-----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, aO3DNleGbn/1wdI9G3MUK9YOY1Oua9OUgDQsQ1hHGt8c9ET8iFwpNIv+MlH0z3jT m0arEr8rBdCi3KPXTS+W5Q== 0000038195-95-000048.txt : 19950727 0000038195-95-000048.hdr.sgml : 19950727 ACCESSION NUMBER: 0000038195-95-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950726 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: 95556245 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, 1995 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 26, 1995 ----- ---------------------------- Common Stock, par value $.01 63,370,794 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, ------------------ ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except per share data) Net sales....................... $412,110 $315,299 $779,486 $590,629 Cost of sales................... 297,644 208,566 565,500 397,061 -------- -------- -------- -------- Gross income.................... 114,466 106,733 213,986 193,568 Selling, general and administrative................ 26,375 27,844 55,120 54,546 -------- -------- -------- -------- Operating income................ 88,091 78,889 158,866 139,022 Interest expense................ 76,311 83,035 163,081 167,353 Other expense (income), net..... (713) (286) (937) 302 -------- -------- -------- -------- Income (loss) before taxes...... 12,493 (3,860) (3,278) (28,633) Income tax expense (credit)..... 4,874 (1,811) (1,379) (11,412) -------- -------- -------- -------- Net income (loss) before extraordinary item............ 7,619 (2,049) (1,899) (17,221) Extraordinary item -- loss on debt repurchases (net of income taxes of $11,986 in 1995 and $14,731 in 1994).. -- -- (18,748) (28,170) -------- -------- -------- -------- Net income (loss)............... $ 7,619 $ (2,049) $(20,647) $(45,391) ======== ======== ======== ======== Net income (loss) per share: Net income (loss) before extraordinary item.......... $ 0.12 $ (0.05) $ (0.04) $ (0.45) Extraordinary item............ -- -- (0.35) (0.74) -------- -------- -------- -------- Net income (loss)............. $ 0.12 $ (0.05) $ (0.39) $ (1.19) ======== ======== ======== ======== Average shares outstanding...... 63,338 38,103 52,999 38,105 ======== ======== ======== ======== 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, 1995 1994 -------- ------------ Assets (In thousands) Current assets: Cash and cash equivalents................. $ 294 $ 422 Receivables, less allowances of $1,734 in 1995 and $1,589 in 1994................. 150,560 123,150 Inventories............................... 164,127 130,843 Deferred income taxes..................... 20,000 20,000 Income taxes receivable................... 700 5,200 ---------- ---------- Total current assets.................... 335,681 279,615 Property, plant and equipment............... 1,957,033 1,932,713 Less: Accumulated depreciation........... 660,361 611,762 ---------- ---------- Net property, plant and equipment....... 1,296,672 1,320,951 Other assets................................ 98,819 80,332 ---------- ---------- Total assets............................ $1,731,172 $1,680,898 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable.......................... $ 120,586 $ 100,981 Interest payable.......................... 62,833 84,273 Income taxes payable...................... 44 224 Other current liabilities................. 60,192 75,450 Current portion of long-term debt......... 11,502 116,203 ---------- ---------- Total current liabilities............... 255,157 377,131 Long-term debt.............................. 3,112,969 3,189,644 Deferred and other long-term income taxes... 198,343 209,697 Other liabilities........................... 37,018 41,162 Common Stock with put right................. -- 11,711 Shareholders' deficit: Common Stock.............................. 634 381 Additional paid-in capital................ 895,652 600,090 Cumulative translation adjustment......... (1,366) (2,330) Retained deficit.......................... (2,767,235) (2,746,588) ---------- ---------- Total shareholders' deficit............. (1,872,315) (2,148,447) ---------- ---------- Total liabilities and shareholders' deficit............................... $1,731,172 $1,680,898 ========== ========== 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, ------------------ 1995 1994 ---- ---- (In thousands) Cash provided from (used for) operations: Net loss...................................... $ (20,647) $(45,391) Depreciation.................................. 49,020 45,779 Non-cash interest expense..................... 6,429 42,816 Deferred income tax credit.................... (11,774) (23,627) Pre-tax loss on debt repurchases.............. 30,734 42,901 Increase in receivables....................... (27,410) (21,043) Increase in inventories....................... (33,284) (1,832) (Increase) decrease in income taxes receivable.................................. 4,500 (1,500) Increase (decrease) in accounts payable....... 19,605 (13,559) Increase (decrease) in interest payable....... (21,440) 11,949 Increase (decrease) in income taxes payable... (180) 424 All other, net................................ (21,044) (14,858) ---------- -------- Net cash provided from (used for) operations................................ (25,491) 22,059 Cash used for investment activity -- Additions to property, plant and equipment.... (23,119) (50,567) Cash provided from (used for) financing activities: Proceeds from long-term borrowings............ 1,428,800 752,600 Repayment of long-term borrowings............. (1,616,001) (701,809) Debt issuance costs........................... (48,421) (21,635) Issuance (repurchase) of Common Stock, net of offering costs.............................. 284,104 (91) ---------- -------- Net cash provided from financing activities. 48,482 29,065 ---------- -------- Increase (decrease) in cash..................... (128) 557 Cash at beginning of period..................... 422 227 ---------- -------- Cash at end of period......................... $ 294 $ 784 ========== ======== Supplemental Cash Flow Disclosures: Interest paid................................. $ 179,985 $115,285 Income taxes paid (refunded) - net............ (6,005) 1,028 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 1994 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995. 2. COMMON STOCK SPLIT On January 31, 1995, the Company's shareholders approved an increase in the number of authorized shares of voting Common Stock to 99,400,000 shares and approved a 6.5-for-one stock split of the Common Stock, effective January 31, 1995. All share and per share amounts included in the condensed consolidated financial statements and notes thereto have been restated to give effect to the increase in authorized shares and the stock split. 3. NET INCOME (LOSS) PER SHARE Net income (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, 1995 was 63,338,210 and 52,999,385, respectively. The average number of shares outstanding for the three and six month periods ended June 30, 1994 was 38,103,341 and 38,105,224, respectively. The assumed exercise of all outstanding stock options has been excluded from the computation of net income (loss) per share for the three and six month periods ended June 30, 1995 and 1994 because the results would be antidilutive. 4. INVENTORIES Inventories consist of: June 30, December 31, 1995 1994 -------- ------------ (In thousands) Raw materials and supplies.............. $ 74,423 $ 63,721 Finished and partly-finished products... 89,704 67,122 -------- -------- $164,127 $130,843 ======== ======== 5. COMMON STOCK OFFERING On March 16, 1995, the Company issued 25 million shares of Common Stock at $12.00 per share in a public offering (the "Offering"). Proceeds from the Offering, net of underwriting commissions and other related expenses totaling - 5 - $19 million, were $281 million. On April 12, 1995, an additional 269,555 shares of Common Stock were issued at $12.00 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 $3 million after deducting underwriting commissions. The Offering was part of a recapitalization plan (the "Recapitalization") implemented by the Company to prepay or redeem a substantial portion of its indebtedness in order to reduce the level and overall cost of its debt, extend certain debt maturities, increase shareholders' equity and enhance its access to capital markets (see Note 6). The balance of Common Stock with put right of approximately $12 million was reclassified to Common Stock and Additional Paid-In Capital in the accompanying condensed consolidated financial statements because the put right terminated effective with the consummation of the Offering. 6. LONG-TERM DEBT As a part of the Recapitalization (see Note 5), the Company entered into a bank credit agreement (the "New Bank Credit Agreement") consisting of a $300 million revolving credit facility (the "1995 Revolving Credit Facility"), an $810 million term loan (the "1995 Term Loan A") and a $330 million term loan (the "1995 Term Loan B" and together with the 1995 Term Loan A, the "New Term Loans"); and entered into a receivables credit agreement consisting of a $60 million term loan (the "1995 Receivables Facility"). On March 16, 1995, the net proceeds of the Offering, together with borrowings of $652 million under the New Bank Credit Agreement, were used to prepay or repurchase all the outstanding indebtedness under the 1988 Bank Credit Agreement, the 1993 Term Loan and the Senior Secured Notes. Further borrowings of $762 million under the New Bank Credit Agreement and 1995 Receivables Facility were used to redeem on April 15, 1995 all outstanding 14 1/8% Debentures (at par) and 12 5/8% Debentures (at 102.5% of the principal amount thereof). The Company incurred an extraordinary loss of $19 million (net of income taxes of $12 million) in the first quarter of 1995 representing the redemption premiums on the repurchases of all the Company's outstanding 12 5/8% 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 Notes on March 16, 1995, and the redemption of all outstanding 12 5/8% Debentures and 14 1/8% Debentures on April 15, 1995. The New Bank Credit Agreement and the 1995 Receivables Facility include restrictions on the Company's operating activities and require the maintenance of certain financial ratios at prescribed levels. The Company believes that such limitations should not impair its plans for continued maintenance and modernization of facilities or other operating activities. At June 30, 1995, the available capacity under the Revolving Credit Facility was $135 million. 7. CONTINGENCIES The Company is subject to substantial regulation by various federal, state and local authorities in the U.S., and by national and local authorities in the U.K. concerned with the impact of the environment on human health, the - 6 - limitation and control of emissions and discharges to the air and waters, the quality of ambient air and bodies of water and the handling, use and disposal of specified substances and solid waste at, among other locations, the Company's process waste landfills. In March 1995, the U.S. EPA issued "Final Guidance" for basin-wide water quality standards pursuant to the Great Lakes Water Quality Agreement between the U.S. and Canada regarding the development of water quality standards for the Great Lakes and their tributaries. Under federal law, the affected states will be required within two years to implement specific regulations which are consistent with the provisions of the Final Guidance. Dischargers would then have an additional period of up to five years in which to comply with any new more stringent permit limits derived under the Final Guidance. The Company had estimated that compliance with the proposed guidance at its Green Bay, Wisconsin mill might require capital expenditures of approximately $65 million over a several year period. The Final Guidance is less burdensome than originally proposed. The ultimate impact of the Final Guidance on the Company's operations could vary depending upon several factors, including, among others: (i) the form and substance of state laws or regulations implementing the Final Guidance; (ii) delays or changes resulting from potential administrative and judicial challenges to the guidance which have been filed; (iii) new developments in control and process technology; and (iv) results of ongoing wastewater monitoring. Based upon the Company's review of the Final Guidance, the original estimates of capital spending necessary to comply with the Great Lakes Water Quality Agreement are no longer valid. The Company presently believes that compliance with the Final Guidance will not require material capital expenditures. 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. - 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 1995 Compared to 1994 Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except percentages) Net sales: Domestic tissue............... $323,565 $267,548 $617,493 $496,918 International operations...... 41,166 30,163 77,353 62,663 Harmon........................ 47,379 17,588 84,640 31,048 -------- -------- -------- -------- Consolidated.................. $412,110 $315,299 $779,486 $590,629 ======== ======== ======== ======== Operating income: Domestic tissue............... $ 82,111 $ 75,710 $149,475 $134,998 International operations...... 4,387 2,428 6,359 2,923 Harmon........................ 1,593 751 3,032 1,101 -------- -------- -------- -------- Consolidated.................. 88,091 78,889 158,866 139,022 Depreciation.................... 24,689 23,681 49,020 45,779 -------- -------- -------- -------- EBITDA(a)....................... $112,780 $102,570 $207,886 $184,801 ======== ======== ======== ======== Consolidated net income (loss).. $ 7,619 $ (2,049) $(20,647) $(45,391) ======== ======== ======== ======== EBITDA as a percent of net sales(a).................. 27.4% 32.5% 26.7% 31.3% - ------------------ (a) EBITDA 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 New Bank Credit Agreement and other instruments governing the Company's indebtedness are based on the Company's EBITDA, subject to certain adjustments. Net Sales. Consolidated net sales for the second quarter and first six months of 1995 increased 30.7% and 32.0% compared to 1994, respectively. Domestic tissue net sales for the second quarter and first six months of 1995 increased 20.9% and 24.3% compared to 1994, respectively. For the second quarter of 1995 compared to second quarter of 1994, domestic tissue net selling prices increased 23.0% with somewhat stronger pricing improvement in the commercial market than in the consumer market. Over this same period, converted products volume increased 1.9% and the Company sharply reduced parent roll volume. For the first six months of 1995 compared to the first - 8 - six months of 1994, domestic tissue net selling prices increased 16.0%, converted products volume increased 9.9% and the Company reduced parent roll volume. From the first quarter of 1995 to the second quarter of 1995, overall domestic tissue net selling prices increased 13.4% as a result of price increases announced for the commercial market effective mid-October 1994, January 1995 and April 1995 and for the consumer market effective January 1995 and mid-May 1995. Price improvement occurred at a slightly higher pace from the first quarter of 1995 to the second quarter of 1995 in the consumer market compared to the commercial market. The benefits of the consumer market price increase announced for mid-May 1995 were not immediately realized due to competitive announcements taking effect in mid-July 1995. In addition, a further price increase was announced for napkin products for the consumer market effective August 1995. A further commercial market price increase was announced effective July 7, 1995. Because a substantial portion of the Company's commercial sales are pursuant to contracts which specify pricing for varying terms, in some instances for periods up to one year, there is a time lag before the Company realizes the full benefit of commercial market price increases. In recent months as commercial contracts are renewed, the Company has reduced the periods of its price guarantees of those contracts to a maximum of three months. Domestic volume growth was strong in the consumer market in the second quarter of 1995 compared to the second quarter of 1994 while volume in the commercial market was flat. Sales of tissue paper sold in parent roll form to export markets were reduced sharply in the second quarter of 1995 compared to second quarter of 1994 to focus sales on higher margin converted products. For the first six months of 1995, volume growth was significant in both the commercial and consumer markets due to strong shipments in the first quarter of 1995 compared to weak shipments in the first quarter of 1994 when the Company's volume was adversely affected by its attempts to seek successive price increases. Net sales of the Company's international operations increased 36.5% and 23.4% for the second quarter and first six months of 1995 compared to 1994, respectively, due to an increase in net selling prices on flat volume plus the benefit from the change in foreign exchange rates. Net sales of the Company's wastepaper brokerage subsidiary, Harmon Associates Corp. ("Harmon"), increased 169.4% and 172.6% for the second quarter and first six months of 1995 compared to 1994, respectively, due to higher selling prices and, to a much lesser degree, higher volume. Gross Income. Consolidated gross income increased 7.2% and 10.5% for the second quarter and first six months of 1995 compared to 1994, respectively, due to the higher selling prices and volumes, partially offset by higher raw material costs. Consolidated gross margins decreased to 27.8% and 27.5% for the second quarter and first six months of 1995 from 33.9% and 32.8% for the second quarter and first six months of 1994, respectively. Domestic tissue gross margins decreased for the second quarter and first six months of 1995 compared to the second quarter and first six months of 1994 primarily due to significantly higher wastepaper prices. Costs of other raw materials also increased during the first six months of 1995 compared to 1994 but by a much lower percentage while all other costs held flat or declined due to efficiences achieved from higher volumes. Gross margins of international operations increased in both the second quarter and first six months of 1995 compared to 1994, in spite of significantly higher wastepaper prices, due to - 9 - the effects of product rationalization on 1994 earnings. In addition, consolidated gross margins were negatively affected for both the second quarter and first six months of 1995 compared to 1994 by the significant increased proportion of net sales represented by the Company's wastepaper brokerage subsidiary which typically has very low margins compared to domestic tissue operations. Selling, General and Administrative Expenses. Selling, general and administrative expenses, as a percent of net sales, decreased to 6.4% and 7.1% for the second quarter and first six months of 1995 compared to 8.8% and 9.2% for the second quarter and first six months of 1994, respectively. The decreases occurred principally due to the effects of significantly higher net sales. Operating Income. Operating income increased to $88 million and $159 million for the second quarter and first six months of 1995 from $79 million and $139 million for the second quarter and first six months of 1994, respectively. Operating income as a percent of net sales decreased to 21.4% and 20.4% in the second quarter and first six months of 1995 compared to 25.0% and 23.5% in the second quarter and first six months of 1994, respectively. Domestic tissue operating income as a percent of net sales decreased to 25.4% and 24.2% in the second quarter and first six months of 1995 from 28.3% and 27.2% in the second quarter and first six months of 1994, respectively, principally because the rate of increase in wastepaper costs during the previous twelve months exceeded the rate of increase in net selling prices. However, on a per ton basis, operating income of both the domestic and international tissue operations was higher in the second quarter and first six months of 1995 compared to 1994. In addition, consolidated operating income declined as a percent of net sales due to the significant increased proportion of net sales represented by the Company's wastepaper brokerage subsidiary which typically has very low operating income margins compared to either domestic tissue or international operations. Extraordinary Loss. 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) representing the redemption premiums on the repurchases of all the Company's outstanding 12 5/8% 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 Notes on March 16, 1995, and the redemption of all outstanding 12 5/8% Debentures and 14 1/8% Debentures on April 15, 1995. 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 $238 million of the 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 prepayment of $100 million of the 1988 Term Loan on February 10, 1994, and the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures. Net Income (Loss). For the second quarter of 1995, net income was $8 million but a net loss in the first quarter of 1995 resulted in a net loss of $21 million for the first six months of 1995, compared to net losses of $2 million and $45 million for the second quarter and first six months of 1994, respectively. - 10 - FINANCIAL CONDITION For the first six months of 1995, cash decreased $128,000. Capital additions of $23 million, debt repayments of $1,616 million, including the prepayment or repurchase of all of the 1988 Term Loan, the 1988 Revolving Credit Facility, the 1993 Term Loan and the Senior Secured Notes and the redemption of all the outstanding 12 5/8% Debentures and 14 1/8% Debentures, and cash used for operations of $25 million were funded principally by net proceeds of $284 million from the sale of Common Stock and borrowings of $1,380 million (net of $48 million of debt issuance costs) pursuant to the Recapitalization (see below). During the first six months of 1995, receivables increased $27 million due principally to higher net selling prices in the domestic tissue and wastepaper brokerage operations and inventories increased by $33 million principally due to higher manufacturing costs and a seasonal inventory build. Accounts payable increased $20 million due to rising wastepaper costs and the seasonal inventory build. The liability for interest payable decreased $21 million due to the early payment of interest in connection with the Recapitalization. Other current liabilities declined $15 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 the remaining $107 million outstanding under the 1988 Term Loan from the net proceeds of the Recapitalization, net working capital increased to $81 million at June 30, 1995 from a deficit of $98 million at December 31, 1994. For the first six months of 1995, cash of $25 million was used for operations while in the same period of 1994 cash of $22 million was provided from operations. Cash was used for operations during 1995 principally because interest on the 14 1/8% Debentures converted from non-cash to cash pay on November 1, 1994 and the timing of scheduled interest payments on long-term debt changed during 1995 as a result of the Recapitalization. On April 15, 1995, the Company completed a recapitalization plan (the "Recapitalization") to prepay or redeem a substantial portion of its indebtedness in order to reduce the level and overall cost of its debt, extend certain debt maturities, increase shareholders' equity and enhance its access to capital markets. The Recapitalization included the following components: (1) The offer and sale by the Company of 25,000,000 shares of Common Stock on March 16, 1995 and 269,555 additional shares of Common Stock on April 12, 1995 pursuant to the exercise of a portion of the underwriters' over-allotment option, at $12.00 per share (the "Offering"); (2) Entering into a bank credit agreement (the "New Bank Credit Agreement") consisting of a $300 million revolving credit facility (the "1995 Revolving Credit Facility"), an $810 million term loan (the "1995 Term Loan A") and a $330 million term loan (the "1995 Term Loan B" and, together with the 1995 Term Loan A, the "New Term Loans"); and entering into a receivables credit agreement consisting of a $60 million term loan (the "1995 Receivables Facility"); - 11 - (3) The application on March 16, 1995 of the net proceeds of the sale of 25,000,000 shares of Common Stock pursuant to the Offering, together with borrowings under the New Term Loans, to prepay or redeem all the Company's indebtedness outstanding under the 1988 Bank Credit Agreement, 1993 Term Loan and Senior Secured Notes. (4) The application on April 15, 1995 of borrowings under the New Term Loans, the 1995 Receivables Facility and the 1995 Revolving Credit Facility to redeem all outstanding 14 1/8% Debentures (at par) and 12 5/8% Debentures (at 102.5% of the principal amount thereof). 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, 1995, the Company had $135 million in available capacity under the 1995 Revolving Credit Facility. - 12 - PART II. OTHER INFORMATION 1. LEGAL PROCEEDINGS Reference is made to Note 7 to the condensed consolidated financial statements included herein. 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: Exhibit No. Description 27 Financial Data Schedule for the six months ended June 30, 1995. 99 News release containing financial results for the quarter ended June 30, 1995. b) No reports on Form 8-K were filed by the Company for the quarter for which this report is filed. - 13 - 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 26, 1995 /s/ Kathleen J. Hempel ---------------------------------------- Kathleen J. Hempel, Vice Chairman and Chief Financial Officer July 26, 1995 /s/ James W. Nellen II --------------------------------------- James W. Nellen II, Vice President and Secretary July 26, 1995 /s/ Charles L. Szews --------------------------------------- Charles L. Szews Vice President and Controller - 14 - INDEX TO EXHIBITS Exhibit No. Description 27 Financial Data Schedule for the six months ended June 30, 1995 99 News release containing financial results for the quarter ended June 30, 1995 - 15 - 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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000038195 FORT HOWARD CORPORATION 1,000 U.S. DOLLARS 6-MOS DEC-31-1995 JUN-30-1995 1 294 0 152,294 1,734 164,127 335,681 1,957,033 660,361 1,731,172 255,157 3,112,969 634 0 0 (1,872,949) 1,731,172 779,486 779,486 565,500 565,500 0 0 163,081 (3,278) (1,379) (1,899) 0 (18,748) 0 (20,647) (0.39) (0.39)
EX-99 3 EXHIBIT 99 NEWS For further information contact: [Logo] Fort Howard Corporation Media: P.O. Box 19130 Cliff Bowers, Ext. 4087 Green Bay, WI 54307-9130 414/435/8821 Financial: Mike Lempke, Ext. 2492 FOR RELEASE: IMMEDIATELY FORT HOWARD ANNOUNCES SECOND QUARTER, 1995 RESULTS GREEN BAY, WI - July 26, 1995 - Fort Howard Corporation today reported net income per share for the second quarter ending June 30, 1995, of $0.15 (on a proforma basis). The company also announced its second consecutive quarterly net sales record. Its net sales in the second quarter of 1995 increased 30.7% compared to the same period of 1994. Its sales were up 33.4% in the first quarter. For the second quarter, Fort Howard's net sales increased to a record $412,110,000 compared to second quarter 1994 net sales of $315,299,000. Domestic tissue sales increased 20.9% for the second quarter of 1995 compared to 1994. Net selling prices increased 23%, converted products volume increased 1.9% and the company sharply reduced parent roll volume in the second quarter. Net sales of the company's international operations increased 36.5% for the second quarter of 1995 compared to 1994 due to a 28.2% increase in net selling prices on flat volume plus the benefit from the change in foreign exchange rates. The net sales increase was also attributable to a 169.4% increase in net sales at the company's wastepaper brokerage subsidiary, principally reflecting higher selling prices. - More - - Ad One - First half 1995 net sales were a record $779,486,000, an increase of 32.0% over 1994 net sales of $590,629,000 for the same period. Domestic tissue sales increased 24.3% for the first six months of 1995 compared to 1994 due to a 16.0% increase in net selling prices, a 9.9% increase in converted products volume and reduced parent roll volume. Net sales of the company's international operations increased 23.4% for the first half of 1995 compared to 1994 due to a 17.2% increase in net selling prices on flat volume plus the benefit from the change in foreign exchange rates. The net sales increase was also attributable to a 172.6% increase in net sales at the company's wastepaper brokerage subsidiary, principally reflecting higher selling prices. Operating income increased 11.7% for the second quarter of 1995 to $88,091,000 compared to $78,889,000 for the second quarter of 1994. Operating income increased 14.3% to $158,866,000 in the first six months of 1995 compared to $139,022,000 for the first six months of 1994. The increases resulted from higher sales and were partially offset by significantly higher wastepaper costs both domestically and in the company's international operations. For the second quarter of 1995, earnings before interest, taxes, depreciation, and amortization ("EBITDA") increased 10.0% to $112,780,000 from $102,570,000 in the second quarter of 1994. For the first six months of 1995, EBITDA increased 12.5% to $207,886,000 from $184,801,000 in the first six months of 1994. "Fort Howard's improved results for the second quarter reflect our success in significantly increasing selling prices," said Don DeMeuse, Fort Howard Chairman and Chief Executive Officer. "We are also pleased with the strength of our second quarter volume considering the significant improvement in pricing that we have implemented to date." DeMeuse said that the company announced additional price increases that it expects to realize in the third quarter. - More - - Ad Two - Extraordinary losses related to debt repurchases in 1995 and 1994 (See Notes to Financial Information) impacted the company's financial performance in the first quarters of 1995 and 1994. For the second quarter of 1995, net income was $7,619,000 resulting in a net loss for the first six months of 1995 of $20,647,000 compared to net losses of $2,049,000 and $45,391,000 for the same periods in 1994, respectively. The net income (loss) per share before extraordinary items was $0.12 and $(0.04) per share for the second quarter and first six months of 1995, compared to $(0.05) and $(0.45) per share for the second quarter and first six months of 1994, respectively. Net income (loss) per share after extraordinary items was $0.12 and $(0.39) per share for the second quarter and first six months of 1995 compared to $(0.05) and $(1.19) per share for the second quarter and first six months of 1994, respectively. If the company's IPO had occurred on January 1, 1995, the net income per share for the second quarter and first six months of 1995 would have been $0.15 and $0.13 per share based on 63,371,000 shares outstanding. Fort Howard is a leading manufacturer of tissue products for both the away-from-home and consumer market place in the United States and United Kingdom. In the domestic consumer market, its principal brands include Mardi Gras printed napkins (which hold the leading domestic market position) and paper towels, Soft 'N Gentle bath and facial tissue, So-Dri paper towels, Page paper towels, bath tissue and table napkins, 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, -------------------- ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales $412,110 $315,299 $779,486 $590,629 Cost of sales 297,644 208,566 565,500 397,061 -------- -------- -------- -------- Gross income 114,466 106,733 213,986 193,568 Selling, general and administrative 26,375 27,844 55,120 54,546 -------- -------- -------- -------- Operating income 88,091 78,889 158,866 139,022 Interest expense 76,311 83,035 163,081 167,353 Other expense (income), net (713) (286) (937) 302 ------- -------- -------- -------- Income (loss) before taxes 12,493 (3,860) (3,278) (28,633) Income tax expense (credit) 4,874 (1,811) (1,379) (11,412) ------- -------- -------- -------- Net income (loss) before extraordinary item 7,619 (2,049) (1,899) (17,221) Extraordinary item - loss on debt repurchases, net -- -- (18,748) (28,170) -------- -------- -------- --------- Net income (loss) $ 7,619 $ (2,049) $(20,647) $(45,391) ======== ======== ======== ======== Net income (loss) per share: Before extraordinary item $ 0.12 $ (0.05) $ (0.04) $ (0.45) Extraordinary item -- -- (0.35) (0.74) -------- -------- -------- -------- Net income (loss) $ 0.12 $ (0.05) $ (0.39) $ (1.19) ======== ======== ======== ======== FORT HOWARD CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1995 1994 -------- ------------ (In thousands) Assets Current assets: Cash and cash equivalents $ 294 $ 422 Receivables, less allowances of $1,734 in 1995 and $1,589 in 1994 150,560 123,150 Inventories 164,127 130,843 Deferred income taxes 20,000 20,000 Income taxes receivable 700 5,200 ----------- ----------- Total current assets 335,681 279,615 Property, plant and equipment 1,957,033 1,932,713 Less: Accumulated depreciation 660,361 611,762 ----------- ----------- Net property, plant and equipment 1,296,672 1,320,951 Other assets 98,819 80,332 ----------- ----------- Total assets $ 1,731,172 $ 1,680,898 =========== =========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable $ 120,586 $ 100,981 Interest payable 62,833 84,273 Income taxes payable 44 224 Other current liabilities 60,192 75,450 Current portion of long-term debt 11,502 116,203 ----------- ----------- Total current liabilities 255,157 377,131 Long-term debt 3,112,969 3,189,644 Deferred and other long-term income taxes 198,343 209,697 Other liabilities 37,018 41,162 Common Stock with put right -- 11,711 Shareholders' deficit: Common Stock 634 381 Additional paid-in capital 895,652 600,090 Cumulative translation adjustment (1,366) (2,330) Retained deficit (2,767,235) (2,746,588) ----------- ----------- Total shareholders' deficit (1,872,315) (2,148,447) ----------- ----------- Total liabilities and shareholders' deficit $ 1,731,172 $ 1,680,898 =========== =========== FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, -------------------- 1995 1994 ---- ---- (In thousands) Cash provided from (used for) operations: Net income (loss) $ (20,647) $ (45,391) Depreciation 49,020 45,779 Non-cash interest expense 6,429 42,816 Deferred income tax credit (11,774) (23,627) Pre-tax loss on debt repurchases 30,734 42,901 Increase in receivables (27,410) (21,043) Increase in inventories (33,284) (1,832) (Increase) decrease in income taxes receivable 4,500 (1,500) Increase (decrease) in accounts payable 19,605 (13,559) Increase (decrease) in interest payable (21,440) 11,949 Increase (decrease) in income taxes payable (180) 424 All other, net (21,044) (14,858) ---------- --------- Net cash provided from (used for) operations (25,491) 22,059 Cash used for investment activity - Additions to property, plant and equipment (23,119) (50,567) Cash provided from (used for) financing activities: Proceeds from long-term borrowings 1,428,800 752,600 Repayment of long-term borrowings (1,616,001) (701,809) Debt issuance costs (48,421) (21,635) Issuance (repurchase) of Common Stock, net of offering costs 284,104 (91) ---------- --------- Net cash provided from financing activities 48,482 29,065 ---------- --------- Increase (decrease) in cash (128) 557 Cash at beginning of period 422 227 ---------- --------- Cash at end of period $ 294 $ 784 ========== ========= ***** FORT HOWARD CORPORATION NOTES TO FINANCIAL INFORMATION (Unaudited) 1. On April 15, 1995, the company completed a recapitalization plan (the "Recapitalization") to prepay or redeem a substantial portion of its indebtedness in order to reduce the level and overall cost of its debt, extend certain debt maturities, increase shareholders' equity and enhance its access to capital markets. The Recapitalization included the following components: (1) The offer and sale by the company of 25,000,000 shares of Common Stock on March 16, 1995 and 269,555 shares of Common Stock on April 12, 1995 at $12.00 per share (the "Offering"); (2) Entering into a bank credit agreement (the "New Bank Credit Agreement") consisting of a $300 million revolving credit facility the "1995 Revolving Credit Facility"), an $810 million term loan (the "1995 Term Loan A") and a $330 million term loan (the "1995 Term Loan B" and, together with the 1995 Term Loan A, the "New Term Loans"); and entering into a receivables credit agreement consisting of a $60 million term loan (the "1995 Receivables Facility"); (3) The application on March 16, 1995 of the net proceeds of the sale of 25,000,000 shares of Common Stock pursuant to the Offering, together with borrowings under the New Term Loans, to prepay or redeem all the Company's indebtedness outstanding under the 1988 Bank Credit Agreement, 1993 Term Loan and Senior Secured Notes. (4) The application on April 15, 1995 of borrowings under the New Term Loans, the 1995 Receivables Facility and the 1995 Revolving Credit Facility to redeem all outstanding 14 1/8% Debentures (at par) and 12 5/8% Debentures (at 102.5% of the principal amount thereof). 2. In the first quarter of 1995, 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. In the first quarter of 1994, the company reported an extraordinary loss of $28 million (net of income taxes of $15 million) representing the redemption premiums and write-offs of deferred loan costs associated with the repayment of $100 million of term loan indebtedness under the company's 1988 Bank Credit Agreement on February 10, 1994 and the repurchases of all the company's remaining 12 3/8% Senior Subordinated Notes and $238 million of the company's 12 5/8% Subordinated Debentures on March 11, 1994. 3. 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 $73.7 million and $146.9 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 (loss) before extraordinary item and pro forma net income (loss) 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-----