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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
COMMISSION FILE NUMBER: 333-24939
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)
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 [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock $.01 par value as of March 6, 1998: Class A: 118,000 Shares
Class B: 2,666 Shares
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THE FONDA GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements (unaudited): Page
Balance Sheets as of January 25, 1998 and July 27, 1997 (audited) 3
Statements of Income for the three and six months ended January 25, 1998
and January 26, 1997 4
Statements of Cash Flows for the six months ended January 25, 1998
and January 26, 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FONDA GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 25, JULY 27,
1998 1997
------------------ ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $524 $5,908
Accounts receivable, less allowance for doubtful
accounts of $1,070 and $961, respectively 31,725 30,009
Due from affiliates 2,072 1,207
Inventories 39,434 40,834
Deferred income taxes 7,177 6,780
Refundable income taxes 969 1,657
Other current assets 921 4,178
------------------ ------------------
Total current assets 82,822 90,573
Property, plant and equipment, net 61,354 59,261
Goodwill, net 22,459 15,405
Other assets, net 14,202 14,365
------------------ ------------------
$180,837 $179,604
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,389 $7,340
Accrued expenses 24,038 24,611
Current maturities of long-term debt 537 619
------------------ ------------------
Total current liabilities 34,964 32,570
Long-term debt 128,172 122,368
Other liabilities 1,865 1,436
Deferred income taxes 6,926 6,144
------------------ ------------------
Total liabilities 171,927 162,518
Redeemable common stock, $.01 par value, 7,000 shares issued,
6,500 shares outstanding 2,108 2,076
Stockholders' equity 6,802 15,010
------------------ ------------------
$180,837 $179,604
================== ==================
</TABLE>
See notes to financial statements.
3
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THE FONDA GROUP, INC.
STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------- --------------------------------------
JANUARY 25, JANUARY 26, JANUARY 25, JANUARY 26,
1998 1997 1998 1997
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $66,016 $58,096 $136,674 $124,379
Cost of goods sold 52,094 46,289 108,077 96,987
------------------ ------------------ ----------------- -----------------
Gross profit 13,922 11,807 28,597 27,392
Selling, general and
administrative expenses 9,865 9,359 19,814 19,520
------------------ ------------------ ----------------- -----------------
Income from operations 4,057 2,448 8,783 7,872
Interest expense, net 3,067 2,325 6,003 4,540
------------------ ------------------ ----------------- -----------------
Income before income taxes 990 123 2,780 3,332
Provision for income taxes 417 52 1,168 1,400
================== ================== ================= =================
Net income $573 $71 $1,612 $1,932
================== ================== ================= =================
</TABLE>
See notes to financial statements.
4
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THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------
JANUARY 25, JANUARY 26,
1998 1997
----------------- -----------------
<S> <C> <C>
Operating activities:
Net income $1,612 $1,932
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,694 2,859
Amortization of debt issuance costs 272 190
Provision for doubtful accounts 108 121
Deferred income taxes 538 594
Gain on sale of equipment (466) -
Interest capitalized on debt - 350
Changes in assets and liabilities (net of
business acquisitions):
Accounts receivable (736) 2,777
Due from affiliates (865) 336
Inventories 1,973 (1,036)
Refundable income taxes 499 (868)
Other current assets 3,275 116
Accounts payable and accrued expenses 553 (2,001)
Other (133) (587)
----------------- -----------------
Net cash provided by operating activities 9,324 4,783
----------------- -----------------
Investing activities:
Capital expenditures (4,408) (2,074)
Proceeds from sale of equipment 479 -
Payments for business acquisitions (6,712) -
----------------- -----------------
Net cash used in investing activities (10,641) (2,074)
----------------- -----------------
Financing activities:
Net increase in revolving credit agreement borrowings 6,029 (786)
Repayments of long-term debt (308) (3,063)
Acquisition of common stock for treasury (9,788) -
----------------- -----------------
Net cash used in financing activities (4,067) (3,849)
----------------- -----------------
Net decrease in cash (5,384) (1,140)
Cash, beginning of period 5,908 1,467
----------------- -----------------
Cash, end of period $524 $327
================= =================
Supplemental cash flow information:
Cash paid during the period for:
Interest, including $192 capitalized in Fiscal 1998 $6,163 $3,383
Income taxes, net of refunds $98 $1,630
Businesses acquired:
Fair value of assets acquired $9,147
Cash paid 6,712
-----------------
Liabilities assumed $2,435
=================
</TABLE>
See notes to financial statements.
5
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THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements as of January 25, 1998 and for the three and
six months ended January 25, 1998 and January 26, 1997 are unaudited but, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments and accruals) which The Fonda Group, Inc. (the "Company")
considers necessary for a fair presentation of the operating results for these
periods. Results for interim periods are not necessarily indicative of results
for the entire year.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 25, JULY 27,
1998 1997
----------------- -----------------
<S> <C> <C>
Raw materials $18,299 $18,143
Work-in-process 277 391
Finished goods 18,739 20,345
Other 2,119 1,955
----------------- -----------------
$39,434 $40,834
================= =================
</TABLE>
3. TREASURY STOCK
In September 1997 and January 1998, the Company redeemed 61,865 and
10,635 shares of Class A common stock for $8.4 million and $1.4 million,
respectively, which have been included as Treasury Stock within Stockholders'
Equity. The redemption was made pursuant to an offer by the Company to
repurchase up to 74,000 shares of common stock at $135 per share from its
stockholders on a pro rata basis. The Company has completed such stock
repurchase.
4. OTHER BUSINESS DEVELOPMENTS
In January 1998, the Company acquired certain net assets of
Leisureway, Inc., a manufacturer of white paper plates, for $7.3 million,
including deferred payments of $.6 million and acquisition costs, subject to a
working capital adjustment. The excess of the purchase price over the Company's
preliminary evaluation of the fair value of the net assets acquired was
$7.5 million and has been recorded as goodwill.
5. SUBSEQUENT EVENTS
In February 1998, the Company decided to close its Jacksonville,
Florida facility. The costs to close such facility are not expected to have a
material adverse effect on the Company's results of operations.
On February 11, 1998, the Company reached an agreement with the owner
of the co-generation facility hosted by the Company at its Natural Dam mill,
whereby among other things (a) the operator will terminate its obligations to
supply steam to Natural Dam; and (b) the operator will not be obligated to make
fixed rent payments for three years following the consummation of such
agreement and will have the right to terminate the land lease during such
period 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. The Company
expects to record a gain upon the
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consummation of the transaction contemplated by this agreement, however, there
can be no assurance that such transaction will be consummated.
On February 11, 1998, the Company reached an agreement with CEG,
subject to extension, whereby CEG will manufacture and distribute certain party
goods products currently manufactured by the Company for a period of five
years. In connection therewith, the Company 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, the Company's net sales of such party goods products were
approximately $30 million.
On February 16, 1998, the Company entered into an agreement to sell
substantially all of the fixed assets and certain related working capital of
Natural Dam, pursuant to which the Company will realize net proceeds, after
expenses, of approximately $25 million, subject to a post-closing adjustment
for working capital. The consummation of the sale is subject to a number of
customary conditions, including regulatory approval and financing.
SF Holdings Group, Inc. ("SF Holdings"), a Delaware corporation
principally owned by the majority stockholder of the Company, proposes to issue
and sell up to $77.5 million in gross proceeds of units, each unit consisting
of $1,000 in aggregate principal amount of 12 3/4% Senior Secured Notes due
2008 and two shares of Class C common stock of SF Holdings. The net proceeds of
such offering will be used to fund the acquisition (the "Sweetheart
Investment") by SF Holdings of 90% of the total outstanding common stock,
including 48% of the voting stock, of Sweetheart Holdings, Inc. ("Sweetheart").
Subject to consummation of such offering, the Company will consummate the
following transactions:
(1) All of the outstanding shares of the Company will be converted
into shares of SF Holdings pursuant to a merger of a subsidiary
of SF Holdings into the Company (the "Stockholders Exchange") and
the Company will become a wholly-owned subsidiary of SF Holdings;
(2) The 15,000 options to purchase Class A common stock of the
Company granted to the majority stockholder will be converted
into options to purchase Class A common stock of SF Holdings;
(3) Prior to the Stockholders Exchange, outstanding warrants to
purchase 9,176 shares of Class B common stock of the Company will
be exercised and such shares will be converted into shares of
Class B common stock of SF Holdings upon the consummation of the
Stockholders Exchange; and
(4) SF Holdings will assign substantially all of its rights under the
Management Services Agreement, as amended, between SF Holdings
and American Industrial Partners Management Company, Inc.
("AIPM"), to the Company in consideration for the payment of $7.0
million. During the term of the Management Services Agreement,
the Company will have the right, subject to the direction of the
board of directors of Sweetheart, to manage Sweetheart's
day-to-day operations for and on behalf of Sweetheart, including
but not limited to, the right to cause Sweetheart to (i) acquire
and dispose of assets; (ii) employ, determine compensation of and
terminate employees of Sweetheart other than the Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer; and
(iii) take all other actions associated with the management of
the day-to-day operations of the business of Sweetheart. For the
first three years after the consummation of the Sweetheart
Investment, AIPM will continue to provide certain financial
advisory services to Sweetheart for which it will receive certain
fees. In consideration of the Company's performance of services,
it will receive certain fees during the term of the agreement.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
GENERAL
The Company is a converter and marketer of paperboard and tissue
products. The selling prices for the Company's raw materials fluctuate. This is
particularly true with respect to commodity products, such as coated and
uncoated white paper plates. The Company's selling prices historically follow
the changes in raw material prices. The actual impact on the Company from 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 materials prices.
The Company's operations are moderately seasonal. Income from
operations tends to be greater during the first and fourth quarters of the
fiscal year than during the second and third quarters.
YEAR 2000
The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. System
modifications or replacements are underway or planned which should make all
significant computer systems compliant with the year 2000 requirement.
Anticipated spending for these modifications will be expensed as incurred and
is not expected to have a material impact on the Company's ongoing results of
operations.
RECENT DEVELOPMENTS
In February 1998, the Company 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 consummation of the Natural
Dam mill disposition is subject to a number of customary conditions, including
Hart Scott Rodino approval and financing.
In addition, the Company 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 obligation to
supply steam to Natural Dam and to make certain 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 and
sixteen independent power producers, including Kamine. The Company expects to
record a gain upon the consummation of the transaction
8
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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"), subject to extension, 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 intends to retain certain of
the fixed assets for use in its existing converting operations. The Company
believes that such a transaction will have a favorable impact on Fonda's
results of operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------- ------------------------------------------
JANUARY 25, 1998 JANUARY 26, 1997 JANUARY 25, 1998 JANUARY 26, 1997
------------------- ------------------- -------------------- -------------------
% OF % OF % OF % OF
NET NET NET NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
---------- -------- ---------- ------- ----------- -------- ----------- -------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 66.0 100.0% $ 58.1 100.0% $ 136.7 100.0% $ 124.4 100.0%
Cost of goods sold 52.1 78.9 46.3 79.7 108.1 79.1 97.0 78.0
---------- -------- ---------- ------- ----------- -------- ----------- -------
Gross profit 13.9 21.1 11.8 20.3 28.6 20.9 27.4 22.0
Selling, general and
administrative expenses 9.9 14.9 9.4 16.1 19.8 14.5 19.5 15.7
---------- -------- ---------- ------- ----------- -------- ----------- -------
Income from operations 4.1 6.1 2.4 4.2 8.8 6.4 7.9 6.3
Interest expense, net 3.1 4.6 2.3 4.0 6.0 4.4 4.5 3.7
---------- -------- ---------- ------- ----------- -------- ----------- -------
Income before taxes 1.0 1.5 0.1 0.2 2.8 2.0 3.3 2.7
Income tax expense 0.4 0.6 0.1 0.1 1.2 0.9 1.4 1.1
---------- -------- ---------- ------- ----------- -------- ----------- -------
Net income $ 0.6 0.9% $ 0.1 0.1% $ 1.6 1.2% $ 1.9 1.6%
========== ======== ========== ======= =========== ======== =========== =======
</TABLE>
THREE MONTHS ENDED JANUARY 25, 1998 COMPARED TO THREE MONTHS ENDED
JANUARY 26, 1997
Net sales increased $7.9 million, or 13.6%, to $66.0 million, in the
three months ended January 25, 1998 compared to $58.1 million in the three
months ended January 26, 1997. The $7.9 million increase in net sales was
attributable to sales volume from businesses acquired in the fourth quarter of
Fiscal 1997 as well as increased sales volume in converted tissue products.
Sales volume in the converting operations increased 15% in the institutional
markets and 16% in the consumer markets. Average selling prices were slightly
higher, including a 3% increase in the institutional markets and a 0.5%
increase in the consumer markets. Net sales of tissue mill products remained
unchanged as increased sales of commodity white paper from the new paper
machine were offset by reduced volume of deep tone paper due to competitive
market conditions. In addition, the Natural Dam mill was not operational for
nine days as a result of a severe ice storm which interrupted the availability
of electricity and steam.
Gross profit increased $2.1 million, or 17.9%, to $13.9 million in the
three months ended January 25, 1998 compared to $11.8 million in the three
months ended January 26, 1997. As a percentage of net sales, gross profit
increased from 20.3% in the three months ended January 26,
9
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1997 to 21.1% in the three months ended January 25, 1998. Gross profits in the
converting operations increased $2.5 million. The results of operations from
businesses acquired in the fourth quarter of Fiscal 1997 and higher margins in
converted tissue products were partially offset by increased costs of
paperboard, which were not recovered through price adjustments. Gross profits
of tissue mill products declined $0.4 million due to the increased sales of
lower margin white paper and reduced sales of higher margin deep tone paper, as
well as increased manufacturing costs resulting from the start-up of the second
paper machine. As a result of the ice storm, the Natural Dam mill sustained
property damage and experienced a temporary shut down. The Company maintains
insurance policies which cover losses of this type, and expects to recover a
significant portion of these costs. However, there can be no assurance that all
of these costs will be recovered.
Selling, general and administrative expenses increased $0.5 million,
or 5.4%, to $9.9 million in the three months ended January 25, 1998 compared to
$9.4 million in the three months ended January 26, 1997. As a percentage of net
sales, selling, general and administrative expenses decreased from 16.1% in the
three months ended January 26, 1997 to 14.9% in the three months ended January
25, 1998.
Income from operations increased $1.6 million, or 65.7% to $4.1
million in the three months ended January 25, 1998 compared to $2.4 million in
the three months ended January 26, 1997 due to the reasons discussed above. As
a percentage of net sales, income from operations increased from 4.2% in the
three months ended January 26, 1997 to 6.1% in the three months ended January
25, 1998.
Interest expense, net of interest income, increased $0.7 million, or
31.9% to $3.1 million in the three months ended January 25, 1998 compared to
$2.3 million in the three months ended January 26, 1997. The increase was due
to higher borrowing levels resulting from the issuance in the third quarter of
Fiscal 1997 of $120.0 million of 9 1/2% Senior Subordinated Notes due 2007,
(the "Senior Notes") which replaced higher interest rate debt.
As a result of the above, net income was $0.6 million in the three
months ended January 25, 1998 compared to $0.1 million in the three months
ended January 26, 1997.
SIX MONTHS ENDED JANUARY 25, 1998 COMPARED TO SIX MONTHS ENDED JANUARY 26, 1997
Net sales increased $12.3 million, or 9.9%, to $136.7 million, in the
six months ended January 25, 1998 compared to $124.4 million in the six months
ended January 26, 1997. The increase in net sales included a $12.9 million
increase in the Company's converting operations primarily due to sales volume
from businesses acquired in the fourth quarter of Fiscal 1997, as well as
increased sales volume in converted tissue products. Sales volume in the
converting operations increased 12% in the institutional markets and 9% in the
consumer markets. Average selling prices were slightly higher, including a 2%
increase in the institutional markets and a 1% increase in the consumer
markets. Net sales of tissue mill products declined $0.6 million as increased
sales of commodity white paper from the new paper machine were offset by
reduced volume of deep tone paper due to competitive market conditions. In
January 1998, the Natural Dam mill was not operational for nine days as a
result of a severe ice storm which interrupted the availability of electricity
and steam.
Gross profit increased $1.2 million, or 4.4%, to $28.6 million in the
six months ended January 25, 1998 compared to $27.4 million in the six months
ended January 26, 1997. As a percentage of net sales, gross profit decreased
from 22.0% in the six months ended January 26,
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1997 to 20.9% in the six months ended January 25, 1998. Gross profits in the
converting operations increased $2.6 million. The results of operations from
businesses acquired in the fourth quarter of Fiscal 1997 and higher margins in
converted tissue products were partially offset by increased costs of
paperboard, which were not recovered through price adjustments. Gross profits
of tissue mill products declined $1.4 million due to the increased sales of
lower margin white paper and reduced sales of higher margin deep tone paper, as
well as increased manufacturing costs resulting from the start-up of the second
paper machine. As a result of the ice storm, the Natural Dam mill sustained
property damage and experienced a temporary shut down. The Company maintains
insurance policies which cover losses of this type, and expects to recover a
significant portion of these costs. However, there can be no assurance that all
of these costs will be recovered.
Selling, general and administrative expenses increased $0.3 million,
or 1.5%, to $19.8 million in the six months ended January 25, 1998 compared to
$19.5 million in the six months ended January 26, 1997. As a percentage of net
sales, selling, general and administrative expenses decreased from 15.7% in the
six months ended January 26, 1997 to 14.5% in the six months ended January 25,
1998.
Income from operations increased $0.9 million, or 11.6% to $8.8
million in the six months ended January 25, 1998 compared to $7.9 million in
the six months ended January 26, 1997 due to the reasons discussed above. As a
percentage of net sales, income from operations remained relatively unchanged.
Interest expense, net of interest income, increased $1.5 million, or
32.2% to $6.0 million in the six months ended January 25, 1998 compared to $4.5
million in the six months ended January 26, 1997. The increase was due to
higher borrowing levels resulting from the issuance in the third quarter of
Fiscal 1997 of the Senior Notes, which replaced higher interest rate debt.
As a result of the above, net income was $1.6 million in the six
months ended January 25, 1998 compared to $1.9 million in the six months ended
January 26, 1997.
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 for the six months ended
January 25, 1998 was $9.3 million compared to $4.8 million for the six months
ended January 26, 1997. The six month period ended January 25, 1998 includes
the receipt of $2.9 million resulting from the settlement of a lawsuit.
The Company's investing activities are primarily capital expenditures
and business acquisitions. Capital expenditures in the six months ended January
25, 1998 were $4.4 million, including $1.7 million related to the installation
of the second paper machine at the Natural Dam tissue mill. The remaining $2.7
million in such period and the capital expenditures in the six months ended
January 26, 1997 were for routine capital improvements.
The Company's revolving credit facility provides up to $50 million
borrowing capacity, collateralized by eligible accounts receivable and
inventories. At January 25, 1998, $6.0 million was outstanding under such
facility and $33.2 million was the maximum advance available based upon
eligible collateral.
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Pursuant to the terms of the revolving credit facility, 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 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 revolving credit facility
requires that the Company satisfy certain financial covenants.
During the six months ended January 25, 1998, the Company redeemed
72,500 shares of Class A common stock for $9.8 million pursuant to an offer by
the Company to repurchase up to 74,000 shares of its common stock at $135 per
share from its stockholders on a pro rata basis. The Company has completed such
stock repurchase.
During the six months ended January 25, 1998, the Company did not
incur material costs for compliance with environmental law and regulations.
The Company believes that cash generated by operations, combined with
amounts available under the revolving credit facility, will be sufficient to
meet the Company's capital expenditure needs, debt service requirements and
working capital needs for the foreseeable future.
12
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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.
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) Reports on Form 8-K
There were no reports on Form 8-K during the second quarter ended January 25,
1998; however, a report on Form 8-K (Item 5. Other events) was filed on
February 20, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
Date: March 6, 1998
THE FONDA GROUP, INC.
By: /s/ HANS H. HEINSEN
---------------------------
Hans H. Heinsen
Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial
And Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial summary financial information extracted
from Form 10-Q for the fiscal quarter ended January 25, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-25-1998
<CASH> 524
<SECURITIES> 0
<RECEIVABLES> 32,795
<ALLOWANCES> 1,070
<INVENTORY> 39,434
<CURRENT-ASSETS> 82,822
<PP&E> 81,250
<DEPRECIATION> 19,906
<TOTAL-ASSETS> 180,837
<CURRENT-LIABILITIES> 34,964
<BONDS> 128,172
0
0
<COMMON> 2,110
<OTHER-SE> 6,800
<TOTAL-LIABILITY-AND-EQUITY> 180,837
<SALES> 136,674
<TOTAL-REVENUES> 136,674
<CGS> 108,077
<TOTAL-COSTS> 108,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 108
<INTEREST-EXPENSE> 6,003
<INCOME-PRETAX> 2,780
<INCOME-TAX> 1,168
<INCOME-CONTINUING> 1,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,612
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
