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, 1994 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-6901
FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 39-1090992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1919 South Broadway, Green Bay, Wisconsin 54304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 414/435-8821
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
----- -------------------------------
Voting Common Stock, par value $.01 5,861,730
per share
PART I. FINANCIAL INFORMATION
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales........................... $340,068 $ 308,611 $930,697 $ 895,768
Cost of sales....................... 227,338 199,786 624,399 590,147
-------- ----------- -------- -----------
Gross income........................ 112,730 108,825 306,298 305,621
Selling, general and administrative. 27,546 19,508 82,092 70,707
Amortization of goodwill............ -- 14,191 -- 42,576
Goodwill write-off.................. -- 1,980,427 -- 1,980,427
-------- ----------- -------- -----------
Operating income (loss)............. 85,184 (1,905,301) 224,206 (1,788,089)
Interest expense.................... 84,209 84,845 251,562 259,157
Other (income) expense, net......... (87) (5,471) 215 (5,475)
-------- ----------- -------- -----------
Income (loss) before taxes.......... 1,062 (1,984,675) (27,571) (2,041,771)
Income taxes (credit)............... 772 1,585 (10,640) (5,483)
-------- ----------- -------- -----------
Income (loss) before extraordinary
item.............................. 290 (1,986,260) (16,931) (2,036,288)
Extraordinary item -- losses on
debt repurchases (net of income
taxes of $14,731 in 1994 and
$5,982 in 1993)................... -- -- (28,170) (9,760)
-------- ----------- -------- -----------
Net income (loss)................... $ 290 $(1,986,260) $(45,101) $(2,046,048)
======== =========== ======== ===========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item.............. $ 0.05 $ (338.80) $ (2.89) $ (347.33)
Extraordinary item................ -- -- (4.80) (1.67)
-------- ----------- -------- -----------
Net income (loss)................. $ 0.05 $ (338.80) $ (7.69) $ (349.00)
======== =========== ======== ===========
Average shares outstanding.......... 5,862 5,863 5,862 5,863
======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 2 - <PAGE>
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
------------- ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents............... $ 637 $ 227
Receivables, less allowances of $1,923
in 1994 and $2,366 in 1993............ 132,731 105,834
Inventories............................. 123,891 118,269
Deferred income taxes................... 14,000 14,000
Income taxes receivable................. 5,600 9,500
---------- ----------
Total current assets.................. 276,859 247,830
Property, plant and equipment............. 1,917,811 1,845,052
Less: Accumulated depreciation......... 588,009 516,938
---------- ----------
Net property, plant and equipment..... 1,329,802 1,328,114
Other assets.............................. 71,675 73,843
---------- ----------
Total assets.......................... $1,678,336 $1,649,787
========== ==========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable........................ $ 102,751 $ 101,665
Interest payable........................ 35,084 54,854
Income taxes payable.................... 12,137 122
Other current liabilities............... 66,326 70,138
Current portion of long-term debt....... 15,474 112,750
---------- ----------
Total current liabilities............. 231,772 339,529
Long-term debt............................ 3,322,482 3,109,838
Deferred and other long-term income taxes 211,817 243,437
Other liabilities......................... 23,438 26,088
Voting Common Stock with put right........ 11,711 11,820
Shareholders' equity (deficit):
Voting Common Stock..................... 600,471 600,459
Cumulative translation adjustment....... (1,961) (5,091)
Retained earnings (deficit)............. (2,721,394) (2,676,293)
---------- ----------
Total shareholders' equity (deficit).. (2,122,884) (2,080,925)
---------- ----------
Total liabilities and shareholders'
equity (deficit).................... $1,678,336 $1,649,787
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Cash provided from (used for) operations:
Net loss............................................. $(45,101) $(2,046,048)
Depreciation and amortization........................ 69,786 105,469
Goodwill write-off................................... -- 1,980,427
Employee stock compensation.......................... -- (7,832)
Non-cash interest expense............................ 64,759 80,109
Deferred income tax credit........................... (19,698) (12,360)
Pre-tax loss on debt repurchases..................... 42,901 15,742
Increase in receivables.............................. (26,897) (19,798)
Increase in inventories.............................. (5,622) (3,113)
(Increase) decrease in income taxes receivable....... 3,900 (2,500)
Increase (decrease) in accounts payable.............. 1,086 (14,471)
Increase (decrease) in interest payable.............. (19,770) 29,139
Increase in income taxes payable..................... 776 1,077
All other, net....................................... (8,418) 8,577
-------- -----------
Net cash provided from operations.................. 57,702 114,418
Cash used for investment activity--
Additions to property, plant and equipment........... (64,674) (107,384)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings................... 750,000 858,090
Repayment of long-term borrowings.................... (721,034) (833,565)
Debt issuance costs.................................. (21,584) (30,983)
-------- -----------
Net cash provided from (used for) financing
activities....................................... 7,382 (6,458)
-------- -----------
Increase in cash....................................... 410 576
Cash at beginning of period............................ 227 188
-------- -----------
Cash at end of period................................ $ 637 $ 764
======== ===========
Supplemental Cash Flow Disclosures:
Interest paid........................................ $210,091 $ 155,504
Income taxes paid (refunded) - net................... (8,696) (2,716)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 - <PAGE>
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals, except for extraordinary
items related to debt repurchases described in Note 5 and the goodwill write-
off described in Note 4) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented.
Certain reclassifications have been made to conform prior years' data to the
current format. These financial statements should be read in conjunction with
the Company's annual report on Form 10-K for 1993 and the Company's quarterly
reports on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994.
2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed on the basis of the weighted
average number of common shares outstanding during the periods. The weighted
average number of common shares outstanding for the three and nine month
periods ended September 30, 1994 were 5,861,737 and 5,862,135, respectively.
The weighted average number of common shares outstanding for the three and
nine month periods ended September 30, 1993 were 5,862,635 and 5,862,641,
respectively. The assumed exercise of all outstanding stock options has been
excluded from the computation of earnings (loss) per share for the three and
nine month periods ended September 30, 1994 and 1993 because the results were
antidilutive.
3. INVENTORIES
Inventories consist of:
September 30, December 31,
1994 1993
------------ ------------
(In thousands)
Raw materials and supplies $ 57,681 $ 61,285
Finished and partly-finished products 66,210 56,984
-------- --------
$123,891 $118,269
======== ========
4. GOODWILL WRITE-OFF
Low industry operating rates and aggressive competitive activity among
tissue producers resulting from the 1991-1992 recession, additions to industry
capacity and other factors adversely affected tissue industry operating
conditions and the Company's operating results beginning in 1991 and through
the third quarter of 1993.
As a result of these conditions, during the second quarter of 1993 the
Company commenced an evaluation of the carrying value of its goodwill for
possible impairment. The Company revised its projections and concluded its
evaluation in the third quarter of 1993 determining that its forecasted
cumulative net income before goodwill amortization was inadequate to recover
- 5 -
the future amortization of the Company's goodwill balance over the remaining
amortization period of the goodwill. Accordingly, the Company wrote off its
remaining goodwill balance of $1.98 billion in the third quarter of 1993.
5. LONG-TERM DEBT
On February 9, 1994, the Company sold $100 million principal amount of
8 1/4% Senior Unsecured Notes due 2002 (the "8 1/4% Notes") and $650 million
principal amount of 9% Senior Subordinated Notes due 2006 (the "9% Notes") in
a registered public offering (collectively, the "1994 Notes"). Net proceeds
from the sale of the 1994 Notes were applied to the repurchase of all the
remaining 12 3/8% Notes at the redemption price of 105% of the principal
amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the
redemption price of 105% of the principal amount thereof, to the prepayment of
$100 million of the Term Loan, to the repayment of a portion of the Company's
indebtedness under the Revolving Credit Facility and to the payment of fees
and expenses.
The 8 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 9% Notes are subordinated in right of payment to all existing
and future senior indebtedness of the Company, and constitute senior
indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the
14 1/8% Debentures.
In connection with the sale of the 1994 Notes, the Company amended the
Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured
Note Agreement. Among other changes, the amendments reduced the required
ratio of earnings before non-cash charges, interest and taxes to cash interest
for the four fiscal quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50
to 1.00.
The Company incurred an extraordinary loss of $28 million (net of income
taxes of $15 million) in the first quarter of 1994 representing the redemption
premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures,
and the write-off of deferred loan costs associated with the prepayment of
$100 million of the Term Loan and the repurchases of the 12 3/8% Notes and the
12 5/8% Debentures.
On October 14, 1994, the Company entered into an amendment of its Bank
Credit Agreement, 1993 Term Loan Agreement and Senior Secured Note Agreement.
Among other things, this amendment adjusted certain financial covenants,
including the reduction of the required ratio of earnings before non-cash
charges, interest and taxes to cash interest to 1.25 to 1.00 from 1.50 to 1.00
and the increase of the maximum ratio of senior debt to adjusted net worth
plus subordinated debt to 0.85 to 1.00 from 0.80 to 1.00 effective for the
rolling four quarters ended December 31, 1994 through December 31, 1995. The
ratios were adjusted to give effect to the Company's higher aggregate cash
interest expense which results from the Company's 14 1/8% Debentures accruing
interest in cash commencing on November 1, 1994, with payments of interest in
cash commencing on May 1, 1995.
At September 30, 1994, the available capacity under the Revolving Credit
Facility was $120 million.
- 6 -
6. INCOME TAXES
In 1992, the Internal Revenue Service ("IRS") issued a statutory notice
of deficiency (the "Notice") to the Company for additional income tax due for
the 1988 tax year. In the Notice, the IRS disallowed deductions for its 1988
tax year for fees and expenses, other than interest, related to the 1988 debt
financing and refinancing transactions. In disallowing these deductions, the
IRS relied on Internal Revenue Code (the "Code") Section 162(k) (which denies
deductions for otherwise deductible amounts paid or incurred in connection
with stock redemptions). The Company had deducted a portion of the disallowed
fees and expenses in 1988 and has been deducting the balance of the fees and
expenses over the terms of the 1988 long-term debt financing and refinancing.
Following receipt of the Notice, the Company filed a petition in the U.S. Tax
Court contesting the deficiency. In August 1994, the U.S. Tax Court issued
its opinion in which it essentially adopted the interpretation of Code Section
162(k) advanced by the IRS and disallowed the deductions claimed by the
Company. At present, the U.S. Tax Court is preparing an order in which it
will determine the amount of tax deficiency owed by the Company as a result of
the court's decision. The Company intends to appeal the U.S. Tax Court
decision to the U.S. Court of Appeals for the Seventh Circuit. If the
decision of the U.S. Tax Court is ultimately sustained, the Company estimates
that the potential amount of additional taxes due on account of such
disallowance for the period 1988 through 1994 would be approximately
$39 million and for the period after 1994 (assuming current statutory tax
rates) would be approximately $4 million, in each case exclusive of interest.
In anticipation of its appeal, the Company has paid to the IRS additional tax
of approximately $5 million potentially due for its 1988 tax year pursuant to
the U.S. Tax Court opinion along with $4 million for the interest accrued on
such additional taxes. While the Company is unable to predict the final
result of its appeal of the U.S. Tax Court decision with certainty, it has
accrued for the potential tax liability as well as for the interest charges
thereon for the period 1988 through 1994 and thus the Company believes that
the ultimate resolution of this case will not have a material adverse effect
on the Company's financial condition or on its results of operations.
During the third quarter of 1994, the Company reclassified $11 million
from the liability for other long-term income taxes to the liability for
current income taxes principally to reflect the payments totalling $9 million
made to the IRS in October 1994.
7. STOCK OPTIONS
The Company amortizes the excess of the fair market value of its common
stock over the strike price of options granted to employees over the period
the options vest. Due to the effects of adverse tissue industry operating
conditions on its long-term earnings forecast as of September 30, 1993, the
Company decreased the estimated fair market valuation of its common stock and,
as a result, reversed all previously accrued employee stock compensation
expense in the third quarter of 1993. The reversal of the accrued employee
stock compensation resulted in credits to operations of $8,420,000 and
$7,832,000 for the third quarter and first nine months of 1993, respectively.
- 7 -
8. COMMITMENTS AND CONTINGENCIES
In March 1990, the Company began a remedial investigation of its
Green Bay, Wisconsin landfill. The investigation was conducted under the
oversight of the U.S. Environmental Protection Agency (the "U.S. EPA") under
authority granted to the agency by CERCLA. A Preliminary Health Assessment
released by the United States Department of Health and Human Services in
January 1992 reported that the Company's Green Bay landfill does not pose any
apparent public health hazard. In April 1994, the Company forwarded its final
Remedial Investigation Report (the "RI Report") for the landfill to the
U.S. EPA for its review. The RI Report concluded, among other things, that no
further remedial action is required at the landfill other than the continued
operation of the currently in-place control systems and operating practices.
In September 1994, after consultation with the Wisconsin Department of Natural
Resources and the Oneida Tribe of Indians of Wisconsin (a neighboring business
entity), the U.S. EPA formally notified the Company that the RI Report had
been accepted, that no further action was required by the Company and that the
investigation was concluded.
- 8 -
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 1994 Compared to 1993
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands, except percentages)
Net sales:
Domestic tissue............ $278,427 $ 261,186 $775,604 $ 757,338
International operations... 33,713 37,670 96,376 109,920
Other...................... 27,928 9,755 58,717 28,510
-------- ----------- -------- -----------
Consolidated............... $340,068 $ 308,611 $930,697 $ 895,768
======== =========== ======== ===========
Operating income (loss):
Domestic tissue............ $ 80,412 $(1,898,288) $214,820 $(1,788,241)
International operations... 3,039 (7,495) 5,962 (1,005)
Other...................... 1,733 482 3,424 1,157
-------- ----------- -------- -----------
Consolidated............... 85,184 (1,905,301) 224,206 (1,788,089)
Amortization of purchase
accounting (1)............. 2,893 17,165 8,691 51,518
Goodwill write-off (1)....... -- 1,980,427 -- 1,980,427
Employee stock compensation.. -- (8,420) -- (7,832)
-------- ----------- -------- -----------
Adjusted operating income.. 88,077 83,871 232,897 236,024
Other depreciation........... 21,114 18,388 61,095 53,951
-------- ----------- -------- -----------
EBDIAT..................... $109,191 $ 102,259 $293,992 $ 289,975
======== =========== ======== ===========
Consolidated net income
(loss)..................... $ 290 $(1,986,260) $(45,101) $(2,046,048)
======== =========== ======== ===========
EBDIAT as a percent of
net sales.................. 32.1% 33.1% 31.6% 32.4%
(1) In 1988, the Company was acquired in a transaction referred to as the
"Acquisition." The Acquisition was accounted for using the purchase method of
accounting resulting, among other things, in an increase of property, plant
and equipment to fair value and the allocation of $2.3 billion of purchase
cost to goodwill. Such increase in property, plant and equipment is amortized
over the lives of the respective assets. The increase in goodwill was
amortized over 40 years until the third quarter of 1993 when the Company wrote
off its remaining goodwill balance of $1.98 billion. See Note 4 to the
unaudited condensed consolidated financial statements.
- 9 -
Net Sales. Consolidated net sales for the third quarter and first nine
months of 1994 increased 10.2% and 3.9% compared to 1993, respectively, due to
increases in domestic tissue net sales and significant net sales increases by
the Company's wastepaper brokerage subsidiary. Domestic tissue net sales for
the third quarter of 1994 increased 6.6% compared to 1993, principally due to
higher net selling prices in the commercial market and increased volume in the
consumer market offset in part by lower volume in the commercial market. For
the first nine months of 1994, domestic tissue net sales increased 2.4% due to
higher net selling prices in the commercial and consumer markets and higher
volume in the consumer market that were partially offset by volume decreases
in the commercial market. The Company's decision to implement net selling
price increases in the commercial market during each of the first three
quarters of 1993 and to follow with a price increase in the second quarter of
1994 led to the decline in commercial volume during the first nine months of
1994. The Company announced another price increase in the commercial market
effective mid-October 1994. Net sales of the Company's international
operations decreased 10.5% and 12.3% for the third quarter and first nine
months of 1994 compared to 1993, respectively, primarily due to significantly
lower net selling prices on flat volume. International net selling prices
continued to decline in the third quarter due to product mix changes and
continued competitive conditions. Net sales of the Company's wastepaper
brokerage subsidiary increased significantly during the third quarter and
first nine months of 1994 compared to 1993 reflecting higher net selling
prices.
Gross Income. For the third quarter of 1994, consolidated gross margins
decreased to 33.1% from 35.3% in 1993 principally due to the increased
proportion of net sales represented by the Company's wastepaper brokerage
subsidiary which typically has lower margins than domestic tissue operations
and due to the rate of cost increases exceeding the rate of net selling price
increases in the domestic tissue operations. During the third quarter of
1994, depreciation expense was higher as a result of the start-up of a new
paper machine at the Muskogee mill late in the first quarter of 1994.
Wastepaper costs began to increase sharply in the third quarter of 1994 and
are expected to increase further during the fourth quarter of 1994 due to
increased demand for those wastepaper grades used by the Company. For the
first nine months of 1994, consolidated gross margins decreased to 32.9% from
34.1% in 1993 principally due to the increased proportion of net sales
represented by the Company's wastepaper brokerage subsidiary. In addition, in
the domestic tissue operations the effects of the higher net selling prices
were offset by higher unit manufacturing costs attributable to the
underabsorption of fixed costs primarily resulting from lower converting
volume. Higher wastepaper and other raw material costs, depreciation expense
and repair material costs also affected domestic tissue gross margins during
this period. Gross margins of international operations declined in both the
third quarter and first nine months of 1994 compared to 1993 principally due
to the lower net selling prices. International gross margins increased from
the second to the third quarters of 1994 due to cost reduction initiatives in
spite of lower net selling prices.
Selling, General and Administrative Expenses. In the third quarter of
1993, the Company reversed all previously accrued employee stock compensation
expense resulting in a reduction of selling, general and administrative
expenses of $8.4 million and $7.8 million for the third quarter and first nine
months of 1993, respectively. Excluding the effects of the reversal, selling,
general and administrative expenses, as a percentage of net sales, were 9.0%
and 8.8% for the third quarter and first nine months of 1993, compared to 8.1%
- 10 -
and 8.8% for the third quarter and first nine months of 1994, respectively.
The decrease in the third quarter of 1994 compared to 1993 results principally
from the increased proportion of net sales represented by the Company's
wastepaper brokerage subsidiary and, to a lesser degree, due to cost
containment.
Amortization of Goodwill. As a result of the goodwill write-off in the
third quarter of 1993, there was no amortization of goodwill in the third
quarter and first nine months of 1994 compared to $14 million and $43 million
in the third quarter and first nine months of 1993, respectively.
Operating Income (Loss). Operating income increased to $85 million and
$224 million for the third quarter and first nine months of 1994,
respectively, compared to operating losses of $1,905 million and
$1,788 million for the third quarter and first nine months of 1993,
respectively. The operating losses in 1993 resulted entirely from the
goodwill write-off in the third quarter of 1993. The depreciation of asset
write-ups to fair market value in purchase accounting is charged against the
Company's cost of sales and selling, general and administrative expenses.
Excluding this purchase accounting depreciation, amortization of goodwill, the
goodwill write-off and the reversal of employee stock compensation, adjusted
operating income (as reported in the preceding table) was $88 million and
$233 million for the third quarter and first nine months of 1994 compared to
$84 million and $236 million for the third quarter and first nine months of
1993, respectively. Adjusted operating income increased in the third quarter
of 1994 compared to 1993 principally due to the effects of higher domestic net
selling prices. For the first nine months of 1994, adjusted operating income
was down slightly compared to 1993 because volume decreases and higher
depreciation expense in 1994 offset the price increases achieved during 1994.
EBDIAT. Earnings before depreciation, interest, amortization and taxes
("EBDIAT") increased to $109 million and $294 million for the third quarter
and first nine months of 1994 from $102 million and $290 million for the third
quarter and first nine months of 1993, respectively. EBDIAT is reported by
the Company as a measure of the Company's debt service ability. Certain
financial and other restrictive covenants in the Company's Bank Credit
Agreement, the Senior Secured Note Agreement and other instruments governing
the Company's indebtedness are based on the Company's EBDIAT, subject to
certain adjustments.
Other Income, Net. During the third quarter of 1993, the Company sold
its remaining equity interest in Sweetheart Holdings Inc. ("Sweetheart") for
$5.1 million recognizing a gain of the same amount. The Company had
previously reduced the carrying value of its investment in Sweetheart to zero
in 1991.
Income Taxes. The income tax credits for the nine month periods ended
September 30, 1994 and 1993 principally reflect the reversal of previously
provided deferred income taxes.
Extraordinary Loss. 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 of $238 million of 12 5/8% Debentures at
the redemption price of 105% of the principal amount thereof on March 11,
1994, and the write off of deferred loan costs associated with the prepayment
- 11 -
of $100 million of the Term Loan on February 10, 1994, and the repurchases of
the 12 3/8% Notes and the 12 5/8% Debentures. The Company's net loss in the
first nine months of 1993 was increased by an extraordinary loss of $10
million (net of income taxes of $6 million) representing the write-off of
deferred loan costs associated with the repayment of $250 million of the Term
Loan on March 23, 1993, and the repurchase of all outstanding 14-5/8%
Debentures on April 21, 1993.
Net Loss. For the third quarter of 1994, the Company reported net income
of $290,000 compared to a net loss of $1,986 million for the same period in
1993. For the first nine months of 1994, the Company's net loss decreased to
$45 million compared to $2,046 million for the first nine months of 1993. The
significant net losses in 1993 resulted principally from the goodwill write-
off in the third quarter of 1993.
FINANCIAL CONDITION
For the first nine months of 1994, cash increased $410,000. Capital
additions of $65 million and debt repayments of $721 million, including the
repayment of $100 million of the Term Loan, the repurchases of all outstanding
12 3/8% Notes and of $238 million of the 12 5/8% Debentures and a reduction in
the Revolving Credit Facility, were funded by cash provided from operations of
$58 million and net proceeds of the sale of the 1994 Notes of $728 million
(described below).
Receivables increased $27 million during the first nine months of 1994
due principally to a seasonal increase in net sales and higher net selling
prices in the domestic tissue and wastepaper brokerage operations. The
Company increased inventories by $6 million principally to improve service
levels. The liability for interest payable decreased $20 million due to the
timing of the quarter end relative to semiannual interest payment dates. The
liability for current income taxes increased $12 million principally due to an
$11 million reclassification from the liability for other long-term income
taxes principally to reflect payments totalling $9 million made in October
1994 to the IRS in anticipation of an appeal of a U.S. Tax Court decision
related to the Company's 1988 tax year. As a result of all these changes and
the repayment of $100 million of the $107 million scheduled 1994 payment on
its Term Loan from the net proceeds of the 1994 Notes (described below), net
working capital increased to $45 million at September 30, 1994, from a deficit
of $92 million at December 31, 1993.
Cash provided from operations declined in the first nine months of 1994
compared to 1993 principally due to increased interest payments resulting from
the 1993 repurchases of all outstanding 14 5/8% Debentures (which accrued
interest in kind) from the net proceeds of the sale of the 1993 Notes (which
accrue interest in cash), the acceleration of interest payments resulting from
the 1994 debt repurchases from the net proceeds of the 1994 Notes, and higher
floating interest rates. Cash provided from operations was further impacted
by the increases in receivables and inventories.
On February 9, 1994, the Company sold $100 million principal amount of
8 1/4% Senior Unsecured Notes due 2002 (the "8 1/4% Notes") and $650 million
principal amount of 9% Senior Subordinated Notes due 2006 (the "9% Notes") in
a registered public offering (collectively, the "1994 Notes"). Net proceeds
from the sale of the 1994 Notes were applied to the repurchase of all the
remaining 12 3/8% Notes at the redemption price of 105% of the principal
amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the
- 12 -
redemption price of 105% of the principal amount thereof, to the prepayment of
$100 million of the Term Loan, to the repayment of a portion of the Company's
indebtedness under the Revolving Credit Facility and to the payment of fees
and expenses.
The 8 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 9% Notes are subordinated in right of payment to all existing
and future senior indebtedness of the Company, and constitute senior
indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the
14 1/8% Debentures.
In connection with the sale of the 1994 Notes, the Company amended the
Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured
Note Agreement. Among other changes, the amendments reduced the required
ratio of earnings before non-cash charges, interest and taxes to cash interest
for the four quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50 to
1.00.
The Company incurred an extraordinary loss of $28 million (net of income
tax credits of $15 million) in the first quarter of 1994 representing the
redemption premiums on the repurchases of the 12 3/8% Notes and the 12 5/8%
Debentures, and the write off of deferred loan costs associated with the
prepayment of $100 million of the Term Loan and the repurchases of the 12 3/8%
Notes and the 12 5/8% Debentures.
On October 14, 1994, the Company entered into an amendment of its Bank
Credit Agreement, 1993 Term Loan Agreement and Senior Secured Note Agreement.
Among other things, this amendment adjusted certain financial covenants,
including the reduction of the required ratio of earnings before non-cash
charges, interest and taxes to cash interest to 1.25 to 1.00 from 1.50 to 1.00
and the increase of the maximum ratio of senior debt to adjusted net worth
plus subordinated debt to 0.85 to 1.00 from 0.80 to 1.00 effective for the
rolling four quarters ended December 31, 1994 through December 31, 1995. The
ratios were adjusted to give effect to the Company's higher aggregate cash
interest expense which results from the Company's 14 1/8% Debentures accruing
interest in cash commencing on November 1, 1994, with payments of interest in
cash commencing on May 1, 1995.
The Company has a Revolving Credit Facility under the Company's Bank
Credit Agreement with a final maturity of December 31, 1996, which may be used
for general corporate purposes. At September 30, 1994, the Company had
$120 million in available capacity under the Revolving Credit Facility.
- 13 -
PART II. OTHER INFORMATION
1. LEGAL PROCEEDINGS
In March 1990, the Company began a remedial investigation of its
Green Bay, Wisconsin landfill. The investigation was conducted under the
oversight of the U.S. Environmental Protection Agency (the "U.S. EPA") under
authority granted to the agency by CERCLA. A Preliminary Health Assessment
released by the United States Department of Health and Human Services in
January 1992 reported that the Company's Green Bay landfill does not pose any
apparent public health hazard. In April 1994, the Company forwarded its final
Remedial Investigation Report (the "RI Report") for the landfill to the
U.S. EPA for its review. The RI Report concluded, among other things, that no
further remedial action is required at the landfill other than the continued
operation of the currently in-place control systems and operating practices.
In September 1994, after consultation with the Wisconsin Department of Natural
Resources and the Oneida Tribe of Indians of Wisconsin (a neighboring business
entity), the U.S. EPA formally notified the Company that the RI Report had
been accepted, that no further action was required by the Company and that the
investigation was concluded.
On July 15, 1992, Region V of the U.S. EPA issued a Finding of Violation
to the Company concerning the No. 8 boiler at its Green Bay, Wisconsin mill.
The Finding alleged violation of regulations issued by the U.S. EPA under the
Clean Air Act relating to New Source Performance Standards for
Fossil-Fuel-Fired Steam Generators. The No. 8 boiler was placed in service in
1975. On October 5, 1994, the Company and the U.S. EPA, with concurrence from
the U.S. Department of Justice, reached an agreement in principle, which is
subject to court approval, whereby the Company, without admitting any
wrongdoing, has agreed to make certain modifications to the boiler. The
modifications will limit the boiler's physical capacity to operate above the
level specified in the alleged relevant New Source Performance Standards.
The physical modifications, which require capital expenditures of
approximately $40,000, will not affect the utility of the No. 8 boiler. In
addition, the Company has agreed to pay a forfeiture of $350,000.
In 1992, the Internal Revenue Service ("IRS") issued a statutory notice
of deficiency (the "Notice") to the Company for additional income tax due for
the 1988 tax year. In the Notice, the IRS disallowed deductions for its 1988
tax year for fees and expenses, other than interest, related to the 1988 debt
financing and refinancing transactions. In disallowing these deductions, the
IRS relied on Internal Revenue Code (the "Code") Section 162(k) (which denies
deductions for otherwise deductible amounts paid or incurred in connection
with stock redemptions). The Company had deducted a portion of the disallowed
fees and expenses in 1988 and has been deducting the balance of the fees and
expenses over the terms of the 1988 long-term debt financing and refinancing.
Following receipt of the Notice, the Company filed a petition in the U.S. Tax
Court contesting the deficiency. In August 1994, the U.S. Tax Court issued
its opinion in which it essentially adopted the interpretation of Code Section
162(k) advanced by the IRS and disallowed the deductions claimed by the
Company. At present, the U.S. Tax Court is preparing an order in which it
will determine the amount of tax deficiency owed by the Company as a result of
the court's decision. The Company intends to appeal the U.S. Tax Court
decision to the U.S. Court of Appeals for the Seventh Circuit. If the
decision of the U.S. Tax Court is ultimately sustained, the Company estimates
that the potential amount of additional taxes due on account of such
disallowance for the period 1988 through 1994 would be approximately
- 14 -
$39 million and for the period after 1994 (assuming current statutory tax
rates) would be approximately $4 million, in each case exclusive of interest.
In anticipation of its appeal, the Company has paid to the IRS additional tax
of approximately $5 million potentially due for its 1988 tax year pursuant to
the U.S. Tax Court opinion along with $4 million for the interest accrued on
such additional taxes. While the Company is unable to predict the final
result of its appeal of the U.S. Tax Court decision with certainty, it has
accrued for the potential tax liability as well as for the interest charges
thereon for the period 1988 through 1994 and thus the Company believes that
the ultimate resolution of this case will not have a material adverse effect
on the Company's financial condition or on its results of operations.
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
4 Amendment No. 10 to Amended and Restated Credit
Agreement, Amendment No. 4 to the Note Purchase
Agreement and Amendment No. 2 to Credit Agreement
dated as of October 14, 1994
27 Financial Data Schedule for the nine months ended
September 30, 1994.
b) A Form 8-K dated August 24, 1994 was filed reporting under
Item 5. Other Events, the U.S. Tax Court decision in the
Company's 1988 tax case.
- 15 -
FORT HOWARD CORPORATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
FORT HOWARD CORPORATION
Registrant
November 10, 1994 /s/ Kathleen J. Hempel
---------------------------------------
Kathleen J. Hempel, Vice Chairman and
Chief Financial Officer
(Principal Financial Officer)
November 10, 1994 /s/ James W. Nellen II
---------------------------------------
James W. Nellen II, Vice President
and Secretary
November 10, 1994 /s/ Charles L. Szews
---------------------------------------
Charles L. Szews, Vice President
and Controller
(Principal Accounting Officer)
- 16 -
INDEX TO EXHIBITS
Exhibit No. Description
4 Amendment No. 10 to Amended and Restated Credit
Agreement, Amendment No. 4 to the Note Purchase
Agreement and Amendment No. 2 to Credit Agreement
dated as of October 14, 1994
27 Financial Data Schedule for the nine months ended
September 30, 1994.
- 17 -
EXHIBIT 4
AMENDMENT NO. 10 TO AMENDED AND RESTATED CREDIT
AGREEMENT, AMENDMENT NO. 4 TO NOTE PURCHASE AGREEMENT
AND AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 10, dated as of October 14, 1994, to Amended and
Restated Credit Agreement dated as of October 24, 1988, as amended, by and
among FORT HOWARD CORPORATION ("Company"), each of the financial institutions
(collectively, "1988 Lenders"; each, a "1988 Lender") signatory thereto,
BANKERS TRUST COMPANY, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
THE BANK OF NOVA SCOTIA, CHEMICAL BANK, THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH and WELLS FARGO BANK, N.A., as lead managers (collectively,
"1988 Lead Managers"), and BANKERS TRUST COMPANY, as agent for 1988 Lenders
(in such capacity, "1988 Agent"), AMENDMENT NO. 4, dated as of October 14,
1994, to Note Purchase Agreement, dated as of September 11, 1991, by and among
Company and the persons listed on the signature pages thereto (the "Initial
Purchasers") and AMENDMENT NO. 2, dated as of October 14, 1994, to Credit
Agreement, dated as of March 22, 1993, by and among Company, each of the
financial institutions (collectively, "1992 Lenders"; each, a "1992 Lender")
signatory thereto and BANKERS TRUST COMPANY, as agent for 1992 Lenders (in
such capacity, "1992 Agent") (Amendment No. 10 to Amended and Restated Credit
Agreement, together with Amendment No. 4 to Note Purchase Agreement and
Amendment No. 2 to Credit Agreement, collectively, this "Amendment").
R E C I T A L S :
A. Company (as successor in interest to FH Acquisition Corp.),
1988 Lead Managers, 1988 Agent and 1988 Lenders are parties to that certain
Amended and Restated Credit Agreement, dated as of October 24, 1988, which
Amended and Restated Credit Agreement was amended by Amendment No. 1, dated as
of February 21, 1989, Amendment No. 2, dated as of October 20, 1989, Amendment
No. 3, dated as of November 14, 1989, Amendment No. 4, dated as of November 9,
1990, Amendment No. 5, dated as of December 19, 1990, Amendment No. 6, dated
as of September 6, 1991, Amendment No. 7, dated as of December 2, 1991, Second
Amended and Restated Amendment No. 8, dated as of March 4, 1993 and Amendment
No. 9, dated as of December 31, 1993, each among Company, 1988 Lenders, 1988
Lead Managers and 1988 Agent (such Amended and Restated Credit Agreement, as
so amended, the "1988 Credit Agreement").
B. Company and the Initial Purchasers (or their successors in
interest) are parties to that certain Note Purchase Agreement, dated as of
September 11, 1991, which Note Purchase Agreement was amended by Amendment No.
1, dated as of December 2, 1991, Second Amended and Restated Amendment No. 2,
dated as of March 4, 1993, and Amendment No. 3, dated as of December 31, 1993
(such Note Purchase Agreement, as so amended, the "Senior Note Purchase
Agreement").
C. Company, 1992 Lenders and 1992 Agent are parties to that
certain Credit Agreement, dated as of March 22, 1993 which Credit Agreement
was amended by Amendment No. 1, dated as of December 31, 1993 (such Credit
Agreement, as so amended, the "1992 Credit Agreement").
D. Company has requested that (i) 1988 Agent, Lead Managers and
each 1988 Lender agree to amend certain provisions of the 1988 Credit
Agreement and, by operation of the provisions of Section 12.04 of the Senior
Note Purchase Agreement, certain provisions of the Senior Note Purchase
Agreement and (ii) 1992 Agent and each 1992 Lender agree to amend certain
provisions of the 1992 Credit Agreement.
A G R E E M E N T :
The parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein that is defined in any of the 1988
Credit Agreement, the Senior Note Purchase Agreement or the 1992 Credit
Agreement (including those terms that are defined in the 1988 Credit
Agreement, the Senior Note Purchase Agreement or the 1992 Credit Agreement
after giving effect to this Amendment) shall have the meaning assigned to such
term in the 1988 Credit Agreement, the Senior Note Purchase Agreement or the
1992 Credit Agreement, respectively, as the context requires. Unless the
context otherwise requires, each reference in any provision to be incorporated
hereby into the 1988 Credit Agreement, the Senior Note Purchase Agreement or
the 1992 Credit Agreement to "hereof," "hereunder," "herein" and "hereby"
shall, from and after the date hereof, refer to the 1988 Credit Agreement, the
Senior Note Purchase Agreement or the 1992 Credit Agreement, respectively, as
amended by this Amendment.
SECTION 2. Amendments to Subsection 1.2 of the 1988 Credit
Agreement, Section 1.02 of the Senior Note Purchase Agreement and Subsection
1.2 of the 1992 Credit Agreement. Subsection 1.2 of the 1988 Credit Agreement,
Section 1.02 of the Senior Note Purchase Agreement and Subsection 1.2 of the
1992 Credit Agreement shall each be amended to add at the end thereof the
following paragraph: "Furthermore, anything herein to the contrary
nowithstanding, for purposes of the financial covenants herein entitled
"Consolidated Current Ratio", "Interest Coverage Ratio" and "Maximum Leverage
Ratio" (such financial covenants, the "Financial Covenants") calculated as of
dates occurring or for periods ending on or before December 31, 1996, a
Special Reserve, as defined below, shall be excluded from all Financial
Covenants calculations. In addition, for purposes of any Financial Covenants
calculated as of dates occurring or for periods ending on or before
December 31, 1996, Special Reserve Charges, as defined below, shall be
included for all Financial Covenants calculations; provided, however, that any
Special Reserve remaining on January 1, 1997 shall be included for all
Financial Covenants calculations.
"Special Reserve" is defined as follows: That one
time reserve, established by the Company on or before
December 31, 1994, in an amount not to exceed $50
million and consisting of charges relating to future
expenditures of the Company with respect to
environmental, restructuring, refinancing and other
related charges.
"Special Reserve Charges" is defined as follows:
That yearly amount, not to exceed in the aggregate
$50 million, that is charged against the Special
Reserve for charges and expenses actually incurred by
the Company with respect to environmental,
restructuring, refinancing and other related charges.
SECTION 3. Amendments to Subsection 6.6B of the 1988 Credit
Agreement, Section 9.06B of the Senior Note Purchase Agreement and Subsection
6.6B of the 1992 Credit Agreement. Subsection 6.6B of the 1988 Credit
Agreement, Section 9.06B of the Senior Note Purchase Agreement and subsection
6.6B of the 1992 Credit Agreement shall each be amended by deleting the ratio
"1.50:1.0" therein set forth under the heading "More than $400M" on each of
the lines captioned "Beginning on January 1, 1994 and ending on December 31,
1994" and "Beginning on January 1, 1995 and ending on December 31, 1995" and
inserting in lieu of each thereof the ratio "1.25:1.0".
SECTION 4. Amendments to Subsection 6.6C of the 1988 Credit
Agreement, Section 9.06C of the Senior Note Purchase Agreement and Subsection
6.6C of the 1992 Credit Agreement. Subsection 6.6C of the 1988 Credit
Agreement, Section 9.06C of the Senior Note Purchase Agreement and subsection
6.6C of the 1992 Credit Agreement shall each be amended (i) by substituting
the following for the line beginning with "January 1, 1995 and thereafter" and
ending with "0.75" in the second chart contained therein:
January 1, 0.60:1.0 0.63:1.0 0.66:1.0 0.69:1.0 0.72:1.0 0.85:1.0
1995
to and
including
December 31,
1995
January 1, 0.60:1.0 0.63:1.0 0.66:1.0 0.69:1.0 0.72:1.0 0.75:1.0
1996
and
thereafter
and (ii) by substituting a period for the phrase "and to 0.80:1.0 (in respect
of the period, to the extent applicable, from January 1, 1995 to and including
December 31 1995)." in the proviso following such second chart.
SECTION 5. Conditions to Effectiveness of Amendment.
This Amendment shall become effective when 1988 Agent and 1992 Agent
shall have received (i) duly executed counterparts hereof that have been
executed at the time and in the manner as provided in subsection 9.7 of the
1988 Credit Agreement, Section 12.04 of the Senior Note Purchase Agreement and
subsection 9.7 of the 1992 Credit Agreement, it being understood that delivery
of an executed counterpart of a signature page to this Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this
Amendment and (ii) the following documents with sufficient copies, where
appropriate, for each 1988 Lender, 1992 Lender and CG&R:
(a) an Officer's Certificate of Company, in the form of Exhibit A
annexed to this Amendment;
(b) an opinion of James W. Nellen, II, Vice President and General
Counsel to Company, in form and substance reasonably satisfactory to
1988 Agent and 1992 Agent; and
(c) an opinion of Shearman & Sterling, counsel to Company, in form
and substance reasonably satisfactory to 1988 Agent and 1992 Agent as to
the enforceability of this Amendment and such other matters as 1988 Agent
and 1992 Agent shall reasonably request.
The parties constituting 1988 Lenders hereby authorize 1988 Agent,
and the parties constituting 1992 Lenders hereby authorize 1992 Agent, to
deliver to Company an instrument acknowledging on behalf of Lenders and 1992
Lenders the satisfaction of the conditions specified in this Section 5.
SECTION 6. Consent Fee. Company agrees to pay to each of the 1988
Lenders, the Initial Purchasers and the 1992 Lenders that execute and deliver
to Bankers Trust Company a signature page to this Amendment on or before
October 11, 1994 a consent fee equal to .05% of the principal amount of Loans
and Commitments, the Senior Notes or the 1992 Loans held by such 1988 Lender,
Initial Purchaser or 1992 Lender, respectively.
SECTION 7. Representations and Warranties of Company; Breach of
Agreement. Company hereby represents and warrants to 1988 Lenders, Purchasers
and 1992 Lenders that the representations, agreements and warranties of
Company set forth in the 1988 Credit Agreement as amended, supplemented or
modified by this Amendment (except for the representations and warranties set
forth in subsections 4.1C, 4.13B and 4.13C of the 1988 Credit Agreement) are
true and correct in all material respects to the same extent as though made on
and as of the date hereof, except that such representations and warranties
need not be true and correct to the extent that changes in facts and
conditions on which such representations and warranties are based are required
or permitted under the 1988 Credit Agreement as so amended, supplemented or
modified; the certifications set forth in the form of Officers' Certificate of
Company described in Section 5 of this Amendment are incorporated into this
Amendment by this reference as representations and warranties of Company. In
the event any of the representations or warranties referred to in the
immediately preceding sentence is untrue in any material respect or in the
event Company shall breach any agreement on its part to be performed or
observed pursuant to this Amendment, 1988 Agent, 1988 Lead Managers,
Purchasers, 1988 Lenders and 1992 Lenders shall have the rights and remedies
contemplated in the 1988 Credit Agreement, in the Senior Note Purchase
Agreement and in the 1992 Credit Agreement to the same extent as if such
representations and warranties or agreements were set forth therein.
SECTION 8. Waiver; Certain Obligations of Company.
Except as expressly contemplated in this Amendment, all terms, provisions,
covenants, representations, warranties, agreements and conditions of Company
contained in the 1988 Credit Agreement, the Senior Note Purchase Agreement and
the 1992 Credit Agreement shall remain in full force and effect and shall not
otherwise be deemed to be waived, modified or amended hereby.
SECTION 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 10. Counterparts; Amendments. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. The provisions of this Amendment may be amended or waived by the
same parties that would be required to amend or waive such provisions if such
provisions were set forth in the 1988 Credit Agreement, the Senior Note
Purchase Agreement and the 1992 Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the date first above
written.
FORT HOWARD CORPORATION
By:
-----------------------------------
Name:
Title:
1988 LENDERS, PURCHASERS AND 1992
LENDERS:
BANKERS TRUST COMPANY,
Individually and as 1988 Lead
Manager, 1988 Agent and 1992
Agent
By:
-----------------------------------
Name:
Title:
EXHIBIT A
[Form of Officer's Certificate]
FORT HOWARD CORPORATION
Officers' Certificate
Reference is made to (i) that certain Amended and Restated Credit
Agreement dated as of October 24, 1988 (as amended to date, the "1988 Credit
Agreement") among FH Acquisition Corp. (which has been merged into Fort Howard
Corporation, a Delaware corporation, "Company") and the lenders listed therein
and Bankers Trust Company, Bank of America National Trust and Savings
Associations, The Bank of Nova Scotia, Chemical Bank, The Industrial Bank of
Japan, Limited, New York Branch, and Wells Fargo Bank, N.A., as Lead Managers,
and Bankers Trust Company, as Agent, (ii) that certain Note Purchase Agreement
dated as of September 11, 1991 (as amended to date, the "Note Purchase
Agreement") among Company and the other Persons listed on the signature pages
thereto, and (iii) that certain Credit Agreement dated as of March 22, 1993
(as amended to date, the "1992 Credit Agreement") among Company, the lenders
listed therein and Bankers Trust Company, as Agent (capitalized terms not
defined herein have the meanings assigned to them in the 1988 Credit
Agreement, the Note Purchase Agreement and the 1992 Credit Agreement, as the
context requires).
The undersigned, Kathleen J. Hempel and R. Michael Lempke, being the duly
elected, qualified and acting Vice Chairman and Treasurer, respectively, of
the Company do hereby certify, as of the date hereof, as follows:
1. No Event of Default or Potential Event of Default has occurred and is
continuing.
2. The execution, delivery and performance of Amendment No. 10 to the
1988 Credit Agreement, Amendment No. 4 to the Note Purchase Agreement and
Amendment No. 2 to the 1992 Credit Agreement, each dated as of October __,
1994 (collectively, the "1994 Amendment"), and the continued performance of
the 1988 Credit Agreement, the Note Purchase Agreement, and the 1992 Credit
Agreement do not (i) violate (x) any provision of law applicable to Company,
(y) the Certificate of Incorporation or By-laws of Company, or (z) any order,
judgment or decree of any court or other agency of government binding on
Company; (ii) conflict with, result in a breach of or constitute a default
under any Contractual Obligation of Company; or (iii) result in the creation
of any Lien upon any of the properties or assets of Company.
IN WITNESS WHEREOF, we have each hereunto signed our respective names as
of the ____ day of October, 1994.
________________________________
Kathleen J. Hempel
Vice Chairman and
Chief Financial Officer
_______________________________
R. Michael Lempke
Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORT HOWARD CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000038195
<NAME> FORT HOWARD CORPORATION
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
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<RECEIVABLES> 134,654
<ALLOWANCES> 1,923
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<DEPRECIATION> 588,009
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<CURRENT-LIABILITIES> 231,772
<BONDS> 3,349,667
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0
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<OTHER-SE> (2,723,355)
<TOTAL-LIABILITY-AND-EQUITY> 1,678,336
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