FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number: 333-60991
AKI HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 74-2883163
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Commission File Number: 333-60989
AKI, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3785856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1815 East Main Street
Chattanooga, TN 37404
(Address of principal executive offices) (Zip Code)
(423) 624-3301
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days (X) Yes ( ) No
As of October 31, 2002, 1,000 shares of common stock of AKI Holding Corp., $.01
par value, were outstanding and 1,000 shares of common stock of AKI, Inc., $.01
par value, were outstanding.
AKI, Inc. meets the requirements set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with reduced disclosure
format.
AKI HOLDING CORP. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
AKI Holding Corp. and Subsidiaries
Consolidated Condensed Balance Sheet
- September 30, 2002
- June 30, 2002
Consolidated Condensed Statements of Operations
- Three months ended September 30, 2002
- Three months ended September 30, 2001
Consolidated Condensed Statement of Changes in
Stockholder's Equity
- Three months ended September 30, 2002
Consolidated Condensed Statements of Cash Flows
- Three months ended September 30, 2002
- Three months ended September 30, 2001
Notes to Consolidated Condensed Financial Statements
Item 1. Financial Statements (unaudited) (continued)
AKI, Inc. and Subsidiaries
Consolidated Condensed Balance Sheet
- September 30, 2002
- June 30, 2002
Consolidated Condensed Statements of Operations
- Three months ended September 30, 2002
- Three months ended September 30, 2001
Consolidated Condensed Statement of Changes in
Stockholder's Equity
- Three months ended September 30, 2002
Consolidated Condensed Statements of Cash Flows
- Three months ended September 30, 2002
- Three months ended September 30, 2001
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Discussions About Market Risk
Item 4. Controls and Procedures
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holder's
Item 6. Exhibits and Reports on Form 8-K
AKI HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands, except share and per share information)
September 30, June 30,
2002 2002
------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 1,543 $ 1,875
Accounts receivable, net................................................... 23,561 23,796
Inventory.................................................................. 9,762 8,014
Prepaid expenses........................................................... 1,210 667
Deferred income taxes...................................................... 977 977
------------- -------------
Total current assets.................................................... 37,053 35,329
Property, plant and equipment, net......................................... 19,078 19,616
Goodwill, net.............................................................. 153,277 153,277
Other intangible assets, net............................................... 12,685 13,142
Deferred charges, net...................................................... 3,885 4,059
Deferred income taxes...................................................... 1,032 692
Other assets............................................................... 163 164
------------- -------------
Total assets............................................................ $ 227,173 $ 226,279
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt.......................................... $ 1,562 $ 1,375
Accounts payable, trade.................................................... 4,595 5,826
Accrued income taxes....................................................... 2,453 2,007
Accrued compensation....................................................... 2,941 5,338
Accrued interest........................................................... 2,853 5,570
Accrued expenses........................................................... 4,318 3,642
------------- -------------
Total current liabilities............................................... 18,722 23,758
Revolving credit line...................................................... 6,675 2,750
Term loan.................................................................. 7,688 8,125
Senior notes............................................................... 103,510 103,510
Promissory note to affiliate............................................... 355 -
Senior discount debentures................................................. 16,438 15,901
Other non-current liabilities.............................................. 1,628 2,338
------------- -------------
Total liabilities....................................................... 155,016 156,382
Stockholder's equity
Common stock, $0.01 par 1,000 shares authorized;
1,000 shares issued and outstanding.................................... - -
Additional paid-in capital................................................. 93,656 93,656
Accumulated deficit........................................................ (5,696) (7,583)
Accumulated other comprehensive loss....................................... (73) (446)
Carryover basis adjustment................................................. (15,730) (15,730)
-------------- -------------
Total stockholder's equity.............................................. 72,157 69,897
------------- -------------
Total liabilities and stockholder's equity.............................. $ 227,173 $ 226,279
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
AKI HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
Three months ended
---------------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(unaudited) (unaudited)
Net sales................................................. $ 30,400 $ 27,381
Cost of goods sold........................................ 18,515 16,714
----------- -----------
Gross profit....................................... 11,885 10,667
Selling, general and administrative expenses.............. 4,664 4,195
Amortization of goodwill.................................. - 1,201
Amortization of other intangibles......................... 286 245
----------- -----------
Income from operations............................. 6,935 5,026
Other expenses:
Interest expense....................................... 3,738 3,871
Management fees and other, net......................... 63 63
----------- -----------
Income before income taxes......................... 3,134 1,092
Income tax expense........................................ 1,247 946
----------- -----------
Net income ........................................ $ 1,887 $ 146
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
AKI HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(dollars in thousands, except share information)
Accumulated
Additional Other Carryover
Common Stock Paid-in Accumulated Comprehensive Basis
Shares Dollars Capital Deficit Loss Adjustment Total
------ ------- ------- ------- ---- ---------- -----
Balances, June 30, 2002 (unaudited)...... 1,000 $ - $ 93,656 $ (7,583) $ (446) $ (15,730) $ 69,897
Net income (unaudited)................... 1,887 1,887
Other comprehensive income, net of tax:
Foreign currency translation
adjustment (unaudited).............. 373 373
---------
Comprehensive income (unaudited)......... 2,260
----- ------ ---------- ---------- --------- ----------- ---------
Balances, September 30, 2002 (unaudited). 1,000 $ - $ 93,656 $ (5,696) $ (73) $ (15,730) $ 72,157
===== ====== ========== ========== ========= =========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
AKI HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Three months ended
----------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income........................................................ $ 1,887 $ 146
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of goodwill and other intangibles. 1,855 2,600
Amortization of debt discount................................... 537 807
Amortization of debt issuance costs............................. 174 167
Deferred income taxes........................................... (340) (682)
Other........................................................... (336) 425
Changes in operating assets and liabilities:
Accounts receivable........................................... 235 (10,287)
Inventory..................................................... (1,748) (760)
Prepaid expenses, deferred charges and other assets........... (543) (132)
Accounts payable and accrued expenses......................... (5,669) (3,832)
Income taxes.................................................. 446 922
----------- -----------
Net cash used in operating activities....................... (3,502) (10,626)
----------- -----------
Cash flows from investing activities
Purchases of equipment............................................ (828) (392)
Patents........................................................... (32) (30)
----------- -----------
Net cash used in investing activities....................... (860) (422)
----------- -----------
Cash flows from financing activities
Payments under capital leases .................................... - (7)
Net proceeds on revolving loan.................................... 3,925 6,500
Payment on term loan.............................................. (250) -
Net proceeds from promissory note to stockholder.................. 355 350
----------- -----------
Net cash provided by financing activities................... 4,030 6,843
----------- -----------
Net decrease in cash and cash equivalents............................ (332) (4,205)
Cash and cash equivalents, beginning of period....................... 1,875 4,654
----------- -----------
Cash and cash equivalents, end of period............................. $ 1,543 $ 449
=========== ===========
Supplemental information
Cash paid during the period for:
Interest, other................................................. $ 5,706 $ 5,507
Income taxes.................................................... 1,179 848
The accompanying notes are an integral part of
these consolidated financial statements.
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
1. BASIS OF PRESENTATION
AKI, Inc. ("AKI") is the successor to Arcade Holding Corporation (the
"Predecessor"), which was acquired by AHC I Acquisition, Corp. ("AHC") in
December 1997. AHC was organized for the purpose of acquiring all of the
equity interests of the Predecessor and subsequent to such acquisition, AHC
contributed $1 and all of its ownership interest to AKI Holding Corp.
("Holding") for all of the outstanding equity of Holding. Accordingly, AKI
is a wholly owned subsidiary of Holding, which is a wholly owned subsidiary
of AHC.
AKI is engaged in interactive multi-sensory advertising for consumer
product companies and has a specialty in the design, production and
distribution of sampling systems from its Chattanooga, Tennessee and
Baltimore, Maryland facilities and distributes its products in Europe
through its French subsidiary, Arcade Europe S.A.R.L.
Recently Issued Accounting Standards
FASB Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142") was issued in June 2001. SFAS 142
changes the accounting and reporting for acquired goodwill and other
intangible assets. SFAS 142 is effective for fiscal years beginning after
December 15, 2001 and must be applied at the beginning of an entity's
fiscal year. The adoption of SFAS 142 eliminates the amortization of
goodwill, approximately $4,800 in the fiscal year ended June 30, 2002,
while requiring annual tests for impairment of goodwill. The Company is
currently in the process of analyzing the carrying value of goodwill and
does not expect to identify a material impairment.
FASB Statement of Financial Accounting Standards No. 145 "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections" ("SFAS 145") was issued in April 2002. The most
significant aspects of this pronouncement, with respect to the Company, is
the elimination of SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt". As a result of the elimination of SFAS No. 4,
gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria in APB No. 30,
"Reporting the Results of Operations - Discontinued Events and
Extraordinary Items". The implementation of SFAS No. 145 will require
future early retirements of debt to be included in income from operations
which could materially affect income from operations. In the fiscal year
ended June 30, 2002 the Company reported an approximate $2,700
extraordinary gain from early retirement of debt, net of tax.
Acquisition of Color Prelude business
On December 18, 2001, the Company acquired the business including
certain assets and assumed certain liabilities of Color Prelude, Inc.
("CP") for $19,423 including direct acquisition costs of $540. The
acquisition was accounted for using the purchase method of accounting in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations". The purchase price has been allocated to the
assets and liabilities acquired using estimated fair values at the date of
acquisition and resulted in assigning value to goodwill totaling $407 which
will not be amortized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". The
following shows the allocation of the purchase price.
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
1. BASIS OF PRESENTATION (continued)
Cash............................................. $ 1
Other current assets............................. 5,680
Property, plant and equipment.................... 7,695
Patents.......................................... 7,750
Other intangible assets.......................... 1,069
Goodwill......................................... 407
---------
Total allocation to assets....................... $ 22,602
=========
Current liabilities.............................. $ 3,179
=========
Patents are being amortized over a ten year period and other
intangible assets are being amortized over periods ranging from one to four
years.
The results of the acquired operations are included in the financial
statements since the date of acquisition. The following pro forma results
include cost savings and other effects of the planned integration and are
not necessarily indicative of the results which would have occurred if the
business combination had been in effect on the dates indicated. Pro forma
results had CP been acquired at the beginning of fiscal 2001 are as
follows:
Three months ended
September 30,
-------------
2002 2001
---- ----
Revenue .................................. $ 30,400 $ 29,828
Income (loss) before extraordinary items... 1,887 (146)
Net income (loss).......................... 1,887 (146)
Interim financial statements
The interim consolidated condensed balance sheet at September 30, 2002
and the interim consolidated condensed statements of operations for the
three months ended September 30, 2002 and 2001, the interim consolidated
condensed statements of cash flows for the three months ended September 30,
2002 and 2001 and the interim consolidated condensed statement of changes
in stockholder's equity for the three months ended September 30, 2002 are
unaudited, and certain information and footnote disclosure related thereto,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. The June 30,
2002 consolidated condensed balance sheet was derived from the audited
balance sheet for the year then ended. In management's opinion, the
unaudited interim consolidated condensed financial statements were prepared
following the same policies and procedures used in the preparation of the
audited financial statements and all adjustments, consisting only of normal
recurring adjustments to fairly present the financial position, results of
operations and cash flows with respect to the interim consolidated
condensed financial statements, have been included. The results of
operations for the interim periods are not necessarily indicative of the
results for the entire year.
Reclassification
Certain prior period amounts have been reclassified to conform with
the current period presentation.
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
2. INVENTORY
The following table details the components of inventory:
September 30, 2002 June 30, 2002
------------------ -------------
(unaudited) (unaudited)
Raw materials
Paper...................... $ 1,982 $ 2,180
Other raw materials........ 4,928 4,216
----------- ----------
Total raw materials.... 6,910 6,396
Work in process................ 3,702 2,468
Reserve for obsolescence....... (850) (850)
----------- ----------
Total inventory................ $ 9,762 $ 8,014
=========== ==========
3. SUBSEQUENT EVENT
On October 15, 2002, Holding purchased, with proceeds from a
distribution from AKI, it's Senior Discount Debentures with a carrying
value of $3,420 for $3,192. The distribution from AKI was funded through
borrowings under AKI's credit agreement.
4. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets at September 30, 2002 and June
30, 2002 and condensed statements of operations, changes in stockholder's
equity and cash flows for the three months ended September 30, 2002 and
2001 for Holding have been prepared on the equity basis of accounting and
should be read in conjunction with the consolidated statements and notes
thereto.
BALANCE SHEET
September 30, 2002 June 30, 2002
------------------ -------------
(unaudited) (unaudited)
Assets
Investment in subsidiaries.............................. $ 101,840 $ 99,583
Income tax receivable................................... 46 46
Deferred charges........................................ 409 422
Deferred income taxes................................... 2,103 1,923
----------- -----------
Total assets........................................ $ 104,398 $ 101,974
=========== ===========
Liabilities
Senior discount debentures.............................. $ 16,438 $ 15,901
---------- ----------
Total liabilities................................... 16,438 15,901
----------- ----------
Stockholder's equity
Common Stock, $0.01 par value, 1,000 shares authorized
1,000 shares issued and outstanding................... - -
Additional paid-in capital.............................. 93,656 93,656
Accumulated deficit..................................... (5,696) (7,583)
----------- -----------
Total stockholder's equity.......................... 87,960 86,073
----------- -----------
Total liabilities and stockholder's equity.......... $ 104,398 $ 101,974
=========== ===========
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
4. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS (Continued)
STATEMENT OF OPERATIONS
Three months ended
----------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(unaudited) (unaudited)
Equity in net income of subsidiaries........................... $ 2,257 $ 702
Interest expense............................................... (550) (827)
----------- -----------
Income (loss) before income taxes.......................... 1,707 (125)
Income tax benefit............................................. (180) (271)
----------- -----------
Net income................................................. $ 1,887 $ 146
=========== ===========
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
Balances, June 30, 2002 (unaudited)........... 1,000 $ - $ 93,656 $ (7,583) $ 86,073
Net income (unaudited)........................ 1,887 1,887
-------- -------- ---------- ----------- -----------
Balances, September 30, 2002 (unaudited)...... 1,000 $ - $ 93,656 $ (5,696) $ 87,960
======== ======== ========== =========== ===========
STATEMENT OF CASH FLOWS
Three months ended
----------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income................................................... $ 1,887 $ 146
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net change in investment in subsidiaries.............. (2,257) (702)
Amortization of debt discount......................... 537 807
Amortization of debt issuance costs................... 13 20
Deferred income taxes................................. (180) (271)
----------- -----------
Net cash provided by (used in) operating activities.. - -
----------- -----------
Net increase (decrease) in cash and cash equivalents........... - -
Cash and cash equivalents, beginning of period................. - -
----------- -----------
Cash and cash equivalents, end of period....................... $ - $ -
=========== ===========
AKI, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands, except share and per share information)
September 30, June 30,
2002 2002
------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 1,543 $ 1,875
Accounts receivable, net................................................... 23,561 23,796
Inventory.................................................................. 9,762 8,014
Prepaid expenses........................................................... 1,210 667
Deferred income taxes...................................................... 977 977
------------- -------------
Total current assets.................................................... 37,053 35,329
Property, plant and equipment, net......................................... 19,078 19,616
Goodwill, net.............................................................. 153,277 153,277
Other intangible assets, net............................................... 12,685 13,142
Deferred charges, net...................................................... 3,476 3,637
Other assets............................................................... 163 164
------------- -------------
Total assets............................................................ $ 225,732 $ 225,165
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt.......................................... $ 1,562 $ 1,375
Accounts payable, trade.................................................... 4,595 5,826
Accrued income taxes....................................................... 2,499 2,053
Accrued compensation....................................................... 2,941 5,338
Accrued interest........................................................... 2,853 5,570
Accrued expenses........................................................... 4,318 3,642
------------- -------------
Total current liabilities............................................... 18,768 23,804
Revolving credit line...................................................... 6,675 2,750
Term loan.................................................................. 7,688 8,125
Senior notes............................................................... 103,510 103,510
Promissory note to affiliate............................................... 355 -
Deferred income taxes...................................................... 1,071 1,231
Other non-current liabilities.............................................. 1,628 2,338
------------- -------------
Total liabilities....................................................... 139,695 141,758
Stockholder's equity
Common stock, $0.01 par 100,000 shares authorized;
1,000 shares issued and outstanding..................................... - -
Additional paid-in capital................................................. 100,543 100,543
Accumulated deficit........................................................ 1,297 (960)
Accumulated other comprehensive loss....................................... (73) (446)
Carryover basis adjustment................................................. (15,730) (15,730)
-------------- -------------
Total stockholder's equity.............................................. 86,037 83,407
------------- -------------
Total liabilities and stockholder's equity.............................. $ 225,732 $ 225,165
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
AKI, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
Three months ended
---------------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(unaudited) (unaudited)
Net sales................................................. $ 30,400 $ 27,381
Cost of goods sold........................................ 18,515 16,714
----------- -----------
Gross profit....................................... 11,885 10,667
Selling, general and administrative expenses.............. 4,664 4,195
Amortization of goodwill.................................. - 1,201
Amortization of other intangibles......................... 286 245
----------- -----------
Income from operations............................. 6,935 5,026
Other expenses:
Interest expense....................................... 3,188 3,044
Management fees and other, net......................... 63 63
----------- -----------
Income before income taxes......................... 3,684 1,919
Income tax expense........................................ 1,427 1,217
----------- -----------
Net income ........................................ $ 2,257 $ 702
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
AKI, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(dollars in thousands, except share information)
Accumulated
Additional Other Carryover
Common Stock Paid-in Accumulated Comprehensive Basis
Shares Dollars Capital Deficit Loss Adjustment Total
------ ------- ------- ------- ---- ---------- -----
Balances, June 30, 2002 (unaudited)...... 1,000 $ - $ 100,543 $ (960) $ (446) $ (15,730) $ 83,407
Net income (unaudited)................... 2,257 2,257
Other comprehensive income, net of tax:
Foreign currency translation
adjustment (unaudited).............. 373 373
---------
Comprehensive income (unaudited)......... 2,630
----- ------ ---------- ---------- --------- ----------- ---------
Balances, September 30, 2002 (unaudited). 1,000 $ - $ 100,543 $ 1,297 $ (73) $ (15,730) $ 86,037
====== ====== ========== ========== ========= =========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
AKI, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Three months ended
----------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income........................................................ $ 2,257 $ 702
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of goodwill and other intangibles. 1,855 2,600
Amortization of debt issuance cost.............................. 161 147
Deferred income taxes........................................... (160) (411)
Other........................................................... (336) 425
Changes in operating assets and liabilities:
Accounts receivable........................................... 235 (10,287)
Inventory..................................................... (1,748) (760)
Prepaid expenses, deferred charges and other assets........... (543) (132)
Accounts payable and accrued expenses......................... (5,669) (3,832)
Income taxes.................................................. 446 922
----------- -----------
Net cash used in operating activities....................... (3,502) (10,626)
----------- -----------
Cash flows from investing activities
Purchases of equipment............................................ (828) (392)
Patents........................................................... (32) (30)
----------- -----------
Net cash used in investing activities....................... (860) (422)
----------- -----------
Cash flows from financing activities
Payments under capital leases..................................... - (7)
Net proceeds on revolving loan.................................... 3,925 6,500
Payment on term loan.............................................. (250) -
Net proceeds from promissory note to affiliate.................... 355 350
----------- -----------
Net cash provided by financing activities................... 4,030 6,843
----------- -----------
Net decrease in cash and cash equivalents............................ (332) (4,205)
Cash and cash equivalents, beginning of period....................... 1,875 4,654
----------- -----------
Cash and cash equivalents, end of period............................. $ 1,543 $ 449
=========== ===========
Supplemental information
Cash paid during the period for:
Interest, other................................................. $ 5,706 $ 5,507
Income taxes.................................................... 1,179 848
The accompanying notes are an integral part of
these consolidated financial statements.
AKI, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
1. BASIS OF PRESENTATION
AKI, Inc. ("AKI") is the successor to Arcade Holding Corporation (the
"Predecessor"), which was acquired by AHC I Acquisition, Corp. ("AHC") in
December 1997. AHC was organized for the purpose of acquiring all of the
equity interests of the Predecessor and subsequent to such acquisition, AHC
contributed $1 and all of its ownership interest to AKI Holding Corp.
("Holding") for all of the outstanding equity of Holding. Accordingly, AKI
is a wholly owned subsidiary of Holding, which is a wholly owned subsidiary
of AHC.
AKI is engaged in interactive multi-sensory advertising for consumer
product companies and has a specialty in the design, production and
distribution of sampling systems from its Chattanooga, Tennessee and
Baltimore, Maryland facilities and distributes its products in Europe
through its French subsidiary, Arcade Europe S.A.R.L.
Recently Issued Accounting Standards
FASB Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142") was issued in June 2001. SFAS 142
changes the accounting and reporting for acquired goodwill and other
intangible assets. SFAS 142 is effective for fiscal years beginning after
December 15, 2001 and must be applied at the beginning of an entity's
fiscal year. The adoption of SFAS 142 eliminates the amortization of
goodwill, approximately $4,800 in the fiscal year ended June 30, 2002,
while requiring annual tests for impairment of goodwill. The Company is
currently in the process of analyzing the carrying value of goodwill and
does not expect to identify a material impairment.
FASB Statement of Financial Accounting Standards No. 145 "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections" ("SFAS 145") was issued in April 2002. The most
significant aspects of this pronouncement, with respect to the Company, is
the elimination of SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt". As a result of the elimination of SFAS No. 4,
gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria in APB No. 30,
"Reporting the Results of Operations - Discontinued Events and
Extraordinary Items". The implementation of SFAS No. 145 will require
future early retirements of debt to be included in income from operations
which could materially affect income from operations. In the fiscal year
ended June 30, 2002 the Company reported an approximate $2,700
extraordinary gain from early retirement of debt, net of tax.
Acquisition of Color Prelude business
On December 18, 2001, the Company acquired the business including
certain assets and assumed certain liabilities of Color Prelude, Inc.
("CP") for $19,423 including direct acquisition costs of $540. The
acquisition was accounted for using the purchase method of accounting in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations". The purchase price has been allocated to the
assets and liabilities acquired using estimated fair values at the date of
acquisition and resulted in assigning value to goodwill totaling $407 which
will not be amortized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". The
following shows the allocation of the purchase price.
AKI, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
1. BASIS OF PRESENTATION (continued)
Cash............................................. $ 1
Other current assets............................. 5,680
Property, plant and equipment.................... 7,695
Patents.......................................... 7,750
Other intangible assets.......................... 1,069
Goodwill......................................... 407
---------
Total allocation to assets....................... $ 22,602
=========
Current liabilities.............................. $ 3,179
=========
Patents are being amortized over a ten year period and other
intangible assets are being amortized over periods ranging from one to four
years.
The results of the acquired operations are included in the financial
statements since the date of acquisition. The following pro forma results
include cost savings and other effects of the planned integration and are
not necessarily indicative of the results which would have occurred if the
business combination had been in effect on the dates indicated. Pro forma
results had CP been acquired at the beginning of fiscal 2001 are as
follows:
Three months ended
September 30,
-------------
2002 2001
---- ----
Revenue .................................. $ 30,400 $ 29,828
Income (loss) before extraordinary items... 2,257 410
Net income (loss).......................... 2,257 410
Interim financial statements
The interim consolidated condensed balance sheet at September 30, 2002
and the interim consolidated condensed statements of operations for the
three months ended September 30, 2002 and 2001, the interim consolidated
condensed statements of cash flows for the three months ended September 31,
2002 and 2001 and the interim consolidated condensed statement of changes
in stockholder's equity for the three months ended September 30, 2002 are
unaudited, and certain information and footnote disclosure related thereto,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. The June 30,
2002 consolidated condensed balance sheet was derived from the audited
balance sheet for the year then ended. In management's opinion, the
unaudited interim consolidated condensed financial statements were prepared
following the same policies and procedures used in the preparation of the
audited financial statements and all adjustments, consisting only of normal
recurring adjustments to fairly present the financial position, results of
operations and cash flows with respect to the interim consolidated
condensed financial statements, have been included. The results of
operations for the interim periods are not necessarily indicative of the
results for the entire year.
Reclassification
Certain prior period amounts have been reclassified to conform with
the current period presentation.
AKI, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
2. INVENTORY
The following table details the components of inventory:
September 30, 2002 June 30, 2002
------------------ -------------
(unaudited) (unaudited)
Raw materials
Paper...................... $ 1,982 $ 2,180
Other raw materials........ 4,928 4,216
----------- -----------
Total raw materials.... 6,910 6,396
Work in process................ 3,702 2,468
Reserve for obsolescence....... (850) (850)
----------- -----------
Total inventory................ $ 9,762 $ 8,014
=========== ===========
3. SUBSEQUENT EVENT
On October 15, 2002, AKI paid a distribution of $3,192 to Holding to
fund the purchase of Holding Senior Discount Debentures. The distribution
was funded through borrowings under the amended and restated credit
agreement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2 is presented with respect to both AKI Holding Corp. and AKI, Inc. As
used within Item 2, the term "Company" refers to AKI Holding Corp. and its
subsidiaries including AKI, Inc. ("AKI"), the term "Holding" refers to AKI
Holding Corp. and the term "CP" refers to the business acquired from Color
Prelude, Inc.
General
Our sales are derived primarily through our multi-sensory, interactive
marketing activities primarily from the sale of printed advertising materials
with sampling systems and products to fragrance, cosmetics and consumer products
companies, and also from creative services. Substantially all of our sales are
made directly to our customers while a small portion are made through
advertising agencies. Each of our customer's marketing programs is unique and
pricing is negotiated based on estimated costs plus a margin. While our company
and its customers generally do not enter into long-term contracts, we have
long-standing relationships with the majority of our customer base.
Results of Operations
Three Months Ended September 30, 2002 Compared to Three Months
Ended September 30, 2001
Net Sales. Net sales for the three months ended September 30, 2002
increased $3.0 million, or 11.0%, to $30.4 million, as compared to $27.4 million
for the three months ended September 30, 2001. The increase in net sales was
primarily attributable to sales of sampling technologies for advertising and
marketing of cosmetics by CP.
Gross Profit. Gross profit for the three months ended September 30, 2002
increased $1.2 million, or 11.2%, to $11.9 million, as compared to $10.7 million
for three months ended September 30, 2001. Gross profit as a percentage of net
sales was 39.1% in the three months ended September 30, 2002 and 2001. The
increase in gross profit is primarily due to the increase in sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 2002 increased
$0.5 million, or 11.9%, to $4.7 million, as compared to $4.2 million for the
three months ended September 30, 2001. Selling, general and administrative
expenses as a percent of net sales increased to 15.5% in the three months ended
September 30, 2002, from 15.3% in the three months ended September 30, 2001. The
increase in selling, general and administrative expenses is primarily related to
the CP operations.
Amortization of Goodwill. Amortization of goodwill for the three months
ended September 30, 2002 decreased $1.2 million, or 100%, to $0, as compared to
$1.2 million for the three months ended September 30, 2001. The decrease in
amortization of goodwill resulted from the adoption of FASB Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
We are currently in the process of analyzing the carrying value of goodwill and
do not expect to identify a material impairment.
Income from Operations. Income from operations for the three months ended
September 30, 2002 increased $1.9 million, or 38.0%, to $6.9 million, as
compared to $5.0 million for the three months ended September 30, 2001. Income
from operations as a percentage of net sales increased to 22.7% in the three
months ended September 30, 2002, from 18.3% in the three months ended September
30, 2001. The increase in income from operations and income from operations as a
percentage of net sales is principally the result of the factors described above
and the $1.2 million decrease in amortization of goodwill in connection with the
adoption of FASB Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets".
Interest Expense. Interest expense for the three months ended September 30,
2002 decreased $0.2 million, or 5.4%, to $3.7 million, as compared to $3.9
million for the three months ended September 30, 2001. The decrease in interest
expense, including the amortization of deferred financing costs, is primarily
due to a decrease in interest expense related to retired Senior Discount
Debentures repurchased in April 2002 partially offset by interest payable
on the term loan incurred in connection with the CP acquisition. Interest
expense as a percentage of net sales decreased to 12.2% in the three months
ended September 30, 2002, from 14.2%.
Interest expense for AKI for the three months ended September 30, 2002
increased $0.2 million, or 6.7%, to $3.2 million, as compared to $3.0 million
for the three months ended September 30, 2001. The increase in interest expense,
including the amortization of deferred financing costs, is primarily due to
interest payable on the term loan incurred in connection with the CP
acquisition. Interest expense as a percentage of net sales decreased to 10.5% in
the three months ended September 30, 2002, from 11.0%.
Income Tax Expense. Income tax expense for the three months ended September
30, 2002 increased $0.3 million to $1.2 million. The Company's effective tax
rate, after consideration of non-deductible goodwill amortization, was 39% in
the three months ended September 30, 2002, and 41% in the three months ended
September 30, 2001.
Income tax expense for AKI for the three months ended September 30, 2002
increased $0.2 million to $1.4 million. AKI's effective tax rate, after
consideration of non-deductible goodwill amortization, was 39% in the three
months ended September 30, 2002 and 2001.
EBITDA. EBITDA for the three months ended September 30, 2002 increased $1.2
million, or 15.8%, to $8.8 million, as compared to $7.6 million for the three
months ended September 30, 2001. The increase in EBITDA principally reflects the
increase in gross profit partially offset by the increase in selling, general
and administrative expenses discussed above. EBITDA as a percentage of net sales
was 28.9% and 27.7% in the three months ended September 30, 2002 and 2001,
respectively. EBITDA is income from operations plus depreciation and
amortization of goodwill and other intangibles.
Liquidity and Capital Resources
We have substantial indebtedness and significant debt service obligations.
As of September 30, 2002, we had consolidated indebtedness in an aggregate
amount of $136.2 million (excluding trade payables, accrued liabilities,
deferred taxes and other non-current liabilities), of which approximately $16.4
million was a direct obligation of Holding relating to its debentures and
approximately $119.8 million was a direct obligation of AKI relating to its
notes, term loan, revolving loan and promissory note to affiliate. Borrowings at
September 30, 2002 included $6.7 million under the revolving loan and $9.3
million under the term loan which was incurred to acquire CP and $0.4 million on
the promissory note to affiliate. At September 30, 2002 we had $13.0 million
available under the revolving loan. At September 30, 2002, AKI also had $19.9
million in additional outstanding liabilities (including trade payables, accrued
liabilities, deferred taxes and other non-current liabilities).
Holding's principal liquidity requirements are for debt service
requirements under the debentures. AKI's principal liquidity requirements are
for debt service requirements and fees under the notes, term loan and revolving
loan. Historically, we have funded our capital, debt service and operating
requirements with a combination of net cash provided by operating activities,
together with borrowings under the revolving loan and promissory note to
affiliate. During the three months ended September 30, 2002, cash totaling $3.5
million was used by operating activities primarily due to the increase in
inventory and a decrease in accrued interest, accrued compensation and accounts
payable, offset partially by an increase in accrued expenses. During the three
months ended September 30, 2001, cash totaling $10.6 million was used by
operating activities primarily due to the increase in accounts receivable and a
decrease in accrued compensation and accrued interest, offset partially by an
increase in accounts payable and accrued income taxes.
On December 18, 2001 we amended and restated our credit agreement with
Heller Financial, Inc. ("restated credit agreement"). The restated credit
agreement provides for: (1) a $10.0 million term loan which matures on December
31, 2006 with varying quarterly principal installments beginning March 31, 2002
and (2) a revolving loan commitment up to a maximum of $20.0 million which
expires December 31, 2006. Borrowings under the revolving loan commitment are
limited to a borrowing base consisting of accounts receivable, inventory and
property, plant and equipment which serve as collateral for the borrowings.
Interest on amounts borrowed under the term loan and revolving loan accrue at a
floating rate based upon either prime or LIBOR. The Company is required to pay
commitment fees on the unused portion of the revolving loan commitment. In
addition, the
Company is required to pay fees equal to 2.5% of the average daily outstanding
amount of lender guarantees. The Company had $0.3 million of lender guarantees
outstanding at September 30, 2002.
In the three months ended September 30, 2002 and 2001, we had capital
expenditures of approximately $0.8 million and $0.4 million, respectively. These
capital expenditures consisted primarily of the purchase of manufacturing
equipment and upgrading our computer systems.
On December 18, 2001, we acquired, through a newly formed subsidiary, IST,
Corp., CP for an aggregate purchase price of approximately $19.1 million. The
purchase price was financed primarily by borrowings under the restated credit
agreement.
We may from time to time evaluate additional potential acquisitions. There
can be no assurance that additional capital sources will be available to us to
fund additional acquisitions on terms that we find acceptable, or at all.
Additional capital resources, if available, may be on terms generally less
favorable and/or more restricted than the terms of our current credit
facilities.
On October 15, 2002, Holding purchased, with proceeds from a distribution
from AKI, it's 13.5% Senior Discount Debentures due 2009 with a carrying value
of $3.4 million for $3.2 million. AKI funded the distribution through borrowings
under it's credit agreement. The effects of this transaction will be included in
the Company's second quarter.
Capital expenditures for the twelve months ending June 30, 2003 are
currently estimated to be approximately $4.0 million. Based on borrowings
outstanding as of September 30, 2002, we expect total cash payments for debt
service for the twelve months ending June 30, 2003 to be approximately $13.4
million, consisting of $1.4 million in principal payments under the term loan,
$10.9 million in interest payments on the notes and $1.1 million in interest and
fees under the credit agreement. We also expect to make royalty payments of
approximately $1.1 million during the twelve months ending June 30, 2003.
At September 30, 2002, Holding's cash and cash equivalents and net working
capital were $1.5 million and $18.3 million, respectively, representing a
decrease in cash and cash equivalents of $0.4 million and an increase in net
working capital of $6.7 million from June 30, 2002. The increase in working
capital is primarily due to the reduction of current liabilities principally
funded through increased draws against the revolving credit line.
Seasonality
Our sales and operating results have historically reflected seasonal
variations. Such seasonal variations are based on the timing of our customers'
advertising campaigns and product launches, which have traditionally been
concentrated prior to the Christmas and spring holiday seasons. As a result,
generally, a higher level of sales are reflected in our first and third fiscal
quarters ended September 30 and March 31 when sales from such advertising
campaigns are principally recognized. These seasonal fluctuations require us to
accurately allocate our resources to manage our manufacturing capacity, which
often operates at full capacity during peak seasonal demand periods. The
severity of our seasonal sales variations has decreased over time as we have
developed and acquired other sampling technologies for advertising and marketing
of cosmetic and consumer products.
Recently Issued Accounting Standards
FASB Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142") was issued in June 2001. SFAS 142 changes
the accounting and reporting for acquired goodwill and other intangible assets.
SFAS 142 is effective for fiscal years beginning after December 15, 2001 and
must be applied at the beginning of an entity's fiscal year. The adoption of
SFAS 142 eliminates the amortization of goodwill, approximately $4.8 million in
fiscal 2002 and requires annual tests for impairment of goodwill.
FASB Statement of Financial Accounting Standards No. 144 "Accounting for
the Impairment of Disposal of Long-Lived Assets" ("SFAS 144") was issued in
August 2001. SFAS 144 requires that long-lived assets that are to be disposed of
by sale be measured at the lower of book value or fair value less cost to sell.
SFAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company does not expect a material impact in implementing
SFAS 144 on its future financial statements.
FASB Statement of Financial Accounting Standards No. 145 "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145") was issued in April 2002. The most
significant aspects of this pronouncement, with respect to the Company, is the
elimination of SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt". As a result of the elimination of SFAS No. 4, gains and losses from
extinguishment of debt should be classified as extraordinary items only if they
meet the criteria in APB No. 30, "Reporting the Results of Operations -
Discontinued Events and Extraordinary Items". The implementation of SFAS No. 145
will require early retirements of debt to be included in income from continuing
operations which could materially affect our income from continuing operations.
In fiscal 2002 the Company reported an approximate $2.7 million extraordinary
gain from early retirement of debt, net of tax.
FASB Statement of Financial Accounting Standards No. 146 "Accounting for
Costs Associated with Exit or Disposal Activities" ("SFAS 146") was issued in
June 2002. SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities. SFAS 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company
adopted SFAS 146 in fiscal 2002 and did not consider the impact to be material.
Forward-Looking Statements
The information provided in this document contains forward-looking
statements that involve a number of risks and uncertainties. A number of factors
could cause actual results, performance or achievements of our company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to: (1) economic conditions in general and
in our specific market areas; (2) the significant indebtedness of our company;
(3) changes in operating strategy or development plans; (4) the competitive
environment in the sampling industry in general and in our specific market
areas; (5) changes in prevailing interest rates; (6) changes in or failure to
comply with postal regulations or other federal, state and/or local government
regulations; (7) changes in cost of goods and services; (8) changes in our
capital expenditure plans; (9) the ability to attract and retain qualified
personnel; (10) inflation; (11) liability and other claims asserted against us;
(12) labor disturbances and other factors. We also advise you to read the
section entitled "Risk Factors" in the Company's annual report on Form 10K filed
with the SEC on September 24, 2002.
In addition, such forward-looking statements are necessarily dependent upon
assumptions, estimates and dates that may be incorrect or imprecise and involve
known and unknown risk, uncertainties and other factors. Accordingly, any
forward-looking statements included herein do not purport to be predictions of
future events or circumstances and may not be realized. Forward-looking
statements can be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "should," "seeks," "pro
forma," "anticipates," "intends" or the negative of any such word, or other
variations or comparable terminology, or by discussions of strategy or
intentions. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements. We disclaim any obligations to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements contained in this document to reflect
future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We generate approximately 25% of our sales from customers outside the
United States, principally in Europe. International sales are made mostly from
our foreign subsidiary located in France and are primarily denominated in the
local currency. Our foreign subsidiary also incurs the majority of its expenses
in the local currency and uses the local currency as its functional currency.
Our major principal cash balances are held in U.S. dollars. Cash balances
in foreign currencies are held to minimum balances for working capital purposes
and therefore have a minimum risk to currency fluctuations.
We periodically enter into forward foreign currency exchange contracts to
hedge certain exposures related to selected transactions that are relatively
certain as to both timing and amount and to hedge a portion of the production
costs expected to be denominated in foreign currencies. The purpose of entering
into these hedge transactions is to minimize the impact of foreign currency
fluctuations on the results of operations and cash flows. Gains and losses on
the hedging activities are recognized concurrently with the gains and losses
from the underlying transactions. At September 30, 2002, there were no forward
exchange contracts outstanding.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's chief
executive officer and chief financial officer have evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
(as defined in Exchange Act Rule 13a-14(c)) as of a date within 90 days of the
filing date of this quarterly report. Based on that evaluation, the chief
executive officer and chief financial officer have concluded that the Company's
disclosure controls and procedures are effective to ensure that material
information relating to the Company and the Company's consolidated subsidiaries
is made known to such officers by others within these entities, particularly
during the period this quarterly report was prepared, in order to allow timely
decisions regarding required disclosure.
(b) Changes in Internal Controls. There have not been any significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 11, 2002, by unanimous written consent, each of Holding and
AKI held its respective annual meeting of stockholders to vote upon the election
of directors. The stockholder in each case voted to elect Thompson Dean, William
Fox, David Wittels, Hugh Kirkpatrick and David Durkin to serve as directors of
each of Holding and AKI until the next annual meeting or until their successors
are elected and duly qualified.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AKI HOLDING CORP.
Date: November 12, 2002 By: /s/ Kenneth A. Budde
-----------------------------------
Kenneth A. Budde
Senior Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
CERTIFICATIONS
I, William J. Fox, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AKI Holding Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date November 12, 2002
/s/ William J. Fox
- -----------------------
William J. Fox
Chief Executive Officer
I, Kenneth A. Budde, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AKI Holding Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date November 12, 2002
/s/ Kenneth A. Budde
- -----------------------
Kenneth A. Budde
Chief Financial Officer
AKI, INC.
Date: November 12, 2002 By: /s/ Kenneth A. Budde
-----------------------------------
Kenneth A. Budde
Senior Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
CERTIFICATIONS
I, William J. Fox, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AKI, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date November 12, 2002
/s/ William J. Fox
- -----------------------
William J. Fox
Chief Executive Officer
I, Kenneth A. Budde, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AKI, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date November 12, 2002
/s/ Kenneth A. Budde
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Kenneth A. Budde
Chief Financial Officer