SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-20473
FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 39-1090992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1919 South Broadway, Green Bay, Wisconsin 54304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 414/435-8821
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 25, 1995
----- -------------------------------
Voting Common Stock, par value $.01 63,370,794
per share
PART I. FINANCIAL INFORMATION
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales........................... $426,116 $340,068 $1,205,602 $930,697
Cost of sales....................... 299,974 227,338 865,474 624,399
-------- -------- ---------- --------
Gross income........................ 126,142 112,730 340,128 306,298
Selling, general and administrative. 30,773 27,546 85,893 82,092
-------- -------- ---------- --------
Operating income ................... 95,369 85,184 254,235 224,206
Interest expense.................... 74,177 84,209 237,258 251,562
Other (income) expense, net......... (1,600) (87) (2,537) 215
-------- -------- ---------- --------
Income (loss) before taxes.......... 22,792 1,062 19,514 (27,571)
Income tax expense (credit)......... 8,292 772 6,913 (10,640)
-------- -------- ---------- --------
Net income (loss) before
extraordinary item................ 14,500 290 12,601 (16,931)
Extraordinary item -- loss on
debt repurchases (net of income
taxes of $11,986 in 1995 and
$14,731 in 1994).................. -- -- (18,748) (28,170)
-------- -------- ---------- --------
Net income (loss)................... $ 14,500 $ 290 $ (6,147) $(45,101)
======== ======== ========== ========
Net income (loss) per share:
Net income (loss) before
extraordinary item.............. $ 0.23 $ 0.01 $ 0.22 $ (0.44)
Extraordinary item................ -- -- (0.33) (0.74)
-------- -------- ---------- --------
Net income (loss)................. $ 0.23 $ 0.01 $ (0.11) $ (1.18)
======== ======== ========== ========
Average shares outstanding.......... $ 63,371 38,101 56,495 38,104
======== ======== ========== ========
</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,
1995 1994
------------- ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents............... $ 441 $ 422
Receivables, less allowances of $1,836
in 1995 and $1,589 in 1994............ 105,178 123,150
Inventories............................. 172,663 130,843
Deferred income taxes................... 20,000 20,000
Income taxes receivable................. 700 5,200
---------- ----------
Total current assets.................. 298,982 279,615
Property, plant and equipment............. 1,961,925 1,932,713
Less: Accumulated depreciation......... 683,619 611,762
---------- ----------
Net property, plant and equipment..... 1,278,306 1,320,951
Other assets.............................. 94,944 80,332
---------- ----------
Total assets.......................... $1,672,232 $1,680,898
========== ==========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable........................ $ 127,604 $ 100,981
Interest payable........................ 25,735 84,273
Income taxes payable.................... 653 224
Other current liabilities............... 68,013 75,450
Current portion of long-term debt....... 55,488 116,203
---------- ----------
Total current liabilities............. 277,493 377,131
Long-term debt............................ 3,010,613 3,189,644
Deferred and other long-term income taxes. 205,601 209,697
Other liabilities......................... 36,696 41,162
Common Stock with put right............... -- 11,711
Shareholders' deficit:
Common Stock............................ 634 381
Additional paid-in capital.............. 895,652 600,090
Cumulative translation adjustment....... (1,722) (2,330)
Retained deficit........................ (2,752,735) (2,746,588)
---------- ----------
Total shareholders' deficit........... (1,858,171) (2,148,447)
---------- ----------
Total liabilities and shareholders'
deficit............................. $1,672,232 $1,680,898
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------
1995 1994
---- ----
(In thousands)
Cash provided from (used for) operations:
Net loss....................................... $ (6,147) $ (45,101)
Depreciation................................... 73,751 69,786
Non-cash interest expense...................... 9,634 64,759
Deferred income tax credit..................... (3,967) (19,698)
Pre-tax loss on debt repurchases............... 30,734 42,901
(Increase) decrease in receivables............. 17,972 (26,897)
Increase in inventories........................ (41,820) (5,622)
Decrease in income taxes receivable............ 4,500 3,900
Increase in accounts payable................... 26,623 1,086
Decrease in interest payable................... (58,538) (19,770)
Increase in income taxes payable............... 429 776
All other, net................................. (12,228) (8,321)
---------- ---------
Net cash provided from operations............ 40,943 57,799
Cash used for investment activity--
Additions to property, plant and equipment..... (32,150) (64,674)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings............. 1,438,900 750,000
Repayment of long-term borrowings.............. (1,682,623) (721,034)
Debt issuance costs............................ (49,155) (21,584)
Issuance (repurchase) of Common Stock, net of
offering costs............................... 284,104 (97)
---------- ---------
Net cash provided from (used for) financing
activities................................. (8,774) 7,285
---------- ---------
Increase in cash................................. 19 410
Cash at beginning of period...................... 422 227
---------- ---------
Cash at end of period.......................... $ 441 $ 637
========== =========
Supplemental Cash Flow Disclosures:
Interest paid.................................. $ 288,215 $ 210,091
Income taxes paid (refunded) - net............. (5,705) (8,696)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 -
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. Certain reclassifications have been made to conform prior
years' data to the current format. These financial statements should be read
in conjunction with the Company's annual report on Form 10-K for 1994 and the
Company's quarterly reports on Form 10-Q for the quarters ended March 31, 1995
and June 30, 1995.
2. COMMON STOCK SPLIT
On January 31, 1995, the Company's shareholders approved an increase in
the number of authorized shares of voting Common Stock to 99,400,000 shares
and approved a 6.5-for-one stock split of the Common Stock, effective
January 31, 1995. All share and per share amounts included in the condensed
consolidated financial statements and notes thereto have been restated to give
effect to the increase in authorized shares and the stock split.
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed on the basis of the weighted
average number of common shares outstanding during the periods. The weighted
average number of common shares outstanding for the three and nine month
periods ended September 30, 1995 were 63,370,794 and 56,494,512, respectively.
The weighted average number of common shares outstanding for the three and
nine month periods ended September 30, 1994 were 38,101,291 and 38,103,878,
respectively. The assumed exercise of all outstanding stock options has been
excluded from the computation of net income (loss) per share for the three and
nine month periods ended September 30, 1995 and 1994 because the results would
be antidilutive.
4. INVENTORIES
Inventories consist of:
September 30, December 31,
1995 1994
------------ ------------
(In thousands)
Raw materials and supplies $ 79,825 $ 63,721
Finished and partly-finished products 92,838 67,122
-------- --------
$172,663 $130,843
======== ========
- 5 -
5. COMMON STOCK OFFERING
On March 16, 1995, the Company issued 25 million shares of Common Stock
at $12.00 per share in a public offering (the "Offering"). Proceeds from the
Offering, net of underwriting commissions and other related expenses totaling
$19 million, were $281 million. On April 12, 1995, an additional 269,555
shares of Common Stock were issued at $12.00 per share upon the exercise of a
portion of the underwriters' over-allotment option granted in connection with
the Offering, resulting in additional net proceeds of $3 million after
deducting underwriting commissions. The Offering was part of a
recapitalization plan (the "Recapitalization") implemented by the Company to
prepay or redeem a substantial portion of its indebtedness in order to reduce
the level and overall cost of its debt, extend certain debt maturities,
increase shareholders' equity and enhance its access to capital markets (see
Note 6).
The balance of Common Stock with put right outstanding at the date of the
Offering of approximately $12 million was reclassified to Common Stock and
Additional Paid-In Capital in the accompanying condensed consolidated
financial statements because the put right terminated effective with the
consummation of the Offering.
6. LONG-TERM DEBT
As a part of the Recapitalization (see Note 5), the Company entered into
a bank credit agreement (the "New Bank Credit Agreement") consisting of a
$300 million revolving credit facility (the "1995 Revolving Credit Facility"),
an $810 million term loan (the "1995 Term Loan A") and a $330 million term
loan (the "1995 Term Loan B" and together with the 1995 Term Loan A, the "New
Term Loans"); and entered into a receivables credit agreement consisting of a
$60 million term loan (the "1995 Receivables Facility"). On March 16, 1995,
the net proceeds of the Offering, together with borrowings of $652 million
under the New Bank Credit Agreement, were used to prepay or repurchase all the
outstanding indebtedness under the 1988 Bank Credit Agreement, the 1993 Term
Loan and the Senior Secured Notes. Further borrowings of $762 million under
the New Bank Credit Agreement and 1995 Receivables Facility were used to
redeem on April 15, 1995 all outstanding 14 1/8% Debentures (at par) and
12 5/8% Debentures (at 102.5% of the principal amount thereof).
The Company incurred an extraordinary loss of $19 million (net of income
taxes of $12 million) in the first quarter of 1995 representing the redemption
premiums on the repurchases of all the Company's outstanding 12 5/8%
Debentures at the redemption price of 102.5% of the principal amount thereof
and write-offs of deferred loan costs associated with the prepayment or
repurchases of all indebtedness outstanding under the Company's 1988 Bank
Credit Agreement, the 1993 Term Loan and the Senior Secured Notes on March 16,
1995, and the redemption of all outstanding 12 5/8% Debentures and 14 1/8%
Debentures on April 15, 1995.
- 6 -
In September 1995, the Company entered into agreements expiring in
July 2000 (the "1995 Receivables Sales Agreements") whereby substantially all
the Company's domestic tissue accounts receivable are sold. The Company has
retained substantially the same credit risk as if the accounts receivable had
not been sold. The Company received $60 million from such initial sales which
was applied to the repayment of the 1995 Receivables Facility and may receive
up to $25 million of additional proceeds on a revolving basis. The Company
retains a residual interest in the receivables sold, thus accounts receivable
in the accompanying condensed consolidated balance sheet are only reduced by
the net proceeds from the sales which totaled $60 million as of September 30,
1995. Under the terms of the 1995 Receivables Sales Agreements, the ongoing
interest costs to the Company from this program are based on LIBOR, plus 0.25%
to 0.65%, on the net proceeds received.
The New Bank Credit Agreement and the 1995 Receivables Sales Agreements
include restrictions on the Company's operating activities and require the
maintenance of certain financial ratios at prescribed levels. The Company
believes that such limitations should not impair its plans for continued
maintenance and modernization of facilities or other operating activities.
At September 30, 1995, the available capacity under the Revolving Credit
Facility was $125 million.
- 7 -
FORT HOWARD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter and First Nine Months of 1995 Compared to 1994
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except percentages)
Net sales:
Domestic tissue............ $348,058 $278,277 $ 965,551 $775,195
International operations... 43,041 33,713 120,394 96,376
Harmon..................... 35,017 28,078 119,657 59,126
-------- -------- ---------- --------
Consolidated............... $426,116 $340,068 $1,205,602 $930,697
======== ======== ========== ========
Operating income:
Domestic tissue............ $ 88,982 $ 80,756 $ 238,457 $215,754
International operations... 4,995 3,040 11,354 5,963
Harmon..................... 1,392 1,388 4,424 2,489
-------- -------- ---------- --------
Consolidated............... 95,369 85,184 254,235 224,206
Depreciation................. 24,731 24,007 73,751 69,786
-------- -------- ---------- --------
EBITDA(a).................... $120,100 $109,191 $ 327,986 $293,992
======== ======== ========== ========
Consolidated net income
(loss)..................... $ 14,500 $ 290 $ (6,147) $(45,101)
======== ======== ========== ========
EBITDA as a percent of
net sales(a)............... 28.2% 32.1% 27.2% 31.6%
- ------------------
(a) EBITDA is reported by the Company, not as a measure of operating
results, but rather as a measure of the Company's debt service
ability. Certain financial and other restrictive covenants in the
Company's New Bank Credit Agreement and other instruments governing
the Company's indebtedness are based on the Company's EBITDA, subject
to certain adjustments.
Net Sales. Consolidated net sales for the third quarter and first nine
months of 1995 increased 25.3% and 29.5% compared to 1994, respectively.
Domestic tissue net sales for the third quarter and first nine months of 1995
increased 25.1% and 24.6% compared to 1994, respectively. For the third
quarter of 1995 compared to the third quarter of 1994, domestic tissue net
selling prices increased 27.7%, converted products volume increased 0.7% and
- 8 -
the Company reduced parent roll volume. For the first nine months of 1995
compared to the first nine months of 1994, domestic tissue net selling prices
increased 19.9%, converted products volume increased 6.6% and the Company
reduced parent roll volume.
From the second quarter of 1995 to the third quarter of 1995, overall
domestic tissue net selling prices increased 5.1% as a result of price
increases announced for the commercial market effective April 1995 and July
1995 and for the consumer market effective January 1995 and mid-May 1995. In
addition, further price increases were announced for napkin products for the
consumer market effective August 1995 and for commercial market products
effective late September 1995.
For the third quarter of 1995 compared to the third quarter of 1994,
domestic volume was stronger in the consumer market than in the commercial
market. Sales of tissue paper sold in parent roll form to export markets were
reduced beginning in the second quarter of 1995 compared to prior year levels
to focus sales on higher margin converted products.
Net sales of the Company's international operations increased 27.7% and
24.9% for the third quarter and first nine months of 1995 compared to 1994,
respectively, due largely to an increase in net selling prices, slightly
higher volume of converted products and the benefit from the change in foreign
exchange rates, while parent roll volume was reduced. Net sales of the
Company's wastepaper brokerage subsidiary, Harmon Associates Corp. ("Harmon"),
increased 24.7% and 102.4% for the third quarter and first nine months of 1995
compared to 1994, respectively, due to higher selling prices and, to a much
lesser degree, higher volume.
Gross Income. Consolidated gross income increased 11.9% and 11.0% for
the third quarter and first nine months of 1995 compared to 1994,
respectively, due to the higher selling prices, partially offset by higher raw
material costs. Consolidated gross margins decreased to 29.6% and 28.2% for
the third quarter and first nine months of 1995 from 33.1% and 32.9% for the
third quarter and first nine months of 1994, respectively. Domestic tissue
gross margins decreased for the third quarter and first nine months of 1995
compared to the third quarter and first nine months of 1994 primarily due to
significantly higher wastepaper prices. Costs of other raw materials also
increased during the first nine months of 1995 compared to 1994 but by a much
lower percentage while all other costs held flat or declined due to
efficiencies achieved from higher volumes. In the third quarter of 1995,
wastepaper prices flattened and then declined slightly. Further wastepaper
price declines are expected in the fourth quarter of 1995 prior to the
seasonally lower wastepaper generation months in the first quarter of 1996.
Gross margins of international operations increased in both the third quarter
and first nine months of 1995 compared to 1994, in spite of significantly
higher wastepaper prices, due to the effects of product rationalization on
1994 earnings. In addition, consolidated gross margins were negatively
affected for both the third quarter and first nine months of 1995 compared to
1994 by the significant increased proportion of net sales represented by the
Company's wastepaper brokerage subsidiary which typically has very low margins
compared to domestic tissue operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, decreased to 7.2% and 7.1%
for the third quarter and first nine months of 1995, compared to 8.1% and 8.8%
- 9 -
for the third quarter and first nine months of 1994, respectively. The
decreases occurred principally due to the effects of significantly higher net
sales.
Operating Income. Operating income increased to $95 million and
$254 million for the third quarter and first nine months of 1995 from
$85 million and $224 million for the third quarter and first nine months of
1994, respectively. Operating income as a percent of net sales decreased to
22.4% and 21.1% in the third quarter and first nine months of 1995 compared to
25.0% and 24.1% in the third quarter and first nine months of 1994,
respectively. Domestic tissue operating income as a percent of net sales
decreased to 25.6% and 24.7% in the third quarter and first nine months of
1995 from 29.0% and 27.8% in the third quarter and first nine months of 1994,
respectively, principally because the rate of increase in wastepaper costs
during the previous twelve months exceeded the rate of increase in net selling
prices. In addition, consolidated operating income declined as a percent of
net sales due to the significant increased proportion of net sales represented
by the Company's wastepaper brokerage subsidiary which typically has very low
margins compared to either domestic tissue or international operations.
However, domestic tissue and international tissue operating income as a
percent of net sales has increased in each of the second and third quarters of
1995 compared to the immediately preceding quarter as net selling prices have
continued to increase while wastepaper costs flattened and then declined
slightly. On a per ton basis, operating income of both the domestic and
international tissue operations was higher in the third quarter and first nine
months of 1995 compared to 1994.
Extraordinary Loss. The Company's net loss in the first nine months of
1995 was increased by an extraordinary loss of $19 million (net of income
taxes of $12 million) representing the redemption premiums on the repurchases
of all the Company's outstanding 12 5/8% Debentures at the redemption price of
102.5% of the principal amount thereof, and write-offs of deferred loan costs
associated with the prepayment or repurchases of all indebtedness outstanding
under the Company's 1988 Bank Credit Agreement, the 1993 Term Loan and the
Senior Secured Notes on March 16, 1995, and the redemption of all outstanding
12 5/8% Debentures and 14 1/8% Debentures on April 15, 1995. The Company's
net loss in the first nine months of 1994 was increased by an extraordinary
loss of $28 million (net of income taxes of $15 million) representing the
redemption premiums on the repurchases of all the Company's remaining 12 3/8%
Notes at the redemption price of 105% of the principal amount thereof and
$238 million of 12 5/8% Debentures at the redemption price of 105% of the
principal amount thereof on March 11, 1994, and the write off of deferred loan
costs associated with the prepayment of $100 million of the 1988 Term Loan on
February 10, 1994, and the repurchases of the 12 3/8% Notes and the 12 5/8%
Debentures.
Net Income (Loss). For the third quarter of 1995, net income was
$15 million compared to net income of $290,000 for the third quarter of 1994.
For the first nine months of 1995, the Company reported a net loss of
$6 million compared to a net loss of $45 million for the first nine months of
1994.
FINANCIAL CONDITION
For the first nine months of 1995, cash increased $19,000. Capital
additions of $32 million, debt repayments of $1,683 million, including the
prepayment or repurchase of all of the 1988 Term Loan, the 1988 Revolving
- 10 -
Credit Facility, the 1993 Term Loan and the Senior Secured Notes, repayment of
the 1995 Receivables Facility and the redemption of all the outstanding
12 5/8% Debentures and 14 1/8% Debentures were funded principally by cash
provided from operations of $41 million, net proceeds of $284 million from the
sale of Common Stock and borrowings of $1,390 million (net of $49 million of
debt issuance costs) pursuant to the Recapitalization (see below) and the
proceeds from the sale of certain domestic tissue receivables of $60 million
(see below).
Receivables decreased $18 million during the first nine months of 1995
due principally to the sale of certain domestic tissue receivables of
$60 million, which was largely offset by a seasonal increase in net sales and
significantly higher net selling prices in all the Company's businesses.
Inventories increased by $42 million principally due to higher manufacturing
costs and a seasonal inventory build. Accounts payable increased $27 million
due to higher wastepaper and other raw material costs. The liability for
interest payable decreased $59 million due to the early payment of interest in
connection with the Recapitalization and due to the timing of the quarter end
relative to semiannual interest payment dates. Other current liabilities
declined $7 million resulting from the payment of obligations due on an annual
basis, including employee bonuses and profit sharing and customer incentive
payments. As a result of all these changes and the reduction of the current
portion of long-term debt, net working capital increased to $21 million at
September 30, 1995, from a deficit of $98 million at December 31, 1994.
For the first nine months of 1995, cash of $41 million was provided from
operations while for the first nine months of 1994, cash of $58 million was
provided from operations. Cash provided from operations declined during 1995
principally because interest on the 14 1/8% Debentures converted from non-cash
to cash pay on November 1, 1994, the timing of scheduled interest payments on
long-term debt changed during 1995 as a result of the Recapitalization and
working capital requirements for receivables and inventories increased due to
increases in net selling prices and raw material costs, respectively. Such
decreases in cash provided from operations were largely offset by proceeds
from the sale of domestic accounts receivable.
On April 15, 1995, the Company completed a recapitalization plan (the
"Recapitalization") to prepay or redeem a substantial portion of its
indebtedness in order to reduce the level and overall cost of its debt, extend
certain debt maturities, increase shareholders' equity and enhance its access
to capital markets.
The Recapitalization included the following components:
(1) The offer and sale by the Company of 25,000,000 shares of Common
Stock on March 16, 1995, and 269,555 additional shares of Common Stock on
April 12, 1995 pursuant to the exercise of a portion of the underwriters'
over-allotment option, at $12.00 per share (the "Offering");
(2) Entering into a bank credit agreement (the "New Bank Credit
Agreement") consisting of a $300 million revolving credit facility (the "1995
Revolving Credit Facility"), an $810 million term loan (the "1995 Term
Loan A") and a $330 million term loan (the "1995 Term Loan B" and, together
with the 1995 Term Loan A, the "New Term Loans"); and entering into a
receivables credit agreement consisting of a $60 million term loan (the "1995
Receivables Facility");
- 11 -
(3) The application on March 16, 1995 of the net proceeds of the sale of
25,000,000 shares of Common Stock pursuant to the Offering, together with
borrowings under the New Term Loans, to prepay or redeem all the Company's
indebtedness outstanding under the 1988 Bank Credit Agreement, 1993 Term Loan
and Senior Secured Notes.
(4) The application on April 15, 1995 of borrowings under the New Term
Loans, the 1995 Receivables Facility and the 1995 Revolving Credit Facility to
redeem all outstanding 14 1/8% Debentures (at par) and 12 5/8% Debentures (at
102.5% of the principal amount thereof).
In September 1995, the Company entered into accounts receivable sales
agreements which segregate certain domestic tissue receivables from the
Company's other assets and liabilities in order to achieve a lower cost of
funds based on the credit quality of the receivables. As a result, accounts
receivable was reduced by $60 million, the 1995 Receivables Facility was
repaid and the interest cost on the 1995 Receivables Facility of 2.5% over
LIBOR has been effectively replaced by financing costs equal to 0.25% to 0.65%
over LIBOR on $60 million. In connection with these agreements, additional
revolving funds of up to $25 million may be available to the Company,
resulting in further decreases in accounts receivable and interest costs. On
October 5, 1995, the Company made its initial draw under these revolving
agreements of $8 million.
The Company's 1995 Revolving Credit Facility, which may be used for
general corporate purposes, has a final maturity of March 16, 2002. At
September 30, 1995, the Company had $125 million in available capacity under
the 1995 Revolving Credit Facility.
- 12 -
PART II. OTHER INFORMATION
1. LEGAL PROCEEDINGS
None
2. CHANGES IN SECURITIES
None
3. DEFAULTS UPON SENIOR SECURITIES
None
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
5. OTHER INFORMATION
None
6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit No. Description
27 Financial Data Schedule for the nine months ended
September 30, 1995.
99 News release containing financial results for the
quarter ended September 30, 1995.
b) No reports on Form 8-K were filed by the Company for the quarter
for which this report is filed.
- 13 -
FORT HOWARD CORPORATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORT HOWARD CORPORATION
Registrant
October 25, 1995 /s/ Kathleen J. Hempel
---------------------------------------
Kathleen J. Hempel, Vice Chairman and
Chief Financial Officer
October 25, 1995 /s/ James W. Nellen II
---------------------------------------
James W. Nellen II, Vice President
and Secretary
October 25, 1995 /s/ Charles L. Szews
---------------------------------------
Charles L. Szews, Vice President
and Controller
- 14 -
INDEX TO EXHIBITS
Exhibit No. Description
27 Financial Data Schedule for the nine months ended
September 30, 1995.
99 News release containing financial results for the
quarter ended September 30, 1995.
- 15 -
<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, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000038195
<NAME> FORT HOWARD CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 441
<SECURITIES> 0
<RECEIVABLES> 107,014
<ALLOWANCES> 1,836
<INVENTORY> 172,663
<CURRENT-ASSETS> 298,982
<PP&E> 1,961,925
<DEPRECIATION> 683,619
<TOTAL-ASSETS> 1,672,232
<CURRENT-LIABILITIES> 277,493
<BONDS> 3,010,613
<COMMON> 634
0
0
<OTHER-SE> (1,858,805)
<TOTAL-LIABILITY-AND-EQUITY> 1,672,232
<SALES> 1,205,602
<TOTAL-REVENUES> 1,205,602
<CGS> 865,474
<TOTAL-COSTS> 865,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,258
<INCOME-PRETAX> 19,514
<INCOME-TAX> 6,913
<INCOME-CONTINUING> 12,601
<DISCONTINUED> 0
<EXTRAORDINARY> (18,748)
<CHANGES> 0
<NET-INCOME> (6,147)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
EXHIBIT 99
NEWS
- ------------------------------------------------------------------------------
For further information contact:
[Logo] Fort Howard
Corporation
Media:
Cliff Bowers, Ext. 4087
P. O. Box 19130 Financial:
Green Bay, WI 54307-9130 Mike Lempke, Ext. 2492
414/435-8821
FOR RELEASE: IMMEDIATELY
FORT HOWARD EARNINGS PER SHARE
INCREASE 53% FROM SECOND QUARTER
GREEN BAY, WI - October 25, 1995 - Fort Howard Corporation today reported
that increasing prices and firm sales volume led to record net sales and
significantly improved earnings for the third quarter. Results also
represented a third consecutive quarterly net sales record for the company.
"Our successful strategies to increase selling prices contributed to our
positive results for the quarter," said Donald H. DeMeuse, Fort Howard
Chairman and Chief Executive Officer. "Tightening industry operating rates,
continuing benefits from recent price increases and positive short-term
wastepaper cost trends make us optimistic about the remainder of the year and
1996."
Third Quarter Results
---------------------
For the third quarter ended September 30, 1995, net sales rose to a
record $426,116,000, a 25.3% increase over the $340,068,000 reported in the
third quarter of 1994. Domestic tissue sales increased 25.1% for the same
periods, principally due to higher selling prices.
"We are particularly pleased with the volume gains we've seen in our
consumer business," DeMeuse said. "Our share growth in that business is
unprecedented; increasing from approximately a 7% share in 1989 to over 10%
this year."
- More -
- Ad One -
Net income for the quarter was $14,500,000 or $0.23 per share. That
compares to net income of $290,000 or $0.01 per share in the third quarter of
1994, and $7,619,000 or $0.12 per share for the second quarter of 1995. Third
quarter earnings per share represent a 53% increase over second quarter pro
forma earnings per share of $0.15.
Operating income increased 12.0% for the period to $95,369,000 versus
$85,184,000 for the third quarter of 1994. Operating margins in domestic
tissue operations improved to 25.6% in the third quarter of 1995 from 22.9% in
the first quarter of 1995.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased 10.0% to $120,100,000 compared to $109,191,000 in the same period of
1994.
The company's Fort Sterling subsidiary, based in Manchester, England,
reported a 27.7% increase in sales and an operating income increase of 64.3%
for the third quarter compared to the third quarter of 1994.
Nine Month Results
------------------
Net sales for the first nine months were a record $1,205,602,000 an
increase of 29.5% versus 1994 net sales of $930,697,000.
The company reported a net loss of $6,147,000 for the period compared to
a net loss of $45,101,000 for the first nine months of 1994. Net income per
share before extraordinary items was $0.22 per share in 1995 compared to net
loss of $(0.44) per share in 1994. Net loss after extraordinary items was
$(0.11) for the first nine months compared to a loss of $(1.18) per share for
same period last year.
The company completed a recapitalization, including an IPO of 25 million
shares of common stock, on April 15, 1995. Had the recapitalization been
completed on January 1, 1995, the net income per share for the first nine
months would have been $0.36 on a pro forma basis.
Operating income increased 13.4% to $254,235,000 in the first nine months
versus $224,206,000 for the period in 1994. The increase resulted from higher
sales and was partially offset by significantly higher wastepaper costs both
domestically and in the company's international operations.
EBITDA increased 11.6% to $327,986,000 in the first nine months compared
to $293,992,000 for the first three quarters of 1994.
Joint Venture in China
----------------------
On October 23, 1995, Fort Howard announced that it had entered into a
memorandum of understanding with a joint venture partner to manufacture
sanitary tissue products in the People's Republic of China. The plant,
located near Shanghai, will produce napkins, and bath and facial tissue.
According to DeMeuse, the venture represents a key step in the company's
international growth strategy. The company and its partner, CIMIC Holdings,
Ltd., expect to start up converting operations in the Pudong New area of
Shanghai in the first quarter of 1996.
Annual Shareholder Meeting Scheduled
-------------------------------------
Fort Howard will hold its annual shareholder meeting on May 14, 1996, at
the Metropolitan Club, Sears Tower, 233 S. Wacker Drive, Chicago, IL.
Fort Howard is a leading marketer and manufacturer of tissue products for
both the away-from-home and consumer market place in the United States and
United Kingdom. In the domestic consumer market, its principal brands include
MARDI GRAS printed napkins (which hold the leading domestic market position)
and paper towels, SOFT 'N GENTLE bath and facial tissue, SO-DRI paper towels,
and GREEN FOREST, the leading domestic line of environmentally positioned,
recycled tissue paper products.
(Financial information and notes follow on separate pages. The notes are
an integral part of these statements.)
# # # # #
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share amounts)
Net sales $426,116 $340,068 $1,205,602 $930,697
Cost of sales 299,974 227,338 865,474 624,399
-------- -------- ---------- --------
Gross income 126,142 112,730 340,128 306,298
Selling, general and
administrative 30,773 27,546 85,893 82,092
-------- -------- ---------- --------
Operating income 95,369 85,184 254,235 224,206
Interest expense 74,177 84,209 237,258 251,562
Other (income)
expense, net (1,600) (87) (2,537) 215
-------- -------- ---------- --------
Income (loss) before
taxes 22,792 1,062 19,514 (27,571)
Income tax expense
(credit) 8,292 772 6,913 (10,640)
-------- -------- ---------- --------
Net income (loss) before
extraordinary item 14,500 290 12,601 (16,931)
Extraordinary item -
loss on debt
repurchases, net -- -- (18,748) (28,170)
-------- -------- ---------- --------
Net income (loss) $ 14,500 $ 290 $ (6,147) $(45,101)
======== ======== ========== ========
Net income (loss) per share:
Before extraordinary
item $ 0.23 $ 0.01 $ 0.22 $ (0.44)
Extraordinary item -- -- (0.33) (0.74)
-------- -------- ---------- --------
Net income (loss) $ 0.23 $ 0.01 $ (0.11) $ (1.18)
======== ======== ========== ========
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------ ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 441 $ 422
Receivables, less allowances of $1,836 in 1995
and $1,589 in 1994 105,178 123,150
Inventories 172,663 130,843
Deferred income taxes 20,000 20,000
Income taxes receivable 700 5,200
---------- ----------
Total current assets 298,982 279,615
Property, plant and equipment 1,961,925 1,932,713
Less: Accumulated depreciation 683,619 611,762
---------- ----------
Net property, plant and equipment 1,278,306 1,320,951
Other assets 94,944 80,332
---------- ----------
Total assets $1,672,232 $1,680,898
========== ==========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 127,604 $ 100,981
Interest payable 25,735 84,273
Income taxes payable 653 224
Other current liabilities 68,013 75,450
Current portion of long-term debt 55,488 116,203
---------- ----------
Total current liabilities 277,493 377,131
Long-term debt 3,010,613 3,189,644
Deferred and other long-term income taxes 205,601 209,697
Other liabilities 36,696 41,162
Common Stock with put right -- 11,711
Shareholders' deficit:
Common Stock 634 381
Additional paid-in capital 895,652 600,090
Cumulative translation adjustment (1,722) (2,330)
Retained deficit (2,752,735) (2,746,588)
---------- ----------
Total shareholders' deficit (1,858,171) (2,148,447)
---------- ----------
Total liabilities and shareholders' deficit $1,672,232 $1,680,898
========== ==========
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------
1995 1994
---- ----
(In thousands)
Cash provided from (used for) operations:
Net loss $ (6,147) $ (45,101)
Depreciation 73,751 69,786
Non-cash interest expense 9,634 64,759
Deferred income tax credit (3,967) (19,698)
Pre-tax loss on debt repurchases 30,734 42,901
(Increase) decrease in receivables 17,972 (26,897)
Increase in inventories (41,820) (5,622)
Decrease in income taxes receivable 4,500 3,900
Increase in accounts payable 26,623 1,086
Decrease in interest payable (58,538) (19,770)
Increase in income taxes payable 429 776
All other, net (12,228) (8,321)
--------- ---------
Net cash provided from operations 40,943 57,799
Cash used for investment activity -
Additions to property, plant and equipment (32,150) (64,674)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings 1,438,900 750,000
Repayment of long-term borrowings (1,682,623) (721,034)
Debt issuance costs (49,155) (21,584)
Issuance (repurchase) of Common Stock,
net of offering costs 284,104 (97)
--------- ---------
Net cash provided from (used for) financing
activities (8,774) 7,285
--------- ---------
Increase in cash 19 410
Cash at beginning of period 422 227
--------- ---------
Cash at end of period $ 441 $ 637
========= =========
*****
<PAGE>
FORT HOWARD CORPORATION
NOTES TO FINANCIAL INFORMATION
(Unaudited)
1. On April 15, 1995, the company completed a recapitalization plan (the
"Recapitalization") to prepay or redeem a substantial portion of its
indebtedness in order to reduce the level and overall cost of its debt,
extend certain debt maturities, increase shareholders' equity and enhance
its access to capital markets.
The Recapitalization included the following components:
(1) The offer and sale by the company of 25,000,000 shares of Common
Stock on March 16, 1995 and 269,555 shares of Common Stock on
April 12, 1995 at $12.00 per share (the "Offering");
(2) Entering into a bank credit agreement (the "New Bank Credit
Agreement") consisting of a $300 million revolving credit facility
(the "1995 Revolving Credit Facility"), an $810 million term loan
(the "1995 Term Loan A") and a $330 million term loan (the "1995
Term Loan B" and, together with the 1995 Term Loan A, the "New Term
Loans"); and entering into a receivables credit agreement consisting
of a $60 million term loan (the "1995 Receivables Facility");
(3) The application on March 16, 1995 of the net proceeds of the sale of
25,000,000 shares of Common Stock pursuant to the Offering, together
with borrowings under the New Term Loans, to prepay or redeem all
the Company's indebtedness outstanding under the 1988 Bank Credit
Agreement, 1993 Term Loan and Senior Secured Notes.
(4) The application on April 15, 1995 of borrowings under the New Term
Loans, the 1995 Receivables Facility and the 1995 Revolving Credit
Facility to redeem all outstanding 14 1/8% Debentures (at par) and
12 5/8% Debentures (at 102.5% of the principal amount thereof).
2. In the first quarter of 1995, the company reported an extraordinary loss
of $19 million (net of income taxes of $12 million) representing the
redemption premiums on the repurchases of all the company's outstanding
12 5/8% Debentures at the redemption price of 102.5% of the principal
amount thereof and write-offs of deferred loan costs associated with the
prepayment or repurchases of all indebtedness outstanding under the
company's 1988 Bank Credit Agreement, the 1993 Term Loan and the Senior
Secured Notes on March 16, 1995, and the repurchase of all outstanding
12 5/8% Debentures and 14 1/8% Debentures on April 15, 1995. In the
first quarter of 1994, the company reported an extraordinary loss of
$28 million (net of income taxes of $15 million) representing the
redemption premiums and write-offs of deferred loan costs associated with
the repayment of $100 million of term loan indebtedness under the
company's 1988 Bank Credit Agreement on February 10, 1994 and the
repurchases of all the company's remaining 12 3/8% Notes and $238 million
of the company's 12 5/8% Debentures on March 11, 1994.
3. In September 1995, the company entered into account receivable sales
agreements which segregate certain domestic tissue receivables from the
company's other assets and liabilities in order to achieve a lower cost
of funds based on the credit quality of the receivables. As a result,
accounts receivable was reduced $60 million, the 1995 Receivables
Facility was repaid, and the interest cost on the 1995 Receivables
Facility of 2.5% over LIBOR has been effectively replaced by financing
costs equal to 0.25% to 0.65% over LIBOR on $60 million. In connection
with these agreements, additional revolving funds of up to $25 million
may be available to the company, resulting in further decreases in
accounts receivable and interest costs. On October 5, 1995, the company
made its initial draw under the revolving agreements of $8 million.
4. Assuming that all components of the Recapitalization had been consummated
as of January 1, 1995, for the first nine months of 1995, pro forma
interest expense would have decreased $16 million from $237 million to
$221 million. After adjusting the income tax (credit) for the decrease
in interest expense at an effective rate of 38.5%, the pro forma net
income (loss) before extraordinary item and pro forma net income (loss)
per share before extraordinary item (assuming that 63,371,000 weighted
average shares were outstanding for the period) would have been $22.6
million and $0.36 per share for the first nine months of 1995,
respectively.
# # # # #
