-----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, MhMvHcVferra0aeLJsrGnGjOhAit6y28qqj0Cpkt/6i7kZnz/S9WwHooPbmKTAwZ Q6xD8juxWVt39jQjPMxi2w== 0000038195-97-000009.txt : 19970806 0000038195-97-000009.hdr.sgml : 19970806 ACCESSION NUMBER: 0000038195-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970805 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: 97651667 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, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-20473 FORT HOWARD CORPORATION (Exact name of registrant as specified in its charter) Delaware 39-1090992 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1919 South Broadway, Green Bay, Wisconsin 54304 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: 414/435-8821 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 15, 1997 ----- ---------------------------- Common Stock, par value $.01 76,150,854 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, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- (In thousands, except per share data) Net sales....................... $411,415 $402,397 $812,174 $788,144 Cost of sales................... 225,821 243,487 454,861 481,856 -------- -------- -------- -------- Gross income.................... 185,594 158,910 357,313 306,288 Selling, general and administrative................ 31,910 34,211 65,392 67,386 -------- -------- -------- -------- Operating income................ 153,684 124,699 291,921 238,902 Interest expense................ 57,156 66,201 115,018 136,974 Other expense, net.............. 655 475 1,435 1,038 -------- -------- -------- -------- Income before taxes............. 95,873 58,023 175,468 100,890 Income tax expense ............. 36,984 21,646 66,832 37,573 -------- -------- -------- -------- Net income before extraordinary item............ 58,889 36,377 108,636 63,317 Extraordinary item -- loss on debt repurchases (net of income taxes of $391 and $1,258 in 1997 and $2,180 in 1996)...................... (601) (3,340) (1,928) (3,340) -------- -------- -------- -------- Net income ..................... $ 58,288 $ 33,037 $106,708 $ 59,977 ======== ======== ======== ======== Net income per share: Net income before extraordinary item.......... $ 0.78 $ 0.53 $ 1.45 $ 0.96 Extraordinary item............ (0.01) (0.05) (0.03) (0.05) -------- -------- -------- -------- Net income.................... $ 0.77 $ 0.48 $ 1.42 $ 0.91 ======== ======== ======== ======== Average shares outstanding...... 75,215 68,759 74,875 66,066 ======== ======== ======== ======== 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, 1997 1996 -------- ------------ Assets (In thousands) Current assets: Cash and cash equivalents................. $ 4,107 $ 759 Receivables, less allowances of $3,389 in 1997 and $3,343 in 1996................. 77,466 63,194 Inventories............................... 150,061 151,248 Deferred income taxes..................... 48,000 60,000 Income taxes receivable................... -- 10,121 ---------- ---------- Total current assets.................... 279,634 285,322 Property, plant and equipment............... 2,092,311 2,057,446 Less: Accumulated depreciation........... 856,067 809,650 ---------- ---------- Net property, plant and equipment....... 1,236,244 1,247,796 Other assets................................ 69,964 82,262 ---------- ---------- Total assets............................ $1,585,842 $1,615,380 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable.......................... $ 106,402 $ 131,205 Interest payable.......................... 58,015 60,443 Income taxes payable...................... 3,684 7,700 Other current liabilities................. 80,649 110,357 Current portion of long-term debt......... 7,015 11,972 ---------- ---------- Total current liabilities............... 255,765 321,677 Long-term debt.............................. 2,332,196 2,451,373 Deferred and other long-term income taxes... 259,561 247,464 Other liabilities........................... 48,517 49,703 Shareholders' deficit: Common Stock.............................. 762 744 Additional paid-in capital................ 1,148,971 1,108,976 Cumulative translation adjustment......... 2,636 4,717 Retained deficit.......................... (2,462,566) (2,569,274) ---------- ---------- Total shareholders' deficit............. (1,310,197) (1,454,837) ---------- ---------- Total liabilities and shareholders' deficit............................... $1,585,842 $1,615,380 ========== ========== 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, ------------------ 1997 1996 ---- ---- (In thousands) Cash provided from (used for) operations: Net income ................................... $ 106,708 $ 59,977 Depreciation.................................. 51,569 50,231 Non-cash interest expense..................... 7,200 6,645 Deferred income tax expense................... 22,745 11,975 Pre-tax loss on debt repurchases.............. 3,186 5,519 Decrease in restricted cash................... 14,916 -- (Increase) decrease in receivables............ (14,272) 10,639 Decrease in inventories....................... 1,187 27,453 Decrease in income taxes receivable........... 10,121 -- Decrease in accounts payable.................. (24,803) (8,769) Decrease in interest payable.................. (2,428) (3,391) Increase (decrease) in income taxes payable... (4,016) 1,282 All other, net................................ (38,069) (8,891) ---------- --------- Net cash provided from operations .......... 134,044 152,670 Cash used for investment activity: Additions to property, plant and equipment.... (44,403) (24,384) Cash provided from (used for) financing activities: Proceeds from long-term borrowings............ 36,300 192 Repayment of long-term borrowings............. (159,550) (332,529) Debt issuance costs........................... -- (1,481) Issuance of Common Stock, net of offering costs.............................. 36,957 205,318 ---------- --------- Net cash used for financing activities...... (86,293) (128,500) ---------- --------- Increase (decrease) in cash..................... 3,348 (214) Cash at beginning of period..................... 759 946 ---------- --------- Cash at end of period......................... $ 4,107 $ 732 ========== ========= Supplemental Cash Flow Disclosures: Interest paid................................. $ 110,208 $ 133,678 Income taxes paid - net....................... 33,165 22,096 The accompanying notes are an integral part of these condensed consolidated financial statements. - 4 - FORT HOWARD CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The condensed consolidated financial statements reflect all adjustments (consisting only of normally recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Certain reclassifications have been made to conform prior years' data to the current format. These financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1996 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997. 2. EARNINGS PER SHARE Earnings 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, 1997 was 75,215,407 and 74,874,873, respectively. The average number of shares outstanding for the three and six month periods ended June 30, 1996 was 68,759,446 and 66,065,754, respectively. The assumed exercise of all outstanding stock options has been excluded from the computation of earnings per share for the three and six month periods ended June 30, 1997 and 1996 because the result was not material. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). The Company will adopt SFAS No. 128 effective for the year ending December 31, 1997. On a pro forma basis, if the Company had adopted SFAS No. 128 for the three and six months ended June 30, 1997 and 1996, the effect of this accounting change on reported earnings per share ("EPS") would be: Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Earnings Per Share: BASIC Income before extraordinary item as reported............ $ 0.78 $ 0.53 $ 1.45 $ 0.96 Effect of SFAS No. 128........ -- -- -- -- ------ ------ ------ ------ Basic income before extra- ordinary item as restated... $ 0.78 $ 0.53 $ 1.45 $ 0.96 ====== ====== ====== ====== Net income as reported........ $ 0.77 $ 0.48 $ 1.42 $ 0.91 Effect of SFAS No. 128........ -- -- -- -- ------ ------ ------ ------ Basic income as restated...... $ 0.77 $ 0.48 $ 1.42 $ 0.91 ====== ====== ====== ====== - 5 Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- DILUTED Diluted income before extraordinary item (A)...... $ 0.77 $ 0.52 $ 1.43 $ 0.95 ====== ====== ====== ====== Diluted income (A)............ $ 0.76 $ 0.48 $ 1.40 $ 0.90 ====== ====== ====== ====== (A) In accordance with the provisions of APB Opinion No. 15, the Company currently does not report fully diluted EPS due to immaterial dilution. 3. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS Obligations under the 1995 Bank Credit Agreement and debt of foreign subsidiaries bear interest at floating rates. The Company's policy is to enter into interest rate cap agreements as a hedge to effectively fix or limit its exposure to floating interest rates to, at a minimum, comply with the terms of its senior secured debt agreements. The Company is a party to LIBOR- based interest rate cap agreements which limit the interest cost to the Company with respect to $500 million of floating rate obligations to 8% plus the Company's borrowing margin until June 1, 1999. At current market rates at June 30, 1997, the fair value of the Company's interest rate cap agreements is $300,000 compared to a carrying value of $6 million. The counterparties to the Company's interest rate cap agreements consist of major financial institutions. While the Company is exposed to credit risk to the extent of nonperformance by these counterparties, management monitors the risk of default by the counterparties and believes that the risk of incurring losses due to nonperformance is remote. 4. CASH AND CASH EQUIVALENTS At December 31, 1996, the Company had $14,916,000 of cash restricted as collateral under the terms of its 1995 Accounts Receivable Facility. At June 30, 1997, there was no cash restricted under the terms of this Facility. 5. INVENTORIES Inventories consist of: June 30, December 31, 1997 1996 -------- ------------ (In thousands) Raw materials and supplies.............. $ 69,170 $ 70,595 Finished and partly-finished products... 80,891 80,653 -------- -------- $150,061 $151,248 ======== ======== - 6 - 6. PROPOSED MERGER WITH JAMES RIVER CORPORATION On May 5, 1997, the Company and James River Corporation announced the signing of a definitive merger agreement that will create a worldwide consumer products company which will be named Fort James Corporation. Under the agreement, Fort Howard shareholders will receive 1.375 shares of Fort James common stock for each share of Fort Howard common stock. The merger agreement has been approved by the boards of directors of both companies. The transaction is structured to qualify as a tax-free reorganization and will be accounted for as a pooling of interests. The merger, which is expected to be completed at the end of the summer, is conditioned on receiving regulatory clearances in the United States and Europe and requires the approval of the shareholders of both companies. On a pro forma basis, the combined operations would have had net sales of approximately $7.7 billion for the year ended December 31, 1996. 7. CONTINGENCIES The Company and its subsidiaries are parties to lawsuits and state and federal administrative proceedings incidental to their businesses. Although the final results in such suits and proceedings cannot be predicted with certainty, the Company currently believes that the ultimate resolution of all such lawsuits and proceedings, after taking into account the liabilities accrued with respect to such matters, will not have a material adverse effect on the Company's financial condition or on its results of operations. - 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 1997 Compared to 1996 Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- (In thousands, except percentages) Net sales: Domestic tissue............... $348,404 $345,574 $685,224 $670,482 International operations...... 46,306 42,545 90,413 86,353 Harmon........................ 16,705 14,278 36,537 31,309 -------- -------- -------- -------- Consolidated.................. $411,415 $402,397 $812,174 $788,144 ======== ======== ======== ======== Operating income: Domestic tissue............... $142,328 $116,962 $272,848 $223,882 International operations...... 10,857 6,977 17,972 13,282 Harmon........................ 499 760 1,101 1,738 -------- -------- -------- -------- Consolidated.................. $153,684 $124,699 $291,921 $238,902 ======== ======== ======== ======== Consolidated net income ........ $ 58,288 $ 33,037 $106,708 $ 59,977 ======== ======== ======== ======== Operating income as a percent of net sales..................... 37.4% 31.0% 35.9% 30.3% Net Sales. Consolidated net sales for the second quarter of 1997 increased 2.2% to $411 million compared to $402 million in the second quarter of 1996. Domestic tissue net sales for the second quarter of 1997 increased 0.8% compared to the same period in 1996 due to a 0.6% increase in net selling prices and a 0.1% increase in sales volume. For the second quarter of 1997, sales volume of converted products increased 1.7% from the second quarter of 1996. There were no sales of parent rolls in the second quarter of 1997. Net selling prices increased slightly for the second quarter of 1997 compared to the second quarter of 1996 as a result of reduced promotional spending. Consolidated net sales for the first six months of 1997 increased 3.0% to $812 million compared to $788 million in the first six months of 1996. Domestic tissue net sales for the first six months of 1997 increased 2.2% compared to the same period in 1996 due to a 3.1% increase in sales volume offset by a 0.9% decrease in net selling prices. For the first six months of 1997, sales volume of converted products increased 5.0% from the first six months of 1996. There were no sales of parent rolls in the first six months of 1997. Net selling prices decreased for the first six months of 1997 compared to the first six months of 1996 as a result of price decreases in the consumer market which took effect in April and June 1996. - 8 Net sales of the Company's international operations increased 8.8% and 4.7% for the second quarter and first six months of 1997, respectively, compared to the same periods in 1996 due to higher volume and increased exchange rates, offset by a decrease in net selling prices at the Company's United Kingdom facility. Net sales of the Company's wastepaper brokerage subsidiary, Harmon Assoc., Corp. ("Harmon"), increased for the second quarter of 1997 compared to the second quarter of 1996 due to increased net selling prices and increased net volume. For the first six months of 1997 compared to the first six months of 1996, Harmon's net sales increased due to increased net selling prices and an 11.0% increase in volume. Gross Income. Consolidated gross income increased 16.8% and 16.7% for the second quarter and first six months of 1997 compared to 1996, respectively, due to higher volume and lower raw material costs. Consolidated gross margins increased to 45.1% and 44.0% for the second quarter and first six months of 1997 compared to 39.5% and 38.9% for the second quarter and first six months of 1996, respectively. Domestic tissue gross margins increased for the second quarter and first six months of 1997 compared to the same periods in 1996 due to higher volume and lower wastepaper and other fiber-based raw material costs. Wastepaper prices began decreasing significantly in late 1995 and continued to decrease through the first half of 1996, and have been stable since mid-1996. Gross margins of international operations increased in both the second quarter and first six months of 1997 compared to 1996 due to higher volume and lower wastepaper costs. Selling, General and Administrative Expenses. Selling general and administrative expenses, as a percent of net sales, decreased to 7.8% and 8.1% for the second quarter and first six months of 1997 compared to 8.5% for the second quarter and first six months of 1996. The decrease was principally due to the impact of higher net sales. Operating Income. Operating income increased to $154 million and $292 million for the second quarter and first six months of 1997 from $125 million and $239 million for the second quarter and first six months of 1996, respectively. Operating income as a percent of net sales increased to 37.4% and 35.9% in the second quarter and first six months of 1997 compared to 31.0% and 30.3% in the second quarter and first six months of 1996, respectively. Domestic tissue operating income as a percent of net sales increased to 40.9% and 39.8% in the second quarter and first six months of 1997 from 33.8% and 33.4% in the second quarter and first six months of 1996, respectively, due to higher volume as well as lower wastepaper and other raw material costs. International operating income as a percent of sales rose for the second quarter and first six months of 1997 compared to the same periods in 1996 also due to higher volume and lower wastepaper costs. Interest Expense. Interest expense decreased 13.7% and 16.0% for the second quarter and first six months of 1997, respectively, compared to the same periods in 1996 due to lower debt balances resulting from debt repayments using the proceeds from sales of common stock and cash provided from operations. Extraordinary Loss. The Company's net income in the second quarter and first six months of 1997 was decreased by extraordinary losses of $.6 million and $1.9 million (net of income taxes of $.4 million and $1.3 million), respectively, representing the write-off of deferred loan costs associated with the prepayment of a portion of the outstanding indebtedness under the Company's 1995 Bank Credit Agreement. Net Income. For the second quarter and first six months of 1997, net income was $58 million and $107 million, respectively, compared to net income - 9 - of $33 million and $60 million for the second quarter and first six months of 1996. FINANCIAL CONDITION For the first six months of 1997, cash increased $3 million. Capital additions of $44 million and debt repayments of $160 million were funded principally by net proceeds of $37 million from the sale of common stock pursuant to the exercise of stock options, $36 million of borrowings and $134 million of cash from operations. During the first six months of 1997, receivables increased $14 million due principally to increased sales due to seasonally higher volume in the domestic tissue and international operations in the second quarter of 1997 compared to the fourth quarter of 1996. Accounts payable decreased $25 million due to lower raw material costs. The liability for interest payable decreased $2 million due to lower debt balances resulting from debt repayments using the proceeds from the sale of common stock and cash provided by operations. Other current liabilities declined $30 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 the net working capital increased to $24 million at June 30, 1997 from a deficit of $36 million at December 31, 1996. The 1995 Revolving Credit Facility of the Company's 1995 Bank Credit Agreement, which may be used for general corporate purposes, has a final maturity of March 16, 2002. At June 30, 1997, the Company had $236 million in available capacity under the 1995 Revolving Credit Facility. PROPOSED MERGER WITH JAMES RIVER CORPORATION On May 5, 1997, the Company and James River Corporation announced the signing of a definitive merger agreement that will create a worldwide consumer products company which will be named Fort James Corporation. Under the agreement, Fort Howard shareholders will receive 1.375 shares of Fort James common stock for each share of Fort Howard common stock. The merger agreement has been approved by the boards of directors of both companies. The transaction is structured to qualify as a tax-free reorganization and will be accounted for as a pooling of interests. The merger, which is expected to be completed at the end of the summer, is conditioned on receiving regulatory clearances in the United States and Europe and requires the approval of the shareholders of both companies. IMPACT OF NEW ACCOUNTING STANDARD In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). The Company will adopt SFAS No. 128 effective for the year ending December 31, 1997. The Company does not expect SFAS No. 128 to have a significant impact on its reported earnings per share. See footnote 2 to the Condensed Consolidated Financial Statements for a pro forma disclosure of the impact of SFAS No. 128 for the three and six month periods ended June 30, 1997 and 1996. - 10 PART II. OTHER INFORMATION 1. LEGAL PROCEEDINGS As previously reported, the Company responded during the first and second quarters of 1995 to a Civil Investigative Demand issued by the U.S. Department of Justice concerning a civil antitrust investigation into possible agreements in restraint of trade in connection with the sales of commercial sanitary paper products. As previously reported, on May 20, 1996, the Company received a subpoena from a federal grand jury in Cleveland that is investigating possible antitrust violations in the sale of commercial sanitary paper products. The Company believes that it has fully complied with the subpoena. On or about May 13, 1997, the Attorney General of the State of Florida filed a civil action in the Gainesville Division of the United States District Court for the Northern District of Florida against the Company and nine other manufacturers of sanitary paper products alleging violations of federal and state antitrust and unfair competition laws. The complaint seeks a civil penalty under Florida law of $1 million for each alleged violation against each defendant, an unspecified amount of treble damages and injunctive relief. Over the following weeks, additional civil class actions were filed in various federal and state courts against the same defendants alleging violations of federal and state antitrust statutes and seeking treble damages and injunctive relief. The actions are the subject of a motion for transfer and consolidation before the Joint Panel on Multidistrict Litigation. The litigation is in its earliest stages. The Company intends to defend the litigation vigorously. Since 1992, the Company has been participating in an effort sponsored by the Wisconsin Department of Natural Resources ("WDNR") to study the nature and extent of polychlorinated biphenyl ("PCB") and other sediment contamination of the lower Fox River in northeast Wisconsin. The objective of this effort is to identify potential cost-effective primary restoration methods for certain sediment deposits. On January 30, 1997, the Company and six other companies (the "Seven Companies") entered into an agreement (the "Agreement") with WDNR and the Wisconsin Department of Justice ("WDOJ") to investigate claims for natural resource damages, including sediment restoration claims, asserted against the Seven Companies relating to releases of PCBs and other hazardous substances to the lower Fox River and to pursue a negotiated settlement of those claims under federal and state law. The Agreement also provides that the Seven Companies will make available to the State of Wisconsin a total of $10 million, consisting of work and funds, to, among other purposes, initiate demonstration projects to determine the efficacy of sediment restoration approaches and to undertake a state directed natural resources damage assessment. The parties have agreed to a tolling agreement and to forbear from commencing litigation during the term of the Agreement. Based upon available information, the Company believes there are additional parties who may be responsible for releasing PCBs and other hazardous substances to the Fox River. The United States Department of Interior, Fish and Wildlife Service ("FWS"), a federal natural resource trustee, previously informed each of the Seven Companies that they have been identified as potentially responsible parties ("PRPs") for purposes of claims for natural resource damages under the federal Comprehensive Environmental Response, Compensation, and Liability Act - 11 - ("CERCLA"), commonly known as "Superfund," and the Federal Water Pollution Control Act arising from alleged releases of PCBs to the Fox River and Green Bay system. The FWS alleges that natural resources, including endangered species, fish, birds and tribal lands or lands held by the United States in trust for various tribes, have been exposed to PCBs that were released from facilities located along the Fox River. The FWS has begun an assessment to identify and quantify the nature and extent of injury to any affected natural resources. On February 3, 1997, the Seven Companies were notified by FWS of its intent to file suit to recover natural resources damages pursuant to federal law. Based upon available information, the Company believes that there are additional parties who may be identified as PRPs for alleged natural resource damages. On June 17, 1997, the United States Environmental Protection Agency ("EPA") announced its intention to begin the action necessary to list the lower Fox River on the National Priorities List maintained by EPA under CERCLA. The State of Wisconsin opposes such action, in part, to facilitate a more cooperative approach to resolving these claims. By letter dated July 3, 1997, EPA provided "special notice" under CERCLA and invited the Seven Companies to begin discussions concerning terms under which the Seven Companies would agree to conduct or finance a remedial investigation and feasibility study ("RI/FS") for the site. In the event the Seven Companies and EPA are unable to reach agreement on terms under which the Seven Companies would conduct or finance the RI/FS, EPA has stated it may conduct a RI/FS and seek to recover the costs incurred from the Seven Companies. On July 11, 1997, the WDNR, the FWS, the Menominee Indian Tribe of Wisconsin, the Oneida Tribe of Indians of Wisconsin, the National Oceanic and Atmospheric Administration and EPA entered into a Memorandum of Agreement (the "MOA") that provides for coordination and cooperation among those parties in addressing the release or threat of release of hazardous substances into the lower Fox River, Green Bay and Lake Michigan environment. The MOA sets forth a mutual goal of remediating and/or responding to hazardous substance releases and threats of releases, and restoring injured and potentially injured natural resources. Language in the MOA indicates that the governments intend to focus on sediment removal as a principal, but not exclusive, method of achieving restoration and rehabilitation of injured natural resources and the services those resources provide. The impact on the WDNR and FWS natural resource damages claims of this purported focus on sediment removal is unknown. Studies of the relative effectiveness, feasibility, environmental impacts and costs of large-scale sediment removal activities in the lower Fox River have not been undertaken. The Company intends to participate in discussions with EPA regarding the RI/FS for the site, and remains committed to the terms of the Agreement with WDNR. There can be no assurance, however, that the Company will reach agreement on these matters with EPA, WDNR or the other parties to the MOA. As of June 30, 1997, the Company had $36 million of accrued liabilities for estimated or anticipated liabilities, including legal and consulting costs, relating to environmental matters arising from its operations. The Company expects these costs to be expended over an extended number of years. Although the accrued liabilities reflect the Company's current estimate of the cost of these environmental matters, there can be no assurance that the amount accrued will be adequate. 2. CHANGES IN SECURITIES None - 12 3. DEFAULTS UPON SENIOR SECURITIES None 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on May 13, 1997. Dudley J. Godfrey, Michael T. Riordan and Frank V. Sica were elected to the Company's Board of Directors at the meeting to hold office for three-year terms expiring in 2000. The terms of Dr. James L. Burke, Kathleen J. Hempel, David I. Margolis, Donald Patrick Brennan and Robert H. Niehaus continued after the meeting. Donald H. DeMeuse retired as a director of the Company on April 3, 1997. The Company's stockholders also approved a proposal to amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock, par value $.01, to 200,000,000 shares. Following are the voting results: Withheld Broker For Against or Abstained Non-Votes --- ------- ------------ --------- Nominees for election of Directors: Dudley J. Godfrey 67,169,546 --- 412,281 --- Michael T. Riordan 67,159,172 --- 422,655 --- Frank V. Sica 66,312,310 --- 1,269,517 --- Amendment to Restated Certificate of Incorporation 65,328,141 75,063 1,977,655 200,968 5. OTHER INFORMATION None 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit No. Description 2 The Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 4, 1997, among the Company, James River Delaware, Inc. and James River Corporation of Virginia ("James River") (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 3(i)(A) Restated Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 as filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1994). - 13 - 3(i)(B) Amendment to the Restated Certificate of Incorporation of the Company dated June 2, 1997. 10(A) Letter Agreement, dated as of May 4, 1997, among James River, The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Group Inc., Fort Howard Equity Investors II, L.P., Morgan Stanley Leveraged Equity Holdings, Inc., Morgan Stanley Equity Investors, Inc. and Morgan Stanley Leveraged Equity Fund II, Inc. (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 10(B) Letter Agreement, dated as of May 4, 1997, between James River and Leeway & Co., as Nominee for the Long- Term Investment Trust (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 10(C) Letter Agreement, dated as of May 4, 1997, between James River and Mellon Bank, N.A., solely in its capacity as Trustee for FIRST PLAZA GROUP TRUST (as directed by General Motors Investment Management Corporation), and not in its individual capacity (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 27 Financial Data Schedule for the six months ended June 30, 1997. 99 News release containing financial results for the quarter ended June 30, 1997. b) During the quarter ended June 30, 1997 and subsequent thereto, the Company filed the following Current Reports on Form 8-K: 1) The Company filed a Form 8-K on May 5, 1997, reporting under Item 5 the signing of the Merger Agreement. 2) The Company filed a Form 8-K on May 6, 1997, publishing a press release announcing the distribution by The Morgan Stanley Leveraged Equity Fund II, L.P. and two related limited partnerships of such partnerships' entire investments in the Company. 3) The Company filed a Form 8-K on May 13, 1997, reporting under Item 5 and attaching as exhibits the Merger Agreement and various agreements with certain stockholders of the Company entered into in connection with the Merger Agreement. - 14 - FORT HOWARD CORPORATION SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FORT HOWARD CORPORATION Registrant August 5, 1997 /s/ Kathleen J. Hempel ---------------------------------------- Kathleen J. Hempel, Vice Chairman and Chief Financial Officer and Principal Accounting Officer August 5, 1997 /s/ James W. Nellen II ---------------------------------------- James W. Nellen II, Vice President and Secretary - 15 - INDEX TO EXHIBITS Exhibit No. Description 2 The Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 4, 1997, among the Company, James River Delaware, Inc. and James River Corporation of Virginia ("James River") (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 3(i)(A) Restated Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 as filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 3(i)(B) Amendment to the Restated Certificate of Incorporation of the Company dated June 2, 1997. 10(A) Letter Agreement, dated as of May 4, 1997, among James River, The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Group Inc., Fort Howard Equity Investors II, L.P., Morgan Stanley Leveraged Equity Holdings, Inc., Morgan Stanley Equity Investors, Inc. and Morgan Stanley Leveraged Equity Fund II, Inc. (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 10(B) Letter Agreement, dated as of May 4, 1997, between James River and Leeway & Co., as Nominee for the Long- Term Investment Trust (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 10(C) Letter Agreement, dated as of May 4, 1997, between James River and Mellon Bank, N.A., solely in its capacity as Trustee for FIRST PLAZA GROUP TRUST (as directed by General Motors Investment Management Corporation), and not in its individual capacity (Incorporated herein by reference to the Company's Current Report on Form 8-K, dated May 4, 1997 and filed May 13, 1997). 27 Financial Data Schedule for the six months ended June 30, 1997 99 News release containing financial results for the quarter ended June 30, 1997 - 16 - EX-3 2 Exhibit 3(i)(B) --------------- CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF FORT HOWARD CORPORATION * * * * * Fort Howard Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the Corporation is Fort Howard Corporation (the "Corporation"). The date of filing of its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware was March 15, 1995. 2. The Board of Directors of the Corporation adopted a resolution proposing and declaring advisable the following amendment to Article IV of the Restated Certificate of Incorporation of the Corporation: "SECTION 4.1. AUTHORIZED CAPITAL. SHARES. The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is 250,000,000 shares, of which (i) 200,000,000 shares shall be common stock, par value $.01 per share ("Common Stock") and (ii) 50,000,000 shares shall be preferred stock, par value $.01 per share ("Preferred Stock")." 3. The aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Fort Howard Corporation has caused this certificate to be signed by James W. Nellen II, its Vice President and Secretary, this 28th day of May, 1997. FORT HOWARD CORPORATION By: /s/ James W. Nellen II ------------------------- James W. Nellen II Vice President and Secretary EX-27 3
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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000038195 FORT HOWARD CORPORATION 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JUN-30-1997 1 4,107 0 80,855 3,389 150,061 279,634 2,092,311 856,067 1,585,842 255,764 2,332,196 762 0 0 (1,310,959) 1,585,842 812,174 812,174 454,861 454,861 0 0 115,018 175,468 66,832 108,636 0 (1,928) 0 106,708 1.42 1.42
EX-99 4 Exhibit 99 ---------- NEWS For further information contact: Media: Cliff Bowers, Ext. 4087 (FORT HOWARD LOGO here) P. O. Box 19130 Financial: Green Bay, WI 54307-9130 Mike Lempke, Ext. 2492 414/435-8821 FOR RELEASE: IMMEDIATELY FORT HOWARD EPS SURGES 60% IN SECOND QUARTER GREEN BAY, WI - July 23, 1997 - Fort Howard Corporation today reported that net income per share reached $0.77 for the second quarter ending June 30, 1997. That is an increase of 60% compared to $0.48 in the same period of 1996. Net sales, operating income, operating margin and earnings per share all increased in the second quarter of 1997 compared to the same period of 1996. Quarterly operating income increased year-on-year for the tenth consecutive quarter. "We continue to perform at a very high level due to successful strategies, significant cost and efficiency advantages, as well as a positive economic environment," said Fort Howard Chairman, President and CEO, Michael T. Riordan. "Fort Howard is delighted to bring this exceptional business momentum to our pending merger with James River Corporation." -- More -- -- Ad One -- Operating Income Increases Operating income increased 23% to $153,684,000 for the second quarter compared to $124,699,000 for the second quarter of 1996. Operating income increased 22% to $291,921,000 for the first six months of 1997 compared to $238,902,000 for the first six months of 1996. The increase was due to higher sales volume and lower wastepaper costs in both the company's domestic and international operations. Fort Howard's operating income margin for the second quarter of 1997 was 37.4% compared to 31.0% for the second quarter of 1996 and 34.5% in the first quarter of 1997. Fort Howard's operating income margin for the first six months was 35.9% compared to 30.3% for the first six months of 1996. Net Income For the second quarter of 1997, net income before an extraordinary item was $58,889,000 an increase of 62% compared to second quarter 1996 net income before an extraordinary item of $36,377,000. For the first six months of 1997, net income before an extraordinary item was $108,636,000, an increase of 72% compared to the first six months of 1996 net income before an extraordinary item of $63,317,000. The net income after an extraordinary item was $0.77 per share in the second quarter of 1997, compared to $0.48 per share in the second quarter of 1996. The net income after extraordinary item was $1.42 per share for the first six months of 1997, compared to $0.91 per share in the first six months of the previous year. During the second quarter of 1996, Fort Howard completed a common stock offering resulting in a higher level of outstanding shares in the three- and six-month periods ended June 30, 1997, as compared to l996. -- More -- -- Ad Two -- Extraordinary losses related to debt prepayments in 1997 and 1996 (see Note to Financial Information) impacted the company's financial performance in the first six months and the second quarters of 1997 and 1996. Net Sales Performance For the second quarter, Fort Howard's net sales increased 2.2% to $411,415,000 compared to second quarter 1996 net sales of $402,397,000. Net sales for each of the company's domestic, international and wastepaper brokerage operations increased for the second quarter of 1997 compared to second quarter 1996. For the first six months of 1997, Fort Howard's net sales increased 3.0% to $812,174,000 compared to the first six months of 1996 net sales of $788,144,000. Net sales for each of the company's domestic, international, and wastepaper brokerage operations increased for the first six months of 1997 compared to the first six months of 1996. Fort Howard is a leading manufacturer and marketer of consumer tissue products for both the away-from-home and at-home markets in the United States and United Kingdom. In the domestic at-home market, its principal brands include Mardi Gras printed napkins (which holds the leading domestic market position) and paper towels, Soft 'N Gentle bath and facial tissue, So-Dri paper towels, and Green Forest, the leading domestic line of environmentally positioned recycled tissue paper products. Prominent away-from-home market brands include the Preference Ultra line of premium products, Preference near-premium products, and the Envision line of environmentally positioned products. (Financial information and note follow on separate pages. The note is an integral part of these statements.) # # # # # FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales....................... $411,415 $402,397 $812,174 $788,144 Cost of sales................... 225,821 243,487 454,861 481,856 -------- -------- -------- -------- Gross income.................... 185,594 158,910 357,313 306,288 Selling, general and administrative................ 31,910 34,211 65,392 67,386 -------- -------- -------- -------- Operating income................ 153,684 124,699 291,921 238,902 Interest expense................ 57,156 66,201 115,018 136,974 Other expense (income), net..... 655 475 1,435 1,038 -------- -------- -------- -------- Income before taxes............. 95,873 58,023 175,468 100,890 Income tax expense ............. 36,984 21,646 66,832 37,573 -------- -------- -------- -------- Net income before extraordinary item............ 58,889 36,377 108,636 63,317 Extraordinary item -- loss on debt repurchases, net...... (601) (3,340) (1,928) (3,340) -------- -------- -------- -------- Net income ..................... $ 58,288 $ 33,037 $106,708 $ 59,977 ======== ======== ======== ======== Net income per share: Before extraordinary item..... $ 0.78 $ 0.53 $ 1.45 $ 0.96 Extraordinary item............ (0.01) (0.05) (0.03) (0.05) -------- -------- -------- -------- Net income.................... $ 0.77 $ 0.48 $ 1.42 $ 0.91 ======== ======== ======== ======== Average shares outstanding...... 75,215 68,759 74,875 66,066 ======== ======== ======== ======== FORT HOWARD CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1997 1996 -------- ------------ Assets (In thousands) Current assets: Cash and cash equivalents................. $ 4,107 $ 759 Receivables, less allowances of $3,389 in 1997 and $3,343 in 1996................. 77,466 63,194 Inventories............................... 150,061 151,248 Deferred income taxes..................... 48,000 60,000 Income taxes receivable................... -- 10,121 ---------- ---------- Total current assets.................... 279,634 285,322 Property, plant and equipment............... 2,092,311 2,057,446 Less: Accumulated depreciation........... 856,067 809,650 ---------- ---------- Net property, plant and equipment....... 1,236,244 1,247,796 Other assets................................ 69,964 82,262 ---------- ---------- Total assets............................ $1,585,842 $1,615,380 ========== ========== Liabilities and Shareholders' Deficit Current liabilities: Accounts payable.......................... $ 106,402 $ 131,205 Interest payable.......................... 58,015 60,443 Income taxes payable...................... 3,684 7,700 Other current liabilities................. 80,649 110,357 Current portion of long-term debt......... 7,015 11,972 ---------- ---------- Total current liabilities............... 255,765 321,677 Long-term debt.............................. 2,332,196 2,451,373 Deferred and other long-term income taxes... 259,561 247,464 Other liabilities........................... 48,517 49,703 Shareholders' deficit: Common Stock.............................. 762 744 Additional paid-in capital................ 1,148,971 1,108,976 Cumulative translation adjustment......... 2,636 4,717 Retained deficit.......................... (2,462,566) (2,569,274) ---------- ---------- Total shareholders' deficit............. (1,310,197) (1,454,837) ---------- ---------- Total liabilities and shareholders' deficit............................... $1,585,842 $1,615,380 ========== ========== FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------ 1997 1996 ---- ---- (In thousands) Cash provided from (used for) operations: Net income ................................... $ 106,708 $ 59,977 Depreciation.................................. 51,569 50,231 Non-cash interest expense..................... 7,200 6,645 Deferred income tax expense................... 22,745 11,975 Pre-tax loss on debt repurchases.............. 3,186 5,519 Decrease in restricted cash................... 14,916 -- (Increase) decrease in receivables............ (14,272) 10,639 Decrease in inventories....................... 1,187 27,453 Decrease in income taxes receivable........... 10,121 -- Decrease in accounts payable.................. (24,803) (8,769) Decrease in interest payable.................. (2,428) (3,391) Increase (decrease) in income taxes payable... (4,016) 1,282 All other, net................................ (38,069) (8,891) ---------- --------- Net cash provided from operations .......... 134,044 152,670 Cash used for investment activity: Additions to property, plant and equipment.... (44,403) (24,384) Cash provided from (used for) financing activities: Proceeds from long-term borrowings............ 36,300 192 Repayment of long-term borrowings............. (159,550) (332,529) Debt issuance costs........................... -- (1,481) Issuance of Common Stock, net of offering costs.............................. 36,957 205,318 ---------- --------- Net cash used for financing activities...... (86,293) (128,500) ---------- --------- Increase (decrease) in cash..................... 3,348 (214) Cash at beginning of period..................... 759 946 ---------- --------- Cash at end of period......................... $ 4,107 $ 732 ========== ========= FORT HOWARD CORPORATION NOTE TO FINANCIAL INFORMATION (Unaudited) 1. The Company's net income in the first six months and second quarter of 1997 was decreased by an extraordinary loss of $1.9 million and $0.6 million (net of income taxes of $1.3 million and $0.4 million), respectively, representing the write-off of deferred loan costs associated with the prepayment of a portion of the outstanding indebtedness under the 1995 Bank Credit Agreement. The Company's net income in the first six months and the second quarter of 1996 was decreased by an extraordinary loss of $3.3 million (net of income taxes of $2.2 million) representing the write-off of deferred loan costs associated with the prepayment of a portion of the outstanding indebtedness under the 1995 Bank Credit Agreement. # # # # # -----END PRIVACY-ENHANCED MESSAGE-----