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 26, 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)
2920 North Main Street
Oshkosh, Wisconsin 54901
(920) 235-1036
--------------
(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 [X] No [ ]
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 the Form 10-K or any
amendment to this Form 10-K. [X]
As of October 20, 1998, there were no shares of voting and non-voting
equity of the registrant held by non-affiliates.
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 October 20, 1998: 100 Shares
<PAGE>
PART I
ITEM 1. BUSINESS
General
The Fonda Group, Inc. (the "Company") believes 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(R), or Party Creations(R), brands are well recognized in the
consumer markets and its Hoffmaster(R) 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 products needs.
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.
Restaurants, schools, hospitals and other major institutions comprise the
institutional market. Supermarkets, mass merchants, warehouse clubs, discount
chains and other retail stores comprise the consumer market.
On March 12, 1998, SF Holdings Group, Inc. ("SF Holdings") acquired all
of the outstanding capital stock of the Company pursuant to a merger whereby the
stockholders of the Company became stockholders of SF Holdings and the Company
became a wholly-owned subsidiary of SF Holdings (the "Merger"). Simultaneously,
SF Holdings acquired 90% of the total outstanding common stock, including 48% of
the voting stock, of Sweetheart Holdings Inc. ("Sweetheart").
Products
General. The Company's principal products include: (i) paperboard food
service products, such as white, colored and printed paper plates and bowls,
paper cups for both hot and cold drinks and lids, handled paper food pails, food
containers and trays for take-out of fast food; and (ii) tissue and specialty
food service products, such as printed and solid napkins, printed and solid
tablecovers, crepe paper, placemats, doilies, tray covers, fluted products and
paper portion cups. The Company believes it holds one of the top three market
positions in white paper plates, decorated plates, bowls and cups in the
private label consumer market, as well as, food pails, trays and premium
napkins in the institutional market.
The Company is a party to a license agreement, dated March 12, 1998
(the "License Agreement") with Creative Expression Group, Inc. ("CEG"), an
affiliate of the Company, whereby CEG was granted the exclusive right to use the
trademarks and trade names Splash(R) or Party Creations(R) in connection with
the manufacture, distribution and sale of disposable party goods products for a
period of five years, subject to extension. Pursuant to the License Agreement,
the Company receives an annual royalty equal to 5% of CEG's cash flow as
determined in accordance with a formula specified in such agreement. In
addition, in accordance with the License Agreement, the Company, at CEG's
request, manufactures and sells to CEG certain party goods products, principally
napkins and paper plates, including products bearing the trademarks or trade
names Splash(R) or Party Creations(R).
Paperboard Products
Tabletop Service Products. Paper plates and bowls represent the largest
portion of the Company's sales and are sold primarily to the consumer market.
These products include coated and uncoated white paper plates, decorated plates
and bowls. White 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
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bowls are value-added products and are sold for everyday use as well as for
parties and seasonal celebrations, such as Halloween and Christmas.
Beverage Service Products. 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. The Company's hot
and cold beverage cups are sold to both the consumer and institutional markets.
Take-out Containers. The Company sells paper trays and food pails in
the institutional market for use by restaurants.
Tissue and Specialty Food Service Products
Tissue Converted Products. Napkins represent the second largest portion
of the Company's sales and are sold under the Company's Hoffmaster(R), Fonda,
Sensations, Splash(R) or Party Creations(R) brand names, as well as under
national distributor private label names. 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. Tablecovers, ranging from economy to premium product
lines, are sold under the Hoffmaster(R), Linen-Like(R), Windsor(R), Sensations,
Splash(R) and Party Creations(R) brand names. The Company offers a broad
selection of tablecovers in one-, two-, and three-ply configurations and
produces tablecovers in white, solid color and one-to four-colored printed
products. The Company also sells or licenses crepe products under the
Hoffmaster(R), Splash(R) and Party Creations(R) brand names.
Specialty Products. The Company sells placemats, traycovers, paper
doilies, paper portion cups and fluted products in a variety of shapes and
sizes. The Company produces unique decorated placemats in a variety of shapes.
In addition, the Company uses a proprietary technology to produce non-skid
traycovers that serve the particular needs of the airline and healthcare
industries.
Marketing and Sales
The Company's marketing efforts are principally focused on (i)
providing value-added services; (ii) category expansion by cross marketing
products between the consumer and institutional markets; (iii) developing new
graphic designs which the Company believes will offer consumers recognized
value; and (iv) increasing brand awareness through enhanced packaging and
promotion. The Company sells its products through an internal sales organization
and independent brokers. The Company believes its experienced sales team and its
ability to provide high levels of customer service enhance its long-term
relationships with its customers. The Company and Sweetheart intend to enter
into joint marketing and sales agreements which will be designed to eliminate
duplicate marketing and sales costs. The Company sells to more than 2,500
institutional and consumer customers located throughout the United States.
In Fiscal 1998, the Company's five largest customers represented
approximately 17% of net sales. No one single customer accounted for more than
10% of net sales.
Sales
Institutional Market. Restaurants, schools, hospitals and other major
institutions comprise the Company's institutional market. This market
represented approximately 47% of the Company's net sales in Fiscal 1998. The
Company's predominant institutional customers of private label products include
SYSCO Corporation, Rykoff-Sexton, Inc./U.S. Foodservice Inc. and Alliant
Foodservice Inc. Institutional customers of branded products include Sweet Paper
Sales Corp., Smart Food Distributors Incorporated, Bunzl USA, Inc. and Lisanti
Food Incorporated. The institutional market is serviced by dedicated field
service representatives located throughout the United States. The field sales
force works directly with these national and regional distributors to service
the needs of the various segments of the food service industry.
Consumer Market. Supermarkets, mass merchants, warehouse clubs,
discount chains and other retail stores comprise the Company's consumer market.
This market represented approximately 53% of the Company's net sales in Fiscal
1998. 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, which is serviced principally through CEG (see "--Affiliated Company
Sales") and (iv) the
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warehouse club channel, which is serviced both through national and regional
networks of brokers and directly by field service representatives. Customers of
the Company's branded consumer products include Target Stores (a division of
Dayton Hudson Corp.), Wal-Mart Stores, Inc., Kmart Corporation and The Great
Atlantic & Pacific Tea Company, Inc. The Company's primary private label
customers in the consumer market include The Kroger Co., The Great Atlantic &
Pacific Tea Company, Inc. and The Stop & Shop Companies, Inc.
Affiliated Company Sales. In connection with the License Agreement, the
Company, at CEG's request, manufactures and sells to CEG certain party goods
products, principally napkins and paper plates, including products bearing the
trademarks and trade names Splash(R) or Party Creations(R). The Company sells
such products to CEG on terms no less favorable to the Company than those it
could otherwise have obtained from unrelated third parties. In Fiscal 1998, the
Company's net sales of such party goods products were approximately $36 million.
The Company has been a long-term supplier to CEG and during Fiscal 1998 net
sales to CEG were $17 million. The Company expects sales to CEG to continue to
grow pursuant to the License Agreement.
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.
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, are vertically integrated and have
greater access to financial and other resources.
The Company's primary competitors in the paperboard food service
converted product categories include International Paper Food Service
Group(formerly Imperial Bondware) (a division of International Paper Co.), Fort
James Corp. (successor by merger of James River and Fort Howard Corp.), AJM
Packaging Corp., Dopaco Inc., Fold-Pak Corp. and Solo Cup Co. Major
competitors in the tissue and specialty food service converted product
categories include 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.
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 bleached paperboard, napkin tissue, bond paper and waxed bond
paper obtained from major domestic manufacturers. Other material components
include corrugated boxes, poly bags, wax adhesives, coating 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.
Primary suppliers of paperboard stock are Georgia-Pacific Corp., Temple-Inland
Inc. and Gilman Paper Co. for which the Company has total annual commitments of
49,200 tons through April 2001. 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. The Company has a number of
suppliers for substantially all of its raw materials and believes current
sources of supply for its raw materials are adequate to meet its requirements.
The Company purchases the bulk of its bleached 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
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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 there are
currently no pending investigations at the Company's plants and sites relating
to environmental matters. However, there can be no assurance 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 legislation 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 at its properties. 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
At July 26, 1998, the Company employed approximately 1,435 persons, of
whom approximately 1,110 were hourly employees. The Company has collective
bargaining agreements in effect at its facilities in Appleton, Wisconsin;
Oshkosh, Wisconsin; St. Albans, Vermont; Williamsburg, Pennsylvania and Maspeth,
New York which cover all production, maintenance and distribution hourly-paid
employees at each respective facility and contain standard provisions relating
to, among other things, management rights, grievance procedures, strikes and
lockouts, seniority, and union rights. The current expiration dates of the
Company's collective bargaining agreements at the Appleton, Oshkosh, St. Albans,
Williamsburg and Maspeth facilities are May 1, 2002, May 31, 2002, January 31,
2001, June 11, 2000 and October 31, 1999, respectively. The Company considers
its relationship with its employees to be good.
ITEM 2. PROPERTIES
The table below provides summary information regarding the principal
properties owned or leased by the Company. All of the Company's facilities are
well maintained, in good operating condition and suitable for the Company's
operations.
<TABLE>
<CAPTION>
SIZE
(APPROXIMATE
MANUFACTURING/ AGGREGATE OWNED/
LOCATION WAREHOUSE SQUARE FEET) LEASED
-------- --------- ------------ ------
<S> <C> <C> <C>
Appleton, Wisconsin M/W 267,700 O
Glens Falls, New York M/W 59,100 O
Goshen, Indiana M/W 63,000 O
Lakeland, Florida M/W 45,000 L
Maspeth, New York M/W 130,000 L
Oshkosh, Wisconsin M/W 484,000 O
St. Albans, Vermont (2 facilities) M 124,900 O
W 182,000 L
Williamsburg, Pennsylvania M/W 146,000 O(1)
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</TABLE>
(1) Subject to capital lease.
During Fiscal 1997, the Company decided to close its Three Rivers,
Michigan and Long Beach, California facilities and during Fiscal 1998, it
decided to close its Jacksonville, Florida facility, which facility was leased
from Dennis Mehiel. (See "Certain Relationships and Related Transactions"). Such
closures were a result of the rationalization of operations. The operations at
Three Rivers and Jacksonville were moved to facilities in Goshen, Indiana,
acquired in Fiscal 1997 and Lakeland, Florida, acquired in Fiscal 1998. The Long
Beach facility has been subleased through the term of the lease and its
operations were moved to the Oshkosh, Wisconsin facility.
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On March 24, 1998, the Company consummated an agreement to sell
substantially all of the fixed assets and certain related working capital (the
"Mill Disposition") of its tissue mill in Gouverneur, New York (the "Mill"). On
May 27, 1998, the Company announced its decision to close its administrative
offices in St. Albans, Vermont and to relocate such offices, including its
principal executive offices, to Oshkosh, Wisconsin.
ITEM 3. Legal Proceedings
From time to time, 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. The Company 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDLERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's common
stock. The Company has never paid any cash dividends on its common stock and
does not anticipate paying any cash dividends in the foreseeable future. The
Company's current credit facility and indenture governing the $120 million of 9
1/2% Senior Subordinated Notes due 2007 (the "Notes") limit the payment of
dividends. The Company currently intends to retain future earnings to fund the
development and growth of its business.
Pursuant to the Merger, all of the outstanding shares of common stock
of the Company were converted into shares of SF Holdings, whereby the Company
became a wholly-owned subsidiary of SF Holdings. Each share of Class A common
stock and Class B common stock of the Company and options and warrants to
purchase such shares, were converted into shares of Class A common stock or
Class B common stock, or options and warrants to purchase such shares, as the
case may be, of SF Holdings.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended July (1)
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ------------ ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (2)
Net sales $ 271,484 $252,513 $204,903 $97,074 $61,839
Cost of goods sold 222,509 201,974 164,836 76,252 51,643
-------------- ------------ ------------- ------------ ------------
Gross profit 48,975 50,539 40,067 20,822 10,196
Selling, general and administrative expenses 34,450 31,527 26,203 14,112 8,438
Other income, net (3) (14,865) (1,608) - - -
-------------- ------------ ------------- ------------ ------------
Income from operations 29,390 20,620 13,864 6,710 1,758
Interest expense, net 12,006 9,017 7,934 2,943 1,268
-------------- ------------ ------------- ------------ ------------
Income before taxes and extraordinary loss 17,384 11,603 5,930 3,767 490
Income taxes 7,127 4,872 2,500 1,585 239
-------------- ------------ ------------- ------------ ------------
Income before extraordinary loss 10,257 6,731 3,430 2,182 251
Extraordinary loss, net (4) - 3,495 - - -
============== ============ ============= ============ ============
Net income $ 10,257 $ 3,236 $ 3,430 $ 2,182 $ 251
============== ============ ============= ============ ============
Balance Sheet Data as of July:
Cash $ 16,361 $ 5,908 $ 1,467 $ 120 $ 225
Working capital 57,149 58,003 38,931 28,079 2,731
Property, plant and equipment, net 48,151 59,261 46,350 26,933 7,454
Total assets 178,528 179,604 136,168 79,725 24,668
Total indebtedness (5) 122,362 122,987 87,763 48,165 12,581
Redeemable common stock (6) - 2,076 2,179 2,115 -
Stockholders' equity 17,555 15,010 11,873 7,205 5,977
</TABLE>
(1) All fiscal years are 52 weeks, except for Fiscal 1994 which is 53 weeks.
Certain prior year amounts have been reclassified to conform to current
year presentation.
(2) Includes the results of operations of the Company and the following
acquisitions since their respective dates of acquisition. (i) the net
assets of the Scott Foodservice Division from Scott Paper Company as of
March 31, 1995; (ii) the net assets of Alfred Bleyer & Co., Inc. as of
November 30, 1995; (iii) all of the outstanding capital stock of the
Chesapeake Consumer Products Company from Chesapeake Corporation as of
December 29,1995; (iv) the net assets of two divisions of the Specialties
Operations Division of James River Paper Corporation ("James River
California and the Mill") as of May 5, 1996; (v) all of the outstanding
capital stock of Heartland Mfg. Corp. as of June 2, 1997; (vi) the net
assets of the former printed products division of Astro Valcour, Inc. from
Tenneco Inc. as of June 10, 1997; and (vii) the net assets of Leisureway,
Inc. as of January 5, 1998 (the "Leisureway Acquisition"). The
acquisitions referred to in (v) and (vi) above are hereinafter referred to
as the "1997 Acquisitions". See "Business", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to
the Financial Statements of the Company.
(3) Fiscal 1998 includes a $15.9 million gain on the Mill Disposition and
settlement in connection with the termination by the owner of the
co-generation facility formerly hosted by the Company at the Mill of its
obligation, among other things, to supply steam to the Mill (the "Steam
Contract").
(4) 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.
(5) Includes short-term and long-term borrowings and current maturities of
long-term debt.
(6) See Note 10 to Notes to Financial Statements of the Company.
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ITEM 7. 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 disposable paper food
service products. The prices for raw materials fluctuate. When raw material
prices decrease, selling prices have historically decreased. The actual impact
on the Company from raw material 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. In the event that raw materials prices decrease over a
period of several months, the Company may suffer margin erosion on the sale of
such inventory.
The Company's business is 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
Many of the Company's computer systems may be unable to process dates
beyond December 31, 1999. This could result in system failures or
miscalculations which could have a material adverse effect on the Company's
business, financial condition or results of operations. The Company has
implemented a Year 2000 compliance program intended to identify the programs and
infrastructures that could be effected by Year 2000 issues and resolve the
problems that are identified on a timely basis.
The Company has completed the assessment phase, in which it has
identified potential Year 2000 issues, including those with respect to
information technology systems, technology embedded within equipment the Company
uses as well as equipment that interfaces with vendors and other third parties.
The Company is in the process of upgrading its hardware and software systems
which run most of the Company's data processing and financial reporting software
applications and consolidating certain of its in-house developed computer
systems into the upgraded systems. The upgraded systems are expected to be
operational and Year 2000 compliant by December 1998. All other information
technology systems, that are not currently Year 2000 compliant, are also
expected to be compliant by December 1998. In addition, the Company is working
with vendors to ensure that its telephone systems and other embedded
technologies are Year 2000 compliant. EDI trading partners have been contacted,
and other key business partners are in the process of being contacted, to ensure
that key business transactions will be Year 2000 compliant. Furthermore, in the
event the Company is unable to meet certain key operational dates, the Company
believes its systems that are already Year 2000 compliant, as well as temporary
solutions to systems that are currently in place, and manual procedures would
allow the Company to ship product to customers and engage in other critical
business functions.
The Company estimates the total cost of its Year 2000 program at $2.6
million, of which $1.0 million has been spent through Fiscal 1998. Future
expenditures will be funded by cash flows from operations or from borrowings
under the Company's credit facility. However, there can be no assurance that the
Company will identify all Year 2000 issues in its computer systems in advance of
their occurrence or that it will be able to successfully remedy all problems
that are discovered. Failure by the Company and/or its significant vendors and
customers to complete Year 2000 compliance programs in a timely manner could
have a material adverse effect on the Company's business, financial condition or
results of operations. In addition, the revenue stream and financial stability
of existing customers may be adversely impacted by Year 2000 problems which
could cause fluctuations in the Company's revenues and operating profitability.
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Results of Operations
<TABLE>
<CAPTION>
Years Ended July
-----------------------------------------------------------------------------
1998 1997 1996
---------------------- ----------------------- ----------------------
% of % of % of
Amount Net Sales Amount Net Sales Amount Net Sales
------------ --------- ------------- --------- ------------ ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 271.5 100.0 % $ 252.5 100.0 % $ 204.9 100.0
Cost of goods sold 222.5 82.0 202.0 80.0 164.8 80.4
------------ --------- ------------- --------- ------------ ---------
Gross profit 49.0 18.0 50.5 20.0 40.1 19.6
Selling, general and
administrative expenses 34.5 12.7 31.5 12.5 26.2 12.8
Other income, net (14.9) (5.5) (1.6) (0.6) - -
------------ --------- ------------- --------- ------------ ---------
Income from operations 29.4 10.8 20.6 8.2 13.9 6.8
Interest expense, net 12.0 4.4 9.0 3.6 8.0 3.9
------------ --------- ------------- --------- ------------ ---------
Income before taxes and
extraordinary loss 17.4 6.4 11.6 4.6 5.9 2.9
Income tax expense 7.1 2.6 4.9 1.9 2.5 1.2
------------ --------- ------------- --------- ------------ ---------
Income before extraordinary loss 10.3 3.8 6.7 2.7 3.4 1.7
Extraordinary loss, net - - 3.5 1.4 - -
------------ --------- ------------- --------- ------------ ---------
Net income $ 10.3 3.8 % $ 3.2 1.3 % $ 3.4 1.7%
============ ========= ============= ========= ============ =========
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net sales increased $19.0 million, or 7.5%, to $271.5 million. This
increase is due in part to increased sales volume in converting operations
resulting from the 1997 Acquisitions and Leisureway Acquisition, and to a lesser
extent increased sales volume in converted tissue products. Sales volume in the
Company's converting operations increased 12% in the consumer market and 7% in
the institutional market. Average selling prices increased 5% in the
institutional market and 1% in the consumer market. Net sales of tissue mill
products declined $6.1 million resulting from the Mill Disposition on March 24,
1998 and a shift in mix due to competitive market conditions. Increased sales of
commodity white paper from the new paper machine were offset by reduced sales of
deep tone paper due to competitive market conditions.
Gross profit decreased $1.6 million, or 3.1%, to $49.0 million. A $4.5
million decrease in gross profit in tissue mill products was partially offset by
an increase in gross profit in the converting operations. The decrease in gross
profit of tissue mill products was due to the Mill Disposition, as well as the
increased sales of lower margin white paper, reduced sales of higher margin deep
tone paper, and increased manufacturing costs resulting from the start-up of the
second paper machine. In the converting operations, the increase in gross profit
attributable to the 1997 Acquisitions and the Leisureway Acquisition and higher
margins in converted tissue products were partially offset by increased costs of
paperboard, which were not recovered through price adjustments. As a percentage
of net sales, gross profit decreased from 20.0% in Fiscal 1997 to 18.0% in
Fiscal 1998 for the reasons set forth above.
Selling, general and administrative expenses increased $2.9 million, or
9.3%, to $34.5 million primarily due to increased selling expenses resulting
from the increase in net sales. As a percentage of net sales, selling, general
and administrative expenses increased from 12.5% in Fiscal 1997 to 12.7% in
Fiscal 1998.
Other income, net includes a $15.9 million gain on the Mill Disposition
and the Steam Contract. Other income, net also includes a gain on the sale of
other non-core assets offset by closure cost accruals relating to the decision
to close the Company's Jacksonville, Florida facility and the St. Albans,
Vermont administrative offices. In Fiscal 1997, other income included a $2.9
million gain from the settlement of a lawsuit, partially offset by $1.3 million
in costs to close the Three Rivers, Michigan converting facility.
9
<PAGE>
Income from operations increased $8.8 million, or 42.5%, to $29.4
million due to the reasons discussed above. However, excluding other income,
net, income from operations decreased $4.5 million, and as a percentage of net
sales, decreased from 7.5% in Fiscal 1997 to 5.4% in Fiscal 1998.
Interest expense, net of interest income, increased $3.0 million to
$12.0 million in Fiscal 1998 compared to $9.0 million in Fiscal 1997. The
increase was due to higher borrowing levels resulting from the issuance in the
third quarter of Fiscal 1997 of the Notes, which was partially offset by lower
interest rate debt.
The effective tax rate was 41% in Fiscal 1998 compared to a 42%
effective rate in Fiscal 1997. As a result of the above, income before
extraordinary loss was $10.3 million in Fiscal 1998 compared to $6.7 million in
Fiscal 1997.
In Fiscal 1997, 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 $10.3 million in Fiscal 1998 compared to
$3.2 million in Fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
Net sales 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
acquisitions consummated in Fiscal 1996 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 increased $10.5 million, or 26.1%, to $50.5 million due
primarily to the acquisitions consummated in Fiscal 1996. As a percentage of net
sales, gross profit improved slightly from 19.6% in 1996 to 20% in 1997. Gross
profit increased in the consumer market, primarily due to a 14% decline in
bleached paperboard costs, which were offset by lower gross profit 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 increased $5.3 million, or
20.3%, to $31.5 million. This increase was primarily due to the incurrence of
additional expenses and corporate overhead assumed in connection with the
acquisitions consummated in Fiscal 1996. As a percentage of net sales, selling,
general and administrative expenses decreased slightly from 12.8% in Fiscal 1996
to 12.5% in Fiscal 1997.
Other income, net includes a gain of 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.
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.
Interest expense, net of interest income, increased $1.0 million, or
14%, due to higher borrowing levels primarily resulting from the acquisitions
consummated in Fiscal 1996 and the issuance of the Notes. See "--Liquidity and
Capital Resources". Partially offsetting the higher borrowing levels were the
lower interest rates on the Notes.
Income before income taxes and extraordinary loss increased to $11.6
million in Fiscal 1997 from $5.9 million in Fiscal 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.
10
<PAGE>
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 in Fiscal 1998 was $7.0
million compared to $8.3 million in Fiscal 1997. The decrease is primarily due
to a $8.4 million reduction in net income, excluding the net gain on the Mill
Disposition and Steam Contract in Fiscal 1998 and the extraordinary loss in
Fiscal 1997. This decrease was partially offset by a $5.2 million reduction in
inventory and proceeds from the settlement of a lawsuit in Fiscal 1998.
The Company's investing activities are primarily capital expenditures
and business acquisitions. Capital expenditures in Fiscal 1998 were $7.0
million, including $1.8 million related to the installation of a second paper
machine at the Mill and $1.2 million for plate converting equipment. The
remaining $4.0 million were for routine capital improvements. The $10.4 million
of capital expenditures in Fiscal 1997 included $8.2 million related to the
installation of the second paper machine. In addition, during Fiscal 1998 the
Company (i) received proceeds of $34.8 million, net of transaction costs and
fees, from (a) the Mill Disposition, (b) the Steam Contract, and (c) the sale of
unutilized equipment; (ii) acquired certain net assets of a manufacturer of
white paper plates for $6.9 million; and (iii) paid $7.0 million to SF Holdings
in consideration for its right to manage Sweetheart's day-to-day operations
pursuant to the Management Services Agreement. (See Note 13 of Notes to
Financial Statements). The Company does not anticipate any material capital
expenditures in the next twelve months other than those funded through available
cash.
In 1997, Fonda issued the Notes with interest payable semi-annually in
arrears. Payment of the principal of, and interest on, the Notes is subordinate
in right of payment to Senior Debt (as defined therein), which includes the
revolving credit facility. The principal amount of the Notes is payable on
February 28, 2007. The Company may, at its election, redeem the Notes at any
time after March 1, 2002 at a redemption price equal to a percentage (104.750%
after March 1, 2002 and declining in annual steps to 100% after March 1, 2005)
of the principal amount thereof plus accrued interest. The Notes provide that
upon the occurrence of a Change of Control (as defined therein), the holders
thereof will have the option to require the redemption of the Notes at a
redemption price equal to 101% of the principal amount thereof plus accrued
interest.
The Company's revolving credit facility, which expires March 31, 2000,
provides up to $50 million borrowing capacity, collateralized by eligible
accounts receivable and inventories, certain general intangibles and the
proceeds on the sale of accounts receivable and inventory. At July 26, 1998,
there was no outstanding balance and $36.7 million was the maximum advance
available based upon eligible collateral. At July 26, 1998, borrowings were
available at the bank's prime rate (8.50%) plus .25% and at LIBOR (approximately
5.66%) plus 2.25%.
Pursuant to the terms of the instruments governing the indebtedness of
the Company, 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 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, such debt instruments
restrict the Company's ability to pay dividends or make other distributions to
SF Holdings. The credit facility also requires that certain financial covenants
are satisfied.
Pursuant to the asset sale covenant under the indenture governing the
Notes, resulting from the receipt of proceeds from the Mill Disposition, the
Company is required to (i) reinvest approximately $10 million of the net
proceeds from the Mill Disposition in fixed assets within 270 days of such
disposition or (ii) offer to repurchase the Notes to the extent that such amount
has not been reinvested. As of September 30, 1998, the Company has reinvested or
has committed to reinvest amounts in excess of $10 million, primarily in napkin
and plate-making equipment.
During Fiscal 1998, the Company redeemed 72,500 shares of Class A
common stock (pre-Merger shares) for $9.8 million pursuant to an offer to
repurchase up to 74,000 shares of its common stock (pre-Merger
11
<PAGE>
shares) at $135 per share from its stockholders on a pro rata basis. The Company
has completed such stock repurchase and canceled such shares.
During Fiscal 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 working capital and capital expenditure needs in the
foreseeable future.
Impact of Recently Issued Accounting Standards
The impact of recently issued accounting standards is discussed in Note
2 of Notes to the Financial Statements.
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
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dennis Mehiel 56 Chairman and Chief Executive Officer
Robert Korzenski 44 President and Chief Operating Officer
Thomas Uleau 53 Executive Vice President and Director
Hans Heinsen 45 Senior Vice President, Chief Financial Officer
and Treasurer
Michael Hastings 51 Senior Vice President
Harvey L. Friedman 56 Secretary and General Counsel
Alfred B. DelBello 63 Vice Chairman
James Armenakis 55 Director
John A. Catsimatidis 50 Director
Chris Mehiel 59 Director
Jerome T. Muldowney 53 Director
G. William Seawright 57 Director
Lowell P. Weicker, Jr. 67 Director
</TABLE>
Dennis Mehiel has been Chairman and Chief Executive Officer of the
Company since it was purchased in 1988. Since 1966 he has been Chairman of Four
M Corporation ("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 also has been Chief Executive
Officer and a director of Sweetheart since March 1998; Chairman and Chief
Executive Officer of SF Holdings since December 1997; Chairman of Box USA of New
Jersey, Inc. ("Box of New Jersey"), a manufacturer of corrugated containers; and
Chairman and Chief Executive Officer of CEG.
Robert Korzenski has been President and Chief Operating Officer of the
Company since March 1998. Prior to that, he had been Senior Vice President of
the Company since January 1997 and President of the Hoffmaster division since
its acquisition by the Company in March 1995. From October 1988 to March 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.
Thomas Uleau has been Executive Vice President of the Company since
March 1998 and he has been a Director of the Company since 1988. Prior to that,
he had been President of the Company since January 1997 and Chief Operating
Officer since 1994. Mr. Uleau was Executive Vice President of the Company from
1994 to 1996 and from 1988 to 1989. He also has been Executive Vice President of
CEG since 1996; President, Chief Operating Officer and a director of SF Holdings
since February 1998; President and Chief Operating Officer and a director of
Sweetheart since March 1998; a director of Four M, CEG, and Box of New Jersey.
He served as Executive Vice President and Chief Financial Officer of Four M from
1989 through 1993 and Chief Operating Officer in 1994.
13
<PAGE>
Hans Heinsen has been Senior Vice President and Treasurer of the
Company since January 1997 and Chief Financial Officer of the Company since June
1996. Mr. Heinsen also has been Chief Financial Officer and Vice President
Finance of Sweetheart since March 1998 and Senior Vice President, Chief
Financial Officer and Treasurer of SF Holdings since February 1998. Prior to
joining the Company, Mr. Heinsen spent 21 years in a variety of corporate
finance positions with The Chase Manhattan Bank, N.A.
Michael Hastings has been Senior Vice President of the Company since
January 1997 and President of the Fonda division since joining the Company in
May 1995 until March 1998. Mr. Hastings also has been Senior Vice President of
Sweetheart since March 1998. 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 Thompson Industries.
Harvey L. Friedman has been Secretary and General Counsel of the
Company since May 1996. He was a Director of the Company from 1985 to January
1997. Mr. Friedman is also Secretary and General Counsel of CEG, SF Holdings,
Four M and Box of New Jersey and is a director of CEG. He was formerly a partner
of Kramer, Levin, Naftalis & Frankel, a New York City law firm.
Alfred B. DelBello has served as Vice Chairman of the Company since
January 1997 and a Director of the Company since 1990. He also has been Vice
Chairman of SF Holdings since February 1998. Since July 1995, Mr. DelBello has
been a partner in the law firm of DelBello, Donnellan & Weingarten & Tartaglia,
LLP. From September 1992 to July 1995 he was a partner in the law firm of Worby
DelBello Donnellan & Weingarten. Prior thereto, he had been 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 also has been a director of SF Holdings since February 1998. He is a
senior partner in the law firm of Armenakis & Armenakis.
John A. Catsimatidis has served as a Director of the Company since
January 1997. He also has been a director of SF Holdings since February 1998. 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 Gristedes-Sloan's, Inc. and New's 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 1997. He also has been a director of SF Holdings since
February 1998. 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 an executive officer 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 from 1994 to January 1996. From 1993 to 1994, Mr. Mehiel served as
President and Chief Operating Officer of Box of New Jersey. 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.
Jerome T. Muldowney has served as a Director of the Company since 1990.
He also has been a director of SF Holdings since February 1998. 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 1997. He also has been a director of SF Holdings since February 1998. He
has been President and Chief Executive Officer of Stanhome Inc., a manufacturer
and distributor of giftware and collectibles, since 1993. Prior thereto, he was
14
<PAGE>
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.
Lowell P. Weicker, Jr. has served as a Director of the Company since
January 1997. He also has been a director of SF Holdings since February 1998.
Mr. Weicker served as Governor of the State of Connecticut from January 1991
through January 1995. From 1962 to 1989, Mr. Weicker 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.
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
fiscal years 1998, 1997, and 1996 for services rendered in all capacities to the
Company during such fiscal years.
<TABLE>
<CAPTION>
SECURITIES ALL OTHER
NAME AND PRINCIPAL UNDERLYING COMPEN-
POSITION YEAR SALARY BONUS OTHER(1) SARS (#) SATION(2)
- ------------------ ---- -------- ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dennis Mehiel 1998 $175,000 $150,000 $-- -- $---
Chairman and Chief 1997 168,750 75,000 -- -- ---
Executive Officer 1996 150,000 60,000 -- -- ---
Robert Korzenski 1998 188,390 100,000 -- 1,950 10,419
President and Chief 1997 164,423 50,000 -- 1,950 10,216
Operating Officer 1996 150,000 47,250 -- 1,950 9,531
Thomas Uleau 1998 137,307 80,000 -- 1,950 8,115
Executive Vice President 1997 196,250 75,000 -- 1,950 9,504
1996 185,000 60,000 -- 1,950 9,186
Hans Heinsen 1998 171,777 90,000 -- 1,950 10,705
Senior Vice President, 1997 170,000 56,000 -- 1,950 10,371
Chief Financial Officer 1996 26,153(3) -- -- 1,950 625
And Treasurer
Michael Hastings 1998 148,654 60,000 -- 1,950 6,548
Senior Vice President 1997 164,423 60,000 -- 1,950 8,203
1996 150,000 38,250 -- 1,950 9,219
</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, long-term disability and life insurance premiums paid by the
Company.
(3) Consists of salary for employment commencing June 1996.
Director Compensation
Directors who are not employees 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 do not receive any compensation or
fees for service on the Board of Directors or any committee thereof.
15
<PAGE>
Employee Benefit Plans
The Company provides certain union and non-union employees with
retirement and disability income benefits under defined benefit pension plans.
The Company's policy has been to fund annually the minimum contributions
required by applicable regulations.
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 Company also participates in
multi-employer pension plans for certain of its union employees. See Note 15 of
the Notes to the Financial Statements.
Stock Appreciation Rights
The following table provides information on grants of stock
appreciation rights ("SARs") made during Fiscal 1998 to the Named Officers as
well as the vested status of those SARs at July 26, 1998.
<TABLE>
<CAPTION>
Number of
1998 SAR Grant Unexercised
------------------------------------------------------------------
% of Total Options at
# of Granted to Exercise July 26, 1998
--------------------
Securities Employees or Base Expira-
Underlying in Fiscal Price Per tion Exercisable/
Name Grant Year Share Date Unexercisable
- ---- -------------- ---------------- ------------ ----------- --------------------
<S> <C> <C> <C> <C> <C>
Thomas Uleau 1,950 12.5% $30.06 -- 2,340/5460
Hans Heinsen 1,950 12.5% 45.33 -- 1,170/4,680
Michael Hastings 1,950 12.5% 30.06 -- 2,340/5460
Robert Korzenski 1,950 12.5% 30.06 -- 2,340/5460
</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.
16
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company is a wholly-owned subsidiary of SF Holdings which owns 100
shares of common stock of the Company. SF Holdings' address is 115 Stevens
Avenue, Valhalla, New York 10595. The following table sets forth certain
information as of October 20, 1998, with respect to the shares of common stock
of SF Holdings 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
of SF Holdings, the directors and officers of the Company, and all directors and
officers of the Company, 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
115 Stevens Avenue
Valhalla, New York 10595 . . . . . . . . . . . . 6,431,573 78.8%
Thomas Uleau
10100 Reisterstown Road
Owings Mills, Maryland 21117 . . . . . . . . . . 95,353 1.2%
All executive officers and directors
as a group (3 persons) . . . . . . . . . . . . . 6,679,458 81.8%
</TABLE>
(1) Includes 564,586 shares of Class B common stock of SF Holdings.
(2) Includes 238,383 shares underlying options to purchase Class A common stock
of SF Holdings, which are presently exercisable, and 1,341,381 shares which
Mr. Mehiel has the power to vote pursuant to a voting trust agreement
between his spouse, Edith Mehiel, and himself.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases a facility in Jacksonville, Florida, 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 $.2 million per year, subject to escalations indexed to the
Consumer Price Index ("CPI"). In addition, Mr. Mehiel holds an option that
expires July 31, 2006, under which he may require the Company to purchase the
facility for $1.5 million, subject to a CPI-based escalation. In Fiscal 1998,
the Company decided to close its Jacksonville facility and is currently seeking
a sublease tenant. The Company does not expect the outcome of this action to
result in a material adverse effect on the Company's financial condition or
results of operations.
On March 12, 1998, the Company entered into the License Agreement with
CEG, whereby CEG was granted the exclusive rights to use certain trademarks and
trade names in connection with the manufacture, distribution and sale of
disposable party goods products for a period of five years, subject to
extension. In connection therewith, the Company will receive an annual royalty
equal to 5% of CEG's cash flow, as determined in accordance with a formula
specified in such agreement. The Company believes the terms of such agreement
are at least as favorable as those it could otherwise have obtained from
unrelated third parties and were negotiated on an arm's length basis. In
addition, pursuant to such agreement, the Company, at CEG's request,
manufactures and sells to CEG certain party goods products, principally napkins
and paper plates including products bearing the trademarks and trade names
Splash(R) or Party Creations(R). The Company sells such products to CEG on terms
no less favorable to the Company than those it could otherwise have obtained
from unrelated third parties. In Fiscal 1998, the Company's net sales of such
party goods products were approximately $36 million.
On March 12, 1998, the Company amended certain terms of the $2.6
million Promissory Note dated February 27, 1997, made by CEG in favor of the
Company (the "CEG Note"). The 10% annual interest rate on the CEG Note was
converted to pay-in-kind, the CEG Note's 2002 maturity was extended for an
additional three years and the CEG Note was made subordinate to Senior Debt (as
such term is defined therein). In connection with such amendment, the Company
was also issued a warrant to purchase, for a
17
<PAGE>
nominal amount, 2.5% of CEG's common stock. The Company believes the terms of
such loan and the amendments thereto are at least as favorable as those that CEG
could otherwise have obtained from unrelated third parties and were negotiated
on an arm's length basis.
On March 12, 1998 the Company entered into an agreement with SF
Holdings whereby the Company acquired for $7.0 million substantially all of SF
Holding's rights under a Management Services Agreement dated August 31, 1993, as
amended, and pursuant to which the Company has the right, subject to the
direction of the board of directors of Sweetheart, to manage Sweetheart's
day-to-day operations. In consideration of the Company's performance of
services, the Company will be entitled to receive management fees from
Sweetheart of $.7 million, $.9 million and $1.1 million in the first, second and
third years, respectively, and $1.6 million per year for the remaining seven
years of the Management Services Agreement. SF Holdings will be entitled to
receive $.2 million per year in consideration for its performance of certain
administrative services. The Company believes the terms of such agreement are at
least as favorable as those it could otherwise have obtained from unrelated
third parties and were negotiated on an arm's length basis. In Fiscal 1998,
management fee income was $.1 million.
On May 15, 1998, the Company purchased a 38.2% ownership interest in
Fibre Marketing Group, LLC ("Fibre Marketing"), a waste paper recovery business,
from a Director of the Company for $.2 million. The Company granted Sweetheart
the right to acquire 50% of the Company's interest in Fibre Marketing for $.1
million. Four M is also a member of Fibre Marketing. The Company believes the
terms on which it purchased such interest are at least as favorable as those it
could otherwise have obtained from an unrelated third party and were negotiated
on an arm's length basis.
Net sales to CEG were $17 million in Fiscal 1998, $7.8 million in
Fiscal 1997 and $1.9 million in Fiscal 1996 and royalty income was $.1 million
in Fiscal 1998. Net sales to Fibre Marketing were $4.2 million in Fiscal 1998,
$3.6 million in Fiscal 1997 and $4.0 million in Fiscal 1996. The Company also
purchases corrugated containers from Four M which net purchases were $1.1
million in Fiscal 1998, $.9 million in Fiscal 1997 and $.2 million in Fiscal
1996. The Company believes the terms on which it sold or purchased products from
related parties are at least as favorable as those it could otherwise have
obtained from unrelated third parties and were negotiated on an arm's length
basis.
SF Holdings and the Company intend to file consolidated Federal income
tax returns and pursuant to a Tax Sharing Agreement, the Company will pay SF
Holdings its allocable share of the consolidated group's consolidated Federal
income tax liability, which, in general, will equal the tax liability the
Company would have paid if it had filed separate tax returns.
18
<PAGE>
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 26, 1998 and July 27, 1997 F-2
Statements of Income for the three years ended July 26, 1998 F-3
Statements of Cash Flows for the three years ended July 26, 1998 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 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). Exhibits 10.7 through
10.9 are incorporated herein by reference to the exhibit with the corresponding
number filed as part of the Company's Form 10-Q for the quarterly period ended
April 26, 1998.
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.
10.7 Assignment and Assumption Agreement, dated as of March 12,
1998 between the Company and SF Holdings Group, Inc.
19
<PAGE>
10.8 Tax Sharing Agreement, dated as of March 12, 1998 between SF
Holdings Group, Inc. and the Company.
10.9 License Agreement, dated as of March 12, 1998 between
Creative Expressions Group, Inc. and the Company.
27.1 * Financial Data Schedule.
-----------------
* filed herein.
(b) No reports were filed on Form 8-K during the fourth quarter ended July 26,
1998.
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 23, 1998.
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 23, 1998
--------------------------------------- Executive Officer (Principal Executive
Dennis Mehiel Officer)
/s/ ROBERT KORZENSKI President, Chief Operating Officer and October 23, 1998
--------------------------------------- Director
Robert Korzenski
/s/ THOMAS ULEAU Executive Vice President and Director October 23, 1998
---------------------------------------
Thomas Uleau
/s/ HANS H. HEINSEN Senior Vice President, Chief Financial October 23, 1998
--------------------------------------- Officer and Treasurer (Principal
Hans H. Heinsen Financial and Accounting Officer)
/s/ ALFRED B. DELBELLO Vice Chairman October 23, 1998
---------------------------------------
Alfred B. DelBello
/s/ JAMES J. ARMENAKIS Director October 23, 1998
---------------------------------------
James J. Armenakis
/s/ JOHN A. CATSIMATIDIS Director October 23, 1998
---------------------------------------
John A. Catsimatidis
/s/ CHRIS MEHIEL Director October 23, 1998
---------------------------------------
Chris Mehiel
/s/ JEROME T. MULDOWNEY Director October 23, 1998
---------------------------------------
Jerome T. Muldowney
/s/ G. WILLIAM SEAWRIGHT Director October 23, 1998
---------------------------------------
G. William Seawright
/s/ LOWELL P. WEICKER, JR. Director October 23, 1998
---------------------------------------
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 26, 1998 and July 27, 1997 and the related statements of income
and cash flows for each of the three years in the period ended July 26, 1998.
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
26, 1998 and July 27, 1997 and the results of its operations and its cash flows
for each of the three years in the period ended July 26, 1998 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.
/s/DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 28, 1998
F-1
<PAGE>
THE FONDA GROUP, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
July 26, July 27,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 16,361 $ 5,908
Accounts receivable, less allowance for doubtful
accounts of $789 and $961, respectively 29,385 30,009
Due from affiliates 1,584 1,207
Inventories 34,803 40,834
Deferred income taxes 5,469 6,780
Other current assets 2,086 5,835
------------- -------------
Total current assets
89,688 90,573
Property, plant and equipment, net 48,151 59,261
Goodwill, net 21,462 15,405
Other assets, net 19,227 14,365
------------- -------------
TOTAL ASSETS $ 178,528 $ 179,604
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,077 $ 7,340
Accrued expenses 23,863 24,611
Income taxes payable 1,004 -
Current maturities of long-term debt 595 619
------------- -------------
Total current liabilities
32,539 32,570
Long-term debt 121,767 122,368
Other liabilities 1,896 1,436
Deferred income taxes 4,771 6,144
------------- -------------
Total liabilities
160,973 162,518
Redeemable common stock, $.01 par value,
6,500 shares issued and outstanding in 1997 - 2,076
Stockholders' equity 17,555 15,010
============= =============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 178,528 $ 179,604
============= =============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
July 26, July 27, July 28,
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 271,484 $ 252,513 $ 204,903
Cost of goods sold 222,509 201,974 164,836
-------------- ------------- -------------
Gross profit 48,975 50,539 40,067
Selling, general and administrative expenses 34,450 31,527 26,203
Other income, net (14,865) (1,608) -
-------------- ------------- -------------
Income from operations 29,390 20,620 13,864
Interest expense (net of interest income
of $557 in 1998 and $490 in 1997) 12,006 9,017 7,934
-------------- ------------- -------------
Income before income taxes and extraordinary loss 17,384
11,603 5,930
Provision for income taxes 7,127 4,872 2,500
-------------- ------------- -------------
Income before extraordinary 10,257
loss 6,731 3,430
Extraordinary loss from debt extinguishment, net - 3,495 -
============== ============= =============
Net income $ 10,257 $ 3,236 $ 3,430
============== ============= =============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
July 26, July 27, 1997 July 28, 1996
1998
------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net income $ 10,257 $ 3,236 $ 3,430
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,156 4,954 4,471
Write-off of unamortized debt discount and issuance costs - 4,234 -
Interest capitalized on debt - 684 165
Provision for doubtful accounts 388 457 148
Deferred income taxes (61) 3,005 533
Net gain on business and equipment dispositions
and settlement of long-term contracts (16,333) - -
Changes in assets and liabilities (net of business
acquisitions and dispositions):
Accounts receivable (795) (2,007) 6,826
Due from affiliates (377) (213) (994)
Inventories 5,171 (1,178) (299)
Other current assets 1,978 (3,273) (26)
Accounts payable and accrued expenses (1,338) (1,019) 8,782
Income taxes payable 2,732 (1,280) (3,644)
Other (765) 673 (1,719)
------------- -------------- --------------
Net cash provided by operating activities 7,013 8,273 17,673
------------- -------------- --------------
Investing activities:
Capital expenditures (7,039) (10,363) (1,314)
Proceeds from business and equipment dispositions 34,793 - -
Payments for business acquisitions (6,901) (23,043) (45,218)
Payment for Management Services Agreement (7,000) - -
Note receivable from affiliate - (2,600) -
------------- -------------- --------------
Net cash provided by (used in) investing activities 13,853 (36,006) (46,532)
------------- -------------- --------------
Financing activities:
Net increase (decrease) in revolving credit borrowings - (32,842) 14,745
Proceeds from long-term debt - 120,000 18,803
Repayments of long-term debt (625) (49,879) (2,499)
Redemption of common stock (9,788) (203) -
Debt issuance costs - (4,902) (843)
------------- -------------- --------------
Net cash provided by (used in) financing activities (10,413) 32,174 30,206
------------- -------------- --------------
Net increase in cash 10,453 4,441 1,347
Cash, beginning of year 5,908 1,467 120
============= ============== ==============
Cash, end of year $ 16,361 $ 5,908 $ 1,467
============= ============== ==============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THE 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 (i) private label paper plates, bowls and cups for the consumer
market and (ii) premium tissue products, including napkins, placemats and
tablecovers for the institutional and consumer markets. On March 12, 1998, SF
Holdings Group, Inc. ("SF Holdings"), a Delaware corporation principally owned
by the majority stockholder of the Company, acquired 90% of the total
outstanding common stock, including 48% of the total voting common stock, of
Sweetheart Holdings Inc. ("Sweetheart"). In connection therewith, all of the
outstanding shares of the Company were converted into shares of SF Holdings
pursuant to a merger whereby the stockholders of the Company became stockholders
of SF Holdings and the Company became a wholly-owned subsidiary of SF Holdings
(the "Merger"). Each share of Class A and Class B Common Stock of the Company,
and options and warrants to purchase such shares, were converted into shares of
Class A or Class B common stock, or options and warrants to purchase such
shares, as the case may be, of SF Holdings.
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 1998, 1997 and 1996
fiscal years were fifty-two week periods ended July 26, 1998, July 27, 1997 and
July 28, 1996, respectively. See Note 17.
Reclassification--Certain prior year amounts have been reclassified to
conform to the current year presentation.
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 $4.4 million at July 26, 1998 and $4.8 million at July 27,
1997 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 amounts of financial
instruments included in current assets and liabilities approximate their
estimated fair value because of the relatively short maturities of these
instruments. The carrying amounts of the Notes (as defined below), which is
thinly traded, approximate its estimated fair value based on management's best
estimate of recent trading prices.
Impact of Recently Issued Accounting Standards-- In June 1997, the
Financial Accounting Standards Board (the "FASB") issued Statement No. 130,
Reporting Comprehensive Income and Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. In February 1998, the FASB issued
Statement No. 132, Employers' Disclosure about Pensions and Other Postretirement
Benefits. The Company is in the process of evaluating the new statements, which
are effective
F-5
<PAGE>
for Fiscal 1999. The adoption of these statements is not expected to have a
material effect on the Company's financial statements. In Fiscal 1998, the
Company adopted Statement No. 123 Accounting for Stock-Based Compensation ("SFAS
No. 123"). SFAS No. 123 encourages, but does not require companies to record at
fair value compensation cost for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
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 $1
million in Fiscal 1998, $.4 million in Fiscal 1997 and $.2 million in Fiscal
1996. Accumulated amortization was $1.6 million and $.6 million at July 26, 1998
and July 27, 1997, respectively.
Fiscal 1998 Acquisition
In January 1998, the Company acquired certain net assets of Leisureway,
Inc., a manufacturer of white paper plates, for $7.2 million, including deferred
payments of $.3 million and acquisition costs. The excess of the purchase price
over the Company's evaluation of the fair value of the net assets acquired was
$7.1 million and has been recorded as goodwill.
Fiscal 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.
Fiscal 1996 Acquisitions
In May 1996, the Company acquired certain net assets of two divisions
("James River-California" and the "Mill") of the Specialties Operations Division
of James River Paper Corporation (the "James River Division") for $13.1 million,
including acquisition costs, and including a promissory note to the seller which
was settled in 1997 for $2.2 million. In Fiscal 1997, the Company decided to
close the James River-California manufacturing facility, which produced
tissue-based products. In Fiscal 1998, the Company sold the Mill, which produced
specialty and deep-toned colored tissue paper (see Note 4). In exchange for
hosting a co-generation facility on its site, the Mill received all of its steam
energy requirements at 50% and 25% of historical cost in calendar 1997 and 1998,
respectively, and had expected to receive significantly increased savings for
the next 40 years thereafter, as well as land lease payments from the operator
of the facility. The $10 million in benefits from the co-generation facility was
included in long-term assets acquired and was being amortized based upon the
Mill's annual savings over the 42-year remaining life of the contract (see Note
4). 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 was allocated to
long-term assets. The remaining net assets and business of the James River
Division were acquired by Creative Expressions Group, Inc. ("CEG"), an affiliate
of 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 $2.3 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.
F-6
<PAGE>
4. OTHER INCOME, NET
On March 24, 1998, the Company consummated an agreement to sell
substantially all of the fixed assets and certain related working capital of the
Mill (the "Mill Disposition"). In addition, on July 1, 1998, the Company
consummated an agreement with the owner of the co-generation facility at the
Mill (see Note 3), whereby the owner of such facility terminated its obligation
to supply steam to the Mill and to make certain land lease payments. As a result
of these transactions, the Company realized net proceeds of $38.5 million and
recorded a gain of $15.9 million which was included in other income, net. Such
net proceeds included a $3.7 million note receivable (included in other assets)
from the Mill Disposition, due in March 2008, with 5.7% interest payable in the
form of additional notes receivable. Pursuant to an asset sale covenant under
the indenture governing the Notes, resulting from the receipt of proceeds from
the Mill Disposition, the Company is required to (i) reinvest approximately $10
million of such net proceeds in fixed assets within 270 days of such
disposition, or (ii) offer to repurchase the Notes to the extent that such
amount has not been reinvested. The Mill had net sales, excluding intercompany
sales, and operating income of $13.5 million and $.9 million, respectively, in
Fiscal 1998, $19.3 million and $4.1 million in Fiscal 1997, and $4.3 million and
$.8 million in Fiscal 1996.
In May 1998, the Company decided to close its administrative offices in
St. Albans, Vermont and relocate such offices, including its principal executive
offices, to Oshkosh, Wisconsin. The Company accrued $.5 million in 1998 for such
relocation, which is expected to be completed by the end of calendar 1998.
In Fiscal 1997, 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):
July 26, 1998 July 27, 1997
------------- -------------
Raw materials and supplies $ 15,663 $ 20,098
Work-in-process 194 391
Finished goods 18,946 20,345
============= =============
$ 34,803 $ 40,834
============= =============
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
Lives In July 26, July 27,
Years 1998 1997
------------------ ------------- -------------
<S> <C> <C> <C>
Land and buildings 20-40 $ 21,958 $ 21,703
Machinery and equipment 3-12 43,241 46,108
Leasehold improvements 5-10 923 955
Construction in progress 2,732 8,794
------------- -------------
68,854 77,560
Less: accumulated depreciation (20,703) (18,299)
============= =============
$ 48,151 $ 59,261
============= =============
</TABLE>
Depreciation expense was $4.3 million in Fiscal 1998, $3.9 million in
Fiscal 1997 and $3.2 million in Fiscal 1996. In addition, property, plant and
equipment includes buildings under capital lease at a cost of $2.2 million and a
net book value of $1.6 million in Fiscal 1998 and $1.7 million in Fiscal 1997.
F-7
<PAGE>
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 Fiscal
1996.
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
July 26, July 27,
1998 1997
-------------- --------------
<S> <C> <C>
Compensation and benefits $ 7,635 $ 8,149
Interest payable 4,622 4,716
Promotion and sales allowances 2,447 2,555
Insurance 2,785 1,465
Other 6,374 7,726
============== ==============
$ 23,863 $ 24,611
============== ==============
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
July 26, July 27,
1998 1997
------------- -------------
<S> <C> <C>
Senior Subordinated Notes $ 120,000 $ 120,000
Other 2,362 2,987
------------- -------------
122,362 122,987
Less amounts due within one year 595 619
============= =============
$ 121,767 $ 122,368
============= =============
</TABLE>
In 1997, the Company issued $120 million of 9 1/2% Series A Senior
Subordinated Notes due 2007 (the "Notes") with interest payable semi-annually.
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.
Also 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 26, 1998 and July 27, 1997, there
was no outstanding balance, $8.3 million was the maximum amount outstanding
during Fiscal 1998, and at July 26, 1998, $36.7 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 26, 1998, borrowings
were available at the bank's prime rate (8.50%) plus .25% and at LIBOR
(approximately 5.66%) 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) asset sales, (iv) dividends, and
(v) additional indebtedness. In addition, the revolving credit agreement
requires that the Company satisfy certain financial covenants.
F-8
<PAGE>
10. STOCKHOLDERS' EQUITY AND REDEEMABLE COMMON STOCK
Stockholders' equity consists of the following (in thousands, except share
data):
<TABLE>
July 26, July 27,
1998 1997
-------------- --------------
<S> <C> <C>
Preferred Stock, $.01 par value, 1,000 shares authorized, none issued, in 1997 $ - $ -
Preferred Stock Class B, $.01 par value, 100,000 shares authorized, none issued, - -
in 1997
Common Stock, $.01 par value, 1,000 shares authorized,
100 issued and outstanding, in 1998 - -
Common Stock Class A, $.01 par value, 400,000 shares authorized,
184,000 issued and outstanding, in 1997 - 2
Common Stock Class B, $.01 par value, 20,000 shares authorized,
2,666 issued and outstanding, in 1997 - -
Common Stock Class C, $.01 par value, 200,000 shares authorized, none issued, in - -
1997
Paid-in capital - 3,500
Retained earnings 17,555 11,643
Treasury stock, at cost, 1,000 shares Class B Common Stock, in 1997 - (135)
============== ==============
$ 17,555 $ 15,010
============== ==============
</TABLE>
On March 12, 1998, in conjunction with the Merger, each share of Class
A and Class B Common Stock of the Company, and options and warrants to purchase
such shares, was converted into shares of Class A or Class B common stock of SF
Holdings, and options and warrants to purchase such shares, respectively, and
100 shares of Common Stock, $.01 par value, were issued to SF Holdings. See Note
1.
Prior to the Merger, 7,000 shares of the Company's Class A Common Stock
were subject to a redemption agreement (the "Redeemable Common"), whereby the
holder had the right to require the Company to repurchase all of the Redeemable
Common 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. In 1997, 500 shares of Redeemable Common were acquired by the Company
pursuant to the Stock Repurchase (as defined below). The outstanding Redeemable
Common was recorded in the July 27, 1997 balance sheet at the present value of
the aggregate $2.8 million repurchase price discounted at a rate of 3% per
annum. The annual accretion to liquidation value had been charged to retained
earnings. On March 12, 1998, in conjunction with the Merger, the outstanding
Redeemable Common were converted into shares of redeemable common stock of SF
Holdings and the book value of the Redeemable Common at that date was credited
to retained earnings.
In April 1997, the Company offered to repurchase up to 74,000 shares of
its common stock at $135 per share from its stockholders on a pro rata basis
(the "Stock Repurchase"). In Fiscal 1997, pursuant to the Stock Repurchase, the
Company redeemed 500 shares of Redeemable Common and 1,000 shares of Class B
common stock for $135 per share. The repurchase of the Redeemable Common for
less than the present value of the liquidation amount as of the date of
repurchase resulted in a credit to retained earnings. The repurchased shares of
Class B common stock were reported as Treasury Stock in the July 27, 1997
balance sheet. The Company redeemed the remaining 72,500 shares of Class A
common stock in Fiscal 1998, prior to the Merger, for $9.8 million. All of the
repurchased shares were canceled in Fiscal 1998, and in connection therewith,
paid in capital was charged $3.5 million and the remainder of the purchase price
was charged to retained earnings.
In conjunction with debt offerings in 1995, the Company granted
warrants to purchase 9,176 shares of its Class B common stock for $.01 per share
and issued 3,666 shares of its Class B common stock. In Fiscal 1997, 1,000 of
such Class B shares were redeemed by the Company pursuant to the Stock
Repurchase. On March 12, 1998, in conjunction with the Merger, such warrants
were exercised and all then outstanding Class B common stock of the Company was
converted into shares of Class B common stock of SF Holdings.
In September 1997, the Company's Board of Directors granted the
Company's majority stockholder options to purchase 15,000 shares of Class A
Common Stock at an option price of $135 per share. On March 12, 1998, in
conjunction with the Merger, such options were converted into options to
purchase shares of Class A common stock of SF Holdings. The proforma effect of
such options on compensation expense, as required by SFAS No. 123, was less than
$.1 million.
F-9
<PAGE>
The changes in retained earnings consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
July 26, July 27, July 28,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year $ 11,643 $ 8,371 $ 5,005
Net income 10,257 3,236 3,430
Transfer of liquidation value of redeemable common stock 2,118 100 -
Accretion of redeemable common stock (43) (64) (64)
Retirement of treasury stock (6,420) - -
============= ============= =============
Balance, end of year $ 17,555 $ 11,643 $ 8,371
============= ============= =============
</TABLE>
The Fonda Group, Inc. Stock Appreciation Unit 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 15,560 units in Fiscal 1998, 10,980 units in Fiscal 1997 and
9,500 in Fiscal 1996 at an aggregate value on the date of grant of $.9 million,
$.4 million and $.3 million, respectively. The Company recorded compensation
expense of $.5 million in Fiscal 1998, $.1 million in Fiscal 1997 and $.1
million in Fiscal 1996.
11. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
Years Ended
-----------------------------------------------
July 26, July 27, 1997 July 28, 1996
1998
------------- -------------- --------------
Current:
Federal $ 5,430 $ 1,449 $ 1,526
State 1,758 418 441
------------- -------------- --------------
7,188 1,867 1,967
------------- -------------- --------------
Deferred:
Federal 156 2,328 423
State (217) 677 110
------------- -------------- --------------
(61) 3,005 533
============= ============== ==============
$ 7,127 $ 4,872 $ 2,500
============= ============== ==============
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 26, July 27,
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs $ 710 $ 785
Allowance for doubtful accounts receivable 636 349
Accruals for health insurance and other employee benefits 1,852 1,911
Inventory and sales related reserves 996 567
Pension reserve 384 433
Benefit of tax carryforwards 233 370
Other 993 1,485
------------- -------------
5,804 5,900
Deferred tax liabilities:
Depreciation (5,106) (5,264)
============= =============
$ 698 $ 636
============= =============
</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 26, 1998 July 27, 1997 July 28, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Income tax at statutory rate $ 6,084 $ 4,061 $ 2,076
State income taxes (net of Federal benefit) 947 712 365
Other 96 99 59
============== ============== ==============
$ 7,127 $ 4,872 $ 2,500
============== ============== ==============
</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 $1.4 million in Fiscal 1999, $1.1
million in Fiscal 2000, $.8 million in Fiscal 2001, $.8 million in Fiscal 2002,
$.7 million in Fiscal 2003, and $2.5 million thereafter.
Rent expense was $2 million in Fiscal 1998, $2 million in Fiscal 1997
and $1.8 million in Fiscal 1996.
13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
July 26, 1998 July 27, 1997 July 28, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest, including $192 capitalized in 1998
and $163 capitalized in 1997 $ 12,104 $ 5,018 $ 6,029
Income taxes, net of refunds 4,532 614 5,611
Businesses acquired:
Fair value of assets acquired including $ 8,874 $ 23,637 $ 59,090
goodwill
Liabilities assumed (including notes payable
to sellers of $9,250 during Fiscal 1996)
594 13,872 1,973
============== ============== ==============
Cash paid $ 6,901 $ 23,043 $ 45,218
============== ============== ==============
</TABLE>
14. RELATED PARTY TRANSACTIONS
The Company leases a building in Jacksonville, Florida from the
majority stockholder of SF Holdings on terms the Company believes are no less
favorable than could be obtained from independent third parties and were
negotiated on an arm's length basis. 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. In Fiscal 1998, the Company
decided to close this facility and is currently seeking a sublease tenant. The
Company does not expect the outcome of this action to result in a material
adverse effect on the Company's financial condition or results of operations.
Rent expense, net of sublease income on a portion of the premises subleased
through May 1998 to Four M, was $.1 million in each of the fiscal years 1998,
1997 and 1996.
On March 12, 1998, the Company entered into a license agreement with
CEG, whereby CEG was granted the exclusive rights to use certain trademarks and
trade names in connection with the manufacture, distribution and sale of
disposable party goods products for a period of five years, subject to
extension. In connection therewith, the Company will receive an annual royalty
equal to 5% of CEG's cash flow, as determined in accordance with a formula
specified in such agreement. The Company believes that the terms of such
agreement are at least as favorable as those it could otherwise have obtained
from unrelated third parties and were negotiated on an arm's length basis. In
addition, in accordance with such agreement, the Company, at CEG's request,
manufactures and sells to CEG certain party goods products, principally napkins
and paper plates. The Company sells such product to CEG on terms no less
favorable to the Company than those it could otherwise have obtained from
unrelated third parties. In Fiscal 1998, the Company's net sales of such party
goods products were approximately $36 million and royalty income from CEG was
$.1 million.
F-11
<PAGE>
On March 12, 1998, the Company amended certain terms of the $2.6
million Promissory Note dated February 27, 1997, made by CEG in favor of the
Company (the "CEG Note"). The 10% annual interest rate on the CEG Note was
converted to pay-in-kind, the CEG Note's 2002 maturity was extended for an
additional three years and the CEG Note was made subordinate to Senior Debt (as
such term is defined therein). In connection with such amendment, the Company
was also issued a warrant to purchase, for a nominal amount, 2.5% of CEG's
common stock. The Company believes that the terms of such loan and the
amendments thereto 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 loan is included in other assets.
On March 12, 1998 the Company entered into an agreement with SF
Holdings whereby the Company acquired for $7.0 million substantially all of SF
Holding's rights under a Management Services Agreement dated August 31, 1993, as
amended, and pursuant to which the Company has the right, subject to the
direction of the board of directors of Sweetheart, to manage Sweetheart's
day-to-day operations. In consideration of the Company's performance of
services, the Company will be entitled to receive management fees from
Sweetheart of $.7 million, $.9 million and $1.1 million in the first, second and
third years, respectively, and $1.6 million per year for the remaining term of
the Management Services Agreement. The Company believes that the terms of such
agreement are at least as favorable as those it could otherwise have obtained
from unrelated third parties and were negotiated on an arm's length basis. The
$7 million payment is included in other assets and is being amortized over the
term of such agreement. In Fiscal 1998, management fee income, net of
amortization on the $7 million asset, was $.1 million.
On May 15, 1998, the Company purchased a 38.2% ownership interest in
Fibre Marketing Group, LLC ("Fibre Marketing"), a waste paper recovery business,
from a director of the Company for $.2 million. Four M is also a member of Fibre
Marketing. The Company granted Sweetheart the right to acquire 50% of the
Company's interest in Fibre Marketing for $.1 million. The Company believes that
the terms on which it purchased such interest are at least as favorable as those
it could otherwise have obtained from an unrelated third party and were
negotiated on an arm's length basis.
Net sales to CEG were $17 million in Fiscal 1998, $7.8 million in
Fiscal 1997 and $1.9 million in Fiscal 1996. Net sales to Fibre Marketing were
$4.2 million in Fiscal 1998, $3.6 million in Fiscal 1997 and $4 million in
Fiscal 1996. The Company also purchases corrugated containers from Four M, which
were $1.1 million in Fiscal 1998, $.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 are at least as favorable as those it could
otherwise have obtained from unrelated third parties and were negotiated on an
arm's length basis.
15. 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-union pension plans
resulting in a $.7 million reduction in the pension liability in Fiscal 1997.
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 26, 1998 July 27, July 28,
1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Service cost $ 285 $ 433 $ 731
Interest cost 444 403 455
Return on plan assets (534) (751) (313)
Deferred gain 93 487 -
============== ============= =============
Net periodic pension cost $ 288 $ 572 $ 873
============== ============= =============
</TABLE>
F-12
<PAGE>
The funded status of the plans and the amount recognized in the balance sheets
is as follows (in thousands):
<TABLE>
<CAPTION>
July 26, 1998 July 27, 1997
----------------------------- -----------------------------
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 $ 2,136 $ 4,656 $ 2,004 $ 3,515
Non-vested - 57 30 49
============= ============== ============== =============
Total $ 2,136 $ 4,713 $ 2,034 $ 3,564
============= ============== ============== =============
Projected benefit obligation $ 2,136 $ 4,713 $ 2,034 $ 3,564
Plan assets at fair value, primarily
common stocks and government obligations
2,371 3,772 2,170 2,846
------------- -------------- -------------- -------------
Projected benefit obligation
in excess of plan assets (235) 941 (136) 718
Unrecognized net gains and deferrals 203 86 136 329
Intangible asset - (69) - -
============= ============== ============== =============
Accrued pension cost (benefit) $ (32) $ 958 $ - $ 1,047
============= ============== ============== =============
</TABLE>
The actuarial present values of accumulated and projected benefit
obligations were determined using discount rates of 7%, except for union plans
which used 8% in Fiscal 1997. 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 $1.1
million in Fiscal 1998, $.8 million in Fiscal 1997 and $.4 million in Fiscal
1996.
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 1998, $.6 million in 1997, and $1.3
million in 1996.
16. COMMITMENTS AND CONTINGENCIES
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 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 11,000 tons of tissue paper
in 1998 and 10,000 tons in 1999, at the lower of a formula based price or market
rates.
17. SUBSEQUENT EVENT
On October 22, 1998, the Board of Directors approved a change in the
Company's fiscal year end from a fifty-two or fifty-three week period which ends
on the last Sunday in July to the same number of periods which ends on the last
Sunday in September. The Company will file a transition report for the period
from July 27, 1998 to September 27, 1998 on Form 10-Q.
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 COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to Balance at
beginning Cost and Other Deductions- end of
of Expenses Accts.- describe period
Description Period -------- Describe -------- ------
----------- ------ --------
<S> <C> <C> <C> <C> <C>
Year ended July 26, 1998:
Allowance for doubtful
accounts . . . . . . . . . . $961 388 28(2) 535(1) $789
57(3) 110(4)
Year ended July 27, 1997:
Allowance for doubtful
accounts . . . . . . . . . . $549 457 -- 45(1) $961
Year ended July 28, 1996:
Allowance for doubtful
accounts . . . . . . . . . . $401 148 100(2) 100(1) $549
</TABLE>
- ------------------------------
(1) Amounts written-off
(2) Additions related to acquisitions
(3) Recoveries
(4) Deduction related to dispositions
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-26-1998
<PERIOD-START> JUL-28-1997
<PERIOD-END> JUL-26-1998
<CASH> 16,361
<SECURITIES> 0
<RECEIVABLES> 30,174
<ALLOWANCES> 789
<INVENTORY> 34,803
<CURRENT-ASSETS> 89,688
<PP&E> 68,854
<DEPRECIATION> 20,703
<TOTAL-ASSETS> 178,528
<CURRENT-LIABILITIES> 32,539
<BONDS> 121,767
0
0
<COMMON> 0
<OTHER-SE> 17,555
<TOTAL-LIABILITY-AND-EQUITY> 178,528
<SALES> 271,484
<TOTAL-REVENUES> 271,484
<CGS> 222,509
<TOTAL-COSTS> 222,509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 388
<INTEREST-EXPENSE> 12,006
<INCOME-PRETAX> 17,384
<INCOME-TAX> 7,127
<INCOME-CONTINUING> 10,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,257
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
