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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 24, 2001
[ ] 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, Wisconsin 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 July 20, 2001:
Common Stock, $0.01 par value - 100 shares
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE FONDA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 24, September 24,
2001 2000
------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 2,172 $ 1,413
Receivables, less allowances of $1,819 and $1,459, 48,249 50,927
respectively
Inventories 53,715 63,145
Deferred income taxes 7,644 8,044
Refundable income taxes 298 298
Spare parts 2,584 2,523
Other current assets 7,620 6,328
---------- ----------
Total current assets 122,282 132,678
Property, plant and equipment, net 51,257 49,280
Goodwill, net 20,630 18,373
Due from SF Holdings 17,939 18,441
Other assets 9,922 11,604
---------- ----------
Total assets $ 222,030 $ 230,376
========== ==========
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $ 10,815 $ 15,679
Accrued payroll and related costs 11,026 10,469
Other current liabilities 21,964 21,203
Current portion of long-term debt 30,998 41,425
---------- ----------
Total current liabilities 74,803 88,776
Deferred income taxes 4,484 5,043
Long-term debt 123,659 120,453
Other liabilities 1,175 1,212
---------- ----------
Total liabilities 204,121 215,484
---------- ----------
Commitments and contingencies (See Notes)
Shareholder's equity:
Common stock - par value $.01 per share; 1,000 shares
authorized; 100 shares issued and outstanding - -
Additional paid-in capital 1,060 1,022
Retained earnings 16,874 13,895
Accumulated other comprehensive loss (25) (25)
---------- ----------
Total shareholder's equity 17,909 14,892
---------- ----------
Total liabilities and shareholder's equity $ 222,030 $ 230,376
========== ==========
See accompanying Notes to Consolidated Financial Statements.
2
THE FONDA GROUP, INC.
CONSOLIDATED 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 24, June 25, June 24, June 25,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Net sales $ 88,387 $ 89,702 $ 268,326 $ 265,339
Cost of sales 71,275 72,730 218,157 215,545
--------- --------- ---------- ----------
Gross profit 17,112 16,972 50,169 49,794
Selling, general and administrative expenses 10,118 12,203 33,571 36,497
Restructuring expense 407 500 407 500
Other income, net (253) (48) (450) (272)
--------- --------- ---------- ----------
Operating income 6,840 4,317 16,641 13,069
Interest expense, net of interest income of $-,
$25, $- and $244, respectively 3,778 3,837 11,631 11,990
--------- --------- ---------- ----------
Income before income tax expense 3,062 480 5,010 1,079
Income tax expense 1,192 182 2,031 416
--------- --------- ---------- ----------
Net income $ 1,870 $ 298 $ 2,979 $ 663
========= ========= ========== ==========
See accompanying Notes to Consolidated Financial Statements.
3
THE FONDA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the For the
Thirty-nine Thirty-nine
weeks ended weeks ended
June 24, June 25,
2001 2000
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,979 $ 663
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,075 5,458
Deferred income tax benefit (159) (131)
Loss on sale of assets 45 66
Changes in operating assets and liabilities (net of business
acquisition):
Receivables 3,367 (531)
Inventories 11,616 1,596
Accounts payable and accrued expenses (5,540) 3,480
Other, net 487 2,270
-------- --------
Net cash provided by operating activities 17,870 12,871
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,843) (2,167)
Payment for business acquisition (6,656) -
Due to/from SF Holdings 502 (32,758)
Proceeds from sale of property, plant and equipment 107 1,398
-------- --------
Net cash used in investing activities (9,890) (33,527)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under revolving credit facilities (10,877) 22,208
Borrowing for business acquisition 5,000 -
Net repayments of other debt (1,344) (390)
-------- --------
Net cash (used in) provided by financing activities (7,221) 21,818
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 759 1,162
CASH AND CASH EQUIVALENTS, beginning of period 1,413 624
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,172 $ 1,786
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 8,852 $ 9,095
======== ========
Income taxes paid (refunded) $ 243 $ (329)
======== ========
See accompanying Notes to Consolidated Financial Statements.
4
THE FONDA GROUP, INC.
NOTES TO CONSOLIDATED 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 the 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 24, 2000. Certain prior period
amounts have been reclassified to conform to current period presentation. The
Company is a wholly-owned subsidiary of SF Holdings Group, Inc. ("SF Holdings").
(2) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS No. 138.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and requires that an entity recognize all derivatives at fair value
in the balance sheet. The adoption of SFAS No. 133 did not have an impact on the
consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 establishes accounting and reporting standards for
revenue recognition and requires that an entity not recognize revenue until it
is realized or realizable and earned. The adoption of SAB No.101 did not have an
impact on the consolidated financial statements.
(3) INVENTORIES
The components of inventories are as follows (in thousands):
(Unaudited)
June 24, September 24,
2001 2000
-------------- -----------------
Raw materials and supplies $ 15,340 $ 19,723
Finished products 37,977 42,732
Work in progress 398 690
---------- ----------
Total inventories $ 53,715 $ 63,145
========== ==========
(4) RELATED PARTY TRANSACTIONS
All of the below referenced affiliates are under the common control of the
Company's Chief Executive Officer or a director of the Company.
During the thirty-nine weeks ending June 24, 2001, the Company sold $7.6
million of paper plates to Sweetheart Holdings Inc. ("Sweetheart") and $3.7
million of scrap paper to Fibre Marketing, LLC ("Fibre Marketing"). Included in
receivables as of June 24, 2001 are (i) $1.3 million due from
5
Sweetheart, (ii) $1.3 million due from Fibre Marketing and (iii) $0.7 million
due from SF Holdings. Other sales to affiliates, if any, during the thirty-nine
weeks ending June 24, 2001 were not significant.
During the thirty-nine weeks ending June 25, 2000, the Company sold $8.3
million of paper plates and $0.1 million of equipment rental and shared services
to Sweetheart and $5.2 million of scrap paper to Fibre Marketing. Included in
receivables as of June 25, 2000 was (i) $1.6 million due from Sweetheart, (ii)
$1.0 million due from Fibre Marketing and (iii) $0.2 million due from SF
Holdings. Other sales to affiliates, if any, during the thirty-nine weeks ending
June 25, 2000 were not significant.
During the thirty-nine weeks ending June 24, 2001, the Company purchased
(i) $16.3 million of paper cups from Sweetheart (ii) $1.0 million of corrugated
containers from Box USA Holdings, Inc. ("Box USA") and (iii) $0.4 million of
travel services from Emerald Lady, Inc. Included in accounts payable, as of June
24, 2001, was $3.0 million due to Sweetheart. Other purchases from affiliates,
if any, during the thirty-nine weeks ending June 24, 2001 were not significant.
During the thirty-nine weeks ending June 25, 2000, the Company purchased
(i) $10.8 million of paper cups from Sweetheart, (ii) $1.3 million of corrugated
containers from Box USA and (iii) $0.4 million of travel services from Emerald
Lady, Inc. Included in accounts payable, as of June 25, 2000, was $1.5 million
due to Sweetheart. Other purchases from affiliates, if any, during the
thirty-nine weeks ending June 25, 2000 were not significant.
In Fiscal 1998, the Company entered into an agreement with SF Holdings
whereby the Company acquired for $7.0 million substantially all of SF Holding's
rights under a Management Services Agreement dated August 31, 1993, as amended,
and pursuant to which the Company has the right, subject to the direction of the
board of directors of Sweetheart, to manage Sweetheart's day-to-day operations.
In consideration of the Company's performance of services, the Company is
entitled to receive management fees of $0.7 million, $0.9 million and $1.1
million in the first, second and third years, respectively, and $1.6 million per
year for the remaining term of the Management Services Agreement. The Company
believes that the terms of such agreement are at least as favorable as those it
could otherwise have obtained from unrelated third parties and were negotiated
on an arm's length basis. The $7.0 million payment is included in other assets
and is being amortized over the term of such agreement. Management fee income,
net of amortization was $0.5 million for the thirty-nine weeks ending June 24,
2001 and $0.3 million for the thirty-nine weeks ending June 25, 2000.
The Company leases a building in Jacksonville, Florida from Dennis Mehiel,
the Company's Chief Executive Officer, on terms the Company believes are no less
favorable than could be obtained from independent third parties and were
negotiated on an arm's length basis. Annual payments under the lease are $0.2
million plus annual increases based on changes in the Consumer Price Index
("CPI") through December 31, 2014. In addition, Mr. Mehiel can require the
Company to purchase the facility for $1.5 million, subject to a CPI-based
escalation, until July 31, 2006. In Fiscal 1998, the Company terminated its
operations at this facility and is currently subleasing the entire facility to
an unrelated third party. Rent expense, net of sublease income on the portion of
the premises subleased, is 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.
6
(5) BUSINESS ACQUISITION
On September 25, 2000, pursuant to an asset purchase agreement dated August
9, 2000 (the "Springprint Agreement"), the Company purchased substantially all
of the property, plant and equipment, intangibles and net working capital of
Springprint Medallion, a division of Marcal Paper Mills, Inc. ("Springprint").
In addition, pursuant to the Springprint Agreement, the Company has assumed the
liabilities and obligations of Springprint arising under contracts or leases
that are either assets purchased by the Company or a part of the accounts
payable. The aggregate purchase price for the assets and working capital was
$6.7 million, paid in cash. The Springprint acquisition has resulted in goodwill
of $3.2 million; which is being amortized over 20 years. The Springprint
acquisition has been accounted for under the purchase method and the results
have been included in the consolidated statements of operations since the date
of acquisition.
(6) SF HOLDINGS STOCK COMPENSATION PLAN
During the thirty-nine weeks ended June 24, 2001, SF Holdings, the
Company's parent, granted options to purchase shares of its common stock to
certain employees of the Company. The options vest over a period of three years.
Certain of the exercise prices of the options were below the fair market value
of SF Holding's common stock at the date of the grant. During the vesting
period, this $0.1 million discount is being amortized by the Company as
compensation expense and credited to additional paid-in capital. Amortization
expense relating to SF Holding's stock options was $38,000 for the thirty-nine
weeks ended June 24, 2001.
(7) RESTRUCTURING EXPENSE
During the thirty-nine weeks ended June 24, 2001, the Company established a
restructuring reserve of $0.4 million in conjunction with the consolidation of
the Creative Expression Group, Inc.'s ("CEG"), an affiliate of the Company,
administrative offices in Indianapolis, Indiana with The Fonda Group, Inc.'s
administrative offices in Oshkosh, Wisconsin. This closing includes the
elimination of approximately 40 positions.
During the thirty-nine weeks ended June 25, 2000, the Company established a
restructuring reserve of $0.5 million in conjunction with the November 2000
closing of a manufacturing facility in Maspeth, New York. This closing included
the elimination of approximately 130 positions.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Forward-looking statements in this filing, including those in the Notes to
Consolidated Financial Statements, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially. Such risks and uncertainties include, but are
not limited to, general economic and business conditions, competitive market
pricing, increases in raw material costs, energy costs and other manufacturing
costs, fluctuations in demand for the Company's products, potential equipment
malfunctions and pending litigation. For additional information, see the
Company's annual report on Form 10-K for the most recent fiscal year.
7
General
The Company, a wholly-owned subsidiary of SF Holdings, is a converter and
marketer of disposable paper foodservice products. On December 3, 1999, 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 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. 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 companies are under common control, and
therefore, the transaction has been accounted for in a manner similar to
pooling-of-interests. CEG's net assets and liabilities that were not acquired by
the Company pursuant to the CEG Asset Purchase Agreement were acquired by SF
Holdings and have been classified as "Due to/from SF Holdings".
On September 25, 2000, pursuant to the Springprint Agreement, the Company
purchased substantially all of the property, plant and equipment, intangibles
and net working capital of Springprint Medallion, a division of Marcal Paper
Mills, Inc. In addition, pursuant to the Springprint Agreement, the Company has
assumed the liabilities and obligations of Springprint arising under contracts
or leases that are either assets purchased by the Company or a part of the
accounts payable. The aggregate purchase price for the assets and working
capital was $6.7 million.
Thirteen Weeks Ended June 24, 2001 Compared to Thirteen Weeks Ended
June 25, 2000 (Unaudited)
Net sales decreased $1.3 million, or 1.4%, to $88.4 million for the
thirteen weeks ending June 24, 2001 compared to $89.7 million for the thirteen
weeks ending June 25, 2000, reflecting a 2.7% increase in average realized sales
price partially offset by a 4.1% decrease in sales volume. Net sales to consumer
foodservice customers decreased 7.9%, resulting from a 0.8% increase in average
realized sales price and an decrease in sales volume of 8.7%. Net sales to
consumer foodservice customers was negatively impacted by more competitive
market conditions and the Company's decision to reduce sales to certain
customers experiencing deteriorating credit conditions. Net sales to
institutional foodservice customers increased 8.4%, resulting from a 0.5%
increase in average realized sales price and a 7.9% increase in sales volume.
This increase in institutional foodservice customers volumes is primarily
attributed to the Springprint acquisition.
Gross profit increased $0.1 million, or 0.6%, to $17.1 million for the
thirteen weeks ending June 24, 2001 compared to $17.0 million for the thirteen
weeks ending June 25, 2000. As a percentage of net sales, gross profit increased
from 18.9% for the thirteen weeks ending June 25, 2000 to 19.4% for the thirteen
weeks ending June 24, 2001. Gross profit for the thirteen weeks ending June 24,
2001 was positively affected by increased selling prices, which were partially
offset by higher raw material and energy costs.
Selling, general and administrative expenses decreased $2.1 million, or
17.2%, to $10.1 million for the thirteen weeks ending June 24, 2001 compared to
$12.2 million for the thirteen weeks ending June 25, 2000 primarily as a result
of a decrease in the workforce resulting from the CEG consolidation and a
reduction in selling expenses.
8
Restructuring expenses decreased $0.1 million, or 20.0%, to $0.4 million
for the thirteen weeks ending June 24, 2001 compared to $0.5 million for the
thirteen weeks ending June 25, 2000. In the thirteen weeks ending June 24, 2001,
the Company recorded a $0.4 million reserve in conjunction with the
consolidation of the CEG administrative office. In the thirteen weeks ended June
25, 2000, the Company established a restructuring reserve of $0.5 million in
conjunction with the closing of a manufacturing facility in Maspeth, New York.
Other (income), net increased $0.2 million, or 200.0%, to income of $0.3
million for the thirteen weeks ending June 24, 2001 compared to income of $0.1
million for the thirteen weeks ending June 25, 2000 due to an increase in
management fee income.
Operating income increased $2.5 million, or 58.1%, to $6.8 million for the
thirteen weeks ending June 24, 2001 compared to $4.3 million for the thirteen
weeks ending June 25, 2000 due to the reasons discussed above.
Interest expense, net of interest income was flat at $3.8 million for the
thirteen weeks ending June 24, 2001 and the thirteen weeks ending June 25, 2000.
Income tax expense increased $1.0 million, or 500.0%, to $1.2 million for
the thirteen weeks ending June 24, 2001 compared to $0.2 million for the
thirteen weeks ending June 25, 2000 as a result of increased income. The
effective rate for the thirteen weeks ending June 24, 2001 was 38.9% and for the
thirteen weeks ending June 25, 2000 was 37.9%.
Net income increased $1.6 million, or 533.3%, to $1.9 million for the
thirteen weeks ending June 24, 2001 compared to $0.3 million for the thirteen
weeks ending June 25, 2000, due to the reasons stated above.
Thirty-nine Weeks Ended June 24, 2001 Compared to Thirty-nine Weeks Ended
June 25, 2000 (Unaudited)
Net sales increased $3.0 million, or 1.1%, to $268.3 million for the
thirty-nine weeks ending June 24, 2001 compared to $265.3 million for the
thirty-nine weeks ending June 25, 2000, reflecting a 5.7% increase in average
realized sales price partially offset by a 4.6% decrease in sales volume. Net
sales to consumer foodservice customers decreased 7.2%, resulting from a 4.4%
increase in average realized sales price, offset by a decrease in sales volume
of 11.6%. Net sales to consumer foodservice customers was negatively impacted by
more competitive market conditions and the Company's decision to reduce sales to
certain customers experiencing deteriorating credit conditions, offset partially
by a more favorable product mix. Net sales to institutional foodservice
customers increased 14.4%, resulting from a 0.4% increase in average realized
sales price, combined with a 14.0% increase in sales volume. This increase in
institutional foodservice customers volumes is primarily attributed to the
Springprint acquisition.
Gross profit increased $0.4 million, or 0.8%, to $50.2 million for the
thirty-nine weeks ending June 24, 2001 compared to $49.8 million for the
thirty-nine weeks ending June 25, 2000. As a percentage of net sales, gross
profit decreased from 18.8% for the thirty-nine weeks ending June 25, 2000 to
18.7% for the thirty-nine weeks ending June 24, 2001. Gross profit for the
thirty-nine weeks ending June 24, 2001 was positively affected by increased
selling prices, which was entirely offset by higher raw material and energy
costs.
Selling, general and administrative expenses decreased $2.9 million, or
7.9%, to $33.6 million for the thirty-nine weeks ending June 24, 2001 compared
to $36.5 million for the thirty-nine weeks
9
ending June 25, 2000 primarily as a result of a decrease in the workforce
resulting from the CEG consolidation and a reduction in selling expenses.
Restructuring expenses decreased $0.1 million, or 20.0%, to $0.4 million
for the thirty-nine weeks ending June 24, 2001 compared to $0.5 million for the
thirty-nine weeks ending June 25, 2000. In the thirty-nine weeks ending June 24,
2001, the Company recorded a reserve in conjunction with the consolidation of
the CEG administrative office. In the thirty-nine weeks ended June 25, 2000, the
Company established a restructuring reserve of $0.5 million in conjunction with
the closing of a manufacturing facility in Maspeth, New York.
Other (income), net increased $0.2 million, or 66.7%, to $0.5 million for
the thirty-nine weeks ending June 24, 2001 compared to $0.3 million for the
thirty-nine weeks ending June 25, 2000 due to an increase in management fee
income.
Operating income increased $3.5 million, or 26.7%, to $16.6 million for the
thirty-nine weeks ending June 24, 2001 compared to $13.1 million for the
thirty-nine weeks ending June 25, 2000 due to the reasons discussed above.
Interest expense, net of interest income decreased $0.4 million, or 3.3%,
to $11.6 million for the thirty-nine weeks ending June 24, 2001 compared to
$12.0 million for the thirty-nine weeks ending June 25, 2000. For the
thirty-nine weeks ending June 24, 2001, the Company realized lower interest
expense due primarily to lower average interest rates.
Income tax expense increased $1.6 million, or 400.0%, to $2.0 million for
the thirty-nine weeks ending June 24, 2001 compared to $0.4 million for the
thirty-nine weeks ending June 25, 2000 as a result of higher income. The
effective rate for the thirty-nine weeks ending June 24, 2001 was 40.5% and for
the thirty-nine weeks ending June 25, 2000 was 38.6%.
Net income increased $2.3 million, or 328.6%, to $3.0 million for the
thirty-nine weeks ending June 24, 2001 compared to $0.7 million for the
thirty-nine weeks ending June 25, 2000, due to the reasons stated above.
Liquidity And Capital Resources
Historically, the Company has relied on cash flow from operations, the
sale of assets and borrowing under its credit facility to finance its working
capital requirements and capital expenditures. The Company expects to continue
this method of funding for its 2001 capital expenditures.
Net cash provided by operating activities increased $5.0 million to $17.9
million in the thirty-nine weeks ending June 24, 2001 compared to $12.9 million
in the thirty-nine weeks ending June 25, 2000. This increase is primarily due to
a decrease in receivables as a result of better collections and a decrease in
inventory as a result of improved inventory management.
Capital expenditures for the thirty-nine weeks ended June 24, 2001 were
$3.8 million compared to $2.2 million for the thirty-nine weeks ending June 25,
2000. Capital expenditures in the thirty-nine weeks ending June 24, 2001
included $2.8 million for new production equipment and $1.0 million for
renovations and conversions.
The Company has a $55 million revolving credit facility subject to
borrowing base limitations. The credit facility is collateralized by eligible
accounts receivable, inventories, and certain general intangibles. The credit
facility matures on September 30, 2001. Borrowings are available at the bank's
prime rate plus 0.25% or at LIBOR plus 2.25% at the election of the Company. At
June 24, 2001, $29.8 million was
10
outstanding and $25.2 million was the maximum remaining advance available based
upon eligible collateral. Although the Company intends to refinance this debt,
there can be no assurances that the Company will be able to obtain such
refinancing on terms and conditions acceptable to the Company.
In addition to the revolving credit facility, the Company's credit facility
also includes a term loan of $5 million of which $4.3 million was outstanding at
June 24, 2001. This amount is payable in equal monthly installments through the
maturity date of September 30, 2001. Borrowings under the term loan bear
interest, at the Company's election, equal to the bank's prime rate plus 0.5% or
LIBOR plus 2.5%. The proceeds from this term loan were used to partially finance
the purchase of Springprint.
Pursuant to the terms of the instruments governing the indebtedness of the
Company, the Company is subject to certain affirmative and negative covenants
customarily contained in agreements of this type, including, without limitations
covenants that restrict, subject to specified exceptions (i) mergers,
consolidations, asset sales or changes in capital structure, (ii) creation or
acquisition of subsidiaries, (iii) purchase or redemption of capital stock or
declaration or payment of dividends or distributions on such capital stock, (iv)
incurrence of additional indebtedness, (v) investment activities, (vi) granting
or incurrence of liens to secure other indebtedness, (vii) prepayment or
modification of the terms of subordinated indebtedness, and (viii) engaging in
transactions with affiliates. In addition, such debt instruments restrict the
Company's ability to pay dividends or make other distributions to SF Holdings.
The credit facility also requires that certain financial covenants are
satisfied.
Management believes that cash generated by operations, combined with
amounts available under the Company's credit facility, will be sufficient to
meet the Company's working capital and capital expenditure needs in the next
twelve months.
The Company is contemplating various strategic options which may include a
restructuring of its business debt and capital structure, including, among other
things, the public sale or private placement of debt or equity securities of the
Company or its subsidiaries, joint venture transactions, new borrowings, the
refinancing of the Company's existing debt agreements, open market purchases,
tender offers or exchange offers of the Company's outstanding securities. There
can be no assurances that any of these strategic options will be consummated.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NONE
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K:
No reports on Form 8-K were filed during the thirty-nine weeks
ended June 24, 2001
11
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: July 20, 2001 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)