AMERICAN ACHIEVEMENT CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED AUGUST 31, 2002

OR

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

AMERICAN ACHIEVEMENT CORPORATION
(Exact name of registrant as specified in its charter)

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

7211 CIRCLE S ROAD
AUSTIN, TEXAS 78745
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(512) 444-0571

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]. (Prior to April 8,
2002, registrant was not subject to such filing requirements.)

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

The aggregate market value of the voting stock held by non-affiliates at
August 31, 2002: $0.00

809,351 shares of common stock
(Number of shares outstanding as of August 31, 2002)
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AMERICAN ACHIEVEMENT CORPORATION

FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 2002

INDEX

1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

- future revenues are lower than expected;

- increase in payroll or other costs and/or shortage of an adequate base of
employees;

- loss of significant customers through bankruptcy, industry consolidation
or other factors;

- inability to obtain additional capital due to covenant restrictions or
other factors, and/or increase in debt levels beyond our ability to
support repayment;

- costs or difficulties relating to the integration of businesses that we
acquire are greater than expected;

- expected cost savings or revenues from our acquisitions are not fully
realized or realized within the expected time frame;

- competitive pressures in the industry increase;

- general economic conditions or conditions affecting our industry;

- changes in the interest rate environment, and

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

PART 1

ITEM 1. BUSINESS

GENERAL

We are one of the leading manufacturers and suppliers of class rings,
yearbooks, graduation products, achievement publications and recognition and
affinity jewelry in the United States. Many of our products have leading market
share positions that have been developed over many years and are marketed under
well-known names such as ArtCarved, Balfour, Keepsake, Taylor Publishing and
Who's Who Among American High School Students. Our Balfour and ArtCarved brand
names, for example, have been identified with class rings for over 85 years and
45 years, respectively, and the Taylor Publishing brand name has been identified
with yearbooks for over 60 years. We distribute our products through various
distribution channels, including directly to students and through college
bookstores, mass merchandisers, approximately 5,100 independent jewelry stores,
many of the nation's largest jewelry chains and direct marketing. Based on the
number of units sold, we believe that we were the second largest provider of
class rings and yearbooks in the United States during the 2001-2002 school year.

Our two principal business segments are: scholastic products and
recognition and affinity products. Our scholastic products segment consists of
three principal categories: class rings, yearbooks and graduation products, the
last of which includes fine paper products and graduation accessories. The
scholastic products segment serves the high school, college and, to a lesser
extent, the elementary and junior high school markets and accounted for
approximately 88% of our net sales for the year ended August 31, 2002.

Recognition and affinity products include publications that recognize the
academic achievement of top students at the high school and college levels, as
well as the nation's most inspiring teachers, jewelry

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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, Super Bowl and Stanley Cup rings. This segment accounted for
approximately 12% of our net sales for the year ended August 31, 2002.

In December 1996, Castle Harlan, Inc., a leading New York private equity
firm, through its affiliate Castle Harlan Partners II (CHPII), acquired
substantially all of the ArtCarved operations of CJC Holdings, Inc. and the
Balfour operations of the L.G. Balfour Company, Inc. Castle Harlan's investment
strategy has focused on building a scale competitor in the commemorative
products industry that can provide an extensive range of products and services.
On June 27, 2000, American Achievement Corporation (formerly known as
Commemorative Brands Holding Corporation) was formed as a holding company for
the Commemorative Brands, Inc. (CBI) operations and future acquisitions. Since
then, we have made several strategic acquisitions and have introduced new,
complementary products across our brands and product lines to enhance our market
position. The following table summarizes our history and acquisition rationale.

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BUSINESS SEGMENTS

The following table presents an overview of our business segments,
including the net sales of each segment for the year ended August 31, 2002.

OUR SCHOLASTIC PRODUCTS

Our scholastic products business segment consists of three principal
categories: class rings, yearbooks and graduation products, the last of which
includes fine paper products and graduation accessories. Sales in this segment
were approximately $269.4 million and comprised approximately 88% of our total
net sales for the year ended August 31, 2002.

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

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CLASS RINGS

We manufacture class rings for high school and college students and, to a
lesser extent, junior high school students. Our rings are marketed under some of
the most recognized and respected brand names in the industry, including
ArtCarved and Balfour. Our Balfour and ArtCarved brand names have been
identified with class rings for over 85 years and 45 years, respectively. During
the 2001-2002 school year, we sold rings to students at over 7,500 schools.

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 personal rings to
commemorate their school experience.

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

During the 2000-2001 school year, we launched our Balfour Identity high
school class ring line, which is based on contemporary teen tastes and
preferences. This product line also incorporates state-of-the-art tooling into
its production platform, which has significantly reduced unit production costs.
The same design strategy and production process has been extended to the
majority of the Balfour high school product line, with the new designs and
tooling available during the 2002-2003 school year.

YEARBOOKS

We sell yearbooks primarily to high school and college students. We also
publish specialty military yearbooks, which, for example, commemorate naval
tours of duty at sea, and yearbooks for elementary and junior high schools. Our
Taylor Publishing brand name was established in 1939. During the 2001-2002
school year, we sold yearbooks to over 7,500 schools and believe that we were
the second largest yearbook publisher in the United States.

We publish yearbooks in our own facilities and believe that we are a
technology leader. Since 1994, 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 such as
PageMaker and Quark Xpress. In addition, by upgrading our printing presses and
further integrating digital technology to, among other things, increase the
speed of output and automatically monitor ink flow and control color
composition, we have been able to enhance print quality and reduce manufacturing
costs. The foregoing technology upgrades and enhancements have enabled us to
reduce manufacturing costs and improve on-time delivery, performance and print
quality.

GRADUATION PRODUCTS

Graduation products include graduation announcements, name cards, thank-you
stationery, memory books, diplomas, certificates, appreciation gifts, diploma
covers and other graduation accessory items. All of our graduation products are
customized in varying degrees and therefore have short production runs and
cycles. Graduation products are manufactured in our own facilities. These
products are offered through our independent high school class ring sales
representatives and college bookstores.

We have enhanced our college website to enable students to order graduation
products on-line. We believe that, over time, this will increase sales of our
graduation products and, in particular, personalized
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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.

OUR RECOGNITION AND AFFINITY PRODUCTS

Our recognition and affinity products segment consists of two categories:
achievement publications and recognition and affinity jewelry. The latter
category includes affinity group, personalized family, fan affinity sports and
professional sports championship jewelry. Sales in this segment were
approximately $35 million and comprised approximately 12% of our total net sales
for the year ended August 31, 2002. The table below sets forth the principal
product lines and brand names of our recognition and affinity products and the
distribution channels through which we sell these products.

ACHIEVEMENT PUBLICATIONS

We produce the following four publications:

Who's Who Among American High School Students. First published in 1967,
this annual publication is the largest academic achievement publication in the
nation honoring high-achieving high school students. The 1st edition recognized
approximately 13,000 students from approximately 4,000 high schools. The current
36th edition honors approximately 850,000 students, from freshmen through
seniors. Nominees represent over 22,000 of the nation's approximately 24,000
private, public and parochial high schools on the basis of academic achievement,
class rank and extracurricular activities.

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 25th edition honors
approximately 200,000 high-achieving students, representing in excess of 2,500
colleges and universities throughout the country.

Who's Who Among America's Teachers. First published in 1990, this
publication pays tribute to the country's most inspiring teachers, who are
nominated for inclusion by current and/or former Who's Who high school students.
Published every two years, the 7th edition was published in 2002 and honored
approximately 140,000 outstanding teachers.

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Who's Who Among American High School Students -- Sports Edition. First
published in August 2002, this publication recognized 20,000 high school
accomplished athletes.

We also sell related products consisting of plaques, certificates, gold and
silver pins and charms, mugs, key chains, paper weights and other items
commemorating 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 built up over 30
years, which we utilize to recognize students and teachers from the majority of
the private, public and parochial schools in the country. Students and teachers
are not required to purchase publications in order to be included in them.
Printing for our achievement publications is outsourced.

RECOGNITION AND AFFINITY JEWELRY

Recognition and affinity jewelry consist of the following product
categories:

Affinity Group Jewelry. Affinity group jewelry is sold to members of large
groups and associations. The jewelry features emblems of, and otherwise
commemorates accomplishments within, the group. For example, through our
Keepsake brand, we provide affinity ring awards to the American Bowling
Congress, including championship rings for bowlers who score a perfect "300"
game. Through our R. Johns brand, we provide affinity rings to military
personnel that recognize affiliation and completion of specialized training
ranging from basic training to special forces.

Personalized Family Jewelry. Our family jewelry products include rings
commemorating children's birth dates, which feature a level of personalization,
such as birthstones and names, that distinguishes us from our competitors. We
also sell other personalized jewelry, such as necklaces and bracelets, designed
to commemorate family events. We began our family jewelry business in 1997 and,
by 2002, we had grown this business to $7.9 million in net sales by leveraging
these products through our existing channels of distribution. We intend to
further grow our family jewelry business through product extensions, including
baby rings for scrapbooks, grandmother's products such as pins and pendants,
daughter's rings and sweet 16 memorabilia. We provide personalized family
jewelry under our Celebrations of Life, Generations of Love and Namesake brand
names.

Fan Affinity Sports Jewelry. We produce a variety of team affiliation
products. For example, we manufacture Balfour Sports brand National Football
League rings, pendants, paperweights and coasters containing team logos, mascots
and colors.

Professional Sports Championship Jewelry. We provide sports championship
jewelry for professional teams and their members and have, for example, produced
several Super Bowl, Stanley Cup and World Series rings, including the rings for
the New York Yankees in 1996, 1998, 1999 and 2000 and the 1999 Japanese World
Series ring. We provide sports championship jewelry under the Balfour brand.

SALES AND MARKETING

We have approximately 210 independent high school class ring and over 200
independent yearbook sales representatives, with an average tenure with our
company of approximately 14 and 11 years, respectively. We also have
approximately 30 employee college class ring sales representatives. 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 contain 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 channels of
distribution: independent sales representatives selling directly to students and
retail stores, which include independent jewelry stores, jewelry chains and mass
merchandisers. We believe that we are the leading supplier of high school class
rings to retail

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stores. Our high school class rings are sold by approximately 5,100 independent
jewelry retailers, many of the nation's largest jewelry chains, including Zales,
Gordons and Sterling, and by mass merchants, 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 by our
employee sales representatives. Historically, college bookstores have been owned
and operated by academic institutions. Over the last several years, an
increasing number of college bookstores have been leased to contract operators,
primarily Barnes and Noble Bookstores and Follett Corporation, with which we
have longstanding relationships. Decisions to include our products are made on a
national basis by the bookstore operator.

Yearbooks are produced under an exclusive contract with the school for the
academic year and are sold directly to students by the school. Under the terms
of the contract, the school agrees to pay us a base price for producing the
yearbook, which often increases before production as a result of enhancements to
the contract specifications, such as additional color pages. Our independent
yearbook sales representatives call on schools at the contract stage.
Thereafter, they coordinate between the school's yearbook committee and our
customer service and plant employees to ensure satisfactory quality and service.

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

INTELLECTUAL PROPERTY

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

We market our products under many trademarked brand names, some of which
rank among the most recognized and respected names in the jewelry industry,
including ArtCarved, Balfour, Celebrations of Life, Class Rings, Ltd.,
Generations of Love, Keepsake, Keystone, Master Class Rings, Namesake, R. Johns,
Taylor Publishing, The National Dean's List, Who's Who Among American High
School Students and Who's Who Among America's Teachers. 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 also 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 the NFL and those schools, respectively, on
our products.

COMPETITION

SCHOLASTIC PRODUCTS

The class ring, yearbook and graduation products markets are highly
concentrated and consist primarily of a few large national participants. We
believe that we are the second largest competitor nationally within the
scholastic products market (excluding photography). 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 industry compete
primarily on the basis of quality, marketing, customer service and, to a lesser
extent, price.

RECOGNITION AND AFFINITY PRODUCTS

We have limited competition for our student achievement publications, with
only a small percentage of the high school and college students included in our
publications also included in the publications of our

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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 A&A Jewelry and Bogarz. We compete with our
affinity product competitors primarily on the basis of quality, marketing,
customer service and price.

RAW MATERIALS AND SUPPLIERS

The principal raw materials that we purchase are gold and precious,
semi-precious and synthetic stones that we use in our class rings and jewelry
and paper and ink that we use in our yearbook and graduation products. 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 with multiple plants, which 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 may 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 purchase paper on an
annual commitment basis so that we are able to estimate yearbook costs with
greater certainty.

ENVIRONMENTAL

We are subject to federal, state and local laws, ordinances and regulations
that establish various health and environmental quality standards and provide
penalties for violations of those standards. Past and present manufacturing
operations subject us to environmental laws that regulate the use, handling and
contracting for disposal or recycling of hazardous or toxic substances, the
discharge of particles into the air and the discharge of process wastewaters
into sewers. We believe that we are in substantial compliance with all material
environmental laws. We believe that we have adequate environmental insurance and
indemnities to sufficiently cover any liabilities that may exist and that we do
not currently face environmental liabilities that could have a material adverse
affect on our financial position or results of operations.

BACKLOG

Because of the nature of our business, generally all orders (except
yearbooks) are filled between two and eight weeks after the time of placement.
We enter into yearbook contracts several months prior to delivery. While the
base prices of the yearbooks are established at the time of order, the final
prices of the yearbooks are often not calculated at that time since the content
of the books generally change 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 $82.9 million as of August
31, 2002, almost exclusively related to student yearbooks. We expect
substantially all of the backlog at August 31, 2002 to be filled in fiscal 2003.

EMPLOYEES

Given the seasonality of our business, the number of our employees
fluctuates throughout the year, with the number typically being highest during
September through May and lowest from June to August. As of August 31, 2002, we
employed approximately 2,400 employees.

Most of our hourly employees are members of two separate unions, although
we believe that a significant number of these employees are non-dues paying
members. Most of our hourly production and maintenance employees located at our
Austin, Texas manufacturing facility are represented by the United Brotherhood
of Carpenters and Joiners Union, and most of our hourly employees located at our
Dallas, Texas manufacturing facility are represented by the Graphics
Communication International Union. In June 2000, our subsidiary CBI and the
United Brotherhood of Carpenters and Joiners Union signed a collective
bargaining agreement that will expire in May 2003. Taylor and the Graphics
Communication International Union signed two collective bargaining agreements
that will expire in July 2003 and February 2004, respectively.

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We have not experienced any significant work stoppages or employee-related
problems that had a material impact on our operations. We consider our
relationship with our employees to be good.

ITEM 2. PROPERTIES

Our principal headquarters and 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:

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for the Company's common
stock, par value $0.01 per share ("Common Stock"). At August 31, 2002, there
were 27 holders of record of the Common Stock.

The Company has never declared dividends on its Common Stock. The Company
is restricted from paying dividends by certain of its bank debt covenants and
the indenture pursuant to which its senior subordinated notes were issued (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources") and by provisions of the
Company's outstanding class of preferred stock. The Company intends to retain
any earnings for internal investment and debt reduction, and does not intend to
declare dividends on its Common Stock in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

The following table presents summary historical financial and other data
for the Company and should be read in conjunction with the financial statements
of the Company and the notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 7 herein.

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(1) Includes the results of operations for ECI, from its acquisition on March
30, 2001. ECI sales are highly seasonal with most shipments generally
occurring in the first four months of our fiscal year.

(2) EBITDA represents earnings before interest expense, taxes, depreciation and
amortization and excludes extraordinary gains and losses and other expense
related to interest rate swaps. EBITDA does not represent net income or cash
flows from operations, as these terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to net
income as an indicator of our operating performance or to cash flows as a
measure of liquidity. We have included information concerning EBITDA because
we use such information as a method of assessing our cash flow and ability
to service debt. The EBITDA measure presented herein is not necessarily
comparable to similarly titled measures reported by other companies.

(3) Excludes bank overdraft.

(4) Includes the results of operations for Taylor Publishing, from its
acquisition on July 27, 2000.

(5) The restated consolidated financial statements for the year ended August 25,
2001, reflects (1) the Company's change in revenue recognition policy on
certain sales to independent sales representatives in order to comply with
the provisions of Securities and Exchange Commission Staff Accounting
Bulletin No. 101, effective August 27, 2000, the beginning of the fiscal
year, and (2) an income tax benefit related to a net operating loss
carryback attributable to one of the Company's subsidiaries, which should
have been recognized during the year ended August 25, 2001.

(6) Includes the results of operations of Milestone Marketing, from its
acquisition on July 15, 2002.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our consolidated financial condition and
results of operations should be read in conjunction with the information
contained in our consolidated financial statements and the notes thereto. The
following discussion includes forward-looking statements that involve certain
risks and uncertainties. See "Disclosure Regarding Forward-Looking Statements."

As discussed in Note 16 to the Consolidated Financial Statements included
in Item 8, the financial statements for the year ended August 25, 2001 have been
restated. The following Management's Discussion and Analysis reflects this
restatement.

OVERVIEW

We are one of the leading manufacturers and suppliers of class rings,
yearbooks, academic achievement publications and recognition and affinity
jewelry in the United States. Our two principal business segments are:
scholastic products and recognition and affinity products. The scholastic
products segment serves the high school, college and, to a lesser extent, the
elementary and junior high school markets and accounted for approximately 88% of
our net sales for the fiscal year ended August 31, 2002. Our scholastic products
segment consists of three principal categories: class rings, yearbooks and
graduation products, the last of which includes fine paper products and
graduation accessories.

The recognition and affinity products segment accounted for approximately
12% of our net sales for the fiscal year ended August 31, 2002. This segment
provides, among other things, publications that recognize the academic
achievement of top students at the high school and college levels, as well as
the nation's most inspiring teachers, 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

Commemorative Brands, Inc., or CBI was initially formed by CHPII in March
1996 for the purpose of acquiring substantially all of the ArtCarved operations
of CJC Holdings, Inc. and the Balfour operations of L.G. Balfour Company, Inc.
These acquisitions were consummated on December 16, 1996. Until such date, CBI
engaged in no business activities other than in connection with the completion
of the acquisitions and the financing thereof.

Our company was formed on June 27, 2000 to serve as a holding company for
the CBI operations and future acquisitions. Upon formation, each share of CBI's
issued and outstanding Common Stock was converted into one share of our Common
Stock, and each share of CBI's issued and outstanding series B preferred stock
was converted into one share of our series A preferred stock. The original
holders of CBI's series A preferred stock continued to hold such shares. We
changed our name from Commemorative Brands Holding Corporation to American
Achievement Corporation on January 23, 2002.

Taylor Acquisition. On February 11, 2000, CHPIII acquired Taylor, whose
primary business is the designing and printing of student yearbooks. On July 27,
2000, we acquired all issued and outstanding shares of Taylor Senior Holding
Corp., or TSHC, Taylor's parent, through the issuance of 320,929 shares of our
common stock and 393,482 shares of our series A preferred stock (the "Taylor
Acquisition"). The Taylor Acquisition was accounted for under the purchase
method of accounting. Accordingly, our consolidated financial statements for
2000 include the results of operations for consolidated TSHC for the period from
July 27, 2000 to August 26, 2000.

ECI Acquisition. On March 30, 2001, we acquired all of the capital stock
of ECI for a purchase price of approximately $58.7 million (the "ECI
Acquisition"). ECI has been in the academic achievement publication business
since 1967 and publishes such well-known titles as, Who's Who Among American
High School Students, The National Dean's List and Who's Who Among America's
Teachers. The ECI Acquisition was accounted for under the purchase method of
accounting. As a result of this transaction, our consolidated financial
statements for 2001 include the results of operations for ECI for the period
from March 30, 2001 to August 25, 2001.
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Milestone Acquisition. On July 9, 2002, we acquired all the issued and
outstanding stock and warrants of Milestone Marketing Incorporated ("Milestone")
for a purchase price of approximately $15.9 million (the "Milestone
Acquisition"). Milestone is a specialty marketer of class rings and other
graduation products to the college market. The Milestone Acquisition was
accounted for under the purchase method of accounting. As a result of this
transaction, our consolidated financial statements for 2002 include the results
of operations for Milestone for the period from July 15, 2002 to August 31,
2002.

CRITICAL ACCOUNTING POLICIES

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

Revenue Recognition. We recognize revenue when the earnings process
is complete, evidenced by an agreement between AAC and the customer,
delivery and acceptance has occurred, collectibility is reasonably assured
and pricing is fixed and determinable. In accordance with the Securities
and Exchange Commissions Staff Accounting Bulletin No. 101, the recognition
of revenue and related gross profit on sales to independent sales
representatives, along with commissions to independent sales
representatives that are directly related to the revenue, are deferred
until the independent sales representative delivers the product and title
passes to the Company's end customer. Provisions for sales returns and
warranty costs are recorded at the time of sale based on historical
information and current trends.

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

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
customer and salesperson accounts and historical write-off experience. Our
analysis includes the age of the receivable, customer or salesperson
creditworthiness and general economic conditions. We believe the results
could be materially different if historical trends do not reflect actual
results or if economic conditions worsened.

13

RESULTS OF OPERATIONS

The following table sets forth selected information from our consolidated
statements of operations expressed on an actual basis and as a percentage of net
sales.

The following table sets forth sales by business segment expressed on an
actual basis and as a percentage of net sales.

YEAR ENDED AUGUST 31, 2002 COMPARED TO YEAR ENDED AUGUST 25, 2001

Net Sales. Net sales increased $23.3 million, or 8.3%, to $304.4 million
in 2002, from $281.1 million in 2001. This increase was due primarily to the
inclusion of $16.2 million of net sales from ECI in 2002, which was acquired on
March 30, 2001, as compared to $0.7 million in 2001 and an increase in sales of
other product lines.

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

Scholastic Products. Net sales increased $10.9 million, or 4.2% to
$269.4 million in 2002 from $258.4 million in 2001. Of this increase, $5.2
million was due to increased unit volumes and selling prices of high school
and college class rings and a $4.7 million increase in graduation products
and yearbook revenues. The remaining increase was due to the July 15, 2002
acquisition of Milestone.

14

Recognition and Affinity Products. Net sales increased $12.4 million
to $35.0 million in 2002 from $22.6 million in 2001. The increase was
primarily the result of $16.2 million of net sales attributable to ECI,
partially offset by lower sales of sports fan affinity jewelry.

Gross Profit. Gross margin was 51.7% in 2002, a 2.3 percentage point
increase from 49.4% in 2001. The gross margin increase in 2002 was partially the
result of the inclusion of the ECI operations for this period. Excluding ECI,
gross margin would have been 50.1% in 2002 compared to 49.4% in 2001. The 0.7
percentage point increase in gross margins was primarily the result of increased
operating efficiencies.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $9.8 million, or 8.1%, to $129.7 million in
2002 from $120.0 million in 2001. As a percentage of net sales, selling, general
and administrative expenses decreased 0.1 percentage points in 2002 compared to
2001. Included in selling, general and administrative expenses are two
sub-categories: selling and marketing expenses and general and administrative
expenses. Selling and marketing expenses increased $7.9 million to $90.6
million, or 29.8% of net sales, in 2002 from $82.7 million, or 29.4% of net
sales, in 2001. General and administrative expenses in 2002 were $39.1 million,
or 12.9% of net sales, as compared to $37.3 million, or 13.3% of net sales, in
2001. This decrease in general and administrative expenses as a percentage of
revenue was a result of realization of the balance of the synergy savings
related to Taylor Acquisition, partially offset by increased employee health
insurance costs.

Operating Income. As a result of the foregoing, operating income was $27.7
million, or 9.1% of net sales, in 2002 as compared with $18.9 million, or 6.7%
of net sales, in 2001. The scholastic products segment reported operating income
of $23.2 million in 2002 and $20.8 million in 2001. The recognition and affinity
products segment reported operating income of $4.5 million in 2002 as compared
with an operating loss of $1.9 million in 2001. This increase in the recognition
and affinity product segment was primarily attributable to favorable impact of
approximately $5.9 million from the ECI acquisition on March 30, 2001.

Other Expense. Other expense was $2.8 million in 2002, of which $2.6
million was a result of the termination and reclassification of interest rate
swaps that occurred in conjunction with the issuance of the Unsecured Notes and
the entering into of our Senior Secured Credit Facility on February 20, 2002.
The remaining interest rate swap agreement representing a notional amount of $25
million has been classified as a trading derivative. As such, changes in the
fair value of this derivative resulted in a charge of $0.2 million for the
period February 20, 2002 to August 31, 2002. As of August 31, 2002, the fair
value of this derivative represented a liability of approximately $0.9 million.

Interest Expense, Net. Net interest expense was $26.0 million in 2002 and
$22.8 million in 2001. The average debt outstanding in 2002 and in 2001 was
$225.7 million and $201.2 million, respectively. The weighted average interest
rate of debt outstanding in 2002 and in 2001 was 11.5% and 11.4% respectively.

Provision/(Benefit) for Income Taxes. For 2002 and 2001, the Company
recorded income tax benefit of $1,171,000 and $1,443,000. The Company's benefit
relates to the expected annual benefits from the net operating loss carryback
generated in years ended August 31, 2002 and August 25, 2001 attributable to
Taylor Senior Holding Corp. (TSHC). 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.

Gain (Loss) on Extinguishments of Debt. In conjunction with the issuance
of the senior unsecured notes and the senior revolving credit facility on
February 20, 2002, the Company paid off the then outstanding term loans and
revolver under the former credit facility and bridge notes to affiliates. As a
result, a loss of $5.7 million was recognized relating to the write-off of
unamortized deferred financing costs.

Cumulative Effect of Change in Accounting Principle. The cumulative effect
of change in accounting principle, representing a loss of $1.8 million, was
recorded due to the adoption of SAB 101 as of August 27, 2000.

Net Loss. As a result of the foregoing, we reported a net loss of $5.5
million in 2002 as compared to a net loss of $4.3 million in 2001.

15

YEAR ENDED AUGUST 25, 2001 COMPARED TO YEAR ENDED AUGUST 26, 2000

Net Sales. Net sales increased $98.8 million, or 54.2%, to $281.1 million
in 2001 from $182.3 million in 2000. This improvement was primarily the result
of the inclusion of Taylor for a full 12 months of operations in 2001 compared
to only one month in 2000.

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

Scholastic Products. Net sales increased $95.1 million, or 58.2%, to
$258.4 million in 2001 from $163.3 million in 2000, primarily as a result of the
Taylor Acquisition with yearbook net sales increasing $94.7 million in 2001 as
compared to 2000. The net sales for the high school segment in both class rings
and graduation products increased $4.4 million as a result of increased prices
and unit volume. This increase was partially offset by a decline in net sales of
retail and college class rings of approximately $4.0 million.

Recognition and Affinity Products. Net sales increased $3.7 million, or
19.4%, to $22.6 million in 2001 from $18.9 million in 2000. The increase was
largely a result of the Taylor and ECI Acquisitions. This increase was partially
offset by lower sales of personalized family jewelry and sports fan affinity
jewelry.

Gross Profit. Gross margin was 49.4% in 2001, a 6.2 percentage point
decline from 55.6% in 2000. The gross margin decline in 2001 was primarily the
result of the inclusion of a full 12 months of Taylor operations compared to
only one month in 2000. Excluding Taylor and ECI, the 2001 gross margin would
have been 57.1%, or 0.5 percentage points greater than 2000. This increase in
margin in 2001 (excluding Taylor and ECI) was primarily the result of favorable
material costs, a net price increase and favorable operating costs, each of
which favorably impacted our class rings margins and increased manufacturing
efficiencies for our graduation products.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $34.4 million, or 40.2%, to $120.0 million in
2001 from $85.6 million in 2000. As a percentage of net sales, however, selling,
general and administrative expenses decreased 4.2 percentage points in 2001 as
compared to 2000. Selling and marketing expenses increased $24.4 million to
$82.7 million, or 29.4% of net sales, in 2001 from $58.3 million, or 32.0% of
net sales, in 2000 largely as a result of the Taylor and ECI Acquisitions.
Excluding Taylor and ECI effects, the selling and marketing expenses would have
increased to 33.8% of net sales from 29.4% of net sales as a result of increased
market expenses due to implementing additional growth initiatives. General and
administrative expenses increased $9.9 million to $37.2 million, or 13.2% of net
sales, in 2001 from $27.3 million, or 14.9% of net sales in 2000. This decrease
in general and administrative expenses as a percentage of net sales was a result
of partial synergy savings realized from the Taylor Acquisition and additional
efficiency savings as a result of a computer system conversion in July 1999.

Operating Income (Loss). As a result of the foregoing, operating income
was $18.9 million, or 6.7% of net sales, in 2001 as compared with $15.8 million,
or 8.7% of net sales, in 2000. The scholastic products segment reported
operating income of $20.8 million in 2001 compared with $12.5 million in 2000.
The recognition and affinity products segment reported operating loss of $1.9
million in 2001 compared with operating income of $3.3 million in 2000.

Interest Expenses Net. Net interest expense was $22.8 million in 2001
compared with $15.7 million in 2000. The $7.1 million increase in interest
expense was a result of the increase in debt outstanding as a result of the
Taylor and ECI Acquisition. The average debt outstanding during 2001 and 2000
was $201.2 million and $138.6 million, respectively. The weighted average
interest rate of debt outstanding as of August 25, 2001 and August 26, 2000 was
11.4% and 11.3%, respectively.

Provision (Benefit) for Income Taxes. For 2001, the Company recorded an
income tax benefit of $1,443,000. The Company's benefit relates to the expected
benefit from the net operating loss carryback generated in the year ended August
25, 2001, attributable to TSHC. There is no federal income tax benefit for net
operating loss carryforwards as a valuation allowance exists due to our
historical net operating losses. For 2000, the Company recorded a tax provision
of $333,000 on income before extraordinary loss and cumulative effect of change
in accounting principle, relating primarily to state taxes.

16

Gain on Extinguishment of Debt, Net of Income Taxes. In 1996, our
subsidiary CBI issued $90 million in aggregate principal amount of 11% senior
subordinated notes (the "Subordinated Notes"). On July 27, 2000, TP Holding
Corp., the direct parent of Taylor, purchased $48.6 million in principal amount
of the Subordinated Notes at a purchase price equal to 82% of the principal
amount of the notes. As a result of the Taylor Acquisition, the transaction was
considered an extinguishment of debt and resulted in an extraordinary gain on
the sale of the notes of approximately $6.7 million, net of tax.

Cumulative effect of change in accounting principle. The cumulative effect
of change in accounting principle, representing a loss of $1.8 million, was
recorded due to the adoption of SAB 101 as of August 27, 2000.

Net (Loss) Income. As a result of the foregoing, we reported net loss of
$4.3 million in 2001 as compared to net income of $6.5 million in 2000.

SEASONALITY

The Company's scholastic product sales tend to be seasonal. Class ring
sales are highest during October through December (which overlaps the Company's
first and second fiscal quarters), when students have returned to school after
the summer recess and orders are taken for class rings for delivery to students
before the winter holiday season. Sales of the Company's fine paper products are
predominantly made during February through April (which overlaps the Company's
second and third fiscal quarters) for graduation in May and June. The Company
has historically experienced operating losses during the period of the Company's
fourth fiscal quarter, which includes the summer months when school is not in
session, thus reducing related shipment of products. Yearbook sales are highest
during the months of May through June, as yearbooks are typically shipped to
schools prior to the school's summer break. The Company's recognition and
affinity product line sales are also seasonal. The majority of the sales of
achievement publications are shipped in November of each year. The remaining
recognition and affinity product line sales are highest during the winter
holiday season and in the period prior to Mother's Day. As a result, the effects
of the seasonality of the class ring business on the Company are somewhat
tempered by the Company's relatively broad product mix. As a result of the
foregoing, the Company's working capital requirements tend to exceed its
operating cash flows from July through December.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities. Operating activities provided cash flows of $23.3
million for fiscal 2002 as compared to $10.3 million in fiscal 2001. The $13.0
million increase in cash flows from operating activities between the two periods
was primarily the result of an increase in operating cash from net income before
depreciation, amortization and other non-cash charges of $3.9 million, a
decrease in accounts receivable and income tax receivable of $14.5 million, a
decrease in inventories of $0.5 million and a decrease in other assets of $1.9
million. These increases in cash flows were partially offset by an increase in
prepaid expenses, other assets and deferred revenue of $6.7 million and a
decrease in accounts payable, accrued expenses and other long-term liabilities
of $1.0 million. Operating activities provided cash flows of $10.3 million for
fiscal 2001 as compared to $9.4 million of cash used in operations for fiscal
2000. The $19.6 million increase in cash flows from operating activities between
the two periods was primarily the result of an increase in operating cash from
net income before depreciation, amortization and other non-cash charges of $7.6
million, an increase in bank overdraft, accounts payable, accrued expenses and
other long-term liabilities of $22.0 million and an increase in inventories and
other assets of $2.9 million, partially offset by a decrease in cash due to the
change in accounts receivable of $13.7 million and a change in prepaids, other
current assets and income tax receivable of $5.9 million.

Investing Activities. Capital expenditures in 2002, 2001 and 2000 were
$14.2 million, $7.5 million and $5.1 million, respectively. The increase in
capital expenditures in 2002 of $6.7 million was primarily attributable to the
purchase of two new printing presses at Taylor Publishing. The increase in
capital expenditures in 2001 of $2.4 million as compared to 2000 was primarily
attributable to capital expenditures related to the Taylor Acquisition and the
increased tooling cost due to the new Balfour Identity high school

17

ring series. Also affecting investing activities in 2002, 2001 and 2000 were the
Milestone Acquisition, the ECI Acquisition, and Taylor Acquisition.

Financing Activities. Net cash provided from financing activities in 2002,
2001 and 2000 was $4.9 million, $48.4 million and $14.7 million, respectively.
In February 2002, we issued $177.0 million of senior unsecured notes and entered
into a new $40.0 million senior revolving credit facility. The Company paid off
the then outstanding term loans and revolver under the former credit agreement,
its bridge notes to affiliates and settled all but $25.0 million in notional
amount of its interest rate swap agreements. In 2001, in connection with the
acquisition of ECI, we entered into the second amended and restated credit
agreement whereby we borrowed approximately $27.3 million to fund a portion of
the acquisition. In addition, Castle Harlan Partners III (CHPIII) provided us
with approximately $24.5 million in cash in return for the issuance of a bridge
note representing an obligation of $8.5 million and the issuance of series A
preferred stock and common stock for $16.0 million. In 2000, as a result of the
acquisition of Taylor, Taylor Holding Corp.'s credit agreement was amended and
restated to include CBI as a borrower. In addition, incremental borrowings of
approximately $62.6 million were made to repay existing debt of CBI and to
repurchase a portion of the outstanding Subordinated Notes.

Capital Resources. In February 2002, we entered into a new $40.0 million
senior revolving credit facility. As of August 31, 2002, $25.2 million under
that facility was outstanding.

In connection with the Taylor Acquisition, CBI signed a gold consignment
financing agreement with a bank. Under its gold consignment financing agreement,
CBI has the ability to have on consignment the lowest of (i) the dollar value of
27,000 troy ounces of gold, (ii) $10.1 million and (iii) a borrowing base,
determined based upon a percentage of gold located at CBI's facilities and other
approved locations, as specified by the agreement. Under the terms of the
consignment arrangement, CBI does not own the consigned gold nor have risk of
loss related to such inventory until the money is received by the bank from CBI
in payment for the gold purchased. Accordingly, CBI does not include the values
of consigned gold in its inventory or the corresponding liability for financial
statement purposes. As a result, as of August 31, 2002 and August 25, 2001, CBI
held approximately 14,830 ounces and 14,620 ounces, respectively, of gold valued
at $4.6 million and $4.0 million, respectively, on consignment from the bank.

Cash generated from operating activities and availability under our senior
revolving credit facility and prior credit facilities which were paid off in
February 2002 have been our principal sources of liquidity. Our liquidity needs
arise primarily from debt service, working capital, capital expenditure and
general corporate requirements. As of August 31, 2002, we had approximately
$13.6 million available under our credit facility.

We believe that cash flow from our operating activities combined with the
availability of funds under our credit facility will be sufficient to support
our operations and liquidity requirements for the foreseeable future.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses financial accounting and reporting
for business combinations. Under the new standard, all business combinations
entered into after June 30, 2001 must be accounted for by the purchase method.
SFAS No. 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets. SFAS No. 142 requires that goodwill no longer be
amortized, but instead requires a transitional goodwill impairment assessment
and annual impairment tests thereafter. Any transitional impairment loss
resulting from the adoption will be recognized as the effect of a change in
accounting principle in the income statement. Amortization of goodwill was
approximately $4.0 million for the year ended August 31, 2002. The Company
adopted SFAS No. 142 on September 1, 2002 and is currently in the process of
completing the transitional impairment assessment and calculating any impact on
the financial statements. The Company must complete the first step of this test
to determine if there is an impairment by February 2003 and, if there is an
impairment, the Company must complete the final step and record any impairment
by August 2003. SFAS No. 142 also requires that recognized intangible assets be
amortized over their respective estimated useful lives. As part of the adoption,
the Company is currently reassessing the useful lives and residual values of all
18

intangible assets. Any recognized intangible asset determined to have an
indefinite useful life will not be amortized, but instead tested for impairment
in accordance with the standard.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations". This statement requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will become effective for
the Company in fiscal year 2003. The Company is currently evaluating the
provisions of SFAS No. 143, but does not believe that the adoption of SFAS No.
143 will have a significant impact on its financial statements.

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long Lived Assets," which is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company is currently evaluating the provisions of SFAS
No. 144. The financial statement impact of the adoption of SFAS No. 144 has not
yet been determined.

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

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." This
Statement requires recording costs associated with exit or disposal activities
at their fair values when a liability has been incurred. Under previous
guidance, certain exit costs were accrued upon management's commitment to an
exit plan, which is generally before an actual liability has been incurred. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company is currently considering the
impact, if any, that this statement will have on the financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk. We have market risk exposure from 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 and
through the use of interest rate swaps. Our senior revolving credit facility and
our gold consignment agreement are variable rate facilities. The interest rates
under those facilities are based on a floating benchmark rate (such as LIBOR or
the Federal Funds rate) plus a fixed spread. Upon consummation of the issuance
of our senior unsecured notes we terminated approximately $1.7 million of our
existing swap agreements and interest rate swaps representing a notional amount
of $25.0 million remained in place.

Our derivatives and other financial instruments subject to interest rate
risk consist of long-term debt (including current portion), an interest rate
swap and notional amount under the gold consignment agreement. The net fair
value of these financial instruments at August 31, 2002 represented a current
liability of $0.9 million.

If the interest rate on our variable debt increased or decreased by 1% in
2002, our interest expense would have changed by approximately $0.7 million for
2002. As of August 31, 2002, August 25, 2001 and August 26, 2000, the fair value
of our debt approximated its carrying value and is estimated based on quoted
market prices for comparable instruments.

Semi-Precious Stones. We purchase the majority of our semi-precious stones
from a single source supplier in Germany. We believe that all of our major
competitors purchase their semi-precious stones from this same supplier. The
purchases beginning fiscal 2002 are payable in Euros and in 2001 were payable in
Deutsche Marks. During 2001, in order to hedge our foreign currency risks, we
purchased a total of
19

$2.0 million in forward Deutsche Mark contracts with various maturity dates
resulting in a net gain of $0.1 million. In 2000 and 2002 we did not purchase
any forward contracts.

Gold. We purchase all of our gold requirements from The Bank of Nova
Scotia through our revolving credit and gold consignment agreement. We consign
the majority of our gold from The Bank of Nova Scotia and pay for gold as the
product is shipped to customers and as required by the terms of the gold
consignment agreement. As of August 31, 2002, we had hedged our gold
requirements for the fiscal year ending August 30, 2003 by covering the majority
of our estimated gold requirements through the purchase of gold options.

20

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
American Achievement Corporation
Austin, Texas

We have audited the accompanying consolidated balance sheets of American
Achievement Corporation and subsidiaries (the "Company") as of August 31, 2002
and August 25, 2001, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements of the Company for the year
ended August 26, 2000, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated October 19, 2001. Those auditors reported on
such financial statements prior to the restatement discussed in Note 16.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of August 31,
2002, and August 25, 2001, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 16, the accompanying 2001 consolidated financial
statements have been restated. As discussed in Note 2, in 2001 the Company
changed its method of recognizing revenue on sales to independent sales
representatives.

/s/ DELOITTE & TOUCHE LLP

Austin, Texas
November 1, 2002

21

THIS IS A COPY OF A PREVIOUSLY ISSUED REPORT

According to the Securities and Exchange Commission's amendment of Rule
2-02 of Regulation S-X, the following report is a copy of a report previously
issued by Arthur Andersen LLP, which has ceased operations, and has not been
reissued by Arthur Andersen LLP. Arthur Andersen LLP reported on such financial
statements prior to the restatement discussed in Note 16.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
American Achievement Corporation (f/k/a/ Commemorative Brands Holding
Corporation):

We have audited the accompanying consolidated balance sheets of American
Achievement Corporation (a Delaware corporation, successor to Commemorative
Brands Holding Corporation), and subsidiaries as of August 26, 2000, and August
25, 2001 and the related consolidated statements of operations, stockholders'
equity and cash flows for the fiscal years ended August 28, 1999, August 26,
2000 and August 25, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Achievement Corporation and subsidiaries as of August 26, 2000, and
August 25, 2001 and the results of the operations and their cash flows for the
fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001 in
conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements on valuation and qualifying accounts is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Austin, Texas
October 19, 2001

22

AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
23

AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.
24

AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

25

AMERICAN ACHIEVEMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
26

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND ORGANIZATION

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

Prior to July 27, 2000, the Company's operations consisted of Commemorative
Brands, Inc. (CBI), owned 100% by Commemorative Brands Holding Corp. (CBHC).
CBHC was formed on June 27, 2000 to serve as a holding company for CBI
operations and future acquisitions. The Company changed its name from CBHC to
American Achievement Corporation on January 23, 2002. AAC is owned primarily by
Castle Harlan Partners II (CHPII) and Castle Harlan Partners III (CHPIII).

On July 27, 2000, the Company acquired Taylor Senior Holding Corp.
("TSHC"), the parent company of Taylor Publishing Company ("Taylor") that
produces the Company's yearbooks (the "Taylor Acquisition"). On March 30, 2001,
the Company acquired Educational Communications, Inc. ("ECI") that produces the
Company's academic achievement publications (the "ECI Acquisition"). On July 15,
2002, American Achievement acquired Milestone Marketing Incorporated
("Milestone"), a specialty marketer of class rings and other graduation products
to the college market (the "Milestone Acquisition") (See Note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR-END

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

CONSOLIDATION

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

The 11 5/8% Senior Unsecured Notes Due 2007 (the "Unsecured Notes") are
guaranteed by every direct and indirect domestic subsidiary of the Company. The
guarantees by the guarantor subsidiaries are full, unconditional, and joint and
several. All of the guarantor subsidiaries are wholly-owned. American
Achievement Corporation is a holding company with no independent assets or
operations other than its investment in its subsidiaries.

CHANGE IN ACCOUNTING PRINCIPLE

Effective August 27, 2000, the Company changed its accounting method for
recognizing revenue on certain sales to independent sales representatives, in
order to comply with the provisions of Securities and Exchange Commission Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). Under SAB 101, the recognition of revenue and related gross profit on
sales to independent sales representatives, along with commissions to
independent sales representatives that are directly related to the revenue,
should be deferred until the independent sales representative delivers the
product and title passes to the Company's end customer. Previously, the Company
recognized revenue from these transactions upon shipment of product to the
independent sales representative, net of estimates for possible returns and
allowances. The cumulative effect of the change in accounting principle resulted
in an increase of $1.8 million

27

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to the net loss for the year ended August 25, 2001. This change had no impact on
the Company's cash flows from operations.

CASH AND CASH EQUIVALENTS

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

INVENTORIES

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

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.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided principally using the straight-line
method based on estimated useful lives of the assets as follows:

Maintenance, repairs and minor replacements are charged against operations
as incurred; major replacements and betterments are capitalized. The cost of
assets sold or retired and the related accumulated depreciation are removed from
the accounts at the time of disposition, and any resulting gain or loss is
reflected as other income or expense for the period. Depreciation expense
recorded in the accompanying consolidated statements of operations is
$11,941,000, $10,856,000 and $5,890,000 for the years ended August 31, 2002,
August 25, 2001, and August 26, 2000, respectively.

TRADEMARKS

ECI's trademarks of $15.5 million at August 31, 2002 are being amortized
over 20 years. CBI Inc.'s trademarks of $30.7 million are being amortized over
40 years. Milestone's trademark of $1.1 million, which was acquired after June
30, 2001, is not being amortized in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142).
Amortization expense recorded in the accompanying consolidated statements of
operations amounted to $1,544,000, $1,092,000, and $768,000 for the years ended
August 31, 2002, August 25, 2001 and August 26, 2000, respectively.

GOODWILL

Costs in excess of fair value of net tangible and identifiable intangible
assets acquired are included in goodwill in the accompanying consolidated
balance sheets. Goodwill, except the $15.7 million acquired in the Milestone
acquisition, is being amortized on a straight-line basis over 40 years.
Milestone's goodwill of $15.7 million is not being amortized in accordance with
SFAS No. 142. The Company continually evaluates

28

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

whether events and circumstances have occurred that indicate that the remaining
estimated useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. If factors indicate that goodwill
should be evaluated for possible impairment, the Company would use an estimate
of the related product lines' undiscounted cash flows over the remaining life of
the goodwill in measuring whether the goodwill is recoverable. Amortization
expense on goodwill recorded in the accompanying consolidated statements of
operations is $4,013,000, $3,438,000 and $2,189,000 for the years ended August
31, 2002, August 25, 2001, and August 26, 2000, respectively.

OTHER ASSETS

Other assets include deferred financing costs, customer lists, work force
in place, distribution contracts and ring samples supplied to national chain
stores, jewelry stores and sales representatives of the Company. All amounts are
amortized on a straight-line basis as follows:

Other assets, net consists of the following (in thousands):

Amortization expense on other assets recorded in the accompanying
consolidated statements of operations is $2,200,000, $2,237,000 and $177,000 for
the years ended August 31, 2002, August 25, 2001, and August 26, 2000,
respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," addresses accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to assets to be held and used and
for long-lived assets and certain identifiable intangibles to be disposed of.
This statement requires that long-lived assets (e.g., property, plant and
equipment and intangibles) be reviewed for impairment whenever events or changes
in circumstances, such as changes in market value, indicate that the assets'
carrying amounts may not be recoverable. In performing the review for
recoverability, if future undiscounted cash flows (excluding interest charges)
from the use and ultimate disposition of the assets are less than their carrying
values, an

29

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impairment loss is recognized. Impairment losses are to be measured based on the
fair value of the asset. When factors indicate that long-lived assets should be
evaluated for possible impairment, the Company uses an estimate of the related
product lines' undiscounted cash flows over the remaining lives of the assets in
measuring whether the assets are recoverable.

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.

DERIVATIVE FINANCIAL INSTRUMENTS

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

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

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

REVENUE RECOGNITION

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulleting No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," which among other guidance, clarified the staff's views on various
revenue recognition and reporting matters. As a result, the Company changed its
method of accounting for certain sales transactions. Under its previous policy,
the Company recognized revenue to the independent sales representatives upon
shipment of the product from its production facility. Under the new accounting
method, adopted retroactive to August 27, 2000, the first day of the Company's
2001 fiscal year, the Company changed its accounting method for recognizing
revenue and related gross profit on sales to independent sales representatives,
along with commissions to independent sales representatives that
30

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are directly related to the revenue until the independent sales representative
delivers the product and title passes to the Company's end customer.

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

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

RESERVE ON SALES REPRESENTATIVE ADVANCES

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.
The following represents the activity associated with the reserve on sales
representative advances:

- ---------------

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

(2) Amounts charged to other accounts represents the reserve acquired from
Taylor Publishing Company as of July 27, 2000.

SEASONALITY

The Company's scholastic product sales tend to be seasonal. Class ring
sales are highest during October through December (which overlaps the Company's
first and second fiscal quarters), when students have returned to school after
the summer recess and orders are taken for class rings for delivery to students
before the winter holiday season. Sales of the Company's fine paper products are
predominately made during February through April (which overlaps the Company's
second and third fiscal quarters) for graduation in May and June. The Company
has historically experienced operating losses during the period of the Company's
fourth fiscal quarter, which includes the summer months when school is not in
session, thus reducing related shipment of products. Yearbook sales are highest
during the months of May through June, as yearbooks are typically shipped to
schools prior to the school's summer break. The Company's recognition and
affinity product line sales are also seasonal. The majority of the sales of
achievement publications are shipped in November of each year. The remaining
recognition and affinity product line sales are highest during the winter
holiday season and in the period prior to Mother's Day. As a result, the effects
of the seasonality of the class ring business on the Company are somewhat
tempered by the Company's relatively broad product mix. As a result of the
foregoing, the Company's working capital requirements tend to exceed its
operating cash flows from July through December.

31

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 Statement of Position 93-7 "Reporting on Advertising Costs" the Company
defers certain advertising costs until the first time the advertising takes
place. These deferred advertising costs are included in prepaid expenses and
other current assets.

Selling, general and administrative expenses for the Company include
advertising expenses of $6,905,000, $3,551,000 and $2,942,000 for the years
ended August 31,2002, August 25, 2001, and August 26, 2000, respectively.

USE OF ESTIMATES

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

RECLASSIFICATIONS

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

COMPREHENSIVE LOSS

For measurement purposes for the Taylor Publishing Company Plan, the
weighted average discount rate used in determining the accumulated benefit
obligation was revised to 7.25 from 8.0 percent during the year ended August 31,
2002. Approximately $1,614,000 of the unrecognized loss on minimum pension
liability is a result of the change in the estimated weighted average discount
rate effective January 2002.

As of August 31, 2002 the Company no longer held any derivatives considered
to be cash flow hedges.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses

32

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial accounting and reporting for business combinations. Under the new
standard, all business combinations entered into after June 30, 2001 must be
accounted for by the purchase method. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
No. 142 requires that goodwill no longer be amortized, but instead requires a
transitional goodwill impairment assessment and prescribe impairment tests
thereafter. Any transitional impairment loss resulting from the adoption of SFAS
No. 142 is recognized as the effect of a change in accounting principle in the
income statement. The Company is currently in the process of adopting SFAS No.
142 and of completing the transitional impairment assessment and calculating the
impact on its financial statements. The Company must complete the first step of
this test to determine if there is an impairment by February 2003 and, if there
is an impairment, the Company must complete the final step and record any
impairment by August 2003. SFAS No. 142 also requires that recognized intangible
assets be amortized over their respective estimated useful lives. As part of the
adoption, the Company is currently reassessing the useful lives and residual
values of all intangible assets. Any recognized intangible asset determined to
have an indefinite useful life will not be amortized, but instead tested for
impairment in accordance with the standard.

In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 will become effective for the Company in fiscal
year 2003. The Company is currently evaluating the provisions of SFAS No. 143,
but does not believe that the adoption of SFAS No. 143 will have a significant
impact on its financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company is currently evaluating the provisions of SFAS No. 144. The financial
statement impact of the adoption of SFAS No. 144 has not yet been determined.

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

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The Company is currently considering the impact, if any, that this
statement will have on its financial statements.

3. SIGNIFICANT ACQUISITIONS

Effective July 27, 2000, American Achievement, CBI Inc. and CB Acquisition
entered into an agreement and plan of merger (the Merger Agreement). Under the
terms of the Merger Agreement, upon the effective date of the merger, CBI Inc.
merged with CB Acquisition, a wholly owned subsidiary of American Achievement.
Following the merger, CB Acquisition ceased to exist and CBI Inc. remained the
surviving majority-owned subsidiary of American Achievement. Upon consummation
of the merger, each share of CBI Inc.'s issued and outstanding common stock was
converted into one share of American Achievement common
33

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock, and each share of CBI Inc.'s issued and outstanding Series B Preferred
stock was converted into one share of American Achievement's Series A Preferred
Stock.

Immediately following the above transaction, American Achievement acquired
all issued and outstanding shares of Taylor Senior Holding through the issuance
of 320,929 shares of American Achievement common stock and 393,482 shares of
American Achievement Series A Preferred Stock in exchange for the contribution
by all the Taylor Senior Holding shareholders of all of their capital stock of
Taylor Senior Holding which was originally purchased for $30.0 million. Taylor
Senior Holding holds a 100 percent ownership interest in TP Holding Corp., which
holds a 100 percent ownership interest in Taylor Publishing Company (TPC), its
operating subsidiary. For accounting purposes, American Achievement has been
deemed the acquirer. The acquisition of Taylor Senior Holding was accounted for
using the purchase method and, accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based upon estimated fair
values. TPC's primary business is design and printing of student yearbooks.

The estimated fair value of assets acquired and liabilities assumed
relating to the Taylor Senior Holding acquisition is summarized below (in
thousands):

Working capital............................................. $ (5,590)
Property, plant and equipment............................... 27,481
Other intangibles........................................... 18,616
Goodwill.................................................... 40,265
Other assets................................................ 608
Long-term liabilities....................................... (51,380)
--------
$ 30,000
========

Goodwill and other intangibles related to Taylor Senior Holding are
amortized on a straight-line basis over their useful lives, which range from
seven to 40 years.

The Company incurred approximately $5 million in financing costs associated
with the merger and the amended and restated credit agreement. These costs have
been capitalized and are included in the accompanying consolidated balance sheet
as of August 25, 2001. During the year ended August 25, 2001 these costs were
recognized as an extraordinary charge in the statement of operations in
connection with the retirement of the associated debt.

Effective March 30, 2001, Honors Acquisition Corporation, a wholly owned
subsidiary of American Achievement, purchased all the outstanding stock of ECI,
for a total purchase price of $58.7 million. The acquisition of ECI was
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to assets acquired and liabilities assumed
based upon estimated fair values. Subsequent to the transaction, Honors
Acquisition Corporation was dissolved into the Company, and ECI remained the
surviving wholly owned subsidiary of the Company. ECI's primary business is the
sales and marketing of achievement publications of the specialty directory
publishing industry.

34

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The estimated fair value of assets acquired and liabilities assumed
relating to the ECI acquisition is summarized below (in thousands):

Working capital............................................. $ 5,534
Property, plant and equipment............................... 400
Other intangibles........................................... 17,240
Goodwill.................................................... 35,492
Other long-term assets...................................... 44
-------
$58,710
=======

Goodwill and other intangibles related to ECI are amortized on a
straight-line basis over their useful lives which range from three to 40 years.

The Company incurred approximately $2.4 million in financing costs
associated with the purchase agreement. These costs have been capitalized and
are included in the accompanying consolidated balance sheet as of August 25,
2001. During the year ended August 31, 2002, these costs were recognized as an
extraordinary charge in the statement of operations in conjunction with the
retirement of the associated debt.

Effective July 15, 2002, American Achievement purchased all the outstanding
stock and warrants of Milestone for a total purchase price of $15.9 million. The
acquisition of Milestone was accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to assets
acquired and liabilities assumed based upon the estimated fair values. Milestone
is a specialty marketer of class rings and other graduation products to the
college market.

The estimated fair value of assets acquired and liabilities assumed
relating to the Milestone acquisition, which is preliminary and subject to
further refinements in accordance with accounting principles generally accepted
in the United States of America, is summarized below (in thousands):

Working capital............................................. $(2,413)
Property, plant and equipment............................... 113
Other intangibles........................................... 2,500
Goodwill.................................................... 15,669
Other long-term assets...................................... 28
-------
$15,897
=======

Goodwill and trademarks related to Milestone are not amortized in
accordance with SFAS No. 142 because the acquisition date is after June 30,
2001.

As a result of these transactions, the consolidated financial statements of
the Company as of August 31, 2002, include the results of operations of
Milestone for the period from July 15, 2002, to August 31, 2002, and the results
of operations for ECI, consolidated Taylor Senior Holding, and consolidated CBI
for the year ended August 31, 2002. The consolidated financial statements of the
Company as of August 25, 2001, include the results of operations of ECI for the
period from March 30, 2001, to August 25, 2001, and the results of operations
for consolidated Taylor Senior Holding and for consolidated CBI for the year
ended August 25, 2001. The consolidated financial statements for the year ended
August 26, 2000 include the results of operations for consolidated CBI for the
year ended August 26, 2000 and for consolidated Taylor Senior Holding for the
period from July 28, 2000 to August 26, 2000.

The following unaudited pro forma data summarizes the results of operations
for the years indicated as if both the Milestone and ECI acquisitions had been
completed as of the year ended August 25, 2001 and the

35

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Taylor acquisition as if it had been completed as of the beginning of the year
ended August 26, 2000 (in thousands):

4. INVENTORIES, NET

Net inventories consist of the following (in thousands):

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets consist of the following (in
thousands):

Included in other current assets as of August 31, 2002 and August 25, 2001,
is approximately $970,000 and $215,000, respectively, paid for options to
purchase gold. The outstanding options at August 31, 2002, expire in various
amounts through May 28, 2003. The Company carries these gold options at the
lower of cost or market.

36

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consist of the following (in thousands):

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the following (in
thousands):

37

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

11 5/8% Senior Unsecured Notes

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

The Company may not redeem the Unsecured Notes until 2005, except that the
Company may redeem up to 35 percent of the Unsecured Notes before the third
anniversary of the issue date of the Unsecured Notes as long as (a) the Company
pays a certain percentage of the principal amount of the Unsecured Notes, plus
interest, (b) the Company redeems the Unsecured Notes within 90 days of
completing a public equity offering and (c) at least 65 percent of the aggregate
principal amount of the Unsecured Notes issued remains outstanding afterward.

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

The Unsecured Notes contain customary negative covenants and restrictions
on actions by the Company and its subsidiaries including, without limitation,
restrictions on additional indebtedness, investments, asset dispositions outside
the ordinary course of business, liens, and transactions with affiliates, among
other restrictions (as defined in the AAC Indenture). In addition, the Unsecured
Notes contain covenants, which restrict the declaration or payment of dividends
by the Company and/or its subsidiaries (as defined in the AAC Indenture). The
Unsecured Notes also require that the Company meet certain financial covenants

38

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

including a minimum fixed charge coverage ratio (as defined in the AAC
Indenture). The Company was in compliance with the Unsecured Notes covenants as
of August 31, 2002.

11% Senior Subordinated Notes

CBI's 11% senior subordinated notes (the "Subordinated Notes") mature on
January 15, 2007. The Subordinated Notes are redeemable at the option of CBI in
whole or in part, at any time on or after January 15, 2002, at specified
redemption prices ranging from 105.5 percent of the principal amount thereof if
redeemed during 2002 and declining to 100 percent of the principal amount
thereof if redeemed during the year 2005 or thereafter, plus accrued and unpaid
interest and Liquidated Damages as defined in the indenture relating to the
Subordinated Notes, as amended (the "CBI Indenture"), if any, thereon to the
date of redemption. The Company has not redeemed any of the Subordinated Notes
as of August 31, 2002.

In the event of a Change of Control (as defined in the CBI Indenture), each
holder of the Subordinated Notes will have the right to require CBI to purchase
all or any part of such holder's Subordinated Notes at a purchase price in cash
equal to 101 percent of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages as defined in the debt agreement, if any,
thereon to the date of purchase.

In the event of an Asset Sale (as defined in the CBI Indenture), CBI is
required to apply any Net Proceeds (as defined in the CBI Indenture) to
permanently reduce senior indebtedness, to acquire another business or long-term
assets or to make capital expenditures. To the extent such amounts are not so
applied within 365 days and the amount not applied exceeds $5.0 million, CBI is
required to make an offer to all holders of the Subordinated Notes to purchase
an aggregate principal amount of Subordinated Notes equal to such excess amount
at a purchase price in cash equal to 100 percent of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase.

The Subordinated Notes contain certain covenants that, among other things,
limit the ability of CBI to engage in certain business transactions such as
mergers, consolidations or sales of assets that would decrease the value of CBI
or cause an event of default.

On July 27, 2000, TP Holding Corp., a subsidiary of the Company, purchased
$48.6 million face amount of the Subordinated Notes for a total purchase price
of approximately $45 million, comprised of $39.9 million, representing 82
percent of the face amount of the Subordinated Notes, plus accrued interest on
the Subordinated Notes of approximately, $5.1 million. When the Company
indirectly acquired TP Holdings through its acquisition of TP Holding's parent,
Taylor Senior Holding, for accounting purposes, the transaction was considered
an extinguishment of debt and resulted in an extraordinary pretax gain on the
sale of the Subordinated Notes of approximately $6.7 million for the year ended
August 26, 2000.

Senior Secured Credit Facility

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

Availability under the Senior Secured Credit Facility is restricted to the
lesser of (1) $40 million or (2) the Borrowing Base Amount as defined in the
credit agreement under the Senior Secured Credit Facility (the "Credit
Agreement"). Availability under the Senior Secured Credit Facility as of August
31, 2002 was approximately $13.6 million with $25.2 million borrowings
outstanding. The Senior Secured Credit Facility matures on February 20, 2006.
39

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Advances under the Senior Secured Credit Facility may be made as base rate
loans or LIBOR loans at the Company's election (except for the initial loans
which were base rate loans). Interest rates payable upon advances are based upon
the base rate or LIBOR depending on the type of loan the Company chooses, plus
an applicable margin based upon a consolidated leverage ratio of certain
outstanding indebtedness to EBITDA (to be calculated in accordance with the
terms specified in the Credit Agreement). The effective rate on borrowings for
the year ended August 31, 2002 was approximately 7.3%.

The Credit Agreement contains customary negative covenants and restrictions
on actions by the Company and its subsidiaries including, without limitation,
restrictions on indebtedness, declaration or payment of dividends, liens, and
the gold consignment agreement, among other restrictions. In addition, the
Credit Agreement requires that the Company meet certain financial covenants,
ratios and tests, including capital expenditure limits, a maximum secured
leverage ratio, a minimum interest coverage ratio, and a minimum fixed charge
coverage ratio. The Company was in compliance with the Credit Agreement
covenants as of August 31, 2002.

Former Senior Credit Facility

On March 30, 2001, in connection with the acquisition of ECI, as discussed
in Note 3, the Company entered into the second amended and restated credit
agreement with a syndication of banks (the Credit Agreement). This agreement
governed the Company's revolving credit facility (Revolver), term loan A (Term
A), and term loan B (Term B).

The Credit Agreement was collateralized by substantially all of the assets
of the Company's subsidiaries. American Achievement pledged 100 percent of its
equity ownership in CBI Inc., Taylor Senior Holdings and ECI as collateral.

The Company had the option of designating the interest rates that the Term
A, Term B and Revolver would bear at either (a) a Base Rate plus a Base Rate
Margin, as defined in the Credit Agreement, or (b) LIBOR plus a LIBOR Margin, as
defined by the Credit Agreement. As of August 25, 2001, the Term A And Term B
loans were designated as LIBOR loans with a weighted average interest rate of
7.3% and $17,000,000 and $16,859,000 of the revolver balances were designated as
LIBOR and Base Rate loans, respectively, with an average interest rate of 8.5%
and 7.3%, respectively. On October 13, 2000 and March 30, 2001, in accordance
with the provisions of the Credit Agreement, the Company entered into interest
rate swap agreements whereby it received a floating rate of interest and paid a
fixed rate of interest, to be paid over the term of the swap agreement,
representing $62.5 million, or 50% of the outstanding Term A and Term B loans.
All ineffectiveness associated with the derivative over the remaining life of
the Term A and Term B loans was included in earnings.

Term A and B Loans -- as of August 25, 2001, the outstanding amounts due
under Term A and Term B were approximately $57 million and $64 million,
respectively. Under the provisions of the term loans as contained in the Credit
Agreement, the Company was to make scheduled quarterly principal installments
through the maturity date of each loan, July 31, 2005, and July 31, 2006,
respectively. The Company paid the principal balance in full in connection with
the issuance of the Unsecured Notes on February 20, 2002.

Revolver -- As of August 25, 2001, the Company had approximately $33.9
million outstanding under the Revolver. The Company could borrow a maximum of
$50 million under its' revolving credit agreement. The maximum revolving loan
balance at any point in time was dependent upon a borrowing base calculation, as
defined in the Credit Agreement, and was due in full as of July 31, 2006. The
Revolver was paid in full in connection with the issuance of the Unsecured Notes
on February 20, 2002.

40

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Bridge Notes Due to an Affiliate

TP Holding Corp., and American Achievement had subordinated bridge
promissory notes (the Bridge Notes) due to Castle Harlan Partners III, L.P.
(CHPIII), a stockholder of the Company, totaling approximately $26.9 million in
principal and accrued interest as of August 25, 2001. The principal and accrued
interest were due as of February 28, 2004. The Bridge Notes bore interest at 12
percent per annum, compounding monthly. The Bridge Notes were paid in full in
connection with the issuance of the Unsecured Notes on February 20, 2002.

Early Extinguishment of Debt

In conjunction with the issuance of the Unsecured Notes and entrance into
the Senior Secured Credit Facility, the Company paid off the then outstanding
term loans and revolver under the former credit facility, the bridge notes to
affiliates and settled all but $25.0 million in notional amount of the interest
rate swap agreements. The Company recognized an extraordinary charge in February
2002 of approximately $5.3 million, net of income tax benefit, relating to the
write-off of unamortized deferred financing costs and, due to the termination
and reclassification of interest rate swaps, the Company recorded a charge to
other expense for approximately $2.6 million.

As a result of the early prepayment of certain debt obligations, the
remaining interest rate swap agreement representing a notional amount of $25
million has been reclassified as a trading derivative. As such, changes in the
fair value of this derivative are recognized in other income or expensed. As of
August 31, 2002, the fair value of this derivative represented a liability of
approximately $0.9 million and is included in current liabilities.

The Company's long-term debt outstanding as of August 31, 2002 matures as
follows (in thousands):

The weighted average interest rate of debt outstanding as of August 31,
2002 and August 25, 2001 was 11.5% and 11.4%, respectively.

9. DERIVATIVE FINANCIAL INFORMATION

As of August 25, 2001, the Company had interest rate swap agreements in
place with the intent of managing its exposure to interest rate risk on its
existing debt obligation. The Company had four outstanding agreements to
effectively convert LIBOR-based variable rate debt to fixed rate debt based on a
total notional amount of $62.5 million. On February 20, 2002, in conjunction
with the issuance of the Unsecured Notes and entrance into the Senior Secured
Credit Facility, the Company paid off the then outstanding term loans and
revolver under the former credit facility, the bridge notes to affiliates, and
settled all but $25 million in notional amount of the interest rate swap
agreements.

41

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the year ended August 25, 2001, the Company considered these swap
agreements as cash flow hedging instruments. The Company recorded net receipts
or payments under these agreements as an adjustment to interest expense, while
the effective portion of changes in the fair value of the swap agreements was
included in other comprehensive income. The net unrealized loss, on the interest
rate swaps at August 25, 2001, was approximately $2.2 million and was included
in other long-term liabilities in the Company's consolidated balance sheet and
recorded net of tax effects as other comprehensive loss in the consolidated
statement of stockholders' equity. The net gain or loss during 2001 related to
the ineffective portion of the interest rate swap agreements was not material.

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

10. COMMITMENTS AND CONTINGENCIES

LEASES

Certain Company facilities and equipment are leased under agreements
expiring at various dates through 2,018. The Company's commitments under the
noncancellable portion of all operating leases as of August 31, 2002 are
approximately as follows (in thousands):

Fiscal Year Ending
2003...................................................... $2,700
2004...................................................... 1,900
2005...................................................... 1,200
2006...................................................... 700
2007...................................................... 400
------
$6,900
======

Lease and rental expense included in the accompanying consolidated
statements of operations was $3,332,000 $2,939,000 and $937,000 for the years
ended August 31, 2002, August 25, 2001 and August 26, 2000, respectively.

PENDING LITIGATION

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

Gold Consignment Agreement

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, $10.1 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. For the years ended August 31, 2002,
August 25, 2001 and August 26, 2000, the Company expensed consignment fees of
approximately $258,000, $241,000 and $282,000, respectively. Under the terms of
the consignment arrangement, the Company does not own the consigned gold nor
does it have risk of loss related to such inventory until the money is received
by the bank from the Company in payment for

42

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 31, 2002 and August 25, 2001, the Company held
approximately 14,830 ounces and 14,620 ounces, respectively, of gold valued at
$4.6 million and $4.0 million, respectively, on consignment from the bank.

EMPLOYMENT CONTRACTS

The Company has employment agreements with its executive officers, the
terms of which expire at various times through August 2004. 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 can 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 as discussed in Note
11. The aggregate commitment for future salaries as of August 31, 2002,
excluding bonuses, was approximately $2,100,000.

11. EMPLOYEE COMPENSATION AND BENEFITS

POSTRETIREMENT PENSION AND MEDICAL BENEFITS

CBI Inc. provides certain healthcare and life insurance benefits for former
employees of the L.G. Balfour Company who retired prior to December 31, 1990. L.
G. Balfour Company, Inc., recognized the actuarial present value of the
accumulated postretirement benefit obligation (APBO) of approximately $6.2
million at February 28, 1993, using the delayed recognition method over a period
of 20 years.

Certain hourly employees of TPC are covered by a defined benefit pension
plan (TPC Plan) established by TPC.

The benefits under the CBI Inc. and TPC Plans are based primarily on the
employees' years of service and compensation near retirement. The funding
policies for these plans are consistent with the funding requirements of federal
laws and regulations.

43

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the funded status of each plan (in
thousands):

The net periodic postretirement benefit cost for the fiscal years ended
August 31, 2002, August 25, 2001, and August 26, 2000, for CBI Inc. and for the
years ended August 31, 2002 and August 25, 2001 and the period from July 27,
2000, to August 26, 2000, for TPC include the following components (in
thousands):

44

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amounts recognized in the consolidated balance sheet are as follows:

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation for CBI Inc. was 7.25 percent compounded
annually for fiscal years 2002, 2001 and 2000. As the plan is unfunded, no
assumption was needed as to the long-term rate of return on assets.

For measurement purposes for the CBI Inc. plan, a 5 percent annual rate of
increase in the per capita cost of covered healthcare benefits was assumed for
fiscal years 2002, 2001 and 2000. 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
$206,000 or 6 percent, and by $225,000, or 6 percent, as of August 26, 2002, and
August 25, 2001, respectively, and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $15,000, or 6
percent, and by $16,000, or 6 percent, for fiscal years 2002 and 2001,
respectively. For the TPC Plan, the effect of one percentage point increase or
decrease in the healthcare cost trend rate would not have had a material effect
on either the obligation or the service or interest components of the net
periodic benefit cost reported above.

For measurement purposes for the TPC Plan, the weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
7.25 percent and 7.5 percent as of August 31, 2002, and August 25, 2001,
respectively, the long-term rate of return on plan assets was 9.0 percent and
the annual salary increases were assumed to be 4.5 percent as of August 31,
2002, and August 25, 2001.

EXECUTIVE STOCK AWARD

Pursuant to an employment agreement entered into between the Company and
its chief executive officer in July 1999, the board of directors authorized the
issuance of 5,500 shares of Series A preferred stock to the Company's chief
executive officer as discretionary compensation in August 2001. Accordingly, the
Company recorded a compensation charge of approximately $550,000 related to this
award in 2001. These shares were issued to the Company's chief executive officer
during the year ended August 31, 2002.

CBI INC. DEFERRED COMPENSATION

CBI Inc. has deferred compensation agreements with certain sales
representatives and executives, which provide for payments upon retirement or
death based on the value of life insurance policies or mutual fund shares at the
retirement date. As of August 31, 2002, and August 25, 2001, CBI Inc. had
accrued a total of approximately $149,000 and $212,000, respectively, related to
these agreements. Such amounts, net of the current portion of approximately
$63,000 and $149,000 as of August 31, 2002, and August 25, 2001, respectively,
are included in other long-term liabilities in the accompanying consolidated
balance sheets.

TPC 401(K) PLAN

TPC sponsored a qualified defined contribution 401(K) plan that covered
substantially all nonunion employees of TPC. TPC matched 50 percent of nonunion
participants' voluntary contributions up to a maximum of 4 percent of the
participants' compensation. As of January 1, 2002, the TPC 401(K) plan was
merged into the American Achievement Corporation 401(K) plan. TPC's
contributions were approximately $199,000 and $459,000 for the years ended
August 31, 2002 and August 25, 2001, respectively, and approximately $82,000 for
the period from July 27, 2000 to August 26, 2000.

45

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CBI INC. 401(K) PLAN

CBI Inc. sponsored a qualified defined contribution 401(K) plan that
covered all eligible employees of CBI Inc. CBI matched 50 percent of
participant's voluntary contributions up to a maximum of 4 percent of the
participant's compensation. As of January 1, 2002, the CBI Inc. 401(K) plan was
merged into the American Achievement Corporation 401(K) plan. CBI Inc. made
contributions of approximately $60,000, $172,000 and $182,000 for the years
ended August 31, 2002, August 25, 2001, and August 26, 2000, respectively.

AMERICAN ACHIEVEMENT CORPORATION 401(K) PLAN

Effective January 1, 2002, the TPC 401(K) Plan and the CBI Inc. 401(K) Plan
were merged into the American Achievement Corporation 401(K) 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 fiscal
2002 was up to 3 percent for hourly employees and up to 4 percent for salaried
and office hourly employees. AAC made contributions of approximately $516,000
for the year ended August 31, 2002.

12. INCOME TAXES

The Company and its wholly-owned and majority owned domestic subsidiaries
file a consolidated federal income tax return. The (provision) benefit for
income taxes on income before extraordinary item and cumulative effect of change
in accounting principle reflected in the consolidated statements of operations
consists of the following (in thousands):

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

46

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities consist of the following (in
thousands):

For tax reporting purposes, the Company has a U.S. net operating loss
carryforward of approximately $67.1 million as of August 31, 2002. Utilization
of the net operating loss carryforwards is contingent on the Company's ability
to generate income in the future. The net operating loss carryforwards will
expire in various years through 2022 if not utilized.

13. STOCKHOLDERS' EQUITY:

In connection with the Merger Agreement discussed in Note 3, the Company
issued 460,985 shares of American Achievement "new" Series A preferred stock
(American Achievement "New" Series A Preferred) in exchange for all issued and
outstanding CBI Inc. "old" Series B preferred stock (CBI Inc. "Old" Series B
Preferred). In addition, the Company issued 375,985 shares of American
Achievement "new" common stock (American Achievement "New" Common) for all
issued and outstanding CBI Inc. "old" common stock (CBI Inc. "Old" Common). The
Company also issued 393,482 shares of American Achievement "New" Series A
Preferred and 320,929 shares of American Achievement "New" Common to the
stockholders of Taylor Senior Holding for all the outstanding shares of Taylor
Senior Holding preferred and common stock contributed to the Company by the
Taylor Senior Holding stockholders in connection with the acquisition.

The original CBI Inc. "Old" Series A preferred stock (CBI Inc. "Old" Series
A Preferred) of 100,000 shares remains issued and outstanding from the Company's
subsidiary CBI Inc. and was unaffected by the Merger Agreement. As of July 27,
2000, and in connection with the merger, CBI Inc. "Old" Series A Preferred
ownership now represents a minority interest including all accumulated accrued
dividends. The minority interest is stated at liquidation value.

The Company's board of directors has authorized the issuance of up to
1,200,000 shares of American Achievement "new" preferred stock, par value $.01
per share and 1,250,000 shares of American Achievement "New" Common, par value
$.01 per share.

AMERICAN ACHIEVEMENT "NEW" SERIES A PREFERRED STOCK

The holders of American Achievement "New" Series A Preferred are entitled
to one vote per share, voting together with the holders of the American
Achievement "new" common stock as one class on all

47

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

matters presented to the stockholders. No dividends accrue on the American
Achievement "New" Series A Preferred.

Dividends may be paid on the American Achievement "New" Series A Preferred
if and when declared by the board of directors out of funds legally available
therefore. The American Achievement "New" Series A Preferred is nonredeemable.
In the event of any liquidation, dissolution or winding up of the Company, the
holders of the American Achievement "New" Series A Preferred shall receive
payment of the liquidation value of $100 per share plus any accrued and unpaid
dividends prior to the payment of any distributions to the holders of the
American Achievement "New" Common of the Company, which totals approximately
$100,685,000 and $100,135,000 at August 31, 2002, and August 25, 2001,
respectively. So long as shares of the American Achievement "New" Series A
Preferred remain outstanding, the Company may not declare, pay or set aside for
payment any dividends on the American Achievement "New" Common. The Company's
Senior Secured Credit Facility restricts the Company's ability to pay dividends
on the American Achievement "New" Series A Preferred.

During the year ended August 31, 2002, 5,500 shares of the Series A
Preferred Stock of the Company were issued to the Company's chief executive
officer pursuant to a bonus provided for in fiscal year 2001. Pursuant to an
employment agreement entered into between the Company and its chief executive
officer in July 1999, and as amended as of February 1, 2002, if the Company
achieves a certain consolidated EBITDA target, as defined by the agreement, for
the fiscal years commencing with the year ended 2002 and ending in fiscal year
2004, the chief executive officer is entitled to receive up to a total of $1
million in face value of the Company's Series A Preferred Stock during the
period. As of August 31, 2002, the Company has accrued approximately $300,000
related to the employment agreement.

AMERICAN ACHIEVEMENT SERIES B PREFERRED STOCK

During the year ended August 25, 2001, the board of directors of the
Company designated 25,000 shares of authorized American Achievement "New"
preferred stock as Series B (American Achievement Series B Preferred) with the
following preferences, rights and limitations. No American Achievement Series B
Preferred was outstanding as of August 31, 2002 and August 25, 2001. During the
year ended August 31, 2002, the board of directors cancelled Series B Preferred.

COMMON STOCK

The holders American Achievement "New" Common are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders,
including the election of directors, and vote together as one class with the
holders of the preferred stock.

Dividends may be paid on Achievement "New" Common if and when declared by
the board of directors of the Company out of funds legally available therefore.
The Company does not expect to pay dividends on the American Achievement "New"
Common in the foreseeable future. So long as shares of the American Achievement
"New" Series A Preferred remain outstanding, the Company may not declare, pay or
set aside for payment any dividends on the American Achievement "New" Common.
The Company's Senior Secured Credit Facility restricts the Company's ability to
pay dividends on the American Achievement "New" Common.

COMMON STOCK PURCHASE WARRANTS

CBI Inc. had issued warrants, and the Company has assumed these obligations
pursuant to the Merger Agreement. The warrants are exercisable to purchase an
aggregate of 21,405 shares of American Achievement "New" Common. The warrants
expire on January 31, 2008.

48

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SUBSCRIPTION AGREEMENT

In accordance with a subscription agreement entered into by the Company and
Castle Harlan Partners II, L.P. (CHPII), a stockholder of the Company, and
certain of its affiliates (the Castle Harlan Group), the Company granted the
Castle Harlan Group certain registration rights with respect to the shares of
capital stock owned by it pursuant to which the Company agreed, among other
things, to effect the registration of such shares under the Securities Act of
1933 at any time at the request of the Castle Harlan Group. The Company also
granted to the Castle Harlan Group unlimited piggyback registration rights on
certain registrations of shares of capital stock by the Company.

STOCK-BASED COMPENSATION PLAN

On July 27, 2000, the effective date of the Merger Agreement, all
outstanding options under CBI Inc.'s 1997 Stock Option Plan, whether vested or
unvested, converted into an option to acquire on the same terms and conditions
as were applicable under the 1997 Stock Option Plan, shares of the Company's
"new" common stock at ratio of 1 to 1 at a purchase price based on fair value at
the merger date, determined to be $7.02 per share. The 2000 Stock Option Plan
became effective on July 27, 2000. Under the 2000 Stock Option Plan, a total of
122,985 shares of common stock has been reserved for issuance, and 50,902,
92,127 and 92,127 of those shares were available for grant to directors and
employees of the Company as of August 31, 2002, August 25, 2001 and August 26,
2000, respectively. The 2000 Stock Option Plan provides for the granting of both
incentive and nonqualified stock options. Options granted under the 2000 Stock
Option Plan have a maximum term of 10 years and are exercisable under the terms
of the respective option agreements at 110 percent of fair market value for all
incentive stock options issued to employees and at fair market value of the
common stock at the date of grant for all other options issued. Payment of the
exercise price must be made in cash, a combination of cash and a note or in
whole or in part by delivery of shares of the Company's common stock. All common
stock issued upon exercise of options granted pursuant to the 2000 Stock Option
Plan will be subject to a voting trust agreement.

During the year ended August 28, 2000, the Company issued an option to
purchase 12,524 shares of American Achievement "new" common stock to an
executive whereby the terms of the option are the same as provided for in the
2000 Stock Option Plan with the exception that the option vests over a two-year
period and expires in five years.

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

The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for the 2000 Stock Option Plan and the previously outstanding 1997
Stock Option Plan. Accordingly, no compensation cost has been recognized for its
2000 Stock Option Plan. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair value at the grant date for
awards consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income (loss) to holders of common stock years
ended August 31, 2002, August 25, 2001, and August 26, 2000, would not have been
materially impacted.

Incentive stock options for 69,853 shares and 28,984 shares and
nonqualified stock options for 2,230 and 1,874 shares of the Company's common
stock were outstanding as of August 31, 2002, and August 25, 2001, respectively.
The weighted average remaining contractual life of all outstanding options was
7.88 years at August 31, 2002. A summary of the status of the Company's 2000
Stock Option Plan as of August 31, 2002

49

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and August 25, 2001, and the 1997 Stock Option Plan as of August 26, 2000, and
changes during the fiscal years then ended are presented below:

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 fiscal year 2002: dividend yield of nil; expected
volatility of 27.99 percent; risk-free interest rate of 4.88%; and expected life
of 10 years. The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option pricing models require the input
of highly subjective assumptions, including expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options and because changes in the 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.

Pursuant to an employment agreement entered into between the Company and
its chief executive officer in July 1999, as amended on February 1, 2002, if the
Company achieves certain EBITDA targets as defined by the agreement at any point
from 2002 through 2004, the chief executive is entitled to receive up to a total
of $1 million in face value of the Company's Series A Preferred Stock. In
addition, the plan provided for the immediate issuance of an option to purchase
12,500 shares of the Company's common stock with a discretionary option to
purchase shares. An option to purchase 12,500 shares was granted in 2002
pursuant to this plan. The executive is also entitled to receive discretionary
bonuses as directed by the Board of Directors up to $300,000 annually, all of
which is accrued as of August 31, 2002.

14. RELATED-PARTY TRANSACTIONS

The Company entered into a management agreement on March 30, 2001, with
Castle Harlan, Inc. (the Manager), pursuant to which the Manager agreed to
provide business and organization strategy, financial and investment management
and merchant and investment banking services to the Company and its
subsidiaries. The Company has agreed to indemnify the Manager against
liabilities, costs, charges and expenses relating to the Manager's performance
of its duties, other than such of the foregoing resulting from the Manager's
gross negligence or willful misconduct. The agreement is for a term of 10 years,
renewable automatically from year to year unless CHPIII or CHPII shall own less
than 5 percent of the then-outstanding capital stock of the Company. Beginning
fiscal year 2002, the Company is to pay a management fee equal to $3,000,000,
unless otherwise prohibited by the Company's Senior Secured Credit Facility (see
Note 8). The Company was subject to a similar management agreement with the
Manager that was signed on July 27, 2000, and an agreement signed on December
16, 1996. Amounts paid under all management agreements totaled approxi-

50

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

mately $2,638,000, $2,562,000 and $3,125,000 for the years ended August 31,
2002, August 25, 2001 and August 26, 2000, respectively. As of August 31, 2002,
and August 25, 2001, the Company had accrued management fees of approximately
$750,000 and $688,000, respectively. Management fees for investment banking
services of approximately $557,000 were included in deferred financing costs
related to the funding of the ECI Acquisition. During the year ended August 31,
2002, this cost was recognized as an extraordinary charge in the statement of
operations in connection with the retirement of the associated debt.

In connection with the Merger and the ECI Acquisition, the Company has a
receivable from the Castle Harlan Group relating to the acquisition and merger
expenses that were to be reimbursed to the Company. The amount of such
receivables were approximately $26,000 and $130,000 as of August 31, 2002, and
August 25, 2001, respectively.

15. BUSINESS SEGMENTS:

The Company operates in two reportable business segments: scholastic
products, and recognition and affinity products. The principal products sold in
the scholastic segment are class rings, yearbooks and graduation products, which
include fine paper products and graduation accessories. The scholastic segment
primarily serves the high school and college markets. The recognition and
affinity segment includes publications that recognize the academic achievement
of top students at the high school and college levels, jewelry commemorating
family events, fan affinity jewelry and related products, and professional
sports championship rings. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies in Note 2.

51

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of certain financial information relating to the
two segments (in thousands):

The Company's reportable segments are strategic business units that offer
products to different consumer segments. Each segment is managed separately
because each business requires different marketing strategies. The Company
evaluates the performance of each segment based on the profit or loss from
operations before income taxes, not including nonrecurring gains or losses.

16. RESTATEMENT OF FINANCIAL STATEMENTS

Subsequent to the issuance of its financial statements for the year ended
August 25, 2001, management determined that the Company should have (1) changed
its revenue recognition on certain sales to independent sales representatives in
order to comply with the provisions of Securities and Exchange Commission Staff
Accounting Bulletin No. 101, effective August 27, 2000, and (2) recognized an
income tax benefit related to a net operating loss carryback attributable to one
of the Company's subsidiaries, during the year ended August 25, 2001. As a
result, the consolidated financial statements for the year ended August 25, 2001
has been restated.

52

AMERICAN ACHIEVEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the significant effects of the restatement is as follows (in
thousands):

53

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On April 25, 2002, American Achievement Corporation ("the Company")
dismissed Arthur Andersen LLP ("Arthur Andersen" or "AA") as the Company's
independent auditors. The dismissal of AA was recommended by the Audit Committee
of the Company's Board of Directors and approved by the Company's Board of
Directors. The Company engaged Deloitte & Touche LLP to serve as the Company's
independent auditors for the fiscal year 2002.

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

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

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding our directors,
executive officers and other senior officers. Our directors are elected by the
shareholders at our annual meeting and serve until the next annual meeting and
the election and qualification of their successors.

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

SHERICE P. 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 CBI. From 1996 to July

54

2000, Ms. Bench was Vice President and Controller of CBI. 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 -- Jewelry Operations
since 1999. From 1996 to 1999, she was Vice President -- Manufacturing of CBI
and from 1989 to 1996, Ms. Daugherty was President -- Manufacturing Division of
CJC Holdings. From 1989 to 1990, Ms. Daugherty was Vice President -- Operations
of CIC Holdings.

PARKE H. DAVIS has been Senior Vice President -- Retail Sales since 1996.
From 1991 to 1996, Mr. Davis was President -- Class Ring Division of CJC
Holdings and before that served as its President -- Keepsake Division and its
President -- College Class Ring Sales.

DONALD A. PERCENTI has been Senior Vice President -- Scholastic Products
since 1996. From 1991 to 1996, he was Vice President -- Sales and Marketing of
L.G. Balfour Company. From 1977 to 1991, Mr. Percenti was employed by Balfour in
various capacities.

JOHN K. CASTLE has been director of our company since its formation in July
2000 and was a director of CBI from 1996 to 2000. Mr. Castle is Chairman and
Chief Executive Officer of Castle Harlan, Inc. Mr. Castle is also Chairman and
CEO of Branford Castle, Inc., an investment holding company. Immediately prior
to forming Branford Castle in 1986, Mr. Castle was President and Chief Executive
Officer and a Director of Donaldson, Lufkin, & Jenrette, Inc., one of the
nation's leading investment banking firms. Mr. Castle is a Director of various
private equity companies, and is a member of the corporation of the
Massachusetts Institute of Technology. Mr. Castle is also a Trustee of New York
Presbyterian Hospital and the Whitehead Institute of Biomedical Research. He
also served as a Trustee of New York Medical College for 22 years and was
Chairman of its Board for 11 years. Previously, Mr. Castle was a Director of the
Equitable Life Assurance Society of the United States, Sealed Air Corporation,
Universal Compression Holdings, Inc., and Statia Terminals Group, N.V. He was
educated at the Massachusetts Institute of Technology (S.B.) and the Harvard
Business School (M.B.A. with High Distinction and Baker Scholar).

DAVID B. PITTAWAY has been a director of our company since its formation in
July 2000. Mr. Pittaway was President and Treasurer of CBI from its formation in
April 1996 through December 1996, and was a director of CBI from April 1996 to
July 2000. Mr. Pittaway is a Senior Managing Director of Castle Harlan, Inc. and
has been with the firm since its inception in 1987. Prior to joining Castle
Harlan, Mr. Pittaway was Vice President, Strategic Planning, and Assistant to
the President of Donaldson, Lufkin, & Jenrette, Inc. Before joining DLJ, he was
a management consultant in strategic planning with Bain & Company in Boston,
Mass., and previously was an attorney with Morgan, Lewis & Bockius, specializing
in labor relations. He is also a Board Member of McCormick & Schmick's Holding
Corp., Morton's Restaurant Group, Inc., Charlie Brown's, Inc., Luther's Bar-B-Q,
Inc., Wilshire Restaurant Group, Inc., Equipment Support Services, Inc., and
Branford Chain, Inc. He is a graduate of the University of Kansas (B.A. with
Highest Distinction), and has both an M.B.A. with High Distinction (Baker
Scholar) and a J.D. from Harvard University.

WILLIAM M. PRUELLAGE has been a director since our formation in July 2000.
Mr. Pruellage is a Vice President of Castle Harlan, Inc. Mr. Pruellage is also a
board member of Universal Compression, Inc., Verdugt Holdings, LLC and Wilshire
Restaurant Group, Inc. Prior to joining Castle Harlan in 1997, Mr. Pruellage
worked in the Mergers and Acquisition group of Merrill Lynch & Co., where he
assisted clients in strategic planning and corporate mergers. Mr. Pruellage
graduated Summa Cum Laude from Georgetown University with a double major in
Finance and International Business. He is a member of the Beta Gamma Sigma Honor
Society.

EDWARD O. VETTER has been a director since our formation in July 2000 and
was a director of CBI from 1998 to that time. Mr. Vetter has served as President
of Edward O. Vetter & Associates, a private management consulting firm, since
1978 and has also served as a Trustee for the Massachusetts Institute of
Technology since 1979 and is currently a Trustee Emeritus. Mr. Vetter also
served from 1987 to 1991 as Chairman of the Texas Department of Commerce, from
1979 to 1983 as Energy Advisor to the Governor of Texas and from 1976 to 1977 as
U.S. Undersecretary of Commerce, serving as Director of Overseas Private

55

Investment Corporation and as Director of Pension Benefit Guaranty Corporation.
From 1952 through 1975, Mr. Vetter was employed by Texas Instruments, Inc. in
various capacities and was the Executive Vice President and Chief Financial
Officer at the time of his retirement in 1975. Formerly, Mr. Vetter has served
as a director of AMR Corporation, Champion International, Cabot Corporation,
Dual Drilling Company, Bell Packaging Company, and Pioneer Natural Resources.

ZANE TANKEL has been a director since our formation in July 2000 and has
been Chairman and CEO of Zane Tankel Consultants, Inc., a sales company, since
1990. In 1994, Mr. Tankel formed Apple Metro, Inc., a restaurant franchisee for
the New York metropolitan area, for the franchisor Applebee's Neighborhood Grill
& Bar. He is presently Chairman and CEO of Apple Metro, Inc. In 1995-1996, Mr.
Tankel was elected Chairman of the Federal Law Enforcement Foundation, which
aids the federal law enforcement community in times of crisis and is currently
on the board. He was the past chapter chairman of the Young Presidents'
Organization and is presently a member of the Board of Directors of the
Metropolitan Presidents Organization, the New York chapter of the World
Presidents Organization. Mr. Tankel served on the Board of Directors of Beverly
Hills Securities Corporation, a wholesale mortgage brokerage company, until its
sale in January 1994.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the cash and non-cash compensation for 2002,
2001 and 2000 awarded to or earned by the chief executive officer and the four
other most highly compensated executive officers.

SUMMARY COMPENSATION TABLE

- ---------------

(1) Our 2002 fiscal year ended on August 31, 2002. Fiscal year 2001 ended on
August 25, 2001 and fiscal year 2000 ended on August 26, 2000. Executive
compensation for 2000, 2001, and 2002 is for the twelve months ended
December 31 of each year and based on current compensation.

(2) The perquisites 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 of
2000, 2001 and 2002. In 2002, we have paid $386,088 in taxes associated with
the receipt by Mr. Fiore in 2002 of 5,500 shares of our series A preferred
stock. We do not expect any additional perquisites and other benefits to be
payable by us for the remainder of fiscal 2002.

56

(3) Each of the named executive officers have term life insurance policies equal
to two-times their base salary in fiscal 2002 and one-times their base
salary in fiscal 2001 and fiscal 2000 with a benefit payable to a
beneficiary selected by the named executive officer upon his or her death.
We have paid the annual premiums on such policies in each of 2002, 2001 and
2000. The annual premium does not exceed $910 for any named executive
officer. No named executive officer is entitled to any cash surrender value
in such policies.

(4) During 2002 due to the increased concerns after September 11, 2001, and the
increased travel requirements. Mr. Fiore, Mrs. Bench and thirteen other
officers and executives of the Company, AAC purchased a travel accident
policy covering Mr. Fiore and Mrs. Bench in the amount of $2,500,000 each
and $250,000 each for the other 13 named executives for a total three year
premium of $4,777. The beneficiaries of the policy are to be named by the
employee, and no named executive is entitled to any cash surrender value in
such policies.

EMPLOYMENT AGREEMENTS

David G. Fiore. Mr. Fiore has an employment agreement with us, pursuant to
which he serves as our Chief Executive Officer and President and as a member of
our Board of Directors. The initial term of his employment agreement was for two
years from August 2, 1999. Unless otherwise terminated, Mr. Fiore's employment
agreement adds one day to the term for each day that passes, and accordingly,
there are always two years remaining on the term. The employment agreement
provides Mr. Fiore with an annual base salary of no less than $300,000. Under
his employment agreement, Mr. Fiore's salary is subject to such increases as our
Board of Directors may determine from time to time.

Mr. Fiore's employment agreement provides for various bonuses to be paid to
him. Mr. Fiore is paid an annual bonus up to $200,000, determined by our Board
of Directors, based upon the achievement of certain EBITDA targets. Mr. Fiore is
also entitled to long-term incentive bonuses in the form of various stock grants
if we achieve certain EBITDA targets as provided for in his employment
agreement. These stock grants are fully vested when granted. At the discretion
of the compensation committee of our Board of Directors, we also may pay Mr.
Fiore a discretionary bonus each year in an amount of up to $100,000.

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

Mr. Fiore's employment agreement further provides that he may terminate his
employment six months after a "change in control" (as defined in his employment
agreement). Upon such termination, Mr. Fiore will be paid $450,000.

Sherice P. Bench. Ms. Bench has an employment agreement with CBI,
effective as of December 16, 1996, and as of August 31, 2002 serves as our chief
financial officer at an annual salary of $180,000. The initial term of her
employment agreement was for two years, which can be automatically extended for
additional one year terms on December 15th of each succeeding year thereafter
unless earlier terminated by us upon not less than 60 days' prior notice. The
current term of her employment agreement expires on December 15, 2002. 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

57

elect the continuation of health benefits at our cost. Ms. Bench's employment
agreement does not provide her with any payments that are contingent upon a
"change in control."

Other Employment Agreements. Charlyn A. Daugherty, Donald A. Percenti and
Parke H. Davis each have an employment agreement with CBI and Ronald Brostrom
and G. Page Singletary have employment agreements with Milestone Marketing
Incorporated. The initial term of each respective employment agreement was for
three years, which can be automatically extended for additional one year terms
on December 15th of each succeeding year thereafter unless earlier terminated by
us upon not less than 60 days' prior notice for Ms. Daugherty and Messrs. Davis
and Percenti and on the 15th of July for Messrs. Brostrom and Singletary. The
current term of each of their employment agreements expires on December 15, 2002
for Ms. Daugherty, Messrs. Davis and Percenti, and on July 15, 2005 for Messrs.
Brostrom and Singletary. Ms. Daugherty and Messrs. Davis, Percenti, Brostrom and
Singletary are entitled to participate in such employee benefit programs, plans
and policies (including incentive bonus plans and incentive stock option plans)
as we maintain and as may be established for our employees from time-to-time on
the same basis as other executive employees are entitled to participate.

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

2000 STOCK OPTION PLAN

We have adopted a 2000 Stock Option Plan, which provides for the granting
of incentive stock options and nonqualified stock options to our employees and
directors and the employees and directors of our subsidiaries. The number of
shares of common stock available to be awarded under the option plan is 122,985.
As of November 1, 2002, options to purchase 99,333 shares of common stock had
been granted. The option plan is administered by the compensation committee of
our board of directors, which has the discretion to select which employees and
directors will receive awards of options under the plan as well as the amount of
such grant.

Each option will expire on the date determined by the compensation
committee of our board of directors, which will not be later than ten years from
the date of grant. Options granted under the option plan generally vest 25% per
year over a four year period. The exercise price for incentive stock options is
the fair market value of the stock on the date that the option is granted. If
the option holder's employment is terminated for any reason, all options that
are not exercisable as of the date of termination will expire, and those options
that are exercisable may be exercised until the option grant period has expired.
Under the option plan, we have certain rights to repurchase from an option
holder the common stock issued upon exercise of the option upon termination of
the option holder's employment.

Stock options were granted to Mr. Fiore, Ms. Bench, Ms. Daugherty, Messrs.
Davis and Percenti during fiscal year 2002 of 12,500, 3,966, 2,243, 2,243 and
2,243, respectively. None of the foregoing individuals exercised any stock
options in fiscal year 2002. Subsequent to August 31, 2002 stock options were
granted to Mr. Fiore, Ms. Bench, Ms. Daugherty, Messrs. Davis and Percenti in
the amount of 10,000, 4,000, 4,000, 4,000 and 4,000 shares, respectively.

58

The following table sets forth option grants for the CEO and the four named
executive officers during the year ended August 31, 2002.

OPTIONS GRANTS IN YEAR ENDED AUGUST 31, 2002

COMPENSATION OF DIRECTORS; BOARD COMMITTEES

Directors who are neither members of our management nor affiliates of
Castle Harlan each receive a fee of $25,000 per year, paid quarterly, for their
services as a director.

The Board of Directors has established two committees, a compensation
committee and an audit committee. The compensation committee reviews general
policy matters relating to compensation and benefits. The audit committee
recommends the firm to be appointed as independent accountants to audit our
financial statements, discusses the scope and results of the audit with the
independent accountants, reviews with management and the independent accountants
our interim and year-end operating results, considers the adequacy of our
internal control and audit procedures and reviews the non-audit services to be
performed by the independent accountants. The compensation committee consists of
Messrs. Castle, Pittaway and Tankel and the audit committee consists of Messrs.
Pittaway, Pruellage and Vetter.

Our certificate of incorporation and by-laws provides that we indemnify our
officers and directors to the fullest extent permitted by the Delaware General
Corporation Law, which is referred to in this prospectus as the DGCL. Under
Section 145 of the DGCL, a corporation may indemnify its directors, officers,
employees and agents and its former directors, officers, employees and agents
and those who serve, at the corporation's request, in such capacities with
another enterprise, against expenses, including attorneys' fees, as well as
judgments, fines and settlements in nonderivative lawsuits, actually and
reasonably incurred in connection with the defense of any action, suit or
proceeding in which they or any of them were or are made parties or are
threatened to be made parties by reason of their serving or having served in
that capacity. The DGCL provides, however, that the person must have acted in
good faith and in a manner that he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation and, in the case of a criminal
action, he or she must have had no reasonable cause to believe his or her
conduct was unlawful. In addition, the DGCL does not permit indemnification in
an action or suit by or in the right of the corporation where he or she has been
adjudged liable to the corporation, unless, and only to the extent that, a court
determines that he or she fairly and reasonably is entitled to indemnity for
costs the court deems proper in light of liability adjudication. Indemnification
is mandatory to the extent a claim, issue or matter has been successfully
defended.

The certificate of incorporation and the DGCL also prohibit limitations on
officer or director liability for acts or omissions which resulted in a
violation of a statute prohibiting dividend declarations, payments to
stockholders after dissolution and particular types of loans. The effect of
these provisions is to eliminate the rights of our company and our stockholders,
through stockholders' derivative suits on behalf of our company, to recover
monetary damages against an officer or director for breach of a fiduciary duty
as an officer or director, except in the situations described above.

59

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or officers of our company pursuant to the
foregoing provisions, we have been informed that, in the opinion of the SEC,
this indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the compensation committee is our employee. There are no
compensation committee interlocks (i.e., no executive officer of ours serves as
a member of the board of directors or the compensation committee of another
entity which has an executive officer serving on our board of directors or the
compensation committee).

60

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of our voting securities as of November 1, 2002, with respect to (i)
each person or entity who is the beneficial owner of more than 5% of any class
of our voting securities, (ii) each of our directors, (iii) each of the named
executive officers, and (iv) all directors and executive officers as a group.

- ---------------
* Denotes beneficial ownership of less than one percent of the class of
capital stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Beneficial ownership includes shares of
common stock and series A preferred stock that any person has the right to
acquire within 60 days after August 31, 2002. Shares of common stock and
series A preferred stock not outstanding but deemed beneficially owned
because a person or group has the right to acquire them within 60 days are
treated as outstanding only for purposes of determining the percentage owned
by that person or group. For purposes of this table, all fractional shares
have been rounded to the nearest whole share. Except as indicated in the
footnotes to this table, each stockholder named in the table has sole voting
and investment power with respect to the shares set forth opposite such
stockholder's name.

(2) The address for each indicated stockholder or director identified in the
table is c/o Castle Harlan, Inc., 150 East 58th Street, New York, New York
10155.

(3) Includes 17,983 shares of common stock and 22,438 shares of series A
preferred stock held by related entities, all of which may be deemed to be
beneficially owned by Castle Harlan Partners III, L.P. Castle Harlan
Partners III, L.P. disclaims beneficial ownership of these shares.

(4) Includes 41,175 shares of common stock and 50,559 shares of series A
preferred stock held by related entities, all of which may be deemed to be
beneficially owned by Castle Harlan Partners II, L.P. Castle Harlan Partners
II, L.P. disclaims beneficial ownership of these shares.

(5) John K. Castle, one of our directors, is the controlling stockholder of
Castle Harlan Partners III, G.P., Inc., the general partner of the general
partner of Castle Harlan Partners III, L.P., and as such may be deemed to be
a beneficial owner of the shares owned by Castle Harlan Partners III, L.P.
and its affiliates. Mr. Castle disclaims beneficial ownership of such shares
in excess of his proportionate partnership share of Castle Harlan Partners
III, L.P. and its affiliates. In addition, Mr. Castle is the controlling
stockholder of Castle Harlan Partners II G.P., Inc., the general partner of
the general partner of Castle Harlan Partners II, L.P., and as such may be
deemed to be a beneficial owner of the shares owned by Castle

61

Harlan Partners II, L.P. and its affiliates. Mr. Castle disclaims beneficial
ownership of such shares in excess of his proportionate partnership share of
Castle Harlan Partners II, L.P. and its affiliates.

(6) The address for each indicated director or executive officer identified in
the table is c/o American Achievement Corporation, 7211 Circle S Road,
Austin, Texas 78745.

(7) Mr. Fiore was granted options to purchase 25,024 shares of our common stock,
which have vested pursuant to our 2000 Stock Option Plan.

(8) Ms. Bench was granted options to purchase 1,034 shares of our common stock,
which have vested pursuant to our 2000 Stock Option Plan.

(9) Ms. Daugherty and Messrs. Davis and Percenti were each granted options to
purchase 2,757 shares of our common stock, which have vested pursuant to our
2000 Stock Option Plan.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 1,250,000 shares of common stock,
par value $0.01 per share, of which 809,351 shares are issued and outstanding,
and 1,250,000 shares of preferred stock, par value $0.01 per share. Of the
amount of authorized preferred stock, 1,200,000 shares of our preferred stock
are designated series A preferred stock and 1,006,847 shares are issued and
outstanding.

COMMON STOCK

The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors, and vote together as a class with the holders of the series A
preferred stock. Dividends may be paid on the common stock, when declared by our
board of directors. We do not expect to pay dividends on the common stock in the
foreseeable future.

PREFERRED STOCK

Our Board of Directors has the authority, by adopting resolutions, to issue
shares of preferred stock in one or more series, with the designations and
preferences for each series set forth in the adopting resolutions. Our
certificate of incorporation authorizes our Board of Directors to determine,
among other things, the rights, preferences and limitations pertaining to each
series of preferred stock.

Series A Preferred Stock

Ranking. The series A preferred stock is senior to all of our capital
stock as to dividend payments and distributions upon liquidation, dissolution or
winding up.

Dividends. Dividends on the series A preferred stock are payable in cash,
when, as and if declared by our board of directors. All such declared dividends
are paid pro rata to the holders of series A preferred stock. Accrued and unpaid
dividends on the series A preferred stock do not bear interest or dividends.

Redemption. We do not have the right to redeem the series A preferred
stock.

Liquidation. Upon the liquidation, dissolution or winding up of our
company, the holders of the series A preferred stock are entitled to receive
payment at a liquidation value of $100 per share plus all accrued and unpaid
dividends on the series A preferred stock, prior to the payment of any
distributions to the holders of our common stock.

Restrictions on Payment of Other Dividends. So long as any share of the
series A preferred stock remains outstanding, we may not declare, pay or set
aside for payment dividends or other distributions with respect to any other
shares of our capital stock ranking, as to dividend rights and rights upon
liquidation, dissolution or winding up, junior to the series A preferred stock,
other than dividends payable in common stock or in another stock ranking junior
to the series A preferred stock as to dividend rights and rights on liquidation,
dissolution and winding up.

62

Voting. The holders of our series A preferred stock are entitled to one
vote per share of series A preferred stock on all matters submitted to a vote of
stockholders, including the election of directors, and vote together as a class
with the holders of the common stock. We are not permitted to amend, alter or
repeal any of the provisions of our certificate of incorporation or bylaws, or
merge with or into or consolidate with any other entity, as to affect adversely
any of the preferences, rights, powers or privileges of the series A preferred
stock or its holders, without first obtaining the approval of at least a
majority of the outstanding shares of series A preferred stock voting separately
as one class.

WARRANTS

We have outstanding warrants to purchase 21,405 shares of our common stock
at an exercise price of $6.67 per share. The warrants expire on January 31, 2008
and if exercised in full represent less than 1.2% of our common stock on a fully
diluted basis. Of this amount, warrants to purchase 19,820 shares of common
stock are held by CHPIII and warrants to purchase 1,585 shares of common stock
are held by Deutsche Banc Alex. Brown Inc., formerly Deutsche Bank Securities,
Inc.

CBI SERIES A PREFERRED STOCK

Of CBI's authorized preferred stock, 100,000 shares of preferred stock are
designated series A preferred stock, which is referred to as the "CBI A
Preferred", all of which are issued and outstanding and held by CHPIII.

Ranking. The CBI A Preferred is senior to all other capital stock of CBI
as to dividend payments and distribution upon liquidation, dissolution or
winding up.

Dividends. Dividends on the CBI A Preferred are payable in cash, when and
if declared by the board of directors of CBI on a quarterly basis. Dividends
accrue from the date of issuance, which was December 16, 1996 or the last date
to which dividends have been paid at a rate of 12% per annum, whether or not
such dividends have been declared and whether or not there shall be funds
legally available for the payment of such dividends. Any dividends which are
declared are payable pro rata to the holders. No dividends or interest accrue on
any accrued and unpaid dividends. The notes and our credit facility each
restrict CBI's ability to pay dividends on the CBI A Preferred.

Redemption. The CBI A Preferred is not subject to mandatory redemption but
is redeemable at any time at the option of CBI; however, the notes offered
hereby and our new credit facility will each restrict CBI's ability to redeem
the CBI A Preferred.

Liquidation. Upon the liquidation, dissolution or winding up of CBI, the
holders of the CBI A Preferred are entitled to receive payment at a liquidation
value of $100 per share plus all accrued and unpaid dividends on the CBI A
Preferred, prior to the payment of any distributions to the holders of CBI's
other capital stock.

Restrictions on Payment of Other Dividends. So long as any share of the
CBI A Preferred remains outstanding, CBI may not declare, pay or set aside for
payment dividends or other distributions with respect to any other shares of its
capital stock ranking, as to dividend rights and rights upon liquidation,
dissolution or winding up, junior to the CBI A Preferred, other than dividends
payable in common stock or in another stock ranking junior to the CBI A
Preferred as to dividend rights and rights on liquidation, dissolution and
winding up.

Voting. Generally, the holders of the CBI A Preferred are not entitled to
any voting rights. However, CBI is not permitted to amend, alter or repeal any
of the provisions of its certificate of incorporation or bylaws, or merge with
or into or consolidate with any other entity, as to affect adversely any of the
preferences, rights, powers or privileges of the CBI A Preferred or its holders,
without first obtaining the approval of at least a majority of the outstanding
shares of CBI A Preferred voting separately as one class.

63

The following table sets forth the equity compensation plan information for
the year ended August 31, 2002.

EQUITY COMPENSATION PLAN INFORMATION

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We entered into a management agreement dated March 30, 2001 with Castle
Harlan, pursuant to which Castle Harlan agreed to provide business and
organizational strategy, financial and investment management and merchant and
investment banking services to us upon the terms and conditions set forth in the
management agreement. As compensation for such services, we agreed to pay Castle
Harlan $3.0 million per year, which amount is payable quarterly in arrears. The
agreement is for a term of ten years, renewable automatically from year to year
thereafter unless Castle Harlan and its affiliates then own less than 5% of our
then outstanding capital stock. We have agreed to indemnify Castle Harlan
against liabilities, costs, charges and expenses relating to its performance of
its duties, other than such of the foregoing resulting from Castle Harlan's
gross negligence or willful misconduct.

On February 11, 2000, CHPIII acquired Taylor, whose primary business is the
designing and printing of student yearbooks. On July 27, 2000, we acquired from
CHPIII all of the issued and outstanding shares of TSHC, Taylor's parent,
through the issuance of 320,929 shares of our common stock and 393,482 shares of
our series A preferred stock.

ITEM 14. CONTROLS AND PROCEDURES

As of a date within 90 days 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"). 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 adequate to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.

Additionally, our President and Chief Executive Officer and Chief Financial
Officer determined, as of a date within 90 days of the date of this report, that
there were no significant changes in our internal controls or in other factors
that could significantly affect our internal controls subsequent to the date of
their evaluation.

64

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits and Financial Statement Schedules

The following documents are filed as part of this report.

1. Consolidated Financial Statements. See "Index to Consolidated
Financial Statements" -- Item 8.

2. Exhibits. See "Exhibit Index."

(b) Reports on Form 8-K

A Form 8-K dated May 24, 2002 and filed May 29, 2002 announcing the
dismissal of Arthur Andersen LLP as our independent public accountants and the
engagement of Deloitte & Touche LLP as our new independent public accountants.

A Form 8-K dated July 15, 2002 and filed July 30, 2002 announcing the
acquisition of all the issued and outstanding stock and warrants of Milestone
Marketing Incorporated.

A Form 8-K/A filed 10/1/02 to amend Item 7 of Form 8-K dated July 15, 2002
to include the required financial statements of Milestone Marketing Incorporated
and the required pro forma financial information for which it was impracticable
to provide at the time the Form 8-K was initially filed.

65

SIGNATURES

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

AMERICAN ACHIEVEMENT CORPORATION

By: /s/ DAVID G. FIORE
------------------------------------
David G. Fiore
Chief Executive Officer

By: /s/ SHERICE P. BENCH
------------------------------------
Sherice P. Bench
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on November 21, 2002.

/s/ DAVID G. FIORE Chief Executive Officer
------------------------------------------------------
David G. Fiore

/s/ JOHN K. CASTLE Director
------------------------------------------------------
John K. Castle

/s/ DAVID B. PITTAWAY Director
------------------------------------------------------
David B. Pittaway

/s/ ZANE TANKEL Director
------------------------------------------------------
Zane Tankel

/s/ EDWARD O. VETTER Director
------------------------------------------------------
Edward O. Vetter

/s/ WILLIAM PRUELLAGE Director
------------------------------------------------------
William Pruellage

66

CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SEC. 1350)

I, David G. Fiore, President and Chief Executive Officer of American Achievement
Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of American Achievement
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 21, 2002

/s/ DAVID G. FIORE
--------------------------------------
Name: David G. Fiore
Title: President and Chief Executive
Officer

CERTIFICATION ACCOMPANYING PERIODIC REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SEC. 1350)

I, Sherice P. Bench, Chief Financial Officer of American Achievement
Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of American Achievement
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which statements were
made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely effect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 21, 2002

/s/ SHERICE P. BENCH
--------------------------------------
Name: Sherice P. Bench
Title: Chief Financial Officer

EXHIBIT INDEX

- ---------------

* Incorporated by reference to the corresponding Exhibit number of the
Company's Current Report on Form 8-K, dated July 30, 2002.

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

*** Incorporated by reference to the corresponding Exhibit number of the
Company's Current Report on Form 8-K, dated May 29, 2002.