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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 20, 1998
-----------------------------
The Fonda Group, Inc.
Delaware 333-24939 13-3220732
- ----------------------------- --------------------- ---------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
27 Lower Newton Street, St. Albans, Vermont 05478
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (802) 524-5966
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
In February 1998, Fonda entered into an agreement with Cellu Tissue
Holdings, Inc. ("Cellu"), pursuant to which Cellu will acquire substantially
all of the fixed assets and certain related working capital of the Natural
Dam mill in Gouverneur, New York, pursuant to which Fonda will realize net
proceeds, after expenses, of approximately $25 million, subject to a
post-closing adjustment for working capital (the "Natural Dam Mill
Disposition"). The consummation of the Natural Dam Mill Disposition is
subject to a number of customary conditions, including Hart Scott Rodino
approval and financing. The Natural Dam mill produces tissue mill products,
primarily specialty "jumbo" rolls of tissue.
In addition, Fonda has reached an agreement with Kamine Besicorp Natural
Dam L.P. ("Kamine"), the owner of the co-generation facility hosted by Fonda
at its Natural Dam mill, whereby Kamine will terminate its obligations to
supply steam to Natural Dam and to make land lease payments in return for a
lump sum cash payment and the delivery of certain equipment. The consummation
of this agreement is subject to various conditions, including the negotiation
and execution of a definitive agreement and the consummation of a master
restructuring agreement among Niagara Mohawk Power Corporation ("Niagara")
and sixteen independent power producers, including Kamine. The Company
expects Fonda to record a gain upon the consummation of the transaction
contemplated by this agreement, however, there can be no assurance that such
transaction will be consummated.
In February 1998, Fonda reached an agreement to enter into a five-year
licensing agreement with its affiliate, Creative Expressions Group, Inc.
("CEG"), whereby CEG will manufacture and distribute certain party goods
products currently manufactured by Fonda. In connection therewith, Fonda will
receive a royalty equal to 5% of CEG's cash flow, as determined in accordance
with a formula specified in such agreement, which is subject to the execution
of a definitive agreement. In Fiscal 1997, Fonda's net sales of such party
goods products were approximately $30 million. The Company expects Fonda's
fixed and variable costs to decrease and it expects to reduce Fonda's accounts
receivable and inventory by approximately $9 million as a result of such
licensing agreement. The Company believes that such transaction will have a
favorable impact on Fonda's results of operations.
The Company expects Fonda to record higher net sales and EBITDA for the
three months ended January 25, 1998 compared to the three months ended
January 26, 1997. The Company expects Fonda's net sales and EBITDA for the
quarter to increase by more than 10% and 25%, respectively, as compared to
the same period last year. This improvement is due to improved results in
Fonda's converting business which are expected to be partially offset by a
decrease in gross profits in tissue mill products. In January 1998, the
Natural Dam mill was not operational for nine days as a result of inclement
weather which interrupted the availability of electricity and steam. The
mill's operating results for the quarter were also adversely affected by
manufacturing costs resulting from the start-up of a second paper machine.
The following sets forth Fonda's pro forma condensed statements of income
for the fiscal year ended July 27, 1997 and the three and twelve months ended
October 26, 1997 which have been derived from Fonda's historical statements of
income for the fiscal year ended July 27, 1997 and the three and twelve months
ended October 26, 1997, and give effect to (i) the acquisition of the
outstanding capital stock of Heartland Mfg. Corp. as of June 2, 1997 and the
net assets of the former division of Astro Valcour, Inc. from Tenneco Inc. as
of June 10, 1997, (ii) the February 24, 1997 issuance of the 9 1/2% Senior
Subordinated Notes due 2007, (iii) the acquisition of certain net assets of
Leisureway Inc. on January 5, 1998 and (iv) the Natural Dam Mill Disposition,
as if each such transaction had occurred on the first day of Fonda's fiscal
year ended July 27, 1997.
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<TABLE>
<CAPTION>
YEAR ENDED JULY 27, 1997
------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
NATURAL
FONDA DAM MILL ACQUISITIONS OTHER FONDA
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS PRO FORMA
------------ --------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................. $252,513 $(19,340) $29,677 $262,850
Cost of goods sold.................... 196,333 (13,114) 21,595 $ 90 (c) 204,904
------------ --------------- -------------- ------------- -----------
Gross profit.......................... 56,180 (6,226) 8,082 (90) 57,946
Selling, general and administrative
expenses............................. 37,168 (2,125) 5,908 (1,561)(d) 39,390
Other income, net..................... (1,608) -- (1,608)
------------ --------------- -------------- ------------- -----------
Income from operations............... 20,620 (4,101) 2,174 1,471 20,164
Interest expense, net................. 9,017 -- 3,067 (e) 12,084
------------ --------------- -------------- ------------- -----------
Income before taxes and extraordinary
loss................................. 11,603 (4,101) 2,174 (1,596) 8,080
Income taxes (f)...................... 4,872 (1,722) 913 (670) 3,393
------------ --------------- -------------- ------------- -----------
Income before extraordinary loss ..... $ 6,731 $ (2,379) $ 1,261 $ (926) $ 4,687
============ =============== ============== ============= ===========
OTHER FINANCIAL DATA:
EBITDA (g) ........................... $ 23,942 -- $ 23,962
Cash interest expense (h)............. 8,309 -- 11,520
Capital expenditures ................. 10,363 (8,601) 1,762
Depreciation and amortization (i) .... 4,440 (171) 351 786 5,406
Ratio of EBITDA to cash interest
expense (g)(h) ...................... 2.9x 2.1x
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 26, 1997
------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
NATURAL
FONDA DAM MILL ACQUISITIONS OTHER FONDA
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS PRO FORMA
------------ --------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................... $70,658 $(4,577) $2,224 $68,305
Cost of goods sold ................. 55,983 (3,889) 1,559 $ 21 (c) 53,674
------------ --------------- -------------- ------------- -----------
Gross profit ....................... 14,675 (688) 665 (21) 14,631
Selling, general and administrative
expenses .......................... 9,949 (327) 484 (42)(d) 10,064
Other income, net .................. -- -- --
------------ --------------- -------------- ------------- -----------
Income from operations ............ 4,726 (361) 181 21 4,567
Interest expense, net .............. 2,936 -- 2,936
------------ --------------- -------------- ------------- -----------
Income before taxes and
extraordinary loss ................ 1,790 (361) 181 21 1,631
Income taxes (f) ................... 751 (152) 76 9 684
------------ --------------- -------------- ------------- -----------
Income before extraordinary loss ... $ 1,039 $ (209) $ 105 $ 12 $ 947
============ =============== ============== ============= ===========
OTHER FINANCIAL DATA:
EBITDA (g) ......................... $ 6,128 -- $ 5,904
Cash interest expense (h)........... 2,847 -- 2,795
Capital expenditures ............... 2,021 (1,480) 541
Depreciation and amortization (i) . 1,350 (110) 13 84 1,337
Ratio of EBITDA to cash interest
expense (g)(h) .................... 2.2x 2.1x
</TABLE>
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<TABLE>
<CAPTION>
TWELVE MONTHS ENDED OCTOBER 26, 1997
------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
NATURAL
FONDA DAM MILL ACQUISITIONS OTHER FONDA
HISTORICAL DISPOSITION (A) HISTORICAL (B) ADJUSTMENTS PRO FORMA
------------ --------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................... $256,888 $(18,854) $23,710 $261,744
Cost of goods sold ................. 201,618 (13,591) 17,456 $ 87 (c) 205,570
------------ --------------- -------------- ------------- -----------
Gross profit ....................... 55,270 (5,263) 6,254 (87) 56,174
Selling, general and administrative
expenses .......................... 36,956 (1,912) 5,416 (1,828)(d) 38,632
Other income, net .................. (1,608) -- (1,608)
------------ --------------- -------------- ------------- -----------
Income from operations ............ 19,922 (3,351) 838 1,741 19,150
Interest expense, net .............. 9,738 -- 2,197 (e) 11,935
------------ --------------- -------------- ------------- -----------
Income before taxes and
extraordinary loss ................ 10,184 (3,351) 838 (456) 7,215
Income taxes (f) ................... 4,275 (1,407) 352 (191) 3,029
------------ --------------- -------------- ------------- -----------
Income before extraordinary loss ... $ 5,909 $ (1,944) $ 486 $ (265) $ 4,186
============ =============== ============== ============= ===========
OTHER FINANCIAL DATA:
EBITDA (g) ......................... $ 23,387 -- $ 23,007
Cash interest expense (h)........... 9,213 -- 11,371
Capital expenditures ............... 11,742 (10,081) 1,661
Depreciation and amortization (i) . 4,531 -- 283 651 5,465
Ratio of EBITDA to cash interest
expense (g)(h) .................... 2.5x 2.0x
</TABLE>
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NOTES TO FONDA UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF INCOME
(a) Reflects the elimination of the results of operations of the Natural
Dam mill as a result of the Natural Dam Mill Disposition.
(b) The results of operations of each entity acquired in the 1997 Fonda
Acquisitions are included in Fonda's historical results of operations
commencing with such entity's respective acquisition date. The
adjustments reflect (i) the additional results of operations of the
acquired entities as if such acquisitions had occurred at the
beginning of the year ended July 27, 1997 and (ii) the results of
operations of the Leisureway Acquisition as if it had occurred at the
beginning of the year ended July 27, 1997.
(c) Reflects an increase in depreciation expense resulting from the
allocation of the purchase price to the long-term assets acquired
based on fair value and an average life ranging from 8 to 30 years.
(d) Reflects adjustments to general and administrative expenses resulting
from the 1997 Fonda Acquisitions and the Leisureway Acquisition, as
follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JULY 27, 1997 OCTOBER 26, 1997 OCTOBER 26, 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Goodwill amortization over twenty years:
1997 Fonda Acquisitions ...................... $ 440 $ 308
Leisureway Acquisition ....................... 373 $ 93 373
Contractual reduction in officer compensation:
1997 Fonda Acquisitions ...................... (1,439) (1,439)
Leisureway Acquisition ....................... (935) (135) (1,070)
--------------- ---------------- ----------------
$(1,561) $ (42) $(1,828)
=============== ================ ================
</TABLE>
(e) Reflects (i) the elimination of interest income attributable to cash
used to finance a portion of the 1997 Fonda Acquisitions, (ii)
additional interest expense resulting from the issuance of the Fonda
Notes and borrowings under the Fonda Credit Facility to finance the
1997 Fonda Acquisitions and the Leisureway Acquisition and (iii) the
elimination of interest expense relating to indebtedness that was
repaid with a portion of the proceeds of the Fonda Notes and the
Natural Dam Mill Disposition.
(f) For pro forma purposes, the income tax provision was calculated at 42%
based on enacted statutory rates applied to pro forma pre-tax income
and the provisions of SFAS No. 109.
(g) EBITDA represents income from operations before interest expense,
provision for income taxes, other income and depreciation and
amortization. EBITDA is generally accepted as providing information
regarding a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows
from operations, or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
EBITDA does not reflect the elimination of $2.8 million and $2.0
million of fixed costs in Fiscal 1997 and the twelve months ended
October 26, 1997, respectively, that would not have been incurred had
the Three Rivers and Long Beach facilities been closed at the
beginning of the year ended July 27, 1997.
(h) Cash interest expense consists of interest expense, excluding
amortization of deferred financing costs of $546, $141 and $564 for
Fiscal 1997 and the three and twelve months ended October 26, 1997,
respectively.
(i) Depreciation and amortization excludes amortization of deferred
financing costs, which are included in interest expense.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
February 20, 1998 THE FONDA GROUP, INC.
By: /s/ Hans H. Heinsen
-------------------------
Hans H. Heinsen
Chief Financial Officer/
Principal Accounting Officer
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