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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 Thirty-Nine Weeks Ended
June 25, 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 August 1, 2000:
The Fonda Group, Inc. Common Stock, $0.01 par value - 100 shares
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE FONDA GROUP, INC.
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BALANCE SHEETS
--------------
(In thousands, except share data)
---------------------------------
(Unaudited)
June 25, September 26,
2000 1999
------------------ ----------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 1,786 $ 624
Receivables, less allowances of $2,111 and $2,049, respectively 47,279 45,661
Inventories 61,052 62,648
Deferred income taxes 6,415 6,205
Other current assets 3,742 7,386
--------- ---------
Total current assets 120,274 122,524
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Property, plant and equipment, net 49,791 51,922
Goodwill, net 18,540 19,358
Due from SF Holdings 19,159 -
Other assets, net 12,733 16,598
--------- ---------
Total assets $ 220,497 $ 210,402
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 17,091 $ 15,611
Accrued expenses and other current liabilities 28,798 26,041
Current portion of long-term debt 551 551
--------- ---------
Total current liabilities 46,440 42,203
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Due to SF Holdings - 17,175
Deferred income taxes 4,105 4,026
Long-term debt 154,710 132,892
Other liabilities 1,952 1,952
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Total liabilities 207,207 198,248
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Shareholders' equity:
Common stock -- Par value $.01 per share; 1,000 shares
authorized; 100 shares issued and outstanding - -
Additional paid-in capital 1,022 -
Retained Earnings 12,189 12,075
Accumulated other comprehensive income (loss) 79 79
--------- ---------
Total shareholders' equity 13,290 12,154
--------- ---------
Total liabilities and shareholders' equity $ 220,497 $ 210,402
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FONDA GROUP, INC.
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STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
(In thousands)
For the For the For the For the
Thirteen Thirteen Thirty-nine Thirty-nine
weeks ended weeks ended weeks ended weeks ended
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 89,702 $ 85,348 $ 265,339 $ 245,163
Cost of sales 72,730 70,743 215,545 199,685
----------- ----------- ----------- -----------
Gross profit 16,972 14,605 49,794 45,478
Selling, general and administrative expenses 12,203 11,607 36,497 37,812
Restructuring expense 500 - 500 -
Other (income) expense, net (48) (281) (272) (461)
------------ ------------ ------------ ------------
Operating income 4,317 3,279 13,069 8,127
Interest expense, net of interest income of $25,
$124, $244 and $438, respectively 3,837 4,346 11,990 12,715
----------- ----------- ----------- -----------
Income (loss) before income tax expense
(benefit) and extraordinary loss 480 (1,067) 1,079 (4,588)
Income tax expense (benefit) 182 (429) 416 (1,849)
----------- ------------ ----------- ------------
Income (loss) before extraordinary loss 298 (638) 663 (2,739)
----------- ------------ ----------- ------------
Extraordinary (loss) on debt extinguishment
(net of income tax benefit of $16 and $366,
respectively) (24) - (549) -
------------ ----------- ------------ -----------
Net income (loss) $ 274 $ (638) $ 114 $ (2,739)
=========== ============ =========== ============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FONDA GROUP, INC.
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STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
(In thousands)
For the For the
Thirty-nine Thirty-nine
weeks ended weeks ended
June 25, June 27,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 114 $ (2,739)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,458 5,142
Deferred income tax (131) 306
(Gain)/loss on sale of assets 66 (91)
Changes in operating assets and liabilities:
Receivables (531) 286
Inventories 1,596 (2,185)
Accounts payable and accrued expenses 3,480 6,221
Other, net 2,270 (2,045)
----------- ------------
Net cash provided by (used in) operating activities 12,322 4,895
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,167) (6,671)
Proceeds from sale of property, plant and equipment 1,398 430
Due from SF Holdings (32,209) (13.884)
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Net cash provided by (used in) investing activities (32,978) (20,125)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under credit facilities 22,208 7,938
Net borrowings (repayments) of other debt (390) (406)
------------ ------------
Net cash provided by (used in) financing activities 21,818 7,532
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,162 (7,698)
CASH AND CASH EQUIVALENTS, beginning of period 624 8,530
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CASH AND CASH EQUIVALENTS, end of period $ 1,786 $ 832
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 9,095 $ 6,183
============ ============
Income taxes paid (refunded) $ (329) $ 1,632
============= ============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
THE FONDA GROUP, INC.
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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 and customer
lists for $16 million. In addition, pursuant to the CEG Asset Purchase
Agreement, the Company subsequently purchased certain inventory and acquired
other CEG assets for cash and in exchange for outstanding trade payables owed to
the Company by CEG for total consideration of $25 million. 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
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>
(Unaudited)
June 25, September 26,
2000 1999
------------- --------------
<S> <C> <C>
Raw materials and supplies $ 21,202 $ 23,535
Finished products 39,219 38,265
Work in progress 631 848
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Total inventories $ 61,052 $ 62,648
========== ==========
</TABLE>
(4) RELATED PARTY TRANSACTIONS
During the thirty-nine weeks ended June 25, 2000, the Company sold $8.3
million of paper plates and $0.1 million of equipment rental to Sweetheart
Holdings Inc. ("Sweetheart"). Included in accounts receivable as of June 25,
2000 are $1.8 million due from Sweetheart and $1.0 million due from Fibre
Marketing Group, LLC ("Fibre Marketing").
<PAGE>
During the thirty-nine weeks ended June 25, 2000, the Company purchased
$10.8 million of paper cups from Sweetheart, $1.3 million of corrugated
containers from Box USA Corporation ("Box USA") and $0.4 million of travel
services from Emerald Lady, Inc. Included in accounts payable, as of June 25,
2000, is $1.5 million due to Sweetheart. Other purchases from and sales to
affiliates, if any, in the thirty-nine weeks ended June 25, 2000 were not
significant.
During the thirty-nine weeks ended June 25, 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 $1.0 million. Independent
appraisals were obtained to determine the fairness of the sale price.
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. Other purchases from and sales to affiliates, if any, in the
thirty-nine weeks ended June 27, 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 CEG Asset Purchase Agreement, CEG retired its
long-term debt. As a result, CEG charged $915,000, or $549,000 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.
(6) RESTRUCTURING EXPENSE
In June 2000, the Company established a restructuring reserve of $0.5
million in conjunction with the planned November 2000 closing of a manufacturing
facility in Maspeth, New York. This closing will include the elimination of
approximately 130 positions. This amount is represented as part of other current
liabilities on the balance sheet.
<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
to 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 for $16 million. In addition, pursuant to the CEG Asset
Purchase Agreement the Company subsequently purchased certain inventory and
acquired other CEG assets for cash and in exchange for outstanding trade
payables owed to the Company by CEG for total consideration of $25 million. 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 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.
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 improvement results
from the more profitable sales and production mix.
Thirteen Weeks Ended June 25, 2000 Compared to Thirteen Weeks Ended June 27,
1999 (Unaudited)
Net sales increased $4.4 million, or 5.1%, to $89.7 million for the
thirteen weeks ended June 25, 2000 compared to $85.3 million for the thirteen
weeks ended June 27, 1999, reflecting an 11.2% increase in average realized
sales price and a 6.1% 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 5.4%, reflecting
a 0.1% increase in sales volume and a 5.3% increase in average realized sales
price. The increase is primarily the result of higher pricing reflecting raw
material cost increases. Net sales to consumer customers increased 4.9%,
reflecting a 15.1% increase in average realized sales price and a 10.2% decrease
in sales volume. This increase resulted primarily from higher pricing reflecting
raw material cost increases, partially offset by decreased volume as a result of
competitive market conditions and lower sales to certain customers experiencing
financial difficulties.
Gross profit increased $2.4 million, or 16.2%, to $17.0 million for the
thirteen weeks ended June 25, 2000 compared to $14.6 million for the thirteen
weeks ended June 27, 1999. This increase is
<PAGE>
primarily attributable to the Company's completion of its consolidation and
manufacturing efficiency initiatives, which began in the prior fiscal year. As a
percentage of net sales, gross profit was 18.9% for the thirteen weeks ended
June 25, 2000 compared to 17.1% for the thirteen weeks ended June 27, 1999.
Selling, general and administrative expenses increased $0.6 million, or
5.1%, to $12.2 million for the thirteen weeks ended June 25, 2000 compared to
$11.6 million for the thirteen weeks ended June 27, 1999. This increase is
attributable to higher selling expenses in conjunction with increased sales and
additional depreciation expenses related to computer system upgrades. As a
percentage of net sales, selling, general and administrative expenses are flat
for the thirteen weeks ended June 25, 2000 compared to the thirteen weeks ended
June 27, 1999.
Restructuring expense was $0.5 million for the thirteen weeks ended June
25, 2000 due to the initiation of a restructuring reserve in connection with the
planned November 2000 closing of the Maspeth, New York facility which will
result in the elimination of approximately 130 positions.
Other (income) expense decreased $0.2 million, to income of $0.1 million
for the thirteen weeks ended June 25, 2000 compared to income of $0.3 million
for the thirteen weeks ended June 27, 1999, due primarily to lower management
fee income from Sweetheart.
Operating income increased $1.0 million, to $4.3 million for the thirteen
weeks ended June 25, 2000 compared to $3.3 million for the thirteen weeks ended
June 27, 1999, due to the reasons stated above.
Interest expense, net decreased $0.5 million to $3.8 million for the
thirteen weeks ended June 25, 2000 compared to $4.3 million for the thirteen
weeks ended June 27, 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 and lower average
outstanding balances.
Net income (loss) increased $0.9 million to $0.3 million for the thirteen
weeks ended June 25, 2000 compared to a $0.6 million net loss for the thirteen
weeks ended June 27, 1999, due to the reasons stated above.
Thirty-nine Weeks Ended June 25, 2000 Compared to Thirty-nine Weeks Ended June
27, 1999 (Unaudited)
Net sales increased $20.2 million, or 8.2%, to $265.3 million for the
thirty-nine weeks ended June 25, 2000 compared to $245.1 million for the
thirty-nine weeks ended June 27, 1999, reflecting a 1.2% decrease in sales
volume and a 9.4% 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 the institutional market driven by seasonal sales and
key customer growth. Net sales to institutional customers increased 8.9%,
reflecting a 7.1% increase in sales volume as a result of the Company's focus on
revenue growth with key institutional customers, coupled with a 1.8% increase in
average realized sales price, reflecting increased prices from raw material cost
increases. Net sales to consumer customers increased 7.8%, reflecting a 14.2%
increase in average realized sales price, partially offset by a 6.4% decrease in
sales volume. This increase resulted primarily from higher pricing reflecting
raw material cost increases, partially offset by decreased volume as a result of
competitive market conditions and lower sales to certain customers experiencing
financial difficulties.
Gross profit increased $4.3 million, or 9.5%, to $49.8 million for the
thirty-nine weeks ended June 25, 2000 compared to $45.5 million for the
thirty-nine weeks ended June 27, 1999. This increase is primarily attributable
to the Company's completion of its consolidation and manufacturing efficiency
initiatives, which began in the prior fiscal year. As a percentage of net sales,
gross profit increased to 18.8% for the thirty-nine weeks ended June 25, 2000
from 18.6% for the thirty-nine weeks ended June 27, 1999.
Selling, general and administrative expenses decreased $1.3 million, or
3.5%, to $36.5 million for the thirty-nine weeks ended June 25, 2000 compared to
$37.8 million for the thirty-nine weeks ended June 27, 1999. This decrease is
attributable to savings resulting from the consolidation effort.
<PAGE>
Restructuring expense was $0.5 million for the thirty-nine weeks ended June
25, 2000 due to the initiation of a restructuring reserve in connection with the
planned November 2000 closing of the Maspeth, New York facility which will
result in the elimination of approximately 130 positions.
Other (income) expense decreased $0.2 million, to income of $0.3 million
for the thirty-nine weeks ended June 25, 2000 compared to income of $0.5 million
for the thirty-nine weeks ended June 27, 1999, due primarily to lower management
fee income from Sweetheart.
Operating income increased $5.0 million, to $13.1 million for the
thirty-nine weeks ended June 25, 2000 compared to $8.1 million for the
thirty-nine weeks ended June 27, 1999, due to the reasons stated above.
Interest expense, net decreased $0.7 million, or 5.7%, to $12.0 million for
the thirty-nine weeks ended June 25, 2000 compared to $12.7 million for the
thirty-nine weeks ended June 27, 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 and lower
average outstanding balances.
Net income (loss) increased $2.8 million, to $0.1 million for the
thirty-nine weeks ended June 25, 2000 compared to a loss of $2.7 million for the
thirty-nine weeks ended June 27, 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 $7.4 million to a
source of $12.3 million in the thirty-nine weeks ended June 25, 2000, compared
to a source of $4.9 million in the thirty-nine weeks ended June 27, 1999. This
is primarily due to more favorable income from operating activities and
reduction in inventory levels as a result of management's initiatives.
Capital expenditures for the thirty-nine weeks ended June 25, 2000 were
$2.2 million compared to $6.7 million for the thirty-nine weeks ended June 27,
1999. Capital expenditures for the thirty-nine weeks ended June 25, 2000
consisted of $0.8 million for equipment purchases with the remaining
expenditures primarily for routine capital improvements.
The Company's revolving credit facility, which expires September 30, 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 June 25, 2000,
$33.6 million was outstanding and $21.1 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. QUANTITATIVE AND QUALITATIVE 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:
No reports on form 8-K were filed during the thirteen weeks
ending June 25, 2000.
<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: August 1, 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)
