<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 27, 1997
[ ] 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: 333-24939
THE FONDA GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3220732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
21 LOWER NEWTON STREET
ST. ALBANS, VERMONT 05478
(802) 524-5966
(Address and telephone number of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by a check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. $1,237,410.00
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stock $.01 par value as of October 22, 1997: Class A: 128,635 Shares
Class B: 2,666 Shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE -- None
<PAGE>
PART I
ITEM 1. BUSINESS
CORPORATE HISTORY
The Fonda Group, Inc. (the "Company") was formed in 1915. In October
1988, the Company became a wholly-owned subsidiary of Four M Corporation
("Four M"). In March, 1995, Four M distributed approximately 96% of the
Company's common stock to Dennis Mehiel, Four M's sole stockholder at such
time. The remaining 4% of the Company's common stock was distributed to
American International Life Insurance Company of New York ("AIG").
The Company has grown rapidly, principally through acquisitions, from
net sales of $61.8 million in Fiscal 1994 to $252.5 million in Fiscal 1997. In
June 1997, the Company acquired the outstanding capital stock of Heartland
Mfg. Corp. ("Heartland"), a manufacturer of paper plates. Also in June 1997,
the Company acquired net assets relating to the manufacture of placemats
and other disposable tabletop products from Tenneco, Inc. (together with
Heartland, the "1997 Acquisitions"). In May 1996, the Company acquired
certain net assets from James River Paper Corporation (" James River")
including a California converting facility for tissue-based products and a
tissue mill in Gouverneur, New York ("Natural Dam"). In December 1995, the
Company acquired the Chesapeake Consumer Products Company, a manufacturer of
napkins, tablecovers and crepe paper, ("Chesapeake") from Chesapeake
Corporation. In November 1995, the Company acquired substantially all of the
net assets of a manufacturer of paper plates and cups ("Maspeth"), (together
with James River and Chesapeake, the "1996 Acquisitions"). In March 1995, the
Company acquired substantially all of the net assets of the Scott Foodservice
Division ("Hoffmaster"), (together with the 1997 Acquisitions and 1996
Acquisitions, the "Acquisitions") from Scott Paper Company ("Scott"). See Note
3 to the Financial Statements for a further discussion of the Acquisitions.
GENERAL
The Company believes that it is a leading converter and marketer of a
broad line of disposable paper food service products. The Company sells its
products under both branded and private labels to the consumer and
institutional markets and participates at all major price points. The Company
believes it is a market leader in the sale of premium white, colored and
custom-printed napkins, placemats, tablecovers and food trays and in the sale
of private label consumer paper plates, bowls and cups. The Company's
Sensations, Splash (Registered Trademark) and Party Creations (Registered
Trademark) brands are well recognized in the consumer markets and its
Hoffmaster (Registered Trademark) brand is well recognized in the
institutional markets.
The Company offers a broad range of products, enabling it to offer
its customers "one-stop" shopping for their disposable food service product
needs. See " --- Products". The Company is principally a converter and
marketer of paperboard and tissue products, the prices of which typically
follow the general movement in the costs of such principal raw materials. The
Company believes that it is generally able to maintain relatively stable
margins between its selling prices and its raw materials costs.
The Company sells its converted products to more than 2,500 consumer
and institutional customers located throughout the United States and has
developed and maintained long-term relationships with many of these customers.
Food service distributors, restaurants, schools, hospitals and other major
institutions with dining facilities comprise the institutional market.
Supermarkets, mass merchants, warehouse clubs, discount chains and other
retail stores comprise the consumer market.
The Company also produces specialty and deeptone colored tissue
paper, the primary raw material used in the conversion of colored napkins and
tablecovers, at its Natural Dam mill. In Fiscal 1997, this mill produced
approximately 14,400 tons of tissue paper. The Company has recently completed
the installation of a second paper machine at Natural Dam which is expected to
double the mill's production capacity.
PRODUCTS
General. The Company classifies its products into five categories:
(i) paperboard converted products, such as white, colored and printed paper
plates and bowls, paper cups for both hot and cold drinks, handled food pails
for take-out food and food trays; (ii) tissue converted products, such as
printed and solid napkins and printed and solid
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paper tablecovers and crepe paper; (iii) tissue mill products, including jumbo
rolls of tissue and specialty tissue products; (iv) specialty products, such
as placemats, doilies, tray covers and fluted products including baking cups;
and (v) products for resale, such as plastic cutlery, coasters, plastic cups
and plastic toothpicks. The Company's premium products include colored and
custom printed napkins and placemats. The Company currently has over 8,000
SKUs. The Company believes that it holds one of the top three market positions
in white paper plates, decorated plates, bowls and cups in the consumer
market, as well as in food pails, trays and premium napkins in the
institutional market. These products are sold nationwide to supermarkets,
restaurant franchises, discount store chains and major food distributors.
PAPERBOARD CONVERTED PRODUCTS
Paper Plates and Bowls. Paper plates and bowls, which represent the
largest portion of the Company's sales, are sold primarily to the consumer
market. These products include coated and uncoated white plates, decorated
plates and bowls. The plates range in size from a four inch square to a 10 1/4
inch diameter round. The bowls include seven ounce and 12 ounce sizes.
Uncoated and coated paper plates are considered commodity items and are
generally purchased by cost-conscious consumers for everyday use. Printed and
decorated plates and bowls, which are typically in lower count packages, are
sold for everyday use as well as for parties and seasonal celebrations, such
as Halloween and Christmas.
Paper Cups. Paper cups, which range in size from three ounces to 46
ounces, are sold to both the consumer and institutional markets. The Company
offers a number of attractive cup and lid combinations for both hot and cold
beverages. Cups for the consumption of cold beverages are generally wax coated
for superior rigidity, while cups for the consumption of hot beverages are
made from paper which is poly-coated on one side to provide a barrier to heat
transfer. Printed cups are often used as promotional items by the Company's
customers.
Take-Out Containers. Trays, which range in size from four ounces to
10 pounds, are sold to the institutional markets customers and are used
primarily for the take-out of fast foods. Food pails, which range in size from
eight ounces to 64 ounces, are sold exclusively to the institutional market
and are used primarily by restaurants for take-out meals.
TISSUE CONVERTED PRODUCTS
Napkins. Napkins represent the second largest portion of the
Company's sales. Napkins are sold under the Company's Hoffmaster (Registered
Trademark), Fonda, Sensations, Splash (Registered Trademark) and Party
Creations (Registered Trademark) brand names, as well as under national
distributor brand names. The Company believes its brand names are well
established and are widely considered to be among the leading brands in the
consumer and institutional food service markets. Napkin products range from
decorated-colored, multi-ply napkins and simple custom printed napkins
featuring an end-user's name or logo to fully printed, graphic-intensive
napkins for the premium paper goods sector. Hoffmaster is a line of premium
quality one-, two-, three-, and four-ply napkins that coordinate with printed
and solid paper placemats, paper plates, paper cups, paper and plastic
tablecovers, plastic cutlery and crepe paper.
Tablecovers. Tablecovers represent one of the Company's fastest
growing product segments, ranging from economy to premium product lines.
Tablecovers are sold under the Hoffmaster (Registered Trademark), Linen-Like
(Registered Trademark), Windsor (Registered Trademark), Sensations, Splash
(Registered Trademark) and Party Creations (Registered Trademark) brand names.
The Company has a broad selection of tablecovers in one-, two-, and three-ply
configurations. Tablecovers, in rolled and folded package formats, are
produced in white, solid color and one-to-four-colored printed products. These
tablecovers are matched in color and design with the Company's napkins,
placements, cups, plates, plastic cutlery and crepe paper. Linen-Like is a
premium line of tablecovers, currently sold to institutional customers as a
linen replacement.
Crepe. Rolled crepe paper complements the Company's offering of
disposable tableware products. Originally sold only in the consumer market,
the Company has expanded crepe products to the Company's institutional
seasonal product lines. The Company is vertically integrated in crepe products
and uses the beater-dyed process, at its Natural Dam mill, which makes colored
crepe products bleed-resistant to moisture. Crepe products are sold under the
Hoffmaster (Registered Trademark), Splash (Registered Trademark) and Party
Creations (Registered Trademark) brand names. In addition to solid color crepe
paper products, the Company produces printed crepe paper in seasonal and
themed product offerings. The Company believes it can produce higher quality
crepe products than its
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competitors because it controls all parts of the crepe production process,
from paper making to converting and packaging.
TISSUE MILL PRODUCTS
Natural Dam manufactures "jumbo" rolls of unconverted deep-tone,
multi-ply tissue, a primary raw material used in the conversion of napkins and
tablecovers. Approximately 55% of the production from Natural Dam is sold to
converters of specialty tabletop products, including the Company's internal
consumption. The Company's tissue based converting operations utilize Natural
Dam production to the extent that it is strategically beneficial. The
remaining 45% of production is customized specialty products sold to
converters of disposable products used in the medical, hygienic, industrial
and other markets; such products include electrical insulating tissue, filter
media, waxing tissue base, surgical face mask and blood wadding.
SPECIALTY PRODUCTS
Placemats. Placemats and traycovers are available in a variety of
shapes and sizes. The Company owns 30 different die shapes which create unique
decorated placemats in shapes such as flags, pumpkins, fish, seashells and
farm animals. These unusual shapes attract interest because they allow
customers to individualize their placemats by focusing on a particular theme,
season or holiday. In addition to placemats, the Company uses a proprietary
technology to produce non-skid traycovers that serve the particular needs of
the airline and healthcare industries. These traycovers, made from both
recycled and virgin paper, can be printed with up to four colors and
coordinated with printed or solid napkins.
Doilies. Paper doilies are used as decorative items by the food
service industry. The Company offers numerous different styles of paper lace
doilies that are used primarily to enhance the visual appeal of foods, fine
china and glassware in upscale restaurants and hotels.
Portion Cups and Fluted Products. Portion cups and fluted products
are offered in a variety of sizes and shapes. Portion cups range in size from
0.5 to 5.5 ounces and are pleated and wax-coated for extra strength. Portion
cups are typically used for dispensing condiments, medicines, liquids and
other items where portion control is important. Fluted products also come in a
variety of sizes and are used as baking cups for muffins and as trays for fast
foods.
PRODUCTS FOR RESALE
In an effort to offer its customers the convenience of "one-stop"
shopping, the Company purchases products which it does not manufacture, and
offers such products for resale. These products round out the Company's
complete product line and include plastic cutlery, coasters, plastic cups,
plastic plates, wooden and plastic sandwich picks, special occasion
invitations and party favors.
MARKETING AND SALES
Marketing. The Company's marketing efforts are principally focused on
(i) providing value-added services, including EDI capabilities, automatic
shipment notification to customers, sales training for distributors,
promotional support, brochures and catalogs, state-of-the-art graphics
services, merchandising programs, prompt delivery of products and information
systems that provide detailed sales data to customers; (ii) category expansion
by cross marketing products between the consumer and institutional markets;
(iii) development of new graphic designs which the Company believes will offer
consumers recognized value; and (iv) increasing brand awareness through
enhanced packaging and promotion. The marketing group, together with its
customers, conducts product trial tests to gather consumer feedback and
improve product salability. The seasonal product marketing programs promote
the Company's sophisticated graphic art capabilities and encourage customers
to supplement their regular purchases with premium-quality seasonal items.
The marketing group coordinates the projects of artists and designers
in the Company's art department. The art department has state-of-the-art
graphic capabilities, including computer-aided design systems and lithograph
plate making capabilities, which allow the Company to compete effectively in
the custom printed napkin market. The Company also benefits from its extensive
design library.
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The Company sells its products through a sales organization of
approximately 50 salespersons, as well as independent brokers. The Company
believes that its experienced sales team and its ability to provide high
levels of customer service enhances the Company's long-term relationships with
its customers. The Company sells to more than 2,500 institutional and consumer
customers located throughout the United States.
Institutional Market. Restaurants, schools, hospitals and other major
institutions comprise the institutional market. This market represented
approximately 47% of the Company's net sales in Fiscal 1997. The institutional
market is serviced by dedicated field service representatives located
throughout the United States under the direction of five dedicated sales
managers. The field sales force works directly with national and regional
distributors to service the needs of the various segments of the food service
industry. The field sales force serves four primary functions: (i) to work
with distributors' own sales representatives to increase demand for the
Company's products; (ii) to make direct sales calls with distributors; (iii)
to keep distributors' sales representatives knowledgeable about the Company's
new products; and (iv) to demonstrate to end-users the value added by the
Company's customized color printing capabilities for table top products. These
functions also help to create "pull-through" demand for the Company's
products.
Consumer Market. Supermarkets, mass merchants, warehouse clubs,
discount chains and other retail stores comprise the consumer market. This
market represented approximately 53% of the Company's net sales in Fiscal
1997. The Company's consumer market is classified into four distribution
channels: (i) the grocery channel, which is serviced through a national and
regional network of brokers, (ii) the retail mass merchant channel, which is
serviced directly by field service representatives, (iii) the specialty
(party) channel, a new channel of distribution, which is serviced through both
national and regional networks of brokers and directly by field service
representatives and (iv) the warehouse club channel, also a new channel of
distribution, which is serviced through both national and regional networks of
brokers and directly by field service representatives. Each channel is managed
by a Sales Director who is responsible for all product sales in that channel.
The Company's broker relationships are managed by eight regional managers who
have an average of 20 years of experience selling service products.
As a result of the Acquisitions, the Company has experienced an
increase in sales to existing customers and additional product opportunities
in markets in which it historically had limited penetration. For example, the
Maspeth acquisition provided the Company with access to the mass merchandising
market. In addition, the Company's consumer customer base has extended into
additional channels as a result of product line enhancements. In this regard,
the James River acquisition afforded the Company three customers in the
warehouse club channel. In order to eliminate duplicate sales representation
with certain customers in connection with the Acquisitions, the Company has
also reorganized its consumer sales and marketing efforts to be more
responsive to the marketplace.
In Fiscal 1997, the Company's five largest customers represented
approximately 16% of net sales and no one customer accounted for more than 10%
of net sales.
SEASONALITY
Prior to March 1995, the Company's business was highly seasonal with
over 30% of its net sales and 50% of its cash flow realized in the fourth
quarter of its fiscal year. As a result of significant growth and
diversification through acquisitions, its business has become less seasonal.
Nevertheless, income from operations tends to be greatest during the first and
fourth quarters of the fiscal year.
DISTRIBUTION
Each of the Company's manufacturing facilities includes sufficient
warehouse space to store such facility's raw materials and finished goods as
well as products from the Company's other manufacturing facilities. Shipments
of finished goods are made from each facility via common carrier. Raw
materials are received by rail or truck in the Company's Vermont facility and
by truck in all other facilities.
COMPETITION
The disposable food service products industry is highly competitive.
The Company believes that competition is principally based on product quality,
customer service, price and graphics capability. Competitors include large
multinational companies as well as regional and local manufacturers. The
marketplace for these products is fragmented and includes participants that
compete across the full line of products, as well as those that compete with a
limited number of products. Some of the Company's major competitors are
significantly larger than the Company,
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are vertically integrated and have greater access to financial and other
resources. Consequently, such competitors may be able to more effectively
compete by offering a broader range of products to customers.
The Company's primary competitors in the paper plate and cup
categories include Imperial Bondware (a division of International Paper Co.),
Fort James Corp. (successor by merger of James River and Fort Howard Corp.),
AJM Packaging Corp., Temple-Inland Inc., Fold-Pak Corp., Solo Cup Co. and
Sweetheart Cup Co., Inc. Major competitors in the napkin, tablecover, tray and
doily categories include Brooklyn Lace Paper Works, Inc., Duni Corp., Erving
Paper Products Inc., Fort James Corp. and Wisconsin Tissue Mills Inc. (a
subsidiary of Chesapeake Corporation). The Company's competitors also include
manufacturers of products made from plastics and foam. The Company's
competitors in tissue mill products include Lincoln Pulp and Paper Co., Inc.
("Lincoln"). Little Rapids Corporation and Cellu Tissue Corporation.
RAW MATERIALS AND SUPPLIERS
Raw materials are a significant component of the Company's cost
structure. Principal raw materials for the Company's paperboard and tissue
operations include solid bleached sulfate ("SBS") paperboard, napkin tissue,
bond paper and waxed bond obtained from major domestic manufacturers. Pulp is
the principal raw material for the Natural Dam tissue mill and is obtained
from a number of suppliers. Other material components include corrugated
boxes, poly bags, wax adhesives, coatings and inks. Paperboard, napkin tissue,
bond paper and waxed bond paper are purchased in "jumbo" rolls which may
either be slit for in-line printing and processing, printed and processed or
printed and blanked for processing into final products. Lincoln is the primary
supplier of tissue to the Company. Pursuant to a contract, as amended, with
Lincoln, the Company is required to purchase color and white tissue at the
lower of a formula-based price or market price through December 31, 1999.
Primary suppliers of paperboard stock are Georgia-Pacific Corp., Temple-Inland
Inc., and Gilman Paper Co. The Company has a number of suppliers for
substantially all of its raw materials and believes that current sources of
supply for its raw materials are adequate to meet its requirements. The
Company purchases the bulk of its SBS paperboard and napkin tissue under
long-term contracts.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and
frequently changing Federal, state, local and foreign environmental and
occupational health and safety laws and regulations, including laws and
regulations governing emissions of air pollutants, discharges of waste and
storm water, and the disposal of hazardous wastes. The Company is subject to
liability for the investigation and remediation of environmental contamination
(including contamination caused by other parties) at properties that it owns
or operates and at other properties where the Company or its predecessors have
arranged for the disposal of hazardous substances. As a result, the Company is
involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. The Company believes that there
are currently no pending investigations at the Company's plants and sites
relating to environmental matters. However, there can be no assurance that the
Company will not be involved in any such proceeding in the future and that any
amount of future clean up costs and other environmental liabilities will not
be material.
The Company cannot predict what environmental laws or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found
to exist. Enactment of more stringent laws or regulations or more strict
interpretation of existing laws and regulations may require additional
expenditures by the Company some of which could be material.
EMPLOYEES
As of July 27, 1997, the Company employed 1,739 persons consisting of
1,356 hourly and 383 salaried workers. Approximately 84% of the Company's
hourly employees are represented by the United Paperworkers International
Union. The Company considers its relationship with its employees to be good.
The current labor agreements expire on October 31, 1997 at Maspeth; January
31, 1998 at St. Albans; November 28, 1998 at Gouverneur, March 31, 1999 at
Appleton; June 9, 2000 at Williamsburg and May 31, 2002 at Oshkosh. Since
1989, the Company has not experienced any work stoppages or curtailment of
operation due to a labor dispute, other than a one-month work stoppage at the
Three Rivers, Michigan facility in August 1996. Operations were maintained
during the time of the walkout, and the Company negotiated a one-year
extension until August 31, 1997 that gave the Company the flexibility to close
this facility. In Fiscal 1997, management decided to close this facility.
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ITEM 2. PROPERTIES
The Company's converting facilities, located throughout the United
States, operated at approximately 70% of total production capacity in 1997.
The Company also operates a specialty and deep-tone colored tissue mill in
Gouverneur, New York. All of the Company's facilities are well maintained, in
good operating condition and suitable for the Company's operations.
The table below provides summary information regarding the principal
properties owned or leased by the Company.
<TABLE>
<CAPTION>
SIZE OWNED/
LOCATION TYPE OF FACILITY (APPROX SQ FT) LEASED PRODUCTS
- -------- ---------------- -------------- ------ --------
<S> <C> <C> <C> <C>
CONVERTING FACILITIES
St. Albans, VT Manufacturing 112,500 O Plates, pails,
Warehouse 182,000 L bowls, trays
Office 12,400 O
Williamsburg, PA Manufacturing 66,000 O(1) Plates, cups
Warehouse 71,000 O(1)
Office 9,000 O(1)
Jacksonville, FL Manufacturing 57,500 L(2) Plates, pails
Warehouse 10,100 L(2)
Office 2,400 L(2)
Three Rivers, MI Manufacturing 70,500 O(3) Plates
Warehouse 39,900 O(3)
Maspeth, NY Manufacturing 55,000 L Plates, cups
Warehouse 70,000 L
Office 5,000 L
Goshen, IN Manufacturing 15,000 O Plates
Warehouse 48,000 O
Oshkosh, WI Manufacturing 234,000 O Napkins, placemats,
Warehouse 218,000 O tablecovers, doilies,
Office 32,000 O portion cups/fluted
Appleton, WI Manufacturing 90,300 O Napkins, crepe
Warehouse 168,900 O tablecovers
Office 8,500 O
Long Beach, CA Manufacturing 47,400 L(4) Napkins, placemats
Warehouse 49,000 L(4)
Glens Falls, NY Manufacturing 23,800 O Napkins,
Warehouse 35,300 O placemats
TISSUE MILL
Gouverneur, NY Manufacturing 88,000 O Tissue, crepe
Warehouse 143,000 O
Office 3,800 O
</TABLE>
(1) Subject to capital lease.
(2) Leased from Dennis Mehiel. See "Certain Relationships and Related
Transactions."
(3) In August 1997, the Company closed this facility.
(4) In Fiscal 1997, management decided to close this facility and it is
expected that it will be closed before the end of the calendar year.
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The Company hosts a co-generation facility owned by Kamine/Besicorp
Natural Dam L.P. ("Kamine") at its Natural Dam mill in Gouverneur, New York.
This co-generation facility generates power sold under long-term contract to
Niagara Mohawk Power Corporation ("Niagara") and produces steam for internal
use at the Natural Dam mill and which is expected to provide significant cost
savings to the Company. Natural Dam will receive all of its steam energy
requirements at 50% of historical cost in calendar 1997, and expects to
continue to receive its steam energy requirements at significantly increased
savings for the next 40 years thereafter. Natural Dam also expects to receive
land lease payments from the operator of the land occupied by the
co-generation facility.
In July 1997, Niagara announced its intention to seek modifications
or terminate a number of contracts with independent power providers, including
Kamine. At this time, the Company is unable to assess what impact, if any,
will occur as a result of such intention.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and other claims arising
in the ordinary course of its business. The Company maintains insurance
coverage of types and in amounts which it believes to be adequate and does not
believe that it is presently a party to any litigation, the outcome of which
could reasonably be expected to have a material adverse effect on its
financial condition or results of operations.
Following the Company's Hoffmaster acquisition, the Company brought a
civil action in the United States District Court for the Eastern District of
Pennsylvania against Scott alleging, among other things, breach of warranties
and representations with regard to disclosures of raw material pricing
information. In July 1997, the Company and Scott settled the lawsuit for a net
$2.9 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is not traded on any organized market. No
unregistered sales of equity securities occurred in Fiscal 1997. The Company
does not currently pay any dividends on its common stock.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED JULY (2)
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (1)
Net sales $252,513 $204,903 $97,074 $61,839 $61,079
Cost of goods sold 196,333 161,304 76,252 51,643 49,776
---------- ---------- --------- --------- --------
Gross profit 56,180 43,599 20,822 10,196 11,303
Selling, general and administrative expenses 37,168 29,735 14,112 8,438 8,686
Other income, net (1,608) - - - -
---------- ---------- --------- --------- --------
Income from operations 20,620 13,864 6,710 1,758 2,617
Interest expense, net 9,017 7,934 2,943 1,268 1,201
---------- ---------- --------- --------- --------
Income before taxes and extraordinary loss 11,603 5,930 3,767 490 1,416
Income taxes 4,872 2,500 1,585 239 478
---------- ---------- --------- --------- --------
Income before extraordinary loss 6,731 3,430 2,182 251 938
Extraordinary loss, net (3) 3,495 - - - -
---------- ---------- --------- --------- --------
Net income $3,236 $3,430 $2,182 $251 $938
========== ========== ========= ========= ========
BALANCE SHEET DATA AS OF JULY:
Working capital $58,003 $38,931 $28,079 $2,731 $1,738
Property, plant and equipment, net 59,261 46,350 26,933 7,454 7,428
Total assets 179,604 136,168 79,725 24,668 24,676
Total indebtedness (4) 122,987 87,763 48,165 12,581 11,589
Redeemable common stock 2,076 2,179 2,115 - -
Stockholders equity 15,010 11,873 7,205 5,977 5,726
</TABLE>
(1) Includes the results of operations of the Company and the Acquisitions
since their respective dates of acquisition. See "Business", "Management's
Discussion and Analysis of Financial Condition and Results of Operations "
and Note 3 to the Financial Statements of the Company.
(2) All fiscal years are 52 weeks, except for Fiscal 1994 which is 53 weeks.
(3) The Company incurred a $3.5 million extraordinary loss (net of a $2.5
million income tax benefit) in connection with the early retirement of
debt consisting of the write-off of unamortized debt issuance costs,
elimination of unamortized debt discount and prepayment penalties.
(4) Includes short-term and long-term borrowings and current maturities of
long-term debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion contains forward-looking statements which
involve risks and uncertainties. The Company's actual results or future events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, raw
material costs, labor market conditions, the highly competitive nature of the
industry, and developments with respect to contingencies such as environmental
matters and litigation.
The following discussion of results of operations for Fiscal 1997,
1996 and 1995 is based on the historical results of operations of the Company.
Since the Acquisitions were consummated from time to time during such fiscal
years, the financial information contained herein with respect to periods
prior to the Acquisitions does not reflect the results of operations of the
businesses acquired; thus, this financial information is not necessarily
indicative of the results of operations that would have been achieved had the
Acquisitions been consummated by the Company at the beginning of the periods
presented herein or which may be achieved in the future, nor does it reflect
the operations of such acquired businesses under the Company's management for
a significant period of time.
Prior to March 1995, the Company's business was highly seasonal with
over 30% of its net sales and 50% of its cash flow realized in the fourth
quarter of its fiscal year. As a result of significant growth through
acquisitions, its business has become less seasonal. Nevertheless, income from
operations tends to be greatest during the first and fourth quarters of the
fiscal year.
GENERAL
The Company is a converter and marketer of paperboard and tissue
products, the selling prices of which typically follow the general movement in
the cost of such principal raw materials. This is particularly true with
respect to commodity products, such as coated and uncoated white paper plates.
When raw materials and selling prices increase, operating margins tend to
improve. Conversely, when raw materials prices decrease, selling prices
generally also decline. Operating margins may also decline as the Company's
fixed selling, general and administrative costs remain relatively constant.
The actual impact on the Company of raw materials price changes is affected by
a number of factors including the level of inventories at the time of a price
change, the specific timing and frequency of price changes, and the lead and
lag time that generally accompanies the implementation of both raw materials
and subsequent selling price changes. However, over time the Company believes
that it is able to maintain relatively stable margins between its selling
prices and raw material costs. The Company's business and growth strategy is
intended, in part, to enable the Company to maintain a lower cost structure as
a result of improved purchasing power, improved fixed overhead costs
absorption and consolidation and elimination of costs as it integrates its
strategic acquisitions. Furthermore, the Company believes that it has been
able to mitigate the effect of changing raw materials prices by diversifying
into higher margin, value-added products.
9
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY
------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- ------------------------- ------------------------
AMOUNT % OF NET SALES AMOUNT % OF NET SALES AMOUNT % OF NET SALES
------ -------------- ------ -------------- ------ --------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $252.5 100.0% $204.9 100.0% $97.1 100.0%
Cost of goods sold 296.3 77.7 161.3 78.7 76.3 78.6
-------- ------- -------- ------- ------- -------
Gross profit (43.8) 22.3 43.6 21.3 20.8 21.4
Selling, general and
administrative expense 37.2 14.7 29.7 14.5 14.1 14.5
Other income, net (1.6) (0.6) - - - -
-------- ------- -------- ------- ------- -------
Income from operations (79.4) 8.2 13.9 6.8 6.7 6.9
Interest expense, net 9.0 3.6 8.0 3.9 2.9 3.0
-------- ------- -------- ------- ------- -------
Income before taxes and
extraordinary loss 11.6 4.6 5.9 2.9 3.8 3.9
Income tax expense 4.9 1.9 2.5 1.2 1.6 1.6
-------- ------- -------- ------- ------- -------
Income before extraordinary loss 6.7 2.7 3.4 1.7 2.2 2.3
Extraordinary loss, net 3.5 1.4 - - - -
-------- ------- -------- ------- ------- -------
Net income $3.2 1.3% $3.4 1.7% $2.2 2.3%
======== ======= ======== ======= ======= =======
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales in Fiscal 1997 increased $47.6 million, or 23%, to $252.5
million. This increase was a result of a full year's results of operations for
the 1996 Acquisitions and two month's results of operations for the 1997
Acquisitions, which was partially offset by a $5.8 million decline in net
sales due to lower average selling prices. The lower selling prices arose from
competitive market conditions and lower raw material costs. During Fiscal
1997, prices declined about 16% in the institutional market and 10% in the
consumer market. These lower selling prices were partially offset by higher
sales volumes of 17% and 3% in the institutional and consumer markets
respectively.
Gross profit in Fiscal 1997 increased $12.6 million, or 29%, to $56.2
million due primarily to the 1996 Acquisitions. As a percentage of net sales,
gross profit improved slightly from 21% in 1996 to 22% in 1997. Gross profits
increased in the consumer market, primarily due to a 14% decline in SBS
paperboard costs, but were offset by lower gross profits in the institutional
market. Margins for the institutional market were reduced primarily as a
result of competitive market conditions which lowered selling prices.
Selling, general and administrative expenses in Fiscal 1997 increased
$7.4 million, or 25%, to $37.2 million. This increase was due primarily to the
incurrence of additional expenses and corporate overhead assumed in connection
with the 1996 Acquisitions. As a percentage of net sales, selling, general and
administrative expenses increased slightly from 14.5% in 1996 to 14.7% in
1997.
Other income, net includes a gain of a net $2.9 million from the
settlement of a lawsuit. See "Legal Proceedings". Partially offsetting this
gain was a $1.3 million charge for anticipated costs of the closure of the
Company's Three Rivers, Michigan facility. The charge covers the costs for the
termination of employees as well as ongoing costs to maintain the facility
until its disposition.
Income from operations increased $6.8 million, or 49% due to the
reasons discussed above. Excluding the $1.6 million net gain included in other
income, income from operations increased, as a percentage of net sales, from
6.8% in Fiscal 1996 to 7.5% in Fiscal 1997.
10
<PAGE>
Interest expense, net of interest income, increased $1 million, or
14%, due to higher borrowing levels primarily resulting from the 1996
Acquisitions and the issuance of $120 million of 9 1/2% Senior Subordinated
Notes due 2007. See "Liquidity and Capital Resources". Partially offsetting
the higher borrowing levels were the lower interest rates on such notes.
Income before income taxes and extraordinary loss increased to $11.6
million in 1997 from $5.9 million in 1996. The Company's effective income tax
rate was 42% in both years.
The Company incurred a $3.5 million extraordinary loss (net of a $2.5
million income tax benefit) in connection with the early retirement of debt
consisting of the write-off of unamortized debt issuance costs, elimination of
unamortized debt discount, and prepayment penalties. As a result of the above,
net income was $3.2 million in Fiscal 1997 compared to $3.4 million in Fiscal
1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales in Fiscal 1996 increased $107.8 million, or 111% to $204.9
million. Approximately 70% of this increase reflects a full year's results of
operations for the Hoffmaster division, which also included seven months of
results of operations for the Chesapeake acquisition. Approximately 7% of this
increase is attributable to three months of results of operations of the James
River acquisition, which was acquired by the Company in May 1996. Sales growth
was also driven by a 13% increase in shipments by the Fonda division, which is
primarily due to improved integration and marketing efforts, and a 5% increase
in selling prices.
Gross profit in Fiscal 1996 increased by $22.8 million, or 109% to
$43.6 million. Approximately 70% of the increase is due to the Hoffmaster
division, for the reasons stated above. Gross profit as a percentage of net
sales was approximately 21.4% in both periods. The inclusion of the Hoffmaster
division results offsets an increase in cost of goods sold as a percentage of
sales at the Fonda division. In the first half of Fiscal 1996, the Company
experienced increased raw material costs as a result of continuous price
increases during 1995, which affected the Fonda division. Raw material costs
stabilized and began to decline in the latter part of Fiscal 1996 but
nevertheless increased approximately 15% during the year.
Selling, general and administrative expenses in 1996 increased $15.6
million, or 111% to $29.7 million, primarily due to the Company's increased
presence in consumer markets as a result of the Chesapeake and Maspeth
acquisitions, as well as a full year's results for the Hoffmaster division. As
a percentage of net sales, however, selling, general and administrative
expenses remained relatively constant at approximately 14.5%.
Income from operations increased $7.2 million, or 107%. As a
percentage of net sales, operating income remained unchanged at 6.9%. Costs of
integrating the Chesapeake and Maspeth acquisitions and slightly lower selling
prices were offset by cost savings achieved in overhead reduction, improved
fixed cost absorption and lower procurement costs.
Interest expense increased $5 million as a result of the debt
incurred in connection with the Hoffmaster and 1996 Acquisitions. The
Company's effective income tax rate was 42% in both periods.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied on cash flows from operations
and borrowings to finance its working capital requirements, capital
expenditures and acquisitions.
Net cash provided by operating activities was $8.3 million in Fiscal
1997 compared to $17.7 million in Fiscal 1996. The higher level of net cash
provided by operating activities in Fiscal 1996 reflects the consolidation of
the working capital assets acquired in the Hoffmaster acquisition. This
increase was primarily due to a reduction in the level of accounts receivable
and an increase in accounts payable and accrued expenses.
11
<PAGE>
The Company's investing activities are primarily capital expenditures
and business acquisitions. Capital expenditures in Fiscal 1997 were $10.4
million, including $8.2 million related to the installation of a second paper
machine at the Natural Dam tissue mill. The remaining $2.2 million in Fiscal
1997 and most of the capital expenditures in prior years were for routine
capital improvements. To complete the installation of the second paper machine
at Natural Dam, an estimated $1.3 million will be spent in early Fiscal 1998.
The Company spent $23 million in Fiscal 1997, $45.2 million in Fiscal 1996 and
$28 million in Fiscal 1995 for the Acquisitions.
In February 1997, the Company entered into a new revolving credit
agreement (the "Revolver") which provides up to $50 million borrowing
capacity, collateralized by eligible accounts receivable and inventories. At
July 27, 1997, there were no amounts outstanding under the Revolver and $37.1
million was the maximum advance available based upon eligible collateral.
Pursuant to the terms of the Revolver, the Company is subject to
certain affirmative and negative covenants customarily contained in agreements
of this type, including, without limitation, covenants that restrict, subject
to specified exceptions (i) mergers, consolidations, asset sales or changes in
capital structure, (ii) creation or acquisition of subsidiaries, (iii)
purchase or redemption of the Company's capital stock (excluding the Stock
Repurchase, as defined herein) or declaration or payment of dividends or
distributions on such capital stock, (iv) incurrence of additional
indebtedness, (v) investment activities, (vi) granting or incurrence of liens
to secure other indebtedness, (vii) prepayment or modification of the terms of
subordinated indebtedness and (viii) engaging in transactions with affiliates.
In addition, the Revolver requires that the Company satisfy certain financial
covenants.
On February 27, 1997, the Company issued $120 million of 9 1/2%
Series A Subordinated Notes due 2007 (the "Old Notes"). Proceeds from the
issuance of the Old Notes were primarily used to retire debt. On August 8,
1997, the Company consummated an exchange of 100% of the Old Notes for $120
million of 9 1/2% Series B Subordinated Notes due 2007 (the "Notes"), which
are registered under the Securities Act of 1933, as amended. The Notes bear
interest at a rate of 9 1/2% per annum, payable semi-annually in March and
September and will mature on March 1, 2007.
In April 1997, the Company offered to repurchase up to 74,000 shares
of its common stock at $135 per share from the Company's stockholders on a pro
rata basis (the "Stock Repurchase"). Pursuant to the Stock Repurchase, in May
1997, the Company redeemed 500 shares of its Class A Common Stock and 1,000
shares of the Class B Common Stock.
In September 1997, pursuant to the Stock Repurchase, the Company
redeemed 61,865 shares of Class A Common Stock for $8.4 million. Management
expects that up to 100% of the remaining 10,635 shares of Class A Common Stock
pursuant to the Stock Repurchase will be repurchased during Fiscal 1998. See
"Security Ownership of Certain Beneficial Owners and Management".
The Company incurred no material costs for compliance with
environmental laws and regulations during Fiscal 1997 or Fiscal 1996.
Following the issuance of the Notes, the Company believes that cash
generated by operations, combined with amounts available under the Revolver,
will be sufficient to meet its capital expenditure needs, debt service
requirements and working capital needs for the foreseeable future. The Company
may need to obtain additional financing to pursue additional acquisitions;
however, there can be no assurance that the Company will be able to obtain
such financing or on terms favorable to the Company.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Schedule attached hereto and listed
in Item 14 (a)(1) and (a)(2) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a table setting forth certain information with
respect to the individuals who are the directors and executive officers of the
Company.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
- ---- --- --------
Dennis Mehiel 55 Chairman and Chief Executive Officer
Thomas Uleau 52 President, Chief Operating Officer and Director
Hans Heinsen 44 Senior Vice President, Chief Financial Officer
and Treasurer
Michael Hastings 50 Senior Vice President and President, Fonda Division
Robert Korzenski 42 Senior Vice President and President, Hoffmaster Division
Harvey L. Friedman 55 Secretary and General Counsel
Alfred B. DelBello 62 Vice Chairman
James Armenakis 54 Director
Gail Blanke 49 Director
John A. Catsimatidis 49 Director
Chris Mehiel 58 Director
Jerome T. Muldowney 52 Director
G. William Seawright 56 Director
Lowell P. Weicker, Jr. 66 Director
</TABLE>
DENNIS MEHIEL has been the Chairman and Chief Executive Officer of
the Company since 1988. Since 1966 he has been the Chairman of Four M, a
converter and seller of interior packaging, corrugated sheets and corrugated
containers which he co-founded, and since 1977 (except during a leave of
absence from April 1994 through July 1995) he has been the Chief Executive
Officer of Four M. Mr. Mehiel is also the Chairman of Box USA of New Jersey,
Inc., formerly known as MannKraft Corporation ("MannKraft"), a manufacturer of
corrugated containers, and Chief Executive Officer and Chairman of Creative
Expressions Group, Inc. ("CEG").
THOMAS ULEAU has been the President of the Company since January 9,
1997, the Chief Operating Officer of the Company since 1994 and a Director of
the Company since 1988. Mr. Uleau was Executive Vice President of the Company
from 1994 to 1996 and from 1988 to 1989. He has been Executive Vice President
of CEG since 1996. He served as Executive Vice President and Chief Financial
Officer of Four M from 1989 through 1993 and Chief Operating Officer in 1994.
He is also currently a director of Four M, CEG and MannKraft. Mr. Uleau was
President of Cardinal Container Corporation (which was acquired by Four M in
1985) from 1983 to 1987. He started his career as an accountant at Haskins and
Sells from 1969 to 1971, after which he spent several years in various
capacities at IU International Corp., a transportation and paper products
conglomerate.
13
<PAGE>
HANS HEINSEN has been Senior Vice President and Treasurer since
January 9, 1997 and Vice President Finance and Chief Financial Officer of the
Company since June 1996. Prior to joining the Company, Mr. Heinsen spent 21
years in a variety of corporate finance positions with The Chase Manhattan
Bank, N.A. His experience includes private placements, mergers and
acquisitions, syndications, project finance and leveraged finance.
MICHAEL HASTINGS has been Senior Vice President since January 9, 1997
and President of the Fonda division since joining the Company in May 1995.
From December 1990 to April 1995, Mr. Hastings served as Vice President of
Sales and Marketing and as a member of the Board of Directors of Anchor
Packaging Company, a manufacturer of institutional films and thermoformed
plastic packaging. Mr. Hastings had previously worked in a variety of
positions, including sales, marketing and plant operations management, at
Scott Paper Company and Thomson Industries CSF S.A.
ROBERT KORZENSKI has been Senior Vice President since January 9, 1997
and President of the Hoffmaster division since its acquisition by the Company
on March 30, 1995. From October 1988 to March 30, 1995, he served as Vice
President of Operations and Vice President of Sales of Scott Institutional, a
division of Scott Paper Company. Prior to that, he was Director of National
Sales at Thompson Industries.
HARVEY L. FRIEDMAN has been Secretary and General Counsel since May
1996. He was a Director of the Company from 1985 to January 9, 1997. Mr.
Friedman is also the Secretary and General Counsel of CEG, Four M and
MannKraft and is a Director of CEG. He was formerly a partner in Kramer,
Levin, Naftalis & Frankel, a New York City law firm.
ALFRED B. DELBELLO has served as a Vice Chairman of the Company since
January 9, 1997 and Director of the Company since 1990. Since July 1995, Mr.
DelBello has been a partner at the law firm of DelBello, Donnellan &
Weingarten & Tartaglia, LLP. From September 1992 to July 1995 he was a partner
at the law firm of Worby DelBello Donnellan & Weingarten. Prior thereto, he
had been the President of DelBello Associates, a consulting firm, since 1985.
Mr. DelBello served as Lieutenant Governor of New York State from 1983 to
1985.
JAMES ARMENAKIS has served as a director of the Company since June
1997. He is a senior partner in the law firm of Armenakis & Armenakis. Mr.
Armenakis is a litigator and specializes in business transactions and
international law.
GAIL BLANKE has served as a Director of the Company since January 9,
1997. She has been President and Chief Executive Officer of Gail Blanke's
Lifedesigns, LLC. since March 1995. Lifedesigns, was founded in March of 1995
as a division of Avon Products, Inc. and was spun off from Avon in March 1997.
Ms. Blanke is a former Senior Vice President of Avon Products, Inc. and prior
thereto, she held a number of management positions at CBS, Inc. and served as
Manager of Player Promotion for the New York Yankees. Ms. Blanke is President
of the New York Women's Forum and was the most recent past Chairman of the
Board of the Fashion Group International. She is also the President-elect of
the New York Women's Agenda and a director of the Trickle Up Program.
JOHN A. CATSIMATIDIS has served as a Director of the Company since
January 9, 1997. He has been Chairman and Chief Executive Officer of the Red
Apple Group, Inc., a company with diversified holdings that include oil
refining, supermarkets, real estate, aviation and newspapers, since 1969. Mr.
Catsimatidis serves as a director of Sloan's Supermarket, Inc. and News
Communications, Inc. He also serves on the board of trustees of New York
Hospital, St. Vincent Home for Children, New York University Business School,
Athens College, Independent Refiners Coalition and New York State Food
Merchant's Association.
CHRIS MEHIEL, the brother of Dennis Mehiel, has been a Director of
the Company since January 9, 1997. Mr. Mehiel is a co-founder of Four M and
has been Executive Vice President, Chief Operating Officer and a Director of
Four M since September 1995 and Chief Financial Officer since August 1997. He
is the President of the managing member of Fibre Marketing Group, LLC, the
successor to Fibre Marketing Group, Inc., a waste paper recovery business
which he co-founded, and was President of from 1994 to January 1996. From 1993
to 1994, Mr. Mehiel served as President and Chief Operating Officer of
MannKraft. From 1982 to 1992, Mr. Mehiel served as the President and Chief
Operating Officer of Specialty Industries, Inc., a waste paper processing and
container manufacturing company.
14
<PAGE>
JEROME T. MULDOWNEY has served as a Director of the Company since
1990. Since January 1996, Mr. Muldowney has been a Managing Director of AIG
Global Investment Corp. and since March 1995 he has been a Senior Vice
President of AIG Domestic Life Companies ("AIG Life"). Prior thereto, he had
been a Vice President of AIG Life since 1982. In addition, from 1986 to 1996,
he served as President of AIG Investment Advisors, Inc. He is currently a
director of AIG Life and AIG Equity Sales Corp.
G. WILLIAM SEAWRIGHT has served as a Director of the Company since
January 9, 1997. He was President and Chief Executive Officer of Stanhome
Inc., a manufacturer and distributor of giftwares and collectibles, from 1993
to October 1, 1997. Prior thereto, he was President and Chief Executive
Officer of Paddington, Inc., an importer of distilled spirits, since 1990.
From 1986 to 1990, he was President of Heublein International, Inc., where he
was primarily responsible for marketing Smirnoff vodka worldwide. He is also a
director of Stanhome Inc.
LOWELL P. WEICKER, JR. has served as a Director of the Company since
January 9, 1997. Mr. Weicker served as Governor of Connecticut from January
1991 through January 1995. From 1962 to 1989, he served in the U.S. Congress.
Mr. Weicker presently teaches at the University of Virginia. In 1992, Mr.
Weicker earned the Profiles in Courage Award from the John F. Kennedy Library
Foundation.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, whether paid
or deferred, to the Company's Chief Executive Officer and its other four most
highly compensated executive officers (collectively, the "Named Officers") for
the years ended July 27, 1997, July 26, 1996 and July 30, 1995 for services
rendered in all capacities to the Company during such fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ------------------------------------------------------- UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OTHER(1) SARS(#) COMPENSATION(2)
-------- ---- ------ ----- ----- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Mehiel 1997 $ 168,750 $ 75,000 $ --- --- $ ---
Chairman and Chief 1996 150,000 60,000 --- --- ---
Executive Officer 1995 37,500 --- --- --- ---
Thomas Uleau 1997 196,250 75,000 --- 1,950 9,504
President and Chief 1996 185,000 60,000 --- 1,950 9,186
Operating Officer 1995 57,695(4) --- --- 1,950 3,628
Hans Heinsen 1997 170,000 56,000 --- 1,950 10,371
Senior Vice President, 1996 26,153(3) --- --- 1,950 625
Chief Financial Officer 1995 --- --- --- --- ---
and Treasurer
Michael Hastings 1997 164,423 60,000 --- 1,950 8,203
Senior Vice President 1996 150,000 38,250 --- 1,950 9,219
and President, Fonda 1995 37,500(5) 7,500 --- 1,950 1,442
Division
Robert Korzenski 1997 164,423 50,000 --- 1,950 10,216
Senior Vice President 1996 150,000 47,250 --- 1,950 9,531
and President, 1995 50,000(6) 15,000 --- 1,950 2,492
Hoffmaster Division
</TABLE>
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Officers did not exceed
the lesser of (i) 10% of such officer's total annual salary and bonus and
(ii) $50,000. Thus, such amounts are not reflected in the table.
(2) Reflects matching contributions by the Company under the Company's 401(k)
Plans, and medical and life insurance premiums paid by the Company.
(3) Consists of salary for employment commencing June 1996.
(4) Consists of salary for employment commencing April 1995.
(5) Consists of salary for employment commencing May 1995.
(6) Consists of salary for employment commencing March 1995.
16
<PAGE>
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive annual
compensation of (i) $12,000, (ii) $1,000 for each Board meeting attended,
(iii) $1,000 for each committee meeting attended which is not held on the date
of a Board meeting and (iv) 100 SARs. Directors who are employees of the
Company do not receive any compensation or fees for service on the Board of
Directors or any committee thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997 and 1996, both Messrs. Mehiel and Uleau
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation. In addition, Messrs. Mehiel and Uleau are both
members of the Board of Directors of Four M and CEG and Dennis Mehiel is the
Chairman and Chief Executive Officer of Four M and CEG and Mr. Uleau is
Executive Vice President of CEG.
STOCK APPRECIATION RIGHTS
The following table provides information on grants of stock
appreciation rights ("SARs") made during Fiscal 1997 to the Named Officers as
well as the vested status of those SARs at July 27, 1997.
<TABLE>
<CAPTION>
1997 SAR GRANT
--------------------------------------------------------------------------------
% OF TOTAL
# OF GRANTED TO EXERCISE NUMBER OF UNEXERCISED
SECURITIES EMPLOYEES OR BASE EXPIRA- OPTIONS AT JULY 27, 1997
UNDERLYING IN FISCAL PRICE PER TION ------------------------
NAME GRANT YEAR SHARE DATE (1) EXERCISABLE/UNEXERCISABLE
- ---- ------------------ ------------------ ---------------- --------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas Uleau 1,950 17.7% $30.06 -- 1,170 / 4,680
Hans Heinsen 1,950 17.7% 45.33 -- 390 / 3,510
Michael Hastings 1,950 17.7% 30.06 -- 1,170 / 4,680
Robert Korzenski 1,950 17.7% 30.06 -- 1,170 / 4,680
</TABLE>
(1) Unless otherwise determined by the Administering Committee of the
Company's SAR Plan, awards of SARs will vest on each anniversary of their
grant at the rate of 20% per year commencing on the first anniversary
date. However, unless otherwise determined by the Administering Committee,
in the event that at the time of any grant of SARs the grantee has not
been continuously employed by the Company for at least five years, such
vesting will be subject to the completion of such five-year period. Upon
voluntary termination of employment, involuntary termination without cause
or termination due to death, disability or retirement at age 60 or above,
all unvested SARs will be forfeited and vested SARs not previously
redeemed will be redeemed automatically by the Company as of the date of
termination.
STOCK OPTIONS
The Board of Directors granted Dennis Mehiel 15,000 options to
purchase Class A Common Stock at an option price of $135 per share. Options to
purchase 5,000 shares vest on October 1, 1997, and options to purchase an
additional 5,000 shares vest on October 1, 1998 and October 1, 1999
respectively, or upon an initial public offering of the Company's common
stock, whichever first occurs; provided that Mr. Mehiel is employed by the
Company on the applicable vesting date.
17
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 22,
1997, with respect to the shares of common stock of the Company beneficially
owned by each person or group that is known by the Company to be a beneficial
owner of more than 5% of the outstanding common stock and all directors and
officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES OWNERSHIP(1)(2)
- ------------------- ------ ---------------
<S> <C> <C>
Dennis Mehiel
The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595 123,135(2) 84.6%
All executive officers and directors
as a group (14 persons) 127,135 87.4%
</TABLE>
(1) Includes warrants to purchase 9,176 shares of Class B Common Stock which
are currently exercisable.
(2) Includes 5,000 shares underlying options to purchase Class A Common
Stock, which are presently exercisable, and 28,135 shares which Mr.
Mehiel has the power to vote pursuant to a voting trust agreement
between his spouse, Edith Mehiel, and himself. In September 1997,
pursuant to a separation agreement between Mr. Mehiel and Edith Mehiel,
Mr. Mehiel transferred 50% of his common stock interest (90,000 shares
of Class A Common Stock) to Edith Mehiel. Pursuant to the Stock
Repurchase, the Company redeemed 61,865 shares of Class A Common Stock
from Edith Mehiel. Pursuant to the voting trust agreement, Edith Mehiel
granted the power to vote all of her shares of Class A Common Stock to
Mr. Mehiel. Mr. Mehiel has retained the right to sell up to 10,365
shares of his Class A Common Stock to the Company pursuant to the Stock
Repurchase and management expects that Mr. Mehiel will exercise this
right during Fiscal 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its Jacksonville facility from Dennis Mehiel on
terms that the Company believes are no less favorable than could be negotiated
with an independent third party on an arm's-length basis. Pursuant to the
lease, which has a term expiring December 31, 2014, the Company currently pays
base rent of approximately $.2 million per year, subject to escalations
indexed to the Consumer Price Index ("CPI"). In addition, from January 1, 1998
until July 31, 2006, Mr. Mehiel may require the Company to purchase the
facility for $1.5 million, subject to a CPI-based escalation. The purchase
price would be paid $.4 million in cash and the balance in a seven-year note
secured by a lien covering the facility and under which the regular monthly
payments would be no greater than the monthly lease payments payable to Mr.
Mehiel immediately prior to the sale date, with interest payable at a rate of
prime plus 2% and the remaining principal amount payable at maturity.
The Company had net sales to CEG in the amount of $7.8 million in
Fiscal 1997 and $1.9 million in Fiscal 1996. CEG manufactures party goods such
as decorated plates, cups, napkins, tablecovers, tableware and other related
products. Mr. Mehiel, the 97% owner of CEG, acquired this company as part of
the acquisition of certain operations of the Specialty Operations of James
River. The Company believes that the terms upon which it sold products to CEG
are at least as favorable as those which it could otherwise have obtained from
unrelated third parties and that such terms were negotiated on an arm's-length
basis.
18
<PAGE>
On February 27, 1997, upon the issuance of the Old Notes, the Company
loaned $2.6 million to CEG for five years at an interest rate of 10%, the
proceeds of which were applied to CEG's prepayment of certain obligations to
James River. The Company believes that the terms of such loan are no more
favorable to CEG than those that CEG could otherwise have obtained from
unrelated third parties and such terms were negotiated on an arm's-length
basis.
The Company purchased $.9 million in Fiscal 1997 and $.2 million in
Fiscal 1996 of corrugated containers from Four M. Management believes that the
terms on which it purchased such containers were at least as favorable as
those which it could otherwise have obtained from unrelated third parties and
such terms were negotiated on an arm's-length basis.
The Company had net sales to Fibre Marketing Group, LLC, a waste
paper recovery business of which Four M and a director of the Company are
members, of $3.6 million in Fiscal 1997, $4 million in Fiscal 1996 and $.2
million in Fiscal 1995. Management believes that the sales terms were at least
as favorable as those which it could otherwise have obtained from unrelated
third parties and such terms were negotiated on an arm's-length basis.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) - Financial Statements
The following financial statements of the Company are included in this
report:
Independent Auditors' Report F-1
Balance Sheets as of July 27, 1997 and July 28, 1996 F-2
Statements of Income for the three years ended July 27, 1997 F-3
Statements of Cash Flows for the three years ended July 27, 1997 F-4
Notes to Financial Statements F-5
(a) (2) - Financial Statement Schedule
The following schedule to the financial statements of the Company is
included in this report:
Schedule
II - Valuation and Qualifying Accounts and Reserves S-1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required or are inapplicable, and therefore have been omitted.
(a) (3) Exhibits:
Exhibits 3.1 through 10.6 are incorporated herein by reference to the exhibit
with the corresponding number filed as part of the Company's Registration
Statement on Form S-4, as amended (File No. 333-24939).
EXHIBIT # DESCRIPTION OF EXHIBIT
3.1 Certificate of Incorporation of The Fonda Group, Inc.
(the "Company").
3.2 Amended and Restated By-laws of the Company.
19
<PAGE>
4.1 Indenture, dated as of February 27, 1997, between the Company
and the Bank of New York.
4.2 Form of 9 1/2% Series A and Series B Senior Subordinated
Notes, dated as of February 27, 1997 (incorporated by
reference to Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of February 27, 1997,
among the Company, Bear Stearns & Co. Inc. and Dillon, Read &
Co. Inc. (the "Initial Purchasers").
10.1 Second Amended and Restated Revolving Credit and Security
Agreement, dated as of February 27, 1997, among the Company,
the financial institutions party thereto and IBJ Schroder Bank
& Trust Company, as agent.
10.2 Stock Purchase Agreement, dated as of October 13, 1995,
between the Company and Chesapeake Corporation.
10.3 Asset Purchase Agreement, dated as of October 13, 1995,
between the Company and Alfred Bleyer & Co., Inc.
10.4 Asset Purchase Agreement, dated as of March 22, 1996, among
James River Paper Company, Inc., the Company and Newco (the
"James River Agreement").
10.5 First Amendment to the James River Agreement, dated as of May
6, 1996, among James River, the Company and Newco.
10.6 Indenture of Lease between Dennis Mehiel and the Company dated
as of January 1, 1995.
27.1 Financial Data Schedule.
(b) No reports were filed on Form 8-K during the fourth quarter ended July
27, 1997.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized on
October 24, 1997.
THE FONDA GROUP, INC.
By: /s/ DENNIS MEHIEL
-------------------
Dennis Mehiel
Chairman of the Board and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ DENNIS MEHIEL Chairman of the Board and Chief October 24, 1997
-------------------------------- Executive Officer (Principal Executive
Dennis Mehiel Officer)
/s/ THOMAS ULEAU President, Chief Operating Officer and October 24, 1997
-------------------------------- Director
Thomas Uleau
/s/ HANS H. HEINSEN Senior Vice President, Chief Financial October 24, 1997
-------------------------------- Officer and Treasurer (Principal
Hans H. Heinsen Financial and Accounting Officer)
/s/ ALFRED B. DELBELLO Vice Chairman October 24, 1997
--------------------------------
Alfred B. DelBello
/s/ JAMES J. ARMENAKIS Director October 24, 1997
--------------------------------
James J. Armenakis
/s/ GAIL BLANKE Director October 24, 1997
--------------------------------
Gail Blanke
/s/ JOHN A. CATSIMATIDIS Director October 24, 1997
--------------------------------
John A. Catsimatidis
/s/ CHRIS MEHIEL Director October 24, 1997
--------------------------------
Chris Mehiel
/s/ JEROME T. MULDOWNEY Director October 24, 1997
--------------------------------
Jerome T. Muldowney
/s/ G. WILLIAM SEAWRIGHT Director October 24, 1997
--------------------------------
G. William Seawright
Director , 1997
--------------------------------
Lowell P. Weicker, Jr.
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Fonda Group, Inc.
We have audited the accompanying balance sheets of The Fonda Group,
Inc. as of July 27, 1997 and July 28, 1996 and the related statements of
income and cash flows for each of the three years in the period ended July 27,
1997. Our audits also included the financial statement schedule listed at Item
14(a)2. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of The Fonda Group, Inc. as of July
27, 1997 and July 28, 1996 and the results of its operations and its cash
flows for each of the three years in the period ended July 27, 1997 in
conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 25, 1997
F-1
<PAGE>
THE FONDA GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 27, JULY 28,
1997 1996
----------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash $5,908 $1,467
Accounts receivable, less allowance for doubtful
accounts of $961 and $549, respectively 30,009 27,173
Due from affiliates 1,207 994
Inventories 40,834 37,467
Deferred income taxes 6,780 5,435
Refundable income taxes 1,657 822
Other current assets 4,178 1,160
----------- ------------
Total current assets 90,573 74,518
Property, plant and equipment, net 59,261 46,350
Note receivable from affiliate 2,600 -
Goodwill, net 15,405 5,400
Other assets, net 11,765 9,900
---------- ------------
TOTAL ASSETS $179,604 $136,168
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,340 $14,671
Accrued expenses 24,611 14,893
Current maturities of long-term debt 619 6,023
----------- ------------
Total current liabilities 32,570 35,587
Long-term debt 122,368 81,740
Other liabilities 1,436 2,345
Deferred income taxes 6,144 2,444
----------- ------------
Total liabilities 162,518 122,116
Redeemable common stock, $.01 par value, 7,000 shares issued,
6,500 and 7,000 shares outstanding, respectively 2,076 2,179
Stockholders' equity 15,010 11,873
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $179,604 $136,168
=========== ============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
JULY 27, 1997 JULY 28, 1996 JULY 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $252,513 $204,903 $97,074
Cost of goods sold 196,333 161,304 76,252
-------------- -------------- --------------
Gross profit 56,180 43,599 20,822
Selling, general and administrative expenses 37,168 29,735 13,568
Other income, net (1,608) - -
Management fee - - 544
-------------- -------------- --------------
Income from operations 20,620 13,864 6,710
Interest expense (net of $490 interest income in 1997) 9,017 7,934 2,943
-------------- -------------- --------------
Income before income taxes and extraordinary loss 11,603 5,930 3,767
Provision for income taxes 4,872 2,500 1,585
-------------- -------------- --------------
Income before extraordinary loss 6,731 3,430 2,182
Extraordinary loss from debt extinguishment, net 3,495 - -
-------------- -------------- --------------
Net income $3,236 $3,430 $2,182
============== ============== ==============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------
JULY 27, 1997 JULY 28, 1996 JULY 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net income $3,236 $3,430 $2,182
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,440 3,450 1,669
Amortization and write-off of debt issuance costs 2,640 1,021 560
Elimination of unamortized debt discount 2,108 - -
Provision for doubtful accounts 457 148 184
Deferred income taxes 3,005 533 (1,690)
Interest capitalized on debt 684 165 -
Changes in assets and liabilities (net of business
acquisitions):
Accounts receivable (2,007) 6,826 (6,543)
Due from affiliates (213) (994) 464
Inventories (1,178) (299) (6,648)
Other current assets (3,273) (26) (309)
Accounts payable and accrued expenses (1,019) 8,782 3,840
Income taxes payable (refundable) (1,280) (3,644) 3,029
Other 673 (1,719) (1,512)
-------------- -------------- --------------
Net cash provided by (used in) operating activities 8,273 17,673 (4,774)
-------------- -------------- --------------
Investing activities:
Capital expenditures (10,363) (1,314) (1,608)
Payments for business acquisitions (23,043) (45,218) (27,985)
Note receivable from affiliate (2,600) - -
-------------- -------------- --------------
Net cash used in investing activities (36,006) (46,532) (29,593)
-------------- -------------- --------------
Financing activities:
Net increase (decrease) in revolving credit agreement (32,842) 14,745 (7,225)
Proceeds from long-term debt 120,000 18,803 47,520
Repayments of long-term debt (49,879) (2,499) (3,638)
Debt issuance costs (4,902) (843) (2,395)
Acquisition of common stock (203) - -
-------------- -------------- --------------
Net cash provided by financing activities 32,174 30,206 34,262
-------------- -------------- --------------
Net increase (decrease) in cash 4,441 1,347 (105)
Cash, beginning of year 1,467 120 225
-------------- -------------- --------------
Cash, end of year $5,908 $1,467 $120
============== ============== ==============
Supplemental cash flow information:
Cash paid during the year for:
Interest, including $163 capitalized in 1997 $5,018 $6,029 $2,114
Income taxes, net of refunds 614 5,611 -
Businesses acquired:
Fair value of assets acquired $23,637 $59,090 $37,777
Cash paid 23,043 45,218 27,985
-------------- -------------- --------------
Liabilities assumed (including notes payable to sellers
of $9,250 during Fiscal 1996) $594 $13,872 $9,792
============== ============== ==============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND ORGANIZATION
The Fonda Group, Inc. (the "Company") is a leading converter and
marketer of a broad line of disposable paper food service products. Prior to
March 30, 1995, the Company was a wholly-owned subsidiary of Four M
Corporation ("Four M"). On March 30, 1995, Four M distributed approximately
96% of the Company's common stock to Four M's sole stockholder at such time.
The remaining 4% of the Company's common stock was distributed to American
International Life Insurance Company of New York ("AIG").
2. SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
FISCAL YEAR--The Company's fiscal year is the fifty-two or
fifty-three week period which ends on the last Sunday in July. The 1997, 1996
and 1995 fiscal years were fifty-two week periods ended July 27, 1997, July
28, 1996 and July 30, 1995, respectively.
INVENTORIES--Inventories are valued at the lower of cost (first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is
stated at cost or fair market value for business acquisitions. Depreciation is
computed by use of the straight-line method over the estimated useful lives of
the assets.
GOODWILL---Goodwill represents the excess of the purchase price over
the fair value of tangible and identifiable intangible net assets acquired and
is amortized on a straight-line basis over twenty years. The carrying value of
goodwill is reviewed when facts and circumstances suggest that it may be
impaired. The Company assesses its recoverability by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted projected future cash flows.
INCOME TAXES--Deferred income taxes are provided on the differences
between the basis of assets and liabilities for financial reporting and income
tax purposes using presently enacted tax rates.
DEBT ISSUANCE COSTS--Included in other assets are unamortized debt
issuance costs of $4.8 million at July 27, 1997 and $2.8 million at July 28,
1996 incurred in connection with obtaining financing which are being amortized
over the terms of the respective borrowing agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying value of financial
instruments including cash, accounts receivable and accounts payable
approximate fair value because of the relatively short maturities of these
instruments. The carrying value of long-term debt, including the current
portion and subordinated debt, approximate fair value based upon market rates
for similar instruments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and
Related Information, which will be effective for the Company beginning August
1, 1998. SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company has not yet completed its analysis
of which operating segments, if any, it will report on.
F-5
<PAGE>
3. BUSINESS ACQUISITIONS
The following acquisitions have been accounted for under the purchase
method and their results of operations have been included in the statements of
income since the respective dates of acquisition. Goodwill amortization was
$.4 million in Fiscal 1997, $.2 million in Fiscal 1996 and less than
$.1 million in Fiscal 1995.
The following summarized, unaudited pro forma results of operations
assume the business acquisitions occurred as of the beginning of the
respective years (in thousands).
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 27, JULY 28, JULY 30,
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Net sales $271,756 $286,849 $238,645
Income before extraordinary loss $ 7,111 $ 6,308 $ 1,764
</TABLE>
1997 ACQUISITIONS
In June 1997, the Company acquired all of the outstanding capital
stock of Heartland Mfg. Corp., a manufacturer of paper plates, for $12.6
million, including acquisition costs. The excess of the purchase price over
the Company's evaluation of the fair value of the net assets acquired was $9.3
million and has been recorded as goodwill.
Also in June 1997, the Company acquired from Tenneco, Inc. net assets
relating to the manufacture of placemats and other disposable tabletop
products for $7 million, including acquisition costs, subject to a working
capital adjustment. The excess of the purchase price over the Company's
evaluation of the fair value of the net assets acquired was $1.3 million and
has been recorded as goodwill.
1996 ACQUISITIONS
In May 1996, the Company acquired certain net assets of two divisions
of the Specialties Operations Division (the "Division") of James River Paper
Corporation ("James River") for $13.1 million (including a final purchase
price adjustment consummated in 1997), including acquisition costs. The
purchase price consisted of cash and a promissory note to the seller for $7
million, see Note 9 (which was later reduced to $2.2 million in a final
settlement of this note simultaneous with the final purchase price
adjustment). In Fiscal 1997, management decided to close the James River
California facility which produced tissue-based products. The Natural Dam mill
produces specialty and deep-toned colored tissue paper. Natural Dam hosts a
co-generation facility on its property which produces steam for internal use
and which is expected to provide significant cost savings. Natural Dam will
receive all of its steam energy requirements at 50% of historical cost in
calendar 1997 and expects to receive significantly increased savings for the
next 40 years thereafter. In addition, Natural Dam expects to receive land
lease payments from the operator of the land occupied by the co-generation
facility. See Note 15. The $10 million in benefits from the co-generation
facility is included in long-term assets acquired and is being amortized based
upon Natural Dam's annual savings over the 42-year remaining life of the
contract. The excess of the Company's evaluation of the fair value of the net
assets acquired (including $10 million in benefits from the co-generation
facility) over the final adjusted purchase price was $6.3 million and has been
allocated to long-term assets. The remaining net assets and business of the
Division were acquired by Creative Expressions Group, Inc. ("CEG"), a company
under common ownership with the Company, in a separate transaction.
In December 1995, the Company acquired the Chesapeake Consumer
Products Company ("Chesapeake") from Chesapeake Corporation for $29 million,
including acquisition costs. Chesapeake produces design-intensive and
solid-colored premium napkins, tablecovers and crepe paper. The excess of the
purchase price over the Company's evaluation of the fair value of the net
assets acquired was $4.6 million and has been recorded as goodwill.
In November 1995, the Company acquired substantially all of the net
assets of Alfred Bleyer & Co., Inc. ("Maspeth"), a manufacturer of paper
plates and cups, for $10 million, including acquisition costs. The purchase
price consisted of cash and a promissory note to the seller for $2.25 million.
The excess of the Company's evaluation of the fair value of the net assets
over the purchase price was $.1 million and has been allocated to the
long-term assets.
1995 ACQUISITION
In March 1995, the Company acquired substantially all of the net
assets of the Scott Foodservice Division ("Hoffmaster") from Scott Paper
Company ("Scott") for $28 million, including acquisition costs. Hoffmaster
produces
F-6
<PAGE>
colored and custom-printed napkins and placemats. The excess of the purchase
price over the Company's evaluation of the fair value of the net assets
acquired was $.8 million and has been recorded as goodwill. See Note 4.
4. OTHER INCOME, NET
Other income, net includes a net $2.9 million from the settlement
of a lawsuit. Partially offsetting this gain was a $1.3 million charge for
anticipated costs of the closure of the Company's Three Rivers, Michigan
facility. The charge covers the costs for the termination of employees as well
as ongoing costs to maintain the facility until its disposition.
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 27, 1997 JULY 28, 1996
-------------- --------------
<S> <C> <C>
Raw materials $18,143 $17,015
Work-in-process 391 339
Finished goods 20,345 19,126
Other 1,955 987
-------------- --------------
$40,834 $37,467
============== ==============
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
LIVES IN YEARS JULY 27, 1997 JULY 28, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Land and buildings 20-40 $21,703 $17,675
Machinery and equipment 3-12 46,108 42,492
Leasehold improvements 5-10 955 950
Construction in progress 8,794 767
-------------- --------------
77,560 61,884
Less: accumulated depreciation (18,299) (15,534)
-------------- --------------
$59,261 $46,350
============== ==============
</TABLE>
Property, plant and equipment includes property and equipment under capital
lease as follows (in thousands):
<TABLE>
<CAPTION>
JULY 27, 1997 JULY 28, 1996
-------------- -------------
<S> <C> <C>
Building $2,217 $2,217
Equipment - 350
Less: accumulated depreciation (554) (830)
-------------- --------------
$1,663 $1,737
============== ==============
</TABLE>
Depreciation expense was $3.9 million in Fiscal 1997, $3.2 million in
Fiscal 1996 and $1.7 million in Fiscal 1995.
7. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base,
and their dispersion across many different geographical regions. The Company
had sales to one customer representing approximately 11% of net sales in 1996.
F-7
<PAGE>
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 27, 1997 JULY 28, 1996
-------------- --------------
<S> <C> <C>
Accrued compensation $8,149 $4,367
Accrued interest 4,716 639
Accrued promotion 2,555 2,310
Other 9,191 7,577
-------------- --------------
$24,611 $14,893
============== ==============
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 27, 1997 JULY 28, 1996
-------------- --------------
<S> <C> <C>
Revolving credit agreement $ - $32,842
9 1/2% Series A Senior Subordinated Notes due 2007 120,000 -
Subordinated notes payable to the Equitable - 13,796
Subordinated note payable to James River (see Note 3), plus capitalized
interest of $165,000, due May 2007, bearing interest at 10% - 7,165
Term loan payable to a bank, with interest payable monthly at LIBOR
plus 2.5%, principal payable monthly through March 31, 2000; collateralized
by machinery and equipment and certain real estate - 25,236
Term loan payable to a bank, due March 31, 2000, with interest payable
monthly at 2.50% above the prime rate, collaterized by machinery and
equipment and certain real estate - 4,500
Other 2,987 4,224
-------------- --------------
122,987 87,763
Less amounts due within one year 619 6,023
-------------- --------------
$122,368 $81,740
============== ==============
</TABLE>
On February 27, 1997, the Company issued $120 million of 9 1/2%
Series A Senior Subordinated Notes due 2007 (the "Notes"). Interest is
payable semi-annually in March and September. Proceeds from the issuance of
the Notes were primarily used to retire debt. The Company incurred a $3.5
million extraordinary loss (net of a $2.5 million income tax benefit) in
connection with the early retirement of debt consisting of the write-off of
unamortized debt issuance costs, elimination of unamortized discount and
prepayment penalties.
In 1997, the Company entered into a $50 million revolving credit
agreement with a bank, expiring March 31, 2000 and collateralized by eligible
accounts receivable and inventories. At July 27, 1997, there was no
outstanding balance and $37.1 million was the maximum advance available based
upon eligible collateral. A commitment fee of .375% per annum is charged on
the unutilized portion of the facility. At July 27, 1997, borrowings were
available at the bank's prime rate (8.50%) plus .25% and at LIBOR
(approximately 5.65%) plus 2.25%. The revolving credit agreement and the Notes
contain certain restrictive covenants with respect to, among others, (i)
mergers and acquisitions, (ii) capital expenditures, (iii) dividends, and (iv)
additional indebtedness. In addition, the revolving credit agreement requires
that the Company satisfy certain financial covenants.
On May 24, 1995, the Company issued $10 million of 14% subordinated
notes due May 24, 2002 to The Equitable Life Assurance Society of the United
States (the "Equitable"). In connection therewith, the Company granted
warrants, which expire in May 2003, to the Equitable to purchase 9,176 shares
of its Class B common stock for $.01 per share. The fair value of the warrants
($1.2 million) at the date of issuance was recorded as paid-in capital with a
corresponding reduction in the carrying value of the subordinated notes. On
December 29, 1995, the Company issued $6 million of 14% subordinated notes
F-8
<PAGE>
due December 30, 2002 to the Equitable. In connection therewith, the Company
issued 3,666 shares of its Class B common stock to the Equitable (the
"Equitable Shares"). The fair value of the common stock ($1.3 million) at the
date of issuance was recorded as common stock and paid-in capital with a
corresponding reduction in the carrying value of the subordinated notes. The
discounts on the subordinated notes were amortized as additional interest
expense over the terms of such notes until the subordinated notes were repaid
with proceeds from the issuance of the Notes. Such discount amortization was
$.1 million in Fiscal 1997, $.3 million in Fiscal 1996 and $.1 million in
Fiscal 1995.
10. STOCKHOLDERS' EQUITY AND REDEEMABLE COMMON STOCK
Stockholders' equity consists of the following (in thousands, except
share data):
<TABLE>
<CAPTION>
JULY 27, JULY 28,
1997 1996
-------------- --------------
<S> <C> <C>
Preferred Stock, $.01 par value, 1,000 shares authorized, none issued $ - $ -
Preferred Stock Class B, $.01 par value, 100,000 shares authorized, none issued - -
Common Stock Class A, $.01 par value, 400,000 shares authorized,
184,000 issued and outstanding 2 2
Common Stock Class B, $.01 par value, 20,000 shares authorized, 3,666
issued, 2,666 and 3,666 outstanding, respectively - -
Common Stock Class C, $.01 par value, 200,000 shares authorized, none issued - -
Paid-in capital 3,500 3,500
Retained earnings 11,643 8,371
Treasury stock, at cost, 1,000 shares Class B Common Stock (135) -
-------------- --------------
$15,010 $11,873
============== ==============
</TABLE>
In connection with the March 30, 1995 distribution of the Company's
common stock by Four M, 7,000 shares of the Company's Class A Common Stock
were distributed to AIG (the "AIG Shares") in partial satisfaction of a $4
million subordinated note made by Four M in favor of AIG. In 1997, 500 AIG
Shares were acquired by the Company pursuant to the Stock Repurchase (as
defined below). Concurrent with the distribution, the Company and AIG entered
into a redemption agreement, whereby AIG has the right to require the Company
to repurchase all of the AIG Shares at the earlier of March 31, 2007 or the
date of a merger or consolidation of the Company with another entity in which
the Company is not the surviving party. The aggregate repurchase price for the
outstanding AIG Shares is $2.8 million discounted from March 31, 2007 at a
rate of 3% per annum. The redemption agreement also contains redemption rights
whereby the Company can require AIG to redeem the remaining AIG Shares after
March 31, 2000 on the same terms specified above. The AIG Shares are disclosed
at the present value of their liquidation value on the balance sheets. The
1995 transfer of the present value of the liquidation value of the redeemable
common stock and the annual accretion to liquidation value has been charged to
retained earnings.
In April 1997, the Company offered to repurchase up to 74,000 shares
of common stock at $135 per share from the Company's stockholders on a pro
rata basis (the "Stock Repurchase"). In 1997, pursuant to the Stock
Repurchase, the Company redeemed 500 of the AIG Shares and 1,000 of the
Equitable Shares for $135 per share. The repurchase of the 500 AIG Shares for
less than the present value of the liquidation amount as of the date of
repurchase resulted in a credit to retained earnings. The Equitable Shares
have been reported as Treasury Stock.
In September 1997, pursuant to the Stock Repurchase, the Company
redeemed 61,865 shares of Class A Common Stock for $8.4 million. Management
expects that up to 100% of the remaining 10,635 shares of Class A Common Stock
pursuant to the Stock Repurchase will be repurchased during Fiscal 1998.
In September 1997, the Board of Directors granted the majority
stockholder 15,000 options to purchase Class A Common Stock at an option price
of $135 per share. Options to purchase 5,000 shares vest on October 1, 1997,
and options to purchase an additional 5,000 shares vest on October 1, 1998 and
October 1, 1999 respectively, or upon an initial public offering of the
Company's common stock, whichever occurs first; provided that the majority
stockholder is employed by the Company on the applicable vesting date.
F-9
<PAGE>
The changes in retained earnings consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
JULY 27, 1997 JULY 28, 1996 JULY 30, 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year $8,371 $5,005 $4,938
Net income 3,236 3,430 2,182
Transfer of liquidation value of redeemable common stock 100 - (2,094)
Accretion of redeemable common stock (64) (64) (21)
-------------- -------------- ---------------
Balance, end of year $11,643 $8,371 $5,005
============== ============== ===============
</TABLE>
Effective August 1, 1995, the Company adopted The Fonda Group, Inc.
Stock Appreciation Unit Plan (the "Plan"). The Plan provides for the granting
of up to 200,000 units to key executives of the Company. A grantee is entitled
to the appreciation in a unit's value from the date of the grant to the date
of its redemption. Unit value is based upon a formula consisting of net income
and book value criteria and grants vest over a five-year period. The Company
granted 10,980 units in Fiscal 1997, 9,500 in Fiscal 1996 and 5,850 in Fiscal
1995 at an aggregate value on the date of grant of $.4 million, $.3 million
and $.2 million, respectively. The Company recorded compensation expense of
less than $.1 million in Fiscal 1997 and $.1 million in Fiscal 1996.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------
JULY 27, 1997 JULY 28, 1996 JULY 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal $1,449 $1,526 $2,577
State 418 441 698
-------------- -------------- --------------
1,867 1,967 3,275
-------------- -------------- --------------
Deferred:
Federal 2,328 423 (1,381)
State 677 110 (309)
-------------- -------------- --------------
3,005 533 (1,690)
-------------- -------------- --------------
$4,872 $2,500 $1,585
============== ============== ==============
</TABLE>
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes. Deferred tax assets (liabilities)
result from temporary differences as follows (in thousands):
<TABLE>
<CAPTION>
JULY 27, 1997 JULY 28, 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs $785 $881
Allowance for doubtful accounts receivable 349 180
Accruals for health insurance and other employee benefits 1,911 1,824
Inventory and sales related reserves 567 662
Pension reserve 433 1,158
Benefit of tax carryforwards 370 -
Other 1,485 1,495
-------------- --------------
5,900 6,200
Deferred tax liabilities:
Depreciation (5,264) (3,209)
-------------- --------------
$636 $2,991
============== ==============
</TABLE>
F-10
<PAGE>
A reconciliation of the income tax provision to the amount computed
using the Federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------
JULY 27, 1997 JULY 28, 1996 JULY 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Income tax at statutory rate $4,061 $2,076 $1,281
State income taxes (net of Federal benefit) 712 365 232
Other 99 59 72
-------------- -------------- --------------
$4,872 $2,500 $1,585
============== ============== ==============
</TABLE>
12. LEASES
The Company leases certain of its facilities and equipment under
operating leases. Future minimum payments under noncancellable operating
leases with remaining terms of one year or more are $1.2 million in Fiscal
1998, $.9 million in Fiscal 1999, $.9 million in Fiscal 2000, $.8 million in
Fiscal 2001, $.8 million in Fiscal 2002, and $2.6 million thereafter.
Rent expense was $2 million in Fiscal 1997, $1.8 million in Fiscal
1996 and $1.2 million in Fiscal 1995.
13. RELATED PARTY TRANSACTIONS
The Company subleased a portion of a building in Jacksonville,
Florida from Four M prior to January 1, 1995. Effective January 1, 1995, the
Company leases the entire facility from its majority stockholder. Annual
payments under the lease are $.2 million plus annual increases based on
changes in the Consumer Price Index ("CPI") through December 31, 2014. In
addition, from January 1, 1998 to July 31, 2006, the majority stockholder may
require the Company to purchase the facility for $1.5 million, subject to a
CPI-based escalation. The purchase price would be $.4 million in cash and the
balance in a seven-year note secured by a lien covering the facility with
interest payable at 2% over prime. Rent expense, net of sublease income on a
portion of the premises subleased to Four M, was $.1 million in each of the
fiscal years 1997, 1996 and 1995.
On February 27, 1997, the Company loaned $2.6 million to CEG for five
years at an interest rate of 10%, the proceeds of which were applied to CEG's
prepayment of certain obligations to James River.
Net sales to CEG were $7.8 million in Fiscal 1997 and $1.9 million in
Fiscal 1996. Net sales to Fibre Marketing Group, LLC, a waste paper recovery
business of which Four M and a Director of the Company are members, were $3.6
million in Fiscal 1997, $4 million in Fiscal 1996 and $.2 million in Fiscal
1995. Net purchases of corrugated containers from Four M were $.9 million in
Fiscal 1997 and $.2 million in Fiscal 1996. The Company believes that the
terms on which it sold or purchased products from related parties were at
least as favorable as those it could otherwise have obtained from unrelated
third parties and were negotiated on an arm's length basis.
During the period that the Company was owned by Four M, the Company
was charged a management fee by Four M for certain general and administrative
services. The $.5 million fee in 1995 was based on the time allocated to the
Company's matters by certain Four M corporate personnel and a pro rata amount
for various expenses such as insurance, directors' fees, and other
miscellaneous expenses. At any point in time there were seven to ten Four M
individuals who performed various functions on behalf of the Company, each
allocating between 25% and 75% of their time to the Company. The Company
believes that the allocation methods used for Four M's charges are reasonable
and include all expenses that Four M incurred on the Company's behalf.
14. EMPLOYEE BENEFIT PLANS
The Company provides certain union and non-union employees with
retirement and disability income benefits under defined benefit pension plans.
Pension costs are based upon the actuarially determined normal costs plus
interest on and amortization of the unfunded liabilities. On December 31,
1996, the benefit accruals were frozen for participants in the non-
F-11
<PAGE>
union pension plans resulting in a $.7 million reduction in the pension
liability. The Company's policy has been to fund annually the minimum
contributions required by applicable regulations.
Pursuant to the Asset Purchase Agreement covering the Hoffmaster
acquisition, Scott made required aggregate contributions of $.9 million to
these plans. As such, in Fiscal 1997, the Company reversed a $.7 million
pension reserve that had previously been accrued for such contributions.
The net periodic pension cost for benefits earned in the respective
years is computed as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------
JULY 27, 1997 JULY 28, 1996 JULY 30, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Service cost $433 $731 $269
Interest cost 403 455 204
Return on plan assets (751) (313) (123)
Deferred gain 487 - -
-------------- -------------- --------------
Net periodic pension cost $572 $873 $350
============== ============== ==============
</TABLE>
The funded status of the plans and the amount recognized in the
balance sheets is as follows (in thousands):
<TABLE>
<CAPTION>
JULY 27, 1997 JULY 28, 1996
----------------------------------- ---------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested $2,004 $3,515 $1,307 $2,964
Non-vested 30 49 35 33
-------------- -------------- -------------- --------------
Total $2,034 $3,564 $1,342 $2,997
============== ============== ============== ==============
Projected benefit obligation $2,034 $3,564 $2,499 $2,997
Plan assets at fair value, primarily common
stocks and government obligations 2,170 2,846 930 1,689
-------------- -------------- -------------- --------------
Projected benefit obligation
in excess of plan assets (136) 718 1,569 1,308
Unrecognized net gain (loss) 136 329 (81) 1
-------------- -------------- -------------- --------------
Accrued pension cost $ 0 $ 1,047 $ 1,488 $ 1,309
============== ============== ============== ==============
</TABLE>
The actuarial present values of accumulated and projected benefit
obligations were determined using discount rates of 8%, except for non-union
plans which used 7% in 1997, and an assumed rate of increase in compensation
levels of 4%. The expected rate of return on assets was assumed to be 8%.
The Company provides 401(k) savings and investment plans for the
benefit of non-union employees. Employee contributions are matched at the
discretion of the Company. On January 1, 1997, the Company adopted a defined
contribution benefit plan for all non-union employees for which contributions
and costs are based on participant earnings. The costs for these plans were
$.8 million in Fiscal 1997, $.4 million in Fiscal 1996 and less than $.1
million in Fiscal 1995.
The Company also participates in multi-employer pension plans for
certain of its union employees. Contributions to these plans, at a defined
rate per hour worked, amounted to $.6 million in 1997, $1.3 million in 1996,
and $.9 million in 1995.
F-12
<PAGE>
15. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceeding and other claims arising
in the ordinary course of its business. The Company maintains insurance
coverage of types and in amounts which it believes to be adequate and believes
that it is not presently a party to any litigation, the outcome of which could
reasonably be expected to have a material adverse effect on its financial
condition or results of operations.
The Company has commitments to purchase paperboard from three major
vendors. The total annual commitment is for the purchase of 49,200 tons of
paperboard through April 2001. The price per ton will be based on market
rates, less applicable rebates for all of these commitments. In addition, the
Company has a commitment through calendar 1999 to purchase 14,500 tons of
tissue paper in 1997, 11,000 tons in 1998 and 10,000 tons in 1999, at market
rates.
The Company hosts a co-generation facility, owned by an independent
power provider, at its Natural Dam mill. This co-generation facility generates
power sold under long-term contract to Niagara Mohawk Power Corporation
("Niagara") and produces steam for internal use at the Natural Dam mill. The
Company has a long term contract with the independent power provider for which
the Company expects to receive substantial cost savings in 1997 and the next
40 years thereafter. See Note 3. In July 1997, Niagara announced its intention
to seek modifications or terminate a number of contracts with independent
power providers, including the contract related to the co-generation facility
at the Company's Natural Dam mill. At this time, the Company is unable to
assess what impact, if any, will occur as a result of such intention.
F-13
<PAGE>
SCHEDULE II
THE FONDA GROUP,INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
- ------------------------------ ---------------------- ----------------------------------------------
Additions
----------------------------------------------
Balance at Charged to Charged to
beginning of Cost and Other Accounts
Description Period Expenses describe
- ------------------------------ ---------------------- --------------------- ---------------------
<S> <C> <C> <C>
Year ended July 27, 1997
Allowance for doubtful
accounts . . . . . . . . . . $549 457
Year ended July 28, 1996
Allowance for doubtful
accounts . . . . . . . . . . $401 148 100 (2)
Year ended July 30, 1995
Allowance for doubtful
accounts . . . . . . . . . . $174 184 50 (2)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
COLUMN A COLUMN D COLUMN E
- ------------------------------ --------------------- ---------------------
Balance at
Deductions - end of
Description describe Period
- ------------------------------ --------------------- ---------------------
<S> <C> <C>
Year ended July 27, 1997
Allowance for doubtful
accounts . . . . . . . . . . 45 (1) $961
Year ended July 28, 1996
Allowance for doubtful
accounts . . . . . . . . . . 100 (1) $549
Year ended July 30, 1995
Allowance for doubtful
accounts . . . . . . . . . . 7 (1) $401
</TABLE>
- -----------
(1) Amounts written off.
(2) Additions related to acquisitions.
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-27-1997
<PERIOD-START> JUL-28-1996
<PERIOD-END> JUL-27-1997
<CASH> 5,908
<SECURITIES> 0
<RECEIVABLES> 30,970
<ALLOWANCES> 961
<INVENTORY> 40,834
<CURRENT-ASSETS> 90,573
<PP&E> 77,560
<DEPRECIATION> 18,299
<TOTAL-ASSETS> 179,604
<CURRENT-LIABILITIES> 32,570
<BONDS> 122,368
0
0
<COMMON> 2,078
<OTHER-SE> 15,008
<TOTAL-LIABILITY-AND-EQUITY> 179,604
<SALES> 252,513
<TOTAL-REVENUES> 252,513
<CGS> 196,333
<TOTAL-COSTS> 196,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 457
<INTEREST-EXPENSE> 9,017
<INCOME-PRETAX> 11,603
<INCOME-TAX> 4,872
<INCOME-CONTINUING> 6,731
<DISCONTINUED> 0
<EXTRAORDINARY> 3,495
<CHANGES> 0
<NET-INCOME> 3,236
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
