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, 1999
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 74-288316
(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 November 12, 1999, 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.
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
AKI Holding Corp. and Subsidiaries
Consolidated Condensed Balance Sheet
- September 30, 1999 (unaudited)
- June 30, 1999
Consolidated Condensed Statements of Operations
- Three months ended September 30, 1999 (unaudited)
- Three months ended September 30, 1998 (unaudited)
Consolidated Condensed Statement of Changes in Stockholder's Equity
- Three months ended September 30, 1999 (unaudited)
Consolidated Condensed Statements of Cash Flows
- Three months ended September 30, 1999 (unaudited)
- Three months ended September 30, 1998 (unaudited)
Notes to Consolidated Condensed Financial Statements
<PAGE>
Item 1. Financial Statements (continued)
AKI, Inc. and Subsidiaries
Consolidated Condensed Balance Sheet
- September 30, 1999 (unaudited)
- June 30, 1999
Consolidated Condensed Statements of Operations
- Three months ended September 30, 1999 (unaudited)
- Three months ended September 30, 1998 (unaudited)
Consolidated Condensed Statement of Changes in Stockholder's Equity
- Three months ended September 30, 1999 (unaudited)
Consolidated Condensed Statements of Cash Flows
- Three months ended September 30, 1999 (unaudited)
- Three months ended September 30, 1998 (unaudited)
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly-owned subsidiary of AHC I Acquisition Corp.)
CONSOLIDATED CONDENSED BALANCE SHEET
(dollars in thousands, except share information)
September 30, June 30,
1999 1999
--------- ---------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents .......................... $ 473 $ 7,015
Accounts receivable, net ........................... 26,138 16,287
Inventory .......................................... 6,252 5,109
Income tax refund receivable ....................... 164 32
Prepaid expenses ................................... 433 452
Deferred income taxes .............................. 399 400
--------- ---------
Total current assets ............................ 33,859 29,295
Property, plant and equipment, net ................. 18,257 18,511
Goodwill, net ...................................... 161,746 147,990
Other intangible assets, net ....................... 6,378 6,560
Deferred charges, net .............................. 9,295 6,839
Deferred income taxes .............................. 2,295 4,338
Other assets ....................................... 92 46
--------- ---------
Total assets .................................... $ 231,922 $ 213,579
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of capital lease obligations ....... $ 1,349 $ 688
Accounts payable, trade ............................ 6,046 3,400
Accrued income taxes ............................... 164 497
Accrued interest ................................... 3,087 6,047
Accrued expenses ................................... 5,903 3,810
--------- ---------
Total current liabilities ....................... 16,549 14,442
Long-term portion of capital lease obligations ..... 521 1,349
Revolving credit line .............................. 14,750 --
Senior notes ....................................... 115,000 115,000
Senior discount debentures ......................... 30,652 29,651
Deferred income taxes .............................. 3,220 3,340
--------- ---------
Total liabilities ............................... 180,692 163,782
Stockholder's equity
Common stock, $0.01 par 1,000 shares authorized;
1,000 shares issued and outstanding ............ -- --
Additional paid-in capital ......................... 78,364 78,364
Accumulated deficit ................................ (11,191) (12,472)
Accumulated other comprehensive loss ............... (213) (365)
Carryover basis adjustment ......................... (15,730) (15,730)
--------- ---------
Total stockholder's equity ...................... 51,230 49,797
--------- ---------
Total liabilities and stockholder's equity ...... $ 231,922 $ 213,579
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly-owned subsidiary of AHCI Acquisition Corp.)
CONSOLIDATED CONDENSED STATEMENT SOF OPERATIONS
(dollars in thousands)
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
Net Sales ........................... $ 28,379 $ 24,024
Cost of goods sold .................. 15,792 15,421
------------ ------------
Gross profit .................... 12,587 8,603
Selling, general and
administrative expenses ......... 4,158 3,115
Amortization of goodwill and
other intangibles ............... 1,164 1,151
------------ ------------
Income from operations .......... 7,265 4,337
Other expenses:
Interest expense, net ........... 4,372 4,096
Management fees and
other, net .................. 63 63
------------ ------------
Income before
income taxes .................... 2,830 178
Income tax expense .................. 1,549 502
------------ ------------
Net income (loss) ............... $ 1,281 $ (324)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly-owned subsidiary of AHC I Acquisition Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDER'S EQUITY (dollars in
thousands, except share information)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Carryover
-------------------- Paid-in Accumulated Comprehensive Basis
Shares Dollars Capital Deficit Loss Adjustment Total
-------- -------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1999 ................ 1,000 $ -- $ 78,364 $(12,472) $ (365) $(15,730) $ 49,797
Net income (unaudited) ................ 1,281 1,281
Other comprehensive income, net of
tax:
Foreign currency translation
adjustment (unaudited) ........ 152 152
--------
Comprehensive income (unaudited) ....... 1,433
-------- -------- -------- -------- -------- -------- --------
Balances, September 30, 1999 (unaudited) 1,000 $ -- $ 78,364 $(11,191) $ (213) $(15,730) $ 51,230
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly-owned subsidiary of AHC I Acquisition Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) .............................. $ 1,281 $ (324)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization of goodwill
and other intangibles .................. 2,212 2,186
Amortization of debt discount .............. 1,001 878
Amortization of debt issuance costs ........ 199 143
Deferred income taxes ...................... 1,925 (403)
Other ...................................... 152 112
Changes in operating assets and liabilities:
Accounts receivable .................... (6,654) (7,872)
Inventory .............................. (174) (1,906)
Prepaid expenses, deferred charges
and other assets ..................... 30 (387)
Income taxes ........................... (333) 5,958
Accounts payable and accrued expenses .. (3,992) 3,132
-------- --------
Net cash provided by (used in)
operating activities ............... (4,353) 1,517
-------- --------
Cash flows from investing activities
Purchases of equipment ......................... (609) (678)
Payments for acquisitions, net of cash
acquired ................................... (16,163) --
-------- --------
Net cash used in investing activities .. (16,772) (678)
-------- --------
Cash flows from financing activities
Payments under capital leases for equipment .... (167) (147)
Net proceeds on line of credit ................. 14,750 --
Repayment of other notes payable ........... -- (1,330)
Dividend paid to AHCI Acquisition Corp. .... -- (1,863)
-------- --------
Net cash provided by (used in) financing
activities ............................... 14,583 (3,340)
-------- --------
Net (decrease) in cash and cash equivalents ........ (6,542) (2,501)
Cash and cash equivalents, beginning of period ..... 7,015 3,842
-------- --------
Cash and cash equivalents, end of period ........... $ 473 $ 1,341
======== ========
Supplemental information
Cash paid (received) during the period for:
Interest, other ............................ $ 6,130 $ 39
Income taxes ............................... 89 (5,053)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly owned subsidiary of AHC I Acquisition Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share information)
1. BASIS OF PRESENTATION
Arcade Holding Corporation (the "Predecessor") was organized for the
purpose of acquiring all the issued and outstanding capital stock of
Arcade, Inc. ("Arcade") on November 4, 1993. Arcade is engaged in
interactive advertising for consumer products companies and has a specialty
in the design, production and distribution of sampling systems from its
Chattanooga, Tennessee facilities, and distributes its products in Europe
through its French subsidiary, Arcade Europe S.A.R.L. DLJ Merchant Banking
Partners II, L.P. and certain related investors (collectively, "DLJMBII")
and certain members of the Predecessor organized AHC I Acquisition Corp.
("Acquisition Corp.") and AHC I Merger Corp. ("Merger Corp.") for purposes
of acquiring the Predecessor. On December 15, 1997, Merger Corp. acquired
all of the equity interests of the Predecessor and then merged with and
into the Predecessor and the combined entity assumed the name of AKI, Inc.
and Subsidiaries ("AKI"). Subsequent to the acquisition, Acquisition Corp.
contributed $1 and all of its ownership interest in AKI to AKI Holding
Corp. ("Holding") for all of the outstanding equity of Holding.
Acquisition of Retcom Holdings Ltd.
On September 15, 1999, AKI acquired all of the equity interests in
Retcom Holdings Ltd. and its subsidiaries for a total cost of approximately
$12 million and refinanced working capital indebtedness of approximately $5
million of Retcom Holdings Ltd. and its subsidiaries. Retcom Holdings Ltd.
businesses include a portfolio of sampling systems catering to the
fragrance, cosmetics and personal care industries, as well as
microencapsulation activities. Retcom Holdings Ltd. also has a creative
services division that handles marketing communications, catalogs and data
base marketing and a multi-media division for merchandising at
point-of-sale. The purchase price and refinancing of indebtedness were
initially financed by borrowings under the credit agreement. The purchase
was accounted for under the purchase method of accounting and management is
in the process of finalizing the allocation of the purchase price to the
assets acquired and liabilities assumed. Results of operations for the
three months ended September 30, 1999 include the results of Retom Holdings
Ltd. for the fifteen days ended September 30, 1999.
Interim financial statements
The interim consolidated condensed balance sheets at September 30,
1999 and the interim consolidated condensed statement of operations for the
three months ended September 30, 1999 and 1998, the interim consolidated
condensed statement of cash flows for the three months ended September 30,
1999 an 1998 and the interim consolidated condensed statement of changes in
stockholder's equity for the three months ended September 30, 1999 are
unaudited, and certain information and footnote disclosure related thereto,
normally included in the financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. In the opinion
of management, the unaudited interim consolidated condensed financial
statements were prepared following the same policies and procedures used in
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.
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly owned subsidiary of AHC I Acquisition Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share information)
1. BASIS OF PRESENTATION (Continued)
Unaudited pro forma results for Holding assuming the acquisition of
Retcom Holdings Ltd. had occurred as of July 1, 1999 and 1998 are not
presented because management has not been able to obtain all of the
necessary Retcom Holdings Ltd. financial information for prior periods. The
inclusion of Retcom Holdings Ltd. for the fifteen day period was
immaterial to Holding's results of operations for the three months ended
September 30, 1999.
2. INVENTORY
The following table details the components of inventory:
September 30, 1999 June 30, 1999
------------------ -------------
(unaudited)
Raw materials
Paper ............................ $ 2,487 $ 1,088
Other raw materials .............. 1,384 2,328
----------- -----------
Net raw materials .................... 3,871 3,416
Work in process ...................... 2,381 1,693
----------- -----------
Net inventory ........................ $ 6,252 $ 5,109
=========== ===========
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly owned subsidiary of AHC I Acquisition Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share information)
3. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets at September 30, 1999 (unaudited)
and June 30, 1999 and condensed statements of operations, changes in
stockholder's equity and cash flows for the three months ended September
30, 1999 and 1998 (unaudited) for Holding have been prepared on the equity
basis of accounting and should be read in conjunction on with the
consolidated statements and notes thereto.
<TABLE>
<CAPTION>
BALANCE SHEET
September 30, 1999 June 30, 1999
------------------ -------------
(unaudited)
<S> <C> <C>
Assets
Cash .................................................. $ -- $ --
Investment in subsidiaries ............................ 94,786 92,817
Deferred charges ...................................... 1,495 1,520
Deferred income taxes ................................. 1,544 1,206
------------ ------------
Total assets ...................................... $ 97,825 $ 95,543
============ ============
Liabilities
Senior discount debentures ............................ $ 30,652 $ 29,651
Stockholder's equity
Common Stock, $0.01 par value, 1,000 shares authorized;
1,000 shares issued and outstanding ............... -- --
Additional paid-in capital ............................ 78,364 78,364
Accumulated deficit ................................... (11,191) (12,472)
------------ ------------
Total stockholder's equity ........................ 67,173 65,892
------------ ------------
Total liabilities and stockholder's equity ........ $ 97,825 $ 95,543
============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Equity in net income of subsidiaries.. $ 1,969 $ 273
Interest expense ..................... 1,024 886
------------ ------------
Income (loss) before income taxes.. 945 (613)
Income tax benefit ................... (336) (289)
------------ ------------
Net income (loss) ................ $ 1,281 $ (324)
============ ============
</TABLE>
<PAGE>
AKI HOLDING CORP. AND SUBSIDIARIES
(a wholly owned subsidiary of AHC I Acquisition Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share information)
3. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1999 ............... 1,000 $ -- $ 78,364 $ (12,472) $ 65,892
Net income (unaudited) ................ -- -- -- 1,281 1,281
---------- ---------- ---------- ---------- ----------
Balance, September 30, 1999 (unaudited) 1,000 $ -- $ 78,364 $ (11,191) $ 67,173
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ............................. $ 1,281 $ (324)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Net change in investment in subsidiaries .. (1,969) (273)
Amortization of debt discount ............. 1,001 878
Amortization of debt issuance costs ....... 23 17
Deferred income taxes ..................... (336) (289)
Increase in debt issuance costs ........... -- (347)
------------ ------------
Net cash used by operating activities ......... -- (338)
------------ ------------
Cash flows from financing activities
Dividend to AHC I Acquisition Corp. ........... -- (1,863)
------------ ------------
Net decrease in cash and cash equivalents ....... -- (2,201)
Cash and cash equivalents, beginning of period .. -- 2,201
------------ ------------
Cash and cash equivalents, end of period ........ $ -- $ --
============ ============
</TABLE>
<PAGE>
AKI, INC., AND SUBSIDIARIES
(a wholly-owned subsidiary of AKI Holding Corp.)
CONSOLIDATED CONDENSED BALANCE SHEET
(dollars in thousands, except share information)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ........................ $ 473 $ 7,015
Accounts receivable, net ......................... 26,138 16,287
Inventory ........................................ 6,252 5,109
Income tax refund receivable ..................... 164 32
Prepaid expenses ................................. 433 452
Deferred income taxes ............................ 399 400
------------ ------------
Total current assets .......................... 33,859 29,295
Property, plant and equipment .................... 18,257 18,511
Goodwill, net .................................... 161,746 147,990
Other intangible assets, net ..................... 6,378 6,560
Deferred charges, net ............................ 7,800 5,319
Deferred income taxes ............................ 751 3,132
Other assets ..................................... 92 46
------------ ------------
Total assets .................................. $ 228,883 $ 210,853
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of capital lease obligations ..... $ 1,349 $ 688
Accounts payable, trade .......................... 6,046 3,400
Accrued income taxes ............................. 164 497
Accrued interest ................................. 3,087 6,047
Accrued expenses ................................. 5,903 3,810
------------ ------------
Total current liabilities ..................... 16,549 14,442
Long-term portion of capital lease obligations ... 521 1,349
Revolving credit line ............................ 14,750 --
Senior notes ..................................... 115,000 115,000
Deferred income taxes ............................ 3,220 3,340
------------ ------------
Total liabilities ............................. 150,040 134,131
Stockholder's equity
Common stock, $0.01 par 100,000 shares authorized;
1,000 shares issued and outstanding ........... -- --
Addition paid-in capital ......................... 100,862 100,862
Accumulated deficit .............................. (6,076) (8,045)
Accumulated other comprehensive loss ............. (213) (365)
Carryover basis adjustment ....................... (15,730) (15,730)
------------ ------------
Total stockholder's equity .................... 78,843 76,722
------------ ------------
Total liabilities and stockholder's equity .... $ 228,883 $ 210,853
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI, INC., AND SUBSIDIARIES
(a wholly-owned subsidiary of AKI Holding Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
Net sales ......................... $ 28,379 $ 24,024
Cost of goods sold ................ 15,792 15,421
------------ ------------
Gross profit .................. 12,587 8,603
Selling, general and
administrative expenses ....... 4,158 3,115
Amortization of goodwill and
other intangibles ............. 1,164 1,151
------------ ------------
Income from operations ........ 7,265 4,337
Other expenses:
Interest expense to others, net 3,348 3,210
Management fees and
other, net ................ 63 63
------------ ------------
Income before
income taxes .................. 3,854 1,064
Income tax expense ................ 1,885 791
------------ ------------
Net income .................... $ 1,969 $ 273
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI, INC., AND SUBSIDIARIES
(a wholly-owned subsidiary of AKI Holding Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDER'S EQUITY (dollars in
thousands, except share information)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Carryover
-------------------- Paid-in Accumulated Comprehensive Basis
Shares Dollars Capital Deficit Loss Adjustment Total
-------- -------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1999 ................ 1,000 $ -- $100,862 $ (8,045) $ (365) $(15,730) $ 76,722
Net income (unaudited) ................. 1,969 1,969
Other comprehensive income, net of tax:
Foreign currency translation
adjustment (unaudited) ............ 152 152
--------
Comprehensive income (unaudited) ....... 2,121
-------- -------- -------- -------- -------- -------- --------
Balances, September 30, 1999 (unaudited) 1,000 $ -- $100,862 $ (6,076) $ (213) $(15,730) $ 78,843
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI, INC., AND SUBSIDIARIES
(a wholly-owned subsidiary of AKI Holding Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income ..................................... $ 1,969 $ 273
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of goodwill
and other intangibles .................. 2,212 2,186
Amortization of debt issuance cost ......... 176 143
Deferred income taxes ...................... 2,261 (114)
Other ...................................... 152 112
Changes in operating assets and liabilities:
Accounts receivable ..................... (6,654) (7,872)
Inventory ............................... (174) (1,906)
Prepaid expenses, deferred charges
and other assets ...................... 30 (57)
Income taxes ............................ (333) 5,958
Accounts payable and accrued expenses ... (3,992) 3,132
------------ ------------
Net cash provided by (used in)
operating activities ............ (4,353) 1,855
------------ ------------
Cash flows from investing activities
Purchases of equipment ......................... (609) (678)
Payments for acquisitions, net of cash
acquired ................................... (16,163) --
------------ ------------
Net cash used in investing activities .. (16,772) (678)
------------ ------------
Cash flows from financing activities
Payments under capital leases for equipment .... (167) (147)
Net proceeds on line of credit ................ 14,750 --
Repayment of other notes payable ............... -- (1,330)
------------ ------------
Net cash provided by (used in) financing
activities .............................. 14,583 (1,477)
------------ ------------
Net (decrease) in cash and cash equivalents ........ (6,542) (300)
Cash and cash equivalents, beginning of period ..... 7,015 1,641
------------ ------------
Cash and cash equivalents, end of period ........... $ 473 $ 1,341
============ ============
Supplemental information
Cash paid (received) during the period for:
Interest, other ............................ $ 6,130 $ 39
Income taxes ............................... 89 (5,053)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AKI, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of AKI Holding Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share information)
1. BASIS OF PRESENTATION
Arcade Holding Corporation (the "Predecessor") was organized for the
purpose of acquiring all the issued and outstanding capital stock of
Arcade, Inc. ("Arcade") on November 4, 1993. Arcade is engaged in
interactive advertising for consumer products companies and has a specialty
in the design, production and distribution of sampling systems from its
Chattanooga, Tennessee facilities, and distributes its products in Europe
through its French subsidiary, Arcade Europe S.A.R.L. DLJ Merchant Banking
Partners II, L.P. and certain related investors (collectively, "DLJMBII")
and certain members of the Predecessor organized AHC I Acquisition Corp.
("Acquisition Corp.") and AHC I Merger Corp. ("Merger Corp.") for purposes
of acquiring the Predecessor. On December 15, 1997, Merger Corp. acquired
all of the equity interests of the Predecessor and then merged with and
into the Predecessor and the combined entity assumed the name of AKI, Inc.
and Subsidiaries ("AKI"). Subsequent to the acquisition, Acquisition Corp.
contributed $1 and all of its ownership interest in AKI to AKI Holding
Corp. ("Holding") for all of the outstanding equity of Holding.
Acquisition of Retcom Holdings Ltd.
On September 15, 1999, AKI acquired all of the equity interests in
Retcom Holdings Ltd. and its subsidiaries for a total cost of approximately
$12 million and refinanced working capital indebtedness of approximately $5
million of Retcom Holdings Ltd. and its subsidiaries. Retcom Holdings Ltd.
businesses include a portfolio of sampling systems catering to the
fragrance, cosmetics and personal care industries, as well as
microencapsulation activities. Retcom Holdings Ltd. also has a creative
services division that handles marketing communications, catalogs and data
base marketing and a multi-media division for merchandising at
point-of-sale. The purchase price and refinancing of indebtedness were
initially financed by borrowings under the credit agreement. The purchase
was accounted for under the purchase method of accounting and management is
in the process of finalizing the allocation of the purchase price to the
assets acquired and liabilities assumed. Results of operations for the
three months ended September 30, 1999 include the results of Retom Holdings
Ltd. for the fifteen days ended September 30, 1999.
Interim financial statements
The interim consolidated condensed balance sheets at September 30,
1999 and the interim consolidated condensed statement of operations for the
three months ended September 30, 1999 and 1998, the interim consolidated
condensed statement of cash flows for the three months ended September 30,
1999 an 1998 and the interim consolidated condensed statement of changes in
stockholder's equity for the three months ended September 30, 1999 are
unaudited, and certain information and footnote disclosure related thereto,
normally included in the financial statements prepared in accordance with
generally accepted accounting principles, have been omitted. In the opinion
of management, the unaudited interim consolidated condensed financial
statements were prepared following the same policies and procedures used in
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.
<PAGE>
AKI, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of AKI Holding Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except share information)
1. BASIS OF PRESENTATION (Continued)
Unaudited pro forma results for AKI assuming the acquisition of Retcom
Holdings Ltd. had occurred as of July 1, 1999 and 1998 are not presented
because management has not been able to obtain all of the necessary Retcom
Holdings Ltd. financial information for prior periods. The inclusion of
Retcom Holdings Ltd. for the fifteen day period was immaterial to AKI's
results of operations for the three months ended September 30, 1999.
2. INVENTORY
The following table details the components of inventory:
September 30, 1999 June 30, 1999
------------------ -------------
(unaudited)
Raw materials
Paper...................... $ 2,487 $ 1,088
Other raw materials........ 1,384 2,328
----------- -----------
Net raw materials.............. 3,871 3,416
Work in process................ 2,381 1,693
----------- -----------
Net inventory.................. $ 6,252 $ 5,109
=========== ===========
<PAGE>
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") and the term "Holding" refers to AKI
Holding Corp.
General
The sales of our company are derived through its multisensory marketing
activities primarily from the sale of sampling products and systems to cosmetics
and consumer products companies. Substantially all of our company's sales are
made directly to its customers while a small portion are made through
advertising agencies. Each customer's sampling program 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, our company has had
long-standing relationships with the majority of its customer base. The
introduction of our company's new products, such as BeautiSeal, PowdaTouch,
BeautiTouch and LiquaTouch, has affected our company's results of operations for
certain of the periods discussed below.
Retcom Holdings Ltd. Acquisition
On September 15, 1999, we acquired all of the issued and outstanding shares
of capital stock of Retcom Holdings Ltd. at a purchase price of approximately
$12 million and refinanced working capital indebtedness of approximately $5
million of Retcom Holdings Ltd. and its subsidiaries. The purchase price and
refinancing of indebtedness were initially financed by borrowings under the
credit agreement.
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Net Sales. Net sales for the three months ended September 30, 1999,
increased $4.4 million, or 18.3%, to $28.4 million as compared to $24.0 million
for the three months ended September 30, 1998. The increase was primarily
attributable to a $2.5 million increase in domestic sales of cosmetic sampling
products and sales of consumer product samples, due partially to the timing of
completion and delivery of certain substantial orders which remained in process
at June 30, 1999.
Gross Profit. Gross profit for the three months ended September 30, 1999,
increased $4.0 million, or 46.5%, to $12.6 million as compared to $8.6 million
for three months ended September 30, 1998. Gross profit as a percentage of net
sales increased to 44.4% in the three months ended September 30, 1999, from
35.8% in the three months ended September 30, 1998. The increase in gross profit
and gross profit as a percentage of net sales is primarily attributable to the
increase in net sales discussed above, changes in product mix and more efficient
production levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1999, increased
$1.1 million, or 35.5% to $4.2 million as compared to $3.1 million for the three
months ended September 30, 1998. The increase in selling, general and
administrative expenses was primarily due to a severance charge related to a
former executive, increased sales commissions related to the increase in net
sales, an increase in the allowance for doubtful accounts, additional expenses
associated with the operation of Retcom Holdings Ltd. and a bonus associated
with the Retcom Holdings Ltd. acquisition. As a result of these factors,
selling, general and administrative expenses as a percent of net sales increased
to 14.1% in the three months ended September 30, 1999 from 12.9% in the three
months ended September 30, 1998.
Income from Operations. Income from operations for the three months ended
September 30, 1999 increased $3.1 million, or 72.1%, to $7.4 million as compared
to $4.3 million for the three months ended September 30, 1998. Income from
operations as a percentage of net sales increased to 26.1% in the three months
ended September 30, 1999, from 17.9% in three months ended September 30, 1998,
principally as a result of the factors described above.
<PAGE>
Interest Expense. Interest expense for the three months ended September 30,
1999 increased $0.3 million, or 7.3% to $4.4 million, as compared to $4.1
million for the three months ended September 30, 1998. Interest expense as a
percentage of net sales decreased to 15.5% in the three months ended September
30, 1999 from 17.1% in the three months ended September 30, 1998. The increase
in interest expense, including the amortization of deferred financing costs, is
primarily due to use of the credit line for working capital and the Retcom
Holdings Ltd. acquisition.
Interest expense for AKI for the three months ended September 30, 1999
increased $0.1 million, or 3.1% to $3.3 million, as compared to $3.2 million for
the three months ended September 30, 1998. Interest expense as a percentage of
net sales decreased to 11.6% in the three months ended September 30, 1999 from
12.9% in the three months ended September 30, 1998. The increase in interest
expense, including the amortization of deferred financing costs, is primarily
due to use of the credit line for working capital and the Retcom Holdings Ltd.
acquisition.
Income Tax Expense. Income tax expense for the three months ended September
30, 1999 increased $1.0 million to $1.5 million. The increase is due to the
increase in income before income taxes as a result of the factors described
above. The Company's effective tax rate, after consideration of non-deductible
goodwill amortization, was 40.7% in the three months ended September 30, 1999
and 43.5% in the three months ended September 30, 1998.
Income tax expense for AKI for the three months ended September 30, 1999
increased $1.1 million to $1.9 million. The increase is due to the increase in
income before income taxes as a result of the factors described above. AKI's
effective tax rate, after consideration of non-deductible goodwill amortization,
was 39.0% in the three months ended September 30, 1999 and 1998.
EBITDA. EBITDA for the three months ended September 30, 1999, increased
$3.1 million, or 47.7%, to $9.6 million as compared to $6.5 million for the
three months ended September 30, 1998. The increase principally reflects the
increase in income from operations discussed above. EBITDA is income from
operations plus depreciation and amortization of goodwill and other intangibles.
Liquidity and Capital Resources
Our company has substantial indebtedness and significant debt service
obligations. As of September 30, 1999, our company had consolidated indebtedness
in an aggregate amount of $162.3 million (excluding trade payables, accrued
liabilities and deferred taxes), of which (1) approximately $30.7 million was a
direct obligation of Holding relating to its debentures and (2) approximately
$131.6 million was a direct obligation of AKI relating to its notes, revolving
credit line and capital leases. Borrowings at September 30, 1999 included $14.8
million under the revolving credit agreement that was incurred to finance the
acquisition of Retcom Holdings Ltd. At September 30, 1999, AKI also had $18.4
million in additional outstanding liabilities (including trade payables, accrued
liabilities and deferred taxes) and letters of credit outstanding under the
credit agreement in the amount of $0.6 million.
Borrowings under the credit agreement are limited to a maximum amount equal
to $20.0 million, subject to a borrowing base calculation and the achievement of
specified financial ratios and compliance with specified conditions. At
September 30, 1999 our company had available $4.6 million under the credit line
facility. The
<PAGE>
interest rate for borrowings under the credit agreement is determined from time
to time based on our company's choice of formulas, plus a margin. The credit
agreement will mature on December 31, 2002.
The indentures and the credit agreement permit Holding and its Restricted
Subsidiaries to incur additional indebtedness, subject to specified limitations.
In addition, the indentures contains restrictive covenants that, among other
things, limit the ability of Holding and its Restricted Subsidiaries to: pay
dividends or make certain restricted payments; issue preferred stock; create
liens; incur dividend and other payment restrictions affecting subsidiaries;
enter into mergers, consolidations or sales of all or substantially all of the
assets of our company; enter into certain transactions with affiliates; and sell
certain assets.
Payment of Holding's debentures is not guaranteed by AKI or any of its
subsidiaries. Because Holding is a holding company with no substantive
operations, it is dependent upon the cash flows of AKI and its subsidiaries and
the payment of funds by AKI and its subsidiaries to Holding in the form of
loans, dividends or otherwise to pay its obligations.
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 and the credit agreement.
Historically, our company has funded its capital, debt service and operating
requirements with a combination of net cash provided by operating activities,
which was $1.5 million for the three months ended September 30, 1998, together
with borrowings under revolving credit facilities. During the three months ended
September 30, 1999, cash totaling $4.4 million was used by operating activities
primarily due to the increase in accounts receivable and a decrease in accrued
interest offset partially by increases in accounts payable and accrued expenses.
Net cash provided by operating activities during the three months ended
September 30, 1998 resulted from net income before depreciation and
amortization, the collection of an income tax refund receivable and increases in
accounts payable and accrued expenses. These factors were partially offset by
increased accounts receivable and inventory levels.
In the three months ended September 30, 1999 and 1998, our company had
capital expenditures of approximately $0.6 million and $0.7 million,
respectively. These capital expenditures consisted primarily of the purchase of
manufacturing equipment and furniture and fixtures and maintaining and upgrading
its computer systems.
On September 15, 1999, we acquired all of the issued and outstanding shares
of capital stock of RetCom Holdings Ltd. at a purchase price of approximately
$12.2 million and refinanced working capital indebtedness of approximately $5.1
million of RetCom Holdings Ltd. and its subsidiaries. The purchase price and
refinancing of indebtedness were initially financed by borrowings under the
credit agreement. Our company is exploring options for the longer-term financing
of a portion of the borrowings incurred in connection with the acquisition.
Our company may from time to time evaluate additional potential
acquisitions. There can be no assurance that additional capital sources will be
available to our company to fund additional acquisitions on terms that our
company finds acceptable, or at all.
At September 30, 1999, Acquisition Corp. had outstanding (1) $33 million of
Floating Rate Notes which bear interest at approximately 15% per annum and
mature on December 15, 2009, and (2) approximately $50.8 million of Senior
Preferred Stock which accrue dividends at 15% per annum and must be redeemed by
December 15, 2012. Interest on the floating rate notes and dividends on the
senior preferred stock may be settled through the issuance of additional
floating rate notes and senior preferred stock through maturity or redemption,
respectively. The floating rate notes are general, unsecured obligations of
Acquisition Corp. and are not obligations of, or guaranteed by Holding, AKI or
any of its subsidiaries. Acquisition Corp. is a holding company and is dependant
upon the cash flows of its subsidiaries and the payment to it of funds by its
subsidiaries. The indenture relating to the debentures restricts the payment of
dividends or the making of other restricted payments by Holding to Acquisition
Corp.
In September 1999, Acquisition Corp. consummated a private placement to
DLJMBII of 15,000,000 shares of its common stock at a purchase price of $1.00
per share. A portion of the proceeds may become available to the
<PAGE>
Company to reduce outstanding indebtedness of Holding or AKI or for working
capital or other general corporate purposes, but there is no obligation on the
part of Acquisition Corp. to make any of these funds available.
Capital expenditures for the twelve months ending September 30, 2000 are
budgeted to be approximately $4.0 million. Based on borrowings outstanding
(other than pursuant to the credit agreement) as of September 30, 1999 and
borrowings outstanding under the credit agreement as of November 11, 1999, our
company expects total cash payments for debt service for the twelve months
ending September 30, 2000 to be approximately $14.6 million, consisting of $12.1
million in interest payments on the notes, $1.5 million in capital lease
obligations and $1.0 million in interest and fees under the credit agreement.
Our company also expects to make royalty payments of approximately $1.1 million
during the twelve months ending September 30, 2000.
Our company believes that, in the absence of future acquisitions, cash
flows from existing operations and available borrowings will be sufficient to
fund budgeted capital expenditures, working capital requirements and interest
and principal payments on its indebtedness, including the debentures and the
notes in the twelve months ending September 30, 2000. In the event our company
consummates any additional acquisitions it may seek additional debt or equity
financings subject to compliance with the terms of the indentures.
At September 30, 1999, our company's cash and cash equivalents and net
working capital were $0.5 million and $17.3 million, respectively, representing
a decrease in cash and cash equivalents of $6.5 million and an increase in net
working capital of $2.4 million from June 30, 1999. Account receivables, net, at
September 30, 1999 increased 60.5% or $9.9 million over the June 30, 1999
amount, primarily due to increased sales and the acquisition of Retcom Holdings
Ltd. offset partially by a decrease in days sales outstanding.
Seasonality
Our company's sales and operating results have historically reflected
seasonal variations. Such seasonal variations are based on the timing of our
company's 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 reflected in our company's first two fiscal quarters
ended December 31 when sales from such advertising campaigns are principally
recognized while our company's fourth fiscal quarter ended June 30 typically
reflects the lowest sales level of the fiscal year. These seasonal fluctuations
require our company to accurately allocate its resources to manage our company's
manufacturing capacity, which often operates at full capacity during peak
seasonal demand periods.
Recently Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. SFAS No. 133
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities Deferral of Effective Date" which is effective for fiscal years
beginning after June 15, 2000. Our company has only utilized derivative
financial instruments to hedge our company's exposure to certain foreign
currencies. Such hedging activity has historically been minor and, as a result,
adoption of this Statement is not expected to have a material impact on our
company's financial condition or results of operations. Our company will adopt
the provisions of this Statement on July 1, 2000.
Year 2000 Issues
Our company is currently working to resolve the potential impact of the
Year 2000 on its information technology systems and its non-information
technology systems so they will properly recognize and utilize dates beyond
December 31, 1999.
<PAGE>
Our company has in place a Year 2000 program which is being executed by an
internal project team. The objective of the Year 2000 program is to determine
and assess the risks of the Year 2000 issue and to plan and institute mitigating
actions to minimize those risks to acceptable levels. To date, all of our
company's systems have been assessed for Year 2000 compliance. Our company
relies on five computerized systems all of which required remediation, two of
which are maintained internally and the others are maintained by third party
vendors. Our company believes that all of these systems are currently Year 2000
compliant. Upon review of our company's non-information technology systems our
company believes that none of its manufacturing equipment is date sensitive. Of
the remaining non-information technology systems, our company believes all such
systems are Year 2000 compliant. If, however, all necessary actions are not
taken on a timely basis to ensure Year 2000 compliance, the Year 2000 issue
could have a material adverse effect on our company.
To date, our company has spent approximately $91,000 on Year 2000
compliance. Although our company expects the above referenced expenditures will
be sufficient to ensure our company is Year 2000 compliant, our company has
budgeted an additional $9,000 for any unforeseen problems which may arise with
respect to Year 2000 compliance between October 1, 1999 and the Year 2000. All
expenditures with respect to Year 2000 compliance will be funded from working
capital.
Our company is continuing to communicate with its significant customers and
vendors to understand their Year 2000 issues and how they might prepare
themselves to manage those issues as they relate to our company. To date, no
significant customers or vendors have informed our company that a material Year
2000 issue exists which will have a material effect on our company.
Our company has not formulated a contingency plan in the event it or its
significant customers or vendors are not Year 2000 compliant.
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, 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: the competitive environment in the
sampling industry in general and in our company's specific market areas; changes
in prevailing interest rates; inflation; changes in cost of goods and services;
economic conditions in general and in our company's specific market areas;
changes in or failure to comply with postal regulations or other federal, state
and/or local government regulations; liability and other claims asserted against
our company; changes in operating strategy or development plans; the ability to
attract and retain qualified personnel; the significant indebtedness of our
company; labor disturbances; changes in our company's capital expenditure plans;
and other factors.
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 place undue
reliance on such forward-looking statements. Our company disclaims 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.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our company generates approximately 20% of its sales from customers outside
the United States, principally in Europe. International sales are made mostly
from our company's foreign subsidiary located in France and are primarily
denominated in the local currency. Our company's foreign subsidiary also incurs
the majority of its expenses in the local currency and uses the local currency
as its functional currency.
Our company's 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.
Our company periodically enters 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, 1999, our company's
forward exchange contracts consisted of forward contracts to sell Euros at an
exchange rate of 1.0509 per U.S. dollar and to buy British pound sterling at an
exchange rate of 1.6127 per U.S. dollar. The notational principal amounts under
these foreign exchange contracts were $0.6 million and $0.4 million,
respectively.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
(b) Reports on Form 8-K
On September 21, 1999, AKI Holding Corp. filed a Form 8-K,
reporting the acquisition of Retcom Holdings Ltd. and
subsidiaries and announced earnings for the quarter and fiscal
year ended June 30, 1999
<PAGE>
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 15, 1999 By: /s/ Kenneth A. Budde
---------------------------
Kenneth A. Budde
Chief Financial Officer
AKI, INC.
Date November 15, 1999 By: /s/ Kenneth A. Budde
---------------------------
Kenneth A. Budde
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AKI HOLDING CORP. (OR ITS PREDECESSOR) FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-START> JUL-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 473 473
<SECURITIES> 0 0
<RECEIVABLES> 26,626 26,626
<ALLOWANCES> 488 488
<INVENTORY> 6,252 6,252
<CURRENT-ASSETS> 33,859 33,859
<PP&E> 25,067 25,067
<DEPRECIATION> 6,810 6,810
<TOTAL-ASSETS> 231,922 231,922
<CURRENT-LIABILITIES> 16,549 16,549
<BONDS> 146,173 146,173
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 51,230 51,230
<TOTAL-LIABILITY-AND-EQUITY> 231,922 231,922
<SALES> 28,379 28,379
<TOTAL-REVENUES> 28,379 28,379
<CGS> 15,792 15,792
<TOTAL-COSTS> 15,792 15,792
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 150 150
<INTEREST-EXPENSE> 4,372 4,372
<INCOME-PRETAX> 2,830 2,830
<INCOME-TAX> 1,549 1549
<INCOME-CONTINUING> 1,281 1,281
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,281 1,281
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AKI HOLDING CORP. (OR ITS PREDECESSOR) FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JUL-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,341 1,341
<SECURITIES> 0 0
<RECEIVABLES> 21,727 21,727
<ALLOWANCES> 278 278
<INVENTORY> 3,984 3,984
<CURRENT-ASSETS> 28,059 28,059
<PP&E> 21,473 21,473
<DEPRECIATION> 2,894 2,894
<TOTAL-ASSETS> 215,489 215,489
<CURRENT-LIABILITIES> 13,562 13,562
<BONDS> 143,226 143,226
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 55,009 55,009
<TOTAL-LIABILITY-AND-EQUITY> 215,489 215,489
<SALES> 24,024 24,024
<TOTAL-REVENUES> 24,024 24,024
<CGS> 15,421 15,421
<TOTAL-COSTS> 15,421 15,421
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,096 4,096
<INCOME-PRETAX> 178 178
<INCOME-TAX> 502 502
<INCOME-CONTINUING> (324) (324)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (324) (324)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AKI, INC. (OR ITS PREDECESSOR) FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-START> JUL-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 473 473
<SECURITIES> 0 0
<RECEIVABLES> 26,626 26,626
<ALLOWANCES> 488 488
<INVENTORY> 6,252 6,252
<CURRENT-ASSETS> 33,859 33,859
<PP&E> 25,067 25,067
<DEPRECIATION> 6,810 6,810
<TOTAL-ASSETS> 228,883 228,883
<CURRENT-LIABILITIES> 16,459 16,459
<BONDS> 115,521 115,521
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 78,843 78,843
<TOTAL-LIABILITY-AND-EQUITY> 228,883 228,883
<SALES> 28,379 28,379
<TOTAL-REVENUES> 28,379 28,379
<CGS> 15,792 15,792
<TOTAL-COSTS> 15,792 15,792
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 150 150
<INTEREST-EXPENSE> 3,348 3,348
<INCOME-PRETAX> 3,854 3,854
<INCOME-TAX> 1,885 1,885
<INCOME-CONTINUING> 1,969 1,969
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,969 1,969
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AKI, INC. (OR ITS PREDECESSOR) FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JUL-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,341 1,341
<SECURITIES> 0 0
<RECEIVABLES> 21,727 21,727
<ALLOWANCES> 278 278
<INVENTORY> 3,984 3,984
<CURRENT-ASSETS> 28,059 28,059
<PP&E> 21,473 21,473
<DEPRECIATION> 2,894 2,894
<TOTAL-ASSETS> 213,588 213,588
<CURRENT-LIABILITIES> 13,562 13,562
<BONDS> 116,328 116,328
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 80,006 80,006
<TOTAL-LIABILITY-AND-EQUITY> 213,588 213,588
<SALES> 24,024 24,024
<TOTAL-REVENUES> 24,024 24,024
<CGS> 15,421 15,421
<TOTAL-COSTS> 15,421 15,421
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,210 3,210
<INCOME-PRETAX> 1,064 1,064
<INCOME-TAX> 791 791
<INCOME-CONTINUING> 385 385
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 385 385
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
