-----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, QlqoqZYTLduuiJbTNtv7ABg0r2iZkQ/dr5q93jx2OEYRiK7W0VVJ+4HCIwvng41J me1Hl/NwVtQtFDxpTrASrg== 0000038195-95-000054.txt : 19951026 0000038195-95-000054.hdr.sgml : 19951026 ACCESSION NUMBER: 0000038195-95-000054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951025 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: 95584142 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 September 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 October 25, 1995 ----- ------------------------------- Voting 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 Nine Months Ended September 30, September 30, ------------------ ------------------ 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except per share data) Net sales........................... $426,116 $340,068 $1,205,602 $930,697 Cost of sales....................... 299,974 227,338 865,474 624,399 -------- -------- ---------- -------- Gross income........................ 126,142 112,730 340,128 306,298 Selling, general and administrative. 30,773 27,546 85,893 82,092 -------- -------- ---------- -------- Operating income ................... 95,369 85,184 254,235 224,206 Interest expense.................... 74,177 84,209 237,258 251,562 Other (income) expense, net......... (1,600) (87) (2,537) 215 -------- -------- ---------- -------- Income (loss) before taxes.......... 22,792 1,062 19,514 (27,571) Income tax expense (credit)......... 8,292 772 6,913 (10,640) -------- -------- ---------- -------- Net income (loss) before extraordinary item................ 14,500 290 12,601 (16,931) 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)................... $ 14,500 $ 290 $ (6,147) $(45,101) ======== ======== ========== ======== Net income (loss) per share: Net income (loss) before extraordinary item.............. $ 0.23 $ 0.01 $ 0.22 $ (0.44) Extraordinary item................ -- -- (0.33) (0.74) -------- -------- ---------- -------- Net income (loss)................. $ 0.23 $ 0.01 $ (0.11) $ (1.18) ======== ======== ========== ======== Average shares outstanding.......... $ 63,371 38,101 56,495 38,104 ======== ======== ========== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. - 2 - FORT HOWARD CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1995 1994 ------------- ------------ (In thousands) Assets Current assets: Cash and cash equivalents............... $ 441 $ 422 Receivables, less allowances of $1,836 in 1995 and $1,589 in 1994............ 105,178 123,150 Inventories............................. 172,663 130,843 Deferred income taxes................... 20,000 20,000 Income taxes receivable................. 700 5,200 ---------- ---------- Total current assets.................. 298,982 279,615 Property, plant and equipment............. 1,961,925 1,932,713 Less: Accumulated depreciation......... 683,619 611,762 ---------- ---------- Net property, plant and equipment..... 1,278,306 1,320,951 Other assets.............................. 94,944 80,332 ---------- ---------- Total assets.......................... $1,672,232 $1,680,898 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable........................ $ 127,604 $ 100,981 Interest payable........................ 25,735 84,273 Income taxes payable.................... 653 224 Other current liabilities............... 68,013 75,450 Current portion of long-term debt....... 55,488 116,203 ---------- ---------- Total current liabilities............. 277,493 377,131 Long-term debt............................ 3,010,613 3,189,644 Deferred and other long-term income taxes. 205,601 209,697 Other liabilities......................... 36,696 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....... (1,722) (2,330) Retained deficit........................ (2,752,735) (2,746,588) ---------- ---------- Total shareholders' deficit........... (1,858,171) (2,148,447) ---------- ---------- Total liabilities and shareholders' deficit............................. $1,672,232 $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) Nine Months Ended September 30, ------------------ 1995 1994 ---- ---- (In thousands) Cash provided from (used for) operations: Net loss....................................... $ (6,147) $ (45,101) Depreciation................................... 73,751 69,786 Non-cash interest expense...................... 9,634 64,759 Deferred income tax credit..................... (3,967) (19,698) Pre-tax loss on debt repurchases............... 30,734 42,901 (Increase) decrease in receivables............. 17,972 (26,897) Increase in inventories........................ (41,820) (5,622) Decrease in income taxes receivable............ 4,500 3,900 Increase in accounts payable................... 26,623 1,086 Decrease in interest payable................... (58,538) (19,770) Increase in income taxes payable............... 429 776 All other, net................................. (12,228) (8,321) ---------- --------- Net cash provided from operations............ 40,943 57,799 Cash used for investment activity-- Additions to property, plant and equipment..... (32,150) (64,674) Cash provided from (used for) financing activities: Proceeds from long-term borrowings............. 1,438,900 750,000 Repayment of long-term borrowings.............. (1,682,623) (721,034) Debt issuance costs............................ (49,155) (21,584) Issuance (repurchase) of Common Stock, net of offering costs............................... 284,104 (97) ---------- --------- Net cash provided from (used for) financing activities................................. (8,774) 7,285 ---------- --------- Increase in cash................................. 19 410 Cash at beginning of period...................... 422 227 ---------- --------- Cash at end of period.......................... $ 441 $ 637 ========== ========= Supplemental Cash Flow Disclosures: Interest paid.................................. $ 288,215 $ 210,091 Income taxes paid (refunded) - net............. (5,705) (8,696) 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 reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 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 common shares outstanding for the three and nine month periods ended September 30, 1995 were 63,370,794 and 56,494,512, respectively. The weighted average number of common shares outstanding for the three and nine month periods ended September 30, 1994 were 38,101,291 and 38,103,878, 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 nine month periods ended September 30, 1995 and 1994 because the results would be antidilutive. 4. INVENTORIES Inventories consist of: September 30, December 31, 1995 1994 ------------ ------------ (In thousands) Raw materials and supplies $ 79,825 $ 63,721 Finished and partly-finished products 92,838 67,122 -------- -------- $172,663 $130,843 ======== ======== - 5 - 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 $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 outstanding at the date of the Offering 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. - 6 - In September 1995, the Company entered into agreements expiring in July 2000 (the "1995 Receivables Sales Agreements") whereby substantially all the Company's domestic tissue accounts receivable are sold. The Company has retained substantially the same credit risk as if the accounts receivable had not been sold. The Company received $60 million from such initial sales which was applied to the repayment of the 1995 Receivables Facility and may receive up to $25 million of additional proceeds on a revolving basis. The Company retains a residual interest in the receivables sold, thus accounts receivable in the accompanying condensed consolidated balance sheet are only reduced by the net proceeds from the sales which totaled $60 million as of September 30, 1995. Under the terms of the 1995 Receivables Sales Agreements, the ongoing interest costs to the Company from this program are based on LIBOR, plus 0.25% to 0.65%, on the net proceeds received. The New Bank Credit Agreement and the 1995 Receivables Sales Agreements 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 September 30, 1995, the available capacity under the Revolving Credit Facility was $125 million. - 7 - FORT HOWARD CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Third Quarter and First Nine Months of 1995 Compared to 1994 Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except percentages) Net sales: Domestic tissue............ $348,058 $278,277 $ 965,551 $775,195 International operations... 43,041 33,713 120,394 96,376 Harmon..................... 35,017 28,078 119,657 59,126 -------- -------- ---------- -------- Consolidated............... $426,116 $340,068 $1,205,602 $930,697 ======== ======== ========== ======== Operating income: Domestic tissue............ $ 88,982 $ 80,756 $ 238,457 $215,754 International operations... 4,995 3,040 11,354 5,963 Harmon..................... 1,392 1,388 4,424 2,489 -------- -------- ---------- -------- Consolidated............... 95,369 85,184 254,235 224,206 Depreciation................. 24,731 24,007 73,751 69,786 -------- -------- ---------- -------- EBITDA(a).................... $120,100 $109,191 $ 327,986 $293,992 ======== ======== ========== ======== Consolidated net income (loss)..................... $ 14,500 $ 290 $ (6,147) $(45,101) ======== ======== ========== ======== EBITDA as a percent of net sales(a)............... 28.2% 32.1% 27.2% 31.6% - ------------------ (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 third quarter and first nine months of 1995 increased 25.3% and 29.5% compared to 1994, respectively. Domestic tissue net sales for the third quarter and first nine months of 1995 increased 25.1% and 24.6% compared to 1994, respectively. For the third quarter of 1995 compared to the third quarter of 1994, domestic tissue net selling prices increased 27.7%, converted products volume increased 0.7% and - 8 - the Company reduced parent roll volume. For the first nine months of 1995 compared to the first nine months of 1994, domestic tissue net selling prices increased 19.9%, converted products volume increased 6.6% and the Company reduced parent roll volume. From the second quarter of 1995 to the third quarter of 1995, overall domestic tissue net selling prices increased 5.1% as a result of price increases announced for the commercial market effective April 1995 and July 1995 and for the consumer market effective January 1995 and mid-May 1995. In addition, further price increases were announced for napkin products for the consumer market effective August 1995 and for commercial market products effective late September 1995. For the third quarter of 1995 compared to the third quarter of 1994, domestic volume was stronger in the consumer market than in the commercial market. Sales of tissue paper sold in parent roll form to export markets were reduced beginning in the second quarter of 1995 compared to prior year levels to focus sales on higher margin converted products. Net sales of the Company's international operations increased 27.7% and 24.9% for the third quarter and first nine months of 1995 compared to 1994, respectively, due largely to an increase in net selling prices, slightly higher volume of converted products and the benefit from the change in foreign exchange rates, while parent roll volume was reduced. Net sales of the Company's wastepaper brokerage subsidiary, Harmon Associates Corp. ("Harmon"), increased 24.7% and 102.4% for the third quarter and first nine 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 11.9% and 11.0% for the third quarter and first nine months of 1995 compared to 1994, respectively, due to the higher selling prices, partially offset by higher raw material costs. Consolidated gross margins decreased to 29.6% and 28.2% for the third quarter and first nine months of 1995 from 33.1% and 32.9% for the third quarter and first nine months of 1994, respectively. Domestic tissue gross margins decreased for the third quarter and first nine months of 1995 compared to the third quarter and first nine months of 1994 primarily due to significantly higher wastepaper prices. Costs of other raw materials also increased during the first nine months of 1995 compared to 1994 but by a much lower percentage while all other costs held flat or declined due to efficiencies achieved from higher volumes. In the third quarter of 1995, wastepaper prices flattened and then declined slightly. Further wastepaper price declines are expected in the fourth quarter of 1995 prior to the seasonally lower wastepaper generation months in the first quarter of 1996. Gross margins of international operations increased in both the third quarter and first nine months of 1995 compared to 1994, in spite of significantly higher wastepaper prices, due to the effects of product rationalization on 1994 earnings. In addition, consolidated gross margins were negatively affected for both the third quarter and first nine 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 7.2% and 7.1% for the third quarter and first nine months of 1995, compared to 8.1% and 8.8% - 9 - for the third quarter and first nine months of 1994, respectively. The decreases occurred principally due to the effects of significantly higher net sales. Operating Income. Operating income increased to $95 million and $254 million for the third quarter and first nine months of 1995 from $85 million and $224 million for the third quarter and first nine months of 1994, respectively. Operating income as a percent of net sales decreased to 22.4% and 21.1% in the third quarter and first nine months of 1995 compared to 25.0% and 24.1% in the third quarter and first nine months of 1994, respectively. Domestic tissue operating income as a percent of net sales decreased to 25.6% and 24.7% in the third quarter and first nine months of 1995 from 29.0% and 27.8% in the third quarter and first nine 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. 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 margins compared to either domestic tissue or international operations. However, domestic tissue and international tissue operating income as a percent of net sales has increased in each of the second and third quarters of 1995 compared to the immediately preceding quarter as net selling prices have continued to increase while wastepaper costs flattened and then declined slightly. On a per ton basis, operating income of both the domestic and international tissue operations was higher in the third quarter and first nine months of 1995 compared to 1994. Extraordinary Loss. The Company's net loss in the first nine 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 nine 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 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 third quarter of 1995, net income was $15 million compared to net income of $290,000 for the third quarter of 1994. For the first nine months of 1995, the Company reported a net loss of $6 million compared to a net loss of $45 million for the first nine months of 1994. FINANCIAL CONDITION For the first nine months of 1995, cash increased $19,000. Capital additions of $32 million, debt repayments of $1,683 million, including the prepayment or repurchase of all of the 1988 Term Loan, the 1988 Revolving - 10 - Credit Facility, the 1993 Term Loan and the Senior Secured Notes, repayment of the 1995 Receivables Facility and the redemption of all the outstanding 12 5/8% Debentures and 14 1/8% Debentures were funded principally by cash provided from operations of $41 million, net proceeds of $284 million from the sale of Common Stock and borrowings of $1,390 million (net of $49 million of debt issuance costs) pursuant to the Recapitalization (see below) and the proceeds from the sale of certain domestic tissue receivables of $60 million (see below). Receivables decreased $18 million during the first nine months of 1995 due principally to the sale of certain domestic tissue receivables of $60 million, which was largely offset by a seasonal increase in net sales and significantly higher net selling prices in all the Company's businesses. Inventories increased by $42 million principally due to higher manufacturing costs and a seasonal inventory build. Accounts payable increased $27 million due to higher wastepaper and other raw material costs. The liability for interest payable decreased $59 million due to the early payment of interest in connection with the Recapitalization and due to the timing of the quarter end relative to semiannual interest payment dates. Other current liabilities declined $7 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 reduction of the current portion of long-term debt, net working capital increased to $21 million at September 30, 1995, from a deficit of $98 million at December 31, 1994. For the first nine months of 1995, cash of $41 million was provided from operations while for the first nine months of 1994, cash of $58 million was provided from operations. Cash provided from operations declined during 1995 principally because interest on the 14 1/8% Debentures converted from non-cash to cash pay on November 1, 1994, the timing of scheduled interest payments on long-term debt changed during 1995 as a result of the Recapitalization and working capital requirements for receivables and inventories increased due to increases in net selling prices and raw material costs, respectively. Such decreases in cash provided from operations were largely offset by proceeds from the sale of domestic accounts receivable. 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). In September 1995, the Company entered into accounts receivable sales agreements which segregate certain domestic tissue receivables from the Company's other assets and liabilities in order to achieve a lower cost of funds based on the credit quality of the receivables. As a result, accounts receivable was reduced by $60 million, the 1995 Receivables Facility was repaid and the interest cost on the 1995 Receivables Facility of 2.5% over LIBOR has been effectively replaced by financing costs equal to 0.25% to 0.65% over LIBOR on $60 million. In connection with these agreements, additional revolving funds of up to $25 million may be available to the Company, resulting in further decreases in accounts receivable and interest costs. On October 5, 1995, the Company made its initial draw under these revolving agreements of $8 million. The Company's 1995 Revolving Credit Facility, which may be used for general corporate purposes, has a final maturity of March 16, 2002. At September 30, 1995, the Company had $125 million in available capacity under the 1995 Revolving Credit Facility. - 12 - PART II. OTHER INFORMATION 1. LEGAL PROCEEDINGS None 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 nine months ended September 30, 1995. 99 News release containing financial results for the quarter ended September 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 October 25, 1995 /s/ Kathleen J. Hempel --------------------------------------- Kathleen J. Hempel, Vice Chairman and Chief Financial Officer October 25, 1995 /s/ James W. Nellen II --------------------------------------- James W. Nellen II, Vice President and Secretary October 25, 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 nine months ended September 30, 1995. 99 News release containing financial results for the quarter ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000038195 FORT HOWARD CORPORATION 1,000 U.S. DOLLARS 9-MOS DEC-31-1995 SEP-30-1995 1 441 0 107,014 1,836 172,663 298,982 1,961,925 683,619 1,672,232 277,493 3,010,613 634 0 0 (1,858,805) 1,672,232 1,205,602 1,205,602 865,474 865,474 0 0 237,258 19,514 6,913 12,601 0 (18,748) 0 (6,147) (0.11) (0.11)
EX-99 3 EXHIBIT 99 NEWS - ------------------------------------------------------------------------------ For further information contact: [Logo] Fort Howard Corporation Media: Cliff Bowers, Ext. 4087 P. O. Box 19130 Financial: Green Bay, WI 54307-9130 Mike Lempke, Ext. 2492 414/435-8821 FOR RELEASE: IMMEDIATELY FORT HOWARD EARNINGS PER SHARE INCREASE 53% FROM SECOND QUARTER GREEN BAY, WI - October 25, 1995 - Fort Howard Corporation today reported that increasing prices and firm sales volume led to record net sales and significantly improved earnings for the third quarter. Results also represented a third consecutive quarterly net sales record for the company. "Our successful strategies to increase selling prices contributed to our positive results for the quarter," said Donald H. DeMeuse, Fort Howard Chairman and Chief Executive Officer. "Tightening industry operating rates, continuing benefits from recent price increases and positive short-term wastepaper cost trends make us optimistic about the remainder of the year and 1996." Third Quarter Results --------------------- For the third quarter ended September 30, 1995, net sales rose to a record $426,116,000, a 25.3% increase over the $340,068,000 reported in the third quarter of 1994. Domestic tissue sales increased 25.1% for the same periods, principally due to higher selling prices. "We are particularly pleased with the volume gains we've seen in our consumer business," DeMeuse said. "Our share growth in that business is unprecedented; increasing from approximately a 7% share in 1989 to over 10% this year." - More - - Ad One - Net income for the quarter was $14,500,000 or $0.23 per share. That compares to net income of $290,000 or $0.01 per share in the third quarter of 1994, and $7,619,000 or $0.12 per share for the second quarter of 1995. Third quarter earnings per share represent a 53% increase over second quarter pro forma earnings per share of $0.15. Operating income increased 12.0% for the period to $95,369,000 versus $85,184,000 for the third quarter of 1994. Operating margins in domestic tissue operations improved to 25.6% in the third quarter of 1995 from 22.9% in the first quarter of 1995. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 10.0% to $120,100,000 compared to $109,191,000 in the same period of 1994. The company's Fort Sterling subsidiary, based in Manchester, England, reported a 27.7% increase in sales and an operating income increase of 64.3% for the third quarter compared to the third quarter of 1994. Nine Month Results ------------------ Net sales for the first nine months were a record $1,205,602,000 an increase of 29.5% versus 1994 net sales of $930,697,000. The company reported a net loss of $6,147,000 for the period compared to a net loss of $45,101,000 for the first nine months of 1994. Net income per share before extraordinary items was $0.22 per share in 1995 compared to net loss of $(0.44) per share in 1994. Net loss after extraordinary items was $(0.11) for the first nine months compared to a loss of $(1.18) per share for same period last year. The company completed a recapitalization, including an IPO of 25 million shares of common stock, on April 15, 1995. Had the recapitalization been completed on January 1, 1995, the net income per share for the first nine months would have been $0.36 on a pro forma basis. Operating income increased 13.4% to $254,235,000 in the first nine months versus $224,206,000 for the period in 1994. The increase resulted from higher sales and was partially offset by significantly higher wastepaper costs both domestically and in the company's international operations. EBITDA increased 11.6% to $327,986,000 in the first nine months compared to $293,992,000 for the first three quarters of 1994. Joint Venture in China ---------------------- On October 23, 1995, Fort Howard announced that it had entered into a memorandum of understanding with a joint venture partner to manufacture sanitary tissue products in the People's Republic of China. The plant, located near Shanghai, will produce napkins, and bath and facial tissue. According to DeMeuse, the venture represents a key step in the company's international growth strategy. The company and its partner, CIMIC Holdings, Ltd., expect to start up converting operations in the Pudong New area of Shanghai in the first quarter of 1996. Annual Shareholder Meeting Scheduled ------------------------------------- Fort Howard will hold its annual shareholder meeting on May 14, 1996, at the Metropolitan Club, Sears Tower, 233 S. Wacker Drive, Chicago, IL. Fort Howard is a leading marketer and 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, 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 Nine Months Ended September 30, September 30, -------------------- ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales $426,116 $340,068 $1,205,602 $930,697 Cost of sales 299,974 227,338 865,474 624,399 -------- -------- ---------- -------- Gross income 126,142 112,730 340,128 306,298 Selling, general and administrative 30,773 27,546 85,893 82,092 -------- -------- ---------- -------- Operating income 95,369 85,184 254,235 224,206 Interest expense 74,177 84,209 237,258 251,562 Other (income) expense, net (1,600) (87) (2,537) 215 -------- -------- ---------- -------- Income (loss) before taxes 22,792 1,062 19,514 (27,571) Income tax expense (credit) 8,292 772 6,913 (10,640) -------- -------- ---------- -------- Net income (loss) before extraordinary item 14,500 290 12,601 (16,931) Extraordinary item - loss on debt repurchases, net -- -- (18,748) (28,170) -------- -------- ---------- -------- Net income (loss) $ 14,500 $ 290 $ (6,147) $(45,101) ======== ======== ========== ======== Net income (loss) per share: Before extraordinary item $ 0.23 $ 0.01 $ 0.22 $ (0.44) Extraordinary item -- -- (0.33) (0.74) -------- -------- ---------- -------- Net income (loss) $ 0.23 $ 0.01 $ (0.11) $ (1.18) ======== ======== ========== ======== FORT HOWARD CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1995 1994 ------------ ------------ (In thousands) Assets Current assets: Cash and cash equivalents $ 441 $ 422 Receivables, less allowances of $1,836 in 1995 and $1,589 in 1994 105,178 123,150 Inventories 172,663 130,843 Deferred income taxes 20,000 20,000 Income taxes receivable 700 5,200 ---------- ---------- Total current assets 298,982 279,615 Property, plant and equipment 1,961,925 1,932,713 Less: Accumulated depreciation 683,619 611,762 ---------- ---------- Net property, plant and equipment 1,278,306 1,320,951 Other assets 94,944 80,332 ---------- ---------- Total assets $1,672,232 $1,680,898 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable $ 127,604 $ 100,981 Interest payable 25,735 84,273 Income taxes payable 653 224 Other current liabilities 68,013 75,450 Current portion of long-term debt 55,488 116,203 ---------- ---------- Total current liabilities 277,493 377,131 Long-term debt 3,010,613 3,189,644 Deferred and other long-term income taxes 205,601 209,697 Other liabilities 36,696 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 (1,722) (2,330) Retained deficit (2,752,735) (2,746,588) ---------- ---------- Total shareholders' deficit (1,858,171) (2,148,447) ---------- ---------- Total liabilities and shareholders' deficit $1,672,232 $1,680,898 ========== ========== FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, -------------------- 1995 1994 ---- ---- (In thousands) Cash provided from (used for) operations: Net loss $ (6,147) $ (45,101) Depreciation 73,751 69,786 Non-cash interest expense 9,634 64,759 Deferred income tax credit (3,967) (19,698) Pre-tax loss on debt repurchases 30,734 42,901 (Increase) decrease in receivables 17,972 (26,897) Increase in inventories (41,820) (5,622) Decrease in income taxes receivable 4,500 3,900 Increase in accounts payable 26,623 1,086 Decrease in interest payable (58,538) (19,770) Increase in income taxes payable 429 776 All other, net (12,228) (8,321) --------- --------- Net cash provided from operations 40,943 57,799 Cash used for investment activity - Additions to property, plant and equipment (32,150) (64,674) Cash provided from (used for) financing activities: Proceeds from long-term borrowings 1,438,900 750,000 Repayment of long-term borrowings (1,682,623) (721,034) Debt issuance costs (49,155) (21,584) Issuance (repurchase) of Common Stock, net of offering costs 284,104 (97) --------- --------- Net cash provided from (used for) financing activities (8,774) 7,285 --------- --------- Increase in cash 19 410 Cash at beginning of period 422 227 --------- --------- Cash at end of period $ 441 $ 637 ========= ========= ***** 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% 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 repurchase of all outstanding 12 5/8% Debentures and 14 1/8% 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% Notes and $238 million of the company's 12 5/8% Debentures on March 11, 1994. 3. In September 1995, the company entered into account receivable sales agreements which segregate certain domestic tissue receivables from the company's other assets and liabilities in order to achieve a lower cost of funds based on the credit quality of the receivables. As a result, accounts receivable was reduced $60 million, the 1995 Receivables Facility was repaid, and the interest cost on the 1995 Receivables Facility of 2.5% over LIBOR has been effectively replaced by financing costs equal to 0.25% to 0.65% over LIBOR on $60 million. In connection with these agreements, additional revolving funds of up to $25 million may be available to the company, resulting in further decreases in accounts receivable and interest costs. On October 5, 1995, the company made its initial draw under the revolving agreements of $8 million. 4. Assuming that all components of the Recapitalization had been consummated as of January 1, 1995, for the first nine months of 1995, pro forma interest expense would have decreased $16 million from $237 million to $221 million. 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 period) would have been $22.6 million and $0.36 per share for the first nine months of 1995, respectively. # # # # # -----END PRIVACY-ENHANCED MESSAGE-----