-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Muz+9lvZp/TQYc+gmYEU9WPhh3QsvoV0fru2u6x0mePFm8HDgmwbB9MXcpWyiJON AS0lrVYtB2XXkwQShVE2hQ== 0000038195-96-000019.txt : 19960725 0000038195-96-000019.hdr.sgml : 19960725 ACCESSION NUMBER: 0000038195-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960724 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORT HOWARD CORP CENTRAL INDEX KEY: 0000038195 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 391090992 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20473 FILM NUMBER: 96598469 BUSINESS ADDRESS: STREET 1: 1919 S BROADWAY CITY: GREEN BAY STATE: WI ZIP: 54304 BUSINESS PHONE: 4144358821 FORMER COMPANY: FORMER CONFORMED NAME: FORT HOWARD PAPER CO/DE DATE OF NAME CHANGE: 19870506 FORMER COMPANY: FORMER CONFORMED NAME: MARYLAND CUP CORP/WI DATE OF NAME CHANGE: 19840612 FORMER COMPANY: FORMER CONFORMED NAME: FORT HOWARD PAPER CO DATE OF NAME CHANGE: 19830926 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 quarterly period ended JUNE 30, 1996 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: 0-20473 FORT HOWARD CORPORATION (Exact name of registrant as specified in its charter) Delaware 39-1090992 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1919 South Broadway, Green Bay, Wisconsin 54304 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: 414/435-8821 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 issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 15, 1996 ----- ---------------------------- Common Stock, par value $.01 73,967,097 per share PART I. FINANCIAL INFORMATION FORT HOWARD CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- (In thousands, except per share data) Net sales....................... $402,397 $412,110 $788,144 $779,486 Cost of sales................... 243,487 297,644 481,856 565,500 -------- -------- -------- -------- Gross income.................... 158,910 114,466 306,288 213,986 Selling, general and administrative................ 34,211 26,375 67,386 55,120 -------- -------- -------- -------- Operating income................ 124,699 88,091 238,902 158,866 Interest expense................ 66,201 76,311 136,974 163,081 Other expense (income), net..... 475 (713) 1,038 (937) -------- -------- -------- -------- Income (loss) before taxes...... 58,023 12,493 100,890 (3,278) Income tax expense (credit)..... 21,646 4,874 37,573 (1,379) -------- -------- -------- -------- Net income (loss) before extraordinary item............ 36,377 7,619 63,317 (1,899) Extraordinary item -- loss on debt repurchases (net of income taxes of $2,180 in 1996 and $11,986 in 1995)..... (3,340) -- (3,340) (18,748) -------- -------- -------- -------- Net income (loss)............... $ 33,037 $ 7,619 $ 59,977 $(20,647) ======== ======== ======== ======== Net income (loss) per share: Net income (loss) before extraordinary item.......... $ 0.53 $ 0.12 $ 0.96 $ (0.04) Extraordinary item............ (0.05) -- (0.05) (0.35) -------- -------- -------- -------- Net income (loss)............. $ 0.48 $ 0.12 $ 0.91 $ (0.39) ======== ======== ======== ======== Average shares outstanding...... 68,759 63,338 66,066 52,999 ======== ======== ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. - 2 - FORT HOWARD CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1996 1995 -------- ------------ Assets (In thousands) Current assets: Cash and cash equivalents................. $ 732 $ 946 Receivables, less allowances of $3,160 in 1996 and $2,883 in 1995................. 87,068 97,707 Inventories............................... 135,623 163,076 Deferred income taxes..................... 47,000 29,000 Income taxes receivable................... 700 700 ---------- ---------- Total current assets.................... 271,123 291,429 Property, plant and equipment............... 1,993,548 1,971,641 Less: Accumulated depreciation........... 754,638 706,394 ---------- ---------- Net property, plant and equipment....... 1,238,910 1,265,247 Other assets................................ 84,633 95,761 ---------- ---------- Total assets............................ $1,594,666 $1,652,437 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable.......................... $ 103,615 $ 112,384 Interest payable.......................... 60,984 64,375 Income taxes payable...................... 2,621 1,339 Other current liabilities................. 77,121 85,351 Current portion of long-term debt......... 34,372 62,720 ---------- ---------- Total current liabilities............... 278,713 326,169 Long-term debt.............................. 2,598,850 2,903,299 Deferred and other long-term income taxes... 254,994 225,043 Other liabilities........................... 35,184 36,355 Shareholders' deficit: Common Stock.............................. 740 634 Additional paid-in capital................ 1,100,864 895,652 Cumulative translation adjustment......... (2,785) (2,844) Retained deficit.......................... (2,671,894) (2,731,871) ---------- ---------- Total shareholders' deficit............. (1,573,075) (1,838,429) ---------- ---------- Total liabilities and shareholders' deficit............................... $1,594,666 $1,652,437 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements. - 3 - FORT HOWARD CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------ 1996 1995 ---- ---- (In thousands) Cash provided from (used for) operations: Net income (loss)............................. $ 59,977 $ (20,647) Depreciation.................................. 50,231 49,020 Non-cash interest expense..................... 6,645 6,429 Deferred income tax (credit) expense.......... 11,975 (11,774) Pre-tax loss on debt repurchases.............. 5,519 30,734 (Increase) decrease in receivables............ 10,639 (27,410) (Increase) decrease in inventories............ 27,453 (33,284) Decrease in income taxes receivable........... -- 4,500 Increase (decrease) in accounts payable....... (8,769) 19,605 Decrease in interest payable.................. (3,391) (21,440) Increase (decrease) in income taxes payable... 1,282 (180) All other, net................................ (8,891) (21,044) ---------- --------- Net cash provided from (used for) operations................................ 152,670 (25,491) Cash used for investment activity: Additions to property, plant and equipment.... (24,384) (23,119) Cash provided from (used for) financing activities: Proceeds from long-term borrowings............ 192 1,428,800 Repayment of long-term borrowings............. (332,529) (1,616,001) Debt issuance costs........................... (1,481) (48,421) Issuance of Common Stock, net of offering costs.............................. 205,318 284,104 ---------- --------- Net cash provided from (used for)financing (128,500) 48,482 activities ---------- --------- Decrease in cash............................... (214) (128) Cash at beginning of period..................... 946 422 ---------- --------- Cash at end of period......................... $ 732 $ 294 ========== ========= Supplemental Cash Flow Disclosures: Interest paid................................. $ 133,678 $ 178,529 Income taxes paid (refunded) - net............ 22,096 (6,005) The accompanying notes are an integral part of these condensed consolidated financial statements. - 4 - FORT HOWARD CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The condensed consolidated financial statements reflect all adjustments (consisting only of normally recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Certain reclassifications have been made to conform prior years' data to the current format. These financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1995 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1996. 2. EARNINGS (LOSS) PER SHARE Earnings (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the periods. The weighted average number of shares outstanding for the three and six month periods ended June 30, 1996 was 68,759,446 and 66,065,754, respectively. The average number of shares outstanding for the three and six month periods ended June 30, 1995 was 63,338,210 and 52,999,385, respectively. The assumed exercise of all outstanding stock options has been excluded from the computation of earnings (loss) per share for the three and six month periods ended June 30, 1996 and 1995 because the result was not material or was antidilutive. 3. INVENTORIES Inventories consist of: June 30, December 31, 1996 1995 -------- ------------ (In thousands) Raw materials and supplies.............. $ 63,911 $ 80,134 Finished and partly-finished products... 71,712 82,942 -------- -------- $135,623 $163,076 ======== ======== 4. COMMON STOCK OFFERING On May 15, 1996, the Company issued 10 million shares of Common Stock at $20.25 per share in a public offering (the "Offering"). Proceeds from the Offering, net of underwriting commissions and other related expenses totaling $9 million, were $194 million. On June 4, 1996, an additional 520,000 shares of Common Stock were issued at $20.25 per share upon the exercise of a portion of the underwriters' over-allotment option granted in connection with the Offering, resulting in additional net proceeds of $10 million after deducting underwriting commissions. - 5 - 5. LONG-TERM DEBT The Company used the net proceeds of its Common Stock Offering of $204 million to prepay a portion of the outstanding indebtedness under the 1995 Bank Credit Agreement. At June 30, 1996, the available capacity under the 1995 Revolving Credit Facility under the Company's 1995 Bank Credit Agreement was $274 million. 6. CONTINGENCIES The Company and its subsidiaries are parties to lawsuits and state and federal administrative proceedings incidental to their businesses. Although the final results in such suits and proceedings cannot be predicted with certainty, the Company currently believes that the ultimate resolution of all such lawsuits and proceedings, after taking into account the liabilities accrued with respect to such matters, will not have a material adverse effect on the Company's financial condition or on its results of operations. - 6 - FORT HOWARD CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Second Quarter and First Six Months of 1996 Compared to 1995 Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- (In thousands, except percentages) Net sales: Domestic tissue............... $345,574 $323,565 $670,482 $617,493 International operations...... 42,545 41,166 86,353 77,353 Harmon........................ 14,278 47,379 31,309 84,640 -------- -------- -------- -------- Consolidated.................. $402,397 $412,110 $788,144 $779,486 ======== ======== ======== ======== Operating income: Domestic tissue............... $116,962 $ 82,111 $223,882 $149,475 International operations...... 6,977 4,387 13,282 6,359 Harmon........................ 760 1,593 1,738 3,032 -------- -------- -------- -------- Consolidated.................. $124,699 $ 88,091 $238,902 $158,866 ======== ======== ======== ======== Consolidated net income (loss).. $ 33,037 $ 7,619 $ 59,977 $(20,647) ======== ======== ======== ======== Operating income as a percent of net sales..................... 31.0% 21.4% 30.3% 20.4% Net Sales. Net sales in the Company's domestic tissue operations increased 6.8% and 8.6% for the second quarter and first six months of 1996, respectively, compared to the same periods in 1995. Because of significantly lower selling prices in the Company's wastepaper brokerage subsidiary, consolidated net sales decreased 2.4% for the second quarter of 1996 compared to the second quarter of 1995. For the first six months of 1996 compared to the first six months of 1995, consolidated net sales increased 1.1%. For the second quarter of 1996 compared to the second quarter of 1995, domestic tissue sales volume increased 6.1% based on significant growth of the Company's consumer products and a modest decline in commercial products. Overall, domestic tissue net selling prices in the second quarter of 1996 were slightly higher than the second quarter of 1995. For the first six months of 1996 compared to the first six months of 1995, domestic tissue net selling prices increased 8.7%, while sales volume was flat. From the first quarter of 1996 to the second quarter of 1996, overall domestic tissue net selling prices decreased 3.1% principally as a result of price decreases announced for the consumer market effective April and June 1996 on certain product lines. In the commercial market net selling prices in the second quarter of 1996 were down slightly from the first quarter of 1996. - 7 - Net sales of the Company's international operations increased 3.3% and 11.6% for the second quarter and first six months of 1996 compared to 1995, respectively, principally due to an increase in net selling prices on flat volume at the Company's U.K. facilities. Net sales of the Company's wastepaper brokerage subsidiary, Harmon Assoc. Corp. ("Harmon"), decreased 69.9% and 63.0% for the second quarter and first six months of 1996 compared to 1995, respectively, due to significantly lower selling prices on slightly lower volume. Gross Income. Consolidated gross income increased 39% and 43% for the second quarter and first six months of 1996 compared to 1995, respectively, due to the higher selling prices and lower raw material costs. Consolidated gross margins increased to 39.5% and 38.9% for the second quarter and first six months of 1996 from 27.8% and 27.5% for the second quarter and first six months of 1995, respectively. Domestic tissue gross margins increased for the second quarter and first six months of 1996 compared to the second quarter and first six months of 1995 due to higher selling prices and significantly lower wastepaper prices. Gross margins of international operations increased in both the second quarter and first six months of 1996 compared to 1995. In addition, consolidated gross margins were positively affected for both the second quarter and first six months of 1996 compared to 1995 because net sales by Harmon (which typically has very low margins compared to either domestic or international tissue operations) were a smaller proportion of total net sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses, as a percent of net sales, increased to 8.5% for the second quarter and first six months of 1996 compared to 6.4% and 7.1% for the second quarter and first six months of 1995, respectively. The increase was principally due to the impact of the Company's strong earnings performance on employee compensation plans, higher selling expenses resulting from greater consumer product sales and lower net sales by Harmon. Operating Income. Operating income increased to $125 million and $239 million for the second quarter and first six months of 1996 from $88 million and $159 million for the second quarter and first six months of 1995, respectively. Operating income as a percent of net sales increased to 31.0% and 30.3% in the second quarter and first six months of 1996 compared to 21.4% and 20.4% in the second quarter and first six months of 1995, respectively. Domestic tissue operating income as a percent of net sales increased to 33.8% and 33.4% in the second quarter and first six months of 1996 from 25.4% and 24.2% in the second quarter and first six months of 1995, respectively. In addition, consolidated operating income increased as a percent of net sales because net sales by Harmon (which typically has very low operating income margins compared to either domestic or international tissue operations) were a smaller proportion of total net sales. Extraordinary Loss. The Company's net loss in the second quarter and first six months of 1996 was increased by an extrordinary loss of $3 million (net of income taxes of $2 million) representing the write-offs of deferred loan costs associated with the prepayment of a portion of the outstanding indebtedness under the 1995 Bank Credit Agreement. The Company's net loss in the first six months of 1995 was increased by an extraordinary loss of $19 million (net of income taxes of $12 million) from debt repurchases. - 8 - Net Income (Loss). For the second quarter and first six months of 1996, net income was $33 million and $60 million, respectively, compared to net income of $8 million for the second quarter of 1995 and net loss of $21 million for the first six months of 1995. FINANCIAL CONDITION For the first six months of 1996, cash decreased $214,000. Capital additions of $24 million and debt repayments of $333 million were funded principally by net proceeds of $205 million from the sale of Common Stock and $153 million of cash from operations provided by strong operating results. During the first six months of 1996, receivables decreased $11 million due principally to lower net selling prices in the domestic tissue and international operations in the second quarter of 1996 compared to the fourth quarter of 1995. Inventories decreased by $27 million principally due to lower raw material costs. Accounts payable decreased $9 million due to significantly lower wastepaper costs. The liability for interest payable decreased $3 million due to the early payment of interest in connection with the Offering. Other current liabilities declined $8 million resulting from the payment of obligations due on an annual basis, including employee bonuses and profit sharing and customer incentive payments. As a result of all these changes and the prepayment of a portion of the indebtedness due within one year under the 1995 Bank Credit Agreement from the net proceeds of the Offering, the net working capital deficit decreased to $8 million at June 30, 1996 from a deficit of $35 million at December 31, 1995. The Company's 1995 Revolving Credit Facility, which may be used for general corporate purposes, has a final maturity of March 16, 2002. At June 30, 1996, the Company had $274 million in available capacity under the 1995 Revolving Credit Facility. - 9 - PART II. OTHER INFORMATION 1. LEGAL PROCEEDINGS In July 1992, the United States Environmental Protection Agency issued a Finding of Violation to the Company concerning the No. 8 boiler at its Green Bay mill. The Finding alleged violation of regulations issued by the U.S. EPA under the Clean Air Act relating to New Source Performance Standards for Fossil Fuel Steam Generators. On February 8, 1996, the Company executed a consent decree whereby the Company, without admitting any wrongdoing, agreed to make certain modifications to its No. 8 boiler which will physically limit the boiler capacity to the level specified in the alleged relevant New Source Performance Standards. The Company also agreed to pay $350,000 to settle this matter. Such amount was paid on June 24, 1996. The physical modifications will not affect the utility of the No. 8 boiler and are expected to be completed by year end. As previously reported, the Company responded during the first and second quarters of 1995 to a Civil Investigative Demand issued by the U.S. Department of Justice concerning a civil antitrust investigation into possible agreements in restraint of trade in connection with the sales of commercial sanitary paper products. On May 20, 1996, the Company received a subpoena to provide certain documents to a federal grand jury in Cleveland that is investigating possible antitrust violations in the sale of commercial sanitary paper products. The Company is responding to the subpoena. 2. CHANGES IN SECURITIES None 3. DEFAULTS UPON SENIOR SECURITIES None 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on May 14, 1996. James R. Burke, Kathleen J. Hempel and David I. Margolis were elected to the Company's Board of Directors at the meeting to hold office for three-year terms expiring in 1999. Following are the voting results: Nominee Votes For Votes Withheld ------- --------- -------------- James R. Burke 58,768,061 239,449 Kathleen J. Hempel 58,768,261 239,249 David I. Margolis 58,768,061 239,449 5. OTHER INFORMATION None - 10 - 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit No. Description 27 Financial Data Schedule for the six months ended June 30, 1996. 99 News release containing financial results for the quarter ended June 30, 1996. b) The Company filed a Form 8-K on May 22, 1996, reporting under Item 5, the receipt of a subpoena to provide documents in connection with a federal grand jury investigation into possible antitrust violations in the sale of commercial sanitary paper products. - 11 - FORT HOWARD CORPORATION SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FORT HOWARD CORPORATION Registrant July 24, 1996 /s/ Kathleen J. Hempel ---------------------------------------- Kathleen J. Hempel, Vice Chairman and Chief Financial Officer and Principal Accounting Officer July 24, 1996 /s/ James W. Nellen II --------------------------------------- James W. Nellen II, Vice President and Secretary - 12 - INDEX TO EXHIBITS Exhibit No. Description 27 Financial Data Schedule for the six months ended June 30, 1996 99 News release containing financial results for the quarter ended June 30, 1996 - 13 - EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORT HOWARD CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000038195 FORT HOWARD CORPORATION 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JUN-30-1996 1 732 0 90,228 3,160 135,623 271,123 1,993,548 754,638 1,594,666 278,713 2,598,850 740 0 0 (1,573,815) 1,594,666 788,144 788,144 481,856 481,856 0 0 136,974 100,890 37,573 63,317 0 (3,340) 0 59,977 0.91 0.91
EX-99 3 Exhibit 99 NEWS ______________________________________________________________________________ For further information contact: FORT HOWARD CORPORATION Media: P. O. Box 19130 Cliff Bowers, Ext. 4087 Green Bay, WI 54307-9130 Financial: 414/435-8821 Mike Lempke, Ext. 2492 FOR RELEASE: IMMEDIATELY FORT HOWARD EPS HITS $0.53 FOR 2ND QUARTER -- UP MORE THAN THREEFOLD, OPERATING INCOME JUMPS 41.6% GREEN BAY, WI - July 24, 1996 - Fort Howard Corporation today reported net income per share (before an extraordinary item related to debt repayment) of $0.53 for the second quarter ending June 30, 1996, compared to net income per share of $0.12 in the second quarter of 1995. "Our very strong consumer business, positive order patterns in our commercial market and significantly lower recovered fiber costs were the centerpieces of a very good quarter for Fort Howard," said Chairman and CEO, Donald H. DeMeuse. Fort Howard's operating income rose 41.6% in the second quarter of 1996 compared to the second quarter of 1995, and its operating income margin for the quarter was 31.0% compared to 21.4% for the second quarter of 1995 and 29.6% for the first quarter of 1996. -- More -- -- Ad One -- Significant Debt Reduction "The strong business fundamentals and successful strategies that helped to increase operating income 41% also enabled us to make significant reductions in our long-term debt," according to DeMeuse. As a result of the application of free cash flow and proceeds from the company's May 1996 public equity offering, Fort Howard's long-term debt has been reduced to $2.63 billion. That is by far the lowest point since the company's 1988 LBO. Debt is currently down approximately $333 million from the close of 1995. Quarterly Sales Increase Domestic tissue sales increased 6.8% for the second quarter of 1996 compared to second quarter 1995 due primarily to increased volume in consumer products. Also, net sales of the company's international operations increased 3.3% for the second quarter of 1996 compared to second quarter 1995 principally due to higher selling prices. Offsetting sales increases at domestic and international tissue operations were lower sales from the company's recovered fiber brokerage operations resulting from lower prices. For the second quarter, Fort Howard's consolidated net sales decreased 2.4% to $402,397,000 compared to second quarter 1995 net sales of $412,110,000. Domestic tissue sales increased 8.6% for the first six months of 1996 compared to 1995 due to a 8.7% increase in net selling prices on flat volume. Net sales of the company's international operations increased 11.6% for the first half of 1996 compared to 1995 due to an 11.4% increase in net selling prices on flat volume at the company's United Kingdom facilities. Offsetting sales increases at domestic and international tissue operations were lower sales from the company's recovered fiber brokerage operations resulting from lower prices. First half 1996 consolidated net sales were $788,144,000, an increase of 1.1% over 1995 net sales of $779,486,000 for the same period. -- More -- -- Ad Two -- Operating Income Increases Operating income increased 41.6% to $124,699,000 for the second quarter compared to $88,091,000 for the second quarter of 1995. Operating income increased 50.4% to $238,902,000 in the first six months of 1996 compared to $158,866,000 for the first six months of 1995. The increase was due to higher net selling prices and lower recovered fiber costs in both the company's domestic and international operations. For the second quarter of 1996, net income was $33,037,000 resulting in net income for the first six months of 1996 of $59,977,000 compared to net income of $7,619,000 and net loss of $20,647,000 for the same periods in 1995, respectively. The net income per share before an extraordinary item was $0.53 and $0.96 per share for the second quarter and first six months of 1996, compared to $0.12 per share for the second quarter of 1995 and a net loss per share before an extraordinary item of $0.04 for the first six months of 1995. Net income per share after an extraordinary item for the second quarter and first six months of 1996 were $0.48 and $0.91 while net loss per share after extraordinary items for the first six months of 1995 was $0.39. In April 1995, the company completed a recapitalization, including an IPO of 25 million shares of common stock. Had the recapitalization been completed on January 1, 1995, net income per share for the second quarter and first six months of 1995 would have been $0.15 and $0.13 per share on a pro forma basis based on 63,371,000 shares outstanding. Extraordinary losses related to debt repurchases in 1996 and 1995 (see Notes to Financial Information) impacted the company's financial performance during the second quarter and first six months of 1996 and during the first six months of 1995. -- More -- -- Ad Three -- New Product Development Strategy "We're intent on continuing Fort Howard's strong momentum in new product development," DeMeuse said. "In the second quarter, we continued to play out that core growth strategy with the introduction of four new or improved product lines for the commercial market. This builds on the strong first quarter entry into the premium segment with our PREFERENCE Ultra line." Highlighting the second quarter product introductions is the new Preference line of bath and facial tissue products targeted at the large mid- range or "near-premium" segment of the away-from-home market. Fort Howard is a leading manufacturer and marketer of consumer tissue products for both the away-from-home and at-home markets in the United States and United Kingdom. In the domestic at-home market, its principal consumer brands include MARDI GRAS printed napkins (which holds the leading domestic market position) and paper towels, SOFT 'N GENTLE bath and facial tissue, SO-DRI paper towels, and GREEN FOREST, the leading domestic line of environmentally positioned recycled tissue paper products. (Financial information and notes follow on separate pages. The notes are an integral part of these statements.) # # # # # FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales $402,397 $412,110 $788,144 $779,486 Cost of sales 243,487 297,644 481,856 565,500 -------- -------- -------- -------- Gross income 158,910 114,466 306,288 213,986 Selling, general and administrative 34,211 26,375 67,386 55,120 -------- -------- -------- -------- Operating income 124,699 88,091 238,902 158,866 Interest expense 66,201 76,311 136,974 163,081 Other expense (income), net 475 (713) 1,038 (937) -------- -------- -------- -------- Income (loss) before taxes 58,023 12,493 100,890 (3,278) Income tax expense (credit) 21,646 4,874 37,573 (1,379) -------- -------- -------- -------- Net income (loss) before extraordinary item 36,377 7,619 63,317 (1,899) Extraordinary item - loss on debt repurchases, net (3,340) -- (3,340) (18,748) -------- -------- -------- -------- Net income (loss) $ 33,037 $ 7,619 $ 59,977 $(20,647) ======== ======== ======== ======== Net income (loss) per share: Before extraordinary item $ 0.53 $ 0.12 $ 0.96 $ (0.04) Extraordinary item (0.05) -- (0.05) (0.35) -------- -------- -------- -------- Net income (loss) $ 0.48 $ 0.12 $ 0.91 $ (0.39) ======== ======== ======== ======== FORT HOWARD CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1996 1995 ------------ ------------ (In thousands) Assets Current assets: Cash and cash equivalents $ 732 $ 946 Receivables, less allowances of $3,160 in 1996 and $2,883 in 1995 87,068 97,707 Inventories 135,623 163,076 Deferred income taxes 47,000 29,000 Income taxes receivable 700 700 ---------- ---------- Total current assets 271,123 291,429 Property, plant and equipment 1,993,548 1,971,641 Less: Accumulated depreciation 754,638 706,394 ---------- ---------- Net property, plant and equipment 1,238,910 1,265,247 Other assets 84,633 95,761 ---------- ---------- Total assets $1,594,666 $1,652,437 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable $ 103,615 $ 112,384 Interest payable 60,984 64,375 Income taxes payable 2,621 1,339 Other current liabilities 77,121 85,351 Current portion of long-term debt 34,372 62,720 ---------- ---------- Total current liabilities 278,713 326,169 Long-term debt 2,598,850 2,903,299 Deferred and other long-term income taxes 254,994 225,043 Other liabilities 35,184 36,355 Shareholders' deficit: Common Stock 740 634 Additional paid-in capital 1,100,864 895,652 Cumulative translation adjustment (2,785) (2,844) Retained deficit (2,671,894) (2,731,871) ---------- ---------- Total shareholders' deficit (1,573,075) (1,838,429) ---------- ---------- Total liabilities and shareholders' deficit $1,594,666 $1,652,437 ========== ========== FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, -------------------- 1996 1995 ---- ---- (In thousands) Cash provided from (used for) operations: Net income (loss) $ 59,977 $ (20,647) Depreciation 50,231 49,020 Non-cash interest expense 6,645 6,429 Deferred income tax (credit) expense 11,975 (11,774) Pre-tax loss on debt repurchases 5,519 30,734 (Increase) decrease in receivables 10,639 (27,410) (Increase) decrease in inventories 27,453 (33,284) Increase in income taxes receivable -- 4,500 Increase (decrease) in accounts payable (8,769) 19,605 Decrease in interest payable (3,391) (21,440) Increase (decrease) in income taxes payable 1,282 (180) All other, net (8,891) (21,044) --------- --------- Net cash provided from (used for) operations 152,670 (25,491) Cash used for investment activity: Additions to property, plant and equipment (24,384) (23,119) Cash provided from (used for) financing activities: Proceeds from long-term borrowings 192 1,428,800 Repayment of long-term borrowings (332,529) (1,616,001) Debt issuance costs (1,481) (48,421) Issuance of Common Stock, net of offering costs 205,318 284,104 --------- --------- Net cash provided from (used for) financing activities (128,500) 48,482 --------- --------- Decrease in cash (214) (128) Cash at beginning of period 946 422 --------- --------- Cash at end of period $ 732 $ 294 ========= ========= ***** FORT HOWARD CORPORATION NOTES TO FINANCIAL INFORMATION (Unaudited) 1. In May and June 1996 the company sold 10.52 million primary shares of common stock in a registered public offering. The net proceeds of the offering were used to reduce outstanding bank debt. Also included in the offering were 6.52 million secondary shares of common stock sold by certain shareholders of Fort Howard. The company did not receive any of the proceeds from the sale of shares by the selling shareholders. In connection with the offering in the second quarter of 1996, the company reported an extraordinary loss of $3 million (net of income taxes of $2 million) representing write-offs of deferred loan costs associated with the prepayment of indebtedness outstanding under the company's 1995 Bank Credit Agreement on May 15, 1996. 2. The company completed a recapitalization, including an IPO of 25 million shares of common stock, in April 1995. A. In connection with the April 1995 recapitalization, the company reported an extraordinary loss of $19 million (net of income taxes of $12 million) representing the redemption premiums on the repurchases of all the company's outstanding 12 5/8% Subordinated Debentures at the redemption price of 102.5% of the principal amount thereof and write-offs of deferred loan costs associated with the prepayment or repurchases of all indebtedness outstanding under the company's 1988 Bank Credit Agreement, the 1993 Term Loan and the Senior Secured Floating Rate Notes on March 16, 1995, and the repurchase of all outstanding 12 5/8% Subordinated Debentures and 14 1/8% Junior Subordinated Discount Debentures on April 15, 1995. B. Assuming that all components of the recapitalization had been consummated as of January 1, 1995, for the second quarter and first six months of 1995, pro forma interest expense would have decreased $2.6 million and $16.2 million from amounts reported to $74 million and $147 million respectively. After adjusting the income tax (credit) for the decrease in interest expense at an effective rate of 38.5%, the pro forma net income before extraordinary item and pro forma net income per share before extraordinary item (assuming that 63,371,000 weighted average shares were outstanding for the periods) would have been $9.2 million and $0.15 per share for the second quarter of 1995 and $8.1 million and $0.13 per share for the first six months of 1995, respectively. # # # # # -----END PRIVACY-ENHANCED MESSAGE-----