-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kkMzRh8sdaFdUzZ7+ZxuANZBZP66NJOxwAVxUhJN/f0EyHr4ult4clqdjZBPzPIW E5THnm5zSz/AfZgUe1ULHg== 0000038195-94-000044.txt : 19940815 0000038195-94-000044.hdr.sgml : 19940815 ACCESSION NUMBER: 0000038195-94-000044 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORT HOWARD CORP CENTRAL INDEX KEY: 0000038195 STANDARD INDUSTRIAL CLASSIFICATION: 2621 IRS NUMBER: 391090992 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-51557 FILM NUMBER: 94543657 BUSINESS ADDRESS: STREET 1: 1919 S BROADWAY CITY: GREEN BAY STATE: WI ZIP: 54304 BUSINESS PHONE: 4144358821 MAIL ADDRESS: STREET 1: P O BOX 19130 CITY: GREEN BAY STATE: WI ZIP: 54307-9130 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 424B3 1 Filed Pursuant to Rule 424(b)(3) of the Rules and Regulations Under the Securities Act of 1933 Registration Statement Nos. 33-23826, 33-43448, 33-51876 and 33-51557 PROSPECTUS SUPPLEMENT (To Prospectus dated July 6, 1994) FORT HOWARD CORPORATION 12-5/8% Subordinated Debentures Due 2000 14-1/8% Junior Subordinated Discount Debentures Due 2004 9-1/4% Senior Notes Due 2001 10% Subordinated Notes Due 2003 8-1/4% Senior Notes Due 2002 9% Senior Subordinated Notes Due 2006 1991 Pass Through Trust, Pass Through Certificates, Series 1991 - - - - - - - - - - - - - - - RECENT DEVELOPMENTS Attached hereto and incorporated by reference herein is Fort Howard Corporation's quarterly report on Form 10-Q for the quarter ended June 30, 1994. - - - - - - - - - - - - - - - This Prospectus Supplement, together with the Prospectus, is to be used by Morgan Stanley & Co. in connection with offers and sales of the above-referenced securities in market-making transactions at negotiated prices related to prevailing market prices at the time of sale. Morgan Stanley & Co. Incorporated may act as principal or agent in such transactions. August 12, 1994 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, 1994 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: 1-6901 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 (Former name, former address and former fiscal year, if changed since last report) 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 31, 1994 ----- ---------------------------- Voting Common Stock, par value $.01 5,861,730 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, ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In thousands, except per share data) Net sales....................... $315,299 $302,343 $590,629 $587,157 Cost of sales................... 208,566 201,061 397,061 390,361 -------- -------- -------- -------- Gross income.................... 106,733 101,282 193,568 196,796 Selling, general and administrative................ 27,844 25,836 54,546 51,199 Amortization of goodwill........ -- 14,193 -- 28,385 -------- -------- -------- -------- Operating income................ 78,889 61,253 139,022 117,212 Interest expense................ 83,035 87,702 167,353 174,312 Other expense (income), net..... (286) 249 302 (4) -------- -------- -------- -------- Loss before taxes............... (3,860) (26,698) (28,633) (57,096) Income tax credit............... (1,811) (2,885) (11,412) (7,068) -------- -------- -------- -------- Loss before extraordinary item.......................... (2,049) (23,813) (17,221) (50,028) Extraordinary item -- loss on debt repurchases (net of income taxes of $14,731 in 1994 and $5,982 in 1993)... -- -- (28,170) (9,760) -------- -------- -------- -------- Net loss........................ $ (2,049) $(23,813) $(45,391) $(59,788) ======== ======== ======== ======== Loss per share: Net loss before extraordinary item........................ $ (0.35) $ (4.06) $ (2.94) $ (8.54) Extraordinary item............ -- -- (4.80) (1.66) -------- -------- -------- -------- Net loss...................... $ (0.35) $ (4.06) $ (7.74) $ (10.20) ======== ======== ======== ======== Average shares outstanding...... 5,862 5,863 5,862 5,863 ======== ======== ======== ======== 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, 1994 1993 -------- ------------ (In thousands) Assets Current assets: Cash and cash equivalents................. $ 784 $ 227 Receivables, less allowances.............. 126,877 105,834 Inventories............................... 120,101 118,269 Deferred income taxes..................... 14,000 14,000 Income taxes receivable................... 11,000 9,500 ---------- ---------- Total current assets.................... 272,762 247,830 Property, plant and equipment............... 1,900,999 1,845,052 Less: Accumulated depreciation........... 563,605 516,938 ---------- ---------- Net property, plant and equipment....... 1,337,394 1,328,114 Other assets................................ 75,719 73,843 ---------- ---------- Total assets............................ $1,685,875 $1,649,787 ========== ========== Liabilities and Shareholders' Equity (Deficit) Current liabilities: Accounts payable.......................... $ 88,106 $ 101,665 Interest payable.......................... 66,803 54,854 Income taxes payable...................... 546 122 Other current liabilities................. 59,728 70,138 Current portion of long-term debt......... 14,338 112,750 ---------- ---------- Total current liabilities............... 229,521 339,529 Long-term debt.............................. 3,325,685 3,109,838 Deferred and other long-term income taxes... 220,224 243,437 Other liabilities........................... 22,968 26,088 Voting Common Stock with put right.......... 11,717 11,820 Shareholders' equity (deficit): Voting Common Stock....................... 600,471 600,459 Cumulative translation adjustment......... (3,027) (5,091) Retained earnings (deficit)............... (2,721,684) (2,676,293) ---------- ---------- Total shareholders' equity (deficit).... (2,124,240) (2,080,925) ---------- ---------- Total liabilities and shareholders' equity (deficit)...................... $1,685,875 $1,649,787 ========== ========== 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, ------------------ 1994 1993 ---- ---- (In thousands) Cash provided from (used for) operations: Net loss...................................... $(45,391) $(59,788) Depreciation and amortization................. 45,779 69,916 Non-cash interest expense..................... 42,816 60,126 Deferred income tax credit.................... (23,627) (13,435) Pre-tax loss on debt repurchases.............. 42,901 15,742 Increase in receivables....................... (21,043) (12,426) (Increase) decrease in inventories............ (1,832) 5,193 Increase in income taxes receivable........... (1,500) (3,500) Decrease in accounts payable.................. (13,559) (27,946) Increase in interest payable.................. 11,949 20,887 Increase in income taxes payable.............. 424 633 All other, net................................ (14,858) (425) -------- -------- Net cash provided from operations........... 22,059 54,977 Cash used for investment activity -- Additions to property, plant and equipment.... (50,567) (67,751) Cash provided from (used for) financing activities: Proceeds from long-term borrowings............ 752,600 862,275 Repayment of long-term borrowings............. (701,809) (818,408) Debt issuance costs........................... (21,635) (31,091) Purchase of common stock...................... (91) (6) -------- -------- Net cash provided from financing activities...................... 29,065 12,770 -------- -------- Increase (decrease) in cash..................... 557 (4) Cash at beginning of period..................... 227 188 -------- -------- Cash at end of period......................... $ 784 $ 184 ======== ======== Supplemental Cash Flow Disclosures: Interest paid................................. $115,285 $ 96,803 Income taxes paid (refunded) - net............ 1,028 (1,133) 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, except for extraordinary items related to debt repurchases) 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 1993 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994. 2. LOSS PER SHARE Loss per share is computed on the basis of the average number of common shares outstanding during the periods. The average number of shares outstanding for the three and six month periods ended June 30, 1994 was 5,862,052 and 5,862,342, respectively. The average number of shares outstanding for the three and six month periods ended June 30, 1993 was 5,862,635 and 5,862,644, respectively. The assumed exercise of all outstanding stock options has been excluded from the computation of loss per share for the three and six month periods ended June 30, 1994 and 1993 because the results were antidilutive. 3. INVENTORIES Inventories consist of: June 30, December 31, 1994 1993 -------- ------------ (In thousands) Raw materials and supplies.............. $ 54,872 $ 61,285 Finished and partly-finished products... 65,229 56,984 -------- -------- $120,101 $118,269 ======== ======== 4. GOODWILL WRITE-OFF Low industry operating rates and aggressive competitive pricing among tissue producers resulting from the 1991-1992 recession, additions to industry capacity and other factors adversely affected tissue industry operating conditions and the Company's operating results beginning in 1991 and through the third quarter of 1993. As a result of these conditions, during the second quarter of 1993 the Company commenced an evaluation of the carrying value of its goodwill for possible impairment. The Company revised its projections and concluded its evaluation in the third quarter of 1993 determining that its forecasted cumulative net income before goodwill amortization was inadequate to recover the future amortization of the Company's goodwill balance over the remaining amortization period of the goodwill. Accordingly, the Company wrote off its remaining goodwill balance of $1.98 billion in the third quarter of 1993. - 5 - 5. LONG-TERM DEBT On February 9, 1994, the Company sold $100 million principal amount of 8 1/4% Senior Unsecured Notes due 2002 (the "8 1/4% Notes") and $650 million principal amount of 9% Senior Subordinated Notes due 2006 (the "9% Notes") in a registered public offering (collectively, the "1994 Notes"). Proceeds from the sale of the 1994 Notes have been applied to the repurchase of all the remaining 12 3/8% Notes at the redemption price of 105% of the principal amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the redemption price of 105% of the principal amount thereof, to the prepayment of $100 million of the Term Loan, to the repayment of a portion of the Company's indebtedness under the Revolving Credit Facility and to the payment of fees and expenses. The 8 1/4% Notes are senior unsecured obligations of the Company, rank equally in right of payment with the other senior indebtedness of the Company and are senior to all existing and future subordinated indebtedness of the Company. The 9% Notes are subordinated in right of payment to all existing and future senior indebtedness of the Company, and constitute senior indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the 14 1/8% Debentures. In connection with the sale of the 1994 Notes, the Company amended the Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note Agreement. Among other changes, the amendments reduced the required ratio of earnings before non-cash charges, interest and taxes to cash interest for the four fiscal quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50 to 1.00. The Company incurred an extraordinary loss of $28 million (net of income taxes of $15 million) in the first quarter of 1994 representing the redemption premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures, and the write-off of deferred loan costs associated with the repayment of the $100 million of the Term Loan and the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures. At June 30, 1994, the available capacity under the Revolving Credit Facility was $104 million. 6. COMMITMENTS AND CONTINGENCIES On June 20, 1994, the United States Department of Interior, Fish and Wildlife Service ("FWS"), a federal natural resources trustee, informed the Company that it has identified the Company and four other companies with facilities located along the Fox River in northeast Wisconsin as potentially responsible parties for purposes of natural resource liability under the Comprehensive Environmental Response, Compensation and Liability Act and the Federal Water Pollution Control Act arising from alleged releases of hazardous substances to the Fox River and Green Bay system. The FWS has stated that it intends to undertake an assessment to determine and quantify the nature and extent of injury to natural resources. It is anticipated that the assessment will require considerable time to complete. It is not possible at this time to estimate the Company's potential liability in the matter. Based upon all of the information available, the Company is presently unable to estimate the financial impact of any future remediation or natural resource damages liability but cannot conclude that such impact would not be material. - 6 - The Company and its subsidiaries are parties to other 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, it is the present opinion of management that they will not have a material adverse effect on the Company's financial condition. - 7 - 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 1994 Compared to 1993 Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In thousands, except percentages) Net sales: Domestic tissue............... $267,705 $254,962 $497,177 $496,152 International operations...... 30,163 37,965 62,663 72,250 Eliminations and other........ 17,431 9,416 30,789 18,755 -------- -------- -------- -------- Consolidated.................. $315,299 $302,343 $590,629 $587,157 ======== ======== ======== ======== Operating income: Domestic tissue............... $ 75,284 $ 56,808 $134,408 $110,047 International operations...... 2,429 3,996 2,923 6,490 Eliminations and other........ 1,176 449 1,691 675 -------- -------- -------- -------- Consolidated.................. 78,889 61,253 139,022 117,212 Amortization of purchase accounting(1)................. 2,897 17,172 5,798 34,353 Employee stock compensation..... -- 294 -- 588 -------- -------- -------- -------- Adjusted operating income... 81,786 78,719 144,820 152,153 Other depreciation.............. 20,784 18,454 39,981 35,563 -------- -------- -------- -------- EBDIAT.......................... $102,570 $ 97,173 $184,801 $187,716 ======== ======== ======== ======== Consolidated net loss........... $ (2,049) $(23,813) $(45,391) $(59,788) ======== ======== ======== ======== EBDIAT as a percent of net sales..................... 32.5% 32.1% 31.3% 32.0% (1) In 1988, the Company was acquired in a transaction referred to as the "Acquisition." The Acquisition was accounted for using the purchase method of accounting resulting, among other things, in an increase of property, plant and equipment to fair value and the allocation of $2.3 billion of purchase cost to goodwill. Such increase in property, plant and equipment is amortized over the lives of the respective assets. The increase in goodwill was amortized over 40 years until the third quarter of 1993 when the Company wrote off its remaining goodwill balance of $1.98 billion. See Note 4 to the unaudited condensed consolidated financial statements. Net Sales. Consolidated net sales for the second quarter and first six months of 1994 increased 4.3% and 0.6% compared to 1993, respectively. Domestic tissue net sales for the second quarter of 1994 increased 5.0% compared to 1993 principally due to higher net selling prices in both the commercial and consumer markets, offset by slightly lower volume in the commercial market, while volume in the consumer market held flat. Although - 8 - business conditions remain extremely competitive in 1994, in the commercial market, price increases were implemented in the second quarter of 1994 and the second quarter volume shortfall compared to prior year was less than the first quarter shortfall. Consumer market pricing held flat from the first to the second quarters of 1994. For the first six months of 1994, domestic tissue net sales increased 0.2%, due to the higher net selling prices that were largely offset by volume decreases, principally in the commercial market. The Company's decision to implement net selling price increases in the commercial market during each of the first three quarters of 1993 led to the decline in commercial volume during the first half of 1994. Net sales of the Company's international operations decreased 20.6% and 13.3% for the second quarter and first six months of 1994 compared to 1993, respectively, primarily due to significantly lower net selling prices while volume held flat. International net selling prices continued to decline due to product mix changes and continued competitive conditions. Gross Income. For the second quarter of 1994, consolidated gross margins increased slightly to 33.9% from 33.5% in 1993. The domestic tissue gross margin increased for the second quarter of 1994 compared to 1993 primarily due to the increased net selling prices. During the second quarter of 1994, depreciation expense increased as a result of the start-up of a new paper machine at the Muskogee mill late in the first quarter of 1994. Wastepaper and other raw material costs also increased slightly late in the second quarter of 1994 and are expected to increase further during the second half of 1994 due to tightening demand conditions. For the first six months of 1994, consolidated gross margins decreased to 32.8% from 33.5% in 1993. Domestic tissue gross margins remained flat for the first six months of 1994 compared to 1993 as the effects of the higher net selling prices were offset by higher unit manufacturing costs attributable to the underabsorption of fixed costs resulting from lower converting volume. Higher depreciation expense and higher repair material costs also affected gross margins during this period. Gross margins of international operations declined in both the second quarter and first six months of 1994 compared to 1993 principally due to the lower net selling prices. International gross margins increased from the first to the second quarters of 1994 due to cost reduction initiatives in spite of lower net selling prices. Selling, General and Administrative Expenses. Selling, general and administrative expenses, as a percent of net sales, increased to 8.8% and 9.2% for the second quarter and first six months of 1994 compared to 8.5% and 8.7% for the second quarter and first six months of 1993, respectively. The increases occurred principally due to the effects of lower sales volume. Amortization of Goodwill. As a result of the goodwill write-off in the third quarter of 1993, there was no amortization of goodwill in the second quarter and first six months of 1994 compared to $14 million and $28 million in the second quarter and first six months of 1993, respectively. Operating Income. Operating income increased to $79 million and $139 million for the second quarter and first six months of 1994 from $61 million and $117 million for the second quarter and first six months of 1993, respectively. The depreciation of asset write-ups to fair market value in purchase accounting is charged against the Company's cost of sales and selling, general and administrative expenses. Excluding this purchase accounting depreciation and amortization of goodwill, adjusted operating income (as reported in the preceding table) increased to $82 million for the second quarter of 1994 from $79 million for the second quarter of 1993 principally due to the effects of higher domestic net selling prices. Adjusted operating income decreased to $145 million for the first six months of 1994 from $152 million for the first six months of 1993 principally due to - 9 - the effects of lower domestic sales volume and lower net selling prices of international operations. EBDIAT. Earnings before depreciation, interest, amortization and taxes ("EBDIAT") increased 5.6% to $103 million for the second quarter of 1994 from $97 million for the second quarter of 1993. For the first six months of 1994, EBDIAT decreased 1.6% to $185 million from $188 million in the first six months of 1993. EBDIAT is reported by the Company, not as a measure of operating results, but rather as a measure of the Company's debt service ability. Certain financial and other restrictive covenants in the Company's Bank Credit Agreement, the Senior Secured Note Agreement and other instruments governing the Company's indebtedness are based on the Company's EBDIAT, subject to certain adjustments. Income Taxes. The income tax credits for 1994 and 1993 principally reflect the reversal of previously provided deferred income taxes. Extraordinary Loss. The Company's net loss in the first six months of 1994 was increased by an extraordinary loss of $28 million (net of income taxes of $15 million) representing the redemption premiums on the repurchases of all the Company's remaining 12 3/8% Notes at the redemption price of 105% of the principal amount thereof and of $238 million of 12 5/8% Debentures at the redemption price of 105% of the principal amount thereof on March 11, 1994, and the write off of deferred loan costs associated with the repayment of $100 million of the Term Loan on February 10, 1994, and the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures. The Company's net loss in the first six months of 1993 was increased by an extraordinary loss of $10 million (net of income taxes of $6 million) representing the write off of deferred loan costs associated with the repayment of $250 million of Term Loan on March 23, 1993 and the repurchase of all the Company's 14-5/8% Debentures on April 21, 1993. Net Loss. For the second quarter and first six months of 1994, the Company's net loss decreased to $2 million and $45 million compared to $24 million and $60 million for the second quarter and first six months of 1993, respectively. FINANCIAL CONDITION For the first six months of 1994, cash increased $557,000. Capital additions of $51 million and debt repayments of $702 million, including the repayment of $100 million of the Term Loan and the repurchases of all the 12 3/8% Notes and of $238 million of the 12 5/8% Debentures, were funded by cash provided by operations of $22 million, net proceeds of the sale of 8 1/4% Senior Notes and 9% Senior Subordinated Notes of $728 million and net Revolving Credit Facility borrowings of $3 million. Receivables increased $21 million during the first six months of 1994 due principally to a seasonal increase in net sales during the second quarter of 1994 and higher domestic net selling prices. Accounts payable declined $14 million during this period due to payments of Muskogee mill expansion liabilities and the liability for interest payable increased $12 million due to the accrual of interest to semiannual payment dates. Other current liabilities declined $10 million during this period due to payment of annual employee bonuses and profit sharing contributions and other annual payments to customers. As a result of all these changes and the repayment of $100 million of the $107 million scheduled 1994 Term Loan payment from the proceeds of the 1994 Notes (described below), net working capital increased to $43 million at June 30, 1994 from a deficit of $92 million at December 31, 1993. - 10 - Cash provided from operations declined in the first six months of 1994 compared to 1993 principally due to increased interest payments resulting from the 1993 repurchases of all the 14 5/8% Debentures (which accrued interest in kind) from the proceeds of the 1993 Notes (which accrue interest in cash), the acceleration of interest payments resulting from the 1994 debt repurchases from the proceeds of the 1994 Notes, and higher floating interest rates. Cash provided from operations was further impacted by the increase in receivables and decreases in accounts payable and other current liabilities, and lower EBDIAT. On February 9, 1994 the Company sold $100 million principal amount of 8 1/4% Senior Unsecured Notes due 2002 (the "8 1/4% Notes") and $650 million principal amount of 9% Senior Subordinated Notes due 2006 (the "9% Notes") in a registered public offering (collectively, the "1994 Notes"). Proceeds from the sale of the 1994 Notes have been applied to the repurchase of all the remaining 12 3/8% Notes at the redemption price of 105% of the principal amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the redemption price of 105% of the principal amount thereof, to the prepayment of $100 million of the Term Loan, to the repayment of a portion of the Company's indebtedness under the Revolving Credit Facility and to the payment of fees and expenses. The 8 1/4% Notes are senior unsecured obligations of the Company, rank equally in right of payment with the other senior indebtedness of the Company and are senior to all existing and future subordinated indebtedness of the Company. The 9% Notes are subordinated in right of payment to all existing and future senior indebtedness of the Company, and constitute senior indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the 14 1/8% Debentures. In connection with the sale of the 1994 Notes, the Company amended the Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note Agreement. Among other changes, the amendments reduced the required ratio of earnings before non-cash charges, interest and taxes to cash interest for the four fiscal quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50 to 1.00. The Company incurred an extraordinary loss of $28 million (net of income tax credits of $15 million) in the first quarter of 1994 representing the redemption premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures, and the write off of deferred loan costs associated with the repayment of the $100 million of the Term Loan and the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures. The Company believes that cash provided from operations and access to debt financing in the public and private markets will be sufficient to enable it to fund maintenance and modernization capital expenditures and meet its debt service requirements for the foreseeable future. However, in the absence of improved financial results, the Company may be required to seek a waiver of the cash interest coverage covenant under the Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note Agreement as early as the fourth quarter of 1994, because the Company's 14 1/8% Debentures will accrue interest in cash commencing on November 1, 1994 and will require payments of interest in cash on May 1, 1995. Although the Company believes that it will be able to obtain appropriate waivers from its lenders, there can be no assurance that this will be the case. The Company has a Revolving Credit Facility under the Company's Bank Credit Agreement with a final maturity of December 31, 1996, which may be used for general corporate purposes. At June 30, 1994, the Company had $104 million in available capacity under the Revolving Credit Facility. - 11 - PART II. OTHER INFORMATION 1. LEGAL PROCEEDINGS On June 20, 1994, the United States Department of Interior, Fish and Wildlife Service ("FWS"), a federal natural resources trustee, informed the Company that it has identified the Company and four other companies with facilities located along the Fox River in northeast Wisconsin as potentially responsible parties for purposes of natural resource liability under the Comprehensive Environmental Response, Compensation and Liability Act and the Federal Water Pollution Control Act arising from alleged releases of hazardous substances to the Fox River and Green Bay system. The FWS alleges that natural resources including endangered species, fish, birds and tribal lands or lands held by the United States in trust for various tribes have been exposed to PCBs (polychlorinated biphenyls) that were released from facilities located along a 38 mile segment of the Fox River. The FWS has stated that it intends to undertake an assessment to determine and quantify the nature and extent of injury to natural resources. The FWS has invited the Company and the four other companies to participate in the development of the type and scope of the assessment and in the performance of the assessment, pursuant to federal regulations. It is anticipated that the assessment will require considerable time to complete. It is not possible at this time to estimate the Company's potential liability in the matter. Based upon all of the information available, the Company is presently unable to estimate the financial impact of any future remediation or natural resource damages liability but cannot conclude that such impact would not be material. 2. CHANGES IN SECURITIES None 3. DEFAULTS UPON SENIOR SECURITIES None 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 5. OTHER INFORMATION None 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None b) No reports on Form 8-K were filed by the Company for the quarter for which this report is filed. - 12- 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 August 11, 1994 /s/ Kathleen J. Hempel ---------------------------------------- Kathleen J. Hempel, Vice Chairman and Chief Financial Officer August 11, 1994 /s/ James W. Nellen II --------------------------------------- James W. Nellen II, Vice President and Secretary August 11, 1994 /s/ Charles L. Szews --------------------------------------- Charles L. Szews Controller (Principal Accounting Officer) - 13 - -----END PRIVACY-ENHANCED MESSAGE-----