SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock $.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of Common Stock held by nonaffiliates of the
Registrant, based on the closing price reported by the Nasdaq National Market
on January 15, 1997, was $1,666,288,665.
As of January 15, 1997, 74,510,652 shares of $.01 par value Common Stock were
outstanding.
The sections of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 13, 1997, captioned "Election of Directors," "Committees of the
Board of Directors; Meetings and Compensation of Directors," "Ownership of
Common Stock by Management," "Principal Stockholders," "Certain Transactions,"
"Compensation and Nominating Committee Report on Executive Officer
Compensation," "Performance Graph" and "Executive Compensation" are
incorporated by reference into this Form 10-K at Part III, Items 10, 11, 12
and 13.
PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1919, Fort Howard is a leading manufacturer, converter and
marketer of sanitary tissue products, including specialty dry form products,
in the United States and the United Kingdom. Its principal products, which
are sold in the commercial (away-from-home) and consumer (at-home) markets,
include paper towels, bath tissue, table napkins, wipers and facial tissue
manufactured from virtually 100% recycled fibers. The Company believes that
it has the leading market share of tissue products in the domestic commercial
market of approximately 25% and has focused approximately 60% of its domestic
capacity on this segment of the tissue market. In the domestic consumer
market, where the Company has an approximate 11% market share, 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. Fort Howard also
manufactures and distributes its products in the United Kingdom where it
currently has the third largest market share primarily in the consumer segment
of the market.
DOMESTIC TISSUE OPERATIONS
Products
Commercial Products. Fort Howard's commercial tissue products include
folded and roll towels, bath and facial tissue, bulk and dispenser napkins,
disposable wipers, specialty printed merchandise and dispensers. Fort Howard
produces and sells its commercial products in all three quality segments:
Premium, Mid-range and Economy. Competition in this market is based upon
attaining a competitive level of product attributes at prices which provide a
good value to customers. Another competitive factor is the ability to provide
reliable and timely service.
Consumer Products. Fort Howard's consumer product growth strategy has
targeted the value brand and private label segments of the market. The
Company's value brands such as Mardi Gras, Soft'n Gentle, So-Dri and
Green Forest offer a high level of softness, absorbency and brightness at a
substantial price savings versus the premium brands. The appeal of Mardi Gras
napkins and paper towels is enhanced by their multi-color prints with changing
patterns and special seasonal designs.
Fort Howard is the leading tissue producer in the growing consumer
private label business with an estimated private label market share of
approximately 40% in 1996. Many national grocery chains have focused on the
development of private label tissue products to support the positioning of the
chain with their shoppers as well as to enhance margins. Typically offered on
a limited supplier basis, private label products enable the Company to form
close relationships with many of the nation's fastest growing, leading grocery
chains and mass merchandisers and afford opportunities for sales of Fort
Howard's branded products with these same customers.
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Marketing
Commercial Market. Approximately 60% of the Company's products are sold
through paper, institutional food and janitorial distributors into the
commercial market. These products are produced in a broad range of weights,
textures, sizes, colors and package configurations providing Fort Howard with
distinct advantages as a full-line manufacturer. The Company also creates and
prints logos, commercial messages and artistic designs on paper napkins and
place mats for commercial customers and party goods and specialty print
merchandisers. The Company sells its commercial products under its own brand
names which include Preference Ultra, Preference, Envision and under the
Fort Howard name.
Fort Howard's commercial sales force of salaried representatives combines
broad geographical reach and frequency of contact with the Company's major
commercial customers, including large distributors, national accounts and club
warehouses. Because the commercial sales force is dedicated to the sale of
the Company's commercial tissue products, the Company's sales representatives
are able to devote substantial time to developing end user demand, an
important selling point for the Company's distributors. In addition, the
Company's sales force includes a specialized sales team focused on selling
wiper products.
Consumer Market. Approximately 40% of the Company's products are sold
through independent brokers to major food store chains and wholesale grocers
or directly to mass merchandisers for at-home use. Most consumer products are
sold under Company-owned brand names, with over 40% being sold under private
labels. Principal brand names of consumer products include Mardi Gras, Soft'n
Gentle, So-Dri and Green Forest. Regional sales managers focus on maintaining
close relationships with brokers and retailers by emphasizing Fort Howard's
historic strengths--functional product attributes at a good value for the
consumer and enhanced margins for retailers. The Company's national accounts
sales force focuses on mass merchandisers and the drug store market. The
private label sales team markets directly to national accounts and through
food brokers to their customers. In contrast to tissue producers who
emphasize marketing of their consumer products through advertising and
promotion to the end consumer, Fort Howard incurs minimal advertising expense.
Rather, the Company focuses its marketing efforts for consumer products on
trade promotion and incentive programs targeted to grocery and mass
merchandising retailers.
INTERNATIONAL TISSUE OPERATIONS
The Company's international tissue operations principally consist of its
tissue business in the United Kingdom, Fort Sterling Limited ("Fort
Sterling"). The Company also entered into a joint venture to convert parent
rolls into finished products in the People's Republic of China in 1995 which
began operations during 1996. The Company also opened direct sales operations
in Mexico in 1995. For an analysis of net sales, operating income (loss) and
identifiable operating assets in the United States and internationally, see
Note 11 to the audited consolidated financial statements.
Products
Fort Sterling's primary thrust has been in the larger consumer segment of
the United Kingdom tissue market where approximately 85% of its converted
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product sales are targeted. In a market where private label represents about
one-half of all tissue sales, the Company believes that Fort Sterling
maintains a leading share of the consumer private label market. Approximately
two-thirds of Fort Sterling's consumer business in 1996 was sold under private
labels to large grocers and convenience stores. Fort Sterling's principal
brand is its Nouvelle line of tissue paper products. Overall, Fort Sterling's
consumer market share was approximately 16% in 1996.
Fort Sterling has approximately a 6% market share in the commercial
segment.
Marketing
Fort Sterling maintains a direct sales force serving large national
grocers, independent grocers and mass merchandisers in the consumer market.
Fort Sterling has a commercial sales force which markets the Company's
products via a network of independent distributors. A separate national
accounts sales team targets commercial foodservice, health care and national
industrial accounts.
CAPITAL EXPENDITURES
The Company has invested heavily in its manufacturing operations.
Capital expenditures in the Company's tissue business were approximately
$603 million for the five year period ended December 31, 1996, $369 million of
which was incurred for capacity expansion projects. In addition, the
Company's annual capital spending program includes significant investments for
the ongoing modernization of each of its mills. For example, as new deinking
technologies and converting equipment are developed, the Company adds such
technology and equipment at each mill to maintain its low cost structure.
The Company announced plans during 1996 for a $160 million expansion
project that will add a new tissue paper machine and associated facilities at
one of its United States mills. Construction of this capacity expansion will
commence in 1997, with an anticipated completion date in 1999.
In 1994, the Company completed the installation of a fifth tissue paper
machine, environmental protection equipment and associated facilities at its
Muskogee tissue mill. Total expenditures for the expansion were approximately
$140 million. In 1993, the Company completed an expansion of its Green Bay
tissue mill, including the addition of a new tissue paper machine and related
environmental protection, pulp processing, converting, and steam generation
equipment. The new tissue paper machine at the Green Bay mill commenced
production in August 1992. Total expenditures for the expansion project were
$180 million. Also in 1993, Fort Sterling completed a $96 million expansion
which doubled the capacity of its paper mill. The expansion project added a
206-inch tissue paper machine and related deinking and pulp processing plants.
RAW MATERIALS AND ENERGY SOURCES
The principal raw materials and supplies used to manufacture tissue
products are wastepaper (which is processed to reclaim fiber), chemicals,
corrugated shipping cases and packaging materials. Fort Howard uses 100%
wastepaper for all but a limited number of dry form and specialty products
representing approximately 2% of its volume. Currently, Fort Howard recycles
over 1.4 million tons of wastepaper annually into tissue products. Wastepaper
prices began to rise in late 1994, peaked in the third quarter of 1995 and
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fell throughout the remainder of 1995 and the first half of 1996. Prices were
stable in the second half of 1996. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations." The deinking
technology employed by the Company allows it to use a broad range of
wastepaper grades, which effectively increases both the number of sources and
the quantity of wastepaper available for its manufacturing process.
The Company manufactures some of the process chemicals required for the
Company's tissue production at each of its domestic mill locations. The
balance of its chemical requirements is purchased from outside sources. The
Company also purchases significant quantities of coal and petroleum coke for
generation of electrical power and steam at all three of its domestic tissue
mills. The Company seeks to maintain inventories of wastepaper, other raw
materials and supplies which are adequate to meet its anticipated
manufacturing needs.
The Company's major sources of energy for its domestic tissue mills are
coal, petroleum coke and, to a lesser extent, natural gas. These fuels are
burned to provide steam and electrical power to process wastepaper, operate
machinery and dry paper. Coal is received in Green Bay in self-unloading
vessels during the Great Lakes shipping season and at the Muskogee and
Savannah mills by rail. Petroleum coke is received in Green Bay and Savannah
by rail or truck. The Company maintains adequate inventories of these fuels
at each of its domestic mills. The Savannah mill can also generate electrical
power by burning natural gas or fuel oil in combustion turbines. The primary
sources of energy for the Company's United Kingdom tissue facilities are
purchased electrical power and natural gas.
COMPETITION
All the markets in which the Company sells its products are extremely
competitive. The Company's tissue products compete directly with those of a
number of large diversified paper companies, including Chesapeake Corporation,
Georgia-Pacific Corporation, James River Corporation of Virginia,
Kimberly-Clark Corporation, Pope & Talbot, Inc. and The Procter & Gamble
Company, as well as regional manufacturers, including converters of tissue
into finished products who buy tissue directly from tissue mills. Many of the
Company's competitors are larger and more strongly capitalized than the
Company which may enable them to better withstand periods of declining prices
and adverse operating conditions in the tissue industry. Customers generally
take into account price, quality, distribution and service as factors when
considering the purchase of products from the Company.
CUSTOMERS AND BACKLOG
The Company principally markets its products to customers in the
United States and the United Kingdom, and to a lesser extent, Mexico, Canada,
the Middle East, Europe and Asia. The business of the Company is not
dependent on a single customer.
The Company's products are manufactured with relatively short production
time from basic materials. Products marketed under the Company's trademarks
and stock items are sold from inventory. The backlog of customer orders is
not significant in relation to sales.
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RESEARCH AND DEVELOPMENT
The Company maintains laboratory facilities with a permanent staff of
engineers, scientists and technicians who are responsible for improving
existing products, developing new products and processes, product quality,
process control and providing technical assistance in adhering to regulatory
standards. Continued emphasis is being placed upon designing new products and
enhancing existing products, expanding the Company's capability to deink a
broader range of wastepaper grades, further automating manufacturing
operations and developing improved manufacturing and environmental processes.
PATENTS, LICENSES, TRADEMARKS AND TRADE NAMES
Although the Company owns or is a licensee of a number of patents, its
operations and products are not materially dependent on any patent. The
Company relies on trade secret protection for its proprietary deinking
technology which is not covered by patent. The Company's domestic tissue
products for at-home use are sold under the principal brand names Mardi Gras,
Soft'n Gentle, So-Dri and Green Forest. For the Company's domestic commercial
tissue business, principal brand names include Envision, Generation II and
Preference. Such brand names are trademarks of the Company that are
registered or otherwise protected under law. A portion of the Company's
tissue products are sold under private labels or brand names owned by
customers.
EMPLOYEES
At December 31, 1996, the Company's worldwide employment was
approximately 7,000, of which 6,000 persons were employed in the United States
and 1,000 persons were employed in the United Kingdom. There is no union
representation at any of the Company's domestic facilities. The Company's
employees at its facilities in the United Kingdom are unionized and the union
contracts generally require annual renegotiation of employee wage awards. The
Company considers its relationship with its employees to be good.
ENVIRONMENTAL MATTERS
The Company is subject to a wide range of laws in the United States and
other countries that focus on the impact of the environment on human health,
the limitation and control of emissions and discharges to the air and waters,
the quality of ambient air and bodies of water and the handling, use and
disposal of specified substances and solid waste at, among other locations,
the Company's process waste landfills.
Compliance with existing laws and regulations presently requires the
Company to incur substantial capital expenditures and operating costs. In
addition, environmental legislation and regulations and the interpretation and
enforcement thereof are expected to become increasingly stringent. Such
further environmental regulation is likely to limit the operating flexibility
of the Company's manufacturing operations. Because other paper manufacturers
are generally subject to similar environmental restrictions, the Company
believes that compliance with environmental laws and regulations is not likely
to have a material adverse effect on its competitive position.
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In 1996, the Company made capital expenditures of $3.1 million with
respect to pollution abatement and environmental compliance. The Company
expects to commit approximately $8.6 million of capital expenditures to
maintain compliance with environmental control standards and enhance pollution
control at its mills during 1997 and 1998. Because the impact of further
environmental regulation cannot be determined with certainty at this time, it
is possible that there will be additional capital expenditures during these
years, including but not limited to those described below.
The United States Environmental Protection Agency (the "U.S. EPA") has
proposed new air emission and revised wastewater discharge standards for the
pulp and paper industry which are commonly known as the "Cluster Rules."
Although the U.S. EPA had indicated that the components of the Cluster Rules
dealing with wastewater discharges were to be finalized in 1996, this did not
occur. If the final rules on wastewater discharges are substantially the same
as the proposed rules, the Company estimates that it will incur additional
aggregate capital expenditures that are not material.
On March 8, 1996, U.S. EPA proposed components of the Cluster Rules that
address air emissions from deinking paper mills, such as the Company's mills.
U.S. EPA has not formally indicated when these emissions standards will be
finalized. If the final air emission standards applicable to deinking mills
are substantially the same as the proposed standards, the Company believes the
cost of complying with such final standards will not be material.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or to the legality of
the original action, on certain classes of persons (referred to as potentially
responsible parties or "PRPs") associated with a release or threat of a
release of hazardous substances into the environment. Financial
responsibility for the clean-up or other remediation of contaminated property
or for natural resource damages can extend to previously owned or used
properties, waterways and properties owned by third parties, as well as to
properties currently owned and used by the Company even if contamination is
attributable entirely to prior owners. The Company is involved in an
investigation and potential clean-up of the Lower Fox River and has been named
a PRP for alleged natural resource damages to the Fox River, both of which are
discussed in "Legal Proceedings" below. Other than the United States
Department of Interior, Fish and Wildlife Service ("FWS") assessment of the
Fox River described in "Legal Proceedings," the Company is currently named as
a PRP at only one CERCLA-related site. The Company believes its liability, if
any, at such site is de minimis. However, there can be no certainty that the
Company will not be named as a PRP at any other sites in the future or that
the costs associated with additional sites would not be material to the
Company's financial condition or results of operations.
The Company has $37 million of accrued liabilities as of December 31,
1996, for estimated or anticipated liabilities, including legal and consulting
costs, relating to environmental matters arising from its operations. The
Company expects these costs to be expended over an extended number of years.
Although the accrued liabilities reflect the Company's current estimate of the
cost of these environmental matters, there can be no assurance that the amount
accrued will be adequate.
ITEM 2. PROPERTIES
Fort Howard produces its domestic tissue products at three mills: its
original mill in Green Bay, Wisconsin; its Muskogee, Oklahoma mill constructed
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as a greenfield site which commenced papermaking production in 1978; and its
greenfield mill near Savannah, Georgia, which commenced production in 1987.
Each of these mills is a world-class, fully integrated tissue mill that can
deink and process fiber from low cost wastepaper to provide virtually all of
the mill's tissue fiber. Each mill is geographically located to minimize
distribution costs to its regional markets.
In Green Bay, Wisconsin, the Company operates nine tissue paper machines,
including two world-class 270-inch tissue paper machines completed in 1984 and
1992. In addition, the Green Bay mill contains two dry form machines which
commenced operation in 1978 and 1989. Although the Green Bay mill is the
Company's original mill, having commenced production in 1920, it is well
maintained, includes virtually all of Fort Howard's latest technologies and
equipment and is cost competitive with the Company's newer mills. The
Company's Muskogee, Oklahoma mill contains a 270-inch tissue paper machine
which was added during the first quarter of 1994, and another 270-inch and
three 200-inch tissue paper machines which were installed between 1978 and
1985. Fort Howard's greenfield mill located near Savannah, Georgia contains
four 270-inch tissue paper machines that commenced production in 1987, 1988,
1989 and 1991.
Each of the Company's domestic mills also includes a coal-fired
cogeneration power plant capable of producing substantially all of the mill's
steam and electricity, a modern deinking and pulp processing plant that
processes virtually all of the mill's fiber requirements from wastepaper, a
chemical plant that produces high volume chemicals used in whitening fibers,
high speed converting equipment for cutting, folding, printing and packaging
paper into the Company's finished products and related facilities and
warehousing. The Muskogee mill also includes a polywrap manufacturing plant
that processes approximately one-half of the polywrap required by the
Company's domestic mills and the Green Bay mill includes a large machine shop
that services all of the Company's domestic mills.
Fort Sterling currently operates three tissue paper machines and a
deinking and wastepaper processing plant at its Ramsbottom paper mill. The
Company cuts, folds, prints and packages paper into finished tissue products
at its Bolton and Wigan converting facilities. All of Fort Sterling's
locations are in Greater Manchester, England.
Except for certain facilities and equipment constructed or acquired in
connection with sale and leaseback transactions pursuant to which the Company
continues to possess and operate such facilities and equipment, substantially
all of the Company's manufacturing facilities and equipment are owned in fee.
The Company's domestic and United Kingdom tissue manufacturing facilities are
pledged as collateral under the terms of the Company's debt agreements. See
Note 4 to the audited consolidated financial statements.
The Green Bay, Muskogee, Savannah, and United Kingdom facilities
generally operate tissue paper machines at full capacity seven days per week,
except for downtime for routine maintenance. Converting facilities are
generally operated on a 24-hour per day, 5-day per week basis or a 7-day per
week schedule. Converting capacity could be expanded by adding converting
equipment.
ITEM 3. LEGAL PROCEEDINGS
In December 1994, the Company was notified by the United States
Department of Justice ("U.S. DOJ") of a civil antitrust investigation into
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possible agreements in restraint of trade in connection with sales of
commercial sanitary paper products. The Company responded during the first
and second quarters of 1995 to a Civil Investigative Demand issued by the U.S.
DOJ. On May 20, 1996, the Company received a subpoena to provide certain
documents to a federal grand jury in Cleveland that is investigating possible
antitrust violations in the sale of commercial sanitary paper products. The
Company has responded to the subpoena and is continuing to cooperate in the
investigation.
Since 1992, the Company has been participating in an effort sponsored by
the Wisconsin Department of Natural Resources ("WDNR") to study the nature and
extent of polychlorinated biphenyl ("PCB") and other sediment contamination of
the lower Fox River in northeast Wisconsin. The objective of this effort is
to identify cost effective primary restoration of certain sediment deposits.
On January 30, 1997, the Company and six other companies (the "Seven
Companies") entered into an agreement with WDNR and the Wisconsin Department
of Justice ("WDOJ") to investigate claims for natural resources damages,
including sediment restoration claims, asserted against the Seven Companies
relating to releases of PCBs and other hazardous substances to the lower Fox
River ("Agreement") and to pursue a negotiated settlement of those claims
under federal and state law. The Agreement also provides that the Seven
Companies will make available to the State of Wisconsin a total of $10
million, consisting of work and funds, to, among other purposes, initiate
demonstration projects to determine the efficacy of sediment restoration
approaches and to underwrite a state directed natural resources damage
assessment. The parties have agreed to a tolling agreement and to forbear
from commencing litigation during the term of the Agreement. Based upon
available information, the Company believes there are additional parties who
may be responsible for releasing PCBs to the Fox River.
The United States Department of Interior, Fish and Wildlife Service
("FWS"), a federal natural resource trustee, previously informed each of the
Seven Companies that they have been identified as potentially responsible
parties for purposes of claims for natural resources damages under CERCLA,
commonly known as the "Superfund Act," and the Federal Water Pollution Control
Act arising from alleged releases of PCBs to the Fox River and Green Bay
system. The FWS alleges that natural resources including endangered species,
fish, birds and tribal lands or lands held by the United States in trust for
various tribes have been exposed to PCBs that were released from facilities
located along the Fox River. The FWS has begun an assessment to determine and
quantify the nature and extent of injury to any affected natural resources.
On February 3, 1997, the Seven Companies were notified by FWS of its intent to
file suit to recover natural resources damages pursuant to Federal law. Based
upon available information, the Company believes that there are additional
parties who may be identified as PRPs for alleged natural resource damages.
The Company has $37 million of accrued liabilities as of December 31,
1996, for estimated or anticipated liabilities, including legal and consulting
costs, relating to environmental matters arising from its operations. The
Company expects these costs to be expended over an extended number of years.
Although the accrued liabilities reflect the Company's current estimate of the
cost of these environmental matters, there can be no assurance that the amount
accrued will be adequate.
In 1992, the IRS disallowed income tax deductions for the 1988 tax year
which were claimed by the Company for fees and expenses, other than interest,
related to 1988 debt financing and refinancing transactions. The Company
deducted the balance of the disallowed fees and expenses related to the 1988
debt instruments during the tax years 1989 through 1995. In disallowing these
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deductions, the IRS relied on Internal Revenue Code ("Code") Section 162(k)
(which denies deductions for otherwise deductible amounts paid or incurred in
connection with stock redemptions). The Company contested the disallowance.
In August 1994, the United States 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. The decision in
this case was not entered while the Company and the IRS completed the
administrative settlement of other adjustments that were not tried before the
U.S. Tax Court. During that period, Code Section 162(k) was amended in August
1996 to provide that, retroactive to 1986, such Code Section was not
applicable to deductions for amounts properly allocable to indebtedness and
amortized over the term of such indebtedness.
On December 30, 1996, the U.S. Tax Court entered its decision allowing
the deductions claimed by the Company. As a result of that decision, the
Company has reversed in the fourth quarter of 1996 $36 million of income tax
expense previously accrued for the tax years 1988 through 1995, thereby
reducing its income tax expense by $36 million for 1996. Of the $36 million,
a receivable of $10 million, including interest, has been recorded for amounts
previously paid with respect to this matter.
The Company and its subsidiaries are parties to other lawsuits and state
and federal administrative proceedings in connection with their businesses.
Although the final results in all suits and proceedings cannot be predicted
with certainty, the Company presently believes that the ultimate resolution of
all such lawsuits and proceedings, after taking into account the liabilities
accrued with respect to such matters, will not have a material adverse effect
on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of 1996.
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ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about each of the
current executive officers of the Company. All executive officers are elected
by, and serve at the discretion of, the Board of Directors. None of the
executive officers of the Company are related by blood, marriage or adoption
to any other executive officer or director of the Company.
Present Principal Occupation or
Name and Position Employment; Five-Year Employment
With the Company Age History and other Directorships
----------------- --- --------------------------------
Donald H. DeMeuse .............. 60 Chairman of the Board of Directors
Chairman of the Board since March 1992; Chief Executive
Officer from July 1990 to September
1996; President from July 1990 to
March 1992. Director of Associated
Bank Green Bay.
Michael T. Riordan ............. 46 Chief Executive Officer since October
President and Chief Executive 1996; President since March 1992;
Officer Chief Operating Officer from March
1992 to September 1996; Vice President
prior to that time. Director of The
Dial Corporation.
Kathleen J. Hempel ............. 46 Vice Chairman and Chief Financial
Vice Chairman and Officer since March 1992; Senior
Chief Financial Officer Executive Vice President and Chief
Financial Officer prior to that
time. Director of Whirlpool
Corporation.
John F. Rowley ................. 56 Executive Vice President for more than
Executive Vice President five years.
Daniel J. Platkowski ........... 45 Senior Vice President since December
Senior Vice President 1996; Vice President prior to that
time.
Timothy G. Reilly .............. 46 Senior Vice President since October
Senior Vice President 1996; Vice President prior to that
time.
James W. Nellen II ............. 49 Vice President and Secretary for more
Vice President and Secretary than five years.
ITEM 4b. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Except for the historical information contained in this Annual Report on
Form 10-K, certain matters discussed herein, including (without limitation) in
particular under Part I, Item 1, "Business -- Environmental Matters," Item 3,
"Legal Proceedings" and under Part II, Item 7, "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations," are
forward looking statements that involve risks and uncertainties, including
(without limitation) the effect of economic and market conditions, such as
demand, industry operating capacity, product pricing and wastepaper supply and
pricing, costs related to environmental matters, and the impact of current or
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pending legislation and regulation. The forward looking statements and
statements based on the Company's beliefs contained in "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" represent the Company's attempt to measure activity in, and to
analyze the many factors affecting, the markets for its products and the
markets for the raw materials from which its products are made. There can be
no assurance that: (i) the Company has correctly measured or identified all
of the factors affecting these markets or the extent of their likely impact;
(ii) the publicly available information with respect to these factors on which
the Company's analysis is based is complete or accurate or (iii) the Company's
analysis is correct.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock began trading under the symbol FORT on the
Nasdaq National Market on March 10, 1995. Prior to that, there was no market
for the Company's Common Stock. The range of high and low trade prices of the
Company's Common Stock during each quarter for the two most recent fiscal
years is as follows:
Common Stock Trade Prices
-------------------------
High Low Close
---- --- -----
Quarter Ended
-------------
March 31, 1995.................... $12.875 $12.00 $12.625
June 30, 1995..................... 15.00 12.00 14.125
September 30, 1995................ 16.25 13.375 15.375
December 31, 1995................. 23.25 14.375 22.50
March 31, 1996.................... 25.50 19.00 22.50
June 30, 1996..................... 23.25 19.50 19.875
September 30, 1996................ 26.00 19.25 24.375
December 31, 1996................. 29.50 23.50 27.6875
The number of holders of record of the Company's Common Stock at
December 31, 1996, was approximately 935.
The Company anticipates that all its earnings in the near future will be
used for the repayment of indebtedness and for the development and expansion
of its business and, therefore, does not anticipate paying dividends on its
Common Stock in the foreseeable future. The Company's 1995 Bank Credit
Agreement and the Company's outstanding debt obligations limit, in each case
with certain exceptions, the ability of the Company to pay dividends on its
Common Stock. Subject to such restrictions, any determination to pay cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed
relevant at the time by the Board of Directors.
- 12 -
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In millions, except ratios and per share amounts)
STATEMENT OF INCOME DATA:
Net sales ............................... $ 1,581 $ 1,621 $ 1,274 $ 1,187 $ 1,151
Cost of sales ........................... 945 1,139 867 784 726
------- ------- ------- ------- -------
Gross income............................. 636 482 407 403 425
Selling, general, and
administrative (a)..................... 142 122 110 97 97
Amortization of goodwill (b). ........... -- -- -- 43 57
Goodwill write-off (b)................... -- -- -- 1,980 --
Environmental charge (c)................. 18 -- 20 -- --
------- ------- ------- ------- -------
Operating income (loss) (c).............. 476 360 277 (1,717) 271
Interest expense......................... 259 310 338 342 338
Other (income) expense, net ............. 2 (2) -- (3) 2
------- ------- ------- ------- -------
Income (loss) before taxes (c)........... 215 52 (61) (2,056) (69)
Income taxes (credit) (d)................ 44 18 (19) (16) --
------- ------- ------- ------- -------
Net income (loss) before extraordinary
items and adjustment for accounting
change (e)............................. 171 34 (42) (2,040) (69)
Extraordinary items - losses on debt
repurchases (net of income taxes)...... (8) (19) (28) (12) --
Adjustment for adoption of SFAS No. 106
(net of income taxes) (f).............. -- -- -- -- (11)
------- ------- ------- ------- -------
Net income (loss) (g).................... $ 163 $ 15 $ (70) $(2,052) $ (80)
======= ======= ======= ======= =======
Earnings (loss) per share before
extraordinary items (e)................ $ 2.44 $ 0.57 $ (1.11) $(53.54) $ (1.82)
Earnings (loss) per share (g)............ $ 2.32 $ 0.25 $ (1.85) $(53.85) $ (2.10)
OTHER DATA:
EBITDA (h)............................... $ 596 $ 459 $ 393 $ 387 $ 410
EBITDA as a percent of net sales (h)..... 37.7% 28.3% 30.8% 32.6% 35.6%
Depreciation of property, plant
and equipment ......................... $ 102 $ 99 $ 96 $ 88 $ 81
Non-cash interest expense................ 14 13 74 101 140
Capital expenditures..................... 73 47 84 166 233
Weighted average number of shares
of Common Stock outstanding
(in thousands) (g)..................... 70,088 58,228 38,103 38,107 38,107
BALANCE SHEET DATA (at end of period):
Total assets............................. $ 1,615 $ 1,652 $ 1,681 $ 1,650 $ 3,575
Working capital (deficit)................ (36) (35) (98) (92) (124)
Long-term debt (including current
portion) and Common Stock with
put right.............................. 2,463 2,966 3,318 3,234 3,104
Shareholders' deficit.................... (1,455) (1,838) (2,148) (2,081) (29)
- 13 -
(a) Selling, general and administrative expense in 1993 reflects an $8 million
reduction for the reversal of all employee stock compensation expense accrued
prior to 1993.
(b) During the third quarter of 1993, the Company wrote off the remaining
unamortized balance of its goodwill of $1.98 billion and, accordingly, there
is no amortization of goodwill for periods subsequent to September 30, 1993.
(c) During the fourth quarters of 1996 and 1994, the Company recorded
environmental charges totaling $18 million and $20 million, respectively.
Excluding the effects of the environmental charge, the Company's operating
income, and income (loss) before taxes in 1996 would have been $494 million
and $233 million, respectively, and in 1994 would have been $297 million and
($41) million, respectively.
(d) During the fourth quarter of 1996, the Company recorded a credit of
$36 million to income tax expense reversing income taxes previously accrued
for the tax years 1988 through 1995 for previously disallowed income tax
deductions for fees and expenses related to 1988 debt financing and
refinancing transactions.
(e) Excluding the environmental charges described in (c) above and the income
tax credit described in (d) above, net income (loss) before extraordinary
items and net income (loss) per share before extraordinary items in 1996 would
have been $145 million and $2.07 per share, respectively, and in 1994 would
have been ($28) million and ($0.73) per share, respectively.
(f) Reflects the cumulative effect on years prior to 1992 of adopting SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This change in accounting principle, excluding the cumulative
effect, decreased operating income for 1992 by $1 million.
(g) The computation of earnings (loss) per share is based on the weighted
average number of shares of Common Stock outstanding during the period plus
(in periods in which they have a material dilutive effect) the effect of
shares of Common Stock contingently issuable upon the exercise of stock
options.
(h) EBITDA represents operating income plus depreciation of property, plant
and equipment, amortization of goodwill, the goodwill write-off, the 1996 and
1994 environmental charges and the effects of 1993 employee stock compensation
(credits). EBITDA is presented here as a measure of the Company's debt
service ability. Certain financial and other restrictive covenants in the
1995 Bank Credit Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBITDA, subject to certain
adjustments.
- 14 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In millions, except percentages)
Net sales:
Domestic tissue......................... $ 1,338 $ 1,320 $ 1,060
International operations................ 177 164 131
Harmon.................................. 66 137 83
------- ------- -------
Consolidated............................ $ 1,581 $ 1,621 $ 1,274
======= ======= =======
Operating income:
Domestic tissue (a)..................... $ 448 $ 337 $ 264
International operations ............... 25 18 8
Harmon ................................. 3 5 5
------- ------- -------
Consolidated (a)........................ $ 476 $ 360 $ 277
======= ======= =======
Consolidated net income (loss)............ $ 163 $ 15 $ (70)
======= ======= =======
Operating income as a percent of net sales 30.1% 22.2% 21.7%
_____________________
(a) During the fourth quarter of 1996 and 1994, operating income for domestic
tissue operations was reduced by environmental charges of $18 million and
$20 million, respectively. See Note 10 to the Company's audited consolidated
financial statements.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. Net sales in the Company's domestic tissue operations
increased 1.4% for 1996 compared to 1995. The increase was due to a 1.4%
increase in converted products volume. Domestic sales volume in 1996 was
stronger in the consumer market than in the commercial market. Sales volume
of unconverted parent rolls decreased in 1996 compared to 1995 as the Company
focused on higher profit converted products. Domestic net selling prices were
slightly higher in 1996 compared to 1995. However, selling prices declined in
1996 from price levels at the beginning of the year principally as a result of
price decreases in the consumer market which took effect in April and June
1996. Net selling prices were stable during the second half of 1996.
Net sales of the Company's international operations increased 8.2% for
1996 compared to 1995 due to an increase in net selling prices and higher
volume of converted products at the Company's United Kingdom facilities.
Consolidated net sales for 1996 decreased 2.5% compared to 1995 because
of significantly lower selling prices in the Company's wastepaper brokerage
subsidiary, Harmon Assoc. Corp. ("Harmon"), where sales decreased 52.4% in
1996 compared to 1995.
- 15 -
Gross Income. For 1996, consolidated gross income increased 32.2%
principally due to lower raw material costs and, to a much lesser degree,
higher volume and selling prices for both domestic tissue and international
operations. Consolidated gross margins increased to 40.3% for 1996 from 29.7%
for 1995 as a result of significant raw material cost decreases that began in
late 1995 and continued through the first half of 1996. Raw material costs
stabilized in the second half of 1996. Wastepaper prices both domestically
and in the United Kingdom are expected to remain stable for the first quarter
of 1997; however, the direction of wastepaper price trends in succeeding
quarters is uncertain due to general economic factors, virgin market pulp
price trends and changes in demand for wastepaper by deinked market pulp mills
and in export markets that are difficult to estimate.
Consolidated gross margins were positively affected in 1996 by the
decreased 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, increased to 9.0% for 1996
compared to 7.5% for 1995. The increase was principally due to the impact of
the Company's strong earnings performance on employee compensation plans,
higher selling expenses resulting from greater consumer product sales and
lower net sales by Harmon.
Environmental Charge. Based upon currently available information and
analysis, the Company recorded an $18 million charge in the fourth quarter of
1996 for estimated or anticipated liabilities, including legal and consulting
costs, relating to environmental matters arising from its operations. The
Company expects these costs to be incurred over an extended number of years.
See "Environmental Matters" and "Legal Proceedings" and Note 10 to the
Company's audited consolidated financial statements.
Operating Income. Operating income increased to $476 million in 1996
compared to $360 million in 1995. Operating income as a percent of net sales
increased to 30.1% in 1996 compared to 22.2% in 1995. (Excluding the
environmental charge from 1996 results, operating income would have increased
to $494 million in 1996 resulting in operating income as a percent of net
sales of 31.3%.) Domestic tissue operating income as a percent of net sales
increased to 33.5% in 1996 from 25.5% in 1995. The increases are due to
significantly lower raw material costs in 1996 and slightly higher net selling
prices and volume in both domestic tissue and international operations.
Income Taxes. The Company's 1996 income tax expense was reduced by
$36 million as a result of a fourth quarter 1996 decision by the United States
Tax Court allowing the Company to deduct certain fees and expenses related to
1988 debt financing and refinancing transactions which were claimed by the
Company for its tax years 1988 through 1995 and which had been previously
disallowed by the Internal Revenue Service. See "Legal Proceedings" and
Note 3 to the Company's audited consolidated financial statements.
Extraordinary Loss. The Company's net income in 1996 was decreased by an
extraordinary loss of $8 million (net of income taxes of $5 million)
representing the write-off of deferred loan costs associated with the
prepayment of a portion of the outstanding indebtedness under the 1995 Bank
Credit Agreement.
- 16 -
Net Income. The Company reported net income of $163 million for 1996
compared to net income of $15 million for 1995.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net Sales. Consolidated net sales for 1995 increased 27.2% compared to
1994. Domestic tissue net sales for 1995 increased 24.6% compared to 1994 due
to net selling price increases of 22.4%, converted products volume increases
of 4.4% and reduced parent roll export volume. The significant increase in
domestic net selling prices in 1995 reflects commercial market price increase
announcements effective January 1995, April 1995, July 1995 and September 1995
and consumer market price increase announcements effective January 1995 and
July 1995, all in response to rising raw material costs and improving
operating rates in the tissue industry. Domestic volume of the Company's
commercial products was flat for the full year 1995 compared to 1994.
Significant volume growth in the first quarter of 1995 was offset by volume
declines in succeeding quarters. The Company's firm implementation of price
increases led to the commercial volume declines beginning in the second
quarter of 1995. Domestic consumer volume was significantly higher throughout
1995 compared to 1994 due to strong consumer market demand for the Company's
products.
Net sales of the Company's international operations increased 24.8% for
1995 compared to 1994 due to a significant 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, increased 63.8% for
1995 due to higher selling prices and slightly higher volume.
Gross income. For 1995, consolidated gross income increased 18.3% due to
higher selling prices and to a much lesser degree, higher domestic volume,
partially offset by higher raw material costs. Consolidated gross margins
decreased to 29.7% for 1995 from 31.9% for 1994 and 34.0% for 1993 as a result
of significant raw material cost increases that began in mid-1994 and
continued until mid-1995. However, beginning in the second quarter of 1995,
as net selling price increases began to offset raw material cost increases,
consolidated gross margins began to recover and reached 34.0% in the fourth
quarter of 1995, the same rate achieved in full year 1993. Domestic tissue
gross margins in 1995 exhibited trends similar to consolidated gross margins.
Beginning in July 1994, domestic wastepaper prices rose sharply until
flattening in the second and third quarters of 1995. Average wastepaper
prices in the fourth quarter of 1995 were higher than average wastepaper
prices in the fourth quarter of 1994. However, wastepaper prices fell
significantly in the fourth quarter of 1995 from the third quarter of 1995 and
by December 1995 were significantly below wastepaper prices in December 1994.
Wastepaper price trends are expected to remain positive for the first quarter
of 1996, however, the direction of wastepaper price trends in succeeding
quarters is uncertain due to general economic factors, virgin market pulp
price trends and expected increases in demand for wastepaper arising from
scheduled start-ups of deinked market pulp mills and from export markets.
Costs of other raw materials also increased during 1995 compared to 1994 but
to a much lesser extent, while all other costs were flat or declined due to
efficiencies achieved from higher volumes.
Gross margins of international operations increased in 1995 compared to
1994 in spite of significantly higher wastepaper prices due to the benefits
- 17 -
achieved from product rationalization in 1994 and the success of 1995 price
increases. Wastepaper price trends in the United Kingdom were similar to
those in the United States in 1995.
Consolidated gross margins were negatively affected in 1995 by the
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 7.5% for 1995
compared to 8.6% for 1994. The decrease occurred principally due to the
effects of significantly higher net sales.
Operating Income. Operating income increased to $360 million in 1995
compared to $277 million in 1994. Excluding the environmental charge from
1994 results, operating income would have been $297 million in 1994.
Operating income as a percent of net sales decreased to 22.2% in 1995 compared
to 23.3% in 1994, as adjusted for the environmental charge. Domestic tissue
operating income as a percent of net sales decreased to 25.5% in 1995 from
26.9% in 1994, also as adjusted for the environmental charge. The decreases
are due to significantly higher raw material costs in 1995 partially offset by
significantly higher net selling prices and higher domestic volume. Operating
income as a percent of net sales began to recover beginning in the second
quarter of 1995, similar to gross margin trends, such that consolidated and
domestic tissue operating income as a percent of net sales reached 25.5% and
27.9%, respectively, in the fourth quarter of 1995.
Extraordinary Loss. The Company's net income in 1995 was decreased by an
extraordinary loss of $19 million (net of income taxes of $12 million)
representing the redemption premiums and write-offs of deferred loan costs
associated with the prepayment or redemption of all the Company's indebtedness
outstanding under the 1988 Bank Credit Agreement, 1993 Term Loan, Senior
Secured Notes, 14 1/8% Debentures (at par) and 12 5/8% Debentures (at 102.5%
of the principal amount thereof).
Net Income. The Company reported net income of $15 million for 1995
compared to a net loss of $70 million for 1994.
FINANCIAL CONDITION
Year Ended December 31, 1996
During 1996, cash decreased $187,000. Capital additions of $73 million
and debt repayments of $504 million were funded principally by net proceeds of
$213 million from the sale of Common Stock and $365 million of cash from
operations provided by strong operating results.
Receivables decreased $35 million during 1996 due principally to lower
net selling prices in the domestic tissue and international operations in the
fourth quarter of 1996 compared to the fourth quarter of 1995. Inventories
decreased by $12 million principally due to decreased raw material costs in
the fourth quarter of 1996 compared to the fourth quarter of 1995. Accounts
payable increased $19 million principally due to increased liabilities
resulting from higher selling expenses due to the growth of the consumer
business and the introduction of premium products in the commercial market and
- 18 -
from higher capital spending in the fourth quarter of 1996. Other current
liabilities increased $25 million due to higher amounts to be paid under
employee compensation plans as a result of strong earnings results and higher
current expenses for legal and consulting costs associated with the fourth
quarter environmental charge. The liability for interest payable decreased
$4 million due to lower debt balances as a result of the 1996 public stock
offering (the "1996 Offering") and cash provided from operations. Principally
as a result of all these changes and the prepayment of a portion of the
indebtedness due within one year under the 1995 Bank Credit Agreement from the
net proceeds of the 1996 Offering and cash from operations, the net working
capital deficit was $36 million at December 31, 1996, as compared to a deficit
of $35 million at December 31, 1995.
Year Ended December 31, 1995
During 1995, cash increased $524,000. Capital additions of $47 million,
debt repayments of $1,811 million, including the prepayment or repurchase of
all of the 1988 Term Loan, the 1988 Revolving Credit Facility, the 1993 Term
Loan and the Senior Secured Notes, 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
$157 million (including proceeds of $63 million from the sale of certain
domestic tissue receivables), net proceeds of $284 million from the sale of
Common Stock and borrowings of $1,418 million (net of $50 million of debt
issuance costs) pursuant to the 1995 public stock offering (the "1995
Offering").
Receivables decreased $25 million during 1995 due principally to the sale
of certain domestic tissue receivables of $63 million, which was largely
offset by the effects of an increase in net sales and significantly higher net
selling prices in all the Company's businesses. Inventories increased by
$32 million principally due to an increase in inventory quantities. Parent
roll and wastepaper inventories were increased to reflect currently lower
priced wastepaper and to maximize the flexibility of existing productive
capacity. The liability for interest payable decreased $20 million due to the
early payment of interest in connection with the prepayment or redemption of a
substantial portion of the Company's indebtedness. Principally as a result of
all these changes and the $53 million reduction in the current portion of
long-term debt, the net working capital deficit decreased to $35 million at
December 31, 1995, from a deficit of $98 million at December 31, 1994.
Liquidity and Capital Resources
The Company's principal uses of cash generated from operations for the
next several years will be interest and principal payments on its indebtedness
and capital expenditures.
On May 15, 1996, the Company issued 10 million shares of Common Stock at
$20.25 per share in the 1996 Offering. Proceeds from the 1996 Offering, net
of underwriting commissions and other related expenses totaling $9 million,
were $194 million. On June 4, 1996, an additional 520,000 shares of Common
Stock were issued at $20.25 per share upon the exercise of a portion of the
underwriters' over-allotment option granted in connection with the 1996
Offering, resulting in additional new proceeds of $10 million after deducting
underwriting commissions. During 1996 the Company issued 419,074 shares of
Common Stock at a weighted average price of $15.42 per share as a result of
stock option exercises under the Company's employee stock option plans
resulting in net proceeds to the Company of $6 million.
- 19 -
Capital expenditures were $73 million, $47 million and $84 million in
1996, 1995 and 1994, respectively, including an aggregate of $59 million
during those periods for capacity expansions. In September 1996, the
Company's Board of Directors authorized the installation of a new tissue paper
machine and associated facilities at one of its United States mills. The
expansion is planned for completion in 1999 at an estimated cost of
$160 million. The 1995 Bank Credit Agreement imposes limits for domestic
capital expenditures, with certain exceptions, of $75 million per year. The
Company is also permitted to spend up to $250 million for domestic expansion
projects including, without restriction, an additional tissue paper machine at
one of its existing domestic mills. Other domestic expansion projects are
restricted unless certain conditions are met. In addition, the Company is
permitted to make capital expenditures for international expansion of up to
$100 million in the aggregate if certain conditions are met. Under the 1995
Bank Credit Agreement, the Company may carry over to one or more years
(thereby increasing the scheduled permitted limit for capital expenditures in
respect of such year) the amount by which the scheduled permitted limit for
each year (beginning with fiscal year 1995) exceeded the capital expenditures
actually made in respect of such prior year. At December 31, 1996, the
capital expenditures carryover available to the Company totaled $38 million.
The Company does not believe such limitations will impair its plans for
capital expenditures. Capital expenditures are projected to approximate $90
to $110 million annually for the next several years, plus the domestic
expansion capital spending that is expected to be completed in 1999. The
portions of the above capital expenditures which are attributable to
environmental matters are described in "Environmental Matters."
The Company's 1995 Revolving Credit Facility, which may be used for
general corporate purposes, has a final maturity of March 16, 2002. At
December 31, 1996, the Company had $273 million in available capacity under
the 1995 Revolving Credit Facility.
The Company believes that cash provided from operations, unused borrowing
capacity under the 1995 Revolving Credit Facility and access to financing in
public and private markets will be sufficient to enable it to fund capital
expenditures (including planned capital expenditures for environmental
matters) and to meet its debt service requirements for the foreseeable future.
Refer to Note 3 to the audited consolidated financial statements for a
description of certain matters related to income taxes. Also see "Legal
Proceedings."
Seasonality
Historically, a slightly higher amount of the Company's revenues and
operating income have been recognized during the second and third quarters.
The Company expects to fund seasonal working capital needs from the 1995
Revolving Credit Facility.
- 20 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Fort Howard Corporation is responsible for the
preparation, integrity and fair presentation of the following financial
statements. These financial statements have been prepared by management in
accordance with generally accepted accounting principles and where necessary
include amounts based on management's judgments and estimates. Management
also prepared the other information in this annual report and is responsible
for its integrity and consistency with the financial statements.
Fort Howard Corporation is committed to conducting its business with
integrity and in accordance with all applicable laws, rules and regulations.
This commitment is reflected in the Company's Code of Conduct. The Code of
Conduct is annually communicated to employees and compliance is monitored
regularly to provide reasonable assurance that the Company's business is being
conducted in accordance with the Code of Conduct.
The Company maintains a system of internal accounting controls designed
to provide reasonable assurance that the Company's assets are safeguarded and
that transactions are executed and recorded according to management's
authorizations in order to create financial records reliable for the
preparation of financial statements. Management continuously evaluates its
system of internal accounting controls in response to changes in business
conditions and operations, staff turnover and development of new technologies
and, as a result, enhances existing controls with the objective of maintaining
a strong internal control environment. In addition, the Company's internal
audit staff monitors the effectiveness of internal controls through
operational audits of this system, reporting their findings and
recommendations for improvement to management.
The financial statements of the Company have been audited by
Arthur Andersen LLP. The independent accountants were provided with
unrestricted access to all financial records and related data in order to
perform their tests and other procedures. Their opinion on the fairness of
the Company's financial statements appears on the next page.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the Company's management, internal auditors
and independent accountants to review the adequacy of significant internal
control systems, the nature, extent and results of internal and external
audits and reported financial results. The Audit Committee maintains direct
and independent access with the independent accountants.
In conclusion, management believes that as of December 31, 1996, the
Company's internal control systems over financial reporting are adequate and
operating effectively in all material respects.
/s/ Michael T. Riordan /s/ Kathleen J. Hempel
Michael T. Riordan, President and Kathleen J. Hempel, Vice Chairman
Chief Executive Officer and Chief Financial Officer
- 21 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of FORT HOWARD CORPORATION:
We have audited the accompanying consolidated balance sheets of
Fort Howard Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1996, and 1995, and the related consolidated statements of income
and cash flows for the years ended December 31, 1996, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fort Howard Corporation and subsidiaries as of December 31, 1996, and 1995,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
- 22 -
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Net sales............................ $ 1,580,771 $ 1,620,903 $ 1,274,445
Cost of sales........................ 944,257 1,139,378 867,357
----------- ----------- -----------
Gross income......................... 636,514 481,525 407,088
Selling, general and administrative.. 142,143 121,406 110,285
Environmental charge................. 18,000 -- 20,000
----------- ----------- -----------
Operating income..................... 476,371 360,119 276,803
Interest expense..................... 258,948 309,915 337,701
Other (income) expense, net.......... 2,923 (1,662) 118
----------- ----------- -----------
Income (loss) before taxes........... 214,500 51,866 (61,016)
Income taxes (credit)................ 43,767 18,401 (18,891)
----------- ----------- -----------
Income (loss) before extraordinary
items.............................. 170,733 33,465 (42,125)
Extraordinary items--losses on
debt repurchases (net of income
taxes of $5,313 in 1996, $11,986
in 1995 and $14,731 in 1994)....... (8,136) (18,748) (28,170)
----------- ----------- -----------
Net income (loss).................... $ 162,597 $ 14,717 $ (70,295)
=========== =========== ===========
Earnings (loss) per share:
Net income (loss) before
extraordinary items.............. $ 2.44 $ 0.57 $ (1.11)
Extraordinary items................ (0.12) (0.32) (0.74)
----------- ----------- -----------
Net income (loss).................. $ 2.32 $ 0.25 $ (1.85)
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
- 23 -
FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
-------------------
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents.................. $ 759 $ 946
Receivables, less allowances of $3,343
in 1996 and $2,883 in 1995............... 63,194 97,707
Inventories................................ 151,248 163,076
Deferred income taxes...................... 60,000 29,000
Income taxes receivable.................... 10,121 700
----------- -----------
Total current assets..................... 285,322 291,429
Property, plant and equipment................ 2,057,446 1,971,641
Less: Accumulated depreciation............. 809,650 706,394
----------- -----------
Net property, plant and equipment........ 1,247,796 1,265,247
Other assets................................. 82,262 95,761
----------- -----------
Total assets........................... $ 1,615,380 $ 1,652,437
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable........................... $ 131,205 $ 112,384
Interest payable........................... 60,443 64,375
Income taxes payable....................... 7,700 1,339
Other current liabilities.................. 110,357 85,351
Current portion of long-term debt.......... 11,972 62,720
----------- -----------
Total current liabilities................ 321,677 326,169
Long-term debt............................... 2,451,373 2,903,299
Deferred and other long-term income taxes.... 247,464 225,043
Other liabilities............................ 49,703 36,355
Shareholders' deficit:
Common Stock............................... 744 634
Additional paid-in capital................. 1,108,976 895,652
Cumulative translation adjustment.......... 4,717 (2,844)
Retained deficit........................... (2,569,274) (2,731,871)
----------- -----------
Total shareholders' deficit.............. (1,454,837) (1,838,429)
----------- -----------
Total liabilities and shareholders'
deficit.............................. $ 1,615,380 $ 1,652,437
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
- 24 -
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
Cash provided from (used for) operations:
Net income (loss)....................... $ 162,597 $ 14,717 $ (70,295)
Depreciation............................ 101,647 98,882 95,727
Non-cash interest expense............... 13,909 12,925 74,238
Deferred income taxes (credit).......... 27,402 4,418 (33,832)
Environmental charge.................... 18,000 -- 20,000
Pre-tax loss on debt repurchases........ 13,448 30,734 42,901
Restricted cash......................... (14,916) -- --
(Increase) decrease in receivables...... 34,513 25,443 (17,316)
(Increase) decrease in inventories...... 11,828 (32,233) (12,574)
(Increase) decrease in income taxes
receivable............................ (9,421) 4,500 4,300
Increase (decrease) in accounts payable. 18,821 11,403 (684)
Increase (decrease) in interest payable. (3,932) (19,898) 29,419
Increase in income taxes payable........ 6,361 1,115 102
All other, net.......................... (14,928) 4,930 (6,799)
---------- ---------- ----------
Net cash provided from operations... 365,329 156,936 125,187
Cash used for investment activities:
Additions to property, plant and
equipment............................. (73,436) (47,296) (83,559)
Cash provided from (used for)
financing activities:
Proceeds from long-term borrowings...... -- 1,467,800 750,000
Repayment of long-term borrowings....... (504,025) (1,810,966) (759,202)
Debt issuance costs..................... (1,489) (50,054) (32,134)
Issuance (repurchase) of Common
Stock, net of offering costs.......... 213,434 284,104 (97)
---------- ---------- ----------
Net cash used for financing
activities........................ (292,080) (109,116) (41,433)
---------- ---------- ----------
Increase (decrease) in cash............... (187) 524 195
Cash, beginning of year................... 946 422 227
---------- ---------- ----------
Cash, end of year................... $ 759 $ 946 $ 422
========== ========== ==========
Supplemental Cash Flow Disclosures:
Interest paid........................... $ 248,919 $ 317,866 $ 237,650
Income taxes paid (refunded), net....... 49,555 (5,728) 2,483
The accompanying notes are an integral part of these consolidated financial
statements.
- 25 -
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
(A) OPERATIONS -- The Company operates in one industry segment as a
manufacturer, converter and marketer of a diversified line of single-use
tissue products for the commercial and consumer markets, primarily in the
United States and United Kingdom.
(B) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Fort Howard Corporation and all domestic and foreign
subsidiaries and are prepared in conformity with U.S. generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Assets and liabilities of foreign subsidiaries are translated at
the rates of exchange in effect at the balance sheet date. Income amounts are
translated at the average of the monthly exchange rates. The cumulative
effect of translation adjustments is deferred and classified as a cumulative
translation adjustment in the consolidated balance sheet. The Company
currently does not hedge its translation exposure. The Company does not
engage in material hedging activity with respect to foreign currency
transaction risks. All significant intercompany accounts and transactions
have been eliminated.
(C) CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount of cash equivalents approximates fair value
due to the short maturity of the investments.
At December 31, 1996, the Company had $14,916,000 of cash restricted as
collateral under the terms of its 1995 Accounts Receivable Facility. This
restricted cash is recorded under "Other Assets" in the consolidated balance
sheet.
(D) INVENTORIES -- Inventories are carried at the lower of cost or
market. Cost is principally determined on a first-in, first-out basis, with a
lesser portion determined on an average cost by specific lot method. The
elements of costs include materials, labor and overhead.
(E) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are
being depreciated on a straight-line basis over useful lives of 30 to 50 years
for buildings and 2 to 25 years for equipment. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" ("SFAS No. 121"). The Company's adoption of
SFAS No. 121 effective January 1, 1995, had no effect on the 1995 consolidated
financial statements.
Assets under capital leases principally arose in connection with sale and
leaseback transactions as described in Note 5 and are stated at the present
value of future minimum lease payments. These assets are amortized over the
respective periods of the leases which range from 15 to 25 years.
- 26 -
Amortization of assets under capital leases is included in depreciation
expense.
The Company follows the policy of capitalizing interest incurred in
conjunction with major capital expenditure projects. The amounts capitalized
in 1996, 1995 and 1994 were $1,487,000, $2,096,000 and $4,230,000,
respectively.
(F) REVENUE RECOGNITION -- Sales of the Company's tissue products are
recorded upon shipment of the products.
(G) ENVIRONMENTAL EXPENDITURES -- Environmental expenditures that relate
to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when material environmental assessments
and/or remedial or restoration efforts are probable, and the cost can be
reasonably estimated. Recoveries of environmental remediation costs from
other potentially responsible parties and recoveries from insurance carriers
are not recorded as assets until such time as their receipt is deemed probable
and the amounts are reasonably estimable. The Company's accounting policies
related to environmental expenditures are in accordance with AICPA Statement
of Position 96-1.
(H) EMPLOYEE BENEFIT PLANS -- A substantial majority of the Company's
employees are covered under defined contribution plans. The Company makes
annual discretionary contributions under the plans. Participants may also
contribute a certain percentage of their wages to the plans. Costs charged to
operations for defined contributions plans were approximately $16,307,000,
$13,231,000 and $12,716,000 for 1996, 1995 and 1994, respectively.
Employees retiring prior to February 1, 1990, from the Company's U.S.
tissue operations who had met certain eligibility requirements are entitled to
postretirement health care benefit coverage (see Note 6). These benefits are
subject to deductibles, copayment provisions, a lifetime maximum benefit and
other limitations. In addition, employees who retire after January 31, 1990
and meet certain age and years of service requirements may purchase health
care benefit coverage from the Company up to age 65. The Company has reserved
the right to change or terminate this benefit for active employees at any
time. Employees of the Company's U.K. tissue operations are not entitled to
Company-provided postretirement benefit coverage.
(I) INTEREST RATE CAP AGREEMENTS -- The costs of interest rate cap
agreements are amortized over the respective lives of the agreements.
(J) INCOME TAXES -- Deferred income taxes are provided to recognize
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse. The principal
difference relates to depreciation expense. Deferred income tax expense
represents the change in the deferred income tax asset and liability balances,
excluding the deferred tax benefit related to extraordinary losses.
(K) EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share has been
computed on the basis of the average number of common shares outstanding
during the years, after giving retroactive effect to a 6.5-for-one stock split
on January 31, 1995. The average number of shares used in the computation was
70,088,196, 58,227,712 and 38,103,215 for 1996, 1995 and 1994, respectively.
- 27 -
The assumed exercise of all outstanding stock options has been excluded from
the computation of earnings (loss) per share in 1996, 1995 and 1994 because
the result was not material or was antidilutive.
2. BALANCE SHEET INFORMATION
December 31,
------------------
1996 1995
---- ----
(In thousands)
Inventories
Raw materials and supplies........................ $ 70,595 $ 80,134
Finished and partly-finished products............. 80,653 82,942
---------- ----------
$ 151,248 $ 163,076
========== ==========
Property, Plant and Equipment
Land.............................................. $ 45,736 $ 45,523
Buildings......................................... 329,923 326,207
Machinery and equipment........................... 1,637,892 1,586,627
Construction in progress.......................... 43,895 13,284
---------- ----------
$2,057,446 $1,971,641
========== ==========
Capital Lease Assets (Included in Property, Plant
and Equipment Totals Above)
Buildings......................................... $ 4,448 $ 4,008
Machinery and equipment........................... 187,733 187,007
---------- ----------
Total assets under capital leases............. $ 192,181 $ 191,015
========== ==========
- 28 -
December 31,
-------------------
1996 1995
---- ----
(In thousands)
Other Assets
Deferred loan costs, net of accumulated amortization.. $ 62,787 $ 89,180
Prepayments and other................................. 4,559 6,581
Restricted cash....................................... 14,916 --
-------- --------
$ 82,262 $ 95,761
======== ========
Other Current Liabilities
Salaries and wages.................................... $ 61,657 $ 51,797
Contributions to employee benefit plans............... 16,938 13,226
Taxes other than income taxes......................... 6,769 6,442
Other accrued expenses................................ 24,993 13,886
-------- --------
$110,357 $ 85,351
======== ========
3. INCOME TAXES
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Income Tax Provision
Current
Federal.................................. $ 2,632 $ (304) $ 1,800
State.................................... 2,761 768 509
Foreign.................................. 5,659 1,533 (2,099)
-------- -------- --------
Total current........................ 11,052 1,997 210
Deferred
Federal.................................. 27,954 17,227 (18,826)
State.................................... 3,281 (2,739) (2,793)
Foreign.................................. 1,480 1,916 2,518
-------- -------- --------
Total deferred....................... 32,715 16,404 (19,101)
-------- -------- --------
$ 43,767 $ 18,401 $(18,891)
======== ======== ========
- 29 -
Year Ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Effective Tax Rate Reconciliation
U.S. federal tax rate...................... 35.0% 35.0% (34.0)%
State income taxes, net.................... 2.7 2.1 (4.1)
Long-term income taxes and interest........ (17.0) -- 3.3
Permanent differences related to accruals.. -- -- 3.3
Other, net................................. (0.3) (1.6) 0.5
--------- -------- --------
Effective tax rate......................... 20.4% 35.5% (31.0)%
========= ======== ========
Income (Loss) Before Income Taxes
Domestic................................... $ 195,284 $ 39,067 $(62,711)
Foreign.................................... 19,216 12,799 1,695
--------- -------- --------
$ 214,500 $ 51,866 $(61,016)
========= ======== ========
The net deferred income tax liability at December 31, 1996, includes
$252 million related to property, plant and equipment offset by federal and
state loss and tax credit carryforwards totaling $30 million and the tax
benefit of accruals which do not meet economic performance requirements for
income tax purposes totaling $35 million. The Company has not recorded a
valuation allowance with respect to any deferred income tax asset.
In 1992, the Internal Revenue Service (the "IRS") disallowed income tax
deductions for the 1988 tax year which were claimed by the Company for fees
and expenses, other than interest, related to 1988 debt financing and
refinancing transactions. The Company deducted the balance of the disallowed
fees and expenses related to the 1988 debt instruments during the tax years
1989 through 1995. In disallowing these deductions, the IRS relied on Code
Section 162(k) (which denies deductions for otherwise deductible amounts paid
or incurred in connection with stock redemptions). The Company contested the
disallowance. In August 1994, the United States 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. The
decision in this case was not entered while the Company and the IRS completed
the administrative settlement of other adjustments that were not tried before
the United States Tax Court. During that period, Code Section 162(k) was
amended in August 1996 to provide that, retroactive to 1986, such Code Section
was not applicable to deductions for amounts properly allocable to
indebtedness and amortized over the term of such indebtedness.
On December 30, 1996, the United States Tax Court entered its decision
allowing the deductions claimed by the Company. As a result of that decision,
the Company has reversed in the fourth quarter of 1996 $36 million of income
taxes previously accrued for the tax years 1988 through 1995, thereby reducing
its income tax expense by $36 million for 1996. Of the $36 million, a
receivable of $10 million, including interest, has been recorded for amounts
previously paid with respect to this matter.
The Company will have approximately $27 million of net operating loss
- 30 -
carryforwards as of December 31, 1996, for federal income tax purposes which
expire as follows: $18 million in 2010 and $9 million in 2011.
4. LONG-TERM DEBT
Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows:
December 31,
----------------
1996 1995
---- ----
(In thousands)
1995 Term Loan A, due in varying semi-annual
repayments with a final maturity of
March 16, 2002 (a).................................. $ 624,000 $ 810,000
1995 Term Loan B, due in varying semi-annual
repayments with a final maturity of
December 31, 2002 (b)............................... 119,000 330,000
1995 Revolving Credit Facility, due
March 16, 2002 (a).................................. 27,300 79,400
Senior Unsecured Notes, 9 1/4%, due March 15, 2001.... 450,000 450,000
Senior Unsecured Notes, 8 1/4%, due February 1, 2002.. 100,000 100,000
Senior Subordinated Notes, 9%, due February 1, 2006... 618,097 650,000
Subordinated Notes, 10%, due March 15, 2003........... 298,500 300,000
Capital lease obligations, at interest rates
approximating 10.90%................................ 170,606 175,161
Pollution Control Revenue Refunding Bonds, 7.90%,
due October 1, 2005................................. 42,000 42,000
Debt of foreign subsidiaries, at rates ranging from
7.25% to 7.84%, due in varying annual installments
through March 2001.................................. 13,842 29,458
---------- ----------
2,463,345 2,966,019
Less: Current portion of long-term debt............... 11,972 62,720
---------- ----------
$2,451,373 $2,903,299
========== ==========
_____________________
(a) Interest on the 1995 Term Loan A and the 1995 Revolving Credit Facility
is payable at prime plus 0.75% or, subject to certain limitations, at a
reserve adjusted LIBOR rate plus 1.75% subject to downward adjustment if
certain financial criteria are met (at a weighted average rate of 7.55% at
December 31, 1996).
(b) Interest on the 1995 Term Loan B is payable at prime plus 1.50% or at a
reserve adjusted LIBOR rate plus 2.50% (at a weighted average rate of 8.08% at
December 31, 1996).
The Company incurred extraordinary losses of $8 million, $19 million, and
$28 million, net of income taxes of $5 million, $12 million and $15 million,
in 1996, 1995 and 1994, respectively, representing redemption premiums and
write-offs of deferred loan costs associated with refinancing transactions or
early repayment of debt in each of those years.
Among other restrictions, the 1995 Bank Credit Agreement, the debt of
foreign subsidiaries and the Company's indentures: (1) restrict payments of
dividends, repayments of subordinated debt, purchases of the Company's Common
- 31 -
Stock, additional borrowings and acquisition of property, plant and equipment;
(2) require that certain financial ratios be maintained at prescribed levels;
(3) restrict the ability of the Company to make fundamental changes and to
enter into new lines of business, the pledging of the Company's assets and
guarantees of indebtedness of others and (4) limit dispositions of assets and
investments which might be made by the Company. The Company believes that
such limitations should not impair its plans for continued maintenance and
modernization of facilities or other operating activities.
The Company is charged a 0.5% fee with respect to any unused balance
available under its $300 million 1995 Revolving Credit Facility, and a 2.00%
fee with respect to any letters of credit issued under the 1995 Revolving
Credit Facility. At December 31, 1996, $27 million of borrowings reduced
available capacity under the 1995 Revolving Credit Facility to $273 million.
The aggregate annual maturities of long-term debt and capital lease
obligations for the five years succeeding December 31, 1996, are as follows:
1997-$11,972,000; 1998-$121,726,000; 1999-$133,724,000; 2000-$150,433,000 and
2001-$637,325,000.
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 receivables are sold. The Company has retained
substantially the same credit risk as if the receivables 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 receivables in the
accompanying consolidated balance sheet are only reduced by the net proceeds
from the sales which totaled $60 million and $63 million as of December 31,
1996 and 1995, respectively. Under the terms of the 1995 Receivables Sales
Agreements, the ongoing costs to the Company from this program are based on
LIBOR, plus 0.25% to 0.65%, on the net proceeds received.
At December 31, 1996, receivables totaling $57 million, inventories
totaling $151 million and property, plant and equipment with a net book value
of $1,238 million were pledged as collateral or held in trust under the terms
of the 1995 Bank Credit Agreement, the 1995 Receivables Sales Agreements, the
debt of foreign subsidiaries and under the indentures for sale and leaseback
transactions.
Fair Market Value Disclosures
The aggregate fair values of the Company's long-term debt and capital
lease obligations approximated $2,521 million and $2,975 million at
December 31, 1996, and 1995, respectively, compared to aggregate carrying
values of $2,463 million and $2,966 million at December 31, 1996 and 1995,
respectively. The fair values of the long-term debt and capital lease
obligations have been determined principally based on secondary market
transactions or trading activity in the securities.
Obligations under the 1995 Bank Credit Agreement and debt of foreign
subsidiaries bear interest at floating rates. The Company's policy is to
enter into interest rate cap agreements as a hedge to effectively fix or limit
its exposure to floating interest rates to, at a minimum, comply with the
terms of its senior secured debt agreements. The Company is a party to LIBOR-
based interest rate cap agreements which limit the interest cost to the
Company with respect to $500 million of floating rate obligations to 8% plus
the Company's borrowing margin until June 1, 1999. At current market rates at
- 32 -
December 31, 1996, the fair value of the Company's interest rate cap
agreements is $1 million compared to a carrying value of $8 million. The
counterparties to the Company's interest rate cap agreements consist of major
financial institutions. While the Company is exposed to credit risk to the
extent of nonperformance by these counterparties, management monitors the risk
of default by the counterparties and believes that the risk of incurring
losses due to nonperformance is remote.
5. SALE AND LEASEBACK TRANSACTIONS
Certain buildings and machinery and equipment at the Company's tissue
mills were sold and leased back from various financial institutions. These
leases are treated as capital leases in the accompanying consolidated
financial statements. Future minimum lease payments at December 31, 1996, are
as follows:
Year Ending December 31, Amount
------------------------ ------
(In thousands)
1997................................... $ 23,648
1998................................... 23,438
1999................................... 23,279
2000................................... 22,765
2001................................... 22,636
2002 and thereafter.................... 310,440
--------
Total payments......................... 426,206
Less imputed interest at
rates approximating 10.9%............ 255,600
--------
Present value of capital
lease obligations.................... $170,606
========
6. EMPLOYEE POSTRETIREMENT BENEFIT PLANS
Effective January 1, 1995, the Company revised the eligibility
requirements for postretirement medical benefits resulting in a reduction in
the number of active employees eligible to receive these benefits. An
additional change was made to freeze the amount of the monthly postretirement
medical benefit at the 1995 amount. As a result of these changes, the
accumulated postretirement benefit obligation as of December 31, 1995 was
reduced by $10.6 million and the Company recognized a curtailment gain of
$3.4 million in 1995. The decrease in the obligation is being amortized over
12 years, the average remaining service period of active employees.
- 33 -
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands)
Net Periodic Postretirement Benefit Cost
Service cost...................................... $ 83 $ 82 $1,138
Interest cost..................................... 823 871 1,719
Curtailment gain recognized....................... -- (3,389) --
Amortization of prior service cost (benefit)...... (671) (671) 85
------ ------- ------
Net periodic postretirement benefit cost (gain). $ 235 $(3,107) $2,942
====== ======= ======
December 31,
----------------
1996 1995
---- ----
(In thousands)
Unfunded Accumulated Postretirement Benefit Obligation
Accumulated postretirement benefit obligation:
Retirees............................................ $ 7,906 $ 8,127
Fully eligible active plan participants............. 1,302 1,305
Other active plan participants...................... 1,733 1,980
------- -------
10,941 11,412
Unrecognized prior service benefit.................... 6,713 7,385
Unrecognized actuarial losses......................... (4) (435)
------- -------
Accrued postretirement benefit cost................... $17,650 $18,362
======= =======
The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1996, begins at 9.5% in
1997, decreases 1% per year to 6.5% in 2000 and remains at that level
thereafter. Increasing the assumed medical trend rates by one percentage
point in each year would have no material effect on the accumulated
postretirement benefit obligation as of December 31, 1996, or net periodic
postretirement benefit cost.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% compounded annually with respect to the 1996 and
1995 valuations.
7. SHAREHOLDERS' DEFICIT
The Company is authorized to issue up to 100,000,000 shares of $.01 par
value Common Stock. At December 31, 1996, 74,386,222 shares were issued and
74,380,921 shares were outstanding. At December 31, 1995, 63,377,326 shares
were issued and 63,370,794 shares were outstanding. The Company is authorized
to issue up to 50,000,000 shares of $.01 par value Preferred Stock, none of
which were issued or outstanding at December 31, 1996 or December 31, 1995.
On May 15, 1996, the Company issued 10 million shares of Common Stock at
$20.25 per share (the "1996 Offering"). Proceeds from the 1996 Offering, net
- 34 -
of underwriting commissions and other related expenses totaling $9 million,
were $194 million. On June 4, 1996, an additional 520,000 shares of Common
Stock were issued at $20.25 per share upon the exercise of a portion of the
underwriters' over-allotment option granted in connection with the 1996
Offering, resulting in additional new proceeds of $10 million after deducting
underwriting commissions. The proceeds of the sale of Common Stock was used
to prepay a portion of its indebtedness under the 1995 Bank Credit Agreement.
During 1996 the Company issued 419,074 shares of Common Stock at a
weighted average price of $15.42 per share as a result of stock option
exercises under the Company's employee stock option plans. The net proceeds
to the Company of $6 million from these stock option exercises were used to
prepay a portion of its indebtedness under the 1995 Bank Credit Agreement.
In March and April of 1995, the Company issued 25,269,555 shares of
Common Stock at $12.00 per share in the 1995 Offering. Proceeds from the 1995
Offering, net of underwriting commissions and other related expenses totaling
$19 million, were $284 million. The 1995 Offering was part of a
recapitalization plan 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.
Changes in Shareholders' Deficit Accounts
Additional Cumulative
Common Paid-in Translation Retained
Stock Capital Adjustment Deficit
------ ---------- ----------- --------
(In millions)
Balance, December 31, 1993..... $0.4 $ 600.1 $(5.1) $(2,676.3)
Net loss....................... -- -- -- (70.3)
Foreign currency translation
adjustment................... -- -- 2.8 --
---- -------- ----- ---------
Balance, December 31, 1994..... 0.4 600.1 (2.3) (2,746.6)
Net income..................... -- -- -- 14.7
Common Stock offering.......... 0.2 283.9 -- --
Reclass of Common Stock with
put right.................... 0.0 11.7 -- --
Foreign currency translation
adjustment................... -- -- (0.5) --
---- -------- ----- ---------
Balance, December 31, 1995..... 0.6 895.7 (2.8) (2,731.9)
Net income..................... -- -- -- 162.6
Common Stock offering.......... 0.1 203.6 -- --
Exercise of stock options...... 0.0 6.4 -- --
Tax benefits from exercise
of stock options............. -- 1.9 -- --
Other transactions............. 0.0 1.4 -- --
Foreign currency translation
adjustment................... -- -- 7.5 --
---- -------- ----- ---------
Balance, December 31, 1996....... $0.7 $1,109.0 $ 4.7 $(2,569.3)
==== ======== ===== =========
- 35 -
8. STOCK OPTIONS
The Company has two stock option plans, the 1995 Stock Incentive Plan
under which a total of 3,359,662 shares of Common Stock are reserved for
awards to officers and key employees as stock options, stock appreciation
rights, restricted stock, performance shares, stock equivalents and dividend
equivalents and the 1995 Stock Plan for Non-Employee Directors under which a
total of 80,000 shares of Common Stock are reserved for grant to non-employee
directors, of which 2,854 shares have been granted at December 31, 1996. In
addition, stock options to purchase 3,317,834 shares were granted and remain
outstanding at December 31, 1996, under predecessor stock plans. The Company
accounts for these plans using the intrinsic value based method pursuant to
APB Opinion No. 25 and Statement of Financial Accounting Standards No. 123
("SFAS No. 123") under which compensation expense of $52,000 was recognized in
1996 and no compensation expense was recognized in 1995 and 1994. Had
compensation cost for these plans been determined pursuant to the fair value
method under SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts (in thousands,
except per share amounts):
1996 1995
----------------------- -----------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
Net Income................. $ 162,597 $ 161,260 $ 14,717 $ 14,127
Earnings Per Share......... $ 2.32 $ 2.30 $ 0.25 $ 0.24
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, and additional awards in future
years are anticipated, the effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.
The fair value of the 1995 and 1996 option grants used to compute the
pro forma amounts above was estimated on the grant date using the Black-
Scholes option pricing model with the following assumptions used for grants in
1996 and 1995 respectively: risk free interest rates of 6.07% and 5.51%;
expected lives of 5 years and 5 years; and expected volatility of 19.26% and
24.32%. The dividend yield was assumed to be zero since the Company does not
anticipate paying dividends in the near term.
All options issued or to be issued subject to the 1995 Stock Incentive
Plan will expire not later than ten years after the date on which they are
granted. The vesting schedule and exercisability of stock options under the
1995 Stock Incentive Plan will be determined by the Compensation and
Nominating Committee of the Board of Directors. Pursuant to the 1995 Stock
Incentive Plan, 12,000 shares were granted as a Restricted Stock Award and
8,000 shares were granted as a Stock Equivalent Award in September 1996. In
December 1996, stock options to purchase 750,000 shares were also granted
pursuant to the 1995 Stock Incentive Plan.
- - 36 -
Changes in Stock Options Outstanding
Weighted Average
Exercise
Number Of Price
Options Per Option
--------- ----------------
Balance, December 31, 1993..................... 3,825,646 $16.22
Options Cancelled............................ (82,888) $16.06
--------- ------
Balance, December 31, 1994..................... 3,742,758 $16.22
Options Granted.............................. 743,000 $19.75
Options Cancelled............................ (2,600) $18.46
--------- ------
Balance, December 31, 1995..................... 4,483,158 $16.81
Options Granted.............................. 750,000 $27.75
Options Exercised............................ (419,074) $15.42
Options Cancelled............................ (29,750) $19.61
--------- ------
Balance, December 31, 1996..................... 4,784,334 $18.63
========= ======
Exercisable at December 31, 1996............... 3,557,134 $16.55
========= ======
Shares available for future grant at
December 31, 1996............................ 1,873,162
=========
3,317,834 of the 4,784,334 options outstanding at December 31, 1996 have
exercise prices of $15.38 or $18.46 with a weighted average exercise price of
$16.32 and a weighted average remaining contractual life of 2.6 years. All of
these options are exercisable. The remaining 1,466,500 options have exercise
prices of $19.75 or $27.75 with a weighted average exercise price of $23.84
and a weighted average remaining contractual life of 9.5 years. 239,300 of
these options are exercisable; their weighted average exercise price is
$19.75.
9. RELATED PARTY TRANSACTIONS
At December 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley Group")
and certain of its affiliates controlled 26% of the Company's Common Stock.
Morgan Stanley & Co. Incorporated ("MS&Co") has served as lead
underwriter with respect to the 1996 Offering, the 1995 Offering and periodic
public debt offerings and has received underwriting fees of $3 million in
1996, $7 million in 1995 and $20 million in 1994 in connection with such
public offerings. MS&Co is also a market maker with respect to the Company's
public debt securities. MS&Co also periodically provides financial advisory
services for the Company for which it receives customary fees. Pursuant to an
agreement terminated effective December 31, 1994, MS&Co provided financial
advisory services to the Company for which the Company paid MS&Co $1 million
in 1994. The Company is a party to several interest rate cap agreements (see
Note 4) including one such agreement with MS&Co which was purchased in 1994
for $2 million.
- 37 -
10. COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of laws in the United States and
other countries that focus on the impact of the environment on human health,
the limitation and control of emissions and discharges to the air and waters,
the quality of ambient air and bodies of water and the handling, use and
disposal of specified substances and solid waste. Financial responsibility
for the clean-up or other remediation of contaminated property or for natural
resource damages can extend to previously owned or used properties, waterways
and properties owned by third parties as well as to prior owners.
Since 1992, the Company has been participating in an effort sponsored by
the Wisconsin Department of Natural Resources ("WDNR") to study the nature and
extent of polychlorinated biphenyl ("PCB") and other sediment contamination of
the lower Fox River in northeast Wisconsin. The objective of this effort is
to identify cost effective primary restoration of certain sediment deposits.
On January 30, 1997, the Company and six other companies (the "Seven
Companies") entered into an agreement with WDNR and the Wisconsin Department
of Justice ("WDOJ") to investigate claims for natural resources damages,
including sediment restoration claims, asserted against the Seven Companies
relating to releases of PCBs and other hazardous substances to the lower Fox
River ("Agreement") and to pursue a negotiated settlement of those claims
under federal and state law. The Agreement also provides that the Seven
Companies will make available to the State of Wisconsin a total of $10
million, consisting of work and funds, to, among other purposes, initiate
demonstration projects to determine the efficacy of sediment restoration
approaches and to underwrite a state led natural resources damage assessment.
The parties have agreed to toll certain statute of limitations and forbear
from commencing litigation during the term of the Agreement. Based upon
available information, the Company believes there are additional parties who
may be responsible for releasing PCBs to the Fox River.
The United States Department of Interior, Fish and Wildlife Service
("FWS"), a federal natural resource trustee, previously informed each of the
Seven Companies that they have been identified as potentially responsible
parties for purposes of claims for natural resources damages under CERCLA,
commonly known as the "Superfund Act," and the Federal Water Pollution Control
Act arising from alleged releases of PCBs to the Fox River and Green Bay
system. The FWS alleges that natural resources including endangered species,
fish, birds and tribal lands or lands held by the United States in trust for
various tribes have been exposed to PCBs that were released from facilities
located along the Fox River. The FWS has begun an assessment to determine and
quantify the nature and extent of injury to any affected natural resources.
On February 3, 1997, the Seven Companies were notified by FWS of its intent to
file suit to recover natural resources damages pursuant to Federal law. Based
upon available information, the Company believes that there are additional
parties who may be identified as PRPs for alleged natural resource damages.
The Company recorded an additional environmental charge of $18 million in
the fourth quarter of 1996 reflecting revised estimates of costs for
environmental matters related to its operations, including legal and
consulting costs. The amounts accrued represent estimated gross undiscounted
amounts that are based on both internal and external estimates of restoration
as well as assumptions as to participation by other companies. The Company
expects these costs to be expended over an extended number of years and as of
December 31, 1996, has accrued liabilities for environmental matters of
approximately $37 million. The ultimate cost to the Company for environmental
- 38 -
matters cannot be determined with certainty due to the unknown magnitude of
the contamination to be addressed, the varying cost of restoration methods
that could be employed, the evolving nature of restoration technologies and
government regulations and the inability to determine the Company's share of
multiparty obligations or the extent to which contributions will be available
from other parties. The accrued liabilities reflect the Company's current
estimate of the cost of these environmental matters. There can be no
assurance that the amount accrued will not increase or decrease. It is
reasonably possible that the Company's recorded estimate of these liabilities
may change.
The Company and its subsidiaries are parties to other lawsuits and state
and federal administrative proceedings in connection with their businesses.
Although the final results in all such suits and proceedings cannot be
predicted with certainty, the Company currently believes that the ultimate
resolution of all of such lawsuits and proceedings, after taking into account
the liabilities accrued with respect to such matters, will not have a material
adverse effect on the Company's financial condition or on its results of
operations.
11. GEOGRAPHIC INFORMATION
United United
States Kingdom Consolidated
------ ------- ------------
(In thousands)
1996
Net sales........................ $ 1,404,935 $175,836 $ 1,580,771
Operating income................. 452,165 24,206 476,371
Identifiable operating assets.... 1,446,363 169,017 1,615,380
1995
Net sales........................ $ 1,457,136 $163,767 $ 1,620,903
Operating income................. 342,534 17,585 360,119
Identifiable operating assets.... 1,490,426 162,011 1,652,437
1994
Net sales........................ $ 1,143,205 $131,240 $ 1,274,445
Operating income................. 268,620 8,183 276,803
Identifiable operating assets.... 1,517,992 162,906 1,680,898
Intercompany sales and charges between geographic areas and export sales
are not material.
- 39 -
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
(In millions, except per share data)
1996
Net sales................ $ 386 $ 402 $ 408 $ 385 $1,581
Gross income............. 147 159 174 156 636
Operating income (a)..... 114 125 135 102 476
Net income before
extraordinary item (a). 27 36 43 65 171
Extraordinary item-loss
on debt repurchases.... -- (3) -- (5) (8)
Net income............... 27 33 43 60 163
Earnings per share:
Net income before
extraordinary item (a) $ 0.43 $ 0.53 $ 0.58 $ 0.87 $ 2.44
Extraordinary item-loss
on debt repurchases.. -- (0.05) -- (0.06) (0.12)
Net income per share... $ 0.43 $ 0.48 $ 0.58 $ 0.81 $ 2.32
Dividends per share...... -- -- -- -- --
_____________________
(a) During the fourth quarter of 1996, the Company recorded an environmental
charge totaling $18 million and a credit of $36 million to income tax expense
reversing income taxes previously accrued for the tax years 1988 through 1995
for previously disallowed income tax deductions for fees and expenses related
to 1988 debt financing and refinancing transactions. Excluding the effects of
the environmental charge and the income tax expense reversal, the Company's
operating income, net income before extraordinary item and net income before
extraordinary item per share would have been $120 million, $39 million and
$0.52, respectively, for the fourth quarter and $494 million, $145 million and
$2.07, respectively, for the year 1996.
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
(In millions, except per share data)
1995
Net sales................ $ 367 $ 412 $ 426 $ 416 $ 1,621
Gross income............. 100 115 126 141 482
Operating income......... 71 88 95 106 360
Net income (loss) before
extraordinary item..... (9) 7 15 21 34
Extraordinary item-loss
on debt repurchases.... (19) -- -- -- (19)
Net income (loss)........ (28) 7 15 21 15
Earnings (loss) per share:
Net income (loss) before
extraordinary item... (0.22) 0.12 0.23 0.33 0.57
Extraordinary item-loss
on debt repurchases.. (0.44) -- -- -- (0.32)
Net income (loss)
per share............ (0.66) 0.12 0.23 0.33 0.25
Dividends per share...... -- -- -- -- --
- 40 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
For information regarding executive officers see Part I, Item 4a.
For information regarding directors and compliance with Section 16(a) of
the Securities and Exchange Act of 1934, see the Proxy Statement for the
Annual Meeting of Shareholders to be held on May 13, 1997, under the captions
"Election of Directors" and "Executive Compensation--Section 16(a) Beneficial
Ownership Reporting Compliance" which are incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 13, 1997, under the captions "Committees of the Board of
Directors; Meetings and Compensation of Directors," "Compensation and
Nominating Committee Report on Executive Officer Compensation," "Performance
Graph" and "Executive Compensation" which are incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 13, 1997, under the captions "Ownership of Common Stock by
Management," "Principal Stockholders" and "Executive Compensation--Management
Incentive Plan and 1995 Stock Incentive Plan," which are incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 13, 1997, under the caption "Certain Transactions," which is
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. 1. Financial Statements of Fort Howard Corporation
Included in Part II, Item 8:
Report of Independent Public Accountants.
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994.
Consolidated Balance Sheets as of December 31, 1996, and 1995.
- 41 -
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Separate financial statements and supplemental schedules of the Company
and its consolidated subsidiaries are omitted since the Company is primarily
an operating corporation and its consolidated subsidiaries included in the
consolidated financial statements being filed do not have a minority equity
interest or indebtedness to any other person or to the Company in an amount
which exceeds five percent of the total assets as shown by the consolidated
financial statements as filed herein.
a. 2. Financial Statement Schedules
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the audited
consolidated financial statements or notes thereto.
a. 3. Exhibits
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
3.2 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 4.2 as filed with the Company's Form S-8
on February 3, 1997.)
4.1 Credit Agreement dated as of March 8, 1995, among the
Company, the lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and
Chemical Bank as arrangers, and Bankers' Trust Company as
administrative agent. (Incorporated by reference to Exhibit 4.0
as filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.)
+4.1(A) Amendment No. 1 dated April 8, 1996, to Credit Agreement.
+4.1(B) Amendment No. 2 dated October 21, 1996, to Credit Agreement.
4.2 Form of 9 1/4% Senior Note Indenture dated as of March 15, 1993,
between the Company and Norwest Bank Wisconsin, N.A., Trustee.
(Incorporated by reference to Exhibit 4.1 as filed with the
Company's Amendment No. 2 to Form S-2 on March 4, 1993.)
4.3 Form of 10% Subordinated Note Indenture dated as of March 15,
1993, between the Company and the United States Trust Company of
New York, Trustee. (Incorporated by reference to Exhibit 4.2 as
filed with the Company's Amendment No. 2 to Form S-2 on March 4,
1993.)
- 42 -
4.4 Form of 9% Senior Subordinated Note Indenture dated as of
February 1, 1994, between the Company and The Bank of New York,
Trustee. (Incorporated by reference to Exhibit 4.2 as filed
with the Company's Form S-2 on December 17, 1993.)
Registrant agrees to provide copies of instruments defining the rights
of security holders, including indentures, upon request of the
Commission.
*10.1 Employment Agreement dated October 15, 1993, with the Company's
Chairman. (Incorporated by reference to Exhibit 10 as filed
with the Company Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.)
+*10.2 Employment Agreements dated December 13, 1996, with the
Company's Chief Executive Officer and Chief Financial Officer.
+*10.3 Employment Agreements dated December 13, 1996, with certain
executive officers of the Company.
*10.4 Amended and Restated Stockholders Agreement dated as of
March 1, 1995, among the Company, Morgan Stanley Group,
MSLEF II, certain institutional investors and the Management
Investors which amends and restates the Stockholders Agreement
dated as of December 7, 1990, as amended. (Incorporated by
reference to Exhibit 10.3(A) as filed with the Company's Annual
Report or Form 10-K for the year ended December 31, 1994.)
*10.5 Management Incentive Plan as amended and restated as of
December 19, 1994. (Incorporated by reference to Exhibit
No. 10.2 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
+*10.5(A) Amendment No. 1 dated April 29, 1996, to Management Incentive
Plan.
*10.6 Supplemental Retirement Plan. (Incorporated by reference to
Exhibit No. 10.7 as filed with Amendment No. 2 to the Company's
Form S-1 on October 25, 1988.)
*10.6(A) Amendment No. 1 to the Supplemental Retirement Plan.
(Incorporated by reference to Exhibit 10.P as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)
*10.7 Form of Supplemental Retirement Agreement for the Company's
Chief Executive Officer as Amended. (Incorporated by reference
to Exhibit 10.M as filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.)
*10.8 Supplemental Retirement Agreements for certain directors and
officers. (Incorporated by reference to Exhibit 10.T as filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.)
*10.8(A) Form of Amendment No. 1 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10.U as filed with the Company's Form 10-K for the
year ended December 31, 1990.)
- 43 -
*10.8(B) Form of Amendment No. 2 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10 as filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.)
*10.9 Amended and Restated Management Equity Participation Agreement
dated as of August 1, 1988. (Incorporated by reference to
Exhibit No. 10.9 as filed with the Company's Amendment No. 2 to
Form S-1 on October 25, 1988.)
*10.9(A) Letter Agreement dated June 27, 1990, which modifies Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.V as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(B) Letter Agreement dated July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated
Management Equity Participation Agreement. (Incorporated by
reference to Exhibit 10.W as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
*10.9(C) Letter Agreement dated July 31, 1990, between the Company and
the Management Investor Committee which amends Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.X as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(D) Letter Agreement dated February 7, 1991, between the Company and
the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(E) Form of Letter Agreement dated February 7, 1991, among the
Company, the Management Investors Committee and Management
Investors which cancels certain stock options, grants new stock
options and amends the Amended and Restated Management Equity
Participation Agreement. (Incorporated by reference to Exhibit
10.HH as filed with the Company's Form 10-K for the year ended
December 31, 1990.)
*10.9(F) Letter Agreement dated March 1, 1995, between the
Company and the Management Investors Committee which amends the
Amended and Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.8(F) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.10 Management Equity Plan. (Incorporated by reference to
Exhibit 10.H as filed with the Company's Form 10-K for the year
ended December 31, 1991.)
*10.10(A) Amendment dated December 28, 1993, to Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(A) as filed with
the Company's Form 10-K for the year ended December 31, 1993.)
- 44 -
*10.10(B) Amendment dated March 1, 1995, to the Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(B) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.11 Form of Management Equity Plan Agreement. (Incorporated by
reference to Exhibit 10.I as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.12 Participation Agreement dated as of October 20, 1989, among the
Company, Philip Morris Credit Corporation, the Loan Participants
listed therein, the Connecticut National Bank, Owner Trustee,
and Wilmington Trust Company, Indenture Trustee. (Incorporated
by reference to Exhibit 10.15 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
10.13 Facility Lease Agreement dated as of October 20, 1989, between
the Connecticut National Bank in its capacity as Owner Trustee,
the Lessor and the Company as Lessee. (Incorporated by
reference to Exhibit 10.16 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
10.14 Power Installation Lease Agreement dated as of October 20, 1989,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.HH as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.15 Equipment Lease Agreement dated as of October 20, 1989, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.II as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.16 Participation Agreement dated as of December 23, 1990, among the
Company, Bell Atlantic Tricon Leasing Corporation, Bankers Trust
Company, The Connecticut National Bank, Owner Trustee, and
Wilmington Trust Company, Indenture Trustee. (Incorporated by
reference to Exhibit 10.BB as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
10.17 Amended and Restated Equipment Lease Agreement [1990] dated as
of December 19, 1991, between The Connecticut National Bank, not
in its individual capacity but solely as Owner Trustee under the
Trust Agreement, as Lessor, and the Company, as Lessee.
(Incorporated by reference to Exhibit 10.W as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.18 Facility Lease Agreement dated as of December 19, 1991, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.EE as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.19 Equipment Lease Agreement [1991] dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.FF as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
- 45 -
10.20 Power Plant Lease Agreement dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.21 Amended and Restated Participation Agreement dated as of
October 21, 1991, among the Company, Bell Atlantic Tricon
Leasing Corporation, Bankers Trust Company, The Connecticut
National Bank, Owner Trustee, and Wilmington Trust Company,
Indenture Trustee and the Form of the First Amendment thereto
dated as of December 13, 1991. (Incorporated by reference to
Exhibit 4.3 as filed with the Company's Amendment No. 3 to
Form S-3 on December 13, 1991.)
*10.22 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit No. 10.14 as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995.)
*10.23 1995 Stock Incentive Plan. (Incorporated by reference to
Exhibit No. 10.15 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
*10.23(A) Amendment No. 1 to 1995 Stock Incentive Plan. (Incorporated by
reference to Exhibit 4.4 as filed with the Company's Form S-8
on February 3, 1997.)
*10.24 Form of Nonqualified Stock Option Agreement dated December 6,
1995. (Incorporated by reference to Exhibit 10.22(A) as filed
with the Company's Form 10-K for the year ended December 31,
1995.)
*10.24(A) Stock Award Agreement dated September 10, 1996. (Incorporated
by reference to Exhibit 10 as filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.)
+*10.24(B) Form of Nonqualified Stock Option Agreement dated December 9,
1996.
*10.25 1995 Stock Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.16 as filed with the Company's
Amendment No. 1 to Form S-1 on February 8, 1995.)
+*10.26 Agreement with Company's Chairman dated December 9, 1996,
regarding health insurance benefits.
+*10.27 Severance Agreement dated December 31, 1996, with a former
executive vice president of the Company.
+12.1 Statement of Deficiency of Earnings Available to Cover Fixed
Charges.
+12.2 Statement of Computation of Ratio of Earnings to Fixed Charges.
+21 Subsidiaries of Fort Howard Corporation.
+23 Consent of Arthur Andersen LLP (included in Part IV at page 49).
- 46 -
+24 Powers of Attorney (included as part of signature page).
+27 Financial Data Schedule for year ended December 31, 1996.
- --------------------
*Management contract or compensatory plan or arrangement.
+Filed herewith.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
- 47 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Green Bay, Wisconsin
February 4, 1997 By /s/ Michael T. Riordan
----------------------------------
Michael T. Riordan
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Fort Howard Corporation hereby
constitute and appoint Michael T. Riordan, Kathleen J. Hempel and James W.
Nellen II and each of them, with full power to act without the other and with
full power of substitution and resubstitution, our true and lawful attorneys-
in-fact with full power to execute in our name and behalf in the capacities
indicated below any and all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission and hereby ratify and
confirm all that such attorneys-in-fact, or any of them, or their substitutes
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacities on the dates indicated:
/s/ Donald H. DeMeuse Chairman of the Board February 4, 1997
Donald H. DeMeuse and Director
/s/ Michael T. Riordan President, Chief February 4, 1997
Michael T. Riordan Executive Officer
and Director
/s/ Kathleen J. Hempel Vice Chairman, Chief February 4, 1997
Kathleen J. Hempel Financial Officer and
Director
/s/ Donald Patrick Brennan
Donald Patrick Brennan Director February 3, 1997
/s/ James L. Burke
James L. Burke Director February 3, 1997
/s/ Dudley J. Godfrey
Dudley J. Godfrey Director February 3, 1997
/s/ David I. Margolis
David I. Margolis Director January 30, 1997
/s/ Robert H. Niehaus
Robert H. Niehaus Director January 30, 1997
/s/ Frank V. Sica
Frank V. Sica Director January 30, 1997
- 48 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Fort Howard Corporation included in this
Form 10-K and have issued our report thereon dated January 31, 1997. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
_______________________
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement Nos. 33-63099, 33-64841, 333-00019 and 333-01975
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
- 49 -
Schedule II
FORT HOWARD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
For the Years Ended
December 31,
------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1996 1995 1994
---- ---- ----
Balance at beginning of year............. $2,883 $1,589 $2,366
Additions charged to earnings............ 540 1,209 (92)
Charges for purpose for which
reserve was created.................. (80) 85 (685)
------ ------ ------
Balance at end of year................... $3,343 $2,883 $1,589
====== ====== ======
- 50 -
INDEX TO EXHIBITS
Exhibit No.
- -----------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
3.2 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 4.2 as filed with the Company's Form S-8
on February 3, 1997.)
4.1 Credit Agreement dated as of March 8, 1995, among the
Company, the lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and
Chemical Bank as arrangers, and Bankers' Trust Company as
administrative agent. (Incorporated by reference to Exhibit 4.0
as filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.)
+4.1(A) Amendment No. 1 dated April 8, 1996, to Credit Agreement.
+4.1(B) Amendment No. 2 dated October 21, 1996, to Credit Agreement.
4.2 Form of 9 1/4% Senior Note Indenture dated as of March 15, 1993,
between the Company and Norwest Bank Wisconsin, N.A., Trustee.
(Incorporated by reference to Exhibit 4.1 as filed with the
Company's Amendment No. 2 to Form S-2 on March 4, 1993.)
4.3 Form of 10% Subordinated Note Indenture dated as of March 15,
1993, between the Company and the United States Trust Company of
New York, Trustee. (Incorporated by reference to Exhibit 4.2 as
filed with the Company's Amendment No. 2 to Form S-2 on March 4,
1993.)
4.4 Form of 9% Senior Subordinated Note Indenture dated as of
February 1, 1994, between the Company and The Bank of New York,
Trustee. (Incorporated by reference to Exhibit 4.2 as filed
with the Company's Form S-2 on December 17, 1993.)
Registrant agrees to provide copies of instruments defining the rights
of security holders, including indentures, upon request of the
Commission.
*10.1 Employment Agreement dated October 15, 1993, with the Company's
Chairman. (Incorporated by reference to Exhibit 10 as filed
with the Company Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.)
+*10.2 Employment Agreements dated December 13, 1996, with the
Company's Chief Executive Officer and Chief Financial Officer.
+*10.3 Employment Agreements dated December 13, 1996, with certain
executive officers of the Company.
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*10.4 Amended and Restated Stockholders Agreement dated as of
March 1, 1995, among the Company, Morgan Stanley Group,
MSLEF II, certain institutional investors and the Management
Investors which amends and restates the Stockholders Agreement
dated as of December 7, 1990, as amended. (Incorporated by
reference to Exhibit 10.3(A) as filed with the Company's Annual
Report or Form 10-K for the year ended December 31, 1994.)
*10.5 Management Incentive Plan as amended and restated as of
December 19, 1994. (Incorporated by reference to Exhibit
No. 10.2 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
+*10.5(A) Amendment No. 1 dated April 29, 1996, to Management Incentive
Plan.
*10.6 Supplemental Retirement Plan. (Incorporated by reference to
Exhibit No. 10.7 as filed with Amendment No. 2 to the Company's
Form S-1 on October 25, 1988.)
*10.6(A) Amendment No. 1 to the Supplemental Retirement Plan.
(Incorporated by reference to Exhibit 10.P as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)
*10.7 Form of Supplemental Retirement Agreement for the Company's
Chief Executive Officer as Amended. (Incorporated by reference
to Exhibit 10.M as filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.)
*10.8 Supplemental Retirement Agreements for certain directors and
officers. (Incorporated by reference to Exhibit 10.T as filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.)
*10.8(A) Form of Amendment No. 1 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10.U as filed with the Company's Form 10-K for the
year ended December 31, 1990.)
*10.8(B) Form of Amendment No. 2 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10 as filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.)
*10.9 Amended and Restated Management Equity Participation Agreement
dated as of August 1, 1988. (Incorporated by reference to
Exhibit No. 10.9 as filed with the Company's Amendment No. 2 to
Form S-1 on October 25, 1988.)
*10.9(A) Letter Agreement dated June 27, 1990, which modifies Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.V as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(B) Letter Agreement dated July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated
Management Equity Participation Agreement. (Incorporated by
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reference to Exhibit 10.W as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
*10.9(C) Letter Agreement dated July 31, 1990, between the Company and
the Management Investor Committee which amends Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.X as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(D) Letter Agreement dated February 7, 1991, between the Company and
the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(E) Form of Letter Agreement dated February 7, 1991, among the
Company, the Management Investors Committee and Management
Investors which cancels certain stock options, grants new stock
options and amends the Amended and Restated Management Equity
Participation Agreement. (Incorporated by reference to Exhibit
10.HH as filed with the Company's Form 10-K for the year ended
December 31, 1990.)
*10.9(F) Letter Agreement dated March 1, 1995, between the
Company and the Management Investors Committee which amends the
Amended and Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.8(F) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.10 Management Equity Plan. (Incorporated by reference to
Exhibit 10.H as filed with the Company's Form 10-K for the year
ended December 31, 1991.)
*10.10(A) Amendment dated December 28, 1993, to Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(A) as filed with
the Company's Form 10-K for the year ended December 31, 1993.)
*10.10(B) Amendment dated March 1, 1995, to the Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(B) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.11 Form of Management Equity Plan Agreement. (Incorporated by
reference to Exhibit 10.I as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.12 Participation Agreement dated as of October 20, 1989, among the
Company, Philip Morris Credit Corporation, the Loan Participants
listed therein, the Connecticut National Bank, Owner Trustee,
and Wilmington Trust Company, Indenture Trustee. (Incorporated
by reference to Exhibit 10.15 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
10.13 Facility Lease Agreement dated as of October 20, 1989, between
the Connecticut National Bank in its capacity as Owner Trustee,
the Lessor and the Company as Lessee. (Incorporated by
reference to Exhibit 10.16 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
- 53 -
10.14 Power Installation Lease Agreement dated as of October 20, 1989,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.HH as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.15 Equipment Lease Agreement dated as of October 20, 1989, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.II as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.16 Participation Agreement dated as of December 23, 1990, among the
Company, Bell Atlantic Tricon Leasing Corporation, Bankers Trust
Company, The Connecticut National Bank, Owner Trustee, and
Wilmington Trust Company, Indenture Trustee. (Incorporated by
reference to Exhibit 10.BB as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
10.17 Amended and Restated Equipment Lease Agreement [1990] dated as
of December 19, 1991, between The Connecticut National Bank, not
in its individual capacity but solely as Owner Trustee under the
Trust Agreement, as Lessor, and the Company, as Lessee.
(Incorporated by reference to Exhibit 10.W as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.18 Facility Lease Agreement dated as of December 19, 1991, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.EE as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.19 Equipment Lease Agreement [1991] dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.FF as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.20 Power Plant Lease Agreement dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.21 Amended and Restated Participation Agreement dated as of
October 21, 1991, among the Company, Bell Atlantic Tricon
Leasing Corporation, Bankers Trust Company, The Connecticut
National Bank, Owner Trustee, and Wilmington Trust Company,
Indenture Trustee and the Form of the First Amendment thereto
dated as of December 13, 1991. (Incorporated by reference to
Exhibit 4.3 as filed with the Company's Amendment No. 3 to
Form S-3 on December 13, 1991.)
*10.22 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit No. 10.14 as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995.)
- 54 -
*10.23 1995 Stock Incentive Plan. (Incorporated by reference to
Exhibit No. 10.15 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
*10.23(A) Amendment No. 1 to 1995 Stock Incentive Plan. (Incorporated by
reference to Exhibit 4.4 as filed with the Company's Form S-8
on February 3, 1997.)
*10.24 Form of Nonqualified Stock Option Agreement dated December 6,
1995. (Incorporated by reference to Exhibit 10.22(A) as filed
with the Company's Form 10-K for the year ended December 31,
1995.)
*10.24(A) Stock Award Agreement dated September 10, 1996. (Incorporated
by reference to Exhibit 10 as filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.)
+*10.24(B) Form of Nonqualified Stock Option Agreement dated December 9,
1996.
*10.25 1995 Stock Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.16 as filed with the Company's
Amendment No. 1 to Form S-1 on February 8, 1995.)
+*10.26 Agreement with Company's Chairman dated December 9, 1996,
regarding health insurance benefits.
+*10.27 Severance Agreement dated December 31, 1996, with a former
executive vice president of the Company.
+12.1 Statement of Deficiency of Earnings Available to Cover Fixed
Charges.
+12.2 Statement of Computation of Ratio of Earnings to Fixed Charges.
+21 Subsidiaries of Fort Howard Corporation.
+23 Consent of Arthur Andersen LLP (included in Part IV at page 49.
+24 Powers of Attorney (included as part of signature page).
+27 Financial Data Schedule for year ended December 31, 1996.
- --------------------
*Management contract or compensatory plan or arrangement.
+Filed herewith.
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