UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED ~~February~~May 2729, 2010

⁭

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

COMMISSION FILE NUMBERS 333-121479 AND 333-84294

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

(Exact name of registrant as specified in its charter)


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

7211 CIRCLE S ROAD

AUSTIN, TEXAS 78745

(Address of principal executive offices) (Zip Code)

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

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

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

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

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

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

Number of shares outstanding of AAC Group Holding Corp. as of ~~March~~June 3130, 2010: 100 shares of common stock.

Number of shares of American Achievement Corporation outstanding as of ~~March~~June 3130, 2010: 100 shares of common stock.

~~FOR~~This ~~THE~~Form ~~QUARTERLY~~10-Q ~~PERIOD~~is ~~ENDED~~a ~~FEBRUARY~~combined 27quarterly report being filed separately by AAC Group Holding Corp. and American Achievement Corporation. Unless the context indicates otherwise, ~~2010~~any reference in this report to “Intermediate Holdings” refers to AAC Group Holding Corp. and “AAC” refers to American Achievement Corporation, the indirect wholly-owned operating subsidiary of Intermediate Holdings. The “Company”, “we”, “us”, and “our” refer to AAC Group Holding Corp. together with American Achievement Corporation.

Table of Contents

FOR THE QUARTERLY PERIOD ENDED MAY 29, 2010

INDEX

	PAGE	~~PAGE~~
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes
Condensed Consolidated Balance Sheets (unaudited) — As of February 27, 2010 and August 29, 2009			3
Condensed Consolidated Balance Sheets (unaudited) — As of May 29, 2010 and August 29, 2009	3
Condensed Consolidated Statements of Operations (unaudited) — For the Three and Six Months Ended February 27, 2010 and the Three and Six Months Ended February 28, 2009			5
Condensed Consolidated Statements of Operations (unaudited) — For the Three and Nine Months Ended May 29, 2010 and the Three and Nine Months Ended May 30, 2009	5
Condensed Consolidated Statements of Cash Flows (unaudited) — For the Six Months Ended February 27, 2010 and the Six Months Ended February 28, 2009			7
Condensed Consolidated Statements of Cash Flows (unaudited) — For the Nine Months Ended May 29, 2010 and the Nine Months Ended May 30, 2009	7
Notes to Condensed Consolidated Financial Statements (unaudited)	9		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	28		28
Item 4. Controls and Procedures	28		28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	29		29
Item 6. Exhibits	29		29
SIGNATURES	30		30
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

Explanatory Note

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

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

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Table of Contents

AAC GROUP HOLDING CORP.

Condensed Consolidated Balance Sheets

(unaudited)

	Intermediate Holdings
	February 27, 2010			August 29, 2009
	May 29, 2010			August 29, 2009
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	1615,~~202~~218		$	12,403
Accounts receivable, net of allowances		2970,~~452~~029			32,267
Inventories		3720,~~372~~106			24,704
Deferred tax assets		173,~~854~~449			10,167
Prepaid expenses and other current assets, net		1713,~~120~~017			14,574
Total current assets		~~118~~121,~~000~~819			94,115
Property, plant and equipment, net		5250,~~225~~489			56,526
Goodwill		158,608			158,608
Other intangible assets, net		8179,~~928~~215			86,752
Other assets, net		1011,~~526~~621			12,534
Total assets	$	421,~~287~~752		$	408,535
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Book overdraft	$	~~408~~110		$	1,391
Accounts payable		610,~~622~~740			8,490
Customer deposits		4925,~~141~~777			7,743
Accrued expenses		1430,~~638~~947			13,617
Deferred revenue		31,~~750~~159			2,710
Accrued interest		114,~~198~~631			11,379
Current portion of long-term debt		224,~~659~~088			4,000
Total current liabilities		8897,~~416~~452			49,330
Long-term debt, net of current portion		~~308~~281,~~594~~500			324,253
Deferred tax liabilities		3331,~~749~~801			33,816
Other long-term liabilities		5,~~942~~891			5,954
Total liabilities		~~436~~416,~~701~~644			413,353
Commitments and contingencies (Note 6)
Stockholder's deficit:
Stockholder's equity (deficit):
Common stock		-			-
Distributions in excess of paid-in capital		(5,648	)		(4,648	)
Accumulated deficit		(9,489	)		-
Accumulated earnings		11,086			-
Accumulated other comprehensive loss		(~~277~~330	)		(170	)
Total stockholder's deficit		(15,414	)		(4,818	)
Total stockholder's equity (deficit)		5,108			(4,818	)
Total liabilities and stockholder's deficit	$	421,287		$	408,535
Total liabilities and stockholder's equity (deficit)	$	421,752		$	408,535

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

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AMERICAN ACHIEVEMENT CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)

	AAC
	February 27, 2010			August 29, 2009
	May 29, 2010			August 29, 2009
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	1514,~~635~~651		$	11,836
Accounts receivable, net of allowances		2970,~~452~~029			32,267
Inventories		3720,~~372~~106			24,704
Deferred tax assets		113,~~156~~449			7,193
Prepaid expenses and other current assets, net		1713,~~120~~017			14,574
Total current assets		~~110~~121,~~735~~252			90,574
Property, plant and equipment, net		5250,~~225~~489			56,526
Goodwill		158,608			158,608
Other intangible assets, net		8179,~~928~~215			86,752
Other assets, net		910,~~378~~584			11,163
Total assets	$	~~412~~420,~~874~~148		$	403,623
LIABILITIES AND STOCKHOLDER'S EQUITY
Book overdraft	$	~~408~~110		$	1,391
Accounts payable		610,~~622~~740			8,490
Customer deposits		4925,~~141~~777			7,743
Accrued expenses		1436,~~758~~205			13,740
Deferred revenue		31,~~750~~159			2,710
Accrued interest		52,~~582~~385			5,763
Current portion of long-term debt		224,~~659~~088			4,000
Total current liabilities		82100,~~920~~464			43,837
Long-term debt, net of current portion		~~177~~150,~~094~~000			192,753
Deferred tax liabilities		5049,~~853~~852			50,920
Other long-term liabilities		5,~~909~~858			5,921
Total liabilities		~~316~~306,~~776~~174			293,431
Commitments and contingencies (Note 6)
Stockholder's equity:
Common stock		-			-
Additional paid-in capital		82,055			82,055
Accumulated earnings		1432,~~320~~249			28,307
Accumulated other comprehensive loss		(~~277~~330	)		(170	)
Total stockholder's equity		96113,~~098~~974			110,192
Total liabilities and stockholder's equity	$	~~412~~420,~~874~~148		$	403,623

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

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AAC GROUP HOLDING CORP.

Condensed Consolidated Statements of Operations

(unaudited)

	Intermediate Holdings
	For the three months ended						For the ~~six~~nine months ended
	February 27, 2010			February 28, 2009			February 27, 2010			February 28, 2009
	May 29, 2010			May 30, 2009			May 29, 2010			May 30, 2009
	(Dollars in thousands)						(Dollars in thousands)
Net sales	$	52145,~~747~~262		$	56144,~~114~~842		$	~~100~~245,~~733~~995		$	~~105~~250,~~327~~169
Cost of sales		2355,~~469~~129			2555,~~107~~353			46102,~~972~~101			50105,~~158~~511
Gross profit		2990,~~278~~133			3189,~~007~~489			53143,~~761~~894			55144,~~169~~658
Selling, general and administrative expenses		2845,~~591~~501			3144,~~030~~256			55100,~~362~~863			57101,~~519~~775
Operating income (loss)		687			(23	)		(1,601	)		(2,350	)
Operating income		44,632			45,233			43,031			42,883
Interest expense, net		7,~~692~~658			7,~~413~~497			1523,~~575~~233			1522,~~286~~783
Loss before income taxes		(7,005	)		(7,436	)		(17,176	)		(17,636	)
Income before income taxes		36,974			37,736			19,798			20,100
Benefit for income taxes		(3,244	)		(3,320	)		(7,687	)		(7,638	)
Provision for income taxes		16,399			16,574			8,712			8,936
Net loss	$	(3,761	)	$	(4,116	)	$	(9,489	)	$	(9,998	)
Net income	$	20,575		$	21,162		$	11,086		$	11,164

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

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AMERICAN ACHIEVEMENT CORPORATION

Condensed Consolidated Statements of Operations

(unaudited)

	AAC
	For the three months ended						For the ~~six~~nine months ended
	February 27, 2010			February 28, 2009			February 27, 2010			February 28, 2009
	May 29, 2010			May 30, 2009			May 29, 2010			May 30, 2009
	(Dollars in thousands)						(Dollars in thousands)
Net sales	$	52145,~~747~~262		$	56144,~~114~~842		$	~~100~~245,~~733~~995		$	~~105~~250,~~327~~169
Cost of sales		2355,~~469~~129			2555,~~107~~353			46102,~~972~~101			50105,~~158~~511
Gross profit		2990,~~278~~133			3189,~~007~~489			53143,~~761~~894			55144,~~169~~658
Selling, general and administrative expenses		2845,~~591~~501			3144,~~030~~256			55100,~~362~~863			57101,~~519~~775
Operating income (loss)		687			(23	)		(1,601	)		(2,350	)
Operating income		44,632			45,233			43,031			42,883
Interest expense, net		4,~~211~~179			34,~~931~~022			812,~~610~~789			812,~~368~~390
Loss before income taxes		(3,524	)		(3,954	)		(10,211	)		(10,718	)
Income before income taxes		40,453			41,211			30,242			30,493
Benefit for income taxes		(1,383	)		(1,501	)		(3,963	)		(4,120	)
Provision for income taxes		15,785			15,969			11,822			11,849
Net loss	$	(2,141	)	$	(2,453	)	$	(6,248	)	$	(6,598	)
Net income	$	24,668		$	25,242		$	18,420		$	18,644

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

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AAC GROUP HOLDING CORP.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Intermediate Holdings
	For the six months ended
	For the nine months ended
	February 27, 2010			February 28, 2009
	May 29, 2010			May 30, 2009
	(Dollars in thousands)
Cash flows from operating activities:
Net loss	$	(9,489	)	$	(9,998	)
Net income	$	11,086		$	11,164
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1018,~~444~~002			1119,~~316~~189
Deferred income taxes		(74,~~687~~803	)		(7,~~673~~493	)
Amortization of deferred financing fees		12,~~374~~061			~~988~~1,502
Accretion of interest on 10.25% senior discount notes		-			1,079
Allowance for doubtful accounts		~~599~~970			67234
Changes in assets and liabilities:
Accounts receivable		2(38,~~216~~732	)		4(38,~~456~~962	)
Inventories		~~(11~~4,~~083~~615	)		(49,~~238~~154	)
Prepaid expenses and other current assets, net		(21,~~546~~557	)		~~342~~6,174
Other assets, net		34410			(1,~~021~~591	)
Customer deposits		4118,~~398~~034			4317,~~193~~783
Deferred revenue		(1,~~040~~551	)		~~846~~(2,030	)
Accounts payable, accrued expenses, accrued interest and other long-term liabilities		(112,~~174~~316	)		18,~~505~~346
Net cash provided by operating activities		2533,~~126~~571			4039,~~862~~535
Cash flows from investing activities:
Purchases of property, plant and equipment		(23,~~261~~570	)		(34,~~072~~311	)
Business acquisition, purchase price adjustment		(83	)		(83	)
Net cash used in investing activities		(23,~~344~~653	)		(34,~~155~~394	)
Cash flows from financing activities:
Payments on revolving credit facility		(5,000	)		(6,000	)
Proceeds from revolving credit facility		5,000			6,000
Payments on term loan		(1722,~~000~~665	)		(28,~~485~~608	)
Deferred financing fees		(2,157	)		(1,396	)
Distribution to AAIH		(1,000	)		-
Contribution of capital		-			400
Change in book overdraft		(~~983~~1,281	)		~~338~~49
Net cash used in financing activities		(1827,~~983~~103	)		(2729,~~747~~555	)
Net increase in cash and cash equivalents	$	32,~~799~~815		$	95,~~960~~586
Cash and cash equivalents, beginning of period		12,403			9,746
Cash and cash equivalents, end of period	$	1615,~~202~~218		$	1915,~~706~~332
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1428,~~565~~072		$	821,~~251~~575
Income taxes, net of refunds	$	~~138~~794		$	~~521~~945
Supplemental non-cash investing and financing activities disclosure:
Additions to property, plant and equipment included in accounts payable	$	47391		$	~~119~~286
Increase in goodwill for purchase price adjustment included in other long-term liabilities	$	-		$	167
Non-cash distribution of net operating loss deferred tax asset to Parent Holdings	$	-		$	27,556

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

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AMERICAN ACHIEVEMENT CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

	AAC
	For the six months ended
	For the nine months ended
	February 27, 2010			February 28, 2009
	May 29, 2010			May 30, 2009
	(Dollars in thousands)
Cash flows from operating activities:
Net loss	$	(6,248	)	$	(6,598	)
Net income	$	18,420		$	18,644
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1018,~~444~~002			1119,~~316~~189
Deferred income taxes		(32,~~963~~776	)		(410,~~155~~275	)
Amortization of deferred financing fees		1,~~151~~727			~~765~~1,168
Allowance for doubtful accounts		~~599~~970			67234
Changes in assets and liabilities:
Accounts receivable		2(38,~~216~~732	)		4(38,~~456~~962	)
Inventories		~~(11~~4,~~083~~615	)		(49,~~238~~154	)
Prepaid expenses and other current assets, net		(21,~~546~~557	)		~~(214~~5,618	)
Other assets, net		34410			(1,~~021~~591	)
Customer deposits		4118,~~398~~034			4317,~~193~~783
Deferred revenue		(1,~~040~~551	)		~~846~~(2,030	)
Accounts payable, accrued expenses, accrued interest and other long-term liabilities		(120,~~177~~821	)		(46,~~111~~236	)
Net cash provided by operating activities		3147,~~865~~049			4045,~~306~~718
Cash flows from investing activities:
Purchases of property, plant and equipment		(23,~~261~~570	)		(34,~~072~~311	)
Business acquisition, purchase price adjustment		(83	)		(83	)
Net cash used in investing activities		(23,~~344~~653	)		(34,~~155~~394	)
Cash flows from financing activities:
Payments on revolving credit facility		(5,000	)		(6,000	)
Proceeds from revolving credit facility		5,000			6,000
Payments on term loan		(1722,~~000~~665	)		(28,~~485~~608	)
Distribution to Intermediate Holdings		(7,739	)		-
Deferred financing fees		(2,157	)		(1,396	)
Distribution to Intermediate Holdings		(14,478	)		(6,739	)
Contribution of capital		-			400
Change in book overdraft		(~~983~~1,281	)		~~338~~49
Net cash used in financing activities		(2540,~~722~~581	)		(2736,~~747~~294	)
Net increase in cash and cash equivalents	$	32,~~799~~815		$	95,~~404~~030
Cash and cash equivalents, beginning of period		11,836			9,735
Cash and cash equivalents, end of period	$	1514,~~635~~651		$	1914,~~139~~765
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	714,~~826~~594		$	814,~~251~~836
Income taxes, net of refunds	$	~~138~~794		$	~~521~~945
Supplemental non-cash investing and financing activities disclosure:
Additions to property, plant and equipment included in accounts payable	$	47391		$	~~119~~286
Increase in goodwill for purchase price adjustment included in other long-term liabilities	$	-		$	167
Non-cash distribution of net operating loss deferred tax asset to Intermediate Holdings	$	-		$	27,556

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

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

1. Summary of Organization and Significant Accounting Policies

Registrants

The consolidated financial statements of AAC Group Holding Corp. (“Intermediate Holdings”) include the accounts of its indirect wholly-owned subsidiary, American Achievement Corporation (“AAC”), each of which are separate public reporting companies. Intermediate Holdings is a wholly-owned subsidiary of American Achievement Intermediate Holding Corp. (“AAIH”), a wholly-owned subsidiary of American Achievement Group Holding Corp. (“Parent Holdings”). Intermediate Holdings holds its interest in AAC through its wholly-owned subsidiary, AAC Holding Corp.

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

Description of Business

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

Consolidation

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

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

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Operating results for the ~~six~~nine months ended ~~February~~May 2729, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending August 28, 2010. The interim condensed consolidated financial statements and accompanying notes included herein should be read in conjunction with the consolidated financial statements for the year ended August 29, 2009 included in the Company’s Report on Form 10-K (File No. 333-84294 and 333-121479) filed on November 18, 2009.

9Use of Estimates

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

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Use of Estimates

Assets Held for Sale

During the quarter ended November 28, 2009, the Company committed to a plan to sell some land, a building and related improvements located in Austin, Texas. The Company believed that it was probable that the property would be sold within the next twelve months based on a purchase agreement with a prospective buyer. The purchase agreement was terminated in the quarter ended February 27, 2010. The Company now believes that it is unlikely that the property will be sold within the next twelve months and has reclassified the property as held and used in property, plant and equipment.

Recent Accounting Pronouncements

The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles: In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative generally accepted accounting principles. The Codification supersedes all existing non-SEC accounting and reporting standards. The guidance did not change generally accepted accounting principles; it did, however, change the applicable citations and naming conventions used when referencing generally accepted accounting principles. The guidance was effective for the Company beginning with the first quarter of fiscal year 2010 and did not have an impact on the Company’s financial position and results of operations.

Employer’s Disclosure about Postretirement Benefit Plan Assets: In December 2008, the FASB issued a pronouncement providing guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan and is effective for fiscal years ending after December 15, 2009, that is, beginning with the Company’s fiscal year 2010. The adoption of this pronouncement did not have an impact on the Company’s financial position and results of operations.

Business Combinations: In December 2007, the FASB issued a pronouncement requiring the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this pronouncement impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets and tax benefits. The pronouncement is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances for the first annual reporting period beginning after December 15, 2008, that is, beginning with the Company’s fiscal year 2010. The adoption of this pronouncement did not have an impact on the Company’s financial position and results of operations.

102. Comprehensive Income

The following amounts were included in determining comprehensive income for the three and nine months ended May 29, 2010 and May 30, 2009.

	For the three months ended								For the nine months ended
	May 29, 2010				May 30, 2009				May 29, 2010				May 30, 2009
Intermediate Holdings
Net income		$	20,575			$	21,162			$	11,086			$	11,164
Amortization of net actuarial gain and prior service costs - pension and postretirement plans, net of tax			(53	)			(72	)			(160	)			(220	)
Total comprehensive income		$	20,522			$	21,090			$	10,926			$	10,944

	For the three months ended								For the nine months ended
	May 29, 2010				May 30, 2009				May 29, 2010				May 30, 2009
AAC
Net income		$	24,668			$	25,242			$	18,420			$	18,644
Amortization of net actuarial gain and prior service costs - pension and postretirement plans, net of tax			(53	)			(72	)			(160	)			(220	)
Total comprehensive income		$	24,615			$	25,170			$	18,260			$	18,424

-10-

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

2. Comprehensive Loss

The following amounts were included in determining comprehensive loss for the three and six months ended February 27, 2010 and February 28, 2009.

	For the three months ended								For the six months ended
	February 27, 2010				February 28, 2009				February 27, 2010				February 28, 2009
Intermediate Holdings
Net loss		$	(3,761	)		$	(4,116	)		$	(9,489	)		$	(9,998	)
Amortization of net actuarial gain and prior service costs - pension and postretirement plans, net of tax			(54	)			(74	)			(107	)			(148	)
Total comprehensive loss		$	(3,815	)		$	(4,190	)		$	(9,596	)		$	(10,146	)
	For the three months ended								For the six months ended
	February 27, 2010				February 28, 2009				February 27, 2010				February 28, 2009
AAC
Net loss		$	(2,141	)		$	(2,453	)		$	(6,248	)		$	(6,598	)
Amortization of net actuarial gain and prior service costs - pension and postretirement plans, net of tax			(54	)			(74	)			(107	)			(148	)
Total comprehensive loss		$	(2,195	)		$	(2,527	)		$	(6,355	)		$	(6,746	)

3. Inventories

	February 27, 2010			August 29, 2009
	May 29, 2010			August 29, 2009
Raw materials	$	1610,~~616~~664		$	12,858
Work in process		145,~~452~~078			5,457
Finished goods		75,~~265~~082			6,722
Less—Reserves		(~~961~~718	)		(333	)
Total	$	3720,~~372~~106		$	24,704

The Company’s cost of sales includes depreciation of $14.61 million and $14.96 million for the three months ended ~~February~~May 2729, 2010 and ~~February~~ 28May 30, 2009, respectively, and $37.9 million and $48.17 million for the ~~six~~nine months then ended, respectively.

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

4. Goodwill and Other Intangible Assets

Goodwill

	February 27, 2010		August 29, 2009
	May 29, 2010		August 29, 2009
Class Rings	$	61,812	$	61,812
Yearbooks		60,442		60,442
Graduation Products		22,032		22,032
Other		14,322		14,322
Total	$	158,608	$	158,608

The gross amount of goodwill is $174.1 million. As of ~~February~~May 2729, 2010, the Company has recorded accumulated impairment ~~losses~~charges of $15.5 million, resulting in a net balance of $158.6 million.

Other Intangible Assets

	February 27, 2010
	May 29, 2010
	Estimated	Gross			Accumulated				Net
	Useful Life	Asset			Amortization				Asset
Trademarks	Indefinite		$	36,826		$	-			$	36,826
Patents	14 to 17 years			7,317			(2,~~622~~734	)			4,~~695~~583
Customer lists and distribution contracts	3 to 12 years			97,740			(5759,~~333~~934	)			4037,~~407~~806
Total			$	141,883		$	(5962,~~955~~668	)		$	8179,~~928~~215
	August 29, 2009
	Estimated	Gross			Accumulated				Net
	Useful Life	Asset			Amortization				Asset
Trademarks	Indefinite		$	36,826		$	-			$	36,826
Patents	14 to 17 years			7,317			(2,400	)			4,917
Customer lists and distribution contracts	3 to 12 years			97,740			(52,731	)			45,009
Total			$	141,883		$	(55,131	)		$	86,752

Total amortization on other intangible assets for the three and six months ended February 27, 2010 and February 28, 2009 was $2.7 million and $5.4 million, respectively, which is recorded as selling, general and administrative expenses. Estimated annual amortization expense is as follows:-11-

Year	Amount
2010	$	10,849
2011		10,249
2012		9,816
2013		9,220
2014		5,970
Thereafter		4,422

Table of Contents

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Total amortization on other intangible assets for the three and nine months ended May 29, 2010 and May 30, 2009 was $2.7 million and $8.1 million, respectively, which is recorded as selling, general and administrative expenses. Estimated annual amortization expense is as follows:

Year	Amount
2010	$	10,849
2011		10,249
2012		9,816
2013		9,220
2014		5,970
Thereafter		4,422

5. Long-term Debt

	February 27, 2010				August 29, 2009
	May 29, 2010				August 29, 2009
Intermediate Holdings
10.25% Senior discount notes due October 1, 2012		$	131,500			$	131,500
8.25% Senior subordinated notes due April 1, 2012			150,000				150,000
Senior secured credit facility:
Revolving credit facility due March 25, 2011			-				-
Term loan due March 25, 2011			2924,~~753~~088				46,753
Total			~~311~~305,~~253~~588				328,253
Less current portion of long-term debt			(224,~~659~~088	)			(4,000	)
Total long-term debt		$	~~308~~281,~~594~~500			$	324,253
	February 27, 2010				August 29, 2009
	May 29, 2010				August 29, 2009
AAC
8.25% Senior subordinated notes due April 1, 2012		$	150,000			$	150,000
Senior secured credit facility:
Revolving credit facility due March 25, 2011			-				-
Term loan due March 25, 2011			2924,~~753~~088				46,753
Total			~~179~~174,~~753~~088				196,753
Less current portion of long-term debt			(224,~~659~~088	)			(4,000	)
Total long-term debt		$	~~177~~150,~~094~~000			$	192,753

Interest income included in interest expense, net was $0.1 million for the three months ended May 29, 2010 and May 30, 2009 and $0.3 million for the nine months ended May 29, 2010 and May 30, 2009.

Senior Secured Credit Facility

The term loan of the senior secured credit facility (as amended, the “Amended Senior Credit Facility”) is due in March 2011. Quarterly payments of $0.76 million are required through February 28, 2011. The term loan of the Amended Senior Credit Facility has an interest rate based upon the higher of 3.0% or the base rate, which is derived from the Prime Rate or Federal Funds Effective Rate as defined in the credit agreement, or the higher of 2.0% or London Interbank Offered Rate (“LIBOR”) depending on the type of loan AAC chooses, plus an applicable margin based on a calculated leverage ratio as defined in the agreement. The interest rate on the term loan of the Amended Senior Credit Facility was 6.25% at ~~February~~May 2729, 2010. During the ~~six~~nine months ended ~~February~~May 2729, 2010 and ~~February~~May 2830, 2009, the Company paid down $1722.07 million and $28.56 million, respectively, of the term loan of the Amended Senior Credit Facility, of which $2.07 million and $2.56 million, respectively, were mandatory payments.

The revolving credit facility matures in March 2011. Availability under the revolving credit facility is restricted to a total revolving commitment of $25.0 million as defined in the credit agreement governing the Amended Senior Credit Facility. Availability under the revolving credit facility as of February 27, 2010 was approximately $23.1 million with $1.9 million in letters of credit outstanding.-12-

~~AAC~~Table ~~was in compliance with the Amended Senior Credit Facility’s covenants as~~ of ~~February 27, 2010.~~Contents

10.25% Senior Discount Notes

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

Interest income included in interest expense, net was $0.1 million and $0.2 million for the three and six months ended February 27, 2010 and February 28, 2009, respectively.

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

The revolving credit facility matures in March 2011. Availability under the revolving credit facility is restricted to a total revolving commitment of $25.0 million as defined in the credit agreement governing the Amended Senior Credit Facility. Availability under the revolving credit facility as of May 29, 2010 was approximately $23.3 million with $1.7 million in letters of credit outstanding.

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

AAC was in compliance with the Amended Senior Credit Facility’s covenants as of May 29, 2010 and August 29, 2009.

10.25% Senior Discount Notes

Interest accrued on the 10.25% senior discount notes in the form of an increase in the accreted value of the notes through October 1, 2008. Thereafter, cash interest accrues and is payable semiannually in arrears on April 1 and October 1 of each year, at a rate of 10.25% per annum. Interest payments of $13.5 million were funded by AAC during the nine months ended May 29, 2010, and were accounted for as capital distributions from AAC and reflected as a reduction of AAC’s accumulated earnings.

Tender Offer for Outstanding Notes

On May 10, 2010, Parent Holdings, Intermediate Holdings and AAC each commenced a cash tender offer to purchase any and all of the outstanding principal amount of Parent Holdings’ 12.75% senior PIK notes, the 10.25% senior discount notes and the 8.25% senior subordinated notes, which had outstanding principal amounts of $52.6 million, $131.5 million, and $150.0 million, respectively, as of May 29, 2010. Holders who validly tendered their notes on or prior to July 6, 2010 were to receive consideration equal to $1,063.75 per $1,000 principal amount of 12.75% senior PIK notes, $1,028.13 per $1,000 principal amount of 10.25% senior discount notes and $1,001.25 per $1,000 principal amount of 8.25% senior subordinated notes. The tender offer was subject to the satisfaction or waiver of certain conditions, including the consummation of a debt financing by AAC on terms and conditions satisfactory to AAC in its sole discretion. See Note 12 for a description of the expiration of the tender offer.

Financing Activities

The Company is exploring various sources of liquidity to ensure financing flexibility, including issuing new debt or refinancing existing debt. In connection with these activities, the Company has incurred $2.2 million in fees as of May 29, 2010. These fees were recorded as deferred financing fees and are included in other assets in the accompanying condensed consolidated balance sheets.

6. Commitments and Contingencies

Pending Litigation

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

-13-

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

7. Fair Value Measurements

The Company follows the authoritative guidance for fair value measurements relating to financial and nonfinancial assets and liabilities including presentation of required disclosures. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The guidance also establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:

· Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

·	Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

·	Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.

The guidance requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of cash and cash equivalents, which include highly liquid investments. Fair value is determined based on observable quotes from banks at the reporting date. Cash and cash equivalents are classified as Level 1 because they are valued using quoted prices and other relevant information generated by market transactions involving identical assets and liabilities.

Intermediate Holdings’ long-term debt (including current maturities) at ~~February~~May 2729, 2010 had a carrying value of $~~311~~305.36 million and a fair value of approximately $~~310~~303.95 million. AAC’s long-term debt (including current maturities) at ~~February~~May 2729, 2010 had a carrying value of $~~179~~174.81 million and a fair value of approximately $~~179~~173.43 million. The fair value is based on current rates available to the Company for debt with the same or similar terms.

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

8. Postretirement Pension and Medical Benefits

Commemorative Brands, Inc., a wholly owned subsidiary of AAC, provides certain healthcare and life insurance benefits for former employees of L.G. Balfour Company, Inc. (“CBI Plan”). Certain hourly employees of Taylor Publishing Company (“Taylor”), a wholly owned subsidiary of AAC, are covered by a defined benefit pension plan (“TPC Plan”) established by Taylor. The benefits under the CBI Plan and TPC Plan are based primarily on the employees’ years of service and compensation near retirement. The CBI Plan was frozen to new entrants effective January 1991. Effective September 2009, the TPC Plan was amended to cease future benefit accruals and to fully vest any accrued pension benefits not fully vested as of September 30, 2009. The funding policies for these plans are consistent with the funding requirements of federal laws and regulations. The Company uses a measurement date as of the end of its fiscal year for both plans.

~~The net periodic postretirement benefit income includes the following components:~~-14-

	For the three months ended
	February 27, 2010								February 28, 2009
	TPC Plan				CBI Plan				TPC Plan				CBI Plan
Service costs, benefits attributed to service during the period		$	3			$	-			$	18			$	-
Interest cost			211				17				220				22
Expected return on assets			(227	)			-				(265	)			-
Amortization of unrecognized net loss (gain)			21				(71	)			(6	)			(75	)
Amortization of unrecognized net prior service credits			-				(37	)			-				(37	)
Net periodic postretirement benefit cost (income)		$	8			$	(91	)		$	(33	)		$	(90	)
	For the six months ended
	February 27, 2010								February 28, 2009
	TPC Plan				CBI Plan				TPC Plan				CBI Plan
Service costs, benefits attributed to service during the period		$	6			$	-			$	36			$	-
Interest cost			422				34				439				45
Expected return on assets			(454	)			-				(529	)			-
Amortization of unrecognized net loss (gain)			42				(142	)			(12	)			(151	)
Amortization of unrecognized net prior service credits			-				(74	)			-				(74	)
Net periodic postretirement benefit cost (income)		$	16			$	(182	)		$	(66	)		$	(180	)

Table of Contents

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

~~Amounts~~The ~~recognized~~net inperiodic ~~other~~postretirement ~~comprehensive~~benefit income ~~consist~~includes ofthe following components:

		February 27, 2010								August 29, 2009
	For the three months ended
		TPC Plan				CBI Plan				TPC Plan				CBI Plan
	May 29, 2010								May 30, 2009
Net actuarial loss (gain)		$	2,696			$	(1,765	)		$	2,738			$	(1,907	)
	TPC Plan				CBI Plan				TPC Plan				CBI Plan
Prior service cost			-				(483	)			-				(557	)
Service costs, benefits attributed to service during the period		$	3			$	-			$	18			$	-
Total		$	2,696			$	(2,248	)		$	2,738			$	(2,464	)
Interest cost			211				17				220				23
Expected return on assets			(227	)			-				(264	)			-
Amortization of unrecognized net loss (gain)			21				(71	)			(7	)			(76	)
Amortization of unrecognized net prior service credits			-				(37	)			-				(38	)
Net periodic postretirement benefit cost (income)		$	8			$	(91	)		$	(33	)		$	(91	)
	For the nine months ended
	May 29, 2010								May 30, 2009
	TPC Plan				CBI Plan				TPC Plan				CBI Plan
Service costs, benefits attributed to service during the period		$	6			$	-			$	54			$	-
Interest cost			633				51				659				68
Expected return on assets			(681	)			-				(793	)			-
Amortization of unrecognized net loss (gain)			63				(213	)			(19	)			(227	)
Amortization of unrecognized net prior service credits			-				(113	)			-				(112	)
Net periodic postretirement benefit cost (income)		$	21			$	(275	)		$	(99	)		$	(271	)

~~The~~Amounts ~~estimated~~recognized ~~net loss for the TPC Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost~~ in ~~fiscal year 2010 is $0.1 million. The estimated net gain and estimated prior service credit for the CBI Plan that will be amortized from~~ accumulated other comprehensive loss (income) ~~into~~consist ~~net periodic postretirement benefit cost in fiscal year 2010 are $0.3 million and $0.1 million, respectively.~~of:

	May 29, 2010					August 29, 2009
	TPC Plan		CBI Plan			TPC Plan		CBI Plan
Net actuarial loss (gain)	$	2,675	$	(1,694	)	$	2,738	$	(1,907	)
Prior service cost		-		(446	)		-		(557	)
Total	$	2,675	$	(2,140	)	$	2,738	$	(2,464	)

The estimated net loss for the TPC Plan that will be amortized from accumulated other comprehensive loss (income) into net periodic postretirement benefit cost in fiscal year 2010 is $0.1 million. The estimated net gain and estimated prior service credit for the CBI Plan that will be amortized from accumulated other comprehensive loss (income) into net periodic postretirement benefit cost in fiscal year 2010 are $0.3 million and $0.1 million, respectively.

9. Income Taxes

As part of the process of preparing consolidated financial statements, the Company assesses the likelihood that its deferred income tax assets will be recovered through future taxable income. To the extent that recovery is not likely, a valuation allowance is established. Based on this assessment, the Company has not recorded a valuation allowance as of ~~February~~May 2729, 2010 or August 29, 2009. In the event that actual results differ from these estimates or adjustments are made to these estimates in future periods, a valuation allowance may need to be established.

10. Related-Party Transactions

On March 25, 2004, AAC entered into a management agreement with Fenway Partners Inc. (now Fenway Partners LLC) pursuant to which AAC, among other things, agreed to pay an annual fee equal to the greater of $3.0 million or 5% of the previous fiscal year’s EBITDA (as defined in the agreement) and certain additional fees in connection with significant transactions. Amounts expensed by the Company under the management agreement related to the annual fee totaled $0.9 million and $12.76 million for the three and ~~six~~nine months ended ~~February~~May 2729, 2010, respectively, and ~~February~~$0.9 28million and $2.5 million for the three and nine months ended May 30, 2009, respectively.

Under the provisions of the management agreement, Fenway Partners LLC can, at its discretion, charge AAC for services related to any significant transaction, as defined in the agreement. In December 2009, Fenway Partners LLC charged AAC a management fee of $1.5 million, which is included in selling, general and administrative expenses for the six months ended February 27, 2010. Additionally, AAC funded a $1.0 million payment to Fenway Partners LLC on behalf of AAIH. This payment was accounted for as a capital distribution by AAC to Intermediate Holdings to AAIH and is reflected as a reduction of accumulated earnings to the extent that it exists, and then to additional (distributions in excess of) paid-~~in capital.~~15-

AsTable of ~~February 27, 2010 and August 29, 2009, the Company had prepaid annual fees under the management agreement of approximately $0.2 million.~~Contents

AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

Under the provisions of the management agreement, Fenway Partners LLC can, at its discretion, charge AAC for services related to any significant transaction, as defined in the agreement. In December 2009, Fenway Partners LLC charged AAC a management fee of $1.5 million, which is included in selling, general and administrative expenses for the nine months ended May 29, 2010. Additionally, AAC funded a $1.0 million payment to Fenway Partners LLC on behalf of AAIH. This payment was accounted for as a capital distribution by AAC to Intermediate Holdings to AAIH and is reflected as a reduction of accumulated earnings to the extent that it exists, and then to additional (distributions in excess of) paid-in capital.

As of May 29, 2010 and August 29, 2009, the Company had prepaid annual fees under the management agreement of approximately $0.2 million.

11. Business Segments

The Company is a manufacturer and supplier of class rings, yearbooks and other graduation-related scholastic products for the college, high school, junior high school and elementary school markets and of recognition products, such as letter jackets, and affinity jewelry designed to commemorate significant events, achievements and affiliations. The Company markets its products and services primarily in the United States and operates in four reporting segments: class rings, yearbooks, graduation products and other.

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

	~~Class~~	Class						~~Graduation~~	Graduation
	~~Rings~~	Rings		~~Yearbooks~~	Yearbooks			~~Products~~	Products		~~Other~~	Other			~~Total~~	Total
Three Months Ended February 27, 2010
Three Months Ended May 29, 2010
Net sales		$	2736,~~384~~739		$	276,~~168~~368			$	1521,~~339~~214		$	710,~~856~~941			$	52145,~~747~~262
Segment operating income (loss)			3,246			(5,622	)			2,725			338				687
Segment operating income			4,521			34,230				5,349			532				44,632
Three Months Ended February 28, 2009
Three Months Ended May 30, 2009
Net sales		$	2935,~~182~~605		$	179,~~698~~298			$	1521,~~765~~653		$	98,~~469~~286			$	56144,~~114~~842
Segment operating income (loss)			1,731			(4,886	)			3,103			29				(23	)
Segment operating income			6,212			34,106				4,649			266				45,233
Six Months Ended February 27, 2010
Nine Months Ended May 29, 2010
Net sales		$	5794,~~589~~328		$	1187,~~344~~712			$	1839,~~509~~723		$	1324,~~291~~232			$	~~100~~245,~~733~~995
Segment operating income (loss)			6,914			(9,113	)			1,101			(503	)			(1,601	)
Segment operating income			11,435			25,117				6,450			29				43,031
Six Months Ended February 28, 2009
Nine Months Ended May 30, 2009
Net sales		$	5995,~~806~~411		$	1089,~~074~~372			$	1940,~~075~~728		$	1624,~~372~~658			$	~~105~~250,~~327~~169
Segment operating income (loss)			411,~~932~~144			(825,~~606~~500	)			16,~~983~~632			(~~659~~393	)			(242,~~350~~883	)

	Intermediate Holdings
		Class				Graduation
		Rings		Yearbooks		Products		Other		Total
Segment assets
February 27, 2010		$	175,389	$	145,726	$	58,318	$	41,854	$	421,287
May 29, 2010		$	161,426	$	166,674	$	52,299	$	41,353	$	421,752
August 29, 2009			170,381		148,242		51,041		38,871		408,535
	AAC
		Class				Graduation
		Rings		Yearbooks		Products		Other		Total
Segment assets
February 27, 2010		$	171,859	$	142,746	$	57,324	$	40,945	$	412,874
May 29, 2010		$	160,779	$	166,124	$	52,139	$	41,106	$	420,148
August 29, 2009			168,325		146,537		50,489		38,272		403,623

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(unaudited)

12. Subsequent Events

~~The~~On ~~Company~~July ~~evaluated~~6, ~~subsequent~~2010 ~~events~~Parent ~~through~~Holdings, Intermediate Holdings and AAC each announced that its previously announced tender offer to purchase any and all of the ~~time~~outstanding principal amount of ~~filing~~Parent ~~this~~Holdings’ ~~Quarterly~~12.75% ~~Report~~senior onPIK ~~Form~~ notes, the 10-Q.25% senior discount notes and the 8.25% senior subordinated notes would not be extended. The ~~Company~~tender isoffer consideration was not ~~aware~~paid and will not become payable to holders of ~~any~~notes ~~significant~~who ~~events~~validly ~~that~~tendered ~~occurred~~their ~~subsequent~~notes toin connection with the ~~balance~~tender ~~sheet~~offer. None ~~date~~of ~~but~~the ~~prior~~notes towill be accepted for purchase or purchased in the ~~filing~~tender ofoffer ~~this~~and ~~report~~all ~~that~~notes ~~would~~previously ~~have~~tendered aand ~~material~~not ~~impact~~withdrawn onwill ~~its~~be ~~condensed~~promptly ~~consolidated~~returned ~~financial~~to ~~statements~~their respective holders. See Note 6 for a description of the tender offer.

-17-

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

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

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

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

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

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

·	our access to students and consumers in schools;

·	the seasonality of our business;

·	regulatory and accounting rules;

·	our relationship with our independent sales representatives;

·	fashion and demographic trends;

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

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

·	development and operating costs;

·	competitive pricing changes;

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

·	our ability to maintain our existing complex information systems or implement new systems;

·	our cash flows; and

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

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

You should consider the risks described in our Form 10-K filed with the Securities and Exchange Commission on November 18, 2009 as you review this quarterly report.

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Table of Contents

General

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

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

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

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

We experience seasonal fluctuations in our net sales tied primarily to the school year. We recorded 50% of our fiscal year 2009 net sales in our third quarter. Class ring sales are highest during October through December and early spring, with many orders made for delivery to students before the winter holiday season. Graduation product sales are predominantly made during February through April prior to the April through June graduation season. Yearbook sales are highest during the months of April through June, as yearbooks are typically shipped prior to each school’s summer break. Our recognition and affinity product line sales are also seasonal. The recognition and affinity product line sales are highest during the winter holiday season and in the period leading up to Mother’s Day. We have experienced operating losses during our first and fourth fiscal quarters, which ~~includes~~include the beginning of the school year and the summer months when school is not in session, thus reducing related shipment of products. In addition, our working capital requirements tend to exceed our operating cash flows from May through September.

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

Company Background

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

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Table of Contents

On March 25, 2004, AAC Acquisition Corp., a wholly owned subsidiary of AAC Holding Corp., merged with and into AAC, with AAC continuing as the surviving corporation and a wholly-owned subsidiary of AAC Holding Corp. The merger was financed by a cash equity investment by an investor group led by Fenway Partners Capital Fund II, L.P., borrowings under AAC’s senior secured credit facility and the issuance of AAC’s 8.25% senior subordinated notes due 2012. In November 2004, AAC Holding Corp. underwent a recapitalization transaction pursuant to which its stockholders exchanged their shares of AAC Holding Corp. common stock for shares of Intermediate Holdings’ common stock and, as a result, AAC Holding Corp. became a wholly owned subsidiary of Intermediate Holdings.

On November 16, 2004, Intermediate Holdings issued $131.5 million aggregate principal amount at maturity of 10.25% senior discount notes due 2012, generating net proceeds of $89.3 million. Intermediate Holdings is the sole obligor of these notes. The net proceeds of this offering were used as a distribution to stockholders through the repurchase of shares of Intermediate Holdings’ common stock from its stockholders.

Basis of Presentation

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

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

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

Critical Accounting Policies

As of ~~February~~May 2729, 2010, there have been no significant changes with regard to the critical accounting policies disclosed in our Annual Reports on Form 10-K for the year ended August 29, 2009. The policies disclosed included allowance for product returns, allowance for doubtful accounts and reserve on independent sales representative advances, goodwill and other intangible assets, long-lived tangible and intangible assets with definite lives, revenue recognition and income taxes.

20Significant Developments

Appointment of President and Chief Executive Officer. On April 19, 2010, AAC announced that Alyce Alston was appointed President and Chief Executive Officer of each of the registrants. The recruitment of Ms. Alston resulted in increased recruiting costs for the three and nine months ended May 29, 2010.

Tender Offer for Outstanding Notes. On May 10, 2010, American Achievement Group Holding Corp. (“Parent Holdings”), the indirect parent company of Intermediate Holdings, Intermediate Holdings and AAC each commenced a cash tender offer to purchase any and all of the outstanding principal amount of Parent Holdings’ 12.75% senior PIK notes (“Parent Holdings Notes”), the 10.25% senior discount notes and the 8.25% senior subordinated notes, which had outstanding principal amounts of $52.6 million, $131.5 million, and $150.0 million, respectively, as of May 29, 2010. Holders who validly tendered their notes on or prior to July 6, 2010 were to receive consideration equal to $1,063.75 per $1,000 principal amount of Parent Holdings Notes, $1,028.13 per $1,000 principal amount of 10.25% senior discount notes and $1,001.25 per $1,000 principal amount of 8.25% senior subordinated notes. The tender offer was subject to the satisfaction or waiver of certain conditions, including the consummation of a debt financing on terms and conditions satisfactory to AAC in its sole discretion. On July 6, 2010 Parent Holdings, Intermediate Holdings and AAC each announced that its previously announced tender offer would not be extended. The tender offer consideration was not paid and will not become payable to holders of notes who validly tendered their notes in connection with the tender offer. None of the notes will be accepted for purchase or purchased in the tender offer and all notes previously tendered and not withdrawn will be promptly returned to their respective holders.

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Table of Contents

Results of Operations

Three Months Ended ~~February~~May 2729, 2010 Compared to Three Months Ended ~~February~~May 2830, 2009

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

	Intermediate Holdings
($ in millions)	Three Months EndedFebruary 27, 2010					% ofNet Sales				Three Months EndedFebruary 28, 2009				% ofNet Sales			Increase/(Decrease)
	Three Months Ended							Three Months Ended
Net sales		$	52.7			100.0		%			$	56.1		100.0		%	$	(3.4	)
($ in millions)	May 29, 2010				% of Net Sales			May 30, 2009				% of Net Sales		Increase/ (Decrease)
Cost of sales			23.4			44.4		%				25.1		44.7		%		(1.7	)
Net sales	$	145.3			100.0	%		$	144.8			100.0	%	$	0.5
Gross profit			29.3			55.6		%				31.0		55.3		%		(1.7	)
Cost of sales		55.1			37.9	%			55.3			38.2	%		(0.2	)
Selling, general and administrative expenses			28.6			54.3		%				31.0		55.3		%		(2.4	)
Gross profit		90.2			62.1	%			89.5			61.8	%		0.7
Operating income (loss)			0.7			1.3		%				-		-		%		0.7
Selling, general and administrative expenses		45.5			31.3	%			44.3			30.6	%		1.2
Interest expense, net			7.7			14.6		%				7.4		13.2		%		0.3
Operating income		44.7			30.8	%			45.2			31.2	%		(0.5	)
Loss before income taxes			(7.0	)		(13.3	)	%				(7.4	)	(13.2	)	%		0.4
Interest expense, net		7.7			5.3	%			7.5			5.2	%		0.2
Benefit for income taxes			(3.2	)		(6.1	)	%				(3.3	)	(5.9	)	%		0.1
Income before income taxes		37.0			25.5	%			37.7			26.0	%		(0.7	)
Net loss		$	(3.8	)		(7.2	)	%			$	(4.1	)	(7.3	)	%	$	0.3
Provision for income taxes		16.4			11.3	%			16.5			11.4	%		(0.1	)
Net income	$	20.6			14.2	%		$	21.2			14.6	%	$	(0.6	)

	AAC
($ in millions)	Three Months EndedFebruary 27, 2010					% ofNet Sales				Three Months EndedFebruary 28, 2009				% ofNet Sales			Increase/(Decrease)
	Three Months Ended							Three Months Ended
Net sales		$	52.7			100.0		%			$	56.1		100.0		%	$	(3.4	)
($ in millions)	May 29, 2010				% of Net Sales			May 30, 2009				% of Net Sales		Increase/ (Decrease)
Cost of sales			23.4			44.4		%				25.1		44.7		%		(1.7	)
Net sales	$	145.3			100.0	%		$	144.8			100.0	%	$	0.5
Gross profit			29.3			55.6		%				31.0		55.3		%		(1.7	)
Cost of sales		55.1			37.9	%			55.3			38.2	%		(0.2	)
Selling, general and administrative expenses			28.6			54.3		%				31.0		55.3		%		(2.4	)
Gross profit		90.2			62.1	%			89.5			61.8	%		0.7
Operating income (loss)			0.7			1.3		%				-		-		%		0.7
Selling, general and administrative expenses		45.5			31.3	%			44.3			30.6	%		1.2
Interest expense, net			4.2			8.0		%				3.9		7.0		%		0.3
Operating income		44.7			30.8	%			45.2			31.2	%		(0.5	)
Loss before income taxes			(3.5	)		(6.7	)	%				(3.9	)	(7.0	)	%		0.4
Interest expense, net		4.2			2.9	%			4.0			2.8	%		0.2
Benefit for income taxes			(1.4	)		(2.7	)	%				(1.5	)	(2.7	)	%		0.1
Income before income taxes		40.5			27.9	%			41.2			28.4	%		(0.7	)
Net loss		$	(2.1	)		(4.0	)	%			$	(2.4	)	(4.3	)	%	$	0.3
Provision for income taxes		15.8			10.9	%			16.0			11.0	%		(0.2	)
Net income	$	24.7			17.0	%		$	25.2			17.4	%	$	(0.5	)

Net Sales. Net sales consist of product sales and are net of product returns and promotional discounts. Net sales ~~decreased~~increased $30.4 5 million, or 6less than 1%, to $52145.73 million for the three months ended ~~February~~May 2729, 2010 from $56144.18 million for the three months ended ~~February~~May 2830, 2009. The following details the changes in net sales during such periods by business segment.

Class Rings. Net sales ~~decreased~~increased $1.81 million to $2736.47 million for the three months ended ~~February~~May 2729, 2010 from $2935.26 million for the three months ended ~~February~~May 2830, 2009. The ~~decrease~~increase in net sales in class ring sales was primarily a result of ~~lower~~increased sales volumes of ~~high~~college ~~school~~ class rings and ~~change~~higher inselling ~~product~~prices ~~mix~~as ~~from~~a result of higher gold tocosts, ~~other~~partially ~~metals~~offset ~~with~~by lower ~~selling~~sales ~~prices~~volumes ~~due~~of tohigh ~~softness~~school inclass ~~the~~rings ~~economy,~~and ~~offset~~change byin ~~increased~~product ~~sales~~mix ~~volumes~~from ofgold ~~college~~to ~~class~~other ~~rings~~metals ~~and~~with ~~higher~~lower selling prices asdue ato ~~result~~softness ofin ~~higher~~the ~~gold costs~~economy.

Yearbooks. Net sales ~~increased~~decreased $02.59 million to $276.24 million for the three months ended ~~February~~May 2729, 2010 from $179.73 million for the three months ended ~~February~~May 2830, 2009. The ~~increase~~decrease in net sales was primarily the result of ana ~~increase~~lower contract volume and a decrease in the average contract value ~~from the second quarter of fiscal 2009~~ due to ~~contract~~softness ~~mix~~in the economy.

Graduation Products. Net sales decreased $0.54 million to $1521.32 million for the three months ended ~~February~~May 2729, 2010 from $1521.86 million for the three months ended ~~February~~May 2830, 2009. The decrease is primarily due to lower volume due to ~~the~~softness ~~soft~~in the economy and competition from on-line channels.

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~~Other.~~Table Net sales decreased $1.7 million to $7.8 million for the three months ended February 27, 2010 from $9.5 million for the three months ended February 28, 2009. The decrease in net sales was primarily related to a decrease in professional championship rings and to the softness of ~~the economy impacting sales of commercial printing products, personalized family jewelry and affinity jewelry.~~Contents

~~Gross Profit~~Other. ~~Gross~~Net ~~margin~~sales ~~represents~~increased ~~gross profit as a percentage of net sales~~$2.7 million ~~Gross~~to ~~margin was 55~~$11.6%0 million for the three months ended ~~February~~May 2729, 2010, afrom 0$8.3 ~~percentage~~million ~~point increase from 55.3%~~ for the three months ended ~~February~~May 2830, 2009. The ~~improvement~~increase in ~~gross~~net ~~margin~~sales ~~from~~was ~~the three months ended February 28, 2009 is~~ primarily arelated ~~result~~to ofan ~~savings~~increase ~~from~~in professional ~~productivity~~championship rings and ~~cost~~personalized ~~reduction~~family ~~measures~~jewelry, partially offset by ~~higher gold costs. Overall, gross profit decreased $1.7 million compared with the three months ended February 28, 2009 as~~ a ~~result~~decrease ofin ~~lower~~ sales ~~and~~of ~~higher~~commercial ~~gold~~printing ~~costs,~~products ~~partially~~and ~~offset~~military byrings ~~savings~~due ~~from~~to ~~productivity~~softness ~~and~~in ~~cost~~the ~~reduction measures~~economy.

~~Selling,~~Gross ~~General and Administrative Expenses~~Profit. ~~Selling,~~Gross ~~general~~margin ~~and~~represents ~~administrative~~gross ~~expenses~~profit ~~for~~as ~~Intermediate~~a ~~Holdings~~percentage ~~and~~of ~~AAC~~net ~~decreased $2~~sales.~~4 million,~~ orGross ~~8%,~~margin towas ~~$28~~62.~~6 million~~1% for the three months ended ~~February~~ 27May 29, 2010, ~~from~~a ~~$31.~~0.3 ~~million~~percentage point increase from 61.8% for the three months ended ~~February~~May 2830, 2009. ~~Included~~The improvement in ~~selling~~gross margin from the three months ended May 30, ~~general~~2009 ~~and~~is ~~administrative~~primarily ~~expenses~~a ~~are~~result ~~two~~of ~~sub-categories:~~savings ~~selling~~from productivity and ~~marketing~~cost ~~expenses~~reduction measures, partially offset by higher gold costs. Overall, gross profit increased $0.7 million compared with the three months ended May 30, 2009 as a result of higher sales and ~~general~~savings from productivity and ~~administrative~~cost ~~expenses~~reduction measures, partially offset by higher gold costs.

Selling, General and ~~marketing~~Administrative Expenses. Selling, general and administrative expenses ~~decreased~~for ~~$2.3 million~~Intermediate toHoldings and AAC increased $181.52 million, or 353%, ofto ~~net~~$45.5 million ~~sales,~~ for the three months ended ~~February~~May 2729, 2010 from $2044.83 million ~~or 37% of net sales,~~ for the three months ended ~~February~~May 2830, 2009. ~~due~~Included toin ~~decreased~~selling, general and administrative expenses are two sub-categories: selling and marketing ~~expenditures~~expenses and ~~decreased~~general ~~commissions~~and administrative expenses.

~~General~~Selling and ~~administrative~~marketing expenses ~~decreased~~increased $0.1 5 million to $1034.1 5 million, or 1923% of net sales, for the three months ended ~~February~~May 2729, 2010 from $1034.2 0 million, or 1824% of net sales, for the three months ended ~~February~~May 2830, 2009 due to an increase in sales development expenses, partially offset by decreased marketing expenditures and lower commissions.

~~Operating~~General ~~Income~~and ~~(Loss). As~~administrative aexpenses ~~result~~increased of$0.7 ~~the~~million ~~foregoing,~~to ~~operating income was~~ $011.70 million, or 18% of net sales, for the three months ended ~~February~~May 2729, 2010 asfrom ~~compared with~~ $010.03 million, or ~~less than 0.1~~7% of net sales, for the three months ended ~~February~~May 2830, 2009. The increase in general and administrative expenses was due to an increase in recruiting costs, professional and consulting fees and expense for uncollectible accounts receivable, partially offset by a decrease in expenses due to fees incurred in the third quarter of fiscal 2009 to amend our credit facility.

~~The~~Operating ~~class~~Income. As ~~rings~~a ~~segment~~result ~~reported operating income~~ of ~~$3.3 million for~~ the ~~three months ended February 27~~foregoing, ~~2010 as compared with~~ operating income ofwas $144.7 ~~million~~ ~~for the three months ended February 28~~million, ~~2009.~~or ~~The yearbooks segment reported operating loss of $5~~30.~~6 million~~8% ~~for the three months ended February 27, 2010 as compared with operating loss~~ of ~~$4.9~~net ~~million for the three months ended February 28~~sales, ~~2009. The graduation products segment reported operating income of $2.7 million~~ for the three months ended ~~February~~May 2729, 2010 as compared with ~~operating income of~~ $345.1 2 million ~~for~~or ~~the three months ended February 28, 2009~~31.2% ~~The other segment reported operating income~~ of ~~$0.3~~net ~~million for the three months ended February 27~~sales, ~~2010 as compared with $0.0 million~~ for the three months ended ~~February~~May 2830, 2009.

~~Interest~~The ~~Expense,~~class ~~Net. For~~rings ~~Intermediate~~segment ~~Holdings,~~reported ~~net~~operating ~~interest~~income ~~expense~~of ~~was~~ $74.75 million for the three months ended ~~February~~May 2729, 2010 ~~and~~as compared with operating income of $76.4 2 million for the three months ended ~~February~~May 2830, 2009. The ~~average~~ ~~debt~~yearbooks ~~outstanding~~segment reported operating income of ~~Intermediate~~$34.2 ~~Holdings~~million for the three months ended ~~February~~May 2729, 2010 ~~and~~as compared with operating income of $34.1 million for the three months ended ~~February~~May 2830, 2009. ~~was~~The graduation products segment reported operating income of $~~317~~5.4 million ~~and~~for the three months ended May 29, 2010 as compared with operating income of $~~341~~4.6 million for the three months ended May 30, ~~respectively~~2009. The ~~weighted~~other ~~average~~segment ~~interest~~reported ~~rate~~operating onincome ~~debt outstanding~~ of ~~Intermediate~~$0.5 ~~Holdings~~million for the three months ended ~~February~~May 2729, 2010 ~~and~~as compared with operating income of $0.3 million for the three months ended ~~February~~May 2830, 2009 ~~was 9~~.~~0% and 8.4%, respectively.~~

Interest Expense, Net. For ~~AAC~~Intermediate Holdings, net interest expense was $47.27 million for the three months ended ~~February~~May 2729, 2010 and $37.95 million for the three months ended ~~February~~May 2830, 2009. The average debt outstanding of ~~AAC~~Intermediate Holdings for the three months ended ~~February~~May 2729, 2010 and the three months ended ~~February~~May 2830, 2009 was $~~185~~ 307 million and $~~209~~328 million, respectively. The weighted average interest rate on debt outstanding of ~~AAC~~Intermediate Holdings for the three months ended ~~February~~May 2729, 2010 and the three months ended ~~February~~May 2830, 2009 was 89.0% and 78.04%, respectively.

~~Benefit~~For ~~for~~AAC, ~~Income~~net ~~Taxes~~interest expense was $4.2 million ~~For~~for the three months ended ~~February~~May 2729, 2010 and ~~February~~$4.0 ~~28,~~million ~~2009,~~for ~~Intermediate~~the ~~Holdings~~three ~~recorded~~months anended ~~income~~May ~~tax~~30, ~~benefit of $3~~2009.2 ~~million~~The ~~and~~average ~~$3.3 million,~~debt ~~respectively,~~outstanding ~~which~~of ~~represents~~AAC anfor ~~effective~~the ~~tax~~three ~~rate~~months ofended ~~46%~~May ~~and 45%~~29, ~~respectively. The~~2010 ~~effective~~and ~~tax rate varies from~~ the ~~statutory~~three ~~federal~~months ~~rate~~ended ~~due~~May to30, ~~the~~2009 ~~impact~~was of$175 ~~state~~million ~~income taxes~~ and ~~the~~$197 million, ~~non-deductibility~~respectively. ofThe aweighted ~~portion~~average of interest rate on ~~high-yield~~ debt. ~~Intermediate~~outstanding ~~Holdings’~~of ~~effective~~AAC ~~rates~~ for the three months ended ~~February~~May 2729, 2010 and ~~February~~the ~~28,~~three ~~2009~~months ~~represent~~ended anMay ~~estimate~~30, of2009 ~~the~~was ~~annual~~8.2% ~~federal~~ and ~~state~~7.1%, ~~income tax rate~~respectively.

Provision for Income Taxes. For the three months ended ~~February~~May 2729, 2010 and ~~February~~May 2830, 2009, ~~AAC~~Intermediate Holdings recorded an income tax ~~benefit~~provision of $116.4 million and $116.5 million, respectively, which represents an effective tax rate of 3944% ~~and 38%, respectively~~. The effective tax rate varies from the statutory federal rate due to the impact of state income taxes and the non-deductibility of a portion of interest on high-yield debt. ~~AAC~~Intermediate Holdings’s effective rates for the three months ended ~~February~~May 2729, 2010 and ~~February~~May 2830, 2009 represent an estimate of the annual federal and state income tax rate.

22For the three months ended May 29, 2010 and May 30, 2009, AAC recorded an income tax provision of $15.8 million and $16.0 million, respectively, which represents an effective tax rate of 39%. The effective tax rate varies from the statutory federal rate due to the impact of state income taxes. AAC’s effective rates for the three months ended May 29, 2010 and May 30, 2009 represent an estimate of the annual federal and state income tax rate.

~~Six Months Ended February 27, 2010 Compared to Six Months Ended February 28, 2009~~-22-

Table of Contents

Nine Months Ended May 29, 2010 Compared to Nine Months Ended May 30, 2009

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

	Intermediate Holdings
($ in millions)	Six Months EndedFebruary 27, 2010					% ofNet Sales				Six Months EndedFebruary 28, 2009				% ofNet Sales			Increase/(Decrease)
	Nine Months Ended							Nine Months Ended
Net sales		$	100.7			100.0		%			$	105.3		100.0		%	$	(4.6	)
($ in millions)	May 29, 2010				% of Net Sales			May 30, 2009				% of Net Sales		Increase/ (Decrease)
Cost of sales			46.9			46.6		%				50.1		47.6		%		(3.2	)
Net sales	$	246.0			100.0	%		$	250.2			100.0	%	$	(4.2	)
Gross profit			53.8			53.4		%				55.2		52.4		%		(1.4	)
Cost of sales		102.1			41.5	%			105.5			42.2	%		(3.4	)
Selling, general and administrative expenses			55.4			55.0		%				57.5		54.6		%		(2.1	)
Gross profit		143.9			58.5	%			144.7			57.8	%		(0.8	)
Operating income (loss)			(1.6	)		(1.6	)	%				(2.3	)	(2.2	)	%		0.7
Selling, general and administrative expenses		100.9			41.0	%			101.8			40.7	%		(0.9	)
Interest expense, net			15.6			15.5		%				15.3		14.5		%		0.3
Operating income		43.0			17.5	%			42.9			17.1	%		0.1
Loss before income taxes			(17.2	)		(17.1	)	%				(17.6	)	(16.7	)	%		0.4
Interest expense, net		23.2			9.5	%			22.8			9.1	%		0.4
Benefit for income taxes			(7.7	)		(7.6	)	%				(7.6	)	(7.2	)	%		(0.1	)
Income before income taxes		19.8			8.0	%			20.1			8.0	%		(0.3	)
Net loss		$	(9.5	)		(9.4	)	%			$	(10.0	)	(9.5	)	%	$	0.5
Provision for income taxes		8.7			3.5	%			8.9			3.5	%		(0.2	)
Net income	$	11.1			4.5	%		$	11.2			4.5	%	$	(0.1	)

	AAC
($ in millions)	Six Months EndedFebruary 27, 2010					% ofNet Sales				Six Months EndedFebruary 28, 2009				% ofNet Sales			Increase/(Decrease)
	Nine Months Ended							Nine Months Ended
Net sales		$	100.7			100.0		%			$	105.3		100.0		%	$	(4.6	)
($ in millions)	May 29, 2010				% of Net Sales			May 30, 2009				% of Net Sales		Increase/ (Decrease)
Cost of sales			46.9			46.6		%				50.1		47.6		%		(3.2	)
Net sales	$	246.0			100.0	%		$	250.2			100.0	%	$	(4.2	)
Gross profit			53.8			53.4		%				55.2		52.4		%		(1.4	)
Cost of sales		102.1			41.5	%			105.5			42.2	%		(3.4	)
Selling, general and administrative expenses			55.4			55.0		%				57.5		54.6		%		(2.1	)
Gross profit		143.9			58.5	%			144.7			57.8	%		(0.8	)
Operating income (loss)			(1.6	)		(1.6	)	%				(2.3	)	(2.2	)	%		0.7
Selling, general and administrative expenses		100.9			41.0	%			101.8			40.7	%		(0.9	)
Interest expense, net			8.6			8.5		%				8.4		8.0		%		0.2
Operating income		43.0			17.5	%			42.9			17.1	%		0.1
Loss before income taxes			(10.2	)		(10.1	)	%				(10.7	)	(10.2	)	%		0.5
Interest expense, net		12.8			5.2	%			12.4			4.9	%		0.4
Benefit for income taxes			(4.0	)		(4.0	)	%				(4.1	)	(3.9	)	%		0.1
Income before income taxes		30.2			12.3	%			30.5			12.2	%		(0.3	)
Net loss		$	(6.2	)		(6.1	)	%			$	(6.6	)	(6.3	)	%	$	0.4
Provision for income taxes		11.8			4.8	%			11.8			4.7	%		-
Net income	$	18.4			7.5	%		$	18.7			7.5	%	$	(0.3	)

Net Sales. Net sales consist of product sales and are net of product returns and promotional discounts. Net sales decreased $4.62 million, or 42%, to $~~100~~246.70 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 from $~~105~~250.32 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The following details the changes in net sales during such periods by business segment.

Class Rings. Net sales decreased $21.21 million to $5794.63 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 from $5995.84 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The decrease in net sales in class ring sales was primarily a result of lower sales volumes of high school class rings and change in product mix from gold to other metals with lower selling prices due to softness in the economy, offset by increased sales of college class rings due in part to timing of sales from the fourth quarter of fiscal 2009 to the first quarter of fiscal 2010 and higher selling prices as a result of higher gold costs.

Yearbooks. Net sales ~~increased~~decreased $1.27 million to $1187.37 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 from $1089.14 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The ~~increase~~decrease in net sales was primarily the result of ~~timing~~a ofdecrease ~~shipments~~in ~~between~~the average contract value from the ~~fourth~~nine ~~quarter of~~months ended May 30, 2009 ~~and~~due to softness in the ~~first~~economy. This ~~quarter~~decrease was partially offset by an increase in net sales as a result of ~~2010~~timing ~~and~~of shipments between the fourth quarter of ~~2008~~2009 and the first quarter of ~~2009. This~~2010 ~~increase~~and ~~was~~between ~~partially~~the ~~offset~~fourth byquarter aof ~~decrease~~2008 inand the ~~average~~first ~~contract~~quarter ~~value~~of ~~from the six months ended February 28,~~ 2009.

Graduation Products. Net sales decreased $01.60 million to $1839.57 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 from $1940.17 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The decrease is primarily due to lower volume and product mix due to ~~the~~softness ~~soft~~in the economy and competition from on-line channels.

-23-

~~Other.~~Table Net sales decreased $3.1 million to $13.3 million for the six months ended February 27, 2010 from $16.4 million for the six months ended February 28, 2009. The decrease in net sales was primarily related to a decrease in professional championship rings and to the softness in the economy impacting sales of ~~commercial printing products, personalized family jewelry and affinity jewelry.~~Contents

~~Gross Profit~~Other. ~~Gross~~Net ~~margin~~sales ~~represents~~decreased ~~gross profit as a percentage of net sales~~$0.4 million ~~Gross~~to ~~margin was 53~~$24.4%3 million for the ~~six~~nine months ended ~~February~~May 2729, 2010, afrom 1$24.07 ~~percentage~~million ~~point increase from 52.4%~~ for the ~~six~~ nine months ended ~~February~~May 2830, 2009. The ~~improvement~~decrease in ~~gross~~net ~~margin~~sales ~~from~~was ~~the~~primarily ~~three~~related ~~months~~to the ~~ended~~softness ~~February~~in ~~28,~~the ~~2009~~economy isimpacting ~~primarily~~sales ~~a result~~ of ~~savings~~commercial ~~from~~printing ~~productivity and cost reduction measures~~products, ~~partially~~military ~~offset~~rings byand ~~higher~~affinity ~~gold~~jewelry ~~costs. Overall, gross profit decreased $1.4 million primarily as a result of lower sales~~ and ~~higher~~was ~~gold costs,~~ partially offset by ~~savings~~an ~~from~~increase ~~productivity~~in professional ~~and~~championship ~~cost reduction measures~~rings.

~~Selling,~~Gross ~~General~~Profit. ~~and~~Gross ~~Administrative~~margin ~~Expenses.~~represents ~~Selling,~~gross ~~general~~profit ~~and~~as ~~administrative~~a ~~expenses~~percentage ~~decreased~~of $2net sales.~~1 million,~~ orGross ~~4%,~~margin towas ~~$55~~58.~~4 million~~5% for the ~~six~~nine months ended ~~February~~May 2729, 2010, a 0.7 percentage point increase from $57.~~5 million~~ 8% for the ~~six~~nine months ended ~~February~~May 2830, 2009. ~~Included~~The improvement in ~~selling~~gross margin from the three months ended May 30, ~~general~~2009 ~~and~~is ~~administrative~~primarily ~~expenses~~a ~~are~~result ~~two~~of ~~sub-categories:~~savings ~~selling~~from productivity and ~~marketing~~cost ~~expenses~~reduction measures, partially offset by higher gold costs. Overall, gross profit decreased $0.8 million primarily as a result of lower sales and ~~general~~higher gold costs, partially offset by savings from productivity and ~~administrative~~cost ~~expenses~~reduction measures.

Selling, General and ~~marketing~~Administrative Expenses. Selling, general and administrative expenses decreased $20.~~7 million~~9 ~~to $34.8~~ million, or 351%, ofto ~~net~~$100.9 million ~~sales,~~ for the ~~six~~nine months ended ~~February~~May 2729, 2010 from $37101.5 8 million ~~or 36% of net sales,~~ for the ~~six~~nine months ended ~~February~~May 2830, 2009. ~~due~~Included toin ~~decreased~~selling, general and administrative expenses are two sub-categories: selling and marketing ~~expenditures~~expenses and ~~lower~~general ~~commissions~~and administrative expenses.

~~General~~Selling and ~~administrative~~marketing expenses ~~increased~~ decreased $02.6 3 million to $2069.63 million, or 2028% of net sales, for the ~~six~~nine months ended ~~February~~May 2729, 2010 from $2071.06 million, or 1929% of net sales, for the ~~six~~nine months ended ~~February~~May 2830, 2009. ~~The increase in general and administrative expenses was~~ due to adecreased ~~$1.5~~marketing ~~million~~expenditures ~~management~~and ~~fee~~lower ~~incurred during the first quarter of fiscal 2010~~commissions, partially offset by ~~decreases~~an increase in ~~professional~~sales ~~fees,~~development ~~consulting fees and employee costs~~expenses.

~~Operating~~General ~~Loss. As~~and aadministrative ~~result~~expenses increased of$1.4 ~~the~~million ~~foregoing,~~to ~~operating loss was~~ $131.6 million, or 213% of net sales, for the ~~six~~nine months ended ~~February~~May 2729, 2010 asfrom ~~compared with operating loss of~~ $230.3 2 million, or 2 12% of net sales, for the ~~six~~nine months ended ~~February~~May 2830, 2009. The increase in general and administrative expenses was due to an increase in recruiting costs, professional and consulting fees, expense for uncollectible accounts receivable and the additional management fee to Fenway Partners LLC incurred during the first quarter of fiscal 2010, partially offset by a decrease in expenses due to fees incurred in the third quarter of fiscal 2009 to amend our credit facility.

~~The~~Operating ~~class~~Income. As ~~rings~~a ~~segment~~result ~~reported operating income~~ of ~~$6.9 million for~~ the ~~six months ended February 27~~foregoing, ~~2010 as compared with~~ operating income ofwas $443.~~9 million~~0 ~~for the six months ended February 28, 2009. The yearbooks segment reported operating loss of $9.1~~ million ~~for the six months ended February 27~~, ~~2010~~or as18% ~~compared with operating loss~~ of ~~$8.6~~net ~~million for the six months ended February 28~~sales, ~~2009. The graduation products segment reported operating income of $1.1 million~~ for the ~~six~~nine months ended ~~February~~May 2729, 2010 as compared with operating income of $242.09 million ~~for the six months ended February 28~~, ~~2009.~~or ~~The~~17% ~~other segment reported an operating loss~~ of ~~$0.5~~net ~~million for the six months ended February 27~~sales, ~~2010 as compared with operating loss of $0.6 million~~ for the ~~six~~nine months ended ~~February~~May 2830, 2009.

~~Interest~~The ~~Expense,~~class ~~Net. For~~rings ~~Intermediate~~segment ~~Holdings,~~reported ~~net~~operating ~~interest~~income ~~expense~~of ~~was~~ $1511.64 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 ~~and~~as compared with operating income of $1511.32 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The ~~average~~yearbooks ~~debt~~segment ~~outstanding~~reported ofoperating ~~Intermediate~~income ~~Holdings~~of $25.1 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 ~~and~~as compared with operating income of $25.5 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. ~~was~~The graduation products segment reported operating income of $~~323~~6.5 million ~~and~~for the nine months ended May 29, 2010 as compared with operating income of $~~350~~6.6 million for the nine months ended May 30, ~~respectively~~2009. The ~~weighted~~other ~~average~~segment ~~interest~~reported ~~rate~~an onoperating ~~debt~~income ~~outstanding~~ of ~~Intermediate~~$0.0 ~~Holdings~~million for the ~~six~~nine months ended ~~February~~May 2729, 2010 ~~and~~as ~~the~~compared ~~six~~with ~~months~~operating ~~ended~~loss ~~February~~of ~~28,~~$0.4 ~~2009~~million ~~was~~for ~~8.9%~~the ~~and~~nine ~~8.4%~~months ended May 30, ~~respectively~~2009.

Interest Expense, Net. For ~~AAC~~Intermediate Holdings, net interest expense was $823.62 million for the ~~six~~nine months ended ~~February~~May 2729, 2010 and $822.48 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The average debt outstanding of ~~AAC~~Intermediate Holdings for the ~~six~~nine months ended ~~February~~May 2729, 2010 and the ~~six~~nine months ended ~~February~~May 2830, 2009 was $~~191~~ 317 million and $~~218~~342 million, respectively. The weighted average interest rate on debt outstanding of ~~AAC~~Intermediate Holdings for the ~~six~~nine months ended ~~February~~May 2729, 2010 and the ~~six~~nine months ended ~~February~~May 2830, 2009 was 89.0% and 78.23%, respectively.

~~Benefit~~For ~~for~~AAC, ~~Income~~net ~~Taxes~~interest expense was $12.8 million ~~For~~for the ~~six~~nine months ended ~~February~~May 2729, 2010 and ~~February~~$12.4 million ~~28,~~for ~~2009,~~the ~~Intermediate~~nine ~~Holdings~~months ~~recorded~~ended anMay ~~income~~30, ~~tax benefit of $7~~2009.~~7 million~~ ~~and~~The ~~$7.6 million,~~average ~~respectively,~~debt ~~which represents~~outstanding ~~an effective tax rate~~ of ~~45%~~AAC ~~and~~for ~~43%,~~the ~~respectively.~~nine ~~The~~months ~~effective~~ended ~~tax rates~~May ~~vary~~29, ~~from~~2010 and the ~~statutory~~nine ~~federal~~months ~~rate~~ended ~~due~~May to30, ~~the~~2009 ~~impact~~was of$186 ~~state~~million ~~income taxes~~ and ~~the~~$211 million, ~~non-deductibility~~respectively. ofThe aweighted ~~portion~~average of interest rate on ~~high-yield~~ debt. ~~Intermediate~~outstanding ~~Holdings’~~of ~~effective~~AAC ~~rates~~ for the ~~six~~nine months ended ~~February~~May 2729, 2010 and ~~February~~the ~~28,~~nine ~~2009~~months ~~represent~~ended anMay ~~estimate~~30, of2009 ~~the~~was ~~annual~~8.0% ~~federal~~ and ~~state~~7.1%, ~~income tax rate~~respectively.

Provision for Income Taxes. For the ~~six~~nine months ended ~~February~~May 2729, 2010 and ~~February~~May 2830, 2009, ~~AAC~~Intermediate Holdings recorded an income tax ~~benefit~~provision of $48.0 7 million and $48.1 9 million, respectively, which represents an effective tax rate of 3944% ~~and 38%, respectively~~. The effective tax rates vary from the statutory federal rate due to the impact of state income taxes and the non-deductibility of a portion of interest on high-yield debt. ~~AAC~~Intermediate Holdings’s effective rates for the ~~six~~nine months ended ~~February~~May 2729, 2010 and ~~February~~May 2830, 2009 represent an estimate of the annual federal and state income tax rate.

24For the nine months ended May 29, 2010 and May 30, 2009, AAC recorded an income tax provision of $11.8 million, which represents an effective tax rate of 39%. The effective tax rates vary from the statutory federal rate due to the impact of state income taxes. AAC’s effective rates for the nine months ended May 29, 2010 and May 30, 2009 represent an estimate of the annual federal and state income tax rate.

-24-

Table of Contents

Liquidity and Capital Resources

Cash Flows

Operating Activities. Operating activities for AAC provided $3147.90 million of cash for the ~~six~~nine months ended ~~February~~May 2729, 2010 compared to cash provided of $4045.37 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. The $81.43 million ~~decrease~~ increase in cash provided by operating activities was mainly attributable to a ~~higher~~lower use of working capital and lower cash paid for interest and taxes, partially offset by lower profitability in the first ~~six~~nine months of fiscal year 2010 compared to the first nine months of fiscal 2009.

Operating activities for Intermediate Holdings provided $2533.16 million of cash for the ~~six~~nine months ended ~~February~~May 2729, 2010 compared to cash provided of $4039.95 million for the ~~six~~nine months ended ~~February~~May 2830, 2009. In addition to the items impacting cash flow from operating activities of AAC, cash provided by operating activities ~~for~~ ~~the six months ended February 27, 2010~~ for Intermediate Holdings was further impacted by ~~a $6.7 million~~ cash interest ~~payment~~payments related to the 10.25% senior discount notes of $13.5 million and $6.7 million for the nine months ended May 29, 2010 and May 30, 2009, respectively. The increase in the amount paid during the nine months ended May 29, 2010 is due to the fact that interest accrued in the form of an increase in the accreted value of the notes through October 1, 2008.

During the ~~six~~nine months ended ~~February~~May 2729, 2010 and the ~~six~~nine months ended ~~February~~May 2830, 2009, cash was used to make interest payments of $612.24 million on the 8.25% senior subordinated notes.

~~During~~Investing Activities. Capital expenditures for the ~~six~~nine months ended ~~February~~May 2729, 2010, ~~cash~~were ~~was~~$3.6 million ~~used~~compared to ~~make~~capital anexpenditures ~~interest payment~~ of $64.7 3 million onfor the ~~10.25%~~nine ~~senior discount notes. During the six~~ months ended ~~February~~May 2830, 2009,. noOur ~~interest~~projected ~~payments~~capital ~~were~~expenditures ~~made~~for onfiscal ~~the~~year ~~10.25%~~2010 ~~senior~~are ~~discount~~expected ~~notes due~~ to ~~the~~be ~~fact~~approximately ~~that~~$7.0 ~~interest~~million ~~accrued~~compared into ~~the~~$5.9 ~~form~~million offor anfiscal ~~increase~~year ~~in the accreted value of the notes through October 1,~~ 2009.

~~Investing~~Financing Activities. ~~Capital~~ During ~~expenditures for~~ the ~~six~~nine months ended ~~February~~May 2729, 2010, ~~were~~cash was used to pay down $222.37 million ~~compared~~of tothe ~~capital~~term ~~expenditures~~loan, of which $32.1 7 million ~~for~~were mandatory payments. The Company also incurred deferred financing fees of $2.2 million in connection with efforts to obtain new financing. During the ~~six~~nine months ended ~~February~~May 2829, ~~2009~~2010, AAC paid $13.5 ~~Our~~million ~~projected~~related ~~capital~~to ~~expenditures~~interest ~~for~~payments ~~fiscal~~on ~~year 2010~~the ~~are~~10.25% ~~expected~~senior discount notes of Intermediate Holdings, which is reflected as a cash distribution to beIntermediate ~~approximately~~Holdings. Additionally, AAC funded a $91.0 million payment to Fenway Partners LLC on behalf of AAIH, which is reflected as a capital distribution by AAC to Intermediate Holdings to AAIH.

~~Financing Activities.~~ During the ~~six~~nine months ended ~~February~~May 2730, ~~2010~~2009, cash was used to pay down $1728.06 million of the term loan, of which $2.06 million were mandatory payments. ~~We also made a discretionary payment of $5.0 million in March 2010.~~ During the ~~six~~nine months ended ~~February~~May 2730, 2010, AAC paid $6.7 million related to an interest payment on the 10.25% senior discount notes of Intermediate Holdings which is reflected as a cash distribution to Intermediate Holdings. Additionally, AAC funded a $1.0 million payment to Fenway Partners LLC on behalf of AAIH, which is reflected as a capital distribution by AAC to Intermediate Holdings to AAIH. During the six months ended February 28, 2009, cash was used to pay ~~down~~ $281.5 4 million ofin ~~the~~deferred ~~term~~financing ~~loan,~~fees ofin ~~which~~connection ~~$2.5~~with ~~million~~amending ~~were~~our ~~mandatory~~credit ~~payments~~facility.

Debt Arrangements

We have a significant amount of indebtedness. On ~~February~~May 2729, 2010, Intermediate Holdings had total indebtedness of $~~311~~305.36 million, of which $131.5 million was 10.25% senior discount notes, $150.0 million was 8.25% senior subordinated notes and $2924.81 million was indebtedness under the existing senior secured credit facility. As of ~~February 27~~May 29, 2010, we also have up to $23.13 million in available revolving loan borrowings under our senior secured credit facility. We are currently in compliance with financial covenants in all of the agreements governing our outstanding indebtedness.

Senior Secured Credit Facility. On March 25, 2004, AAC entered into a senior credit facility, which was subsequently amended on August 17, 2006 and May 20, 2009 (as amended, our “Amended Senior Credit Facility”). The term loan of the Amended Senior Credit Facility is due in March 2011. Quarterly payments of $0.76 million are required through February 28, 2011. The term loan of the Amended Senior Credit Facility has an interest rate based upon the higher of 3.0% or the base rate, which is derived from the Prime Rate or Federal Funds Effective Rate as defined in the credit agreement, or the higher of 2.0% or London Interbank Offered Rate (“LIBOR”) depending on the type of loan AAC chooses, plus an applicable margin based on a calculated leverage ratio as defined in the agreement. The interest rate on the term loan of the Amended Senior Credit Facility was 6.25% at ~~February~~May 2729, 2010.

The revolving credit facility that is part of the Amended Senior Credit Facility matures in March 2011. Availability under the revolving credit facility is restricted to a total revolving commitment of $25.0 million as defined in the credit agreement governing the Amended Senior Credit Facility. Advances under the revolving credit facility may be made as base rate loans or LIBOR loans at AAC’s election. Interest rates on base rate loans are based upon the higher of 3.0% or the base rate, which is derived from the Prime Rate or Federal Funds Effective Rate as defined in the credit agreement, plus an applicable margin based on a leverage ratio as defined in the agreement. Interest rates on LIBOR loans are based upon the higher of 2.0% or LIBOR plus an applicable margin based on a leverage ratio as defined in the agreement. Availability under the revolving credit facility as of ~~February~~May 2729, 2010 was approximately $23.13 million with $1.97 million in letters of credit outstanding.

8.25% Senior Subordinated Notes. On March 25, 2004, AAC issued the 8.25% senior subordinated notes pursuant to an indenture. $150.0 million of the 8.25% senior subordinated notes was outstanding on May 29, 2010. AAC is required to pay cash interest on the 8.25% senior subordinated notes semi-annually in arrears on April 1 and October 1 of each year. The 8.25% senior subordinated notes have no scheduled amortization and mature on April 1, 2012. The 8.25% senior subordinated notes are guaranteed by AAC’s existing and future domestic subsidiaries.

8.25% Senior Subordinated Notes. On March 25, 2004, AAC issued the 8.25% senior subordinated notes pursuant to an indenture. $150.0 million of the 8.25% senior subordinated notes was outstanding on February 27, 2010. AAC is required to pay cash interest on the 8.25% senior subordinated notes semi-~~annually in arrears on April 1 and October 1 of each year. The 8.~~25~~% senior subordinated notes have no scheduled amortization and mature on April 1, 2012. The 8.25% senior subordinated notes are guaranteed by AAC’s existing and future domestic subsidiaries.~~-

~~10.25%~~Table ~~Senior Discount Notes. On November 16, 2004, Intermediate Holdings issued the 10.25% senior discount notes pursuant to an indenture. $131.5 million~~ of the 10.25% senior discount notes was outstanding on February 27, 2010. Interest accrued on the 10.25% senior discount notes in the form of an increase in the accreted value of the notes through October 1, 2008. Thereafter, cash interest on the 10.25% senior discount notes accrues and is payable semiannually in arrears on April 1 and October 1 of each year, at a rate of 10.25% per annum. An interest payment of $6.7 million was made on October 1, 2009. This payment was funded by AAC and was accounted for as a capital distribution and reflected as a reduction of AAC’s accumulated earnings. Interest payments due in the next twelve months are also expected to be funded by AAC. The 10.25% senior discount notes have no scheduled amortization and mature on October 1, 2012. The 10.25% senior discount notes are solely obligations of Intermediate Holdings and are not guaranteed by any of its subsidiaries, including AAC.Contents

~~Capital~~10.25% ~~Resources We~~Senior ~~expect~~Discount ~~that~~Notes. On ~~cash~~November ~~generated~~16, ~~from~~2004, ~~operating~~Intermediate ~~activities~~Holdings ~~and~~issued ~~availability under~~ the ~~Amended~~10.25% ~~Senior~~senior ~~Credit~~discount ~~Facility~~notes ~~will~~pursuant beto ~~our~~an ~~principal~~indenture. $131.5 ~~sources~~million of ~~liquidity~~the 10.25% ~~Due~~senior todiscount ~~the~~notes ~~current~~was ~~unfavorable~~outstanding ~~economic~~on ~~environment~~May 29, we2010. Interest ~~expect~~accrued ~~continued~~on ~~softness~~the in10.25% ~~sales~~senior ~~for~~discount notes in the ~~rest~~form of ~~this~~an ~~year. We~~increase ~~expect~~in ~~our~~the ~~productivity~~accreted ~~initiatives~~value ~~and~~of ~~cost~~the ~~containment measures~~notes tothrough ~~partially~~October ~~offset~~1, ~~the~~2008. ~~impact~~Thereafter, ofcash ~~lower~~interest ~~sales~~ on ~~our~~the ~~operating income~~10.25% ~~Most~~senior ofdiscount ~~our~~notes ~~net~~accrues ~~operating~~and ~~loss~~is ~~carryforward~~payable ~~will~~semiannually bein ~~utilized~~arrears byon ~~the~~April ~~end~~1 ofand ~~fiscal~~October ~~year~~1 ~~2010;~~of ~~therefore~~each year, weat ~~expect~~a ~~higher~~rate ~~future~~of ~~cash~~10.25% ~~outflows~~per ~~for income taxes~~annum. ~~Based~~Interest onpayments ~~our~~made ~~current~~during ~~and~~the ~~planned~~nine ~~level~~months ofended ~~operations~~May 29, we2010 ~~believe~~totaled ~~our~~$13.5 ~~cash~~million. These ~~flow~~payments ~~from~~were ~~operations,~~funded ~~available~~by ~~cash~~AAC ~~on hand~~ and ~~available~~were ~~borrowings~~accounted ~~under~~for ~~the~~as ~~Amended~~capital ~~Senior~~distributions ~~Credit~~and ~~Facility~~reflected ~~will~~as bea ~~adequate~~reduction toof ~~meet~~AAC’s ~~our~~accumulated ~~liquidity~~earnings. ~~needs~~Interest ~~for~~payments atdue ~~least~~in the next twelve months~~. Nonetheless,~~ weare ~~continually~~also ~~explore~~expected ~~various~~to ~~sources~~be offunded ~~liquidity~~by toAAC. The ~~ensure~~10.25% ~~financing~~senior ~~flexibility,~~discount ~~including~~notes ~~issuing~~have ~~new~~no orscheduled ~~refinancing~~amortization ~~existing debt,~~ and ~~raising~~mature ~~equity~~on ~~through~~October ~~private~~1, or2012. The ~~public offerings~~10.25% Ifsenior ~~favorable~~discount ~~opportunities~~notes are ~~available~~solely toobligations ~~us,~~of weIntermediate ~~may~~Holdings ~~seek~~and toare ~~refinance~~not ~~our~~guaranteed ~~debt~~by orany ~~complete public or private offerings~~ of ~~debt. In addition,~~its ~~we and our~~ subsidiaries, ~~affiliates~~including ~~and~~AAC. ~~significant~~Although ~~equityholders~~the ~~may~~10.25% ~~from~~senior ~~time~~discount tonotes ~~time~~are ~~seek~~not toobligations ~~retire~~of orAAC, ~~purchase~~if ~~our~~Intermediate ~~outstanding~~Holdings ~~debt~~is ~~(including~~unable ~~publicly~~to ~~issued~~pay ~~debt) through cash purchases and/~~or ~~exchanges,~~refinance intheir ~~open~~obligations ~~market~~as ~~purchases,~~they ~~privately~~become ~~negotiated transactions~~due, bywe ~~tender~~expect ~~offer~~that orthey ~~otherwise. Such repurchases or exchanges, if any,~~ will ~~depend~~rely on ~~prevailing~~AAC ~~market~~to ~~conditions,~~fund ~~liquidity~~such ~~requirements~~obligations. However, ~~contractual~~no ~~restrictions~~assurances ~~and~~can ~~other~~be ~~factors.~~made ~~The~~that ~~amounts~~such ~~involved~~funding ~~may~~will be ~~material~~available.

Capital Resources

We expect that cash generated from operating activities and availability under the Amended Senior Credit Facility will be our principal sources of liquidity. Due to the current unfavorable economic environment, we expect continued softness in sales for the rest of this year and continuing into next year. We expect our productivity initiatives and cost containment measures to partially offset the impact of lower sales on our operating income. Most of our net operating loss carryforward will be utilized by the end of fiscal year 2010; therefore, we expect higher future cash outflows for income taxes beginning in fiscal year 2011. Based on our current and planned level of operations, we believe our cash flow from operations, available cash on hand and available borrowings under the Amended Senior Credit Facility will be adequate to meet our liquidity needs through March 2011, at which time we will be required to pay the outstanding principal balance of the Amended Credit Facility. We expect to obtain a new credit facility prior to the maturity of the Amended Senior Credit Facility.

We continually explore various sources of liquidity to ensure financing flexibility, including issuing new debt or refinancing existing debt, and raising equity through private or public offerings. If favorable opportunities are available to us, we may seek to refinance our debt or complete public or private offerings of debt. In addition, we and our subsidiaries, affiliates and significant equity holders may from time to time seek to retire or purchase our outstanding debt (including publicly issued debt) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Notes and Preferred Stock of the Parent Companies

On ~~February~~May 2729, 2010, American Achievement Intermediate Holding Corp. (“AAIH”), the direct parent company of Intermediate Holdings, had $15.7 million of series A preferred stock outstanding. The holders of the series A preferred stock of AAIH are entitled to receive cumulative dividends at a rate of 25% per annum, when, as and if declared by its board of directors. AAIH is obligated to redeem its series A preferred stock upon the occurrence of certain events of default, in the event of a change of control or upon an adjusted EBITDA shortfall event, as such terms are defined in AAIH’s certificate of incorporation. Accumulated undeclared dividends of AAIH’s series A preferred stock at ~~February~~May 2729, 2010 totaled $01.6 million.

On ~~February~~May 2729, 2010, ~~American Achievement Group Holding Corp. (“~~Parent Holdings~~”),~~ ~~the indirect parent company of Intermediate Holdings,~~ had indebtedness in addition to the indebtedness at Intermediate Holdings and AAC of $5961.35 million, of which $5154.80 million consisted of ~~senior~~Parent ~~PIK~~Holdings ~~notes~~Notes, ~~due~~including ~~October~~accrued 1,interest ~~2012~~of ~~(“Parent~~$1.4 ~~Holdings Notes”)~~million, and $7.5 million consisted of mandatory redeemable series A preferred stock. Interest accrues on the Parent Holdings Notes at 16.75% per annum. Through April 2011, interest on the Parent Holdings Notes is payable in the form of additional notes semi-annually in arrears on April 1 and October 1 of each year. On October 1, 2011 and thereafter, interest on the Parent Holdings Notes will be payable in cash semi-annually in arrears on April 1 and October 1 of each year. The Parent Holdings Notes mature on October 1, 2012. At maturity, Parent Holdings is required to repay the notes at a repayment price of 103.188% of the aggregate principal amount thereof, plus accrued and unpaid interest through the maturity date. The Parent Holdings Notes are American Achievement Group Holding Corp.’s unsecured obligation and rank equally with all of its future senior obligations and senior to its future subordinated indebtedness.

26Interest accrues on the Parent Holdings Notes at 16.75% per annum. Through April 2011, interest on the Parent Holdings Notes is payable in the form of additional notes semi-annually in arrears on April 1 and October 1 of each year. On October 1, 2011 and thereafter, interest on the Parent Holdings Notes will be payable in cash semi-annually in arrears on April 1 and October 1 of each year. The Parent Holdings Notes mature on October 1, 2012. At maturity, Parent Holdings is required to repay the notes at a repayment price of 103.188% of the aggregate principal amount thereof, plus accrued and unpaid interest through the maturity date. The Parent Holdings Notes are Parent Holdings’ unsecured obligation and rank equally with all of its future senior obligations and senior to its future subordinated indebtedness.

The holders of the mandatory redeemable series A preferred stock of Parent Holdings are entitled to receive cumulative dividends at a rate of 14% per annum, when, as and if declared by its board of directors. Additionally, the redemption obligation for the mandatory redeemable series A preferred stock of Parent Holdings matures in January 2013. Accumulated undeclared dividends of Parent Holdings’ series A preferred stock at ~~February~~May 2729, 2010 totaled $56.72 million. Although the series A preferred stock of AAIH, the Parent Holdings Notes and mandatory redeemable series A preferred stock of Parent Holdings are not obligations of the Company, if Parent Holdings is unable to refinance its obligations to pay interest in cash on the Parent Holdings Notes and to repay the Parent Holdings Notes upon maturity or redeem the shares of series A preferred stock, we expect or Parent Holdings to rely on AAC to fund such obligations as they become due. No assurances can be made that such funding will be available, however, and if AAC is not permitted to make cash distributions to Parent Holdings to pay such interest, Parent Holdings will be required to raise additional proceeds through equity or debt financings in order to fund such obligations. Such financing may not be available on acceptable terms, if at all. Currently, the terms of the Amended Senior Credit Facility, the 8.25% senior subordinated notes and the 10.25% senior discount notes place certain limitations on the ability of AAC to distribute cash to AAIH or to Parent Holdings. Under the terms of the Amended Senior Credit Facility, AAC may make payments to its parent companies up to an aggregate amount of $15.0 million to repay, redeem or repurchase of indebtedness of Intermediate Holdings or Parent Holdings, of which amount $9.3 million has been paid as of February 27, 2010. Off Balance-Sheet Obligations

~~Letters of Credit. As of February 27, 2010 and August 29, 2009, we had commitments for $1.9 million and $2.0 million letters of credit outstanding, respectively.~~-26-

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Although the series A preferred stock of AAIH, the Parent Holdings Notes and mandatory redeemable series A preferred stock of Parent Holdings are not obligations of the Company, if the parent companies are unable to pay or refinance their obligations as they become due, we expect that they will rely on AAC to fund such obligations. However, no assurances can be made that such funding will be available. Currently, the terms of the Amended Senior Credit Facility, the 8.25% senior subordinated notes and the 10.25% senior discount notes place certain limitations on the ability of AAC to distribute cash to its direct and indirect parent companies. Under the terms of the Amended Senior Credit Facility, AAC may make payments to its parent companies up to an aggregate amount of $15.0 million to repay, redeem or repurchase indebtedness of Intermediate Holdings or Parent Holdings, of which amount $9.3 million has been paid as of May 29, 2010. If AAC is not able to or permitted to make cash distributions to Parent Holdings or AAIH, Parent Holdings and/or AAIH will need to raise additional proceeds through equity or debt financings in order to fund such obligations. Such financing may not be available on acceptable terms, if at all.

Off Balance-Sheet Obligations

Letters of Credit. As of May 29, 2010 and August 29, 2009, we had commitments for $1.7 million and $2.0 million letters of credit outstanding, respectively.

Seasonality

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

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

Recent Accounting Pronouncements

The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles: In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative generally accepted accounting principles. The Codification supersedes all existing non-SEC accounting and reporting standards. The guidance did not change generally accepted accounting principles; it did, however, change the applicable citations and naming conventions used when referencing generally accepted accounting principles. The guidance was effective for us beginning with the first quarter of fiscal year 2010 and did not have an impact on our financial position and results of operations.

Employer’s Disclosure about Postretirement Benefit Plan Assets: In December 2008, the FASB issued a pronouncement providing guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan and is effective for fiscal years ending after December 15, 2009, that is, beginning with our fiscal year 2010. The adoption of this pronouncement did not have an impact on our financial position and results of operations.

Business Combinations: In December 2007, the FASB issued a pronouncement requiring the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this pronouncement impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets and tax benefits. The pronouncement is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances for the first annual reporting period beginning after December 15, 2008, that is, beginning with our fiscal year 2010. The adoption of this pronouncement did not have an impact on our financial position and results of operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We have exposure to market risk relating to changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments. The Amended Senior Credit Facility (revolver and term loan) is a variable rate arrangement. The Second Amendment to the Amended Senior Credit Facility provides that the Eurodollar rate used in determining our interest rate shall not be less than 2.0%. Because current market rates are significantly below this threshold, our exposure to market rate risk is limited at this time. However, should market rates increase, each quarter point above the 2% threshold would result in a $0.1 million change in annual interest expense, assuming the entire revolving loan was drawn.

Currency Exchange Rate Risk. We purchase the majority of our precious, semi-precious and synthetic stones from a single supplier in Germany. The prices for these products may be impacted by fluctuations in the Euro exchange rate. Each ten percent change in the Euro exchange rate would result in a $0.5 million annual change in cost of goods sold, assuming stone purchase levels approximate the levels of fiscal 2009.

Gold. Each ten percent change in the price of gold would result in a $2.2 million annual change in cost of goods sold, assuming gold purchase levels approximate the levels in fiscal 2009.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company's management evaluated, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) the information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon our evaluation, management including the Chief Executive Officer and Chief Financial Officer, as indicated in the certifications in Exhibit 31.1 and 31.2 of this report, have concluded that our disclosure controls and procedures are effective, as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting during the quarter ended ~~February~~May 2729, 2010 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

ITEM 6. EXHIBITS

(a) Exhibits

EXHIBIT
NUMBER		DESIGNATION
10.1		Agreement as to Terms of Employment, dated April 19, 2010, between AAC and Alyce Alston
10.2		Employment Agreement, dated April 19, 2010, between AAC and Donald J. Percenti
31.1		CEO Certification Accompanying Period Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		CFO Certification Accompanying Period Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		CEO Certification Accompanying Period Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		CFO Certification Accompanying Period Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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AAC GROUP HOLDING CORP.

AMERICAN ACHIEVEMENT CORPORATION

SIGNATURES

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

Date: ~~April~~July 9, 2010

AAC GROUP HOLDING CORP. AMERICAN ACHIEVEMENT CORPORATION By: /s/ ~~DONALD~~ALYCE JC. ~~PERCENTI~~ALSTON ~~Donald~~Alyce JC. ~~Percenti~~Alston CHIEF EXECUTIVE OFFICER (principal executive officer) By: /s/ KRIS G. RADHAKRISHNAN Kris G. Radhakrishnan CHIEF FINANCIAL OFFICER (principal financial officer)

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