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, 2003
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) ( ) Yes (X) No
As of October 31, 2003, 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, 2003
- June 30, 2003
Consolidated Condensed Statements of Operations
- Three months ended September 30, 2003
- Three months ended September 30, 2002
Consolidated Condensed Statement of Changes in
Stockholder's Equity
- Three months ended September 30, 2003
Consolidated Condensed Statements of Cash Flows
- Three months ended September 30, 2003
- Three months ended September 30, 2002
Notes to Consolidated Condensed Financial Statements
Item 1. Financial Statements (unaudited) (continued)
AKI, Inc. and Subsidiaries
Consolidated Condensed Balance Sheet
- September 30, 2003
- June 30, 2003
Consolidated Condensed Statements of Operations
- Three months ended September 30, 2003
- Three months ended September 30, 2002
Consolidated Condensed Statement of Changes in
Stockholder's Equity
- Three months ended September 30, 2003
Consolidated Condensed Statements of Cash Flows
- Three months ended September 30, 2003
- Three months ended September 30, 2002
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 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
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,
2003 2003
------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 5,323 $ 1,470
Accounts receivable, net................................................... 29,990 20,267
Inventory.................................................................. 8,766 7,265
Income tax receivable...................................................... - 4,166
Prepaid expenses........................................................... 1,358 671
Deferred income taxes...................................................... 808 808
------------- -------------
Total current assets.................................................... 46,245 34,647
Property, plant and equipment, net......................................... 15,472 16,584
Goodwill .................................................................. 152,994 152,994
Other intangible assets, net............................................... 10,867 11,307
Deferred charges, net...................................................... 2,868 3,032
Other assets............................................................... 134 138
------------- -------------
Total assets............................................................ $ 228,580 $ 218,702
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt.......................................... $ 1,937 $ 1,875
Accounts payable, trade.................................................... 8,121 5,444
Accrued income taxes....................................................... 1,469 -
Accrued compensation....................................................... 3,019 4,333
Accrued interest........................................................... 2,972 5,502
Accrued expenses........................................................... 3,031 3,661
------------- -------------
Total current liabilities............................................... 20,549 20,815
Revolving credit line...................................................... 18,037 10,000
Term loan.................................................................. 5,750 6,250
Senior notes............................................................... 103,510 103,510
Promissory note to affiliate............................................... 375 -
Deferred income taxes...................................................... 968 1,142
Other non-current liabilities.............................................. 1,012 1,740
------------- -------------
Total liabilities....................................................... 150,201 143,457
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
Retained earnings (accumulated deficit).................................... 215 (3,116)
Accumulated other comprehensive income..................................... 238 435
Carryover basis adjustment................................................. (15,730) (15,730)
------------- -------------
Total stockholder's equity.............................................. 78,379 75,245
------------- -------------
Total liabilities and stockholder's equity.............................. $ 228,580 $ 218,702
============= =============
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, 2003 September 30, 2002
------------------ ------------------
(unaudited) (unaudited)
Net sales................................................. $ 37,258 $ 30,400
Cost of goods sold........................................ 23,535 18,515
----------- -----------
Gross profit....................................... 13,723 11,885
Selling, general and administrative expenses.............. 4,685 4,664
Amortization of other intangibles......................... 286 286
----------- -----------
Income from operations............................. 8,752 6,935
Other expenses:
Interest expense....................................... 3,214 3,738
Management fees and other, net......................... 100 63
----------- -----------
Income before income taxes......................... 5,438 3,134
Income tax expense........................................ 2,107 1,247
----------- -----------
Net income ........................................ $ 3,331 $ 1,887
=========== ===========
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
Retained Other
Additional Earnings Comprehensive Carryover
Common Stock Paid-in (Accumulated Income Basis
Shares Dollars Capital Deficit) (Loss) Adjustment Total
------ ------- ------- -------- ------ ---------- -----
Balances, June 30, 2003 (unaudited)....... 1,000 $ - $ 93,656 $ (3,116) $ 435 $ (15,730) $ 75,245
Net income (unaudited).................... 3,331 3,331
Other comprehensive loss, net of tax:
Foreign currency translation
adjustment (unaudited)............... (197) (197)
---------
Comprehensive income (unaudited).......... 3,134
----- ------ ---------- ---------- ------- ---------- ---------
Balances, September 30, 2003 (unaudited).. 1,000 $ - $ 93,656 $ 215 $ 238 $ (15,730) $ 78,379
===== ======= ========== ========== ======= ========== =========
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, 2003 September 30, 2002
------------------ ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income........................................................ $ 3,331 $ 1,887
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of other intangibles.............. 1,844 1,855
Amortization of debt discount................................... - 537
Amortization of debt issuance costs............................. 164 174
Deferred income taxes........................................... (174) (340)
Other........................................................... (921) (336)
Changes in operating assets and liabilities:
Accounts receivable........................................... (9,723) 235
Inventory..................................................... (1,501) (1,748)
Prepaid expenses, deferred charges and other assets........... (687) (543)
Accounts payable and accrued expenses......................... (1,799) (5,669)
Income taxes.................................................. 5,635 446
----------- -----------
Net cash used in operating activities....................... (3,831) (3,502)
----------- -----------
Cash flows from investing activities
Purchases of equipment............................................ (243) (828)
Patents........................................................... (48) (32)
----------- -----------
Net cash used in investing activities....................... (291) (860)
----------- -----------
Cash flows from financing activities
Net proceeds on revolving loan.................................... 8,037 3,925
Net repayments on term loan....................................... (437) (250)
Net proceeds from promissory note to stockholder.................. 375 355
----------- -----------
Net cash provided by financing activities................... 7,975 4,030
----------- -----------
Net increase (decrease) in cash and cash equivalents................. 3,853 (332)
Cash and cash equivalents, beginning of period....................... 1,470 1,875
----------- -----------
Cash and cash equivalents, end of period............................. $ 5,323 $ 1,543
=========== ===========
Supplemental information
Net cash paid (received) during the period for:
Interest........................................................ $ 5,540 $ 5,706
Income taxes.................................................... (3,171) 1,179
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 multi-sensory, interactive marketing activities
primarily from the sale of printed advertising materials with sampling
systems and other sampling products to fragrance, cosmetics and consumer
products companies, and creative services. Products are produced and
distributed from Chattanooga, Tennessee and Baltimore, Maryland facilities
and distributed in Europe through its French subsidiary, Arcade Europe
S.A.R.L.
Recently Issued Accounting Standards
FASB Interpretation No. 46 "Consolidation of Variable Interest
Entities" ("FIN 46") was issued in January 2003. FIN 46 requires an
investor with a majority of the variable interests in a variable interest
entity ("VIE") to consolidate the entity and also requires majority and
significant variable interest investors to provide certain disclosures. A
VIE is an entity in which the equity investors do not have a controlling
interest, or the equity investment at risk is insufficient to finance the
entity's activities without receiving additional subordinated financial
support from the other parties. For arrangements entered into with VIEs
created prior to February 1, 2003, the provisions of FIN 46 are required to
be adopted at the beginning of the first interim or annual period ending
after December 15, 2003. The Company is currently reviewing its investments
and other arrangements to determine whether any of its investee companies
are VIEs. The Company does not expect to identify any significant VIEs that
would be consolidated, but may be required to make additional disclosures.
The Company's maximum exposure related to any investment that may be
determined to be in a VIE is limited to the amount invested. The provisions
of FIN 46 are effective immediately for all arrangements entered into with
new VIEs created after January 31, 2003. The Company has not invested in
any new VIEs created after January 31, 2003.
Interim financial statements
The interim consolidated condensed balance sheet at September 30, 2003
and the interim consolidated condensed statements of operations for the
three months ended September 30, 2003 and 2002, the interim consolidated
condensed statements of cash flows for the three months ended September 30,
2003 and 2002 and the interim consolidated condensed statement of changes
in stockholder's equity for the three months ended September 30, 2003 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,
2003 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. The interim consolidated condensed financial
statements should be read in conjunction with the financial statements and
notes thereto for the year ended June 30, 2003 as filed on Form 10-K.
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)
Stock Based Compensation
The Company has elected to account for its stock based compensation
with employees under the intrinsic value method of APB 25 as permitted
under SFAS 123. Under the intrinsic value method, because the stock price
of the Company's employee stock options equaled the fair value of the
underlying stock on the date of grant, no compensation expense was
recognized. If the Company had elected to recognize compensation expense
based on the fair value of the options at grant date as prescribed by SFAS
123, the net income would have been as follows:
Three months ended
September 30,
-------------
2003 2002
---- ----
Net income, as reported................. $ 3,331 $ 1,887
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects...... 8 9
--------- ---------
Pro forma net income.................... $ 3,323 $ 1,878
========= =========
2. INVENTORY
The following table details the components of inventory:
September 30, 2003 June 30, 2003
------------------ -------------
(unaudited) (unaudited)
Raw materials
Paper.......................... $ 1,926 $ 1,740
Other raw materials............ 2,961 2,353
----------- -----------
Total raw materials........ 4,887 4,093
Work in process.................... 4,586 3,857
Reserve for obsolescence........... (707) (685)
----------- -----------
Total inventory.................... $ 8,766 $ 7,265
=========== ===========
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
3. COMPREHENSIVE INCOME
Comprehensive income consists of net income, plus certain changes in
assets and liabilities that are not included in net income but are instead
reported within a separate component of shareholders' equity under
generally accepted accounting principles. The Company's comprehensive
income was as follows:
Three months ended
September 30,
-------------
2003 2002
---- ----
Net income................................. $ 3,331 $ 1,887
Other comprehensive income (loss) , net
of tax:
Foreign currency translation
adjustments.............................. (197) 373
--------- ---------
Comprehensive income....................... $ 3,134 $ 2,260
========= =========
4. CONTINGENCIES
The Beautiful Bouquet Company, Ltd. (the "Licensor") filed suit
against the Company alleging breaches of a Patent and Know-How License
agreement, as amended (the "License Agreement"). Under the License
Agreement, the Company licenses certain intellectual property related to
one of the Company's products for which the Company is obligated to pay the
Licensor a royalty based on sales of the product and a minimum annual
royalty. The Licensor alleges the Company committed a number of breaches,
including a breach of the License Agreement and a breach of fiduciary duty
owed to the Licensor, and is seeking to recover unspecified amounts under
the terms of the License Agreement and all amounts due it under the
Company's unjust enrichment of the Licensor's intellectual property rights.
The Company believes that it has valid defenses to the Licensor's
claims, that it did not breach any provision of the License Agreement, and
that the License Agreement is valid and enforceable. The Company believes
that Licensor 's claims are without merit, and intends to vigorously defend
against its claims.
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
5. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets at September 30, 2003 and June
30, 2003 and condensed statements of operations and cash flows for the
three months ended September 30, 2003 and 2002 and the condensed statement
of changes in stockholder's equity for the three months ended September 30,
2003 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, 2003 June 30, 2003
------------------ -------------
(unaudited) (unaudited)
Assets
Investment in subsidiaries............................... $ 93,871 $ 87,385
Income tax receivable.................................... - 3,155
----------- -----------
Total assets......................................... $ 93,871 $ 90,540
=========== ===========
Liabilities
Total liabilities.................................... $ - $ -
---------- ----------
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
Retained earnings (accumulated deficit).................. 215 (3,116)
----------- -----------
Total stockholder's equity........................... 93,871 90,540
----------- -----------
Total liabilities and stockholder's equity........... $ 93,871 $ 90,540
=========== ===========
STATEMENT OF OPERATIONS
Three months ended
----------------------------------------
September 30, 2003 September 30, 2002
------------------ ------------------
(unaudited) (unaudited)
Equity in net income of subsidiaries..................... $ 3,331 $ 2,257
Interest expense......................................... - (550)
----------- -----------
Income before income taxes........................... 3,331 1,707
Income tax benefit....................................... - (180)
----------- -----------
Net income........................................... $ 3,331 $ 1,887
=========== ===========
AKI HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
5. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS (Continued)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Retained
Additional Earnings
Common Stock Paid-in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ------- -------- -----
Balances, June 30, 2003 (unaudited)........... 1,000 $ - $ 93,656 $ (3,116) $ 90,540
Net income (unaudited)........................ 3,331 3,331
----- -------- ---------- ----------- -----------
Balances, September 30, 2003 (unaudited)...... 1,000 $ - $ 93,656 $ 215 $ 93,871
===== ======== ========== =========== ===========
STATEMENT OF CASH FLOWS
Three months ended
----------------------------------------
September 30, 2003 September 30, 2002
------------------ ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income.................................................... $ 3,331 $ 1,887
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net change in investment in subsidiaries............... (3,331) (2,257)
Amortization of debt discount.......................... - 537
Amortization of debt issuance costs.................... - 13
Deferred income taxes.................................. - (180)
Changes in operating assets and liabilities:
Income tax receivable.............................. 3,155 -
----------- -----------
Net cash provided by (used in) operating activities... 3,155 -
----------- -----------
Cash flows from financing activities
Repayment of long-term debt............................ - -
Capital contribution to subsidiary..................... (3,155) -
----------- -----------
Net cash provided by (used in) financing activities (3,155) -
----------- -----------
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,
2003 2003
------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 5,323 $ 1,470
Accounts receivable, net................................................... 29,990 20,267
Inventory.................................................................. 8,766 7,265
Income tax receivable...................................................... - 1,011
Prepaid expenses........................................................... 1,358 671
Deferred income taxes...................................................... 808 808
------------- -------------
Total current assets.................................................... 46,245 31,492
Property, plant and equipment, net......................................... 15,472 16,584
Goodwill .................................................................. 152,994 152,994
Other intangible assets, net............................................... 10,867 11,307
Deferred charges, net...................................................... 2,868 3,032
Other assets............................................................... 134 138
------------- -------------
Total assets............................................................ $ 228,580 $ 215,547
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt.......................................... $ 1,937 $ 1,875
Accounts payable, trade.................................................... 8,121 5,444
Accrued income taxes....................................................... 1,469 -
Accrued compensation....................................................... 3,019 4,333
Accrued interest........................................................... 2,972 5,502
Accrued expenses........................................................... 3,031 3,661
------------- -------------
Total current liabilities............................................... 20,549 20,815
Revolving credit line...................................................... 18,037 10,000
Term loan.................................................................. 5,750 6,250
Senior notes............................................................... 103,510 103,510
Promissory note to affiliate............................................... 375 -
Deferred income taxes...................................................... 968 1,142
Other non-current liabilities.............................................. 1,012 1,740
------------- -------------
Total liabilities....................................................... 150,201 143,457
Stockholder's equity
Common stock, $0.01 par 100,000 shares authorized;
1,000 shares issued and outstanding..................................... - -
Additional paid-in capital................................................. 85,667 82,512
Retained earnings.......................................................... 8,204 4,873
Accumulated other comprehensive income .................................... 238 435
Carryover basis adjustment................................................. (15,730) (15,730)
-------------- -------------
Total stockholder's equity.............................................. 78,379 72,090
------------- -------------
Total liabilities and stockholder's equity.............................. $ 228,580 $ 215,547
============= =============
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, 2003 September 30, 2002
------------------ ------------------
(unaudited) (unaudited)
Net sales................................................. $ 37,258 $ 30,400
Cost of goods sold........................................ 23,535 18,515
----------- ----------
Gross profit....................................... 13,723 11,885
Selling, general and administrative expenses.............. 4,685 4,664
Amortization of other intangibles......................... 286 286
----------- ----------
Income from operations............................. 8,752 6,935
Other expenses:
Interest expense....................................... 3,214 3,188
Management fees and other, net......................... 100 63
----------- ----------
Income before income taxes......................... 5,438 3,684
Income tax expense........................................ 2,107 1,427
----------- ----------
Net income ........................................ $ 3,331 $ 2,257
=========== ==========
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
Retained Other
Additional Earnings Comprehensive Carryover
Common Stock Paid-in (Accumulated Income Basis
Shares Dollars Capital Deficit) (Loss) Adjustment Total
------ ------- ------- -------- ------ ---------- -----
Balances, June 30, 2003 (unaudited)....... 1,000 $ - $ 82,512 $ 4,873 $ 435 $ (15,730) $ 72,090
Capital contribution from AKI Holding
Corp.................................. 3,155 3,155
Net income (unaudited).................... 3,331 3,331
Other comprehensive loss, net of tax:
Foreign currency translation
adjustment (unaudited)............... (197) (197)
---------
Comprehensive income (unaudited).......... 3,134
----- ------ ---------- ---------- ------- ---------- ---------
Balances, September 30, 2003 (unaudited).. 1,000 $ - $ 85,667 $ 8,204 $ 238 $ (15,730) $ 78,379
===== ====== ========== ========== ======= ========== =========
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, 2003 September 30, 2002
------------------ ------------------
(unaudited) (unaudited)
Cash flows from operating activities
Net income........................................................ $ 3,331 $ 2,257
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of other intangibles.............. 1,844 1,855
Amortization of debt issuance cost.............................. 164 161
Deferred income taxes........................................... (174) (160)
Other........................................................... (921) (336)
Changes in operating assets and liabilities:
Accounts receivable........................................... (9,723) 235
Inventory..................................................... (1,501) (1,748)
Prepaid expenses, deferred charges and other assets........... (687) (543)
Accounts payable and accrued expenses......................... (1,799) (5,669)
Income taxes.................................................. 2,480 446
----------- -----------
Net cash used in operating activities..................... (6,986) (3,502)
----------- -----------
Cash flows from investing activities
Purchases of equipment............................................ (243) (828)
Patents........................................................... (48) (32)
----------- -----------
Net cash used in investing activities....................... (291) (860)
----------- -----------
Cash flows from financing activities
Net proceeds on revolving loan.................................... 8,037 3,925
Net repayments on term loan....................................... (437) (250)
Net proceeds from promissory note to affiliate.................... 375 355
Capital contribution from parent.................................. 3,155 -
----------- -----------
Net cash provided by financing activities................... 11,130 4,030
----------- -----------
Net increase (decrease) in cash and cash equivalents................. 3,853 (332)
Cash and cash equivalents, beginning of period....................... 1,470 1,875
----------- -----------
Cash and cash equivalents, end of period............................. $ 5,323 $ 1,543
=========== ===========
Supplemental information
Net cash paid (received) during the period for:
Interest.......................................................... $ 5,540 $ 5,706
Income taxes...................................................... (3,171) 1,179
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 multi-sensory, interactive marketing activities
primarily from the sale of printed advertising materials with sampling
systems and other sampling products to fragrance, cosmetics and consumer
products companies, and creative services. Products are produced and
distributed from Chattanooga, Tennessee and Baltimore, Maryland facilities
and distributed in Europe through its French subsidiary, Arcade Europe
S.A.R.L.
Recently Issued Accounting Standards
FASB Interpretation No. 46 "Consolidation of Variable Interest
Entities" ("FIN 46") was issued in January 2003. FIN 46 requires an
investor with a majority of the variable interests in a variable interest
entity ("VIE") to consolidate the entity and also requires majority and
significant variable interest investors to provide certain disclosures. A
VIE is an entity in which the equity investors do not have a controlling
interest, or the equity investment at risk is insufficient to finance the
entity's activities without receiving additional subordinated financial
support from the other parties. For arrangements entered into with VIEs
created prior to February 1, 2003, the provisions of FIN 46 are required to
be adopted at the beginning of the first interim or annual period ending
after December 15, 2003. The Company is currently reviewing its investments
and other arrangements to determine whether any of its investee companies
are VIEs. The Company does not expect to identify any significant VIEs that
would be consolidated, but may be required to make additional disclosures.
The Company's maximum exposure related to any investment that may be
determined to be in a VIE is limited to the amount invested. The provisions
of FIN 46 are effective immediately for all arrangements entered into with
new VIEs created after January 31, 2003. The Company has not invested in
any new VIEs created after January 31, 2003.
Interim financial statements
The interim consolidated condensed balance sheet at September 30, 2003
and the interim consolidated condensed statements of operations for the
three months ended September 30, 2003 and 2002, the interim consolidated
condensed statements of cash flows for the three months ended September 30,
2003 and 2002 and the interim consolidated condensed statement of changes
in stockholder's equity for the three months ended September 30, 2003 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,
2003 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. The interim consolidated condensed financial
statements should be read in conjunction with the financial statements and
notes thereto for the year ended June 30, 2003 as filed on Form 10-K.
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
1. BASIS OF PRESENTATION (continued)
Stock Based Compensation
The Company has elected to account for its stock based compensation
with employees under the intrinsic value method of APB 25 as permitted
under SFAS 123. Under the intrinsic value method, because the stock price
of the Company's employee stock options equaled the fair value of the
underlying stock on the date of grant, no compensation expense was
recognized. If the Company had elected to recognize compensation expense
based on the fair value of the options at grant date as prescribed by SFAS
123, the net income would have been as follows:
Three months ended
September 30,
-------------
2003 2002
---- ----
Net income, as reported................ $ 3,331 $ 2,257
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects..... 8 9
--------- ---------
Pro forma net income................... $ 3,323 $ 2,248
========= =========
2. INVENTORY
The following table details the components of inventory:
September 30, 2003 June 30, 2003
------------------ -------------
(unaudited) (unaudited)
Raw materials
Paper........................... $ 1,926 $ 1,740
Other raw materials............. 2,961 2,353
----------- -----------
Total raw materials......... 4,887 4,093
Work in process..................... 4,586 3,857
Reserve for obsolescence............ (707) (685)
----------- -----------
Total inventory..................... $ 8,766 $ 7,265
=========== ===========
AKI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share information)
3. COMPREHENSIVE INCOME
Comprehensive income consists of net income, plus certain changes in
assets and liabilities that are not included in net income but are instead
reported within a separate component of shareholders' equity under
generally accepted accounting principles. The Company's comprehensive
income was as follows:
Three months ended
September 30,
-------------
2003 2002
---- ----
Net income................................. $ 3,331 $ 2,257
Other comprehensive income (loss), net
of tax:
Foreign currency translation
adjustments.............................. (197) 373
--------- ---------
Comprehensive income....................... $ 3,134 $ 2,630
========= =========
4. CONTINGENCIES
The Beautiful Bouquet Company, Ltd. (the "Licensor") filed suit
against the Company alleging breaches of a Patent and Know-How License
agreement, as amended (the "License Agreement"). Under the License
Agreement, the Company licenses certain intellectual property related to
one of the Company's products for which the Company is obligated to pay the
Licensor a royalty based on sales of the product and a minimum annual
royalty. The Licensor alleges the Company committed a number of breaches,
including a breach of the License Agreement and a breach of fiduciary duty
owed to the Licensor, and is seeking to recover unspecified amounts under
the terms of the License Agreement and all amounts due it under the
Company's unjust enrichment of the Licensor's intellectual property rights.
The Company believes that it has valid defenses to the Licensor's
claims, that it did not breach any provision of the License Agreement, and
that the License Agreement is valid and enforceable. The Company believes
that Licensor 's claims are without merit, and intends to vigorously defend
against its claims.
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 other sampling 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, 2003 Compared to Three Months
Ended September 30, 2002
Net Sales. Net sales for the three months ended September 30, 2003
increased $6.9 million, or 22.7%, to $37.3 million, as compared to $30.4 million
for the three months ended September 30, 2002. The increase in net sales was
primarily attributable to increased sales of sampling technologies for
advertising and marketing of domestic cosmetic and consumer products.
Gross Profit. Gross profit for the three months ended September 30, 2003
increased $1.8 million, or 15.1%, to $13.7 million, as compared to $11.9 million
for three months ended September 30, 2002. Gross profit as a percentage of net
sales decreased to 36.7% in the three months ended September 30, 2003, from
39.1% in the three months ended September 30, 2002. The increase in gross profit
is primarily due to the increase in sales volume. The decrease in gross profit
as a percentage of net sales is due to changes in product and format mix and
reduction in prices of certain fragrance sampling products in response to
competitive pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 2003 was $4.7
million consistent with the $4.7 million for the three months ended September
30, 2002. Selling, general and administrative expenses as a percent of net sales
decreased to 12.6% in the three months ended September 30, 2003, from 15.5% in
the three months ended September 30, 2002 primarily because these costs are
largely fixed.
Income from Operations. Income from operations for the three months ended
September 30, 2003 increased $1.9 million, or 27.5%, to $8.8 million, as
compared to $6.9 million for the three months ended September 30, 2002. Income
from operations as a percentage of net sales increased to 23.6% in the three
months ended September 30, 2003, from 22.7% in the three months ended September
30, 2002. 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.
Interest Expense. Interest expense (which includes the amortization of
deferred financing costs) for the three months ended September 30, 2003
decreased $0.5 million, or 13.5%, to $3.2 million, as compared to $3.7 million
for the three months ended September 30, 2002. The decrease in interest expense
is primarily due to a decrease in interest expense related to retired Senior
Discount Debentures, the remaining outstanding of which were repurchased in the
quarter ending June 30, 2003. Interest expense as a percentage of net sales
decreased to 8.6% in the three months ended September 30, 2003, from 12.2% in
the three months ended September 30, 2002.
Interest expense for AKI for the three months ended September 30, 2003 was
$3.2 million consistent with the $3.2 million for the three months ended
September 30, 2002. Interest expense as a percentage of net sales decreased to
8.6% in the three months ended September 30, 2003, from 10.5% in the three
months ended September 30, 2002.
Income Tax Expense. Income tax expense for the three months ended September
30, 2003 increased $0.9 million to $2.1 million. The Company's effective tax
rate was 39% in the three months ended September 30, 2003 and 2002.
Income tax expense for AKI for the three months ended September 30, 2003
increased $0.7 million to $2.1 million. AKI's effective tax rate was 39% in the
three months ended September 30, 2003 and 2002.
Liquidity and Capital Resources
We have substantial indebtedness and significant debt service obligations.
As of September 30, 2003, we had consolidated indebtedness in an aggregate
amount of $129.6 million (excluding trade payables, accrued liabilities,
deferred taxes and other non-current liabilities), of which approximately $129.6
million was a direct obligation of AKI relating to its notes, term loan,
revolving loan and promissory note to affiliate. Borrowings at September 30,
2003 included $18.0 million under the revolving loan and $7.7 million under the
term loan and $0.4 million on the promissory note to affiliate. At September 30,
2003 we had $1.7 million available under the revolving loan. At September 30,
2003, we also had $20.6 million in additional outstanding liabilities (including
trade payables, accrued liabilities, deferred taxes and other non-current
liabilities).
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, 2003, cash totaling $7.0 million was used by operating activities
primarily due to the increase in accounts receivable and inventory and the
decrease in accrued expenses, partially offset by net income before depreciation
and amortization and the increase in accounts payable and income taxes payable.
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.
We define Adjusted EBITDA (also referred to as EBITDA in our credit
agreement) as net income or loss plus income taxes; interest expense; loss from
early retirement of debt, depreciation, amortization and impairment loss of
goodwill and amortization of other intangibles less gain from early retirement
of debt. Adjusted EBITDA is not a measure of financial or operating performance,
cash flow or liquidity under generally accepted accounting principles, and
should not be used by itself or in the place of net income, cash flows from
operating activities or other income or cash flow statement data prepared in
accordance with generally accepted accounting principles as a financial or
liquidity measure.
We use Adjusted EBITDA to manage and evaluate our business operations. Our
management evaluates Adjusted EBITDA because it excludes certain cash and
non-cash items that are either beyond our immediate control or that we believe
are not characteristic of our underlying business operation for the period in
which they are recorded, or both. We believe the presentation of Adjusted EBITDA
is relevant because Adjusted EBITDA is a measurement that we and our lenders use
to comply with our debt covenants and establish our interest rate on a portion
of our debt. Investors should be aware that the way by which we calculate
Adjusted EBITDA may not be comparable with similarly titled measures presented
by other companies and comparisons of such amounts could be misleading unless
all companies and analysts calculate such measures in the same manner.
The calculation of Adjusted EBITDA for Holding is as follows (dollars in
millions):
Three months ended
September 30,
-------------
2003 2002
---- ----
Net income ............................ $ 3.3 $ 1.9
Income tax expense..................... 2.1 1.2
Interest expense....................... 3.2 3.7
Depreciation and amortization of
other intangibles.................... 1.8 1.9
--------- ---------
Adjusted EBITDA........................ $ 10.4 $ 8.7
========= =========
The calculation of Adjusted EBITDA for AKI is as follows (dollars in
millions):
Three months ended
September 30,
-------------
2003 2002
---- ----
Net income............................... $ 3.3 $ 2.2
Income tax expense....................... 2.1 1.4
Interest expense......................... 3.2 3.2
Depreciation and amortization of
other intangibles...................... 1.8 1.9
---------- ---------
Adjusted EBITDA.......................... $ 10.4 $ 8.7
========== =========
In the three months ended September 30, 2003 and 2002, we had capital
expenditures of approximatelyz $0.2 million and $0.8 million, respectively.
These capital expenditures consisted primarily of the purchase of manufacturing
equipment and upgrading our computer systems.
We may from time to time evaluate 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.
Capital expenditures for the twelve months ending June 30, 2004 are
currently estimated to be between $3.0 million and $4.0 million. Based on
borrowings outstanding as of September 30, 2003, we expect total cash payments
for debt service for the twelve months ending June 30, 2004 to be approximately
$14.1 million, consisting of $1.9 million in principal payments under the term
loan, $10.9 million in interest payments on the Notes and $1.3 million in
interest and fees under the credit agreement. We also expect to make royalty
payments of approximately $1.2 million during the twelve months ending June 30,
2004.
At September 30, 2003, AKI's cash and cash equivalents and net working
capital were $5.3 million and $25.7 million, respectively, representing an
increase in cash and cash equivalents of $3.8 million and an increase in net
working capital of $15.0 million from June 30, 2003. The increase in working
capital is primarily due to the increase in cash and cash equivalents, accounts
receivable and inventory.
Seasonality
Our sales of sampling technologies for advertising and marketing of
fragrance products have historically reflected seasonal variations. Such
seasonal variations are based on the timing of our customers' advertising
campaigns, which have traditionally been concentrated prior to the Christmas and
spring holiday seasons. As a result, a higher level of sales are generally
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 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.
Contingencies
The Beautiful Bouquet Company, Ltd. (the "Licensor") filed suit against the
Company alleging breaches of a Patent and Know-How License agreement, as amended
(the "License Agreement"). Under the License Agreement, the Company licenses
certain intellectual property related to one of the Company's products for which
the Company is obligated to pay the Licensor a royalty based on sales of the
product and a minimum annual royalty. The Licensor alleges the Company committed
a number of breaches, including a breach of the License Agreement and a breach
of fiduciary duty owed to the Licensor, and is seeking to recover unspecified
amounts under the terms of the License Agreement and all amounts due it under
the Company's unjust enrichment of the Licensor's intellectual property rights.
The Company believes that it has valid defenses to the Licensor's claims,
that it did not breach any provision of the License Agreement, and that the
License Agreement is valid and enforceable. The Company believes that Licensor
's claims are without merit, and intends to vigorously defend against its
claims. However, if Licensor were to prevail in this lawsuit, the Company's
financial condition, results of operations and cash flows could be materially
adversely affected.
Recently Issued Accounting Standards
FASB Interpretation No. 46 "Consolidation of Variable Interest Entities"
("FIN 46") was issued in January 2003. FIN 46 requires an investor with a
majority of the variable interests in a variable interest entity ("VIE") to
consolidate the entity and also requires majority and significant variable
interest investors to provide certain disclosures. A VIE is an entity in which
the equity investors do not have a controlling interest, or the equity
investment at risk is insufficient to finance the entity's activities without
receiving additional subordinated financial support from the other parties. For
arrangements entered into with VIEs created prior to February 1, 2003, the
provisions of FIN 46 are required to be adopted at the beginning of the first
interim or annual period ending after December 15, 2003. The Company is
currently reviewing its investments and other arrangements to determine whether
any of its investee companies are VIEs. The Company does not expect to identify
any significant VIEs that would be consolidated, but may be required to make
additional disclosures. The Company's maximum exposure related to any investment
that may be determined to be in a VIE is limited to the amount invested. The
provisions of FIN 46 are effective immediately for all arrangements entered into
with new VIEs created after January 31, 2003. The Company has not invested in
any new VIEs created after January 31, 2003.
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 26, 2003.
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 24% 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, 2003, 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 the end of the period covered
by this quarterly report. Based on that evaluation, the chief executive officer
and chief financial officer have concluded as of the end of the period covered
by this report that the Company's disclosure controls and procedures are
effective.
(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 1. LEGAL PROCEEDINGS
On October 31, 2003, The Beautiful Bouquet Company, Ltd. ("BBCo") filed
suit in the circuit court of Hamilton County, Tennessee against the Company
alleging breaches of a Patent and Know-How License agreement, as amended (the
"License Agreement"). Under the License Agreement, the Company licenses certain
intellectual property related to the Company's DiscCover(R) product for which
the Company is obligated to pay BBCo a royalty based on sales of the
DiscCover(R) product and a minimum annual royalty.
BBCo alleges in its complaint that during negotiations in 1997 of an
Amendment to the License Agreement (the "1997 Amendment") the Company committed
a number of breaches, including a breach of the License Agreement, a breach of
fiduciary duty owed to BBCo, unjust enrichment and breach of the Amendment to
the License Agreement. BBCo seeks to recover unspecified amounts under the terms
of the original License Agreement and all amounts due it under the Company's
unjust enrichment of BBCo's intellectual property rights. In addition, BBCo
seeks to void and/or rescind the 1997 Amendment and restore the License
Agreement to its original term, including its expiration on October 21, 2003
unless the required provisions are met.
The Company believes that it has valid defenses to BBCo's claims, that it
did not breach any provision of the License Agreement, and that the License
Agreement is valid and enforceable. The Company believes that BBCo's claims are
without merit, and intends to vigorously defend against its claims. However, if
BBCo were to prevail in this lawsuit, the Company's financial condition, results
of operations and cash flows could be materially adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 9, 2003, 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 William Fox, David
Wittels, High Kirkpatrick, Douglas Fox 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
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
31.3 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
31.4 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 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 5, 2003 By: /s/ Kenneth A. Budde
-----------------------------------
Kenneth A. Budde
Senior Vice President &
Chief Financial Officer
(Principal Financial and Accounting
Officer)
AKI, INC.
Date: November 5, 2003 By: /s/ Kenneth A. Budde
-----------------------------------
Kenneth A. Budde
Senior Vice President &
Chief Financial Officer
(Principal Financial and Accounting
Officer)