for the year.

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

Liquidity and Capital Resources

Operating Activities. For AAC, operating activities provided $37.4 million of cash during fiscal 2005, compared to $36.8 million during the pro forma fiscal 2004. The improvement in cash provided by operating activities during fiscal 2005 was attributable to improved earnings, partially offset by working capital requirements.

For Group Holdings, operating activities provided $33.9 million of cash during the year ended August 27, 2005.

Operating activities provided $36.8 million of cash during pro forma fiscal 2004 compared to $26.5 million during fiscal 2003. The improvement in cash provided by operating activities in 2004 was primarily driven by lower working capital requirements.

Investing Activities. Capital expenditures in the fiscal 2005, pro forma fiscal 2004, and fiscal 2003 were $12.8 million, $16.5 million, and $11.2 million, respectively. The majority of capital expenditures in fiscal 2005, pro forma fiscal 2004 and fiscal 2003 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 pro forma fiscal 2004 was the C-B Graduation Announcements acquisition and the Merger which represented expenditures of $5.0 million and $104.4 million, respectively. Our projected capital expenditures for fiscal 2006 are expected to be approximately $13 million.

Financing Activities. For AAC, net cash used in financing activities was $23.6 million for fiscal 2005 compared to net cash provided by $90.4 million for the pro forma fiscal 2004. In fiscal 2005, cash was used to pay down $15.5 million of the term loan and the remaining $6.1 million of the 11.625% senior unsecured notes issued by AAC in February 2002. For the pro forma 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 $15.5 million, which was primarily used to repay revolver borrowings.

For Group Holdings, net cash used in financing activities was $19.9 million for the year ended August 27, 2005.

Capital Resources. In connection with the Merger, AAC entered into its 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.

The 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 27, 2005, the revolver was undrawn. The senior secured credit facility imposes certain restrictions on AAC, including restrictions on its ability to incur indebtedness, pay dividends, make investments, grant liens, sell assets and engage in certain other activities. In addition, the 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 its ability to make capital expenditures. The senior secured credit facility is secured by substantially all of the assets of AAC, is guaranteed by and secured by the assets of some of its existing and future domestic subsidiaries, if any, and by a pledge of all of the capital stock of some of its existing and future domestic subsidiaries, if any. The senior secured credit facility is also guaranteed by AAC Holding Corp.

AAC is 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 AAC, including restrictions on its ability to incur indebtedness, pay dividends, make investments, grant liens, sell its assets and engage in certain other activities. The 8.25% notes are guaranteed by certain of AAC’s existing and future domestic subsidiaries.

In November 2004, Group Holdings issued $89.3 million (net proceeds) of 10.25% senior discount notes due 2012. The notes accrete to $131.5 million aggregate principal amount at maturity. Interest accrues on the notes in the form of an increase in the accreted value of such notes prior to October 1, 2008. Thereafter, cash interest on the notes will accrue and be payable semiannually in arrears on April 1 and October 1 of each year, commencing April 1, 2009, at a rate of 10.25% per annum. The notes are Group Holdings’ unsecured obligation and rank equally with all of its future senior obligations and senior to its future subordinated indebtedness. The 10.25% notes are effectively subordinated to Group Holdings’ future secured indebtedness to the extent of the assets securing that indebtedness and are structurally subordinated to all

indebtedness and other obligations of Group Holdings’ subsidiaries, including AAC. We are currently in compliance with financial covenants in all of the agreements governing our outstanding indebtedness.

We expect that cash generated from operating activities and availability under the 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 the senior secured credit facility will be adequate to meet our liquidity needs for at least the next twelve months and beyond.

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 27, 2005 and August 28, 2004, we held approximately 17,070 ounces and 19,460 ounces of gold, respectively, with values of $7.5 million and $7.9 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.

Contractual Obligations

As of August 27, 2005, the due dates and amounts of our contractual obligations are as follows (in thousands):


	Fiscal		Fiscal		Fiscal		Fiscal		Fiscal
	2006		2007		2008		2009		2010		Thereafter		Total
8.25% Senior subordinated debt (principal)	$	—	$	—	$	—	$	—	$	—	$	150,000	$	150,000
10.25% Senior discount notes (principal)		—		—		—		—		—		131,500		131,500
Interest on fixed rate debt(a)		12,375		12,375		12,375		12,375		12,375		19,594		81,469
Term loan(b)		11,098		10,999		10,901		10,802		10,704		137,468		191,972
Operating leases(c)		2,101		1,577		1,063		514		376		1,887		7,518
Capital leases(d)		1,349		1,332		174		—		—		—		2,855
Management agreement(e)		3,000		3,000		3,000		3,000		3,000		11,200		26,200
Postretirement plans		1,108		1,111		1,147		1,173		1,189		6,149		11,877
Employment agreements		663		—		—		—		—		—		663

Total	$	31,694	$	30,394	$	28,660	$	27,864	$	27,644	$	457,798	$	604,054


(a)		Represents interest payments due on the 8.25% Senior Subordinated Notes.
(b)		Assumes an interest rate on the term loan of 7%.

(c)		Some of our rental property leases contain options to renew the leased space for periods up to an additional ten years.

(d)		The total balance of gross capital lease assets is $5,022 as of August 27, 2005 and August 28, 2004, with accumulated depreciation of $839 and $284, respectively.

(e)		In addition, AAC and AAC Holding Corp. have entered into a management agreement with an affiliate of Fenway Partners Capital Fund II, L.P. pursuant to which they, 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). This agreement has a 10-year minimum term. See “Certain Relationships and Related Transactions.”

Seasonality

The seasonal nature of our various businesses tends to be tempered by our broad product mix. Class ring sales are highest during October through December, 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 April through June, as yearbooks are typically shipped prior to each school’s summer break. Our recognition and affinity product line sales are also seasonal. 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 Risk

Interest Rate Risk. We have exposure to market risk relating to changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments. 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 the senior secured credit facility, which bears interest at variable rates, each quarter point change in interest rates would result in a $0.4 million change in annual interest expense, assuming the entire revolving loan was drawn.

Semi-Precious Stones. We purchase the majority of our semi-precious stones from a single 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. Each ten percent change in the Euro exchange rate would result in a $0.5 million change in cost of goods sold, assuming stone purchase levels approximate the levels in the combined fiscal 2005. In order to hedge market risk, we have from time-to-time purchased forward currency contracts. During fiscal 2005, 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 in the price of gold would result in a $2.2 million change in cost of goods sold, assuming gold purchase levels approximate the levels in fiscal 2005. As of August 27, 2005, we had hedged a majority of our gold requirements for the fiscal year 2006 through the purchase of gold options.

Recent Accounting Pronouncements

In May 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 106-2 as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Subsidy Act”). The Medicare Subsidy Act entitles employers who provide certain prescription drug benefits for retirees to receive a federal subsidy beginning in calendar 2006, thereby creating the potential for significant benefit cost savings. FSP 106-2 requires companies to record the amount expected to be received under the Medicare Subsidy Act as an actuarial gain, to the extent the related post-retirement medical plan’s total unrecognized actuarial gains or losses exceed certain thresholds, to be amortized into income over time. During the first quarter of fiscal 2005, we adopted the provisions of this pronouncement and noted a reduction of service costs for fiscal 2005 of $93,000 as a component of net postretirement health care costs attributable to current services and a reduction of $537,000 in the accumulated postretirement benefit obligation.

In November 2004, FASB issued SFAS No. 151 “Inventory Costs, an Amendment of ARB No. 43 Chapter 4” (“FAS 151”). FAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. FAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005. We will adopt this standard beginning the first quarter of fiscal year 2006 and do not believe the adoption will have a material impact on our financial statements as such costs have historically been expensed as incurred.

In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29” which addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value accounting nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for us beginning the first quarter of fiscal year 2006 and we do not expect it to have a significant impact on our financial statements.

In December 2004, FASB issued SFAS No. 123 (Revised 2004) “Share-Based Payment: an Amendment of FASB Statements No. 123 and 95” (FAS 123R”). FAS 123R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. FAS 123R is applicable for all interim and annual periods for fiscal years beginning after June 15, 2005. This statement is effective for us beginning the first quarter of fiscal year 2006 and we do not expect it to have a significant impact on our financial statements.

Item 8. Financial Statement and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
AAC Group Holding Corp.

We have audited the accompanying consolidated balance sheet of AAC Group Holding Corp. and subsidiaries (“Group Holdings”) as of August 27, 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Group Holdings’ management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the 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. Group Holdings is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Group Holdings’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Group Holdings as of August 27, 2005, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Austin, Texas
November 7, 2005

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 (“AAC”) as of August 27, 2005 and August 28, 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended August 27, 2005, 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 the year ended August 30, 2003. These financial statements are the responsibility of AAC’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the 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. AAC is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of AAC’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 AAC as of August 27, 2005 and August 28, 2004, and the results of their operations and their cash flows for the year ended August 27, 2005, the periods from March 26, 2004 to August 28, 2004, from August 31, 2003 to March 25, 2004 and for the year ended August 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Austin, Texas
November 7, 2005

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
Consolidated Balance Sheets


	AAC Group
	Holding Corp.			American Achievement Corporation
	August 27,			August 27,			August 28,
	2005			2005			2004
	(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	4,324		$	4,093		$	3,038
Accounts receivable, net of allowance for doubtful accounts of $2,794 and $2,862, respectively		40,639			40,639			43,321
Inventories, net		21,913			21,913			23,023
Deferred tax asset		6,760			6,760			10,165
Prepaid expenses and other current assets, net		22,180			22,180			26,230

Total current assets		95,816			95,585			105,777
Property, plant and equipment, net		75,943			75,943			76,565
Goodwill		184,026			184,026			182,080
Other intangible assets, net		153,265			150,112			163,473
Other assets		3,809			3,809			3,091

Total assets	$	512,859		$	509,475		$	530,986


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank overdraft	$	3,730		$	3,730		$	5,733
Accounts payable		13,959			13,959			9,842
Customer deposits		17,762			17,762			17,807
Accrued expenses		26,263			26,252			29,814
Accrued management fee—related party		—			—			500
Deferred revenue		—			—			5,503
Accrued interest		7,370			7,370			7,334
Current portion of long-term debt		1,409			1,409			1,550

Total current liabilities		70,493			70,482			78,083
Long-term debt, net of current portion		384,367			287,711			309,108
Deferred income taxes		25,331			28,126			25,844
Other long-term liabilities		8,377			8,344			9,439

Total liabilities		488,568			394,663			422,474
Commitments and contingencies

Stockholders’ equity:
Common stock, AAC Group Holding Corp. — $.01 par value, 1,250,000 shares authorized, 505,460 shares issued and outstanding; American Achievement Corporation — $.01 par value, 1,000 shares authorized, 100 shares issued and outstanding		5			—			—
Additional paid-in capital		16,491			102,046			102,046
Accumulated earnings		8,751			13,722			6,466
Accumulated other comprehensive loss		(956	)		(956	)		—

Total stockholders’ equity		24,291			114,812			108,512

Total liabilities and stockholders’ equity	$	512,859		$	509,475		$	530,986

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

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
Consolidated Statements of Operations


	AAC Group
	Holding Corp.			American Achievement Corporation
				(Successor)						(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,			For the year ended
	August 27, 2005			August 27, 2005			2004			2004			August 30, 2003
	(Dollars in thousands)
Net sales	$	315,628		$	315,628		$	167,350		$	146,721		$	308,431
Cost of sales		134,998			134,998			83,521			59,857			139,170

Gross profit		180,630			180,630			83,829			86,864			169,261
Selling, general and administrative expenses		144,882			144,882			62,647			74,992			129,423

Operating income		35,748			35,748			21,182			11,872			39,838
Interest expense, net of interest income		31,271			23,497			10,257			16,455			28,940

Income (loss) before provision for income taxes		4,477			12,251			10,925			(4,583	)		10,898
Provision for income taxes		(2,192	)		(4,995	)		(4,459	)		—			(132	)

Net income (loss)		2,285			7,256			6,466			(4,583	)		10,766
Preferred dividends		—			—			—			(700	)		(1,200	)

Net income (loss) applicable to common stockholders	$	2,285		$	7,256		$	6,466		$	(5,283	)	$	9,566

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

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
Consolidated Statements of Stockholders’ Equity


										Accumulated
							Additional			other
	Common Stock						Paid-in			comprehensive			Accumulated
AAC Group Holding Corp.	Shares			Amount			Capital			income (loss)			earnings		Total
	(Dollars in thousands)
Balance, August 28, 2004 (Successor)		—		$	—		$	—		$	—		$	—	$	—

Issuance of common stock, $.01 par value, 1,250,000 shares authorized		1,015,426			10			102,036			—			—		102,046
Carryover of accumulated earnings from AAC		—			—			—			—			6,466		6,466
Distribution to stockholders		(509,966	)		(5	)		(85,545	)		—			—		(85,550	)
Comprehensive income—
Net income		—			—			—			—			2,285		2,285
Adjustment to minimum pension liability (net of tax impact)		—			—			—			(956	)		—		(956	)


Total comprehensive income (loss)		—			—			—			(956	)		2,285		1,329


Balance, August 27, 2005 (Successor)		505,460		$	5		$	16,491		$	(956	)	$	8,751	$	24,291


																Accumulated
													Additional			other			Accumulated
	Preferred Stock						Common Stock						Paid-in			comprehensive			earnings
American Achievement Corporation	Shares			Amount			Shares			Amount			Capital			income (loss)			(deficit)			Total
	(Dollars in thousands)
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								100			—			102,046			—			—			102,046
Effect of purchase accounting		—			—			—			—			—			5,110			23,658			28,768


Balance, March 25, 2004 (Predecessor)		—		$	—			100		$	—		$	102,046		$	—		$	—		$	102,046


Net income		—			—			—			—			—			—		$	6,466		$	6,466


Balance, August 28, 2004 (Successor)		—		$	—			100		$	—		$	102,046		$	—		$	6,466		$	108,512


Comprehensive income-
Net income		—			—			—			—			—			—			7,256			7,256
Adjustment to minimum pension liability (net of tax impact)		—			—			—			—			—			(956	)		—			(956	)

Total comprehensive income (loss)		—			—			—			—			—			(956	)		7,256			6,300


Balance, August 27, 2005		—		$	—			100		$	—		$	102,046		$	(956	)	$	13,722		$	114,812

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

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
Consolidated Statements of Cash Flows


	AAC Group
	Holding Corp.			American Achievement Corporation
				(Successor)						(Predecessor)
							For the period			For the period
							March 26, 2004 —			August 31, 2003 —
	For the year ended			For the year ended			August 28,			March 25,			For the year ended
	August 27, 2005			August 27, 2005			2004			2004			August 30, 2003
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	2,285		$	7,256		$	6,466		$	(4,583	)	$	10,766
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		25,281			25,281			10,344			8,530			14,149
Deferred income taxes		1,975			4,770			4,309			—			—
Amortization of debt discount and deferred financing fees		1,882			1,527			629			1,197			2,051
Accretion of interest on 10.25% senior discount notes		7,387			—			—			—			—
Provision for doubtful accounts		(107	)		(107	)		(236	)		(144	)		(376	)
Changes in assets and liabilities:
Accounts receivable		2,750			2,750			(1,506	)		2,758			2,469
Inventories, net		1,110			1,110			26,266			(18,963	)		2,117
Income tax receivable		—			—			—			—			738
Prepaid expenses and other current assets, net		4,050			4,050			(16,262	)		2,573			(2,296	)
Other assets		(6,172	)		(2,664	)		810			(959	)		(1,043	)
Deferred revenue		(5,503	)		(5,503	)		2,615			(2,235	)		(1,392	)
Accounts payable, accrued expenses, and other long-term liabilities		(1,005	)		(1,049	)		(36,862	)		52,053			(685	)

Net cash provided by (used in) operating activities		33,933			37,421			(3,427	)		40,227			26,498

Cash flows from investing activities:
Purchases of property, plant and equipment		(12,795	)		(12,795	)		(3,665	)		(12,793	)		(11,243	)
Acquisitions of businesses, net of cash acquired		—			—			—			(109,406	)		—

Net cash used in investing activities		(12,795	)		(12,795	)		(3,665	)		(122,199	)		(11,243	)

Cash flows from financing activities:
Proceeds from revolver		—			—			—			4,000			47,500
Payments on revolver		—			—			—			(13,500	)		(63,175	)
Proceeds of common stock issuance		—			—			—			102,046			40
Proceeds from term loan		—			—			—			155,000			—
Payments on term loan		(15,493	)		(15,493	)		(387	)		—			—
Proceeds from 8.25% senior subordinated notes		—			—			—			150,000			—
Proceeds from credit facility revolver		33,450			33,450			5,000			2,000			—
Payments on credit facility revolver		(33,450	)		(33,450	)		(7,000	)		—			—
Redemption of common and preferred stock		—			—			—			(95,368	)		—
Redemption of 11% senior subordinated notes		—			—			—			(41,355	)		—
Redemption of 11.625% senior unsecured notes		(6,075	)		(6,075	)		—			(170,925	)		—
Proceeds from 10.25% senior discount notes		89,269			—			—			—			—
Distribution to stockholders		(85,550	)		—			—			—			—
Change in bank overdraft		(2,003	)		(2,003	)		3,252			(2,396	)		553

Net cash provided by (used in) financing activities		(19,852	)		(23,571	)		865			89,502			(15,082	)

Net increase (decrease) in cash and cash equivalents		1,286			1,055			(6,227	)		7,530			173
Cash and cash equivalents, beginning of period		3,038			3,038			9,265			1,735			1,562

Cash and cash equivalents, end of period	$	4,324		$	4,093		$	3,038		$	9,265		$	1,735


Supplemental disclosure
Cash paid during the period for:
Interest	$	21,966		$	21,966		$	2,567		$	18,873		$	26,790

Income taxes	$	224		$	224		$	88		$	178		$	133


Supplemental Disclosure of noncash financing activities
Accrued preferred stock dividends	$	—		$	—		$	—		$	700		$	1,200

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

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION
Notes to Consolidated Financial Statements
(Dollars in thousands)

1. Summary of Organization and Significant Accounting Policies

Consolidation

The consolidated financial statements of AAC Group Holding Corp. (“Group Holdings”) include the accounts of its wholly-owned subsidiary, American Achievement Corporation (“AAC,” a separate public reporting company, together with Group Holdings, the “Company”). Group Holdings was formed on November 8, 2004. On November 16, 2004, the stockholders of AAC Holding Corp. participated in an exchange, pursuant to which they exchanged their shares of common stock in AAC Holding Corp. for a like amount of shares in Group Holdings. Following the exchange, AAC Holding Corp. became a wholly-owned subsidiary of Group Holdings.

On November 16, 2004, Group Holdings issued $131.5 million aggregate principal amount at maturity of 10.25% senior discount notes due 2012 (the “10.25% Notes”) , generating net proceeds of $89.3 million. Group Holdings is the sole obligor of these notes. The net proceeds of this offering were used as a distribution to stockholders through the repurchase of shares of Group Holdings’ common stock from its stockholders. Other than this debt obligation, related deferred debt issuance costs and associated accrued liabilities, and related interest expense, net of taxes, all other assets, liabilities, income expenses and cash flows presented for fiscal 2005 represent those of Group Holdings’ wholly-owned indirect subsidiary AAC and the direct and indirect subsidiaries of AAC. Group Holdings’ only direct subsidiary is AAC Holding Corp., whose sole asset is AAC. All significant intercompany accounts and transactions have been eliminated in consolidation. AAC and Group Holdings are treated as entities under common control and therefore, the consolidated statements of operations and cash flows presented for Group Holdings combine the results of AAC to the beginning of the period presented.

Unless separately stated, the notes herein relate to both Group Holdings and AAC for fiscal 2005 and to AAC for all other periods.

Effective January 30, 2004, AAC acquired the assets of C-B Graduation Announcements, LLC, a producer of personalized graduation announcements and related accessories (the “C-B Announcements Acquisition”). The maximum purchase price payable in connection with this acquisition is 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 upon achieving certain financial targets through January 2006. The C-B Announcements Acquisition was accounted for using the purchase method of accounting. The results of operations of the C-B Announcements Acquisition have been included in AAC’s consolidated results of operations since the date of acquisition.

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 five reporting segments; class rings, yearbooks, graduation products, achievement publications and other. The Company’s corporate offices and primary manufacturing facilities are located in Austin and Dallas, Texas.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Basis of Presentation and Comparability

The consolidated financial statements for the predecessor period from August 31, 2003 through March 25, 2004 and for the year ended August 30, 2003 were prepared using the historical basis of accounting. As a result of the merger transaction as discussed in Note 2, AAC applied purchase accounting and a new basis of accounting began on March 26, 2004. AAC 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 AAC’s consolidated financial statements for fiscal 2004. Accordingly, the results of operations for AAC prior to the acquisition are not comparable to results for subsequent periods.

Fiscal Year-End

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

Cash and Cash Equivalents

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

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. On the consolidated balance sheet, the allowance for doubtful accounts also includes an allowance for product returns.

Allowances deducted from asset accounts were as follows:


	Balance
	at		Charged to							Balance at
	Beginning		Costs and							End of
AAC Group Holding Corp.	of Period		Expenses		Other		Write-offs			Period
Allowance for doubtful accounts and product returns
Year ended August 27, 2005	$	2,862	$	3,964	$	99	$	(4,131	)	$	2,794


	Balance
	at		Charged to								Balance at
	Beginning		Costs and								End of
American Achievement Corporation	of Period		Expenses		Other			Write-offs			Period
Allowance for doubtful accounts and product returns
Year ended August 27, 2005 (Successor)	$	2,862	$	3,964	$	99		$	(4,131	)	$	2,794
March 26, 2004-August 28, 2004 (Successor)		3,098		3,790		124			(4,150	)		2,862

August 31, 2003-March 25, 2004 (Predecessor)		3,242		3,445		(160	)		(3,429	)		3,098
Year ended August 30, 2003 (Predecessor)		3,525		7,178		145			(7,606	)		3,242

Inventories

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

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

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.

Reserves deducted from asset accounts were as follows:

Balance

Charged to

Balance at

Beginning

Costs and

End of

AAC Group Holding Corp.

of Period

Expenses

Write-offs(1)

Period

Reserve on sales representative advances

Year ended August 27, 2005

2,383

1,794

(1,641

)

2,536


	Balance
	at		Charged to					Balance at
	Beginning		Costs and					End of
American Achievement Corporation	of Period		Expenses		Write-offs(1)			Period
Reserve on sales representative advances
Year ended August 27, 2005 (Successor)	$	2,383	$	1,794	$	(1,641	)	$	2,536
March 26, 2004-August 28, 2004 (Successor)		2,254		1,205		(1,076	)		2,383

August 31, 2003-March 25, 2004 (Predecessor)		2,516		813		(1,075	)		2,254
Year ended August 30, 2003 (Predecessor)		2,843		2,335		(2,662	)		2,516


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

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost for the predecessor period through March 25, 2004, at which time AAC adjusted property and equipment to fair value in accordance with purchase accounting. Property, plant and equipment are stated net of accumulated depreciation. Maintenance, repairs and minor replacements are charged against operations as incurred; major replacements and betterments are capitalized at cost. 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 in operating results 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		Shorter of useful life or term of lease

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. 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

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 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.

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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Had compensation expense for the employee 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 the fiscal year ended 2003 consistent with the provisions of SFAS 123, as amended by SFAS 148, the pro forma net income (loss) for AAC would have been reported as follows:


	(Predecessor)
	For the period			For the year
	August 31, 2003 -			ended
	March 25,			August 30,
	2004			2003
Net income (loss)	$	(4,583	)	$	10,766
Less: stock-based compensation expense, net of related taxes		11			30

Net income (loss)-pro forma	$	(4,594	)	$	10,736

The Company did not have any options outstanding during the fiscal year ended August 27, 2005. AAC did not have any options outstanding during the period March 26, 2004 to August 28, 2004.

The fair value of each option grant was estimated at the date of grant for the period August 31, 2003 to March 25, 2004 and for the fiscal year ended August 30, 2003, using the following assumptions:


	(Predecessor)
	For the
	period
	August 31,			For the
	2003 to			Year Ended
	March 25,			August 30,
	2004			2003
Risk-free interest rate		3.93	%		3.93	%
Expected life	10 years			10 years
Volatility		25	%		25	%
Dividend yield		—			—

Revenue Recognition and Warranty Costs

The Company’s revenues from product sales are recognized at the time the product is shipped, the risks and rewards of ownership have passed to the customer (including independent sales representatives) and collectibility is reasonably assured. The Company’s stated shipping terms are FOB shipping point. Provisions for sales returns, warranty costs and rebate expenses are recorded at the time of sale based upon historical information and current trends.

During the fiscal year ended 2005, the Company changed its contractual agreements with its independent sales representatives, whereby the independent sales representatives assume the risks and rewards of ownership at the time the product is shipped. Prior to this change, recognition of revenue and related gross profit on sales to independent sales representatives, along with commissions to independent sales representatives that were directly related to the revenue, was deferred until the independent sales representative delivered the product and title passed to the Company’s end customer. The balance of deferred revenue as of August 27, 2005 and August 28, 2004 was $0 and $5,503, respectively.

The Company recognizes revenues on its publishing operations based upon the completed contract method, 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Product warranty liabilities were as follows:


			Charged to
	Balance at		Costs and
	Beginning		Expenses					Balance at End
AAC Group Holding Corp.	of Period		(accruals)		Claims			of Period
Accrued ring repair liability
Year ended August 27, 2005	$	1,210	$	808	$	(836	)	$	1,182


			Charged to
	Balance at		Costs and
	Beginning		Expenses					Balance at End
American Achievement Corporation	of Period		(accruals)		Claims			of Period
Accrued ring repair liability
Year ended August 27, 2005 (Successor)	$	1,210	$	808	$	(836	)	$	1,182
March 26, 2004-August 28, 2004 (Successor)		1,500		347		(637	)		1,210

August 31, 2003-March 25, 2004 (Predecessor)		1,500		461		(461	)		1,500
Year ended August 30, 2003 (Predecessor)		1,520		706		(726	)		1,500

Seasonality

The seasonal nature of the Company’s various businesses tends 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 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 its 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Selling, general and administrative expenses for the Company include advertising expenses of $5,999 for the year ended August 27, 2005.

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

Use of Estimates

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

Recent Accounting Pronouncements

In May 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 106-2 as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Subsidy Act”). The Medicare Subsidy Act entitles employers who provide certain prescription drug benefits for retirees to receive a federal subsidy beginning in calendar 2006, thereby creating the potential for significant benefit cost savings. FSP 106-2 requires companies to record the amount expected to be received under the Medicare Subsidy Act as an actuarial gain, to the extent the related post-retirement medical plan’s total unrecognized actuarial gains or losses exceed certain thresholds, to be amortized into income over time. During the first quarter of fiscal 2005, the Company adopted the provisions of this pronouncement and noted a reduction of service costs for fiscal 2005 of $93 as a component of net postretirement health care costs attributable to current services and a reduction of $537 in the accumulated postretirement benefit obligation.

In November 2004, FASB issued SFAS No. 151 “Inventory Costs, an Amendment of ARB No. 43 Chapter 4” (“FAS 151”). FAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. FAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company will adopt this standard beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its financial statements as such costs have historically been expensed as incurred.

In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29” which addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value accounting nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for the Company beginning the first quarter of fiscal year 2006 and the Company does not expect it to have a significant impact on its financial statements.

In December 2004, FASB issued SFAS No. 123 (Revised 2004) “Share-Based Payment: an Amendment of FASB Statements No. 123 and 95” (FAS 123R”). FAS 123R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. FAS 123R is applicable for all interim and annual periods for fiscal years beginning after June 15, 2005. This statement is effective for the Company beginning the first quarter of fiscal year 2006 and the Company does not expect it to have a significant impact on its financial statements.

2. Merger

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

AAC Holding Corp. AAC Holding Corp. is a wholly owned subsidiary of Group Holdings. The Merger was financed by a cash equity investment by an investor group led by Fenway Partners Capital Fund II, L.P., borrowings under AAC’s senior secured credit facility and the issuance of $150.0 million aggregate principal amount of AAC’s 8.25% senior subordinated notes due 2012 (the “8.25% Notes”).

Beginning on March 25, 2004, AAC 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 AAC’s 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,” AAC has reflected all applicable purchase accounting adjustments in the consolidated financial statements covering periods subsequent to the Merger. As required, AAC 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.

AAC estimated the fair value of its assets and liabilities, including intangible assets and property, plant and equipment, as of the Merger date and utilized information available at the time, including outside third party appraisals.

The purchase price was as follows:


Purchase price	$	419,200
Assets acquired		197,714
Liabilities assumed		(125,731	)

Net assets acquired		71,983

Excess purchase price over net assets acquired	$	347,217

AAC 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	)
Deferred income taxes		(12,043	)
Other long-term liabilities		(9,042	)

Total purchase price	$	419,200

As a result of the Merger, AAC has reflected pre-Merger periods (“Predecessor”) for results of operations prior to March 25, 2004 and post-Merger periods (“Successor”) for results of operations subsequent to March 25, 2004 in its consolidated financial information and statements.

During the period from March 26, 2004 to August 28, 2004, AAC 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

3. Comprehensive Income (Loss)

Unrecognized losses on accrued minimum pension liabilities are included in other comprehensive income (loss). The following amounts were included in determining comprehensive income (loss) for the year ended August 27, 2005, periods March 26, 2004 to August 28, 2004 and August 31, 2003 to March 25, 2004 and year ended August 30, 2003.


	AAC Group Holding
	Corp.			American Achievement Corporation
				(Successor)								(Predecessor)
	For the year			For the year			(Successor)		(Predecessor)			For the year
	ended			ended			For the period		For the period			ended
	August 27,			August 27,			March 26, 2004 -		August 31, 2003 -			August 30,
	2005			2005			August 28, 2004		March 25, 2004			2003
Net income (loss)	$	2,285		$	7,256		$	6,466	$	(4,583	)	$	10,766
Adjustment in minimum pension liability (net of tax impact)		(956	)		(956	)		—		40			(3,017	)

Total comprehensive income (loss)	$	1,329		$	6,300		$	6,466	$	(4,543	)	$	7,749

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

4. Significant Acquisitions

Effective January 30, 2004, AAC 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 AAC’s financial position and results of operations is not material.

5. Inventories, Net

A summary of inventories, net is as follows:


	AAC Group Holding
	Corp.			American Achievement Corporation
	August 27,			August 27,			August 28,
	2005			2005			2004
Raw materials	$	9,022		$	9,022		$	8,853
Work in process		6,306			6,306			7,380
Finished goods		6,790			6,790			6,978
Less-Reserves		(205	)		(205	)		(188	)

	$	21,913		$	21,913		$	23,023

The Company’s cost of sales includes depreciation and amortization of $9,222 for the year ended August 27, 2005. For AAC, cost of sales included 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 for the fiscal year ended 2003.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

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 $342 for the year ended August 27, 2005. AAC 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 for the year ended August 30, 2003. 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 27, 2005, the Company held approximately 17,070 ounces of gold valued at approximately $7.5 million on consignment. As of August 28, 2004, AAC held approximately 19,460 ounces of gold valued at approximately $7.9 million 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:


	AAC Group Holding
	Corp.			American Achievement Corporation
	August 27,			August 27,			August 28,
	2005			2005			2004
Sales representative advances	$	12,705		$	12,705		$	12,247
Less-reserve on sales representative advances		(2,536	)		(2,536	)		(2,383	)
Deferred publication and ring costs		4,212			4,212			7,174
Prepaid advertising and promotional materials		3,578			3,578			5,276
Other		4,221			4,221			3,916

	$	22,180		$	22,180		$	26,230

Included in the Company’s other current assets as of August 27, 2005 is approximately $402 paid for options to purchase gold. The outstanding options at August 27, 2005, expire in various amounts through May 31, 2006. The Company carries these gold options at cost. Included in AAC’s other current assets as of August 28, 2004 is approximately $596 paid for options to purchase gold.

7. Property, Plant and Equipment, Net

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


	AAC Group Holding
	Corp.			American Achievement Corporation
	August 27,			August 27,			August 28,
	2005			2005			2004
Land	$	9,550		$	9,550		$	9,550
Buildings and improvements		8,184			8,184			7,752
Tools and dies		21,933			21,933			20,216
Machinery and equipment		49,145			49,145			40,091
Construction in progress		5,864			5,864			4,357

Total		94,676			94,676			81,966
Less-accumulated depreciation		(18,733	)		(18,733	)		(5,401	)

Property, plant and equipment, net	$	75,943		$	75,943		$	76,565

The Company’s depreciation expense recorded in the accompanying consolidated statements of operations was $13,415 for the year ended August 27, 2005. For AAC, depreciation expense recorded in the accompanying consolidated statements of operations was $5,401 for the period March 26, 2004 to August 28,

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

2004 and $7,406 for the period August 31, 2003 to March 25, 2004 and $12,568 for the year ended August 30, 2003.

8. Goodwill and Other Intangible Assets

Goodwill

The Company accounts for its long-lived assets with indefinite lives under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” or SFAS No. 142. Under SFAS No. 142 the Company is required to test goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if impairment indicators occur. The impairment test requires management to make judgments in connection with identifying reporting units, assigning assets and liabilities to reporting units and determining fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include projecting future cash flows, determining appropriate discount rates and other assumptions. The projections are based on historical performance and future estimated results. As of the Merger, a third party valuation, among other factors, was used by management, in formulating other intangible assets values and the residual goodwill.

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


	August 27, 2005
	Class				Graduation		Achievement
AAC Group Holdings Corp.	Rings		Yearbooks		Products		Publications		Other		Total
Balance at beginning of period	$	71,033	$	64,551	$	22,996	$	11,569	$	11,931	$	182,080
Finalization of previously estimated taxes and transaction costs associated with professional services in connection with the Merger		759		690		246		124		127	$	1,946

Balance at end of period	$	71,792	$	65,241	$	23,242	$	11,693	$	12,058	$	184,026


	August 27, 2005 (Successor)
	Class				Graduation		Achievement
American Achievement Corporation	Rings		Yearbooks		Products		Publications		Other		Total
Balance at beginning of period	$	71,033	$	64,551	$	22,996	$	11,569	$	11,931	$	182,080
Finalization of previously estimated taxes and transaction costs associated with professional services in connection with the Merger		759		690		246		124		127	$	1,946

Balance at end of period	$	71,792	$	65,241	$	23,242	$	11,693	$	12,058	$	184,026


	For the Period March 26, 2004 to August 28, 2004 (Successor)
	Class				Graduation		Achievement
American Achievement Corporation	Rings		Yearbooks		Products		Publications		Other		Total
Balance at beginning of period	$	65,780	$	60,610	$	17,915	$	10,576	$	11,563	$	166,444
Purchase price adjustments		5,253		3,941		5,081		993		368	$	15,636

Balance at end of period	$	71,033	$	64,551	$	22,996	$	11,569	$	11,931	$	182,080


	For the Period August 31, 2003 to March 25, 2004 (Predecessor)
	Class				Graduation		Achievement
American Achievement Corporation	Rings		Yearbooks		Products		Publications		Other		Total
Balance at beginning of period	$	65,630	$	57,420	$	17,862	$	10,297	$	10,850	$	162,059
Goodwill acquired during the period		150		3,190		53		279		713	$	4,385

Balance at end of period	$	65,780	$	60,610	$	17,915	$	10,576	$	11,563	$	166,444

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Other Intangible Assets

Other intangible assets consisted of the following:


	Estimated	Gross		Accumulated			Net
AAC Group Holding Corp.	Useful Life	Asset		Amortization			Asset
At August 27, 2005
Trademarks	Indefinite	$	50,095	$	—		$	50,095
Deferred financing costs and other	7 to 8 years		14,620		(2,475	)		12,145
Patents	14 to 17 years		7,317		(629	)		6,688
Customer lists and distribution contracts	3 to 12 years		100,516		(16,179	)		84,337

		$	172,548	$	(19,283	)	$	153,265


	Estimated	Gross		Accumulated			Net
American Achievement Corporation	Useful Life	Asset		Amortization			Asset
At August 27, 2005
Trademarks	Indefinite	$	50,095	$	—		$	50,095
Deferred financing costs and other	7 to 8 years		11,112		(2,120	)		8,992
Patents	14 to 17 years		7,317		(629	)		6,688
Customer lists and distribution contracts	3 to 12 years		100,516		(16,179	)		84,337

		$	169,040	$	(18,928	)	$	150,112

At August 28, 2004
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

For Group Holdings, total amortization on other intangible assets was $13,716 for the year ended August 27, 2005, 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 2006 through 2010 is approximately $13.7 million each year.

For AAC, total amortization on other intangible assets was $13,361 for the year ended August 27, 2005, $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 for the year ended August 30, 2003, 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 2006 through 2010 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, AAC 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 AAC’s consolidated results of operations since the acquisition date.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

9. Accrued Expenses

Accrued expenses consists of the following:


	AAC Group
	Holding Corp.		American Achievement Corporation
	August 27,		August 27,		August 28,
	2005		2005		2004
Commissions and royalties	$	7,896	$	7,896	$	9,005
Compensation and related costs		6,683		6,683		7,744
Accumulated pension and postretirement benefit cost		4,984		4,984		4,875
Accrued sales and property taxes		1,332		1,332		1,795
Accrued workman’s compensation and medical claims		1,058		1,058		1,751
Capital lease obligations, short term		1,250		1,250		1,230
Other		3,060		3,049		3,414

	$	26,263	$	26,252	$	29,814

10. Long-term Debt

Long-term debt consists of the following:


	AAC Group
	Holding Corp.			American Achievement Corporation
	August 27,			August 27,			August 28,
	2005			2005			2004
10.25% Senior discount notes due 2012 (net of unamortized discount of $34,844)	$	96,656		$	—		$	—
8.25% Senior subordinated notes due 2012		150,000			150,000			150,000
11.625% Senior unsecured notes due 2007 (net of unamortized discount of $30)		—			—			6,045
Senior secured credit facility
Revolving credit facility due 2010		—			—			—
Term loan due 2011		139,120			139,120			154,613

Total		385,776			289,120			310,658
Less current portion of long-term debt		(1,409	)		(1,409	)		(1,550	)

Total long-term debt	$	384,367		$	287,711		$	309,108

10.25% Senior Discount Notes

On November 16, 2004 Group Holdings issued the 10.25% Notes. The net proceeds of this offering were used as a distribution to stockholders through the repurchase of shares of Group Holdings’ common stock from its stockholders. Group Holdings was formed on November 8, 2004 and has no operations separate from its ownership in AAC. Interest accrues on the 10.25% Notes in the form of an increase in the accreted value of the notes prior to October 1, 2008. Thereafter, cash interest on the 10.25% Notes will accrue and be payable semiannually in arrears on April 1 and October 1 of each year, commencing April 1, 2009 at a rate of 10.25% per annum. Group Holdings has no independent operating assets or liabilities other than its investment in AAC.

At any time on or after October 1, 2008, Group Holdings may redeem the 10.25% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus a premium, declining ratably to par, plus accrued and unpaid interest. At any time on or prior to October 1, 2007, Group Holdings may redeem up to 35% of the aggregate accreted value of the 10.25% Notes with the proceeds of qualified equity offerings at a redemption price equal to 110.25% of the accreted value.

If a change in control as defined in the indenture relating to the 10.25% Notes occurs prior to October 1, 2008, Group Holdings must give the holders of the 10.25% Notes the opportunity to sell their 10.25% Notes to Group Holdings at 101% of the accreted value of the 10.25% Notes, plus accrued interest. If a change in control as defined in the indenture relating to the 10.25% Notes occurs following October 1, 2008, Group Holdings must give the holders of the 10.25% Notes the opportunity to sell their 10.25% Notes to Group Holdings at 101% of the aggregate principal amount at maturity of the 10.25% Notes, plus accrued interest.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Additionally, the terms of the 10.25% Notes limit Group Holdings’ ability to, among other things, incur additional indebtedness, dispose of assets, make acquisitions, make other investments, pay dividends and make various other payments. The terms also include cross-default provisions to the indenture governing the 8.25% Notes and the Senior Credit Facility (as defined below). As of August 27, 2005, Group Holdings was in compliance with all such provisions.

8.25% Senior Subordinated Notes

On March 25, 2004, AAC issued $150 million of the 8.25% Notes. The 8.25% Notes bear interest at a stated rate of 8.25%. The 8.25% Notes are unsecured senior subordinated obligations and are subordinated in right of payment to all of AAC’s existing and future senior indebtedness, including obligations under the Company’s Senior 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 8.25% Notes are guaranteed by certain of the Company’s existing domestic subsidiaries (non guarantor subsidiaries are minor), 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.

The Company may not redeem the 8.25%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 8.25% Notes before the third anniversary of the issue date of the 8.25% Notes as long as (a) the Company pays a specified percentage of the principal amount of the 8.25% Notes, plus interest, (b) the Company redeems the 8.25% Notes within 90 days of completing a public equity offering and (c) at least 65 percent of the aggregate principal amount of the 8.25% Notes originally issued remains outstanding afterward.

If a change in control as defined in the indenture relating to the 8.25% Notes occurs, the Company must give the holders of the 8.25% Notes the opportunity to sell their 8.25% Notes to the Company at 101 percent of the principal amount of the 8.25% Notes, plus accrued interest.

The 8.25% 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 indenture governing the 8.25% Notes). In addition, the 8.25% Notes contain covenants, which restrict the declaration or payment of dividends by the Company and/or its subsidiaries (as defined in the indenture governing the 8.25% Notes). The Company was in compliance with the 8.25% Notes covenants as of August 27, 2005.

11.625% Senior Unsecured Notes

On February 20, 2002, AAC issued $177 million of senior unsecured notes (the “Unsecured Notes”) due in 2007. The Unsecured Notes bear interest at a stated rate of 11.625%. 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 AAC’s existing and future senior indebtedness, including obligations under AAC’s Senior Credit Facility (as defined below). The Unsecured Notes are guaranteed by AAC’s domestic subsidiaries (non guarantor subsidiaries are minor), and the guarantees rank pari passu with future senior debt of AAC and its subsidiaries. The Unsecured Notes and the guarantees on the Unsecured Notes are effectively subordinated to any of AAC’s secured debt.

On March 25, 2004, as discussed in Note 2, pursuant to the debt tender offer for the Unsecured Notes, AAC 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

On May 15, 2005, the Company redeemed the remaining outstanding $6.1 million of Unsecured Notes. In accordance with the indenture governing the Unsecured Notes, the redemption price was 105.813% of the principal amount of notes redeemed, plus accrued and unpaid interest.

11% Senior Subordinated Notes

Commemorative Brands, Inc.’s (“CBI”) 11% Notes were scheduled to mature on January 15, 2007. On March 25, 2004, as discussed in Note 2, AAC redeemed all of the outstanding 11% Notes for an aggregate of $42.1 million. The tender for the $177.0 million Unsecured Notes and the $41.4 million 11% Notes was the direct result of the Merger. The consummation of the Merger was subject to the consent and a debt tender offer to acquire these notes. The subsequent tender offer costs and early redemption expenses of the debt directly related to the cost of the transaction and was included as part of the purchase price.

Senior Secured Credit Facility

In conjunction with the consummation of the Merger, on March 25, 2004, AAC entered into a $195.0 million senior credit facility (the “Senior Credit Facility”) which includes a $155.0 million term loan and up to $40.0 million available under a revolving credit facility. The Senior Credit Facility is secured by a first priority security interest in all existing and after-acquired assets of AAC, and certain of AAC’s direct and indirect domestic subsidiaries’ existing and after-acquired assets, including, without limitation, real property and all of the capital stock owned by AAC Holding Corp. and certain of AAC’s direct and indirect domestic subsidiaries (including certain capital stock of their direct foreign subsidiaries only to the extent permitted by applicable law). As of August 27, 2005, assets of AAC subject to lien under the Senior Credit Facility were approximately $322.7 million. All of AAC’s obligations under the Senior Credit Facility are fully and unconditionally guaranteed by AAC Holding Corp. and certain of AAC’s direct and indirect domestic subsidiaries.

The term loan of the Senior Credit Facility is due in March 2011. Quarterly payments of $352 are made through 2011. The term loan of the Senior Credit Facility 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 of the Senior Credit Facility was approximately 6.0% at August 27, 2005.

During the year ended August 27, 2005, the Company paid down $15.5 million of the term loan of the Senior Credit Facility, of which $1.5 million were four mandatory quarterly payments.

The revolving credit facility matures in March 2010. Availability under the revolving credit facility is restricted to a total revolving commitment of $40 million as defined in the credit agreement governing the Senior Credit Facility. Availability under the revolving credit facility as of August 27, 2005 was approximately $38.1 million with $1.9 million in letters of credit outstanding.

Advances under the revolving credit facility may be made as base rate loans or LIBOR loans at AAC’s election (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 AAC chooses, plus an applicable margin based upon a consolidated leverage ratio of certain outstanding indebtedness to EBITDA (net income (loss) before interest expense, income taxes, depreciation and amortization) to be calculated in accordance with the terms specified in the credit agreement governing the Senior Credit Facility.

The Senior Credit Facility and the indenture governing the 8.25% Notes each contain restrictions on the ability of AAC to pay dividends and make certain other payments to AAC Holding Corp. Pursuant to each arrangement, AAC may, subject to certain limitations, pay dividends or make such payments in connection with (i) repurchases of certain capital stock of AAC Holding Corp. and (ii) the payment by AAC Holding Corp. of taxes, costs and other expenses required to maintain its legal existence and legal, accounting and other overhead costs in the ordinary course of business.

AAC was in compliance with the Senior Credit Facility’s covenants as of August 27, 2005.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Long-term debt outstanding as of August 27, 2005 matures as follows:


				American
	AAC Group			Achievement
	Holding Corp.			Corporation
	Amount			Amount
Fiscal year ending	maturing			maturing
2006	$	1,409		$	1,409
2007		1,409			1,409
2008		1,409			1,409
2009		1,409			1,409
2010		1,409			1,409
Thereafter		378,731			282,075

Total		385,776			289,120
Less current portion of long-term debt		(1,409	)		(1,409	)

	$	384,367		$	287,711

Group Holdings’ weighted average interest rate on debt outstanding as of August 27, 2005 was 7.7%.

AAC’s weighted average interest rate on debt outstanding as of August 27, 2005 and August 28, 2004 was 6.9% and 10.1%, respectively.

The Company’s management believes the carrying amount of long-term debt approximates fair value within 1.5% as of August 27, 2005 and August 28, 2004, based upon its analysis of current rates offered for debt with the same or similar debt terms.

11. 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 27, 2005 and thereafter are approximately as follows:


	Operating
Fiscal Year Ending	Expense		Capital
2006	$	2,101	$	1,349
2007		1,577		1,332
2008		1,063		174
2009		514		—
2010		376		—
Thereafter		1,887		—
Interest		—		(139	)

	$	7,518	$	2,716

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

For the Company, lease and rental expense included in the accompanying consolidated statements of operations was $3,316 for the year ended August 27, 2005. The total balance of gross capital lease assets is $5,022 as of August 27, 2005 with accumulated depreciation of $839 and $284. Capital lease assets are carried on the balance sheet under machinery and equipment, net and their corresponding liabilities are carried under accrued expenses (short-term portion) and other long-term liabilities (long-term portion). Capital lease liabilities are $2,716 as of August 27, 2005.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

For AAC, 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 for the year ended August 30, 2003. The total balance of gross capital lease assets was $5,022 as of August 28, 2004, with accumulated depreciation of $284. Capital lease assets are carried on the balance sheet under machinery and equipment, net and their corresponding liabilities are carried under accrued expenses (short-term portion) and other long-term liabilities (long-term portion). Capital lease liabilities were $3,945 as of August 28, 2004.

Pending Litigation

On February 11, 2004, Frederick Goldman, Inc. (the “Licensee”) filed an arbitration claim against the AAC’s subsidiary, CBI, for an unspecified monetary amount alleging, among other things, that CBI had improperly attempted to convert an exclusive license CBI granted to the Licensee to a non-exclusive license. The arbitration proceedings have concluded with the arbitrator ruling that the Licensee has an 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. The Licensee has not specified the exact amount of monetary relief it seeks, but has asked for an amount not less than $10.0 million. Trial in this action is currently scheduled to commence in or about February 2007. The Company is presently unable to assess the likelihood of an adverse judgment or assess the likely range of possible loss to the Company.

On August 2, 2004, AAC’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, or 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. In February 2005, the Company reached a settlement with Abacus, which did not have a material impact on its results of operations, financial condition or cash flow.

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, financial condition or cash flow.

Employment Contracts

The Company has employment agreements with its executive officers, the terms of which expire at various times through August 2006. 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 27, 2005, excluding bonuses, was approximately $2.1 million.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

12. Employee Compensation and Benefits

Postretirement Pension and Medical Benefits

CBI provides certain healthcare and life insurance benefits for former employees of 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 Plan and TPC Plan 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.

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


	AAC Group Holding Corp.						American Achievement Corporation
	August 27, 2005						August 27, 2005						August 28, 2004
	Taylor			CBI			Taylor			CBI			Taylor			CBI
	pension			post-retirement			pension			post-retirement			pension			post-retirement
Change in benefit obligation:
Obligation beginning of the year	$	13,664		$	7,186		$	13,664		$	7,186		$	14,216		$	4,703
Service cost		78			—			78			—			86			—
Interest cost		835			152			835			152			834			274
Actuarial loss (gain)		212			(2,680	)		212			(2,680	)		(1,348	)		2,816
Benefit payments		(607	)		(332	)		(607	)		(332	)		(649	)		(607	)
Change in discount rate		2,181			—			2,181			—			525			—

Obligation, end of year	$	16,363		$	4,326		$	16,363		$	4,326		$	13,664		$	7,186

Change in fair value of plan assets:
Fair value of plan assets, beginning of year	$	10,201		$	—		$	10,201		$	—		$	9,461		$	—
Actual return of plan assets		782			—			782			—			762			—
Employer contributions		745			332			745			332			627			607
Benefit payments		(607	)		(332	)		(607	)		(332	)		(649	)		(607	)

Fair value of plan assets, end of year	$	11,121		$	—		$	11,121		$	—		$	10,201		$	—

Funded status:
Unfunded accumulated benefit obligation in excess of plan assets	$	(5,241	)	$	(4,326	)	$	(5,241	)	$	(4,326	)	$	(3,692	)	$	(7,185	)
Unrecognized net loss (gain)		1,567			(2,395	)		1,567			(2,395	)		(877	)		—
Contributions from measurement date to period end		125			—			125			—			230			—

Accumulated postretirement benefit cost, current and long-term	$	(3,549	)	$	(6,721	)	$	(3,549	)	$	(6,721	)	$	(4,339	)	$	(7,185	)

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

The net periodic postretirement benefit cost includes the following components:


	AAC Group Holding Corp.
	August 27, 2005
				CBI
	Taylor			post -
	pension			retirement
Service costs, benefits attributed to Service during the period	$	78		$	—

Interest cost		835			152
Expected return on assets		(833	)		—
Amortization of unrecognized net loss (gain)		—			(284	)
Amortization of unrecognized net prior service costs		—			—


Net periodic postretirement benefit cost	$	80		$	(132	)


	American Achievement Corporation
							(Successor)					(Predecessor)
							For the period					For the period
	(Successor)						March 26, 2004 -					August 31, 2003 -					(Predecessor)
	August 27, 2005						August 28, 2004					March 25, 2004					August 30, 2003
				CBI						CBI					CBI					CBI
	Taylor			post -			Taylor			post-		Taylor			post-		Taylor			post-
	pension			retirement			pension			retirement		pension			retirement		pension			retirement
Service costs, benefits attributed to Service during the period	$	78		$	—		$	21		$	—	$	65		$	—	$	397		$	—
Interest cost		835			152			207			104		627			170		781			282
Expected return on assets		(833	)		—			(195	)		—		(631	)		—		(814	)		—
Amortization of unrecognized net loss (gain)		—			(284	)		—			9		162			83		68			33
Amortization of unrecognized net prior service costs		—			—			—			16		—			154		—			291

Net periodic postretirement benefit cost	$	80		$	(132	)	$	33		$	129	$	223		$	407	$	432		$	606

Amounts recognized in the consolidated balance sheet are as follows:


	AAC Group Holding Corp.						American Achievement Corporation
	August 27, 2005						August 27, 2005						August 28, 2004
	Taylor			CBI			Taylor			CBI			Taylor			CBI
	pension			post-retirement			pension			post-retirement			pension			post-retirement
Accumulated benefit liability	$	3,549		$	6,721		$	3,549		$	6,721		$	4,339		$	7,185
Accumulated other comprehensive loss (net of tax impact)	$	956			—		$	956			—			—			—

Accrued benefit cost	$	(5,241	)	$	(6,721	)	$	(5,241	)	$	(6,721	)	$	(4,569	)	$	(7,185	)
Accumulated other comprehensive income (loss)		1,567			—			1,567			—			—			—
Contributions from measurement date to period end		125			—			125			—			230			—


Net amount recognized	$	(3,549	)	$	(6,721	)	$	(3,549	)	$	(6,721	)	$	(4,339	)	$	(7,185	)

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

In May 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 106-2 as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Subsidy Act”). The Medicare Subsidy Act entitles employers who provide certain prescription drug benefits for retirees to receive a federal subsidy beginning in calendar 2006, thereby creating the potential for significant benefit cost savings. FSP 106-2 requires companies to record the amount expected to be received under the Medicare Subsidy Act as an actuarial gain, to the extent the related post-retirement medical plan’s total unrecognized actuarial gains or losses exceed certain thresholds, to be amortized into income over time. During the first quarter of fiscal 2005, the Company adopted the provisions of this pronouncement and noted a reduction of service costs for fiscal 2005 of $93 as a component of net postretirement health care costs attributable to current services and a reduction of $537 in the accumulated postretirement benefit obligation.

For the Company, the weighted average discount rate used in determining the accumulated postretirement benefit obligation for the CBI Plan was 4.0 percent for year ended August 27, 2005. For AAC, the weighted average discount rate used in determining the accumulated postretirement benefit obligation for the CBI Plan 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. As the plan is unfunded, no assumption was needed as to the long-term rate of return on assets.

For the Company, 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 fiscal year 2005 grading down to 5.5 percent in the year 2010. 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 $273, or 6 percent, as of August 27, 2005 and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost by $9, or 7 percent, for the fiscal year ended 2005.

For AAC, 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. 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 as of August 28, 2004, 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 and by $11, or 7 percent, for the period August 31, 2003 to March 25, 2004.

For the Company, for measurement purposes for the TPC Plan, the weighted average discount rate used in determining the accumulated postretirement benefit obligation was 5.25 percent as of August 27, 2005; the long-term rate of return on plan assets was 8.0 percent as of August 27, 2005; and the annual salary increases were assumed to be 3.25 percent as of August 27, 2005.

For AAC, 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, 5.75 percent as of March 25, 2004 and 6.0 percent as of August 30, 2003; 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 and August 30, 2003; 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

The weighted-average asset allocations for TPC Plan as of the measurement date of 2005 and 2004, by asset category, are as follows:


Asset Category	2005			2004			Target
Equity securities		71.0	%		66.0	%		40.0 – 60.0	%
Debt securities		29.0	%		34.0	%		30.0 – 55.0	%

		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 8% to 10% over the long-term, while debt securities are expected to return between 3% and 6%.

The Company’s projections of future cash flows for the CBI Plan are as follows for each of the fiscal years ending:


	Expected
	Costs
	Without		Expected
	Medicare		Medicare
	Subsidy		Subsidy		Expected Net Costs
2006	$	486	$	38	$	448
2007		488		58		430
2008		483		58		425
2009		472		57		415
2010		456		55		401
2011-2015		1,914		236		1,678

The Company’s projected contributions include $625 to the TPC Plan in 2006. 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:


2006	$	660
2007		681
2008		722
2009		758
2010		788
2011-2015		4,471

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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

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 year ended December 31, 2004 was up to 3 percent for hourly employees and up to 4 percent for salaried and office hourly employees. The Company made contributions of approximately $720 for the fiscal year ended August 27, 2005. 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.

13. Income Taxes

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


	AAC Group Holding
	Corp.		American Achievement Corporation
			(Successor)		(Successor)		(Predecessor)		(Predecessor)
					For the Period Ended		For the Period Ended
	Fiscal Year Ended		Fiscal Year Ended		March 26, 2004 -		August 31, 2003 -		Fiscal Year Ended
	August 27,		August 27,		August 28,		March 25,		August 30,
	2005		2005		2004		2004		2003
Federal—
Current	$	40	$	48	$	—	$	—	$	—
Deferred		1,773		4,281		3,867		—		—
State—
Current		177		177		150		—		132
Deferred		202		489		442		—		—

	$	2,192	$	4,995	$	4,459	$	—	$	132

The provision 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:


	AAC Group Holding
	Corp.		American Achievement Corporation
			(Successor)		(Successor)		(Predecessor)			(Predecessor)
					For the Period Ended		For the Period Ended
	Fiscal Year Ended		Fiscal Year Ended		March 26, 2004 -		August 31, 2003 -			Fiscal Year Ended
	August 27,		August 27,		August 28,		March 25,			August 30,
	2005		2005		2004		2004			2003
Computed tax provision at statutory rate	$	1,567	$	4,288	$	3,824	$	1,605		$	3,705
State taxes, net of federal benefit		219		619		592		272			87
Non-deductible interest on high-yield debt		219		—		—		—			—
Change in valuation allowance and other		187		88		43		(1,877	)		(3,660	)

Total income tax provision	$	2,192	$	4,995	$	4,459		—		$	132

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

Deferred tax assets and liabilities consist of the following:


	AAC Group Holding
	Corp.			American Achievement Corporation
	August 27,			August 27,			August 28,
	2005			2005			2004
Deferred tax assets
Allowances and reserves	$	2,304		$	2,304		$	1,947
Net operating loss carryforwards		41,998			41,832			44,638
Accrued interest		2,636			—			—
Accrued liabilities and other		5,106			5,113			8,632

Total deferred tax assets		52,044			49,249			55,217

Less valuation allowance		—			—			—

Net deferred tax assets	$	52,044		$	49,249		$	55,217

Deferred tax liabilities
Depreciation		11,633			11,633			11,511
Amortization of intangibles		58,715			58,715			58,971
Prepaids and other		267			267			414

Total deferred tax liabilities		70,615			70,615			70,896

Net deferred tax assets (liabilities)	$	(18,571	)	$	(21,366	)	$	(15,679	)


Short-term deferred tax assets	$	6,760		$	6,760		$	10,165
Long-term deferred tax liabilities		(25,331	)		(28,126	)		(25,844	)

Net deferred tax assets (liabilities)	$	(18,571	)	$	(21,366	)	$	(15,679	)

Upon the Merger on March 25, 2004, AAC recorded a net deferred tax liability of approximately $12.9 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 $108 million as of August 27, 2005. 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.

14. Stockholders’ Equity

On March 25, 2004, as part of the Merger discussed in Note 2, AAC Holding Corp., AAC’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 AAC, and all warrants, options and other rights to acquire preferred stock or common stock of AAC (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.

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 AAC were redeemed, cancelled or exchanged.

During the year ended August 30, 2003, AAC 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.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

No options were granted by AAC during the period August 31, 2003 to March 25, 2004 and during the period March 26, 2004 and the year ended August 28, 2004. No options were granted by the Company during the year ended August 27, 2005.

Incentive stock options for 94,859 shares and nonqualified stock options for 2,933 shares of the AAC’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 AAC’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:


	(Predecessor)					(Predecessor)
	August 30, 2003 to
	March 25, 2004					August 30, 2003
				Weighted					Weighted
	Shares of			Average		Shares of			Average
	Common			Exercise		Common			Exercise
	Stock			Price		Stock			Price
Outstanding at beginning of period		97,792		$	4.50		72,083		$	3.86
Granted		—			—		29,559			6.22
Exercised		—			—		—			—
Canceled		(1,138	)		3.39		(3,850	)		3.18
Conversion of options at Merger		(96,654	)		—		—			—

Outstanding at end of period		—		$	—		97,792		$	4.50

Options exercisable at period-end		—		$	—		58,413		$	5.08
Weighted average fair value of options granted during the period				$	—				$	2.64

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 AAC’s stock options have characteristics significantly different from those of traded options and because changes in the 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.

15. 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 for the year ended August 30, 2003.

On March 25, 2004 upon consummation of the Merger, AAC entered into a new management agreement with an affiliate of Fenway Partners pursuant to which AAC, among other things, agreed to pay such affiliate an annual fee equal to the greater of $3.0 million or 5% of the previous fiscal year’s EBITDA (as defined in the agreement). Amounts paid under the new management agreement totaled $3,000 by the Company for the year ended August 27, 2005 and $800 by AAC for the period March 26, 2004 to August 28, 2004.

As of August 27, 2005, the Company had prepaid management fees of approximately $250 and as of August 28, 2004, AAC had accrued management fees of approximately $500.

AAC GROUP HOLDING CORP.
AMERICAN ACHIEVEMENT CORPORATION

Notes to Consolidated Financial Statements-(Continued)
(Dollars in thousands)

16. Business Segments

The Company manufactures, markets and sells class rings, yearbooks and graduation products, which includes fine paper products and graduation accessories, to high school, college and, to a lesser extent, elementary and junior high school markets in the United States. The achievement publications segment produces, markets, and sells publications that recognize the achievements of top students at the high school and college levels, as well as the nation’s most inspiring teachers. The other segment consists primarily of jewelry commemorating family events such as the birth of a child, fan affinity jewelry and related products and professional sports championship rings such as World Series rings.


	AAC Group Holding Corp.
	Class				Graduation		Achievement
	Rings		Yearbooks		Products		Publications		Other			Total
Year Ended August 27, 2005
Net sales	$	120,662	$	112,432	$	40,854	$	20,110	$	21,570		$	315,628
Interest expense, net		12,199		11,086		3,950		1,987		2,049		$	31,271
Depreciation and amortization		8,695		10,269		2,814		1,977		1,526		$	25,281
Segment operating income		10,761		16,613		3,720		4,871		(217	)	$	35,748
Capital expenditures		3,273		7,585		1,060		198		679		$	12,795
As of August 27, 2005
Goodwill		71,792		65,241		23,242		11,693		12,058		$	184,026
Segment assets		201,528		174,787		65,242		37,687		33,615		$	512,859


	American Achievement Corporation
	(Successor)
	Class				Graduation		Achievement
	Rings		Yearbooks		Products		Publications		Other			Total
Year Ended August 27, 2005
Net sales	$	120,662	$	112,432	$	40,854	$	20,110	$	21,570		$	315,628
Interest expense, net		9,167		8,330		2,968		1,493		1,539		$	23,497
Depreciation and amortization		8,695		10,269		2,814		1,977		1,526		$	25,281
Segment operating income (loss)		10,761		16,613		3,720		4,871		(217	)	$	35,748
Capital expenditures		3,273		7,585		1,060		198		679		$	12,795
As of August 27, 2005
Goodwill		71,792		65,241		23,242		11,693		12,058		$	184,026
Segment assets		200,208		173,587		64,815		37,472		33,393		$	509,475


	American Achievement Corporation
	(Successor)
	Class				Graduation			Achievement
	Rings		Yearbooks		Products			Publications		Other			Total
For the Period March 26, 2004—August 28, 2004
Net sales	$	45,980	$	91,109	$	12,315		$	8,266	$	9,680		$	167,350
Interest expense, net		4,001		3,636		1,296			652		672		$	10,257
Depreciation and amortization		3,407		4,402		1,103			823		609		$	10,344
Segment operating income		1,552		19,465		(16	)		1,884		(1,703	)	$	21,182
Capital expenditures		1,645		947		533			279		261		$	3,665
As of August 28, 2004
Goodwill		71,033		64,551		22,996			11,569		11,931		$	182,080
Segment assets		213,220		176,097		69,028			37,323		35,318		$	530,986

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

None.

Item 9A. Controls and Procedures

As of the date of this report (the “Evaluation Date”), 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”). During the year end audit, several deficiencies related to the application of generally accepted accounting principles were noted, which are collectively considered to be a material weakness in internal control over financial reporting. The deficiencies related to the timing of revenue recognition and the determination and accuracy of certain liabilities and the related expenses. The errors that resulted from these deficiencies were corrected prior to the completion of the audit and, as a result, did not have any effect on the reported year end earnings and did not have any material effect on previous reported earnings. The Company intends to implement remediation plans to address these deficiencies prior to its required compliance date under Section 404 of the Sarbanes-Oxley Act of 2002. Based upon this evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective 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, as of the date of this report, that there was no change in our internal control over financial reporting that has materially affected, or is likely to materially affect, our internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrants

The following table sets forth information about our boards of directors and executive officers:


Name	Age		Position
Donald J. Percenti		48	President, Chief Executive Officer and Director of AAC
Sherice P. Bench		45	Chief Financial Officer, Secretary and Treasurer
Charlyn A. Daugherty*		57	Senior Vice President—Manufacturing Operations
Parke H. Davis*		62	Senior Vice President—Retail Products
Peter Lamm		54	Director of Group Holdings and AAC
Mac LaFollette		40	Director of Group Holdings and AAC
W. Gregg Smart		45	Director of Group Holdings and AAC
Sanjay Morey		34	Director of Group Holdings and AAC
David G. Fiore		58	Director of AAC


*		In September 2005, the Company informed Ms. Daugherty and Mr. Davis that it would not be renewing their respective employment agreements on December 15, 2005. We have not yet hired replacements for Ms. Daugherty or Mr. Davis.

Donald J. Percenti has been our President and Chief Executive Officer since September 2005, at which time he also joined the board of directors of AAC. Prior to that he served as our Senior Vice President—On Campus 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.

Sherice P. Bench has 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. Daugherty has 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. In September 2005, the Company informed Ms. Daugherty that it would not be renewing her employment agreement on December 15, 2005.

Parke H. Davis has 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. In September 2005, the Company informed Mr. Davis that it would not be renewing his employment agreement on December 15, 2005.

David G. Fiore has been a member of the board of directors of AAC since July 2000. Mr. Fiore served as the President and Chief Executive Officer of AAC until his retirement in September 2005. Since August 1999, Mr. Fiore was President, 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.

Peter Lamm joined AAC’s board of directors upon the effectiveness of the Merger and has served as a director of Group Holdings since inception. Mr. Lamm 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.

Mac LaFollette joined AAC’s board of directors upon the effectiveness of the Merger and has served as a director of Group Holdings since inception. Mr. LaFollette 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 high yield markets. Prior 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.

W. Gregg Smart joined AAC’s board of directors upon the effectiveness of the Merger and has served as a director of Group Holdings since inception. Mr. Smart 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.

Sanjay Morey joined AAC’s board of directors upon the effectiveness of the Merger and has served as a director of Group Holdings since inception. Mr. Morey is a Vice President 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.

Board Committees

Both Group Holdings’ and AAC’s boards of directors direct the management of our business and affairs as provided by Delaware law and conduct their business through meetings of the full boards 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 boards when necessary to address specific issues.

The duties and responsibilities of the audit committees include recommending to the applicable board of directors the appointment or termination of the engagement of our independent registered 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 boards. The compensation committee reviews and approves the compensation of our chief executive officer and administers any cash or equity incentive plan approved by our boards.

Both Group Holdings’ and AAC’s board of directors have determined that none of their members who serve on the audit committee of the applicable board of directors is an “audit committee financial expert” as that term is defined by SEC rules. The boards have determined, however, that the absence from the audit committees of a person who would qualify as an audit committee financial expert does not impair the ability of the audit committees to provide effective oversight of the Company’s external financial reporting and internal control over financial reporting. Accordingly, the boards do not intend to add a person to their membership solely for the purpose of adding an audit committee financial expert. In reaching the determination that the members of the audit committee, as they are presently constituted, have sufficient knowledge and experience to exercise effective oversight without the addition of an audit committee financial expert, the boards have considered the knowledge gained by the current members of the audit committees in connection with their prior experience.

Code of Ethics

We have not yet adopted a formal, written code of ethics within the specific guidelines as promulgated by the SEC. We have verbally communicated the high level of ethical conduct expected from all of our employees, including our officers, and we intend to adopt a written code of ethics as soon as practicable.

Director Compensation

The members of our boards 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 11. Executive Compensation

The following table sets forth compensation information for each person who served as our Chief Executive Officer during fiscal 2005 and our four other executive officers who were the most highly compensated for the year ended August 27, 2005. We refer to these individuals collectively as our “named executive officers.”


			Annual Compensation						Long-Term Compensation
Name and									Restricted		Securities				All other
Principal							Other Annual		Stock		Underlying		LTIP		Compensation
Position	Year(1)		Salary		Bonus(2)		Compensation(3)		Awards		Options(#)		Payouts		(4)(5)
	(Dollars in Thousands)
Donald J. Percenti		2005	$	277,500	$	139,400		—		—		—		—		—
President and Chief		2004	$	258,200	$	780,000		—		—		—		—	$	241,132
Executive Officer		2003	$	236,847	$	141,000		—		—		—		—		—

Sherice P. Bench		2005	$	230,478	$	82,000		—		—		—		—		—
Chief Financial		2004	$	230,195	$	740,000		—		—		—		—	$	250,262
Officer		2003	$	196,538	$	115,050		—		—		—		—		—

Charlyn A. Daugherty(6)		2005	$	205,962	$	67,000		—		—		—		—		—
Senior Vice		2004	$	209,616	$	685,000		—		—		—		—	$	241,132
President—		2003	$	191,154	$	105,000		—		—		—		—		—
Manufacturing Operations

Parke H. Davis(6)		2005	$	225,577	$	58,350		—		—		—		—		—
Senior Vice		2004	$	230,285	$	615,000		—		—		—		—	$	241,132
President—		2003	$	207,308	$	108,650		—		—		—		—		—
Retail Sales

David G. Fiore(6)		2005	$	450,558	$	200,000		—		—		—		—		—
Director of AAC		2004	$	426,731	$	2,772,000		—		—		—		—	$	953,594
		2003	$	378,847	$	300,000		—		—		—		—		—


(1)		Our 2005 fiscal year ended on August 27, 2005. Fiscal year 2004 ended on August 28, 2004 and fiscal year 2003 ended on August 30, 2003. Executive compensation for 2005, 2004, and 2003 is for the twelve months ended December 31 of each year and based on current compensation.

(2)		Amounts in 2005 include payments under the Management Incentive bonus program. Amounts in 2004 include payment under the Management Incentive bonus program as follows: Mr. Percenti: $150,000; Ms. Bench: $135,000; Ms. Daugherty: $120,000; Mr. Davis $110,000; Mr. Fiore: $300,000. Amounts in 2004 also include a success bonus paid as of the date of the Merger as follows: Mr. Percenti: $280,000; Ms. Bench: $280,000; Ms. Daugherty: $280,000; Mr. Davis: $280,000; Mr. Fiore: $1,772,000. Amounts in 2004 also include a special bonus paid as follows: Mr. Percenti: $350,000; Ms. Bench: $325,000; Ms. Daugherty: $285,000; Mr. Davis: $225,000; Mr. Fiore: $700,000. Amounts in 2003 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 executive officers in cash for the years ended 2005, 2004 or 2003.

(4)		Each of the named executive officers had term life insurance policies equal to two times their base salary (maximum of $500,000) in the years 2005, 2004 and 2003 with a benefit payable to a beneficiary selected by the named executive officer upon his or her death. We paid the annual premiums on such policies in each of 2005, 2004, and 2003. The annual premium amount has not exceeded $910 for any named executive officer. No named executive officer is entitled to any cash surrender value in such policies.

(5)		Amounts in 2004 include cancellation of stock options in connection with the Merger.


(6)		Mr. Fiore served as our President and Chief Executive Officer on August 27, 2005 and retired in September 2005. Mr. Fiore was replaced by Mr. Percenti. As previously noted, in September 2005, the Company informed Mr. Davis and Ms. Daugherty that it would not be renewing their employment agreements on December 15, 2005.

Employment Agreements

David G. Fiore. Mr. Fiore had an employment agreement with us, pursuant to which he served as our Chief Executive Officer and President and as a member of AAC’s 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 added one day to the term for each day that passed, and accordingly, there were always two years remaining on the term. The employment agreement provided Mr. Fiore with an annual base salary of no less than $300,000. Mr. Fiore’s employment agreement provided for various bonuses to be paid to him. Mr. Fiore was paid an annual bonus up to $200,000, determined by our board of directors, based upon the achievement of certain EBITDA targets. Mr. Fiore was also entitled to long-term incentive bonuses if we achieved certain EBITDA targets as provided for in his employment agreement.

As previously noted, on April 25, 2005, Mr. Fiore informed us of his plans to retire. Pursuant to Mr. Fiore’s employment agreement, Mr. Fiore was paid $450,000 in October 2005.

Donald J. Percenti. Mr. Percenti has an employment agreement with us, pursuant to which he serves as our Chief Executive Officer. The initial term of his employment agreement is for two years from August 10, 2005, which can be automatically extended for additional one year terms on August 10th of each succeeding year thereafter unless earlier terminated by us upon not less than 60 days’ prior notice. The employment agreement provides Mr. Percenti with an annual salary of $325,000. Under his employment agreement, Mr. Percenti’s salary is subject to such changes as our board of directors may determine from time to time.

Mr. Percenti’s employment agreement provides for an annual bonus in an amount up to 75% of Mr. Percenti’s salary, determined by our board of directors, and based upon the achievement of certain targets or standards as are determined by our board of directors. Mr. Percenti’s employment agreement also provides that he participates in our employee benefit plans (including incentive bonus plans and incentive stock 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. In addition, we pay Mr. Percenti a car allowance of up to $750 a month.

Mr. Percenti’s employment agreement provides that in the event his employment is terminated without “cause” or for “good reason” (each as defined in his employment agreement), he will be entitled to receive bi-weekly payments equal to the average of his bi-weekly compensation in effect within the two years preceding the termination for a period of the greater of 18 months or the remaining term of his employment agreement. He will also be entitled to elect the continuation of health benefits at no cost to himself. Mr. Percenti’s employment agreement does not provide him with any payments that are contingent upon a “change in control.”

Sherice P. Bench. Ms. Bench has an employment agreement with Commemorative Brands, Inc., or 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. 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 preceding her termination, accrued but unused vacation, and any accrued bonus. She will also be entitled to elect the continuation of health benefits at no cost to the employee. 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 and Parke H. Davis each were informed in September 2005 that the Company would not renew their employment agreements in December 2005. Ms. Daugherty and Mr. Davis each have an employment agreement with 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. Ms. Daugherty and Mr. Davis are 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.

Each of the above-described employment agreements for Ms. Daugherty and Mr. Davis 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 39 bi-weekly 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. Such employee will also be entitled to elect the continuation of health benefits at no cost to the employee. 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 that are payable if specific management goals are attained. The aggregate commitment for future salaries as of August 27, 2005, excluding bonuses, was approximately $2.1 million.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table provides certain information as of the date of this report with respect to the beneficial ownership of the interests in Group Holdings, by (i) each holder known by us who beneficially owns 5% or more of the outstanding equity interests of Group Holdings., (ii) each of the members of our board of directors, (iii) each of our named executive officers, and (iv) all of the members of our board of directors and our executive officers as a group. Unless otherwise indicated, the business address of each person is our corporate address.


	Shares		Percentage
American Achievement Holdings LLC(1)		429,851		85.0
c/o Fenway Partners, Inc. 152 West 57th Street New York, NY 10019
Investors advised by J.P.Morgan Investment Management Inc.(2)		73,170		14.5
c/o J.P.Morgan Investment Management Inc. 522 Fifth Avenue New York, New York 10036
Mac LaFollette		—		—
Peter Lamm(3)		429,851		85.0
W. Gregg Smart		—		—
Sanjay Morey		—		—
David G. Fiore		—		—
Sherice P. Bench		—		—
Charlyn A. Daugherty		—		—
Parke H. Davis		—		—
Donald J. Percenti		—		—
All executive officers and directors as a group (9 persons)		429,851		85.0


(1)		All of the voting interests 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. Peter Lamm and Richard Dresdale are the founders of Fenway Partners, Inc. and each is a managing member of Fenway Partners II LLC, the general partner of Fenway Partners Capital Fund II, L.P., and each is a managing member of each of FPIP, LLC and FPIP Trust, LLC.

(2)		The investors are J.P.Morgan U.S. Direct Corporate Finance Institutional Investors II LLC (“CFII-I”), which holds 70,052 shares of common stock, J.P. Morgan U.S. Direct Corporate Finance Private Investors II LLC (“CFII-P”), which holds 2,752 shares of common stock, and 522 Fifth Ave Fund, L.P. (“522”), which holds 366 shares of common stock. J.P. Morgan Investment Management, Inc., a registered investment advisor and a wholly-owned subsidiary of J.P. Morgan Chase & Co., controls the voting and disposition of these shares as the investment advisor to CFII-I, CFII-P and 522.

(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

Arrangements with Our Investors

An investor group led by Fenway Partners Capital Fund II, L.P. owns substantially all of the outstanding common stock of Group Holdings. These investors entered into a stockholders agreement with Group Holdings, which agreement contains agreements with respect to the election of directors of our company, restrictions on issue or transfer of shares, registration rights and other special corporate governance provisions. The agreement contains customary indemnification provisions. One of our directors, Peter Lamm, is a managing member of the general partner of Fenway Partners Capital Fund II, L.P.

Management Agreement

AAC Holding Corp. and AAC 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. Amounts paid under the management agreement totaled approximately $3,000,000 and $800,000 for the year ended August 27, 2005 and for the period March 26, 2004 to August 28, 2004.

Stockholders Agreement

All of the stockholders of our company entered into a stockholders agreement pursuant to which the stockholders agree to elect those individuals recommended to become members of our board of directors by our majority stockholders. Currently, an investor group led by Fenway Partners Capital Fund II, L.P. owns substantially all of the outstanding common stock of Group Holdings.

Item 14. Principal Accountant Fees and Services

The following table sets forth the aggregate fees billed to the Company for the fiscal year 2005 and for the periods March 26, 2004 to August 28, 2004 and August 31, 2003 to March 25, 2004 by Deloitte & Touche LLP:


							Percentage of Services
	For the Year		For the Period		For the Period		For the Year			For the Period			For the Period
	Ended		March 26, 2004 to		August 31, 2003 to		Ended			March 26, 2004 to			August 31, 2003 to
	August 27, 2005		August 28, 2004		March 25, 2004		August 27, 2005			August 28, 2004			March 25, 2004
Audit fees	$	351,000	$	205,000	$	194,000		58	%		48	%		82	%
Audit-related fees		91,000		84,000		—		15	%		20	%		—
Tax fees		114,000		137,000		31,000		19	%		32	%		13	%
All other fees		47,000		—		11,000		8	%		—			5	%
Total fees	$	603,000	$	426,000	$	236,000		100	%		100	%		100	%

“The Audit Fees” billed during the periods above were for professional services rendered for the audit of our financial statements. “Audit-Related Fees” were for services related to accounting consultation of the Group Holdings debt offer for the year ended August 27, 2005 and the Merger and related filings with the Securities and Exchange Commission for the period March 26, 2004 to August 28, 2004. “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 and Financial Statement Schedules

(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. No financial statement schedules are submitted because of the absence of the conditions under which they are required or because the required information is included in the consolidated financial statements.

3. Exhibits. See “Exhibit Index.”

EXHIBIT INDEX


Exhibit
Number		Designation
* 3.1		Certificate of Incorporation of AAC Group Holding Corp.

* 3.2		Bylaws of AAC Group Holding Corp.

* 4.1		Indenture, dated as of February 20, 2002, among American Achievement Corporation, The Bank of New York, as Trustee, and the Guarantors (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Amended Registration Statement on Form S-4/A, dated April 5, 2002).

* 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 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on Form 10-K, dated November 17, 2003).

* 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 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on Form 10-K, dated November 17, 2003).

* 4.4		Third Supplemental Indenture, dated as of March 15, 2004, among American Achievement Corporation, the Guarantors, and The Bank of New York (incorporated by reference to Exhibit 4.3 to American Achievement Corporation’s Report on Form 10-Q, dated July 13, 2004).

* 4.5		Indenture, dated as of March 25, 2004, among The Bank of New York, as Trustee, and the Guarantors (incorporated by reference to Exhibit 4.1 to American Achievement Corporation’s Report on Form 10-Q, dated July 13, 2004).

* 4.6		Form of 8.25% Senior Subordinated Notes due April 1, 2012 (included in Exhibit 4.5).

* 4.7		Indenture, dated as of November 16, 2004, among the Registrant and U.S. Bank National Association, as Trustee.

* 4.8		Form of 10.25% Senior Discount Note due October 1, 2012 (included in Exhibit 4.7).

* 4.9		Exchange and Registration Rights Agreement, dated November 16, 2004, among AAC Group Holding Corp. and Goldman, Sachs & Co.

* 5.1		Opinion of Ropes & Gray LLP

*10.1		Purchase Agreement, dated November 16, 2004, among AAC Group Holding Corp. and Goldman, Sachs & Co.

*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. (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on form 10-Q, dated July 13, 2004).

*10.3		Pledge and Security Agreement between the Guarantors and Goldman Sachs Credit Partners, L.P., dated March 25, 2004 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on Form 10-Q, dated July 13, 2004).

*10.4		Intercreditor Agreement between Goldman Sachs Credit Partners L.P., the Secured Parties and The Bank of Nova Scotia, dated March 25, 2004 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on form 10-Q, dated July 13, 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 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on Form 10-Q, dated July 13, 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 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on form 10-Q, dated July 13, 2004)

*10.7		Management Advisory Agreement by and between AAC Holding Corp., American Achievement Corporation, and Fenway Partners, Inc., dated March 25, 2004 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Report on form 10-Q, dated July 13, 2004)

*10.8		Employment Agreement, dated as of July 13, 1999 by and between Commemorative Brands, Inc. and David G.


Exhibit
Number		Designation
		Fiore (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Amended Registration Statement on Form S-4/A, dated April 5, 2002)

*10.9		First Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and David G. Fiore dated February 1, 2002 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Amended Registration Statement on Form S-4/A, dated April 5, 2002)

*10.10		Second Amendment to the Employment Agreement by and between American Achievement Corporation and David G. Fiore, dated December 23, 2003 (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Registration Statement on Form S-4, dated July 22, 2004).

*10.11		Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Sherice P. Bench, as amended (incorporated by reference to the corresponding Exhibit number of American Achievement Corporation’s Amended Registration Statement on Form S-4/A, dated April 5, 2002)

*10.12		First Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and Sherice P. Bench, dated July 2, 1999 (incorporated by reference to the corresponding Exhibit of American Achievement Corporation’s Registration Statement on Form S-4, dated July 22, 2004).

*10.13		Second Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and Sherice P. Bench dated April 9, 2004 (incorporated by reference to the corresponding Exhibit of American Achievement Corporation’s Registration Statement on Form S-4, dated July 22, 2004).

*10.14		Employment Agreement, dated as of August 10, 2005 by and between American Achievement Corporation and Donald J. Percenti.

*10.15		Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Charlyn A. Cook (incorporated by reference to Exhibit number 10.12 of American Achievement Corporation’s Amended Registration Statement on Form S-4/A, dated April 5, 2002)

*10.16		First Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and Charlyn Daugherty dated April 9, 2004 (incorporated by reference to Exhibit number 10.17 of American Achievement Corporation’s Registration Statement on Form S-4, dated July 22, 2004).

*10.17		First Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and Parke Davis dated April 9, 2004 (incorporated by reference to Exhibit number 10.18 of American Achievement Corporation’s Registration Statement on Form S-4, dated July 22, 2004).

*10.18		Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Parke H. Davis.

*10.19		Employment Agreement Amendment, dated October 21, 2004 between American Achievement Corporation and David G. Fiore.

*10.20		Employment Agreement Amendment dated November 19, 2004 between American Achievement Corporation and David G. Fiore.

12.1		Statement regarding Computation of Ratios of Earnings to Fixed Charges

21.1		Subsidiaries of AAC Group Holding Corp. and American Achievement Corporation

31.1		Certification by Donald J. Percenti pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Sherice P. Bench pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by Donald J. Percenti pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by Sherice P. Bench pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Previously filed.

Signatures

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


		AAC GROUP HOLDING CORP.
		(Registrant)

		AMERICAN ACHIEVEMENT CORPORATION
		(Registrant)

/s/ Donald J. Percenti	/s/ Sherice P. Bench

Donald J. Percenti	Sherice P. Bench
Chief Executive Officer	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrants and in the capacities as of this 22nd day of November, 2005.


Signatures		Title
/s/ Donald J. Percenti		President and Chief Executive Officer (Principal Executive Officer) and

Donald J. Percenti		Director of AAC

/s/ Sherice P. Bench		Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and

Sherice P. Bench		Accounting Officer)

/s/ Mac LaFollette		Director of AAC Group Holding Corp. and American Achievement Corporation

Mac LaFollette

/s/ Peter Lamm		Director of AAC Group Holding Corp. and American Achievement Corporation

Peter Lamm

/s/ Sanjay Morey		Director of AAC Group Holding Corp. and American Achievement Corporation

Sanjay Morey

/s/ W. Gregg Smart		Director of AAC Group Holding Corp. and American Achievement Corporation

W. Gregg Smart

/s/ David G. Fiore		Director of American Achievement Corporation

David G. Fiore


	Page
PART I
Item 1. Business		2
Item 2. Properties		9
Item 3. Legal Proceedings		9
Item 4. Submission of Matters to a Vote of Security Holders		10

PART II
Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		10
Item 6. Selected Financial Data		10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		23
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56
Item 9A. Controls and Procedures		56

PART III
Item 10. Directors and Executive Officers of the Registrants		56
Item 11. Executive Compensation		58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		60
Item 13. Certain Relationships and Related Transactions		61
Item 14. Principal Accountant Fees and Services		62

PART IV
Item 15. Exhibits and Financial Statement Schedules		62
Signatures		65
Statement re: Computation of Ratios of Earnings to Fixed Charges
Subsidiaries
Certification of Donald J. Percenti Pursuant to Section 302
Certification of Sherice P. Bench Pursuant to Section 302
Certification of Donald J. Percenti Pursuant to Section 906
Certification of Sherice P. Bench Pursuant to Section 906


	AAC Group
	Holding
	Corp.			American Achievement Corporation
	For the year			For the year			For the period			For the			For the year
	ended August 27,			ended August 27,			March 26, 2004 –			period August 31,			ended August 30,
	2005			2005			August 28, 2004			2003 – March 25, 2004			2003
Net income (loss) before income taxes	$	4,477		$	12,251		$	10,925		$	(4,583	)	$	10,898

Fixed charges: (1)

Interest charges		31,271			23,497			10,257			16,455			28,940
Interest portion of lease expense		829			829			352			626			983

Total fixed charges		32,100			24,326			10,609			17,081			29,923
Net income from operations before income taxes and fixed charges	$	36,577		$	36,577		$	21,534		$	12,498		$	40,821

Ratio of earnings to fixed charges:(2)		1.14	x		1.50	x		2.03	x		—			1.36	x


(1)		During the periods presented the Company had no preferred stock outstanding that required a cash payment. Therefore, the ratio of earnings to combined fixed charges and preferred dividends was the same as the ratio of earnings to fixed charges for each of the periods presented.

(2)		For purposes of computing this ratio, earnings consist of income (loss) before taxes on income and fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and the portion of rental expense that includes an interest factor. Earnings before fixed charges were insufficient to cover fixed charges by approximately $4.6 million for the period from August 31, 2003 to March 25, 2004.


		/s/ DONALD J. PERCENTI Name: Donald J. Percenti
		Title: President and Chief Executive Officer
		(principal executive officer)


		/s/ SHERICE P. BENCH Name: Sherice P. Bench
		Title: Chief Financial Officer
		(principal financial officer)