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 thirty-nine weeks ended June 27, 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 August 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 June 27, 1999 and
July 26, 1998 (audited) 3
Statements of Operations for the thirteen and
thirty-nine weeks ended June 27, 1999 and July 26, 1998 4
Statements of Cash Flows for the thirty-nine
weeks ended June 27, 1999 and July 26, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FONDA GROUP, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 26, July 26,
1999 1998
---- ----
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 392 $ 16,361
Accounts receivable, less allowance for doubtful
accounts of $643 and $789, respectively 30,854 29,385
Due from affiliates 9,142 1,584
Inventories 38,455 34,803
Deferred income taxes 4,375 5,469
Other current assets 3,812 2,086
---------- ----------
Total current assets 87,030 89,688
Property, plant and equipment, net 56,086 48,151
Goodwill, net 19,651 21,462
Other assets, net 19,620 19,227
---------- ----------
TOTAL ASSETS $ 182,387 $ 178,528
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 10,625 $ 7,077
Accrued expenses 17,449 24,867
Current maturities of long-term debt 551 595
---------- ----------
Total current liabilities 28,625 32,539
Long-term debt 129,290 121,767
Other liabilities 2,355 1,896
Deferred income taxes 5,621 4,771
---------- ----------
Total liabilities 165,891 160,973
Stockholder's equity 16,496 17,555
========== ==========
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 182,387 $ 178,528
========== ==========
</TABLE>
See notes to financial statements.
3
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THE FONDA GROUP, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------------- --------------------------------
June 27, July 26, June 27, July 26,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 68,242 $ 67,887 $ 196,369 $ 200,826
Cost of goods sold 59,000 54,989 166,934 164,989
-------------- -------------- -------------- --------------
Gross profit 9,242 12,898 29,435 35,837
Selling, general and
administrative expenses 6,961 8,447 22,478 25,880
Other income, net (524) (5,299) (698) (14,707)
-------------- -------------- -------------- --------------
Income from operations 2,805 9,750 7,655 24,664
Interest expense, net 3,079 2,855 8,876 9,070
-------------- -------------- -------------- --------------
Income (loss) before income taxes (274) 6,895 (1,221) 15,594
Income tax provision (benefit) (113) 2,722 (503) 6,376
-------------- -------------- -------------- --------------
Net income (loss) $ (161) $ 4,173 $ (718) $ 9,218
============== ============== ============== ==============
</TABLE>
See notes to financial statements.
4
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THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------------------
June 27, July 26,
1999 1998
-------------- --------------
Operating activities:
<S> <C> <C>
Net income (loss) $ (718) $ 9,218
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,864 4,665
Provision for doubtful accounts 106 317
Deferred income taxes 1,343 (850)
Net gain on business and equipment dispositions
and settlement of long-term contract (91) (16,175)
Changes in assets and liabilities:
Accounts receivable 308 1,829
Due from affiliates (8,141) 3,416
Inventories (1,236) 7,108
Other current assets (1,455) (1,260)
Accounts payable and accrued expenses 1,411 841
Other (651) (740)
------------ -----------
Net cash provided by (used in) operating activities (4,260) 8,369
------------ -----------
Investing activities:
Capital expenditures (11,524) (5,018)
Proceeds from equipment dispositions 382 795
Proceeds from business disposition - 33,738
Payments for business acquisitions - (6,901)
Payment for Management Services Agreement - (7,000)
------------ -----------
Net cash provided by (used in) investing activities (11,142) 15,614
------------ -----------
Financing activities:
Net increase (decrease) in revolving credit borrowings 7,938 (8,049)
Repayments of long-term debt (406) (476)
Redemption of common stock - (1,436)
------------ -----------
Net cash provided by (used in) financing activities 7,532 (9,961)
------------ -----------
Net increase (decrease) in cash (7,870) 14,022
Cash, beginning of period 8,262 2,339
============ ===========
Cash, end of period $ 392 $ 16,361
============ ===========
Supplemental cash flow information: Cash paid during the period for:
Interest $ 6,183 $ 6,145
Income taxes, net of refunds $ 1,632 $ 4,603
</TABLE>
See notes to financial statements.
5
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THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The 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 thirty-nine week periods
ended June 27, 1999 and July 26, 1998.
2. INVENTORIES
Inventories consist of the following (in thousands):
June 27, July 26,
1999 1998
------- ---------
Raw materials and supplies $ 20,413 $ 15,663
Work-in-process 289 194
Finished goods 17,753 18,946
======== ========
$ 38,455 $ 34,803
======== ========
3. ACCOUNTS PAYABLE
Net cash overdrafts are reclassified to accounts payable. At June 27,
1999, $2.6 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. In addition, on July 1, 1998, the Company consummated
an agreement with the owner of the co-generation facility at the mill 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 $37.5 million, including a $3.7 million note,
and recorded a gain of $15.9 million, which was included in other income, net.
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. Net
sales to CEG during the thirty-nine weeks ended June 27, 1999 were $25.7
million. 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,
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(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.
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. During the
thirty-nine weeks ended June 27, 1999, the Company purchased $4.0 million of
paper cups from Sweetheart and sold $1.4 million of paper plates to Sweetheart.
The Company believes the terms on which it (i) sold product to, or purchased
product from, Sweetheart, (ii) purchased manufacturing assets from Sweetheart,
and (iii) leases manufacturing assets to Sweetheart are at least as favorable as
those it could have obtained from unrelated third parties and were negotiated on
an arm's length basis.
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 thirty-nine week periods
ended June 27, 1999 (the "1999 Thirteen Week Period" and the "1999 Thirty-nine
Week Period") and the same number of week periods ended July 26, 1998 (the "1998
Thirteen Week Period" and the "1998 Thirty-nine Week Period. In the thirty-nine
week comparison, sales in the four week period in October (which is included in
the 1999 Thirty-nine Week Period) would expect to be higher, primarily in
seasonal and party goods products, than such sales in the four week period in
July (which is included in the 1998 Thirty-nine Week Period). In the thirteen
week comparison, the seasonality effect is reduced as sales in the four week
period in April (which is included in the 1999 Thirteen Week Period)
historically have not been materially different than those in the four week
period in July (which is included in the 1998 Thirteen 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 peek in the fall for holiday seasons. This results in
disproportional higher net income during these peek 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
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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 and is
expected to be substantially complete by the end of the fiscal year. 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.
Results of Operations
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------------------------- ------------------------------------------
June 27, 1999 July 26, 1998 June 27, 1999 July 26, 1998
------------------- -------------------- ------------------- --------------------
% of % of % of % of
Net Net Net Net
Amount Sales Amount Sales Amount Sales Amount Sales
----------- ------- ----------- -------- ---------- -------- ----------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 68.2 100.0 % $ 67.9 100.0 % $ 196.4 100.0 % $ 200.8 100.0%
Cost of goods sold 59.0 86.5 55.0 81.0 166.9 85.0 165.0 82.2
----------- ------- ----------- -------- ---------- -------- ----------- --------
Gross profit 9.2 13.5 12.9 19.0 29.4 15.0 35.8 17.8
Selling, general and
administrative expenses 7.0 10.2 8.4 12.4 22.5 11.4 25.9 12.9
Other income, net (0.5) (0.8) (5.3) (7.8) (0.7) (0.4) (14.7) (7.3)
------- --------
----------- ------- ----------- -------- ---------- -------- ----------- --------
Income from operations 2.8 4.1 9.8 14.4 7.7 3.9 24.7 12.3
Interest expense, net 3.1 4.5 2.9 4.2 8.9 4.5 9.1 4.5
----------- ------- ----------- -------- ---------- -------- ----------- --------
Income (loss) before taxes (0.3) (0.4) 6.9 10.2 (1.2) (0.6) 15.6 7.8
Income tax provision (benefit) (0.1) (0.2) 2.7 4.0 (0.5) (0.3) 6.4 3.2
----------- ------- ----------- -------- ---------- -------- ----------- --------
Net income (loss) $ (0.2) (0.2)% $ 4.2 6.1 % $ (0.7) (0.4)% $ 9.2 4.6%
=========== ======= =========== ======== ========== ======== =========== ========
</TABLE>
Thirteen Weeks Ended June 27, 1999 Compared to Thirteen Weeks Ended July 26,
1998
Net sales were $68.2 million in the 1999 Thirteen Week Period and $67.9
million in the 1998 Thirteen Week Period. Net sales of party goods products
decreased 3.0%, primarily due to the CEG Agreements. Such agreements resulted in
a significant increase in volume which was more than offset by a significant
reduction in selling prices. The lower selling prices reflect 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. Excluding such party
goods products, net sales in the consumer market decreased 3.1%, resulting from
an increase in sales volume of 5.2%, which was more than offset by a 7.9%
decrease in average selling prices. Selling prices in this market were adversely
affected by reductions in raw material costs that were passed through to
customers as well as more competitive market conditions. In the institutional
market, net sales increased 3.2%, resulting from an increase in sales volume of
8.1%, which was partially offset by a 4.5% decrease in average selling prices.
The increased sales volume in the institutional market was primarily due to an
increase in sales of value added converted tissue products and certain commodity
paperboard products. The reduction in selling prices was due to the same
conditions experienced in the consumer market.
Gross profit was $9.2 million in the 1999 Thirteen Week Period and
$12.9 million in the 1998 Thirteen Week Period. As a percentage of net sales,
gross profit decreased from 19.0% in the 1998 Thirteen Week Period to 13.5% in
the 1999 Thirteen Week Period. Gross margins in the 1999 Thirteen Week Period
were adversely affected by reduced selling prices of party goods products sold
to CEG, described above, margin erosion in commodity
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paperboard products, 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, and as a result of
recent price increases in various product lines, however, there can be no
assurance that such improvements will occur.
Selling, general and administrative expenses were $7.0 million in the
1999 Thirteen Week Period and $8.4 million in the 1998 Thirteen Week Period. As
a percentage of net sales, selling, general and administrative expenses
decreased from 12.4% in the 1998 Thirteen Week Period to 10.2% 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
Other income, net in the 1998 Thirteen Week Period includes a $6.6
million pre-tax gain primarily due to the July 1998 settlement of a steam
contract related to the Company's tissue mill operations. The 1998 gain was
partially offset by closure cost accruals relating to the closure of an
administrative office.
Income from operations was $2.8 million in the 1999 Thirteen Week
Period and $9.8 million in the 1998 Thirteen Week Period primarily due to the
reasons discussed.
Interest expense, net of interest income was $3.1 million in the 1999
Thirteen Week Period and $2.9 million in the 1998 Thirteen Week Period due to an
increase in outstanding debt in the 1999 period.
As a result of the above, the net loss was $.2 million in the 1999
Thirteen Week Period compared to net income of $4.2 million in the 1998 Thirteen
Week Period.
Thirty-nine Weeks Ended June 27, 1999 Compared to Thirty-nine Weeks Ended July
26, 1998
Net sales were $196.4 million in the 1999 Thirty-nine Week Period and
$200.8 million in the 1998 Thirty-nine Week Period. The 1998 Thirty-nine Week
Period included $8.4 million of net sales of tissue mill products relating to
operations that were sold in March 1998. Excluding such tissue mill sales, net
sales in the converting operations increased $4.0 million due primarily to the
effects of seasonality on the thirty-nine week comparison. Net sales of party
goods products increased 5.4% primarily due to the CEG Agreements. Such
agreements resulted in a significant increase in volume which was offset by a
significant reduction in selling prices. The lower selling prices reflect 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. Excluding such
party goods products, net sales in the consumer market decreased .8%, resulting
from an increase in sales volume of 6.2%, which was more than offset by a 6.6%
decrease in average selling prices. Selling prices in this market were adversely
affected by reductions in raw material costs that were passed through to
customers as well as more competitive market conditions. In the institutional
market, net sales increased 3.4%, resulting from an increase in sales volume of
5.7%, which was partially offset by a 2.1% decrease in average selling prices.
The increased sales volume in the institutional market was primarily due to an
increase in sales of value added converted tissue products and certain commodity
paperboard products. The reduction in selling prices was due to the same
conditions experienced in the consumer market.
Gross profit was $29.4 million in the 1999 Thirty-nine Week Period and
$35.9 million in the 1998 Thirty-nine Week Period, including $1.2 million from
the Company's tissue mill operations. As a percentage of net sales, gross profit
decreased from 17.9% in the 1998 Thirty-nine Week Period to 15.0% in the 1999
Thirty-nine Week Period. Gross margins in the 1999 Thirty-nine Week Period were
adversely affected by reduced selling prices of consumer products, described
above, margin erosion in commodity paperboard products, 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, and as a result of recent price increases in various product lines,
however, there can be no assurance that such improvements will occur.
Selling, general and administrative expenses were $22.5 million in the
1999 Thirty-nine Week Period and $25.9 million in the 1998 Thirty-nine Week
Period. As a percentage of net sales, selling, general and administrative
expenses decreased from 12.9% in the 1998 Thirty-nine Week Period to 11.4% in
the 1999 Thirty-nine 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
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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 Thirty-nine Week Period includes a $15.9
million pre-tax gain on the March 1998 sale of the Company's tissue mill
operations and the July 1998 settlement of a steam contract related to such
operations. The gain was partially offset by closure cost accruals relating to
the decision to close an administrative office.
Income from operations was $7.7 million in the 1999 Thirty-nine Week
Period and $24.7 million in the 1998 Thirty-nine Week Period due to the reasons
discussed.
Interest expense, net of interest income was $8.9 million in the 1999
Thirty-nine Week Period and $9.1 million in the 1998 Thirty-nine Week Period.
As a result of the above, the net loss was $.7 million in the 1999
Thirty-nine Week Period compared to net income of $9.2 million in the 1998
Thirty-nine 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 used in operating activities in the 1999 Thirty-nine Week
Period was $4.3 million compared to $8.4 million provided by such activities in
the 1998 Thirty-nine Week Period. The reduction in cash provided by operating
activities is primarily due to the build-up in amounts due from affiliates,
resulting from the implementation of the CEG Agreements, and to a lesser extent,
due to lower earnings. 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. Based on information provided by CEG, the
Company has no reason to believe that the foregoing will have a material adverse
effect on its results of operations or financial condition. However, no
assurance can be given regarding the ultimate effect, if any, on the Company,
and it will continue to monitor the adequacy of its affiliate reserve.
Capital expenditures were $11.5 million, which included $9.7 million
for converting equipment, primarily associated with its Efficiency Initiatives,
and the remaining expenditures were primarily for routine capital improvements.
See Note 5 of Notes to Financial Statements.
The Company's revolving credit facility, which matures on September 1,
2001, 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.
At June 27, 1999, there was $7.9 million outstanding and $35.0 million was the
maximum advance available based upon eligible collateral.
The Company has reinvested in equipment, 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
Company's senior debt.
During the thirty-nine weeks ended June 27, 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
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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 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. As of
August 1, 1999, the Company has received detailed business plans and commitments
from the majority of these parties that they are or 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. The Company expects
that its business systems will be Year 2000 compliant, but it may experience
isolated incidences of non-compliance and potential outages with respect to its
information technology infrastructure. The Company plans to allocate internal
resources to be ready to take action should these events occur. Investors are
cautioned, however, that the Company's assessment of its compliance, of the
costs of performing the program and the risks attendant thereto, and of the need
for any contingency plans may change materially in the future as the Company
proceeds further with its compliance program.
As of August 1, 1999, the Company estimates the total cost of its Year
2000 program at $3.2 million, of which $2.7 million has been spent through
June 27, 1999, including $1.5 million in the 1999 Thirty-nine 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.
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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
June 27, 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: August 11, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Form 10-Q
for the thirty-nine week Period ended June 27, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001037478
<NAME> The Fonda Group, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> JUN-27-1999
<CASH> 392
<SECURITIES> 0
<RECEIVABLES> 31,497
<ALLOWANCES> 643
<INVENTORY> 38,455
<CURRENT-ASSETS> 87,030
<PP&E> 80,474
<DEPRECIATION> 24,388
<TOTAL-ASSETS> 182,387
<CURRENT-LIABILITIES> 28,625
<BONDS> 129,290
0
0
<COMMON> 0
<OTHER-SE> 16,496
<TOTAL-LIABILITY-AND-EQUITY> 182,387
<SALES> 196,369
<TOTAL-REVENUES> 196,369
<CGS> 166,934
<TOTAL-COSTS> 166,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 9,499
<INCOME-PRETAX> (1,221)
<INCOME-TAX> (503)
<INCOME-CONTINUING> (718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (718)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
