UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(mark one)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the twenty-six weeks ended March 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 333-24939
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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of May 1, 1999: 100 Shares
<PAGE>
THE FONDA GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements (unaudited): Page
Balance Sheets as of March 28, 1999 and July 26, 1998 (audited) 3
Statements of Operations for the thirteen and twenty-six weeks ended
March 28, 1999 and April 26, 1998 4
Statements of Cash Flows for the twenty-six weeks ended
March 28, 1999 and April 26, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FONDA GROUP, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 28, July 26,
1999 1998
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,097 $ 16,361
Accounts receivable, less allowance for doubtful
accounts of $618 and $789, respectively 28,219 29,385
Due from affiliates 6,804 1,584
Inventories 38,992 34,803
Deferred income taxes 5,526 5,469
Other current assets 3,294 2,086
-------------- -------------
Total current assets 85,932 89,688
Property, plant and equipment, net 56,044 48,151
Goodwill, net 19,944 21,462
Other assets, net 19,856 19,227
-------------- -------------
TOTAL ASSETS $ 181,776 $ 178,528
============== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 14,358 $ 7,077
Accrued expenses 16,955 24,867
Current maturities of long-term debt 552 595
-------------- -------------
Total current liabilities 31,865 32,539
Long-term debt 125,324 121,767
Other liabilities 2,505 1,896
Deferred income taxes 5,429 4,771
-------------- -------------
Total liabilities 165,123 160,973
Stockholder's equity 16,653 17,555
============== =============
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 181,776 $ 178,528
============== =============
</TABLE>
See notes to financial statements
3
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------- --------------------------------
March 28, April 26, March 28, April 26,
1999 1998 1999 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 59,135 $ 66,923 $ 128,127 $ 132,939
Cost of goods sold 51,047 56,494 107,934 110,000
------------- -------------- -------------- --------------
Gross profit 8,088 10,429 20,193 22,939
Selling, general and
administrative expenses 6,976 8,671 15,517 17,433
Other income, net (82) (9,099) (174) (9,409)
------------- -------------- -------------- --------------
Income from operations 1,194 10,857 4,850 14,915
Interest expense, net 2,975 3,148 5,797 6,215
------------- -------------- -------------- --------------
Income (loss) before income taxes (1,781) 7,709 (947) 8,700
Income tax provision (benefit) (732) 3,238 (390) 3,655
------------- -------------- -------------- --------------
Net income (loss) $ (1,049) $ 4,471 $ (557) $ 5,045
============= ============== ============== ==============
</TABLE>
See notes to financial statements
4
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
----------------------
March 28, April 26,
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) $ (557) $ 5,045
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,057 3,075
Provision for doubtful accounts 76 42
Deferred income taxes 306 262
Gain on business disposition - (9,325)
(Gain) loss on equipment dispositions 14 (288)
Changes in assets and liabilities:
Accounts receivable 2,973 8,740
Due from affiliates (5,803) (4,883)
Inventories (1,769) 3,610
Other current assets (825) (353)
Accounts payable and accrued expenses 4,650 2,231
Other (1,260) (458)
-------------- --------------
Net cash provided by operating activities 862 7,698
-------------- --------------
Investing activities:
Capital expenditures (9,942) (4,224)
Proceeds from equipment dispositions 348 314
Proceeds from business disposition - 20,843
Payments for business acquisitions - (6,901)
Payment for Management Services Agreement - (7,000)
-------------- --------------
Net cash provided by (used in) investing activities (9,594) 3,032
-------------- --------------
Financing activities:
Net increase (decrease) in revolving credit borrowings 3,844 (7,659)
Repayments of long-term debt (277) (319)
Redemption of common stock - (1,436)
-------------- --------------
Net cash provided by (used in) financing activities 3,567 (9,414)
-------------- --------------
Net increase (decrease) in cash (5,165) 1,316
Cash, beginning of period 8,262 2,339
-------------- --------------
Cash, end of period $ 3,097 $ 3,655
============== ==============
Supplemental cash flow information: Cash paid during the period for:
Interest $ 5,969 $ 6,114
Income taxes, net of refunds $ 2,241 $ 343
</TABLE>
See notes to financial statements
5
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The information included in the foregoing interim financial statements
of The Fonda Group, Inc. (the "Company") are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments and accruals) which the Company considers necessary for a fair
presentation of the operating results for these periods. Results for interim
periods are not necessarily indicative of results for the entire year. These
condensed financial statements should be read in conjunction with the Company's
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the fiscal year ended July 26, 1998 and its transition report
on Form 10-Q for the nine week period ended September 27, 1998. Certain amounts
for prior periods have been reclassified to conform with current period
presentation.
As a result of 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 weekly periods which end on the last Sunday in September, the quarterly
comparisons in this report are between the thirteen and twenty-six week periods
ended March 28, 1999 and April 26, 1998.
2. INVENTORIES
Inventories consist of the following (in thousands):
March 28, July 26,
1999 1998
-------------- -------------
Raw materials and supplies $ 19,315 $ 15,663
Work-in-process 368 194
Finished goods 19,309 18,946
============== =============
$ 38,992 $ 34,803
============== =============
3. ACCOUNTS PAYABLE
Net cash overdrafts are reclassified to accounts payable. At March 28,
1999, $5.9 million of such overdrafts were included in accounts payable.
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 its
Natural Dam tissue mill, pursuant to which the Company realized net proceeds of
$24.6 million, including a note receivable of $3.8 million, and recorded a
pre-tax gain of $9.3 million.
5. RELATED PARTY TRANSACTIONS
In December 1998, the Company entered into an Exclusive Manufacture and
Supply Agreement (the "Manufacture and Supply Agreement") with Creative
Expressions Group ("CEG"), an affiliate. Pursuant to such agreement, the Company
manufactures and supplies all of CEG's requirements for, among other items,
disposable paper plates, cups, napkins and tablecovers. The Company sells such
manufactured products to CEG in accordance with a formula based on cost. Also in
December 1998, the Company purchased certain manufacturing assets from CEG for
$4.9 million and entered into operating leases whereby the Company leases to CEG
certain non-manufacturing assets for annual lease income of $.1 million.
Independent appraisals were obtained to determine the fairness of both the
purchase price and lease terms. The Company believes the terms on which it (i)
manufactures and supplies products for CEG, (ii) purchased manufacturing assets
from CEG, and (iii) leased non-manufacturing assets to CEG are at least as
favorable as those it could have obtained from unrelated third parties and were
negotiated on an arm's length basis.
6
<PAGE>
In December 1998, the Company purchased certain paper plate
manufacturing assets from Sweetheart Holdings Inc. ("Sweetheart"), an affiliate,
for $2.4 million. In February 1999, the Company entered into a five year
operating lease with Sweetheart, whereby the Company leases certain paper cup
manufacturing assets to Sweetheart with a net book value of $1.3 million for
annual lease income of $.2 million. Independent appraisals were obtained to
determine the fairness of both the purchase price and lease terms. The Company
believes the terms on which it purchased manufacturing assets from Sweetheart
and leases manufacturing assets to Sweetheart are at least as favorable as those
it could have 8 obtained from unrelated third parties and were negotiated on an
arm's length basis.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion for The Fonda Group, Inc. (the "Company")
contains forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on
management's current expectations and involve a number of known and unknown
risks and uncertainties that could cause the actual results, performance or
achievements of the Company to be materially different from those anticipated in
these forward-looking statements. Such risks and uncertainties include, but are
not limited to, the highly competitive nature of the industry, raw material
costs and fluctuations in demand for the Company's products due in part to
general economic and business conditions.
As a result of the change in the fiscal year-end from the fifty-two or
fifty-three week period which ends on the last Sunday in July to the same weekly
periods which ends on the last Sunday in September, the quarterly and
year-to-date comparisons are between the thirteen and twenty-six week periods
ended March 28, 1999 (the "1999 Thirteen Week Period" and the "1999 Twenty-six
Week Period") and the same number of week periods ended April 26, 1998 (the
"1998 Thirteen Week Period" and the "1998 Twenty-six Week Period"). Sales and
income from operations are historically lowest in January and February and tend
to be highest from May through November. As a result, the four week period in
January (which is included in the 1999 Thirteen Week Period) historically has
had lower sales compared to the four week period in April (which is included in
the 1998 Thirteen Week Period). In the twenty-six week comparison, the
seasonality effect is reduced as sales in the four week period in October (which
is included in the 1999 Twenty-six Week Period) historically have not been
materially different than those in the four week period in April (which is
included in the 1998 Twenty-six Week Period).
The Company, a wholly owned subsidiary of SF Holdings Group, Inc. ("SF
Holdings"), is a converter and marketer of disposable paper food service
products. The price of SBS paperboard, one of the Company's primary raw
materials, historically fluctuates. These fluctuations are generally passed on
to customers through price increases or reductions. However, in the short term,
the Company is at risk of margin erosion. The severity of such margin erosion
depends on various factors including inventory levels at the time of a price
change, the timing and frequency of such price changes, and the lead and lag
time that generally accompanies the implementation of both raw materials and
subsequent selling price changes.
The Company's business is moderately seasonal as away from home
consumption of disposable products increases in the late spring and summer and
party goods sales peak in the fall for holiday seasons. This results in
disproportionately higher net income during these peak periods as cost
absorption improves resulting from a more profitable sales and production mix.
In connection with the License Agreement (as described below), the
Company and Creative Expressions Group ("CEG"), an affiliate, entered into an
Exclusive Manufacture and Supply Agreement in December 1998 (the "Manufacture
and Supply Agreement" and together with the License Agreement the "CEG
Agreements"). Pursuant to the Manufacture and Supply Agreement, the Company
manufactures and supplies all of CEG's requirements for, among other items,
disposable paper plates, cups, napkins and tablecovers. The Company sells such
manufactured products to CEG in accordance with a formula based on cost, as
defined in such agreement. The Company believes that such agreement will enable
it to increase the utilization of its manufacturing capacity. Pursuant to the
License Agreement, CEG has the right, among other things, to distribute certain
products previously distributed by the Company and in exchange therefor, the
Company receives a royalty of 5% of CEG's cash flow as determined in accordance
with a formula specified in such agreement.
Recent Developments
The Company is engaged in an extensive program to improve manufacturing
efficiencies and upgrade production capabilities, which includes, among other
things, the full implementation of the Manufacture and Supply Agreement and
further consolidation of its manufacturing operations (the "Efficiency
Initiatives"). This program has and will continue to result in incremental
expenses arising from start-up, training and other related expenses. In
connection with the Efficiency Initiatives, (i) in December 1998, the Company
purchased certain paper plate manufacturing assets from Sweetheart Holdings Inc.
("Sweetheart"), an affiliate, for $2.4 million and (ii) in February 1999, the
Company entered into a five year operating lease whereby the Company leases
certain paper cup manufacturing assets to Sweetheart.
8
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
March 28, 1999 April 26, 1998 March 28, 1999 April 26, 1998
-------------- -------------- -------------- --------------
% of % of % of % of
Net Net Net Net
Amount Sales Amount Sales Amount Sales Amount Sales
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 59.1 100.0 % $ 66.9 100.0 % $ 128.1 100.0 % $ 132.9 100.0 %
Cost of goods sold 51.0 86.3 56.5 84.4 107.9 84.2 110.0 82.7
------- ------- ------- ------- -------- ------- -------- -------
Gross profit 8.1 13.7 10.4 15.6 20.2 15.8 22.9 17.3
Selling, general and
administrative expenses 7.0 11.8 8.7 13.0 15.5 12.1 17.4 13.1
Other income, net (0.1) (0.1) (9.1) (13.6) (0.2) (0.1) (9.4) (7.1)
------- ------- ------- ------- -------- ------- -------- -------
Income (loss) from operations 1.2 2.0 10.9 16.2 4.9 3.8 14.9 11.2
Interest expense, net 3.0 5.0 3.1 4.7 5.8 4.5 6.2 4.7
------- ------- ------- ------- -------- ------- -------- -------
Income (loss) before taxes (1.8) (3.0) 7.7 11.5 (0.9) (0.7) 8.7 6.5
Income tax expense (benefit) (0.7) (1.2) 3.2 4.8 (0.4) (0.3) 3.7 2.7
======= ======= ======= ======= ======== ======= ======== =======
Net income (loss) $ (1.0) (1.8)% $ 4.5 6.7 % $ (0.6) (0.4) % $ 5.0 3.8 %
</TABLE>
Thirteen Weeks Ended March 28, 1999 Compared to Thirteen Weeks Ended April 26,
1998
Net sales were $59.1 million in the 1999 Thirteen Week Period and $66.9
million in the 1998 Thirteen Week Period. The 1998 Thirteen Week Period included
$4.3 million of net sales of tissue mill products relating to operations that
were sold in March 1998. Excluding such tissue mill sales, net sales decreased
$3.7 million due to the effects of seasonality on the quarterly comparison,
partially offset by increased sales resulting from the CEG Agreements. Sales
volume in the Company's converting operations increased 17.3% in the consumer
market and decreased 1.5% in the institutional market. Average selling prices
decreased 18.9% in the consumer market and increased 6.0% in the institutional
market. The increased volume in the consumer market was due to the increase in
tissue products sold to CEG in accordance with the CEG Agreements. Such increase
more than offset the reduction in volume due to the effects of seasonality
resulting from comparing the 1999 Thirteen Week Period (which includes the four
week period in January 1999) with the 1998 Thirteen Week Period (which includes
the four week period in April 1998). The reduction in selling prices in the
consumer market reflects cost savings from the License Agreement as well as
savings that the Company is beginning to realize and expects to realize more
fully in future periods upon full implementation of the Manufacture and Supply
Agreement. In the institutional market, the increase in selling prices and
reduction in sales volume were primarily due to a change in sales mix, whereby
the Company emphasized the sale of value added converted tissue products rather
than commodity products.
Gross profit was $8.1 million in the 1999 Thirteen Week Period and
$10.4 million in the 1998 Thirteen Week Period. As a percentage of net sales,
gross profit decreased from 15.6% in the 1998 Thirteen Week Period to 13.7% in
the 1999 Thirteen Week Period. Gross margins in the 1999 Thirteen Week Period
were adversely affected by reduced selling prices of consumer products,
described above, as well as excess costs incurred in implementing the Efficiency
Initiatives. Gross margins are expected to improve in future periods upon full
implementation of the Efficiency Initiatives, however, there can be no assurance
that such will occur.
Selling, general and administrative expenses were $7.0 million in the
1999 Thirteen Week Period and $8.7 million in the 1998 Thirteen Week Period. As
a percentage of net sales, selling, general and administrative expenses
decreased from 13.0% in the 1998 Thirteen Week Period to 11.8% in the 1999
Thirteen Week Period. The decrease as a percentage of net sales was primarily
caused by the reduction of selling, marketing and distribution costs in the 1999
Thirteen Week Period due to the License Agreement, as well as the closure of an
administrative office. Such decrease was partially offset by the sale of the
tissue mill operations, for which selling, general and administrative costs were
low relative to net sales.
Other income, net in the 1998 Thirteen Week Period includes a $9.3
million pre-tax gain on the March 1998 sale of the Company's tissue mill
operations. The gain was partially offset by closure cost accruals relating to
the decision to close the Jacksonville converting facility.
9
<PAGE>
Income from operations was $1.2 million in the 1999 Thirteen Week
Period and $10.9 million in the 1998 Thirteen Week Period due to the reasons
discussed.
Interest expense, net of interest income was $3.0 million in the 1999
Thirteen Week Period and $3.1 million in the 1998 Thirteen Week Period.
The effective tax rate was 41% in the 1999 Thirteen Week Period and 42%
in the 1998 Thirteen Week Period. As a result of the above, the net loss was
$1.0 million in the 1999 Thirteen Week Period compared to net income of $4.5
million in the 1998 Thirteen Week Period.
Twenty-Six Weeks Ended March 28, 1999 Compared to Twenty-Six Weeks Ended April
26, 1998
Net sales were $128.1 million in the 1999 Twenty-six Week Period and
$132.9 million in the 1998 Twenty-six Week Period. The 1998 Twenty-six Week
Period included $8.6 million of net sales of tissue mill products relating to
operations that were sold in March 1998. Excluding such tissue mill sales, net
sales increased $3.8 million due primarily to the effects of the CEG Agreements
and, to a lesser extent, the effects of seasonality on the twenty-six week
comparison. Sales volume in the Company's converting operations increased 24.5%
in the consumer market and decreased 1.5% in the institutional market. Average
selling prices decreased 16.5% in the consumer market and increased 5.6% in the
institutional market. The increased volume in the consumer market was due to the
increase in tissue products sold to CEG in accordance with the CEG Agreements
and, to a lesser extent, the effects of seasonality resulting from comparing the
1999 Twenty-six Week Period (which includes the four week period in October
1998) with the 1998 Twenty-six Week Period (which includes the four week period
in April 1998). The reduction in selling prices in the consumer market reflects
cost savings from the License Agreement as well as savings that the Company is
beginning to realize and expects to realize more fully in future periods upon
full implementation of the Manufacture and Supply Agreement. In the
institutional market, the increase in selling prices and reduction in sales
volume were primarily due to a change in sales mix, whereby the Company
emphasized the sale of value added converted tissue products rather than
commodity products.
Gross profit was $20.2 million in the 1999 Twenty-six Week Period and
$22.9 million in the 1998 Twenty-six Week Period. As a percentage of net sales,
gross profit decreased from 17.3% in the 1998 Twenty-six Week Period to 15.8% in
the 1999 Twenty-six Week Period. Gross margins in the 1999 Twenty-six Week
Period were adversely affected by reduced selling prices of consumer products,
described above, as well as excess costs incurred in implementing the Efficiency
Initiatives. Gross margins are expected to improve in future periods upon full
implementation of the Efficiency Initiatives, however, there can be no assurance
that such will occur.
Selling, general and administrative expenses were $15.5 million in the
1999 Twenty-six Week Period and $17.4 million in the 1998 Twenty-six Week
Period. As a percentage of net sales, selling, general and administrative
expenses decreased from 13.1% in the 1998 Twenty-six Week Period to 12.1% in the
1999 Twenty-six Week Period. The decrease as a percentage of net sales was
primarily caused by the reduction of selling, marketing and distribution costs
due to the License Agreement, as well as the closure of an administrative
office. Such decrease was partially offset by the sale of the tissue mill
operation, for which selling, general and administrative costs were low relative
to net sales.
Other income, net in the 1998 Twenty-six Week Period includes a $9.3
million pre-tax gain on the March 1998 sale of the Company's tissue mill
operations. The gain was partially offset by closure cost accruals relating to
the decision to close the Jacksonville converting facility.
Income from operations was $4.9 million in the 1999 Twenty-six Week
Period and $14.9 million in the 1998 Twenty-six Week Period due to the reasons
discussed.
10
<PAGE>
Interest expense, net of interest income was $5.8 million in the 1999
Twenty-six Week Period and $6.2 million in the 1998 Twenty-six Week Period. The
net reduction in interest expense was primarily due to higher interest on
revolving credit borrowings in the 1998 Twenty-six Week Period and increased
interest income in the 1999 Twenty-six Week Period.
The effective tax rate was 41% in the 1999 Twenty-six Week Period and
42% in the 1998 Twenty-six Week Period. As a result of the above, the net loss
was $.6 million in the 1999 Twenty-six Week Period compared to net income of
$5.0 million in the 1998 Twenty-six Week Period.
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 the 1999 Twenty-six Week
Period was $.9 million compared to $7.7 million in the 1998 Twenty-six Week
Period. The reduction in cash provided by operations is primarily due to the
build-up in amounts due from affiliates resulting from the implementation of the
CEG Agreements. In March 1999, CEG's second largest customer, representing over
10% of CEG's net sales during its 1998 fiscal year, filed a Chapter 11
bankruptcy petition. As a result, and for other reasons, Fonda intends to
reevaluate the adequacy of its affiliate reserves.
Capital expenditures were $9.9 million, which included $8.7 million for
converting equipment and the remaining expenditures were primarily for routine
capital improvements. See Note 5 of Notes to Financial Statements.
The Company's revolving credit facility, as amended, provides up to $50
million borrowing capacity, is collateralized by accounts receivable and
inventories, certain general intangibles and the proceeds on the sale of
accounts receivable and inventory. The maturity date of such facility has been
extended to September 1, 2001. At March 28, 1999, there was $3.8 million
outstanding and $33.2 million was the maximum advance available based upon
eligible collateral. At March 28, 1999, borrowings were available at a bank's
prime rate plus .25% or at LIBOR plus 2.25%.
The Company has reinvested amounts in excess of $10 million from the
sale of the tissue mill, within the required time period, in accordance with the
asset sale covenant under the indenture governing the Notes.
During the twenty-six weeks ended March 28, 1999, 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.
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 to 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 has also completed the upgrade of its hardware and software systems
which run most of its data processing and financial reporting software
applications and has consolidated certain of its in-house developed computer
systems into the upgraded systems. In addition, the Company has upgraded its
telephone, data communication and network systems to ensure that they are Year
2000 compliant. Embedded logic in manufacturing equipment is all being tested
and upgraded. Contingency plans are
11
<PAGE>
being developed for equipment that cannot be upgraded. The embedded logic
project is expected to be completed by October 1999. EDI trading partners and
other key business partners have been contacted to ensure that key business
transactions will be Year 2000 compliant. Contingency plans are being developed
to work with trading partners or to replace suppliers who cannot meet our
compliance deadlines. 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.
As of May 1, 1999, the Company estimates the total cost of its Year
2000 program at $3.2 million, of which $2.6 million has been spent through March
28, 1999, including $1.4 million in the 1999 Twenty-six Week Period.
Expenditures have been and are expected to be funded by cash flows from
operations, available cash, borrowings under the Company's credit facility, or
by lease. 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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed in the thirteen weeks ended March
28, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: May 12, 1999
THE FONDA GROUP, INC.
By: /s/ HANS H. HEINSEN
-------------------
Hans H. Heinsen
Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial
And Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Form 10-Q
for the twenty-six week Period ended March 28, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 3,097
<SECURITIES> 0
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0
0
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<INCOME-TAX> (732)
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</TABLE>
