===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the Twenty-Six Weeks Ended
March 26, 2000
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
2920 North Main Street, Oshkosh, WI 54901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 920/235-9330
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 [ ]
The number of shares outstanding of the Registrant's common stock
as of April 18, 2000:
The Fonda Group, Inc. Common Stock, $0.01 par value - 100 shares
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<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. FINANCIAL STATEMENTS
THE FONDA GROUP, INC.
---------------------
BALANCE SHEETS
--------------
(In thousands, except share data)
---------------------------------
(Unaudited)
March 26, September 26,
2000 1999
------------------ ----------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 1,332 $ 624
Receivables, less allowances of $2,083 and $2,049,
respectively 46,103 45,661
Inventories 66,813 62,648
Deferred income taxes 6,415 6,205
Other current assets 5,552 7,386
--------- ---------
Total current assets 126,215 122,524
--------- ---------
Property, plant and equipment, net 49,703 51,922
Goodwill, net 18,771 19,358
Due from SF Holdings 18,642 -
Other assets, net 12,119 16,598
--------- ---------
Total assets $ 225,450 $ 210,402
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 20,814 $ 15,611
Accrued expenses and other current liabilities 23,990 26,041
Current portion of long-term debt 551 551
--------- ---------
Total current liabilities 45,355 42,203
--------- ---------
Due to SF Holdings - 17,175
Deferred income taxes 4,105 4,026
Long-term debt 161,192 132,892
Other liabilities 1,862 1,952
--------- ---------
Total liabilities 212,514 198,248
--------- ---------
Shareholders' equity:
Common stock -- Par value $.01 per share; 1,000 shares
authorized; 100 shares issued and outstanding - -
Additional paid-in capital 941 -
Retained Earnings 11,916 12,075
Accumulated other comprehensive income (loss) 79 79
--------- ---------
Total shareholders' equity 12,936 12,154
--------- ---------
Total liabilities and shareholders' equity $ 225,450 $ 210,402
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FONDA GROUP, INC.
---------------------
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
(In thousands)
For the For the For the For the
Thirteen Thirteen Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
March 26, March 28, March 26, March 28,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 78,063 $ 77,168 $ 175,635 $ 159,815
Cost of sales 64,142 63,419 142,814 128,942
--------- --------- --------- ---------
Gross profit 13,921 13,749 32,821 30,873
Selling, general and administrative expenses 11,293 13,117 24,292 26,205
Other (income) expense, net (149) (69) (224) (180)
---------- ---------- ---------- ----------
Operating income 2,777 701 8,753 4,848
Interest expense, net of interest income of $136,
$112, $219 and $89, respectively (3,953) (4,114) (8,153) (8,369)
---------- ---------- ---------- ----------
Income (loss) before income tax expense
(benefit) and extraordinary loss (1,176) (3,413) 600 (3,521)
Income tax expense (benefit) (476) (1,385) 234 (1,420)
---------- ---------- --------- ----------
Income (loss) before extraordinary loss (700) (2,028) 366 (2,101)
---------- ---------- --------- ----------
Extraordinary loss on debt extinguishment
(net of income taxes of $350) 525 - 525 -
--------- --------- --------- ---------
Net income (loss) $ (1,225) $ (2,028) $ (159) $ (2,101)
=========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FONDA GROUP, INC.
---------------------
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
(In thousands)
For the Twenty- For the Twenty-
six weeks ended six weeks ended
March 26, March 28,
2000 1999
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (159) $ (2,101)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,658 3,267
Deferred income tax (131) -
Loss on sale of assets 12 14
Changes in operating assets and liabilities:
Receivables 114 (1,147)
Inventories (4,165) (10,076)
Accounts payable and accrued expenses 2,733 7,975
Other, net 1,463 196
--------- ----------
Net cash provided by (used in) operating activities 3,525 (1,872)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (782) (5,042)
Proceeds from sale of property, plant and equipment 1,357 348
Due from SF Holdings (31,692) (2,131)
---------- ----------
Net cash provided by (used in) investing activities (31,117) (6,825)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit
facilities 28,561 3,844
Repayment of other debt (261) (277)
---------- ----------
Net cash provided by (used in) financing activities 28,300 3,567
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 708 (5,130)
CASH AND CASH EQUIVALENTS, beginning of period 624 8,530
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 1,332 $ 3,400
========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 8,104 $ 8,180
========== ==========
Income taxes paid (refunded) $ (49) $ 4,051
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<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 September 26, 1999. The Company is a
wholly-owned subsidiary of SF Holdings Group, Inc. ("SF Holdings").
(2) BUSINESS ACQUISITION
On December 3, 1999, Creative Expressions Group, Inc. ("CEG"), an
affiliate of the Company in the disposable party goods products business, became
an 87% owned subsidiary of SF Holdings pursuant to a merger. On December 6,
1999, pursuant to an asset purchase agreement entered into on November 21, 1999
(the "CEG Asset Purchase Agreement"), the Company purchased the intangible
assets of CEG, including domestic and foreign trademarks, patents, copyrights,
customer lists. In addition, pursuant to the CEG Asset Purchase Agreement, the
Company subsequently purchased certain inventory of CEG. The aggregate purchase
price for the intangible assets and the inventory was $41 million ($16 million
for the intangible assets and $25 million for the inventory), payable in cash,
the cancellation of certain notes and warrants, and the assumption of certain
liabilities. The agreement further provides that the Company may acquire other
CEG assets in exchange for outstanding trade payables owed to the Company by
CEG. In connection with this agreement, the Company canceled certain security,
licensing, manufacturing and supply agreements with CEG that had been entered
into in Fiscal 1999. As a result of this transaction, the Company markets,
manufactures and distributes disposable party goods products directly to the
specialty (party) channel of the Company's consumer market. The transaction has
been accounted for in a manner similar to a pooling-of-interests. The
accompanying financial statements have been restated for all periods presented
to include the balance sheet and results of operations of CEG. CEG's net assets
and liabilities that were not acquired by the Company pursuant to the CEG Asset
Purchase Agreement have been classified as "Due to/from SF Holdings".
(3) INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
March 26, September 26,
2000 1999
----------- -------------
<S> <C> <C>
Raw materials and supplies $ 22,635 $ 23,535
Finished products 43,250 38,265
Work in progress 928 848
---------- ----------
Total inventories $ 66,813 $ 62,648
========== ==========
</TABLE>
<PAGE>
(4) RELATED PARTY TRANSACTIONS
During the twenty-six weeks ended March 26, 2000, the Company sold $5.4
million of paper plates and $0.5 million of equipment rental and shared services
to Sweetheart Holdings Inc. ("Sweetheart") and $3.1 million of scrap paper to
Fibre Marketing Group, LLC ("Fibre Marketing"). Accounts receivable as of March
26, 2000 are $1.4 million due from Sweetheart and $1.0 million due from Fibre
Marketing.
During the twenty-six weeks ended March 26, 2000, the Company purchased
$6.0 million of paper cups from Sweetheart, $0.9 million of corrugated
containers from Four M Corporation ("Four M") and $0.2 million of travel
services from Emerald Lady, Inc. Accounts payable, as of March 26, 2000,
resulting from these purchases is $1.0 million due to Sweetheart. Other
purchases from and sales to affiliates, if any, in the twenty-six weeks ended
March 26, 2000 were not significant.
During the twenty-six weeks ended March 26, 2000, the Company sold
certain paper cup machines to Sweetheart at a fair market value of $1.3 million.
The excess of the proceeds from the sale over the Company's net book value of
such equipment was recorded as a credit to equity of $0.9 million. Independent
appraisals were obtained to determine the fairness of the sale price.
During the twenty-six weeks ended March 28, 1999, the Company sold $0.9
million of scrap paper to Fibre Marketing. Accounts receivable as of March 28,
1999 was $0.8 million due from Fibre Marketing. During the twenty-six weeks
ended March 28, 1999, the Company purchased $0.6 million of paper cups from
Sweetheart. Accounts payable as of March 28, 1999 was $0.6 million due to
Sweetheart. Other purchases from and sales to affiliates, if any, in the
twenty-six weeks ended March 28, 1999 were not significant.
All of the above referenced affiliates are under the common control of
the Company's Chief Executive Officer.
(5) EXTRAORDINARY LOSS
In conjunction with the Asset Purchase Agreement, CEG retired its
long-term debt. As a result, CEG charged $875,000, or $525,000 net of income tax
benefit, to results of operations as an extraordinary item. This amount
represented the unamortized deferred financing fees and other expenses
pertaining to such debt.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion for The Fonda Group, Inc. (the "Company")
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. Certain prior period balances have been reclassified to conform
with current presentation. For additional information, see the Company's annual
report on Form 10-K for the most recent fiscal year.
General
The Company, a wholly-owned subsidiary of SF Holdings Group, Inc. ("SF
Holdings"), is a converter and marketer of disposable paper foodservice
products. On December 3, 1999, Creative Expressions Group, Inc. ("CEG"), an
affiliate of the Company in the disposable party goods products business, became
an 87% owned subsidiary of SF Holdings pursuant to a merger. On December 6,
1999, pursuant to an asset purchase agreement entered into on November 21, 1999
(the "CEG Asset Purchase Agreement"), the Company purchased the intangible
assets of CEG, including domestic and foreign trademarks, patents, copyrights
and customer lists. In addition, pursuant to the CEG Asset Purchase Agreement,
the Company subsequently purchased certain inventory of CEG. The aggregate
purchase price for the intangible assets and the inventory was $41 million ($16
million for the intangible assets and $25 million for the inventory), payable in
cash, the cancellation of certain notes and warrants, and the assumption of
certain liabilities. The agreement further provides that the Company may acquire
other CEG assets in exchange for outstanding trade payables owed to the Company
by CEG. In connection with this agreement, the Company canceled certain
security, licensing, manufacturing and supply agreements with CEG that had been
entered into in Fiscal 1999. As a result of this transaction, the Company
markets, manufactures and distributes disposable party goods products directly
to the specialty (party) channel of the Company's consumer market. The
transaction has been accounted for in a manner similar to a
pooling-of-interests. The Company's financial statements have been restated for
all periods presented to include the results of operations of CEG.
The Company's business is moderately seasonal. The Company's paperboard
products experience increased volume in the third and fourth fiscal quarters as
away from home consumption increases in the late spring and summer. The
Company's tissue and party goods products experience increased volume in the
first and fourth fiscal quarters due to the buildup of seasonal business between
Halloween and the Super Bowl. The increased volume results in disproportionately
higher net income during such periods as cost absorption improvements result
from the more profitable sales and production mix.
Thirteen Weeks Ended March 26, 2000 Compared to Thirteen Weeks Ended
March 28, 1999 (Unaudited)
Net sales increased $0.9 million, or 1.2%, to $78.1 million for the
thirteen weeks ended March 26, 2000 compared to $77.2 million for the thirteen
weeks ended March 28, 1999, reflecting a 1.9% increase in average realized sales
price and a 0.7% decrease in sales volume. The increase in net sales is
primarily due to increased average realized sales prices in both the
institutional and consumer markets, partially offset by lower volumes in the
consumer market. Net sales to institutional customers increased 6.2%, reflecting
a 5.4% increase in sales volume and an 0.8% increase in average realized sales
price. The increase is primarily the result of the Company's focus on revenue
growth with key institutional customers. Net sales to consumer customers
decreased 1.6%, reflecting a 0.7% increase in average realized sales price and a
2.3% decrease in sales volume. This decrease results primarily from competitive
market conditions.
<PAGE>
Gross profit increased $0.2 million, or 1.3%, to $13.9 million for the
thirteen weeks ended March 26, 2000 compared to $13.7 million for the thirteen
weeks ended March 28, 1999. This increase is primarily attributable to increased
net sales. As a percentage of net sales, gross profit was 17.8% for both the
thirteen weeks ended March 26, 2000 and the thirteen weeks ended March 28, 1999.
Selling, general and administrative expenses decreased $1.8 million, or
13.9%, to $11.3 million for the thirteen weeks ended March 26, 2000 compared to
$13.1 million for the thirteen weeks ended March 28, 1999. This is attributable
to a write-off of a customer receivable in March 1999, coupled with cost savings
initiatives instituted by management in Fiscal 2000.
Other (income) expense increased $0.1 million, to income of $0.2
million for the thirteen weeks ended March 26, 2000 compared to income of $0.1
million for the thirteen weeks ended March 28, 1999, due to increased management
fee income from Sweetheart.
Operating income increased $2.1 million, to $2.8 million for the
thirteen weeks ended March 26, 2000 compared to $0.7 million for the thirteen
weeks ended March 28, 1999, due to the reasons stated above.
Interest expense, net decreased $0.2 million to $3.9 million for the
thirteen weeks ended March 26, 2000 compared to $4.1 million for the thirteen
weeks ended March 28, 1999. During the quarter, the Company realized lower
interest expense due primarily to the reduction in amortization of debt issue
costs related to debt extinguished during the consolidation.
Net income (loss) decreased $0.8 million to a loss of $1.2 million for
the thirteen weeks ended March 26, 2000 compared to a $2.0 million net loss for
the thirteen weeks ended March 28, 1999, due to the reasons stated above.
Twenty-six Weeks Ended March 26, 2000 Compared to Twenty-six Weeks Ended
March 28, 1999 (Unaudited)
Net sales increased $15.8 million, or 9.9%, to $175.6 million for the
twenty-six weeks ended March 26, 2000 compared to $159.8 million for the
twenty-six weeks ended March 28, 1999, reflecting a 6.8% increase in sales
volume and a 2.9% increase in average realized sales price. This increase is
primarily due to increased average realized sales prices in the consumer market
and increased volume in both the institutional and consumer markets driven by
seasonal sales and key customer growth. Net sales to institutional customers
increased 10.2%, reflecting a 10.8% increase in sales volume as a result of the
Company's focus on revenue growth with key institutional customers, partially
offset by a 0.5% decrease in average realized sales price, reflecting a shift in
sales mix. Net sales to consumer customers increased 9.7%, reflecting a 5.6%
increase in sales volume and a 3.9% increase in average realized sales price.
This increase was primarily driven by peak holiday and millennium sales as well
as the restocking of inventory for key customers.
Gross profit increased $1.9 million, or 6.3%, to $32.8 million for the
twenty-six weeks ended March 26, 2000 compared to $30.9 million for the
twenty-six weeks ended March 28, 1999. The increase was primarily due to
increased net sales of specialty party goods products, increased selling prices
of paperboard products, and increased volume of institutional tissue products.
As a percentage of net sales, gross profit decreased to 18.7% for the twenty-six
weeks ended March 26, 2000 from 19.3% for the twenty-six weeks ended March 28,
1999. This decrease in gross profit margin reflects manufacturing inefficiencies
related to consolidation as well as competitive market conditions in the
consumer market.
Selling, general and administrative expenses decreased $1.9 million, or
7.3%, to $24.3 million for the twenty-six weeks ended March 26, 2000 compared to
$26.2 million for the twenty-six weeks ended March 28, 1999. This is
attributable to a write-off of a customer receivable in March 1999, coupled with
savings initiatives instituted by management in Fiscal 2000.
<PAGE>
Other (income) expense increased $0.1 million, to income of $0.2
million for the twenty-six weeks ended March 26, 2000 compared to income of $0.1
million for the twenty-six weeks ended March 28, 1999, due to increased
management fee income from Sweetheart.
Operating income increased $3.9 million, to $8.7 million for the
twenty-six weeks ended March 26, 2000 compared to $4.8 million for the
twenty-six weeks ended March 28, 1999, due to the reasons stated above.
Interest expense, net decreased $0.2 million, or 2.6%, to $8.2 million
for the twenty-six weeks ended March 26, 2000 compared to $8.4 million for the
twenty-six weeks ended March 28, 1999. During the period, the Company realized
lower interest expense due primarily to the reduction in amortization of debt
issue costs related to debt extinguished during the consolidation.
Net income (loss) decreased $1.9 million, to a loss of $0.2 million for
the twenty-six weeks ended March 26, 2000 compared to a loss of $2.1 million for
the twenty-six weeks ended March 28, 1999, due to the reasons stated above.
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 increased $5.4 million to
a source of $3.5 million in the twenty-six weeks ended March 26, 2000, compared
to a use of $1.9 million in the twenty-six weeks ended March 28, 1999. This is
primarily due to more favorable income from operating activities and improved
collection of outstanding accounts receivable.
Capital expenditures for the twenty-six weeks ended March 26, 2000 were
$0.8 million compared to $5.0 million for the twenty-six weeks ended March 28,
1999. Capital expenditures for the twenty-six weeks ended March 26, 2000
consisted of $0.3 million for equipment purchases with the remaining
expenditures primarily for routine capital improvements.
The Company's revolving credit facility, which expires March 31, 2001,
provides up to a $55 million borrowing capacity and is collateralized by
eligible accounts receivable and inventories, certain general intangibles and
the proceeds on the sale of accounts receivable and inventory. At March 26,
2000, $40.3 million was outstanding and $13.2 million was the maximum advance
available based upon eligible collateral. The increase in borrowings under the
revolving credit facility in Fiscal 2000 is primarily due to the purchase of
certain assets in accordance with the CEG Asset Purchase Agreement. Such amounts
were primarily used by CEG to repay its debt, which is reflected in "Due From SF
Holdings" in the statements of cash flows.
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 next
twelve months.
Item 3. QUANTATATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK
NONE
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
An amended report on Form 8-K/A was filed on February 25, 2000
in conjunction with the Asset Purchase Agreement between CEG
and the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and principal financial officer.
THE FONDA GROUP, INC.
(registrant)
Date: April 18, 2000 By: /s/ Hans H. Heinsen
-------------- -------------------
Hans H. Heinsen
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001037478
<NAME> Fonda Group Inc
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-24-2000
<PERIOD-START> SEP-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 1,332
<SECURITIES> 0
<RECEIVABLES> 48,186
<ALLOWANCES> 2,083
<INVENTORY> 66,813
<CURRENT-ASSETS> 126,215
<PP&E> 72,146
<DEPRECIATION> 22,443
<TOTAL-ASSETS> 225,450
<CURRENT-LIABILITIES> 212,514
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,936
<TOTAL-LIABILITY-AND-EQUITY> 225,450
<SALES> 175,635
<TOTAL-REVENUES> 175,635
<CGS> 142,814
<TOTAL-COSTS> 142,814
<OTHER-EXPENSES> 24,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,153
<INCOME-PRETAX> 600
<INCOME-TAX> 234
<INCOME-CONTINUING> 366
<DISCONTINUED> 0
<EXTRAORDINARY> (525)
<CHANGES> 0
<NET-INCOME> (159)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
