-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FpAjWZ9ujuAfBZRn6f9tYLVZRKUeBxpc466FP0i3fy7a/rKPjAazzBJNtxGOB2KY ZGabxQLU3Nf3of6OClmg0w== 0000053117-97-000007.txt : 19970328 0000053117-97-000007.hdr.sgml : 19970328 ACCESSION NUMBER: 0000053117-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAMES RIVER CORP OF VIRGINIA CENTRAL INDEX KEY: 0000053117 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 540848173 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07911 FILM NUMBER: 97565068 BUSINESS ADDRESS: STREET 1: P O BOX 2218 CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8046494296 MAIL ADDRESS: STREET 1: P O BOX 2218 CITY: RICHMOND STATE: VA ZIP: 23218 10-K 1 FORM 10-K DATED 12/29/96 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 For the year ended Commission File December 29, 1996 Number 1-7911 JAMES RIVER CORPORATION of Virginia (Exact name of registrant as specified in its charter) VIRGINIA 54-0848173 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 120 Tredegar Street, Richmond, Virginia 23219 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code (804) 644-5411 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, $.10 par value New York Stock Exchange Rights to Purchase Series M New York Stock Exchange Cumulative Participating Preferred Stock, $10 par value Series K $3.375 Cumulative New York Stock Exchange Convertible Exchangeable Preferred Stock, $10 par value Depositary Shares Representing New York Stock Exchange Series L $14.00 Cumulative Convertible Exchangeable Preferred Stock, $10 par value Depositary Shares Representing New York Stock Exchange Series O 8 1/4% Cumulative Preferred Stock, $10 par value Depositary Shares Representing New York Stock Exchange Series P 9% Cumulative Convertible Preferred Stock, $10 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, 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. [ ] Aggregate market value of voting stock, including common stock and depositary shares representing Series P 9% Cumulative Convertible Preferred Stock, held by non-affiliates of the registrant, at close of business, February 20, 1997............................................. $2,750,746,261 Number of shares of $.10 par value common stock outstanding, as of February 20, 1997. ............................................86,305,095 Documents Incorporated by Reference: (1) Portions of the registrant's Annual Report to Shareholders for the year ended December 29, 1996, incorporated into Parts I and II hereof; and (2) Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 1997, incorporated into Part III hereof. JAMES RIVER CORPORATION OF VIRGINIA Annual Report on Form 10-K December 29, 1996 TABLE OF CONTENTS PART I Page Item 1. Business......................................................... 3 Item 2. Properties........................................................ 11 Item 3. Legal Proceedings................................................. 12 Item 4. Submission of Matters to a Vote of Security Holders................12 Executive Officers of the Registrant.............................. 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................... 15 Item 6. Selected Financial Data........................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 15 Item 8. Financial Statements and Supplementary Data....................... 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 16 PART III Item 10. Directors and Executive Officers of the Registrant................ 16 Item 11. Executive Compensation............................................ 16 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................... 16 Item 13. Certain Relationships and Related Transactions.................... 16 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................. 17 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS James River Corporation of Virginia (together with its subsidiaries, "James River" or the "Company") was founded in 1969 and is incorporated in the Commonwealth of Virginia. James River is a marketer and manufacturer of consumer products, including towel and tissue and disposable food and beverage service products; as well as packaging, including folding cartons and foodservice products; and communications papers, including business papers and specialty papers. James River is one of the industry leaders in terms of sales within the United States and Europe in towel and tissue products. James River is an industry leader, as measured by sales of disposable foodservice items and folding cartons, within the United States, and, on the West Coast, in uncoated business papers. During its twenty-eight year history, James River has pursued a strategy of internal growth and acquisition which has allowed the Company to significantly expand its business and broaden its product lines. Disclosures made herein are as of December 29, 1996, or for the 52-week year then ended. Portions of the James River Corporation of Virginia Annual Report to Shareholders for the year ended December 29, 1996, (the "1996 Annual Report") are incorporated in this Form 10-K by specific reference. One of the Company's key strategies in recent years has been to focus on its core, paper technology-based consumer products and packaging businesses. In support of this strategic focus, the Company has entered into a number of transactions in the past few years. The Company's most significant investment during the last five years was in its European Consumer Products subsidiary. In July 1994, the Company increased its share of ownership in the European Consumer Products Business from 43% to 86% at a cost of approximately $575 million. The Company acquired the remaining 14% interest in September, 1996, at a cost of $200 million to bring its ownership to 100%. In the Company's efforts to focus on its core businesses, James River has also divested of a number of non-core operations in 1996 and 1995. In August 1996, the Company completed the sale of its Flexible Packaging group which included four lamination and coating plants, five film and converting plants, and a rigid plastics container plant. Gross cash proceeds of $373 million from the sale were used to purchase the remaining 14% interest in the European Consumer Products Business with the remaining proceeds used to reduce long-term variable-rate borrowings. Additionally, the Company completed the sale of its Inks Division of the Packaging Business in October 1996 for cash proceeds of $27 million and the sale of its Handi-Kup foam cup operations and its specialty operations of the North American Consumer Products Business for proceeds of $52 million and $30 million, respectively. Outstanding debt was reduced by $577 million in 1996 using a combination of net divestiture proceeds and cash flows provided by operations. In 1995, James River spun off Crown Vantage Inc. ("Crown Vantage") which consisted of a large part of its Communications Papers Business along with the specialty paper-based portion of the Packaging Business. As a result of this spin-off, the Company decreased its exposure to the cyclical printing and publishing papers market and reduced debt by $500 million. Acquisitions, dispositions and investments during the three years ended December 29, 1996, are discussed in Notes 2 and 17 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. The Company continues to focus on reducing costs, intensifying marketing and new product development activities to further strengthen its brands, fixing underperforming businesses, and restructuring its portfolio of assets. The Company currently expects that the rationalization of its portfolio of assets will continue in 1997 and may include, among other items, the divestiture of some of James River's owned timberlands. Future divestiture proceeds and free cash flow will be directed toward capital structure simplification, debt reduction, or possibly, strategic acquisitions. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS James River currently conducts its business in three major segments: (i) the Consumer Products segment, which manufactures and markets paper-based personal care and disposable tabletop products; (ii) the Packaging segment, which provides retail packaging for food and consumer products; and (iii) the Communications Papers segment, which manufactures and markets uncoated business and printing papers serving the commercial printing and office markets. Financial information on the Company's segments for the three years ended December 29, 1996, is presented in Note 16 of Notes to Consolidated Financial Statements and Supplemental Pro Forma Financial Information (Unaudited) in the 1996 Annual Report, which information is incorporated herein by reference. (c) NARRATIVE DESCRIPTION OF BUSINESS Principal Products James River processes basic raw materials, such as wood, wood pulp, wastepaper, paperboard and plastic resins, into products which generally are close to or in their end use form. Consumer Products Business - North America. The North American Consumer Products Business, headquartered in Norwalk, Connecticut, represented approximately 45% of the Company's consolidated sales in 1996 and would have comprised 47% of consolidated sales as the Company was configured at December 29, 1996. This business produces personal care products such as bathroom tissue and towels; and disposable tabletop products such as paper and plastic cups, paper plates, napkins and plastic cutlery. The North American Consumer Products Business is organized along retail and commercial market channels, with each channel carrying both personal care products and tabletop products. The retail group markets a number of popular national brands including QUILTED NORTHERN bathroom tissue; BRAWNY paper towels; VANITY FAIR premium napkins; and DIXIE plates, cups and cutlery; as well as a number of regional brands. Retail products are marketed principally through grocery stores, mass merchants, drug stores and warehouse clubs. The commercial group markets the broadest line of personal care and tabletop products in the industry under the DIXIE, MARATHON and JAMES RIVER - CANADA brand names, as well as a variety of regional brands. A national sales force sells these products to fast food chains, sanitary paper distributors, janitorial supply distributors and foodservice distributors for use in restaurants, hotels, offices, factories and schools. Consumer Products Business - Europe. The European Consumer Products Business, headquartered in Brussels, Belgium, comprised approximately 29% of the Company's consolidated sales in 1996 and would have comprised 30% of consolidated sales as the Company was configured at December 29, 1996. The European Consumer Products Business' product lines, which are sold in both the retail and away-from-home markets, include towel and tissue products such as bathroom and facial tissue, paper towels, and tabletop products such as napkins, placemats, cups and plates. The European Consumer Products Business also produces unconverted tissue, feminine hygiene products, as well as various nonwoven products. The European Consumer Products Business' branded products include LOTUS bathroom tissue and VANIA feminine hygiene products, both of which occupy leading positions in the French market, TENDERLY bathroom tissue sold in Italy and COLHOGAR bathroom tissue sold in Spain. Packaging Business. The Packaging Business, headquartered in Milford, Ohio, produces packaging for many consumer products and pharmaceutical companies and other diversified businesses throughout the United States. This business accounted for approximately 19% of the Company's consolidated sales in 1996 and would have comprised 15% of consolidated sales as the Company is configured at December 29, 1996. Products provided by this business include folding cartons and paperboard (such as ice cream cartons, cereal boxes and microwave packages), and foodservice products (such as QUILT-RAP and other sandwich wraps, freezer papers and interfolded paper products). Folding cartons are produced from both bleached and recycled paperboard. Folding carton operations are supported by a polyethylene extrusion coating plant and an automated carton die manufacturing plant. Foodservice products utilize paper or paperboard based substrates that are coated, treated, or laminated to create packaging materials suitable for "ready to serve" food products. Communications Papers Business. The Company's Communications Papers Business, headquartered in Norwalk, Connecticut, represented approximately 7% of the Company's consolidated sales in 1996 and would have comprised 8% of consolidated sales as the Company is configured at December 29, 1996. The Communications Papers Business is primarily focused on two major product lines: printing and publishing papers and converting and specialty papers. Printing and publishing papers serve the commercial printing and office markets. These products are designed to meet the needs of the printing and publishing markets and are sold either on a direct basis or through merchants and brokers to consumers, publishers and printers. The Company's WORD PRO, XEROBOND and private label business papers are used in offices and by retail printers for copy machines and offset presses. James River also produces numerous recycled business and printing papers including EUREKA! 20, recycled-content office papers, printing papers, forms and envelope converting papers; and EUREKA! copy paper, formsbond and offset printing papers. Marketing Marketing of the Company's North American consumer products, packaging products, and communications papers is managed at the product group level and along distribution channels in order to supply customers with a broad line of products and to focus on national and regional market needs. The Company's products are marketed directly to customers both through national and regional sales organizations as well as through outside distributors who focus on specific market segments, including James River's Commercial Products sales force, which markets both personal care and tabletop products to the commercial markets. Regional distribution centers located throughout the United States are utilized to minimize inventories and transportation costs to customers. Marketing of the Company's products within Europe is similar to the United States. National (i.e. individual country) sales organizations are necessary due to the customer, consumer and cultural differences among countries. Additionally, despite the elimination of many tariffs and trade barriers in Europe, logistics costs remain much higher than in the United States due to infrastructure differences, language issues, varying customer service requirements, and local delivery customs or preferences. Thus, the majority of products are produced and sold within national markets. As customers move in a more pan-European direction via expansion, mergers and cross-border alliances, multi-national sales force cooperation and pan-European sales, marketing and logistics efforts are established to service their changing needs. New Products James River is continually enhancing the quality and design of its products, and expanding its product offerings to meet various customer needs. During 1996, each of the Company's three businesses introduced new or expanded products to the marketplace. Within the North American Consumer Products Business, the Company introduced for the retail market, QUILTED NORTHERN ULTRA DOUBLE ROLL bathroom tissue and for the commercial market DIXIE PERFECTOUCH paper hot cup and COMPACT coreless bathroom tissue. The Company's new QUILTED NORTHERN ULTRA DOUBLE ROLL bathroom tissue, a super premium tissue product, is an enhancement to the Company's QUILTED NORTHERN tissue line. The Company's European Consumer Products Business introduced several product enhancements to strengthen its position in markets where it already holds strong branded positions and in emerging markets with high growth potential such as Russia and the Baltic countries. The Company developed and introduced new bathroom tissue (2 ply and 3 ply), kitchen towels and handkerchiefs using innovative embossing techniques. The Company's Packaging Business provided superior microwave packaging with its patented QWIK WAVE family of products, which was expanded to include QWIK CHECK and MICROFLEX Q. The materials in these microwave packages use microwave energy to crisp and brown foods. During 1996, the Communications Papers Business continued to expand and improve its branded product lines. Raw Materials and Supplies James River utilizes a variety of raw materials in its manufacturing processes. These include wood, wood pulp, wastepaper, other natural and synthetic fibrous materials, selected base papers and boards, plastic films, resins and chemicals. James River believes there is generally a sufficient supply of these or substitutable raw materials. In addition to these materials, pulp and paper production depends on an adequate supply of water, electric power and various forms of fuel. The Company directly generates approximately 20 percent of its electrical power needs internally through turbine-generators and hydroelectric stations, which are located principally in New England, the Midwest and the Southeast. The Company operates or is associated with a number of cogeneration facilities which produce electricity for sale to local utilities and which effectively generate steam used in the papermaking process, while reducing both air and water emissions. James River generates more than one-half of its fuel needs through the utilization of black liquor (which is a by-product of the pulping process), wood waste and other residue. The Company's paper products are manufactured principally from wood pulp which is produced internally or is purchased from external sources. James River's virgin pulping facilities include those producing both chemical and mechanical pulp. Additionally, the Company produces secondary fiber pulp through the recycling of wastepaper and other reclaimable fiber sources. This secondary fiber pulp is generally used internally for paper production processes. The capacity of James River's pulping facilities, in North America and Europe, is summarized as follows: Capacity Pulp Type (Tons Per Year) --------- --------------- Chemical ........................................ 1,795,000 Mechanical ....................................... 120,000 Secondary ....................................... 938,000 ---------- Total ........................................ 2,853,000 ========== In addition to the Company's internal sources, several types of pulp are purchased from other suppliers in the United States, Canada and other parts of the world. Purchased pulp is used to supply partially integrated paper mills, to obtain types of pulp not produced by the Company, or to minimize transportation costs. James River is a net seller in North America of approximately 200,000 tons per year of market pulp. These market pulp sales are reported in the North American Consumer Products Business. The Company's paper machines in Europe are supplied through a combination of James River's North American pulp production, secondary fiber pulp and purchased chemical pulp. Substantially all of the pulp acquired within the United States is purchased at or below prevailing market prices through the use of volume discounts. James River purchases wastepaper from a variety of collection agents and outside vendors for use in the production of secondary fiber pulp. Secondary fiber pulp represents approximately 30% of James River's total worldwide pulp production. Pulpwood and woodchips used in James River's pulp mills are obtained from a combination of owned and leased lands, lands covered by long-term cutting rights agreements, pulpwood and woodchip supply contracts, and open market purchases. All of the timberlands controlled by James River or its affiliates are managed on a sustained-yield basis, and the rate of harvesting is generally equal to or less than the average growth rate. James River presently has controlled access to the timber supply from a total of approximately 3.0 million acres of timberland. Of the total current timber supply, approximately 260,000 acres are located in New England, the Southeast and the Northwest. An additional 2.6 million acres located in Canada are leased by James River-Marathon, Ltd. ("Marathon") and its joint venture affiliate, Dubreuil Forest Products Limited. The remaining 140,000 acres include lands which are subject to cutting rights contracts and managed land programs. James River also purchases paper and paperboard from outside vendors for use in its converting plants. The largest of these items is bleached paperboard used for folding cartons, plates and cups and as a coating base stock. These products utilize bleached paperboard with weights ranging from standard to very lightweight cup stock. James River produces over 73% of its bleached paperboard needs at its Naheola, Alabama, mill. The balance of the Company's requirements is purchased from outside bleached paperboard producers, over two-thirds of which is acquired pursuant to long-term contracts with prices that are at or below prevailing market prices. James River purchases a significant amount of plastic resins, which are utilized in the production of tabletop products. The North American Consumer Products Business uses over 160 million pounds per year of polystyrene and polypropylene plastic resins in producing plastic containers; lids for plastic and paper containers; and plastic cutlery. The Company purchases plastic resins pursuant to negotiated arrangements with a variety of suppliers. Trademarks and Patents James River has a large number of trademarks and trade names registered domestically and in certain foreign countries under which it conducts its business. Trademarks include, among others, QUILTED NORTHERN, BRAWNY, VANITY FAIR, NICE 'N SOFT, VANIA, MARINA, DIXIE, SUPERWARE, LOTUS, COLHOGAR, TENDERLY, DIXIE/MARATHON, QUILT-RAP, QWIK CRISP, EUREKA!, and WORD PRO. The Company considers its trademarks, in the aggregate, to be material to its business, and consequently, seeks trademark protection by all available means. The Company also has a variety of material patents and licenses related to its business. While, in the aggregate, the foregoing patents and licenses are of material importance to James River's business, the loss of any one or any related group of such intellectual property rights would not have a material adverse effect on the operations of James River. Seasonal Business While seasonal variation in demand is not a major factor in the Company's business, the first and fourth quarters of the year are generally the lowest in net sales and operating income. Net sales and profit margins in the Consumer Products Business are generally higher in the spring and summer (second and third quarters) compared to the winter (fourth and first quarters) due to the seasonal volume strength of the retail DIXIE paper cup and plate business during the summer months. In addition, the commercial tissue portion of the Consumer Products Business generally experiences softer sales volumes in the fourth quarter, when many industrial customers are on extended holiday shutdowns. Profit margins for the Company have also historically been lower in the first and fourth quarters because of holiday, vacation and maintenance shutdowns and seasonal energy costs. Customers Sales to James River's five largest customers in the aggregate accounted for approximately 16% of consolidated net sales in 1996 and 1995, and 17% in 1994. For 1996, sales to the five largest customers of the Consumer Products Business in North America and Europe accounted for approximately 30% and 27% of sales, respectively; sales to the five largest customers of the Packaging Business represented approximately 22% of its sales; and sales to the five largest customers of the Communications Papers Business accounted for approximately 48% of its sales. There were no individual customers, however, to which sales exceeded 10% of James River's consolidated net sales. The Company's loss of any customer would not have a material adverse effect on the financial condition of the Company. Order Backlog In the Consumer Products and Packaging Businesses, the Company maintains product inventories to meet delivery requirements of its customers; therefore, the backlog of customer orders for these segments is not significant. In the Communications Papers Business, the Company's backlogs were generally 10 to 25 days depending on the product, as of December 29, 1996, and 5 to 20 days as of December 31, 1995. Order backlog does not vary substantially on a seasonal basis. Competition James River competes domestically and in Europe and is among the largest suppliers of paper products within the segments that they serve. The Company competes on the basis of price, product quality and performance, product development effectiveness, service, and sales and distribution support. In addition, advertising and promotion are important tools for competing for consumer sales. The segment in which the Communications Papers Business operates can be impacted by increased levels of imports from European and other producers when pulp prices are low. Consumer Products Business - North America. James River competes in both the retail and commercial channels for sales of towel and tissue products. The retail channel, which is primarily tied to population growth and new household growth, is mature with an annual growth rate of 1% to 2%. The commercial channel has had a slightly higher annual growth rate in recent years; however, it is more significantly affected by downturns in the economy. Marketing of towel and tissue products is generally characterized as being highly competitive. During 1996, approximately two-thirds of the Company's net sales of towel and tissue products were to retail channels and one-third to commercial channels. Towel and tissue production in the U.S. is concentrated among a few large manufacturers and certain smaller regional producers. Based on industry sales volume statistics, James River is one of the largest U.S. manufacturers, along with Chesapeake Corporation, Fort Howard Corporation, Georgia-Pacific Corporation, Kimberly-Clark Corporation and The Procter & Gamble Company. James River has one of the broadest and most diversified tabletop product lines. Approximately 56% of the Company's tabletop sales are to the retail channel and 44% are to the commercial channel. In the retail tabletop channel, James River believes it holds a leading position along with The Solo Cup Company and Tenneco Corporation. In the commercial channel, James River also believes it holds a leading position along with Sweetheart Cup Company, Inc. Several factors contribute to James River's competitive strengths in the sale of personal care and tabletop products. These include superior product quality, significant research and development efforts, broad product lines, well-known brand franchises, innovative graphic design, and full-service distribution. The Company is continually improving product quality and design in order to deliver greater value to customers while reducing costs. In addition, James River's emphasis on increasing its usage of recycled fiber enhances its ability to produce recycled tissue, responding to environmentally-conscious consumers. Consumer Products Business - Europe. The European tissue industry is rapidly consolidating and James River holds the number three position with a 15% share behind Kimberly-Clark Corporation and Svenska Cellulosa Aktiebolaget (SCA). The majority of the remaining competitors are small regional producers, none of which has a European share exceeding 5%. James River's products generally hold either the number one or number two position in each market in which they compete, and James River's LOTUS brand holds the leading position in France. James River currently has no operations in Germany and has minimal export sales to Germany. James River is growing its business through the strengthening of its brand franchise, the introduction of innovative branded products and their deployment in new territories, and the expansion in Italy, France and the United Kingdom of high quality private label business. At the same time, James River continues to seek the strongest competitive cost position through strategic sourcing, manufacturing rationalization and improved information systems. Packaging Business. The Packaging industry is generally characterized by relatively non-cyclical demand. The Company is the third largest manufacturer, based on sales, of folding cartons, slightly behind Jefferson Smurfit Corporation and the recently merged Rock-Tenn/Waldorf. James River is one of the few folding carton producers with integrated manufacturing facilities for both bleached and recycled paperboard. James River, as a national manufacturer of foodservice products, competes with numerous small regional and local manufacturers. James River forms long-term relationships with leading food and consumer products companies to integrate packaging and marketing initiatives. The Company also believes it is one of the technological leaders in this industry. Through its pioneering of enhanced microwave cooking packaging for folding carton, the Company has strengthened its leadership position in this fast-growing segment of the market. James River is also well-known for its superior graphic design and its web litho and flexographic printing capabilities. Communications Papers Business. The Company has two large, integrated mills serving the western business papers market: its Camas, Washington mill and its Wauna mill in Clatskanie, Oregon. The Company estimates that it is one of the largest producers of uncoated freesheet papers in the west. Major competitors in the uncoated freesheet segment include Weyerhaeuser Company, Boise Cascade Corporation, International Paper Co. and Georgia-Pacific Corporation. James River believes that it is generally equal or superior to its competitors in product development effectiveness, product quality and service. Research and Development The Company's major research and development centers are located in Neenah, Wisconsin; Kunheim, France; Milford, Ohio; and Camas, Washington. The Company has pilot plants located in Camas, Washington; Kunheim, France; and Neenah, Wisconsin, providing pulp and papermaking developmental work and experimental trials. Pilot plant facilities for paper and board packaging, laminating, and printing are located in the Company's Technology and Business Center in Milford, Ohio. Additionally, James River has engineering centers in Neenah, Wisconsin; Kunheim, France; Camas, Washington; and Kalamazoo, Michigan. Other information with respect to James River's research and development efforts is set forth in Note 1 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. Environmental Matters Like its competitors, James River is subject to extensive regulation by various federal, state, provincial, and local agencies concerning compliance with environmental control statutes and regulations. These regulations impose limitations on the discharge of materials into the environment, including effluent and emission limitations, as well as require the Company to obtain and operate in compliance with the conditions of permits and other governmental authorizations. James River has made and will continue to make substantial capital investments and operating expenditures, as well as production adjustments, in order to comply with increasingly stringent standards for air, water, and solid and hazardous waste regulations. During 1996, capital expenditures totaling approximately $20 million were made by James River for pollution control facilities and equipment. Capital expenditures for such purposes on existing facilities are estimated to be approximately $11 million for 1997. The estimated 1997 capital expenditures exclude any expenditures which may be required by the U.S. Environmental Protection Agency's ("EPA's") draft rules or "cluster rules" as set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters," which information is incorporated herein by reference. Estimates of costs for future environmental compliance are necessarily imprecise due to, among other things, the continuing emergence of new environmental laws and regulations and environmental control or process technology developments. While the Company believes that its environmental control costs are likely to increase as environmental regulations become broader and more stringent, James River is unable to predict the amount or timing of such increases. Such future regulations could materially increase the Company's capital requirements in future years. Further information pertaining to hazardous substance cleanup, accrued environmental liabilities and other environmental matters affecting the Company is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters" and Note 15 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. Personnel See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Labor Agreements" on page 26 of the 1996 Annual Report, which information is incorporated herein by reference. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Financial information regarding the Company's domestic and foreign operations is included in Note 16 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. International operations are generally characterized by the same conditions discussed in the narrative description of business and may also be affected by additional elements including changing currency values and different rates of inflation and economic growth. The effects of these additional elements are more significant in the Consumer Products segment, which includes substantially all of the Company's international business. ITEM 2. PROPERTIES The pulp and papermaking facilities of James River, the number of paper or paperboard machines, and the principal types of products produced at each facility are as follows: Principal Business Unit Facility Locations Machines Products - ------------------ --------------------------------- -------- ----------------- Consumer Products -North America Pennington, Alabama (Naheola)(B) 7 Tissue, bleached Old Town, Maine(B) 2 Tissue Carthage, New York(C) 2 Halsey, Oregon(C) 2 Clatskanie, Oregon (Wauna) (D) 3 Camas, Washington(B) 6 Ashland, Wisconsin(C) 2 Green Bay, Wisconsin(C) 6 Marathon, Canada(B) Kraft pulp Consumer Products - -Europe Nokia, Finland(C) 3 Tissue Gien, France 3 Louviers (Hondouville), France(E) 2 Muntzenheim (Kunheim), France 2 Patras (Achaia), Greece 1 Castelnuovo, Italy 1 Cava die Terreni, Italy 1 Potenza (Avigliano), Italy 1 Cuijk, Netherlands(E) 2 Allo, Spain 2 Karamursel, Turkey(C) (F) 2 Mid-Glamorgan (Bridgend), U.K.(C) 3 Larne, U.K.(C) 2 North Sheffield(Oughtibridge),U.K.(C) 2 Packaging Kalamazoo, Michigan 2 Recycled paperboard Communications Papers Clatskanie, Oregon(Wauna) 2 Uncoated groundwood, uncoated freesheet Camas, Washington 6 Uncoated freesheet - -------------------------------------------------------------------------------- Total 67 - -------------------------------------------------------------------------------- (A) The locations listed for James River's consolidated subsidiaries are held in fee by the Company. (B) Includes one chemical pulp facility. (C) Includes one secondary fiber facility. (D) Includes one groundwood pulp facility. (E) Includes two secondary fiber facilities. (F) Unconsolidated subsidiary. James River's network of manufacturing facilities provides for an annual virgin and recycled pulp capacity of approximately 2.9 million tons and an annual paper and paperboard capacity of approximately 3.3 million tons. The Company believes that its production facilities are suitable for their purposes and are adequate to support their businesses. The extent of utilization of individual facilities varies; however, during 1996, James River's pulp and paper mills generally had production levels of over 90% of capacity. James River also operates both integrated and non-integrated converting plants which perform a variety of converting operations. These converting plants (excluding converting operations which may be performed at pulp and papermaking facilities already listed above) are summarized as follows: Number of Converting Plants ------------------------------------- Principal Products Domestic International Total - -------------------------------------------------------------------------------- Paper and plastic foodservice products 10 3 13 Folding cartons 15 15 Paper converting and other 9 9 - -------------------------------------------------------------------------------- Total 25 12 37 ================================================================================ James River's manufacturing and converting facilities are complemented by an integrated network of sales offices and distribution terminals. The Company operates a short-line railroad, primarily used to transport shipments of raw materials and finished goods between its locations. The Company also operates a public warehouse and terminal service that provides tug, barge, freight interchange and other services on the Columbia, Willamette and Snake Rivers in the Pacific Northwest. ITEM 3. LEGAL PROCEEDINGS During 1994, James River was sued in Connecticut and Alabama by certain former holders of James River's 10-3/4% Debentures due on October 1, 2018. Most of these debentures were retired by means of a tender offer to all holders which commenced on September 18, 1992. James River believes these cases are without merit and intends to defend them vigorously. The Connecticut and Alabama cases are being defended in The United States District Court, Connecticut and the Circuit Court, Morgan County, Alabama, respectively. These legal proceedings are discussed in further detail in Note 15 of Notes to Consolidated Financial Statements in the Company's 1996 Annual Report, which information is incorporated herein by reference. Other than the cases discussed above and the information set forth in Note 15 of Notes to Consolidated Financial Statements in the Company's 1996 Annual Report, the Company is not involved in any litigation the outcome of which management believes would have a materially adverse effect on the Company's results of operations, financial condition or competitive position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The following table reflects the name, age, length of service as an officer of James River, and current position for each of the current executive officers of the Company as of February 20, 1997. Previous positions and areas of responsibility over the past five years are included in the footnotes that follow the table. Each officer is elected by the Board of Directors to serve a one-year term. There is no family relationship between any of these officers or between any such officer and any director of the Company; nor is there any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. Calendar Year First Elected as Name Age an Officer Current Position - -------------------------------------------------------------------------------- Miles L. Marsh (1) 49 1995 Chairman of the Board of Directors, President and Chief Executive Officer Michael J. Allan (2) 43 1996 Vice President, Corporate Treasurer Gordon B. Bonfield, III (3) 45 1996 President, Packaging Clifford A. Cutchins, IV (4) 48 1990 Senior Vice President, General Counsel, Corporate Secretary Daniel J. Girvan (5) 48 1993 Senior Vice President, Human Resources James K. Goodwin (6) 50 1991 President, North American Consumer Products Ernst A. Haberli (7) 48 1996 Senior Vice President, Strategy John F. Lundgren (8) 45 1995 President, European Consumer Products Joseph W. McGarr (9) 45 1996 Vice President, Cost and Systems Effectiveness Joe R. Neil (10) 58 1996 President, North American Commercial Products William A. Paterson (11) 53 1996 Senior Vice President and Controller (1) Mr. Marsh was elected to the position of Chief Executive Officer in 1995. He was appointed to the position of Chairman of the Board of Directors in 1996. From 1991 to 1995, he served as Chairman and Chief Executive Officer of Pet Inc. Mr. Marsh served as President and Chief Operating Officer of Pet's former parent company, Whitman Corporation, from 1989 to 1991. Prior to that, he spent eight years in executive positions with various divisions of Dart & Kraft Inc., Kraft Inc. and General Foods USA, all of which are part of Philip Morris Companies Inc. (2) Mr. Allan was appointed to his current position in 1996. He joined James River in 1992 as Vice President, Treasurer. Prior to joining James River, he was Managing Director, Corporate Finance with Toronto-Dominion Bank (a Canadian Bank), which he joined in 1976. (3) Mr. Bonfield was appointed to his current position in 1996. He joined James River in 1988 as Vice President, Carton Group, East. Prior to joining James River he was with the Packaging Corporation of America in various managerial positions, including Vice President, General Manager of their Carton Business. Most recently he served as Senior Vice President, Packaging Business Operations. (4) Mr. Cutchins joined James River in 1990 in his current position. From 1982 until joining James River, he served as Partner with the law firm of McGuire, Woods, Battle & Boothe, L.L.P., which he joined in 1975. (5) Mr. Girvan was elected to his current position in 1993. He joined James River in 1986 as Director, Human Resources, Communications Papers, in connection with the acquisition of Crown Zellerbach Corporation, which he joined in 1977. (6) Mr. Goodwin was elected to his current position in 1992. He joined James River in 1991 as Vice President, Corporate Marketing Strategy. Prior to joining James River, he served as Vice President, Corporate Sales, for The Procter & Gamble Company, which he joined in 1968. (7) Mr. Haberli joined James River in his current position in 1996. From 1990 to 1995, he served as President of Pet International. Prior to that, since 1985, he held various executive positions in strategic planning and development with Kraft General Foods, Kraft International and Kraft Inc. (8) Mr. Lundgren was appointed to his current position in 1995. He joined James River in 1982 as Director of Marketing for Northern paper products, in connection with the acquisition of American Can Company. He served in various managerial and executive positions from 1982 to 1995. (9) Mr. McGarr was appointed to his current position in 1996. He joined James River in 1982 as Director of Strategy for Consumer Products Business, in connection with the acquisition of American Can Company. He served in various managerial and executive positions from 1982 to 1996. (10) Mr. Neil was appointed to his current position in 1996. He joined James River in 1986 as Vice President, General Manager, White Papers Business, in connection with the Crown Zellerbach acquisition. He served in various managerial and executive positions from 1986 to 1996. (11) Mr. Paterson was elected to his current position in 1996. He joined James River in 1996 as Vice President, Controller. Prior to joining James River, he served as Senior Vice President, Finance and Administration for General Foods Corporation. Prior to that, he held various executive positions in finance with Hobart Corporation, Dart Industries and Kraft Inc. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange. Information with respect to quarterly high and low sales prices for James River's common stock, quarterly dividends and other quarterly information related to common shares is contained in Note 18 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. The payment of dividends and the amounts thereof will be dependent upon James River's earnings, financial position, cash requirements and other relevant factors. Common shares of the Company reserved for issuance are described in Note 12 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. In addition, covenants of certain of the Company's senior note agreements impose restrictions on the amount of net worth which, in turn, may limit the funds available for the payment of dividends; these covenants are described under the heading "Liquidity and Capital Resources - Financing Activities" in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 10 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. On February 20, 1997, there were approximately 11,100 shareholders of record of the Company's common stock. ITEM 6. SELECTED FINANCIAL DATA See Selected Financial Data on pages 58 and 59 of the 1996 Annual Report, which information for fiscal years 1992 through 1996 is incorporated herein by reference. The data presented for each period reflects operations acquired from the respective acquisition dates. Acquisitions, dispositions and other transactions from 1994 through 1996 are described in Note 2 of Notes to Consolidated Financial Statements in the 1996 Annual Report, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 29 of the 1996 Annual Report, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the consolidated financial statements and selected quarterly financial information, under the headings "Consolidated Statements of Operations," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of Changes in Capital Accounts," "Notes to Consolidated Financial Statements" and "Supplemental Pro Forma Financial Information (Unaudited)" on pages 30 through 55 of the 1996 Annual Report, which information is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting and financial disclosures prior to the date of the most recent financial statements included herein. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information with respect to the Company's Directors, see "Election of Directors," "Information on Nominees," "Board of Directors and Committees" and "Compensation of Directors" on pages 1 through 4 and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 14 and 15 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 1997 (the "1997 Proxy Statement"), which information is incorporated herein by reference. Information with respect to the Company's Executive Officers is contained under the heading "Executive Officers of the Registrant" on pages 13 and 14 of Part I of this Form 10-K Annual Report. ITEM 11. EXECUTIVE COMPENSATION See "Compensation of Directors" on pages 3 and 4, "Stock Option Plan for Outside Directors" and "Retirement Plan for Outside Directors" on page 4, "Executive Compensation" on pages 8 through 11, "Performance Graph" on page 12, and "Compensation Committee Report on Executive Compensation" on pages 13 and 14 of the Company's 1997 Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See "Stock Ownership of Directors and Executive Officers" and "Principal Shareholders" on pages 5 through 7 of the Company's 1997 Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Information on Nominees" on page 2 of the Company's 1997 Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed as Part of This Report: 1) Financial Statements: The Consolidated Financial Statements of James River Corporation of Virginia and Subsidiaries, the Notes to Consolidated Financial Statements, and the Report of Independent Accountants listed below are incorporated herein by reference from pages 30 through 57 of the Company's 1996 Annual Report. With the exception of the aforementioned information, and the information incorporated by reference in numbered Items 1, 3, 5, 6, 7 and 8, no other data appearing in the 1996 Annual Report is deemed to be "filed" as part of this Form 10-K Annual Report. "Consolidated Statements of Operations" for each of the three fiscal years in the period ended December 29, 1996 (see page 30 of the 1996 Annual Report) "Consolidated Balance Sheets" as of December 29, 1996 and December 31, 1995 (see page 31 of the 1996 Annual Report) "Consolidated Statements of Cash Flows" for each of the three fiscal years in the period ended December 29, 1996 (see page 32 of the 1996 Annual Report) "Consolidated Statements of Changes in Capital Accounts" for each of the three fiscal years in the period ended December 29, 1996 (see page 33 of the 1996 Annual Report) "Notes to Consolidated Financial Statements" (see pages 34 through 54 of the 1996 Annual Report) "Supplemental Pro Forma Financial Information (Unaudited)" (see page 55 of the 1996 Annual Report) "Report of Independent Accountants" (see page 57 of the 1996 Annual Report) with respect to the financial statements listed above 2) Financial Statement Schedules: None required 3) Exhibits: Each Exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K. The Exhibits identified with an asterisk (*) are management contracts or compensatory plans available to certain key employees or directors. Exhibit Number Description Section - -------------------------------------------------------------------------------- 3(a) James River Corporation of Virginia Amended and Restated Articles of Incorporation, as amended effective January 4, 1990 (incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 26, 1993). 3(b) James River Corporation of Virginia Articles of Amendment to the Amended and Restated Articles of Incorporation Designating the Series O 8-1/4% Cumulative Preferred Stock ($10.00 par value), effective October 1, 1992 (incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 26, 1993). 3(c) Articles of Amendment to the Amended and Restated Articles of Incorporation of James River Corporation of Virginia Designating the Series P 9% Cumulative Convertible Preferred Stock ($10.00 par value) (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated June 29, 1994). 3(d) Amended and Restated Bylaws of James River Corporation of E-1 Virginia, amended as of February 20, 1997, filed herewith. 4(a) Amended and Restated Rights Agreement dated May 12, 1992, between James River Corporation of Virginia and Nations Bank of Virginia, N.A., as Rights Agent, and Amendment No. 1 to such Agreement, dated June 8, 1992 (incorporated by reference to Exhibits 2 and 3, respectively, to the Company's filing of Amendment 1 dated July 28, 1992, to its Form 8-A dated March 3, 1989). 4(b) Amendment No. 2 to Amended and Restated Rights Agreement dated May 12, 1992, as amended by Amendment No. 1, dated June 8, 1992, between James River Corporation of Virginia and Wachovia Bank of North Carolina, N.A. dated January 31, 1996 (incorporated by reference to Exhibi 4(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4(c) In reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K, various instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries are not being filed because the total amount of securities authorized and outstanding under each such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request. Exhibit Number Description Section - -------------------------------------------------------------------------------- 10(a)* Employment Agreement for Miles L. Marsh, dated August 22, 1996 (incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1996). 10(b)* Form of Employment Agreement for Executive Officers, dated August 22, 1996 (incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1996). 10(c)* James River Corporation of Virginia Deferred Compensation Plan for Outside Directors, amended and restated effective as of July 1, 1989 (incorporated by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended April 30, 1989). 10(d)* James River Corporation of Virginia Stock Option Plan for Outside Directors, amended and restated as of April 11, 1991 (incorporated by reference to Exhibit 10(e) to the Company's Transition Report on Form 10-K for the transition period from April 30, 1990 to December 30, 1990). 10(e)* James River Corporation of Virginia Retirement Plan for Outside Directors, 1994 Amendment and Restatement, effective February 18, 1994 (incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 26, 1993). 10(f)* James River Corporation of Virginia Director Stock Ownership Plan, effective April 25, 1996 (incorporated by reference to Exhibit B to the Company's Proxy Statement dated March 13, 1996). 10(g)* James River Corporation of Virginia Amended and Restated Stock Option Plan, dated April 12, 1984, and subsequently amended through October 1, 1990 (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (Post-Effective Amendment No. 1 to Registration Statement No. 2-83979), dated December 18, 1984, and Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 28, 1990). 10(h)* James River Corporation of Virginia 1987 Stock Option Plan, 1993 Amendment and Restatement, effective as of December 16, 1993 (incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 26, 1993). 10(i)* James River Corporation of Virginia Stock Appreciation Rights Plan, dated April 9, 1987, and subsequently amended through October 1, 1990 (incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended April 26, 1987, and Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 28, 1990). Exhibit Number Description Section - -------------------------------------------------------------------------------- 10(j)* James River Corporation of Virginia 1996 Stock Incentive Plan, effective April 25, 1996 (incorporated by reference to Exhibit A to the Company's Proxy Statement dated March 13, 1996). 10(k)* James River Corporation of Virginia Deferred Stock Plan 1993 Amendment and Restatement, effective December 16, 1993 (incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended December 26, 1993). 10(l)* James River Corporation of Virginia Supplemental Deferral Plan, 1993 Amendment and Restatement, effective as of January 1, 1994 (incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 26, 1993). 10(m)* James River Corporation of Virginia Management Incentive Plan, effective as of January 25, 1996 incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10(n)* James River Corporation of Virginia Supplemental Benefit Plan, amended and restated effective June 1, 1991 (incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 29, 1991). 10(o)* 1994 Amendment to the James River Corporation of Virginia Supplemental Benefit Plan, dated March 1, 1994 (incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 25, 1994). 10(p)* Amended and Restated James River Corporation of Virginia E-2 Miles L. Marsh Supplemental Retirement Plan, effective as of March 1, 1997, filed herewith. 11 Computation of Earnings Per Share, filed herewith. E-3 13 Certain sections of the Company's Annual Report to Shareholders E-4 for the year ended December 29, 1996, filed herewith. 21 Subsidiaries of the Company as of December 29, 1996, E-5 filed herewith. 23 Consent of Independent Accountants, filed herewith. E-6 27 Financial Data Schedules for the year ended December 29, 1996 (filed electronically only). (b) Reports on Form 8-K: During the last quarter of 1996 and subsequent thereto, the Company filed the following Current Report on Form 8-K: Date of Report Event Reported ------------------------------------------------------------------- None 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. James River Corporation of Virginia Registrant By: /s/William A. Paterson Date: March 18, 1997 William A. Paterson Senior Vice President and Controller (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 18, 1997 Signature and Title By: /s/Miles L. Marsh Miles L. Marsh Chairman, President and Chief Executive Officer By: /s/William A. Paterson William A. Paterson Senior Vice President and Controller (Principal Financial and Accounting Officer) Pursuant to General Instruction D to Form 10-K, this report has been signed below by a majority of the Board of Directors: /s/ Barbara L. Bowles March 22, 1997 ------------------------------------------------- -------------- Barbara L. Bowles Date /s/ William T. Burgin March 25, 1997 ------------------------------------------------- -------------- William T. Burgin Date /s/ Worley H. Clark, Jr. March 18, 1997 ------------------------------------------------- -------------- Worley H. Clark, Jr. Date /s/ William T. Comfort, Jr. March 24, 1997 -------------------------------------------------- -------------- William T. Comfort, Jr. Date /s/ Gary P. Coughlan March 18, 1997 -------------------------------------------------- -------------- Gary P. Coughlan Date /s/ William V. Daniel March 20, 1997 ------------------------------------------------- -------------- William V. Daniel Date /s/ Bruce C. Gottwald March 20, 1997 ------------------------------------------------- -------------- Bruce C. Gottwald Date /s/ Miles L. Marsh March 18, 1997 -------------------------------------------------- -------------- Miles L. Marsh Date /s/ Robert M. O'Neil March 24, 1997 --------------------------------------------------- ------------- Robert M. O'Neil Date /s/ Richard L. Sharp March 18, 1997 ------------------------------------------------- -------------- Richard L. Sharp Date /s/ Anne Marie Whittemore March 20, 1997 ------------------------------------------------- -------------- Anne Marie Whittemore Date EX-3.(II) 2 EXHIBIT 3(D) TO FORM 10-K DATED 12/29/96 Exhibit 3(d) AMENDED AND RESTATED BYLAWS OF JAMES RIVER CORPORATION OF VIRGINIA (amended as of February 20, 1997) ARTICLE I - MEETINGS OF STOCKHOLDERS Section 1.1 Closing of Transfer Books and Fixing of Record Date. For the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors or the Executive Committee shall fix in advance a date as the record date for any such determination of stockholders, such date to be not more than 70 days before the meeting or action. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this article, such determination shall apply to any adjournment thereof, except as is otherwise provided by law. Section 1.2 Place and Time of Meetings. Meetings of stockholders shall be held at such place, either within or without the Commonwealth of Virginia, and at such time, as may be provided in the notice of the meeting. Section 1.3 Organization and Order of Business. The Chairman of the Board of Directors (the "Chairman") or, in his absence, the President shall serve as chairman at all meetings of the stockholders. In the absence of both of the foregoing officers or if both of them decline to serve, a majority of the shares entitled to vote at such meeting may appoint any person to act as Chairman. The Secretary of the Corporation or, in his absence, an Assistant Secretary, shall act as secretary at all meetings of the stockholders. In the event that neither the Secretary nor any Assistant Secretary is present, the Chairman may appoint any person to act as secretary of the meeting. The Chairman shall have the authority to make such rules and regulations, to establish such procedures and to take such steps as he may deem necessary or desirable for the proper conduct of each meeting of the stockholders, including, without limitation, the authority to make the agenda and to establish procedures for (i) the dismissal of business not properly presented, (ii) the maintenance of order and safety, (iii) placing limitations on the time allotted to questions or comments on the affairs of the Corporation, (iv) placing restrictions on attendance at a meeting by persons or classes of persons who are not stockholders or their proxies, (v) restricting entry to a meeting after the time prescribed for the commencement thereof and (vi) the commencement, conduct and close of voting on any matter. E-1 Section 1.4 Annual Meeting. The annual meeting of stockholders shall be held on the third or fourth Thursday in April of each year as set by the Board of Directors or on such other dates as shall be approved by the Board of Directors. At each annual meeting of stockholders, only such business shall be conducted as is proper to consider and has been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by a stockholder of the Corporation who is a stockholder of record of a class of shares entitled to vote on such business at the time of the giving of the notice hereinafter described in this Section 1.4 and who complies with the notice procedures set forth in this Section 1.4. In order to bring business before an annual meeting of stockholders, a stockholder, in addition to complying with any other applicable requirements, must have given timely written notice of his intention to bring such business before the meeting to the Secretary of the Corporation. To be timely, a stockholder's notice must be given, either by personal delivery or by United States certified mail, postage prepaid, addressed to the Secretary of the Corporation at the principal office of the Corporation and received (i) on or after December 1st of the year immediately preceding the year in which the meeting will be held and before January 1st of the year in which the meeting will be held or (ii) not less than 60 days before the date of the annual meeting if the date of such meeting, as prescribed in these Bylaws, has been changed by more than 30 days. Each such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) the name and address, as they appear on the Corporation's stock transfer books, of the stockholder proposing such business, (ii) the class and number of shares of stock of the Corporation beneficially owned by such stockholder, (iii) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to bring before the meeting the business specified in the notice, (iv) a brief description of the business desired to be brought before the meeting, including the complete text of any resolutions to be presented at the meeting and the reasons for wanting to conduct such business, and (v) any material interest which the stockholder has in such business. The Secretary of the Corporation shall deliver each such stockholder's notice that has been timely received to the Chairman or a committee designated by the Board of Directors for review. Notwithstanding the foregoing provisions of this Section 1.4, a stockholder seeking to have a proposal included in the Corporation's proxy statement for an annual meeting of stockholders shall comply with the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended from time to time, or with any successor regulation. Section 1.5 Special Meetings. Special meetings of the stockholders may be called by the Chairman, the President or the Board of Directors. Only business within the purpose or purposes described in the notice for a special meeting of stockholders may be conducted at the meeting. Section 1.6 Notice of Meetings. Written notice stating the place, day and hour of each meeting of stockholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by mail not less than ten nor more than 60 days before the date of the meeting (except when a different time is required in these Bylaws or by law) to each stockholder of record entitled to vote at such meeting and to such nonvoting stockholders as may be required by law. Such notice shall be deemed to be effective when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. Notice of a stockholders' meeting to act on (i) an amendment of the Articles of Incorporation; (ii) a plan of merger or share exchange; (iii) the sale, lease, exchange or other disposition of all or substantially all the property of the Corporation otherwise than in the usual and regular course of business, or (iv) the dissolution of the Corporation, shall be given, in the manner provided above, not less than 25 nor more than 60 days before the date of the meeting. Any notice given pursuant to this paragraph shall state that the purpose, or one of the purposes, of the meeting is to consider such action and shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the proposed plan of merger or share exchange, or (z) a summary of the agreement pursuant to which the proposed transaction will be effected. If only a summary of the agreement is sent to the stockholders, the Corporation shall also send a copy of the agreement to any stockholder who requests it. If a meeting is adjourned to a different date, time or place, notice need not be given if the new date, time or place is announced at the meeting before adjournment. However, if a new record date for an adjourned meeting is fixed (which shall be done if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting), notice of such date shall be given to those persons entitled to notice who are stockholders as of the new record date, unless a court provides otherwise. Section 1.7 Quorum and Voting Requirements. Each outstanding share of common stock shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. Shares of other classes and series shall be entitled to such vote as may be provided in the Articles of Incorporation. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless otherwise required by law, a majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or shall be set for that adjourned meeting. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or by the Articles of Incorporation. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present unless a different vote in required by the Articles of Incorporation. Less than a quorum may adjourn a meeting. Section 1.8 Proxies. A stockholder may vote his shares in person or by proxy. A stockholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes and is valid for 11 months unless a longer period is expressly provided in the appointment form. An appointment of a proxy is revocable by the stockholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. The death or incapacity of the stockholder appointing a proxy does not affect the right of the Corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. An irrevocable appointment is revoked when the interest with which it is coupled is extinguished. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares. Subject to any legal limitations on the right of the Corporation to accept the vote or other action of a proxy and to any express limitation on the proxy's authority appearing on the face of the appointment form, the Corporation is entitled to accept the proxy's vote or other action as that of the stockholder making the appointment. Any fiduciary entitled to vote any shares may vote such shares by proxy. Section 1.9 Waiver of Notice; Attendance at Meeting. A stockholder may waive any notice required by law, the Articles of Incorporation or these Bylaws before or after the date and time of the meeting that is the subject of such notice. The waiver shall be in writing, be signed by the stockholder entitled to the notice, and be delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. A stockholder's attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting, unless the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented. Section 1.10 Action Without Meeting. Action required or permitted to be taken at a stockholders' meeting may be taken without a meeting and without action by the Board of Directors if the action is taken by all the stockholders entitled to vote on the action. The action shall be evidenced by one or more written consents describing the action taken, signed by all the stockholders entitled to vote on the action, and delivered to the Secretary of the Corporation for inclusion in the minutes or filing with the corporate records. Action taken under this section shall be effective according to its terms when all consents are in the possession of the Corporation. A stockholder may withdraw a consent only by delivering a written notice of withdrawal to the Corporation prior to the time that all consents are in the possession of the Corporation. If not otherwise fixed pursuant to the provisions of Section 1.1, the record date for determining stockholders entitled to take action without a meeting is the date the first stockholder signs the consent described in the preceding paragraph. If notice of proposed action is required to be given to nonvoting stockholders and the action is to be taken by unanimous consent of the voting stockholders, the Corporation shall give its nonvoting stockholders written notice of the proposed action at least ten days before the action is taken. The notice shall contain or be accompanied by the same material that would have been required by law to be sent to nonvoting stockholders in a notice of a meeting at which the proposed action would have been submitted to the stockholders for action. Section 1.11 Voting List. The officer or agent having charge of the stock transfer books of the Corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. The list shall be arranged by voting group and within each voting group by class or series of shares. Such list shall be kept on file at the registered office of the Corporation, or at its principal office or at the office of its transfer agent or registrar, for a period of ten days prior to such meeting and shall be subject to the inspection of any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting for the purposes thereof. The original stock transfer books shall be prima facia evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at any meeting of the stockholders. The right of a stockholder to inspect such list at any other time shall be subject to the limitations established by law. If the requirements of this section have not been substantially complied with, the meeting shall, on the demand of any stockholder in person or by proxy, be adjourned until such requirements are met. Refusal or failure to prepare or make available the stockholders' list does not affect the validity of action taken at the meeting prior to the making of any such demand, but any action taken by the stockholders after the making of any such demand shall be invalid and of no effect. ARTICLE II - DIRECTORS Section 2.1 General Powers. The Corporation shall have a Board of Directors. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, its Board of Directors, subject to any limitation set forth in the Articles of Incorporation. Section 2.2 Number and Term. The number of directors of the Corporation shall be eleven. This number may be changed from time to time by amendment to these Bylaws to increase or decrease by 30 percent or less the number of directors last elected by the stockholders, but only the stockholders may increase or decrease the number by more than 30 percent. No decrease in number shall have the effect of shortening the term of any incumbent director. Each director shall hold office until his death, resignation or removal or until his successor is elected. Section 2.3 Nomination of Candidates. No person shall be eligible for election as a director unless nominated (i) by the Board of Directors upon recommendation of the Nominating Committee or otherwise or (ii) by a stockholder entitled to vote on the election of directors pursuant to the procedures set forth in this Section 2.3; provided, however, that no person shall be eligible to be elected a director after age seventy, except that directors who are sixty-three or over and serving on February 20, 1997 shall not be eligible to be elected a director after age seventy-two. Nominations, other than those made by the Board of Directors, may be made only by a stockholder who is a stockholder of record of a class of shares entitled to vote for the election directors at the time of the giving of the notice hereinafter described in this Section 2.3 and only if written notice of the stockholder's intent to nominate one or more persons for election as directors at a meeting of stockholders has been given, either by personal delivery or by United States certified mail, postage prepaid, addressed to the Secretary of the Corporation at the principal office of the Corporation and received (i) on or after December 1st of the year immediately preceding the year in which the meeting will be held and before January 1st of the year in which the meeting will be held, if the meeting is to be an annual meeting and clause (ii) is not applicable, or (ii) not less than 60 days before an annual meeting, if the date of the applicable annual meeting, as prescribed in these Bylaws, has been changed by more than 30 days, or (iii) not later than the close of business on the tenth day following the day on which notice of a special meeting of stockholders called for the purpose of electing directors is first given to stockholders. Each such stockholder's notice shall set forth the following: (i) as to the stockholder giving the notice (a) the name and address of such stockholder as they appear on the Corporation's stock transfer books, (b) the class and number of shares of stock of the Corporation beneficially owned by such stockholder, (c) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to nominate the person or persons specified in the notice, and (d) a description of all arrangements or understandings, if any, between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made; and (ii) as to each person whom the stockholder wishes to nominate for election as a director (a) the name, age, business address and, if known, residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person, and (d) all other information that is required to be disclosed about nominees for election as directors in solicitations of proxies for the election of directors under the Securities Exchange Act of 1934, as amended, or otherwise by the rules and regulations of the Securities and Exchange Commission. In addition, each such notice shall be accompanied by the written consent of each proposed nominee to serve as a director if elected. Each such consent shall also contain a statement from the proposed nominee to the effect that the information about him contained in the notice is correct. Section 2.4 Election. Except as provided in Section 2.5 of this Article and in the Articles of Incorporation, the directors shall be elected by the common stockholders and preferred stockholders entitled to vote with the common stockholders at the annual meeting of stockholders, and those nominees who receive the greatest number of votes shall be deemed elected even though they do not receive a majority of the votes cast. No individual shall be named or elected as a director without his prior consent. Section 2.5 Removal; Vacancies. The stockholders may remove one or more directors, with or without cause. If a director is elected by a voting group, only the stockholders of that voting group may vote to remove him. Unless the Articles of Incorporation require a greater vote, a director may be removed if the number of votes cast to remove him constitutes a majority of the votes entitled to be cast at an election of directors of the voting group or voting groups by which such director was elected. A director may be removed by the stockholders only at a meeting called for the purpose of removing him and the notice of the meeting must state that the purpose, or one of the purposes of the meeting, is removal of the director. A vacancy on the Board of Directors, including a vacancy resulting from the removal of a director or an increase in the number of directors, may be filled by (i) the stockholders, (ii) the Board of Directors or (iii) the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, and may, in the case of a resignation that will become effective at a specified later date, be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. Section 2.6 Compensation. The Board of Directors may fix the compensation of directors for their services and may provide for the payment of all expenses incurred by directors in attending regular and special meetings of the Board of Directors. Section 2.7 Change of Responsibility. A member of the Board of Directors who has a significant change in job responsibility or who ceases to continue to hold the job held at the last Annual Shareholders' Meeting, shall offer a letter of resignation to the Board of Directors promptly upon such change of responsibility or job. ARTICLE III - DIRECTORS' MEETINGS Section 3.1 Annual and Regular Meetings. An annual meeting of the Board of Directors, which shall be considered a regular meeting, shall be held immediately following each annual meeting of stockholders, for the purpose of electing officers and carrying on such other business as may properly come before the meeting. The Board of Directors may also adopt a schedule of additional meetings which shall be considered regular meetings. Regular meetings shall be held at such times and at such places, within or without the Commonwealth of Virginia, as the Chairman or, in his absence, the President, shall designate. If no place is designated, regular meetings shall be held at the principal office of the Corporation. Section 3.2 Special Meetings. Special meetings of the Board of Directors shall be held on the call of the Chairman, the President or any three members of the Board of Directors at the principal office of the Corporation or at such other place as the Chairman, or in his absence, the President, shall designate. Section 3.3 Telephone Meetings. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. Section 3.4 Notice of Meetings. No notice need be given of regular meetings of the Board of Directors. Notice of special meetings of the Board of Directors shall be given to each director in person or delivered to his residence or business address, or such other place as he may have directed in writing, not less than 24 hours before the meeting by mail, messenger, telecopy, telegraph, or other means of written communication or by telephoning such notice to him. Any such notice shall set forth the time and place of the meeting and state the purpose for which it is called. Section 3.5 Quorum; Voting. A majority of the number of directors fixed in these Bylaws shall constitute a quorum for the transaction of business at a meeting of the Board of Directors. If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present is the act of the Board of Directors unless the act of a greater number is required by law, the Articles of Incorporation or these Bylaws. A director who is present at a meeting of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (i) he objects at the beginning of the meeting, or promptly upon his arrival, to holding it or transacting specified business at the meeting; or (ii) he votes against, or abstains from, the action taken. Section 3.6 Waiver of Notice; Attendance at Meeting. A director may waive any notice required by law, the Articles of Incorporation, or these Bylaws before or after the date and time stated in the notice, and such waiver shall be equivalent to the giving of such notice. Except as provided in the next paragraph of this section, the waiver shall be in writing, signed by the director entitled to the notice and filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting or promptly upon his arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Section 3.7 Action Without Meeting. Action required or permitted to be taken at a Board of Directors' meeting may be taken without a meeting if the action is taken by all members of the Board. The action shall be evidenced by one or more written consents describing the action taken, signed by each director either before or after the action taken, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this section shall be effective when the last director signs the consent unless the consent specifies a different effective date in which event the action taken is effective as of the date specified therein, provided the consent states the date of execution by each director. ARTICLE IV - COMMITTEE OF DIRECTORS Section 4.1 Committees. The Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them. Unless otherwise provided herein, each committee shall have two or more members who serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members to it shall be approved by the number of directors required to take action under Section 3.5 of these Bylaws. Section 4.2 Authority of Committees. To the extent specified by the Board of Directors, each committee may exercise the authority of the Board of Directors, except that a committee may not (i) approve or recommend to stockholders action that is required by law to be approved by stockholders; (ii) fill vacancies on the Board of Directors or any of its committees; (iii) amend the Articles of Incorporation without stockholder approval; (iv) adopt, amend, or repeal these Bylaws; (v) approve a plan of merger not requiring stockholder approval; (vi) authorize or approve a distribution, except according to a general formula or method prescribed by the Board of Directors; or (vii) authorize or approve the issuance, or sale or contract for sale of stock, or determine the designation and relative rights, preferences, and limitations of a class or series of stock, except that the Board of Directors may authorize a committee, or a senior executive officer of the Corporation, to do so within limits specifically prescribed by the Board of Directors. Section 4.3 Executive Committee. The Board of Directors shall appoint an Executive Committee consisting of two or more directors, which committee shall have all of the authority of the Board of Directors except to the extent such authority is limited by the provisions of Section 4.2. Section 4.4 Audit Committee. The Board of Directors shall appoint an Audit Committee consisting of not less than three directors, none of whom shall be officers, which committee shall regularly review the adequacy of the Corporation's internal financial controls, review with the Corporation's independent public accountants the annual audit and other financial statements, and recommend the selection of the Corporation's independent public accountants. Section 4.5 Nominating Committee. The Board of Directors shall appoint a Nominating Committee consisting of not less than three directors, a majority of whom shall not be officers or employees, which committee shall recommend to the Board of Directors the names of persons to be nominated for election as directors of the Corporation. Section 4.6 Compensation Committee. The Board of Directors shall appoint a compensation committee consisting of not less than three directors, none of whom shall be officers, which committee shall recommend to the Board of Directors the compensation of directors and those officers of the Corporation who are directors, make awards under the Corporation's discretionary employee benefit plans, and make recommendations from time to time to the Board of Directors regarding the Corporation's compensation program. Section 4.7 Committee Meetings; Miscellaneous. The provisions of these Bylaws which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors shall also apply to committees of directors and their members. ARTICLE V - OFFICERS Section 5.1 Officers. The officers of the Corporation shall be a Chairman, a Chief Executive Officer, a President, a Secretary, a Chief Financial Officer, and such additional officers, including Vice Presidents and other officers, as the Chief Executive Officer or the Board of Directors may deem necessary or advisable to conduct the business of the Corporation. The Chairman and the President shall be members of the Board of Directors and one of them shall be designated as Chief Executive Officer. The Board of Directors shall also designate those officers who are deemed to be "Executive Officers." Any two offices may be combined except the offices of President and Secretary. Section 5.2 Election, Term. Executive Officers shall be elected at each annual meeting of the Board of Directors and shall hold office, unless removed, until the next annual meeting of the Board of Directors or until their successors are elected. All other officers shall be appointed by the Chief Executive Officer and shall hold office, unless removed, until their successors are appointed. Any officer may resign at any time upon written notice to the authority which appointed him. Section 5.3 Removal of Officers. Officers elected by the Board of Directors may be removed, with or without cause, at any time by the Board of Directors. Appointed officers may be similarly removed by the person having the authority to appoint them. Section 5.4 Duties of the Chief Executive Officer. The Chief Executive Officer shall have general charge of, and be charged with, the duty of supervision of the business of the Corporation. In addition, he shall perform such duties, from time to time, as may be assigned to him by the Board of Directors. Section 5.5 Duties of the Chairman. Unless he declines to serve, the Chairman shall preside at all meetings of the stockholders and the Board of Directors and perform such duties, from time to time, as may be assigned to him by the Board of Directors. Section 5.6 Duties of the President. The President shall have such powers and duties as generally pertain to that position and, in the absence of the Chairman, unless he declines to serve, he shall preside at all meetings of the stockholders and the Board of Directors. He shall further perform such duties as may, from time to time, be assigned to him by the Chief Executive Officer or the Board of Directors. Section 5.7 Duties of the Secretary. The Secretary shall have the duty to see that a record of the proceedings of each meeting of the stockholders and the Board of Directors, and any committee of the Board of Directors, is properly recorded and that notices of all such meetings are duly given in accordance with the provisions of these Bylaws or as required by law; he may affix the corporate seal to any document the execution of which is duly authorized, and when so affixed may attest the same; and, in general, he shall perform all duties incident to the office of secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Chief Executive Officer or the Board of Directors, or as may be required by law. Section 5.8 Duties of the Chief Financial Officer. The Chief Financial Officer shall have charge of and be responsible for all securities, funds, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all monies or valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by or under authority granted by the Board of Directors; he shall be custodian of the financial records of the Corporation; he shall keep or cause to be kept full and accurate records of all receipts and disbursements of the Corporation and shall render to the Chairman, the President and the Board of Directors, whenever requested, an account of the financial condition of the Corporation; and shall perform such duties as may be assigned to him by the Chief Executive Officer or the Board of Directors. Section 5.9 Duties of Other Officers. The other officers of the Corporation shall have such authority and perform such duties as shall be prescribed by the Board of Directors or by officers authorized to appoint them to their respective offices. To the extent that such duties are not so stated, such officers shall have such authority and perform the duties which generally pertain to their respective offices, subject to the control of the Chief Executive Officer or the Board of Directors. Section 5.10 Voting Securities of Other Corporations. Any one of the Chairman, the President or the Chief Financial Officer shall have power to act for and vote on behalf of the Corporation at all meetings of the stockholders of any corporation in which this Corporation holds stock, or in connection with any consent of stockholders in lieu of any such meeting. Section 5.11 Certain Agents. The Chief Executive Officer or such other officer as he may authorize may from time to time engage employees of subsidiaries of the Corporation to be agents for the Corporation to perform staff or operational functions. Such persons may act on behalf of the Corporation under such titles (including designations as divisional officers) as may be specified from time to time by the Chief Executive Officer, but no engagement under this section shall constitute such agent an employee or officer of the Corporation. Such agents shall perform the duties assigned to them from time to time by the Chief Executive Officer or by any other officer of the Corporation authorized to make such assignments. Any such agent may be removed, with or without cause, at any time by the Chief Executive Officer. This section shall not limit the authority any officer or any other employee of the Corporation may otherwise have respecting the engagement of agents for the Corporation. Section 5.12 Bonds. The Board of Directors may require that any or all officers, employees and agents of the Corporation give bond to the Corporation, with sufficient sureties, conditioned upon the faithful performance of the duties of their respective offices or positions. ARTICLE VI - CERTIFICATES OF STOCK Section 6.1 Form. Stock of the Corporation shall, when fully paid, be evidenced by certificates containing such information as is required by law and approved by the Board of Directors. Certificates shall be signed by the President or any Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may (but need not) be sealed with the seal of the Corporation. Any such signature may be a facsimile, engraved or printed, if the certificate is countersigned, manually or by facsimile, by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any such officer or authorized officer of the transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer or authorized officer of the transfer agent or registrar before such certificate is issued, the certificate shall, nevertheless, be valid. Section 6.2 Lost, Stolen or Destroyed Stock Certificates. The Corporation may issue a new stock certificate in the place of any certificate theretofore issued which is alleged to have been lost, stolen or destroyed and may require the owner of such certificate, or his legal representative, to give the Corporation a bond, sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. Section 6.3 Transfer. The Board of Directors may make such rules and regulations concerning the issue, registration and transfer of certificates representing the stock of the Corporation as it deems necessary or proper and may appoint transfer agents and registrars. Unless otherwise provided, transfers of stock and of the certificates representing such stock shall be made upon the books of the Corporation by surrender of the certificates for the stock transferred, accompanied by written assignments given by the owners or their attorneys-in-fact. ARTICLE VII - VIRGINIA CONTROL SHARE ACQUISITION STATUTE The provisions of Article 14.1 of the Virginia Stock Corporation Act (13.1-728.1 et seq.) in effect on the 8th day of February, 1990, shall not apply to the acquisition of shares of this Corporation. ARTICLE VIII - MISCELLANEOUS PROVISIONS Section 8.1 Corporate Seal. The corporate seal of the Corporation shall be circular and shall have inscribed thereon, within and around the circumference, "JAMES RIVER CORPORATION OF VIRGINIA". In the center shall be the word "SEAL". Section 8.2 Fiscal Year. The fiscal year of the Corporation shall be determined in the discretion of the Board of Directors, but in the absence of any such determination it shall be a fiscal year of either 52 or 53 weeks ending on the last Sunday in December. Section 8.3 Constitutive Resolutions. A "Constitutive Resolution" is a resolution of the Board of Directors which is (i) designated therein as a "Constitutive Resolution" and (ii) adopted by the unanimous vote of the directors present and voting if a quorum is present when a vote is taken. Notwithstanding anything in Section 3.5 or any other provision of these Bylaws to the contrary, a Constitutive Resolution can only be rescinded, revoked, amended or modified by the affirmative vote of all the directors then in office and the quorum of the Board of Directors which shall be present to consider such action shall be the number of directors then in office. Section 8.4 Amendments. These Bylaws may be amended or repealed, and new Bylaws may be made, at any regular or special meeting of the Board of Directors by a majority of the Board except that action to adopt or amend a bylaw that changes the quorum or voting requirement applicable to meetings of the Board of Directors must meet the quorum requirement and be adopted by the vote required to take action under the quorum and voting requirement then in effect. Bylaws made by the Board of Directors may be repealed or changed and new Bylaws may be made by the stockholders, and the stockholders may prescribe that any Bylaw made by them shall not be altered, amended or repealed by the Board of Directors. EX-10 3 EXHIBIT 10(P) TO FORM 10-K DATED 12/29/96 Exhibit 10(p) JAMES RIVER CORPORATION OF VIRGINIA MILES L. MARSH SUPPLEMENTAL RETIREMENT PLAN Amendment and Restatement Effective as of March 1, 1997 1. Purpose. The Plan is an unfunded deferred compensation arrangement established for the benefit of Miles L. Marsh ("Executive"), one of a select group of management or highly compensated Employees, intended to be excluded from the participation and vesting, funding and fiduciary responsibility provisions of ERISA. The Board has determined that the benefits to be paid to Executive constitute reasonable compensation for the services rendered and to be rendered by such Executive. 2. Definitions. As used in the Plan, the following terms have the meanings indicated: a) "Actuarial Equivalent" means an amount or benefit equal in value to the aggregate amounts expected to be received under different forms of payment based on assumptions as to the occurrence of future events. The future events to be taken into account are mortality for Executive, mortality for Beneficiaries, and an interest discount for the time value of money. For this Plan, the actuarial assumptions are the same as those defined in the Pension Plan. b) "Beneficiary" means the person or entity who is to receive benefits attributable to the Executive under the Pension Plan after the Executive's death. c) "Board" means the Board of Directors of the Company. d) "Cause" means fraud or material misappropriation with respect to the business or assets of the Company, persistent refusal or willful failure of the Executive to perform his duties and responsibilities to the Company, which continues after the Executive receives written notice of such refusal or failure, willful misconduct that materially harms or has the potential to cause material harm to the Company, breach of a fiduciary duty, which has a material adverse effect on the Company, conviction of a felony or crime involving moral turpitude, or the use of drugs or alcohol that interferes materially with the Executive's performance of his duties. e) "Change of Control" means: i) the acquisition by any unrelated person of beneficial ownership (as that term is used for purposes of the Securities Exchange Act of 1934 (the "Act")) of 20% or more of the then outstanding shares of common stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. The term "unrelated person" means any person other than (x) the Company and its subsidiaries, (y) an employee benefit plan or trust of the Company or its subsidiaries, and (z) a person who acquires stock of the Company pursuant to an agreement with the Company that is approved by the Board in advance of the acquisition, unless the acquisition results in a Change of Control pursuant to subsection (ii) below. For purposes of E-2 this subsection, a "person" means an individual, entity or group, as that term is used for purposes of the Act. ii) any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before such transactions shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company. f) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and regulations thereunder. g) "Committee" means the Compensation Committee of the Board. h) "Company" means James River Corporation of Virginia or any successor by merger or otherwise. i) "Compensation" means an amount equal to the sum of (i) twelve times Executive's monthly salary at the highest rate in effect during the Compensation Period, cash incentive compensation paid during the Compensation Period (or due and unpaid) under any cash incentive compensation plan in which Executive is then a Participant with respect to an incentive performance period that immediately precedes or ends within the Compensation Period, and any prorated incentive compensation authorized under the terms of any cash incentive compensation plan in which Executive is then a participant with respect to an incentive performance period that began during the Compensation Period. The term "Compensation" does not include income recognized upon the exercise of any stock option granted by the Company or any subsidiary of the Company, and any contributions for benefits under this Plan or any other plan of deferred compensation maintained by the Company. The term "Compensation" also does not include special allowances, such as amounts paid to Executive during an authorized leave of absence, moving expenses, car expenses, tuition reimbursement, meal allowances, the cost of excess group life insurance income includable in taxable income, and similar items. j) "Compensation Period" means the twelve full months immediately preceding the date of Executive's Retirement. k) "Effective Date" means December 7, 1995. l) "ERISA" means the Employee Retirement Income Security Act of 1974. m) "Normal Retirement Date" means the first day of the month coinciding with or next following the date on which Executive attains age 55. n) "Pension Benefit" means the benefit payable to Executive under the Pension Plan in the normal form at his Normal Retirement Date. In computing the benefit offsets pursuant to Section 3(c), if Executive becomes entitled to benefits under this Plan before he is eligible to receive benefits under the Pension Plan, his Pension Benefit means the amount of the benefit that will be payable at the earliest possible date under the Pension Plan. o) "Pension Plan" means the James River Corporation of Virginia Retirement Plan for Salaried and Other Non- Bargaining Unit Employees, as amended and in effect from time to time. p) "Plan" means the James River Corporation of Virginia Miles L. Marsh Supplemental Retirement Plan, as amended and restated. q) "Plan Year" means a calendar year. r) "Preretirement Death Benefit" means an amount, payable to Executive's surviving Spouse pursuant to Section 7 in the event of Executive's death before his retirement while employed by the Company. s) "Retirement" or "Retires" means the termination of Executive's employment for reasons other than death or Cause. t) "Service" means years of employment in years and completed full months with the Company or any subsidiary of the Company. u) "Spouse" means the person who is the Executive's "spouse" as such term is defined in the Pension Plan. 3. Benefits at Retirement. a) The Basic Benefit. If Executive Retires and he has completed 7 years of Service, he will be entitled to receive a lifetime annual benefit (payable monthly) beginning on the date of his Retirement that is equal to 50% of his Compensation, subject to the adjustments and offsets as provided in 3(b), (c) and (d). b) Service Adjustment. If at the time of Retirement Executive has completed fewer than 7 years of Service, the amount determined in (a) shall be reduced proportionately to the extent that Executive has less than 7 years Service. c) Benefit Offsets. The amount of the benefit determined under the preceding paragraphs shall be offset by the sum of the amount of Executive's Pension Benefit then payable or payable in the future if Executive is not then eligible for payment of benefits, and the amount of Executive's Social Security benefit at time of Retirement. If Executive Retires before he is eligible to receive a Social Security benefit, the amount of the Social Security reduction shall be the amount which will become payable at the earliest date when a Social Security benefit could become payable to Executive, as determined by the Committee. d) Form of Benefit Adjustment. If instead of lifetime payments Executive elects to receive the benefit determined under the preceding paragraphs in one of the optional forms of payment permitted under the Pension Plan, the benefit shall further be actuarially reduced in accordance with the factors, methods and assumptions then used under the Pension Plan for determining optional forms of benefit payments. 4. Commencement of Benefits. Executive may elect when payment of his benefits will commence. In no event may Executive's benefits commence later than his Normal Retirement Date. If payment of Executive's benefits are to commence before his Normal Retirement Date, the amount determined under Section 3 shall be further adjusted to reflect the earlier payment commencement date and longer period of payment as follows: a) Normal Retirement Date to Age 53. If commencement of Executive's benefits occurs before his Normal Retirement Date and after attainment of age 53, his benefits will be reduced by 4% for each year by which Executive's age at commencement of his benefits is less than 55 and more than 52. b) Prior to Age 53. If commencement of Executive's benefits occurs before attainment of age 53, his benefits will be further reduced (in addition to the reduction pursuant to (a)) by 6% for each year by which the Executive's age at commencement of his benefits is less than age 53. 5. Benefit Enhancements Upon Change of Control. If a Change of Control occurs, the following adjustments and enhancements will apply: a) Benefit Accrual. At Retirement, Executive will be credited with up to an additional two full years of Service. b) Benefit Rate Increase. The Basic Benefit determined under Section 3(a) shall be increased by (i) 5% if Executive Retires at age 54, and (ii) 10% if Executive Retires at or after his Normal Retirement Date. c) Payment Reduction Factors. If payment of benefits begins before Executive has attained his Normal Retirement Date, the reduction factors for early payment set forth in Section 4 shall not apply. d) Lump Sum Payment. The present value of the benefits which Executive would be entitled to receive over time upon his Retirement, as determined under Sections 4 and 5, shall be paid in a lump sum. The determination of the amount of lump sum payment shall be made by the Company's actuaries in accordance with the methods, factors and assumptions used in determining contributions and benefits under the Pension Plan. 6. Termination of Employment for Cause. If Executive's employment is terminated by the Company for Cause, as determined by the Committee, and a Change of Control has not occurred, Executive's rights under the Plan shall immediately terminate and neither Executive nor his Spouse shall be entitled to any benefits under the Plan. 7. Death Before Retirement/Preretirement Death Benefit. a) If Executive dies before Retirement and while still an employee of the Company, Executive's Spouse shall be entitled to receive a Preretirement Death Benefit beginning with the first day of the month coinciding with or next following the date of the Executive's death. The Preretirement Death Benefit is an annual benefit (payable monthly) equal to 50% of the Basic Benefit (determined under Sections 3(a) and (b), before offsets under 3(c) and (d), and with adjustments and enhancements pursuant to Section 5, if applicable) that would have been payable to Executive had he Retired the day before his death. b) The monthly Preretirement Death Benefit payment will then be reduced by an amount equal to the sum of the surviving Spouse's preretirement monthly benefit when payable under the Pension Plan, the Spouse's monthly benefit under Social Security, and the amount of the monthly death benefit payable (or annuitized monthly equivalent of the death benefit if paid in a lump sum) to the Executive's Spouse under any other plan maintained by the Company qualified under Section 401(a) of the Code in which the Executive participated. If as to the Executive and his Spouse the preretirement death benefit provisions of the Pension Plan do not apply, the Preretirement Death Benefit will be reduced at the time and in the amount equal to the preretirement death benefit under the Pension Plan that would have otherwise been payable to the Spouse if it had applied. 8. Exclusion from Supplemental Benefit Plan. The benefits provided to Executive and his Spouse under the Plan are in lieu of benefits that might otherwise be available to Executive and his Spouse, or either of them, under the Company's Supplemental Benefit Plan (or any of its component parts), as amended and restated June 1, 1995, or as later amended, and Executive's participation in the Plan and the attendant benefits available to Executive and his Spouse that thereby accrue, constitutes a waiver of all his and his Spouse's rights under the Supplemental Benefit Plan. 9. Lump Sum Payment. The Company reserves the right in its sole discretion to pay in a lump sum the Actuarial Equivalent of any amounts due the Executive (or the Executive's Spouse, as the case may be) under the Plan. 10. Administration. a) This Plan shall be administered by the Committee. Subject to the Plan's provisions, the Committee may adopt rules and regulations necessary to carry out the Plan's purposes. The amount of and entitlement to the payment of benefits under, and the general administration of, this Plan with respect to the computation and entitlement to benefits in determining offsets and adjustments shall be determined by the provisions of the Pension Plan, and the rules, regulation and interpretations adopted in administering the Pension Plan. Beneficiary designations made with respect to benefits payable under the Pension Plan shall apply to this Plan unless otherwise specifically designated by the Executive. b) If for any reason a benefit under the Plan is not paid when due, the individual entitled to the benefit may file a written claim with the Committee. If the claim is denied or if no response is received within 90 days (in which case the claim will be deemed to have been denied), the individual may appeal the denial to the Committee within 60 days of the denial. In pursuing an appeal, an individual may request that the Committee review the denial and the individual may review pertinent documents and submit issues and comments in writing. A decision on appeal will be made within 60 days after the appeal is made, unless special circumstances require the Committee to extend the period for another 60 days. 11. Restrictions and Transfer. Any benefits to which Executive or his Spouse or Beneficiary may become entitled under this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance, and any attempt to do so is void. Benefits are not subject to attachment or legal process for the debts, contracts, liabilities, engagements or torts of Executive or his Spouse or Beneficiary. This Plan does not give Executive or his Spouse or Beneficiary any interest, lien, or claim against any specific assets of the Company, and they have only the rights of a general creditor of the Company. 12. Amendment and Termination. The Board reserves the right to amend or terminate the Plan at any time without the consent of Executive, but no amendment or termination shall deprive Executive or his Spouse of the right to continue to receive payments under Section 4 or 7 once payments have begun. Notwithstanding the foregoing, if a Change of Control occurs, Executive, regardless of his age or Service, shall be eligible for benefits under the Plan when Executive ceases to be an employee, and the Plan may not be terminated and no amendment may be made that would adversely affect the right of Executive or his Spouse to receive a benefit under the Plan. 13. Method of Payment of Benefits. The Company has the obligation to pay all benefits provided for in the Plan as they become due. Without affecting its obligations to or rights of Executive under the Plan, the Company may establish a grantor trust (within the meaning of Sections 671 through 679 of the Code) for Executive and deposit funds with the trustee of such trust for investment to provide the benefits to which the Executive (or the Executive's Spouse) may be entitled under the Plan. The funds deposited with the trustee or trustees of any such trust, and the earnings thereon, will be dedicated to the payment of the benefits under the Plan but shall remain subject to the claims of the general creditors of the Company. The expenses of establishing and maintaining such trust shall be paid by the Company. When Executive (or Executive's Spouse) becomes eligible for payment of benefits under the Plan, such benefits will be paid out of the trust fund or funds unless paid directly by the Company. 14. Construction. This Plan shall be construed in accordance with the laws of the Commonwealth of Virginia. The headings in this Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provision. If a provision of this Plan is not valid, that invalidity does not affect other provisions. EX-11 4 EXHIBIT 11 TO FORM 10-K DTED 12/29/96 Exhibit 11 JAMES RIVER CORPORATION of Virginia COMPUTATION OF EARNINGS PER SHARE (a) For the Three Years Ended December 29, 1996 (in millions, except per share data) Years Ended ---------------------------------- December December December PRIMARY 29, 1996 31, 1995 25, 1994 Net income (loss) $157.3 $126.4 $(13.0) Less preferred stock dividend requirements (b) (58.5) (58.5) (45.8) Net income (loss), as adjusted for the primary calculation $98.8 $67.9 $(58.8) Weighted average number of common shares and common share equivalents: Common shares outstanding 85.4 83.0 81.7 Issuable upon exercise of out- standing stock options and pursuant to a deferred stock award plan 2.3 3.7 Less assumed acquisition of common shares, using proceeds from stock options and a defer- red stock award plan, under the treasury stock method (1.7) (2.6) 86.0 84.1 81.7 Primary income (loss) per share $1.15 $.81 $(.72) (a) See Note 1 of Notes to Consolidated Financial Statements in the 1996 Annual Report. (b) See Note 13 of Notes to Consolidated Financial Statements in the 1996 Annual Report. E-3 Exhibit 11 (Continued) JAMES RIVER CORPORATION of Virginia COMPUTATION OF EARNINGS PER SHARE (a) For the Three Years Ended December 29, 1996 (in millions, except per share data) Years Ended ---------------------------------- December December December FULLY DILUTED 29, 1996 31, 1995 25, 1994 Net income (loss) $157.3 $126.4 $(13.0) Less preferred stock dividend requirements (b) (58.5) (58.5) (45.8) Net income (loss), as adjusted for the fully diluted calculation $98.8 $67.9 $(58.8) Weighted average number of common shares and common share equivalents: Common shares outstanding 85.4 83.0 81.7 Issuable upon exercise of out- standing stock options and pursuant to a deferred stock award plan 3.4 3.8 Less assumed acquisition of common shares, using proceeds from stock options and a defer- red stock award plan, under the treasury stock method (2.3) (2.7) 86.5 84.1 81.7 Fully diluted income (loss) per share $1.14 $.81 $(.72) (a) See Note 1 of Notes to Consolidated Financial Statements in the 1996 Annual Report. (b) See Note 13 of Notes to Consolidated Financial Statements in the 1996 Annual Report. EX-13 5 EXHIBIT 13 ANNUAL REPORT Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS- 1996 COMPARED TO 1995 Net sales decreased to $5,690 million in 1996 from $6,800 million in 1995, while net income increased to $157.3 million from $126.4 million during the same periods. The comparability of revenues and results was affected by divestitures and non-recurring items. In 1996, the company sold its Flexible Packaging and related Inks divisions, as well as several small domestic Consumer Products Business mills. In 1995, James River spun off Crown Vantage Inc. ("Crown Vantage") to its common shareholders. Crown Vantage included a large part of what was formerly in the company's Communications Papers Business, as well as the specialty paper-based portion of the Packaging Business. Acquisitions and divestitures are more fully described in Note 2 of Notes to Consolidated Financial Statements. Non-recurring severance and other charges for 1996 and 1995, which are further described in Note 3 of Notes to Consolidated Financial Statements, included the following (in millions):
1996 1995 ---------------------- ------------------------ Pretax Net Pretax Net ================================================================================================ Severance costs $(40.6) $(25.3) $(42.7) $(25.3) Asset write-downs (59.3) (36.7) (4.2) (2.6) Gain on divestitures 89.2 49.1 Crown Vantage spin-off costs (5.0) (4.2) French statutory tax rate increase (6.3) ------- ------- ------- ------- Total $(10.7) $(12.9) $(51.9) $(38.4) ======= ======= ======= =======
Excluding non-recurring items, net income was $170.2 million, or $1.30 per share, in 1996 compared with $164.8 million, or $1.26 per share, in 1995. Segment Data The following tables set forth sales and operating results, before severance and other items, by business segment for 1996 and 1995. The pro forma information is presented as if Crown Vantage and the Flexible Packaging division were excluded from each year's results.
Historical Pro Forma ------------------------- ------------------------ Segment Segment 1996 (in millions): Net Sales Results(a) Net Sales Results(a) =================================================================================================== Consumer Products: North American $2,642.3 $277.0 $2,642.3 $277.0 European 1,693.2 152.9 1,693.2 152.9 Packaging 1,109.6 87.7 824.2 85.3 Communications Papers 427.4 22.2 427.4 22.2 Intersegment eliminations and corporate expenses (182.0) (96.2) (160.7) (96.2) ---------- --------- ---------- ---------- Total $5,690.5 $443.6 $5,426.4 $441.2 ========== ========= =========== ==========
Historical Pro Forma ------------------------ ------------------------ Segment Segment 1995 (in millions): Net Sales Results(a) Net Sales Results(a) ================================================================================================ Consumer Products: North American $2,689.1 $235.1 $2,697.1 $237.1 European 1,654.7 45.9 1,654.7 45.9 Packaging 1,620.4 61.0 935.2 75.8 Communications Papers 1,038.8 191.2 592.9 126.7 Intersegment eliminations and corporate expenses (203.5) (58.0) (166.4) (52.3) ---------- ---------- ----------- --------- Total $6,799.5 $475.2 $5,713.5 $433.2 ========== ========== =========== =========
(a) Represents segment results before severance and other items. The allocation of severance and other items by segment is presented in Note 16 of Notes to Consolidated Financial Statements and Supplemental Pro Forma Financial Information. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations North American Consumer Products Business In 1996, the company's North American Consumer Products Business reported sales of $2,642 million and operating results, before severance and other items, of $277 million. Sales declined by $47 million, or 2 percent, from the $2,689 million reported in 1995, while operating results, before severance and other items, improved by $42 million, or 18 percent, from the $235 million reported in 1995. This business' return on sales, before severance and other items, improved to 10.5 percent in 1996 from 8.7 percent in 1995. The decline in net sales was principally attributable to the divestitures of the company's foam cup and specialty operations businesses, combined with the decline in average selling price for the company's excess North American pulp. Net sales of retail products were comparable in 1996 and 1995, as unit volume increases of approximately 3 percent for retail personal care products were offset by lower retail tabletop volumes. Average pricing was comparable to the prior year for retail personal care products, but slightly higher for retail tabletop products. List prices for retail tissue and towel products were increased twice in 1995, but were reduced in the spring of 1996 by between 5 and 8 percent, following competitive pricing actions tied to the falling cost of market pulp. Net sales into the commercial channel declined by 3.7 percent from the prior year, reflecting a combination of unit volume increases for personal care products, more than offset by unit volume and price decreases for foodservice products. Average pricing for commercial personal care products improved slightly compared to 1995 levels. High industry utilization rates contributed to relatively stable commercial personal care pricing throughout 1996, despite significantly lower average waste paper costs. Commercial foodservice products experienced lower average pricing in 1996 compared to the prior year, as competitive price reductions were taken following raw material cost reductions. Net sales into the warehouse club and private label channels continued to increase, up more than 10 percent over 1995 sales, driven by both stronger volumes and higher average selling prices. The North American Consumer Products Business is fully integrated for its pulp requirements, with excess capacity of between 200,000 and 250,000 metric tons per year sold as market pulp. Net sales of market pulp fell sharply from 1995 levels, resulting from the precipitous decline in industry selling prices during 1996. The improvement in operating results for the North American Consumer Products Business was driven by a combination of cost reduction initiatives, lower raw material costs and lower levels of trade spending, partially offset by increased advertising and marketing costs and reduced market pulp profitability. On a discretionary basis, the company currently plans to continue to increase spending on advertising and marketing supporting its consumer branded products in 1997, to be funded with a portion of the incremental savings expected to be realized from cost reduction activities. European Consumer Products Business In 1996, the company's European Consumer Products Business reported sales of $1,693 million and operating results, before severance and other items, of $153 million. Sales increased by $38 million, or 2 percent, from the $1,655 million reported in 1995, while operating results increased by $107 million, or more than 230 percent, from the $46 million reported in 1995. This business' return on sales, before severance and other items, improved to 9 percent in 1996 from 2.8 percent in 1995. Increased sales in 1996 were attributable to market share gains, partially offset by a small decline in average net selling prices. Converted product unit volumes increased by 6.5 percent in 1996, despite a two-month strike at the company's Spanish tissue facility. Volume gains occurred in all geographic regions and were attributable, in part, to successful new product innovations, as well as a recovery of lower than normal volumes experienced in 1995. Average finished goods pricing declined by approximately 3 percent compared to 1995, in response to dramatically lower raw material costs. Similar to most of its European tissue competitors, James River's European Consumer Products Business is not an integrated producer. Approximately two-thirds of the business' fiber requirements 22 are met with purchased market pulp (some of which is purchased from James River's North American Consumer Products Business), while the remaining one-third is provided by its deinked pulp facilities. After climbing dramatically in 1995, market pulp and waste paper costs fell sharply in the first half of 1996. The reduction in fiber costs, without a commensurate reduction in average selling prices, contributed to the higher margins reported in 1996. In addition to lower fiber costs, operating profit improvements were generated by manufacturing cost reductions and increased volumes, partially offset by lower average selling prices and increased expenses for advertising, consumer promotion and trade spending. Although improving, the European-wide tissue capacity utilization rate is not at an optimal level. Therefore, the company expects continued competitive pressure on tissue pricing in 1997 in the face of continued low raw material costs. Packaging Business In 1996, the company's Packaging Business reported sales of $1,110 million and operating results, before severance and other items, of $88 million. Sales decreased by $510 million from the $1,620 million reported in 1995, while operating profits, before severance and other items, increased by $27 million from the $61 million reported in 1995. The majority of the decline in sales was due to divestitures. On a pro forma basis, excluding the Flexible Packaging division and the packaging facilities spun off to Crown Vantage, sales decreased from $935 million in 1995 to $824 million in 1996, while operating profits, before severance and other items, increased from $76 million to $85 million, respectively. This business' pro forma return on sales, before severance and other items, improved to 10.3 percent in 1996 from 8.1 percent in 1995. The decline in pro forma sales was principally attributable to lower volumes for folding cartons and foodservice products, partially offset by increased volumes for coated recycled board. Selling prices for coated recycled board averaged approximately 10 percent lower in 1996 compared to 1995. Average folding carton prices were similar in 1996 and 1995, as prices trended higher throughout 1995, before trending lower during 1996, directionally following bleached and recycled paperboard raw material costs. The increase in the Packaging Business' operating profits was attributable to a combination of lower raw material costs, particularly for purchased waste paper, and manufacturing cost reductions, partially offset by the lower volumes and pricing for certain packaging grades. Operating profits also improved following the sale of the Flexible Packaging division and the spin-off of packaging operations to Crown Vantage, as these divisions reported operating losses in 1995. Communications Papers Business In 1996, the Communications Papers Business reported sales of $427 million and operating results, before severance and other items, of $22 million. Sales decreased by $612 million, from $1,039 million in 1995, while operating profits, before severance and other items declined by $169 million, from $191 million in 1995. The majority of the decline in sales was due to the spin-off of a large portion of the Communications Papers Business to Crown Vantage in August 1995. On a pro forma basis, excluding the spun-off operations, sales decreased from $593 million in 1995 to $427 million in 1996, while profits declined from $127 million to $22 million, respectively. This business' pro forma return on sales, before severance and other items, declined from 21.4 percent in 1995 to 5.2 percent in 1996. The decline in pro forma sales was attributable to lower average selling prices and lower unit volumes in both uncoated free sheet and uncoated groundwood papers. After increasing sharply during the first nine months of 1995, selling prices fell steadily throughout 1996, due to major customer inventory corrections combined with weaker demand growth and excess industry capacity. Selling prices for uncoated free sheet averaged approximately $250 per ton lower in 1996 compared to 1995, while selling prices for uncoated groundwood averaged approximately $50 per ton lower. Unit volumes declined from 1995 levels 23 Management's Discussion and Analysis of Financial Condition and Results of Operations by 6 to 7 percent for both uncoated free sheet and uncoated groundwood. The majority of the volume declines occurred in the first half of 1996, as substantial market-related downtime was taken to prevent a build-up of inventory. The decline in the Communications Papers Business' pro forma operating profits was a direct result of the decline in selling prices and volumes, partially offset by lower wood chip costs. James River's two Communications Papers Business facilities are located in the Pacific Northwest, where the company does not own a significant amount of timberlands. Accordingly, James River relies on purchased wood chips to supply these integrated facilities. Northwestern wood chip costs, which have been higher than in other regions because of environmental restrictions on timber harvesting, increased sharply during the first nine months of 1995 in connection with the over-heated pulp and paper markets, before declining between 20 and 25 percent in 1996. Other Income and Expense Items General corporate expenses increased to $96 million in 1996 from $58 million in 1995. The increase principally resulted from consulting and other costs incurred during 1996 in installing new integrated management information systems to support the company's cost reduction programs. Corporate costs are expected to begin trending lower in 1997, as the new systems installations are completed. Interest expense decreased by $61 million, from $226 million in 1995 to $165 million in 1996, principally due to significant reductions in outstanding debt. The application of divestiture proceeds, net of acquisitions, and free cash flow to pay down debt resulted in a $918 million reduction in outstanding debt during 1995 and 1996, as debt declined from $2,889 million as of the beginning of 1995 to $1,971 million as of the end of 1996. Other income declined by $19 million, from $40 million in 1995 to $21 million in 1996, due to a $15 million reduction in equity earnings of unconsolidated affiliates and a $4 million reduction in interest income. The company's share of equity earnings of Aracruz Celulose S.A., the world's largest producer of eucalyptus market pulp, was lower in 1996 following the downturn in worldwide market pulp prices during 1996. The company's effective tax rate was 44 percent in 1996, compared to 43 percent in 1995, excluding the effect of the charge resulting from the French income tax rate increase. The effective tax rate differed from the combined federal and state statutory rate primarily because of the relative size of nondeductible goodwill amortization expense and, in 1995, certain foreign pretax losses for which no tax benefit was then available. - ------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Operating Activities Cash provided by operations increased to $719 million in 1996, 18 percent higher than the $609 million provided in 1995. Working capital reductions generated $147 million of cash in 1996, including $71 million from inventory reductions resulting principally from lower per unit valuations. Free cash flow (cash provided by operations, less expenditures for property, plant and equipment and dividends) increased to $196 million in 1996, from $48 million in 1995, before the effect of divestitures and acquisitions. Investing Activities Net cash used for investing activities totaled $119 million during 1996 and included $426 million of capital expenditures and $200 million of cash paid for the remaining 14 percent minority interest in the company's European Consumer Products Business, net of $497 million of cash proceeds from asset sales and $10 million of other miscellaneous cash proceeds. During 1995, net cash used for investing activities was $432 million and included capital spending of $441 million and cash paid for acquisitions of $53 million, net of cash proceeds from assets sales and other items of $62 million. 24 The $497 million of 1996 cash proceeds from divestitures included $373 million from the sale of the Flexible Packaging division, $52 million from the sale of the foam cup operations, $30 million from the sale of the specialty operations, $27 million from the sale of the Inks division, and $15 million from other miscellaneous asset sales. The company currently expects that the asset rationalization process will continue in 1997 and may include, among other items, the divestiture of some of the company's owned timberlands. Future divestiture proceeds and free cash flow will be directed toward capital structure simplification, debt reduction, or possibly, strategic acquisitions. Capital spending of $426 million in 1996 declined by $15 million compared to 1995 spending of $441 million. On a pro forma basis, excluding spending for Flexible Packaging and Crown Vantage from both years, spending was approximately $414 million in 1996 compared to $361 million in 1995. Nearly three-quarters of the total 1996 expenditures were for the Consumer Products Business, including approximately $25 million of spending on tissue converting equipment modernizations at the Pennington, Alabama, mill and $15 million for secondary fiber capacity expansions in Green Bay, Wisconsin. The company currently expects 1997 capital spending to be in the range of $400 million. Contractual capital commitments as of December 29, 1996, were not material. Financing Activities Total indebtedness decreased by $577 million, from $2,548 million as of December 31, 1995, to $1,971 million as of December 29, 1996, principally from the use of divestiture proceeds, net of acquisitions, and free cash flow. During 1996, new borrowings totaled $4 million and debt payments totaled $545 million. Additionally, changes in foreign currency translation rates reduced debt denominated in foreign currencies by $36 million. As of December 29, 1996, James River and its subsidiaries had domestic and foreign revolving credit facilities providing for unsecured borrowings of up to $1,162 million, of which $935 million expire in December 1999 and the balance expires between 1997 and 1998. The company also had domestic and foreign commercial paper programs, supported by the revolving credit facilities, providing for issuances of up to $624 million. In addition, James River had agreements with several banks under which it may borrow funds on an uncommitted basis at below-prime rates. On December 29, 1996, the company had outstanding borrowings of $399 million that were supported by the revolving credit facilities, including $341 million outstanding under such facilities, $48 million of money market notes and $10 million of commercial paper. Total outstanding debt of $1,971 million on December 29, 1996, included approximately $1,526 million of fixed rate and $445 million of floating rate obligations. As of December 29, 1996, the company also had outstanding interest rate swap agreements that effectively converted $1,286 million of fixed rate debt and other financial obligations to variable rate obligations. The effect of the swaps was an increase in interest expense of approximately $4 million in 1996 and $8 million in 1995. These contracts expire between September 1998 and January 1999. As of December 29, 1996, the interest rate swaps had a fair value of $(15) million. Additional information on the interest rate swaps is provided in Note 11 of Notes to Consolidated Financial Statements. As of the end of 1996, James River's weighted-average interest rate was 7.53 percent (including the impact of the interest rate swaps), compared to 7.38 percent as of the end of 1995. Subsequent to the end of 1996, the company effectively unwound $648 million of the swap agreements. The company's ratio of total debt to total capitalization decreased to 46 percent as of the end of 1996, from 51.3 percent as of the end of 1995, resulting from the decrease in debt levels. The company defines total capitalization as the sum of current and long-term debt, preferred and common equity and minority interests. The company's most restrictive debt covenants contain limitations on borrowings and require the maintenance of a minimum amount of net worth. As of December 29, 1996, under the most restrictive provisions of the company's debt agreements, the company had additional borrowing capacity of $1.6 billion and net worth in excess of the minimum requirement of approximately $390 million. 25 Management's Discussion and Analysis of Financial Condition and Results of Operations As of December 29, 1996, the company's debt ratings were investment grade and were as follows: Senior Preferred Commercial Outlook Debt Stock Paper ---------------------------------------------------- Moody's Investors Services Stable Baa3 ba2 Prime-3 Standard & Poor's Positive BBB- BB+ A-3 As of December 29, 1996, James River had $738 million face value of outstanding preferred stocks. Of this total, (i) $287 milllion (the Series P preferred stock) may be redeemed by the company at a call price payable in common shares beginning July 1, 1997; (ii) $353 million (the Series K, L, and N preferred stocks) were redeemable at a cash price of $355 million; and (iii) $98 million (the Series O preferred stock) may be redeemed at face value beginning in October 1997. The Series K, L, and N preferred stocks are also exchangeable by the company for convertible subordinated debentures. The terms of these preferred stocks are more fully described in Note 13 of Notes to Consolidated Financial Statements. The company is currently reviewing its options regarding the Series P preferred stock, one of which would be to redeem them beginning July 1, 1997, resulting in an additional 15.3 million outstanding common shares and a $26 million reduction in annual preferred dividend requirements. James River is also currently studying its alternatives regarding the other outstanding series of preferred stocks. Dividends paid declined from $120 million in 1995 to $97 million in 1996. The decline was solely attributable to timing, with five common dividend payment dates occurring in 1995, versus three quarterly payment dates occurring in 1996. As of the end of 1996, the company had outstanding foreign currency contracts totaling $470 million, which were designated as a hedge of a portion of the investment in the European Consumer Products Business. These contracts were principally denominated in French francs, British pounds, Belgian francs and Spanish pesetas and expire on September 1, 1998. Subsequent to the end of the year, the company unwound all $470 million of the foreign currency contracts. See Note 17 of Notes to Consolidated Financial Statements. Contractual Labor Agreements James River currently employs approximately 23,000 people. The majority of hourly employees are members of unions. Contracts covering approximately 3,000 domestic and Canadian employees are scheduled for renegotiation in 1997. Environmental Matters Like its competitors, James River is subject to extensive regulation by various federal, state, provincial, and local agencies concerning compliance with environmental control statutes and regulations. These regulations impose limitations on the discharge of materials into the environment, as well as require the company to obtain and operate in compliance with the conditions of permits and other governmental authorizations. James River has made and will continue to make substantial capital investments and operating expenditures, as well as production adjustments, to comply with increasingly stringent standards for air, water, and solid and hazardous waste regulations. Capital expenditures totaling approximately $20 million in 1996 and $50 million in 1995 were made by James River for pollution control facilities and equipment. In 1993, the U.S. Environmental Protection Agency published draft regulations, generally referred to as the "Cluster Rules," intended to reduce air and water discharges of specific substances from U.S. pulp and paper mills. The final rules are likely to be issued in 1997. These rules may require significant changes in the pulping and/or bleaching processes presently used in some U.S. pulp mills, including several of James River's mills. Based on its evaluation of the rules as they are currently expected to be issued, the company believes that capital expenditures totaling approximately $100 million may be required during the nominal three-year compliance period following the date of promulgation, in order to bring James River's facilities into compliance. 26 As of December 29, 1996, James River had been identified as a "potentially responsible party," along with others, under federal or state laws with respect to approximately 50 sites where hazardous substances or other contaminants are located. Note 15 of Notes to Consolidated Financial Statements provides information on the company's accrued remediation liabilities. Contingent Liabilities During 1994, James River was sued by certain former holders of James River's 103/4% Debentures due October 1, 2018. Most of these debentures were retired by means of a tender offer to all holders which commenced on September 18, 1992. The remainder were redeemed on November 2, 1992. In general, the complaints allege violations of a covenant prohibiting the use of lower cost borrowed funds to redeem the debentures before October 1, 1998, and violations of various disclosure obligations, and seek damages in excess of $50 million plus punitive damages in excess of $500 million. James River believes that these claims are without merit and intends to defend them vigorously. Further information on James River's contingent liabilities is included in Note 15 of Notes to Consolidated Financial Statements. Effect of Changing Prices Prior to 1994, the company had experienced only moderate levels of inflation for several years. Between mid-1994 and mid-1995, the company experienced significant increases in the cost of many of its base raw materials. In almost all cases, selling price increases followed these cost increases, although on a lag basis. In the second half of 1995 and throughout 1996, costs of many of these same raw materials declined. - ------------------------------------------------------------------------------ RESULTS OF OPERATIONS-- 1995 COMPARED WITH 1994 James River's 1995 consolidated net sales increased 25 percent to $6,800 million compared with $5,417 million in 1994. The change in results was impacted by (i) the effect of the inclusion of the European Consumer Products Business sales for a full year in 1995, (ii) the spin-off of Crown Vantage in 1995, and (iii) the impact of higher pricing for many of James River's products. Income from operations totaled $423 million in 1995, a nearly three-fold improvement over the $147 million reported in 1994. The company reported net income of $126 million, or $.81 per share, in 1995, versus a net loss of $13 million, or $(.72) per share, in 1994. The 1995 results included $32 million, net of taxes and minority interests, primarily for severance and related costs and $6 million, net of minority interests, for the cumulative effect of an increase in the French income tax rate. Non-recurring items reported in 1994 included $16 million, net of taxes, for severance, litigation and environmental costs, and after-tax income of $5 million for interest income on tax refunds. Excluding non-recurring items, net income was $165 million, or $1.26 per share, in 1995 compared to a net loss of $2 million, or $(.59) per share, in 1994. In July 1994, James River increased its ownership interest in the European Consumer Products Business from 43.2% to 86.4% for a purchase price of approximately $575 million. This business was included in James River's consolidated results for all of 1995, compared to only five months in 1994, accounting for approximately $815 million of the increase in net sales and $35 million of the increase in operating profits between 1994 and 1995. In addition, interest expense and preferred dividend requirements increased by approximately $39 million and $13 million, respectively, due to this purchase. North American Consumer Products Business Reported net sales for the North American Consumer Products Business increased by 11 percent, to $2,689 million in 1995 from $2,423 million in 1994. Net sales of retail products increased by 7 percent over the prior year, principally due to higher net selling prices. For the first nine months of 1995, retail 27 Management's Discussion and Analysis of Financial Condition and Results of Operations product volumes averaged approximately 2.5 percent higher than the prior year; however, fourth quarter retail volumes were significantly below the prior year's due to reduced promotional spending in the quarter. Net sales of commercial products increased by 11 percent over the prior year, reflecting significantly higher selling prices, partially offset by lower volumes. Price increases were implemented in commercial markets several times during the first half of 1995, following a sharp escalation in waste paper costs. Commercial product volumes declined by approximately 8 percent compared to 1994 levels, resulting from a combination of the company's decision to reduce its product line offerings and more competitive pricing conditions experienced in the second half of 1995. Net sales of warehouse club products increased by 15 percent, reflecting both higher volumes and higher average selling prices. Operating profits for the North American Consumer Products Business increased to $235 million in 1995 from $143 million in 1994, while operating margins improved to 8.7 percent from 5.9 percent. The improved profitability was driven by cost reduction initiatives combined with pricing gains which outpaced raw material cost increases. European Consumer Products Business Reported 1995 net sales for the European Consumer Products Business were up sharply due to the inclusion of this business in consolidated results for all of 1995, versus only five months in 1994. On a pro forma basis, reflecting a full year of results in both 1994 and 1995, sales increased by 14 percent, from $1,446 million in 1994 to $1,655 million in 1995. Increased pro forma sales were driven by a combination of price increases, implemented to recover sharply higher raw material costs, and mix improvements, partially offset by lower shipments. Market pulp and waste paper cost increases during 1994 and 1995 outpaced tissue price increases, resulting in a contraction in margins. In addition, volumes declined in response to the business' aggressive program to increase pricing. The negative impact of these items was largely offset by cost reduction program benefits, as work force reductions of approximately 10 percent were made during 1995. On a pro forma basis, operating profits improved slightly from $42 million in 1994 to $46 million in 1995. Packaging Business Reported net sales for the Packaging Business were relatively level, at $1,620 million in 1995 compared to $1,610 million in 1994. On a pro forma basis, excluding the specialty packaging papers facilities spun off to Crown Vantage, net sales increased by 6 percent, from $1,333 million in 1994 to $1,419 million in 1995. Net sales increases reflected higher average prices for most products, on relatively level shipments. Price increases were implemented in all major product categories, including folding cartons, paperboard and flexible packaging, in an effort to pass through the cost escalation in major raw material inputs, such as waste paper, plastic resins, and paperboard, experienced in the first half of 1995. Operating profits declined from $97 million in 1994 to $61 million in 1995. On a pro forma basis, excluding the spun-off facilities, the decline in profitability was less sharp, falling from $84 million in 1994 to $65 million in 1995. While the spun-off operations contributed approximately $13 million to 1994 profits, they generated an operating loss during the eight months they were included in 1995 results, due to unrecovered pulp cost increases. Flexible packaging 1995 results were also below 1994 levels, and were negatively affected by unrecovered raw material cost increases, competitive markets caused in part by new industry capacity and higher manufacturing costs. Communications Papers Business Net sales for the Communications Papers Business increased to $1,039 million in 1995 from $930 million in 1994, despite the exclusion of the facilities spun off to Crown Vantage during the last four months of 1995. On a pro forma basis, assuming the spin-off had occurred at the beginning of 1994, net sales would have totaled $593 million in 1995 versus $411 million in 1994. 28 Selling prices for uncoated free sheet papers increased sharply during the first nine months of 1995, before falling slightly in the fourth quarter. Average selling prices for the retained uncoated free sheet operations increased from $600 per ton in 1994 to $970 per ton in 1995. During the first half of 1995, shipments for the retained uncoated free sheet operations were comparable to the prior year. However, shipments fell approximately 20 percent during the second half of the year due to major customer inventory corrections and weaker economic growth, causing James River to curtail production in the fourth quarter. Average selling prices for uncoated groundwood papers increased from $445 per ton in 1994 to $675 per ton in 1995, while shipments were comparable with those of the prior year. Reported operating results improved from a loss of $36 million in 1994 to a profit of $191 million in 1995. On a pro forma basis, excluding facilities spun off to Crown Vantage, this business had an operating loss of $22 million in 1994 compared to a profit of $127 million in 1995. The improved profitability was driven principally by significantly higher pricing, partially offset by higher Northwestern wood chip and other raw material costs. Other Income and Expense Items General corporate expenses increased to $58 million in 1995, from $55 million in 1994. Corporate expenses for 1994 included $11 million of non-recurring litigation and environmental costs, while 1995 expenses included more than $10 million of costs for systems redesign efforts related to cost reduction initiatives. Interest expense increased by $41 million, from $185 million in 1994 to $226 million in 1995. The majority of the increase was due to the full year's impact of the European Consumer Products Business consolidation, partially offset by the debt reduction following the Crown Vantage spin-off. On a pro forma basis, assuming the consolidation and the spin-off had occurred at the beginning of 1994, interest expense would have increased from $199 million in 1994 to $204 million in 1995, due to higher average short-term interest rates. Other income increased to $40 million in 1995, from $29 million in 1994. Substantially all of the increase was attributable to higher equity earnings of unconsolidated affiliates, principally from the improved performance of Aracruz following the sharp upturn in worldwide market pulp prices in 1995. In 1995, the company reported an effective tax rate of 43 percent, excluding the charge for the French income tax rate increase. This differed from the combined federal and state statutory rate primarily because of the relative size of nondeductible goodwill amortization expense and certain foreign pretax losses for which no tax benefit was then available. At 45.2 percent, the 1994 effective tax rate was slightly higher than the 1995 rate, principally because of the smaller absolute pretax results. 29 James River Corporation of Virginia and Subsidiaries Consolidated Statements of Operations
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended December 29, December 31, December 25, (in millions, except per share amounts) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Net sales $ 5,690.5 $6,799.5 $ 5,417.3 Cost of goods sold 4,216.7 5,258.9 4,452.0 Selling and administrative expenses 1,030.2 1,065.4 808.7 Severance and other items 10.7 51.9 9.6 ---------- -------- ----------- Income from operations 432.9 423.3 147.0 Interest expense 165.4 226.4 185.6 Other income, net 21.6 40.3 28.9 ---------- -------- ----------- Income (loss) before income taxes and minority interests 289.1 237.2 (9.7) Income tax expense: Tax on current income or loss 127.2 102.0 4.4 Effect of tax rate change 7.4 ---------- -------- ----------- Total income tax expense 127.2 109.4 4.4 ---------- -------- ----------- Income (loss) before minority interests 161.9 127.8 (14.1) Minority interests (4.6) (1.4) 1.1 ---------- -------- ----------- Net income (loss) $ 157.3 $ 126.4 $ (13.0) ========== ======== =========== Preferred dividend requirements (58.5) (58.5) (45.8) ---------- -------- ----------- Net income (loss) applicable to common shares $ 98.8 $ 67.9 $ (58.8) ========== ======== =========== Net income (loss) per share $ 1.15 $ .81 $ (.72) ========== ======== =========== Weighted-average number of common shares and common share equivalents 86.0 84.1 81.7 ========== ======== ===========
The accompanying notes are an integral part of the consolidated financial statements. 30 James River Corporation of Virginia and Subsidiaries Consolidated Balance Sheets
December 29, December 31, (in millions) 1996 1995 - ------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 33.8 $ 66.1 Accounts receivable 717.9 847.3 Inventories 650.4 821.4 Prepaid expenses and other current assets 39.1 52.3 Deferred income taxes 78.5 83.4 -------- ---------- Total current assets 1,519.7 1,870.5 -------- ---------- Net property, plant and equipment 3,751.5 4,074.1 Investments in affiliates 154.6 146.8 Other assets 385.7 395.8 Goodwill 730.0 771.7 --------- --------- Total assets $ 6,541.5 $ 7,258.9 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 507.8 $ 560.5 Accrued liabilities 595.6 493.7 Current portion of long-term debt 116.9 44.8 -------- ---------- Total current liabilities 1,220.3 1,099.0 -------- ---------- Long-term debt 1,853.9 2,503.0 Accrued postretirement benefits other than pensions 458.0 464.7 Deferred income taxes 443.0 489.3 Other long-term liabilities 259.9 448.7 -------- ---------- Total liabilities 4,235.1 5,004.7 -------- ---------- Shareholders' equity: Preferred stock 738.4 740.3 Common stock, $.10 par value; shares outstanding, 1996-86.2 million and 1995-84.9 million 8.6 8.5 Additional paid-in capital 1,307.6 1,294.1 Retained earnings 251.8 211.3 -------- ---------- Total shareholders' equity 2,306.4 2,254.2 -------- ---------- Total liabilities and shareholders' equity $6,541.5 $ 7,258.9 ======== ==========
The accompanying notes are an integral part of the consolidated financial statements. 31 James River Corporation of Virginia and Subsidiaries Consolidated Statements of Cash Flows
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended December 29, December 31, December 25, (in millions) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) operating activities: Net income (loss) $ 157.3 $ 126.4 $ (13.0) Depreciation expense and cost of timber harvested 400.9 461.4 398.4 Amortization of goodwill 21.4 24.4 12.1 Deferred income tax provision (benefit) 21.0 33.0 (4.6) Severance and other items 10.7 51.9 9.6 Undistributed earnings of unconsolidated affiliates (1.1) (1.9) (13.7) Change in current assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable 61.6 (6.6) (25.5) Inventories 70.7 (48.3) 46.3 Other current assets 7.3 (0.8) (17.6) Accounts payable and accrued liabilities 7.5 (30.7) (19.3) Other, net (38.1) 0.5 38.4 -------- -------- --------- Cash provided by operating activities 719.2 609.3 411.1 -------- -------- --------- Cash provided by (used for) investing activities: Expenditures for property, plant and equipment (426.1) (441.2) (351.7) Cash paid for acquisitions, net (199.9) (52.5) (538.0) Cash received from sale of assets 496.6 10.9 34.6 Other, net 10.3 50.9 (4.1) -------- -------- --------- Cash used for investing activities (119.1) (431.9) (859.2) -------- -------- --------- Cash provided by (used for) financing activities: Additions to long-term debt 4.2 9.1 439.5 Payments of long-term debt (545.2) (608.5) (145.2) Proceeds from spin-off of Crown Vantage Inc. 480.4 Preferred stock issued, net of issuance costs 278.8 Common and preferred stock cash dividends paid (97.2) (120.4) (88.4) Common stock issued on exercise of stock options 7.8 68.8 0.4 Other, net (2.0) (1.3) -------- -------- --------- Cash provided by (used for) financing activities (632.4) (170.6) 483.8 -------- -------- --------- Increase (decrease) in cash and cash equivalents (32.3) 6.8 35.7 Cash and cash equivalents, beginning of year 66.1 59.3 23.6 -------- -------- --------- Cash and cash equivalents, end of year $ 33.8 $ 66.1 $ 59.3 ======== ======== =========
The accompanying notes are an integral part of the consolidated financial statements. 32 James River Corporation of Virginia and Subsidiaries Consolidated Statements of Changes in Capital Accounts
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended December 29, December 31, December 25, (in millions) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Preferred stock Balance, beginning of year $ 740.3 $ 740.3 $ 454.1 Issuance of Series P preferred stock 287.5 Other (1.9) (1.3) ----------- ----------- ------------ Balance, end of year $ 738.4 $ 740.3 $ 740.3 =========== =========== ============ Common shareholders' equity Common stock: Balance, beginning of year $ 8.5 $ 8.2 $ 8.2 Exercise of stock options and awards .3 Restricted stock awards .1 ----------- ----------- ----------- Balance, end of year 8.6 8.5 8.2 ----------- ----------- ----------- Additional paid-in capital: Balance, beginning of year 1,294.1 1,211.9 1,219.0 Exercise of stock options and awards, net of tax effect 10.6 82.2 1.6 Restricted stock compensation earned 2.9 Preferred stock issuance costs (8.7) ----------- ----------- ----------- Balance, end of year 1,307.6 1,294.1 1,211.9 ----------- ----------- ----------- Retained earnings: Balance, beginning of year 211.3 201.2 286.9 Net income (loss) 157.3 126.4 (13.0) Common stock cash dividends declared (51.2) (50.0) (49.0) Preferred stock cash dividends declared (58.5) (58.5) (45.8) Spin-off of Crown Vantage Inc. (38.2) Change in equity component of minimum pension liability 11.6 .5 14.9 Foreign currency translation and other (18.7) 29.9 7.2 ----------- ----------- ----------- Balance, end of year 251.8 211.3 201.2 ----------- ----------- ----------- Common shareholders' equity, end of year $ 1,568.0 $ 1,513.9 $ 1,421.3 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 33 Notes to Consolidated Financial Statements Note 1 - ----------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements present the operating results and financial position of James River Corporation of Virginia and its majority owned subsidiaries ("James River" or the "Company"). Significant intercompany balances and transactions have been eliminated. Investments in unconsolidated affiliates which are at least 20% owned are accounted for using the equity method and are stated at cost plus the Company's share of undistributed earnings and foreign currency translation adjustments, as applicable, since acquisition. Fiscal Year James River's fiscal year includes the 52 or 53 weeks ending on the last Sunday in December. The years ended December 29, 1996, and December 25, 1994, each included 52 weeks while the year ended December 31, 1995, included 53 weeks. In 1995, the Company changed the fiscal year end of its European Consumer Products subsidiary from November 30 to December 31 to eliminate the one-month lag in reporting. The one-month lag was eliminated as an adjustment to retained earnings of $8 million. Use of Estimates Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from those estimates. Cash and Cash Equivalents The Company invests cash in marketable securities, including commercial paper, government repurchase agreements, and time deposits, with original maturities of three months or less. The carrying value of cash and cash equivalents approximates fair value because of the short maturity of these investments. Inventories Inventories are stated at the lower of cost or market and include the cost of materials, labor and manufacturing overhead. The last-in, first-out cost flow assumption is used for valuing substantially all domestic inventories other than stores and supplies. Other inventories, including all inventories held by foreign subsidiaries, are valued using first-in, first-out or average cost assumptions. Property, Plant and Equipment Property, plant and equipment is stated at cost, less accumulated depreciation. Expenditures for improvements which increase asset values or extend useful lives are capitalized. Maintenance and repair costs are expensed as incurred. For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from 20 to 45 years for buildings and 5 to 20 years for machinery and equipment. For income tax purposes, depreciation is calculated using accelerated methods. Certain assets are depreciated using composite depreciation methods; accordingly, no gain or loss is recognized on partial sales or retirements of these assets. Timber and Timberlands Timber and timberlands are stated at cost less accumulated cost of timber harvested. Cost of timber harvested is recorded as timber is cut at rates which are determined annually based on the relationship of unamortized timber cost to the estimated volume of recoverable timber. 34 Intangible Assets The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill and amortized over 40 years. Goodwill is presented net of accumulated amortization of $108.7 million as of December 29, 1996, and $92.2 million as of December 31, 1995. Differences between the Company's carrying value of investments in unconsolidated affiliates and its share of the underlying net assets of such affiliates are amortized over periods of up to 40 years. The recoverability of goodwill is periodically evaluated to determine whether current events or circumstances warrant adjustments to the carrying value. Such evaluation is based upon whether the goodwill is fully recoverable from the projected undiscounted cash flows of the assets and businesses to which the goodwill relates. On December 29, 1996, and December 31, 1995, the Company believes that no impairment of goodwill was indicated. Interest Costs The Company capitalizes interest costs as part of the cost of constructing certain facilities and equipment.
(in millions) 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Total interest costs $ 170.5 $ 233.3 $ 188.7 Interest capitalized (5.1) (6.9) (3.1) --------- --------- ---------- Net interest expense $ 165.4 $ 226.4 $ 185.6 ========= ========= ========== Interest paid $ 168.7 $ 233.9 $ 168.3 ========= ========= ==========
Other Operating Expenses Research and development expenditures are expensed as incurred. Direct and readily identifiable indirect research and development costs totaled $46.4 million in 1996, $53.5 million in 1995 and $47.0 million in 1994. Advertising costs are expensed as incurred and amounted to $92.0 million in 1996, $100.2 million in 1995 and $82.8 million in 1994. Foreign Currency Translation The accounts of most foreign subsidiaries and affiliates are measured using local currency as the functional currency. For those entities, assets and liabilities are translated into U.S. dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are excluded from net earnings and accumulated as a separate component of retained earnings. Gains and losses from foreign currency transactions are included in other income. The U.S. dollar is used as the functional currency for subsidiaries and affiliates operating in highly inflationary economies, for which both translation adjustments and gains and losses on foreign currency transactions are included in other income. The change in the cumulative gain (loss) included in the translation component of retained earnings resulting from the translation of assets and liabilities of foreign subsidiaries and affiliates, net of the effect of exchange rate hedges, was as follows:
(in millions) 1996 1995 1994 - ------------------------------------------------------------------------------------------------ Balance, beginning of year $ 13.1 $ (31.3) $ (38.5) Translation adjustments (19.2) 19.8 (6.5) Related income tax effect (3.9) 24.6 13.7 ---------- ---------- ----------- Balance, end of year $ (10.0) $ 13.1 $ (31.3) ========== ========== ===========
Derivative Financial Instruments The Company's debt structure and international operations give rise to exposure to market risks from changes in interest rates and foreign currency exchange rates. To manage these risks, derivative financial 35 Notes to Consolidated Financial Statements instruments are utilized by the Company including interest rate swaps and options on its long-term debt and foreign exchange contracts on certain of its net investments in foreign operations. The Company does not hold or issue financial instruments for trading purposes. Translation gains and losses on hedges of net foreign investments are deferred and accumulated in the foreign currency translation component of retained earnings. Gains and losses on transactional hedges are recognized in income and offset the foreign exchange gains and losses on related transactions. The gains and losses on interest rate swap and option agreements are recognized in interest expense as incurred. Net Income (Loss) Per Common Share and Common Share Equivalent Net income (loss) per common share is computed based on the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. Net income (loss) used in these computations is reduced by preferred dividend requirements. Fully diluted earnings per share are considered to be equal to primary earnings per share in all periods presented because the assumed conversion of potentially dilutive securities which are not common share equivalents was not dilutive. Reclassifications Certain amounts in the prior years' financial statements and supporting footnote disclosures have been reclassified to conform to the current year's presentation. NOTE 2 - ----------------------------------------------------------------------------- ACQUISITIONS, DISPOSITIONS AND OTHER TRANSACTIONS 1996 On September 3, 1996, the Company purchased the remaining 14% minority interest in its European Consumer Products subsidiary, under an existing put and call agreement, from EuroPaper Inc. ("EuroPaper") for $199.9 million. Prior to the settlement, James River's consolidation of its European Consumer Products subsidiary included the EuroPaper minority interest at a book value of $151 million. Concurrent with the receipt of the put exercise notice from EuroPaper on June 29, 1996, James River recorded the acquisition of the remaining 14% minority interest under the purchase method of accounting. On August 22, 1996, the Company completed the sale of its Flexible Packaging group for gross cash proceeds of $372.7 million. The Flexible Packaging group included ten manufacturing facilities with 2,200 employees. These facilities included four lamination and coating plants, five film and converting plants, and a rigid plastics container plant. Net assets sold totaled $336.7 million, net of total liabilities of $8.4 million. The Flexible Packaging group had annual net sales of $483 million. Proceeds from this transaction were used to settle the EuroPaper put and reduce long-term debt. Pro forma results for 1996 and 1995, adjusted for the Flexible Packaging group sale, are presented under the heading Supplemental Pro Forma Financial Information, herein. In October 1996, the Company completed the sale of its Inks division of the Packaging Business, which included seven plants, for gross cash proceeds of $27 million. This division manufactured and sold high quality inks for packaging applications with annual sales of approximately $47 million. In May 1996, James River completed the sale of its specialty operations business, which was a part of the North American Consumer Products Business, for cash proceeds of approximately $30 million and a combination of subordinated long-term notes and preferred stock. The specialty operations business, with annual sales of approximately $125 million, consisted of a party goods facility, a specialty mill, and a foodservice specialties plant. In January 1996, the Company contributed its Handi-Kup foam cup operations, formerly part of the North American Consumer Products Business, to a joint venture for $26 million of cash, approximately $10 million face value of subordinated long-term notes, and a 45% minority interest in the joint venture. The Handi-Kup operations contributed to the joint venture included four foam cup plants, with annual sales of approximately $96 million. The Company's interest in the joint venture was subsequently sold in December 1996 for cash proceeds of $26 million, including the collection of the subordinated long-term notes. 36 1995 On August 25, 1995, the Company completed the spin-off to shareholders of Crown Vantage Inc. ("Vantage") which included a large part of the Company's Communications Papers Business, along with the specialty paper-based portion of its Packaging Business. Net proceeds from Vantage's financings totaling $480 million and pay-in-kind notes valued at $85 million were received by James River as a result of the spin-off. These amounts were treated as a return of the Company's investment. The book value of net assets spun off to Vantage less proceeds received totaled $38 million which was recorded as an adjustment to retained earnings. The operating results of the facilities which comprise Vantage were included in the consolidated statement of operations and the consolidated statement of cash flows through the eight months (35 weeks) ended August 27, 1995. Pro forma results for 1995, adjusted for the Vantage spin-off, are presented under the heading Supplemental Pro Forma Financial Information, herein. In November 1995, the Company acquired the cutlery division of Benchmark Holdings, Inc. for $52.5 million. In May 1995, James River sold its option to purchase its partners' 50% interest in the chemical recovery and cogeneration facility at the Pennington, Alabama, pulp and paper mill for $22.2 million. The net proceeds were recognized as a deferred gain and are being amortized over 18 years. James River retained ownership of the remaining 50% interest in this facility. 1994 Prior to July 5, 1994, James River and Rayne Holdings Inc. ("Rayne") each owned 50% of Jamont Holdings N.V. ("Jamont Holdings") which, in turn, owned 86.4% of the European Consumer Products Business. The European Consumer Products Business produces branded and private label tissue, feminine hygiene and foodservice products for the retail and away-from-home markets in Europe. On July 5, 1994, James River completed the acquisition of Rayne's 50% ownership interest in Jamont Holdings for approximately $575 million in cash. The European Consumer Products Business was consolidated beginning in July 1994; prior to that time, it was accounted for using the equity method. In March 1994, the Company sold its 50% interest Coastal Paper Company, a Mississippi-based producer of lightweight papers. The Company also completed the sale of certain assets of its inactive Fitchburg, Massachusetts, facility in September 1994, and the sale of its Sandston, Virginia, specialty tabletop facility in November 1994. During 1994, James River also completed the sale of 47,000 acres of timberlands. Summary The purchase prices of acquisitions were allocated to the acquired net assets based on their respective fair values as summarized below.
(in millions) 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Acquisitions of consolidated entities: Fair value of assets acquired $ 199.9 $ 55.2 $ 2,119.9 Liabilities assumed or created (2.7) (1,543.0) --------- ---------- --------- Cash paid for acquisitions 199.9 52.5 576.9 --------- ---------- --------- Cash acquired (38.9) --------- ---------- --------- Cash paid for acquisitions, net $ 199.9 $ 52.5 $ 538.0 ========= ========== ========== Dispositions (other than Vantage spin-off): Fair value of assets sold $ 508.9 $ 13.7 $ 37.0 Noncash consideration received (12.3) (2.8) (2.4) --------- ---------- --------- Cash received from sale of assets $ 496.6 $ 10.9 $ 34.6 ========= ========== ==========
37 Notes to Consolidated Financial Statements NOTE 3 - --------------------------------------------------------------------------- SEVERANCE AND OTHER ITEMS 1996 During 1996, the Company recorded a net severance and other items charge of $10.7 million which included $40.6 million of severance charges and $59.3 million of asset write-downs offset by $89.2 million in net gains on business dispositions (see Note 2). Severance charges related to the termination of 580, 200 and 90 employees at the Company's North American Consumer Products Business, European Consumer Products Business and other domestic manufacturing and corporate facilities, respectively. Asset write-downs related to the phase-out of certain packaging equipment and planned asset consolidations in Europe. The Company has made severance payments of $69.7 million to approximately 2,000 employees for whom severance costs have been accrued since December 1994. 1995 During 1995, the Company recorded $51.9 million which included severance charges for announced reductions in work force of $42.7 million, related fixed asset write-offs of $4.2 million and transaction costs associated with the Vantage spin-off of $5.0 million (see Note 2). Severance charges were primarily related to the termination of approximately 1,050 employees located in Europe and 370 employees located at domestic manufacturing and corporate facilities. 1994 In December 1994, the Company recorded $9.6 million which included severance charges for announced reductions-in-force of $16.4 million, asset write-offs of $28.9 million, and the reversal of $35.7 million of reserves associated with a 1992 restructuring program. Severance charges represent the costs related to the termination of approximately 650 employees primarily located at Communications Papers and Packaging facilities. Asset write-offs related to the phase-out of certain packaging equipment and planned asset consolidations in Europe. The reversal of a portion of the 1992 restructuring charge results from the Company's decision not to dispose of certain facilities. NOTE 4 - --------------------------------------------------------------------------- OTHER INCOME
(in millions) 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Equity in earnings of unconsolidated affiliates $ 10.2 $ 25.7 $ 13.7 Interest income 6.6 11.2 9.9 Gain on sale of assets 5.1 4.3 5.2 Foreign currency exchange gains (losses) .8 (.3) (.6) Other, net (1.1) (.6) .7 ---------- --------- ---------- Total other income $ 21.6 $ 40.3 $ 28.9 ========== ========= ==========
NOTE 5 - ------------------------------------------------------------------------------- INCOME TAXES The components of income (loss) before income taxes and minority interests were as follows:
(in millions) 1996 1995 1994 - --------------------------------------------------------------------------------- Domestic $ 210.6 $ 197.2 $ 7.2 Foreign 78.5 40.0 (16.9) ---------- --------- ----------- Income (loss) before income taxes and minority interests $ 289.1 $ 237.2 $ (9.7) ========== ========= ===========
38 Income tax expense (benefit) consisted of the following: (in millions) 1996 1995 1994 - ----------------------------------------------------------------------- Current: Federal $ 65.3 $ 66.5 $ 3.6 State 10.5 6.3 1.3 Foreign 30.4 3.6 4.1 -------- ------- --------- Total current income tax provision 106.2 76.4 9.0 -------- ------- --------- Deferred: Federal 14.1 1.3 (3.3) State .5 8.1 (.6) Foreign 6.4 23.6 (.7) -------- ------- --------- Total deferred income tax provision (benefit) 21.0 33.0 (4.6) -------- ------- --------- Income tax expense $ 127.2 $ 109.4 $ 4.4 ======== ======= ========= During 1996 and 1995, tax benefits credited to shareholders' equity which primarily related to the redemption of stock options were $1.1 million and $12.4 million, respectively. Cash payments for income taxes totaled $58.5 million in 1996, $78.7 million in 1995 and $14.1 million in 1994. No provision for income taxes has been made for $66.2 million of undistributed earnings of certain of the Company's foreign subsidiaries and affiliates which have been indefinitely reinvested. It is not practicable to determine the amount of U.S. income tax which would be payable if such undistributed foreign earnings were repatriated because any U.S. taxes payable on such repatriation would be offset, at least in part, by foreign tax credits. Principal reasons for the difference between the federal statutory income tax rate on income (loss) before income taxes and minority interests and the Company's effective income tax rate were as follows:
Percent of Pretax Income or (Loss) ------------------------------------ 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% (35.0)% State income taxes, net of federal income tax effect 2.5 3.9 5.1 Charitable contributions fair market value in excess of basis (22.9) Foreign losses not benefitted 4.4 63.4 Goodwill 4.0 3.3 43.3 Other items, net 2.5 (3.6) (8.7) ------- ------- ------ Effective income tax rate on current income (loss) 44.0% 43.0% 45.2% ------- ------- ------ Effect of increase in income tax rate 3.1 ------- ------- ------ Effective income tax rate 44.0% 46.1% 45.2% ====== ===== ======
In August 1995, the French Parliament passed a law imposing a 10% tax surcharge on the normal corporate tax rate, effectively increasing this rate 3%. The Company recorded a $7.4 million charge ($6.3 million, net of minority interests) to increase the deferred tax liability for the effect of this increase in tax rate. 39 Notes to Consolidated Financial Statements The income tax effects of temporary differences that gave rise to the net deferred tax liability as of December 29, 1996, and December 31, 1995, were as follows:
(in millions) 1996 1995 - ----------------------------------------------------------------------------------------------- Excess of book over tax basis of property, plant and equipment $ 680.8 $ 785.8 Pension benefits 76.1 72.5 Other items 64.0 49.9 --------- --------- Total deferred tax liabilities 820.9 908.2 --------- --------- Postretirement benefits other than pensions (181.3) (184.3) Alternative minimum tax credit carryforwards (92.7) (126.5) Accrued liabilities (113.3) (105.2) Tax loss carryforwards (40.0) (63.3) Other items (60.1) (66.8) --------- --------- Total deferred tax assets (487.4) (546.1) --------- -------- Valuation allowance 31.0 43.8 -------- ---------- Net deferred tax liability $ 364.5 $ 405.9 ========= ===========
The valuation allowance as of December 29, 1996, and December 31, 1995, reflects the impact of foreign net operating losses and tax credits for which the Company does not currently anticipate receiving future tax benefits. If recognized in the future, $9.5 million of these tax benefits will be allocated to reduce goodwill of certain acquired subsidiaries. The Internal Revenue Service is currently reviewing the Company's federal income tax returns for the years 1990 through 1992. In the opinion of management, potential adjustments resulting from these examinations will not have a material effect on the Company's financial condition. As of December 29, 1996, the Company had $104.3 million of foreign net operating loss carryforwards which expire primarily from 1997 through 2005 and $2.8 million of foreign tax credit carryforwards which expire from 1998 through 2000. The Company also had alternative minimum tax ("AMT") credit carryforwards of $92.7 million which have been reflected as a reduction of deferred taxes. AMT credits may generally be carried forward indefinitely and used in future years to the extent the Company's regular tax liability exceeds the AMT liability for such future years. NOTE 6 - ---------------------------------------------------------------------------- PENSION PLANS James River sponsors various contributory and noncontributory pension plans which cover substantially all employees. The Company also participates in several multiemployer retirement plans which provide defined benefits to employees covered under certain collective bargaining agreements. Benefits under the majority of plans for hourly employees are primarily based on stated benefits per year of credited service. Benefits for salaried employees are primarily related to compensation and years of credited service. The Company makes contributions to its plans sufficient to meet the minimum funding requirements of applicable laws and regulations plus additional amounts, if any, as the Company, in consultation with its actuaries, deems to be appropriate. Contributions to multiemployer plans are generally based on negotiated labor contracts. The Company's contributions totaled $19.5 million, $32.6 million and $26.7 million in 1996, 1995 and 1994, respectively. Plan assets consist principally of equity securities and corporate and government obligations. 40 The components of net pension cost were as follows:
(in millions) 1996 1995 1994 - ------------------------------------------------------------------------------------------------ Service cost $ 16.7 $ 16.2 $ 20.8 Interest accrued on projected benefit obligation 84.8 95.5 95.0 Net investment (income) loss on plan assets: Actual (162.9) (246.0) (12.8) Deferral of difference between actual and expected investment income 59.1 137.0 (97.4) Net amortization 11.9 8.8 19.8 Contributions to multiemployer pension plans 4.6 5.1 5.1 --------- ---------- ----------- Net pension cost $ 14.2 $ 16.6 $ 30.5 ========= =========== ===========
Net amortization included amortization of the net transition assets, net experience gains and losses, and prior service costs over 15 to 20 years. The Company incurred termination benefit and curtailment costs associated with the 1996, 1995 and 1994 business dispositions and severance programs. Charges of $18.3 million, $8.0 million and $4.1 million are included with severance and other expenses for the years ended December 29, 1996, December 31, 1995, and December 25, 1994, respectively. The actuarial assumptions used in determining net pension costs were as follows:
1996 1995 1994 - ---------------------------------------------------------------------------------------------- Discount rate 7.5% 8.6% 7.4% Assumed rate of increase in compensation levels 5.0% 5.0% 5.5% Expected long-term rate of return on plan assets 10.0% 10.0% 10.0%
The following table sets forth the funded status of the Company's plans:
1996 1995 -------------------------- -------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed (in millions) Benefits Assets Benefits Assets - ------------------------------------------------------------------------------------------------ Actuarial present value of: Vested benefits $ 902.2 $ 164.0 $ 859.9 $216.4 Nonvested benefits 31.6 17.6 29.8 23.3 ---------- ---------- ---------- ----------- Accumulated benefit obligation 933.8 181.6 889.7 239.7 Effect of projected future salary increases 22.8 .8 25.0 .5 ---------- ---------- ---------- ----------- Projected benefit obligation 956.6 182.4 914.7 240.2 ---------- ---------- ---------- ----------- Plan assets at fair value 1,200.4 158.0 1,067.6 198.7 ---------- ---------- ---------- ----------- Plan assets in excess of (less than) projected benefit obligation 243.8 (24.4) 152.9 (41.5) Unrecognized net (gain) loss (82.6) 11.9 10.0 31.9 Unrecognized prior service cost 33.3 30.9 30.9 40.6 Unrecognized net transition asset (7.7) (3.0) (8.7) (4.4) Minimum pension liability (39.0) (67.6) ---------- ---------- ---------- ----------- Net pension asset (liability) $ 186.8 $ (23.6) $ 185.1 $ (41.0) ========== ========== ========== ==========
As of December 29, 1996, benefit obligations were determined using a discount rate of 7.75% and an assumed rate of increase in compensation levels of 5.0%. The effect of the changes in these assumptions was a decrease in the projected benefit obligation of $28.6 million. Other assets included net noncurrent pension assets of $202.2 million as of December 29, 1996, and $211.7 million as of December 31, 1995, exclusive of the additional minimum pension liabilities. As of December 29, 1996, $39.0 million of additional minimum pension liabilities for underfunded plans were included in other long-term liabilities, offset by an intangible asset of $30.5 million and a charge of $5.1 41 Notes to Consolidated Financial Statements million to retained earnings, net of deferred taxes of $3.4 million. As of December 31, 1995, the additional minimum pension liability of $67.6 million was offset by an intangible asset of $40.2 million and a charge to retained earnings of $16.7 million, net of deferred taxes of $10.7 million. In 1995, net noncurrent pension assets and minimum pension liabilities were reduced by $28.7 million and $22.2 million, respectively, reflecting plans spun off with Vantage. Under certain conditions, including the inability of Vantage to fund required contributions, the Company has agreed to assume the liability for any underfunded benefits for the plans spun off. In the opinion of the Company's management, it is unlikely that these conditions will occur. NOTE 7 - -------------------------------------------------------------------------- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS James River provides certain medical and life insurance benefits to eligible retired employees. Salaried employees hired before January 1, 1993, generally become eligible for retiree medical benefits after reaching age 55 with 15 years of service or after reaching age 65. Under the salaried plan, post-age 65 eligible retirees are reimbursed for a portion of the cost of premiums of Medicare supplement insurance policies, based upon vested years of service. Post-age 65 salaried retirees are also reimbursed for certain prescription drug costs, less deductibles. Pre-age 65 eligible retirees are paid a stated percentage of covered medical expenses, less deductibles. Salaried employees hired after January 1, 1993, are not eligible for retiree medical benefits. Benefits, eligibility and cost-sharing provisions for hourly employees vary by location and collective bargaining unit. All of the Company's retiree medical plans are unfunded. The components of net periodic postretirement benefit cost were as follows:
(in millions) 1996 1995 1994 - ------------------------------------------------------------------------------------------------ Service cost $ 8.0 $ 10.4 $ 11.4 Interest cost on accumulated postretirement benefit obligation 28.2 39.7 38.8 Net amortization (7.0) (8.4) (7.4) ---------- --------- ----------- Net periodic postretirement benefit cost $ 29.2 $ 41.7 $ 42.8 ========== ========= ===========
Net amortization included amortization of prior service gains and net experience gains and losses over 15 years. In 1996, the Company incurred curtailment gains of $12.2 million related to its business dispositions. The discount rate used in determining the net periodic postretirement benefit cost was 7.4% for 1996, 8.5% for 1995 and 7.5% for 1994. The discount rate used in determining the accumulated postretirement benefit obligation was 7.6% as of December 29, 1996. The effect of the increase in the discount rate was a decrease in the accumulated benefit obligation of $10.7 million. Summary information on the Company's plans was as follows:
(in millions) 1996 1995 - ---------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 183.1 $ 179.0 Fully eligible active participants 40.8 50.3 Other active participants 118.8 157.5 -------- ---------- Total accumulated postretirement benefit obligation 342.7 386.8 Unrecognized net gain 63.3 18.4 Unrecognized prior service gain 74.4 81.5 -------- ---------- Accrued postretirement benefit obligation $ 480.4 $ 486.7 ======== ==========
42 As of December 29, 1996, and December 31, 1995, the Company has included $22.4 million and $22.0 million of accrued postretirement benefit costs in accrued liabilities, respectively, representing the estimated current portion of this liability. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.5% in 1996, declining by .5% per year through 2003 and .25% thereafter through 2005 to an ultimate rate of 5.0%. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of December 29, 1996, would have increased by $33.8 million. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefit cost for 1996 would have been an increase of $4.4 million. NOTE 8 - ------------------------------------------------------------------------------ SUPPLEMENTAL BALANCE SHEET INFORMATION Inventories
(in millions) 1996 1995 - --------------------------------------------------------------------------------------------- Raw materials $135.7 $197.1 Finished goods and work in process 418.2 557.6 Stores and supplies 131.6 151.4 -------- -------- 685.5 906.1 Subtraction to state certain inventories at last-in, first-out cost (35.1) (84.7) -------- -------- Total inventories $650.4 $821.4 ======== ======== Valued at lower of cost or market: Last-in, first-out $365.7 $482.9 First-in, first-out or average 284.7 338.5 -------- -------- Total inventories $650.4 $821.4 ======== ========
Property, Plant and Equipment
(in millions) 1996 1995 - ---------------------------------------------------------------------------------------------- Land and improvements $ 168.9 $ 177.5 Buildings 824.4 894.9 Machinery and equipment 4,564.6 4,788.7 Construction in progress 219.1 226.8 -------- -------- 5,777.0 6,087.9 Accumulated depreciation (2,115.7) (2,106.9) -------- -------- 3,661.3 3,981.0 Timber and timberlands, net 90.2 93.1 -------- -------- Net property, plant and equipment $ 3,751.5 $ 4,074.1 ======== ========
Accrued Liabilities
(in millions) 1996 1995 - --------------------------------------------------------------------------------------------- Taxes payable, other than income taxes $ 95.8 $ 93.3 Employee insurance benefits 69.9 63.6 Compensated absences 53.7 61.7 Income taxes payable 55.1 3.5 Other items 321.1 271.6 -------- -------- Total accrued liabilities $ 595.6 $ 493.7 ======== ========
43 Notes to Consolidated Financial Statements NOTE 9 - -------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATES As of December 29, 1996, James River's principal investments in affiliates accounted for using the equity method included investments in Aracruz Celulose S.A. ("Aracruz"), the Naheola Cogeneration Limited Partnership (the "Naheola Partnership"), Dubreuil Forest Products Limited ("Dubreuil"), and Ipek Kagit Sanayi ve Ticaret A.S. ("Ipek Kagit"). Aracruz, in which James River has a 5.2% indirect ownership interest, is a major Brazilian eucalyptus pulp producer. James River's investment in Aracruz is accounted for using the equity method, as the Company has direct ownership interests in excess of 20% in certain intervening holding companies. James River has a 50% ownership interest in the Naheola Partnership, which owns and operates a $300 million chemical recovery cogeneration facility at the Company's Pennington, Alabama, pulp and paper mill. Dubreuil, in which James River has a 40% indirect ownership interest, operates a sawmill in Dubreuilville, Ontario. James River has a 50% ownership interest in Ipek Kagit, a Turkish producer of sanitary paper products. Changes in James River's investments in affiliates during 1996 and 1995 were as follows: (in millions) 1996 1995 - --------------------------------------------------------------------------- Balance, beginning of year $ 146.8 $125.1 Foreign currency translation adjustments, net (1.1) 1.2 Equity in net income 10.2 25.7 Dividends received (9.1) (23.8) Other, net 7.8 18.6 --------- ------ Balance, end of year $ 154.6 $146.8 ========= ====== James River's share of undistributed earnings of affiliates included in consolidated retained earnings was $71.5 million as of December 29, 1996, and $61.9 million as of December 31, 1995. James River's investments in affiliates and equity in net income were not material to the financial condition and results of operations for the year ended December 29, 1996. The summarized financial information presented below represents an aggregation of 100% of the principal companies accounted for by the equity method for the year ended December 31, 1995. (in millions) 1995 - ------------------------------------------------------------------------- Condensed income statement information: Revenues $ 184.5 Gross profit 62.1 Net earnings 74.2 Consolidated balance sheet information: Current assets $ 70.6 Noncurrent assets, including intangibles 509.9 Current liabilities 45.0 Noncurrent liabilities 193.6 Equity 341.9 James River's share of equity $ 153.4 ========= 44 NOTE 10 - ------------------------------------------------------------------------------- INDEBTEDNESS
(in millions) 1996 1995 - ------------------------------------------------------------------------------------------------- Revolving credit facilities, 4.82% average interest rate $ 341.0 $ 498.6 Money market notes, 6.95% average interest rate 48.4 305.0 Commercial paper, 3.33% average interest rate 9.5 119.7 Notes and debentures: 6.7% notes, payable in 2003 249.6 249.6 6.75% notes, payable in 1999 199.8 199.7 7.57% average interest rate medium-term notes, payable from 1997 to 2004 200.0 200.0 7.75% debentures, payable in 2023 149.7 149.7 7.50% average interest rate notes, payable to 2009 106.0 153.9 8.375% notes, payable in 2001 199.5 199.4 9.25% debentures, payable in 2021 200.0 200.0 9.77% note, payable from 2005 to 2014 200.0 200.0 Revenue bonds, average interest rate 7.03%, payable to 2028 67.3 72.2 ------- ------- Total 1,970.8 2,547.8 Less current portion 116.9 44.8 ------- ------- Long-term debt $1,853.9 $2,503.0 ======== ========
Minimum Principal Payments Minimum principal payments on long-term debt, excluding commercial paper, money market notes and revolving credit borrowings, for the next five years are as follows: (in millions) 1997 1998 1999 2000 2001 - ----------------------------------------------------------------------------- Scheduled maturities $ 116.9 $ 21.0 $ 215.6 $ 41.5 $ 208.8 ======= ======= ======= ======= ======= If the current level of commercial paper, money market notes and revolving credit agreements remains outstanding until the expiration of the underlying or supporting agreements, additional payments of $399 million would be required in 1999. It is the Company's current intention to refinance or renew such agreements prior to their expiration. Revolving Credit Facilities As of December 29, 1996, James River and its consolidated subsidiaries had revolving credit agreements with various domestic and foreign banks providing for unsecured borrowings of up to approximately $1,162 million. The interest rates associated with the revolving credit agreements are primarily based, at the option of the Company, on the prime rate, the London Interbank Offered Rate ("LIBOR"), the Paris Interbank Offered Rate, certificate of deposit rates, or bankers' acceptance rates. Annual commitment fees of up to 25 basis points of the unused portion of the commitments may be incurred during the revolving loan periods; additionally, certain agreements provide for facility fees which may range from 10 to 20 basis points of the committed amounts. The majority of the Company's domestic and foreign revolving credit agreements, totaling $935 million, expire in December 1999; the remaining agreements expire between 1997 and 1998. Commercial Paper and Money Market Notes As of December 29, 1996, James River had domestic and foreign commercial paper programs providing for commercial paper issuances of up to $624.1 million. In addition, James River had agreements with several banks providing for other borrowings, dependent upon bank availability. Commercial paper and money market notes generally bear interest at below-prime rates. As of December 31, 1995, the outstanding commercial paper and money market notes had average interest rates of 4.68% and 6.69%, respectively. Because of the availability of long-term financing through the Company's global revolving 45 Notes to Consolidated Financial Statements credit capacity and the Company's intention to refinance commercial paper and money market notes, these borrowings have been classified as long-term debt. During 1996, the Company made payments on long-term debt of $545 million, resulting in the reduction of commercial paper and money market borrowings of $358 million, revolving credit agreements of $138 million and notes and debentures of $49 million. This reduction in long-term debt was primarily funded through divestiture proceeds (see Note 2) and cash flows from operations. Notes and Debentures The Company's most restrictive debt agreements contain limitations on borrowings and require maintenance of a minimum amount of net worth. As of December 29, 1996, under the most restrictive provisions of the Company's debt agreements, the Company had additional borrowing capacity of $1.6 billion and net worth in excess of the minimum requirement of approximately $390 million. Certain of the Company's notes and revenue bonds are collateralized by assets consisting of property, plant and equipment, accounts receivable and inventories. Such assets are immaterial in relation to total assets. NOTE 11 - -------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS The Company is subject to market rate risk from exposure to changes in interest rates and currency exchange rates and enters into various interest rate and foreign exchange contracts to manage this exposure. Financial instruments used for these purposes are evaluated against the Company's policies for managing this risk, including counterparty performance and hedging practices, and are monitored using techniques such as market valuations and sensitivity analysis. Interest Rate Instruments The Company's strategy is to optimize the ratio of the Company's fixed to variable rate financing consistent with maintaining an acceptable level of exposure to the risk of interest rate fluctuation. To obtain this mix, the Company primarily uses interest rate swaps and options that have the effect of converting specific debt obligations of the Company from fixed to variable rate, or vice versa, as required. The Company has entered into interest rate swap agreements under which it pays to counterparties a variable interest rate based on LIBOR and the counterparties pay the Company a fixed interest rate on a notional principal amount of $1,286 million. Additionally, the Company entered into options under which premiums are paid to a counterparty in exchange for protection from paying the LIBOR based rates in excess of 6.5% up to 8.01% on $646 million of the $1,286 million in notional amount of interest rate swaps. These contracts mature in September 1998 and January 1999. The weighted average pay rate and receive rate under the interest rate contracts were 4.0% and 3.7%, respectively, for the years ended December 29, 1996, and December 31, 1995. The fair value of the Company's financial instruments related to its indebtedness were as follows:
1996 1995 --------------------------- --------------------------- Carrying Carrying Value or Value or Gross Notional Fair Gross Notional Fair (in millions) Amount Value Amount Value - --------------------------------------------------------------------------------------------------- Long-term debt, including current maturities $ (1,971) $ (2,065) $ (2,548) $ (2,700) Interest rate swaps 1,286 (15) 1,286 (3)
The estimates of fair values of the Company's financial instruments related to indebtedness are based on quoted market prices of comparable instruments or on current rates available to the Company for financial instruments with similar terms and remaining maturities. Based on the Company's total indebtedness at 46 December 29, 1996, a 10 basis point interest rate change would impact the fair value of the total debt portfolio by approximately $9.6 million. This exposure would be offset by a $2.5 million change to the fair value of the interest rate swap portfolio. Currency Instruments The Company entered into foreign exchange contracts that hedge a portion of its net investment in its European Consumer Products Business. The total notional amount of such hedges was $470 million as of December 29, 1996, and December 31, 1995. Of such notional amount, $330 million was denominated in French francs and the remaining $140 million was denominated in British pounds, Belgian francs and Spanish pesetas. In connection with these contracts, the Company has entered into interest rate swap agreements to mitigate the related interest rate exposure of the foreign exchange contracts. The weighted-average pay and receive rates on the interest rate agreements were 7.6% and 5.1%, and 7.9% and 5.4%, respectively, for the years ended December 29, 1996, and December 31, 1995, respectively. These contracts mature on September 1, 1998. As of December 29, 1996, and December 31, 1995, the carrying value of foreign exchange contracts was a net liability of $59.3 million and $86.7 million, respectively, and the fair value, based on quoted market prices of comparable instruments, was a net liability of $85.3 million and $108.0 million, respectively. The Company's European Consumer Products Business entered into foreign exchange contracts which mature in one year or less to hedge its market rate risk from exposure to changes in foreign currency exchange rates primarily resulting from intercompany financing and commercial transactions. As of December 29, 1996, and December 31, 1995, the Company had net unrealized (losses) gains of $(.1) million and $.4 million, respectively, on a notional amount of $47 million and $81 million, respectively, for these hedge instruments. Credit Risk The counterparties to the Company's interest rate and foreign exchange contracts consist of a number of major financial institutions. The Company continually monitors its positions with, and the credit quality of, these institutions and does not anticipate nonperformance by the counterparties. NOTE 12 - -------------------------------------------------------------------------------- COMMON STOCK The Company has 150 million authorized shares of common stock, $.10 par value ("Common Stock"), of which 86,194,612 shares were outstanding on December 29, 1996. Common shares reserved for issuance as of December 29, 1996, were as follows: 1996 - ------------------------------------------------------------------------- Stock option plans 2,813,038 Incentive stock plan 2,772,158 Deferred stock plan 374,051 Director stock ownership plan 97,175 Conversion of Series K preferred stock 2,675,087 Conversion of Series L preferred stock 5,451,077 Conversion of Series N preferred stock 1,439,313 Conversion of Series P preferred stock 15,341,215 ---------- Total common shares reserved for issuance 30,963,114 ========== Shareholder Rights Plan Under a shareholder rights plan, preferred stock purchase rights ("Rights") are issued at the rate of one Right for each share of Common Stock. Each Right entitles its holder to purchase one one-thousandth of a share of Series M Cumulative Participating Preferred Stock ("Series M") at an exercise price of $150, 47 Notes to Consolidated Financial Statements subject to adjustment. The Rights will only be exercisable if a person or group acquires, has the right to acquire, or has commenced a tender offer for 15% or more of the outstanding Common Stock. The Rights are nonvoting, pay no dividends, expire on March 1, 1999, and may be redeemed by the Company for $.01 per Right at any time before the tenth day (subject to adjustment) after a 15% position is acquired. The Rights have no effect on earnings per share until they become exercisable. After the Rights are exercisable, if the Company is acquired in a merger or other business combination, or if 50% or more of the Company's assets are sold, each Right will entitle its holder (other than the acquiring person or group) to purchase, at the then-current exercise price, common stock of the acquiring person having a value of twice the exercise price. In addition, in the event a 15% or greater shareholder (i) acquires the Company through a merger where James River is the surviving corporation, (ii) engages in certain self-dealing transactions, or (iii) increases his ownership other than through a cash tender offer providing fair value to all holders of Common Stock, each Right will entitle its holder (other than the acquiring person or group) to purchase, at the then-current exercise price, Common Stock having a value of twice the exercise price. NOTE 13 - -------------------------------------------------------------------------------- PREFERRED STOCK The Company is authorized to issue up to five million shares of preferred stock, $10 par value. The preferred shares are issuable in series, each with varying dividend rates, redemption rights, conversion terms, liquidation values and voting rights. Outstanding series of preferred stock were as follows:
Depositary Shares ----------------------------------------- Preferred Annual Liquidation Value Liquidation Shares Annual Shares Dividend (in millions) Value Outstanding Dividend Outstanding Requirement -------------------- Per Share 1996 Per Share 1996 (in millions) 1996 1995 - ------------------------------------------------------------------------------------------------------------- Series K* $ 50 $ 3.3750 1,999,895 $ 6.7 $ 100.0 $ 100.0 Series L 50 4,000,000 3.5000 1,000,000 14.0 200.0 200.0 Series N 50 1,056,168 3.5000 264,042 3.7 52.8 52.8 Series 0 25 3,924,600 2.0625 196,230 8.1 98.1 100.0 Series P 17.25 16,664,366 1.5525 166,644 25.9 287.5 287.5 --------- ------ ------- ------- Total 3,626,811 $58.4 $ 738.4 $ 740.3 ========= ====== ======= =======
*Amounts listed for Series K are for preferred shares The Company has reserved 150,000 preferred shares for the issuance of Series M preferred stock under the Shareholder Rights Plan. The Series K $3.375 Cumulative Convertible Exchangeable Preferred Stock ("Series K") is convertible at the option of the holder into Common Stock at $37.38 per common share (or 1.3376 shares of Common Stock for each preferred share). The Series K is redeemable by the Company at $50 per share plus accrued dividends. The Series K is exchangeable at the option of the Company for 6.75% Convertible Subordinated Debentures due November 1, 2016, at $50 principal amount per share of Series K. If issued, these debentures will be convertible into Common Stock on the same terms as the Series K. The Series L $14.00 Cumulative Convertible Exchangeable Preferred Stock ("Series L") and the Series N $14.00 Cumulative Convertible Exchangeable Preferred Stock ("Series N") are each held in the form of depositary shares, with each depositary share representing a one-quarter interest in a preferred share. The Series L and the Series N depositary shares are convertible at the option of the holder into Common Stock at $36.69 per common share (or 1.3626 shares of Common Stock per depositary share). The Series L and Series N depositary shares are each redeemable by the Company at a redemption price declining from $50.35 per depositary share as of December 29, 1996, to $50 per depositary share in October 1997, and thereafter, plus accrued dividends. The Series L and Series N depositary shares are 48 each exchangeable at the option of the Company for 7% Convertible Subordinated Debentures due October 1, 2017, at $50 principal amount per depositary share. If issued, these debentures will be convertible into Common Stock on the same terms as the depositary shares. The Series O 8 1/4% Cumulative Preferred Stock ("Series O") is held in the form of depositary shares, with each depositary share representing a one-twentieth interest in a preferred share. The Series O depositary shares are not redeemable prior to October 1, 1997. On or after that date, they are redeemable by the Company at $25 per depositary share, plus accrued dividends. The Series P 9% Cumulative Convertible Preferred Stock ("Series P") is held in the form of depositary shares, with each depositary share representing a one-hundredth interest in a preferred share. Each depositary share is entitled to .8547 of a vote, voting as a single group with holders of Common Stock. The Series P depositary shares are convertible at the option of the holder into Common Stock at a rate of .9206 common shares for each depositary share. After July 1, 1997, the Series P depositary shares are redeemable by the Company at a call price payable in shares of Common Stock. The number of shares to be issued upon redemption is tied to the market value of Common Stock at the time of redemption. If still outstanding on July 1, 1998, each Series P depositary share will automatically convert into 1.0771 shares of Common Stock. NOTE 14 - ------------------------------------------------------------------------------- EMPLOYEE BENEFIT PLANS The Company applies APB 25 and related Interpretations in accounting for its stock-based compensation plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, "Accounting for Stock-Based Compensation," pro forma net income and earnings per share would have been as follows: (in millions, except per share amounts) 1996 1995 - ---------------------------------------------------------------------------- Net income $154.0 $125.2 Earnings per share $ 1.11 $ .79 Stock Options The Company's stock option plans provide for the granting of options to purchase Common Stock to certain directors, officers and key employees. Options are granted at exercise prices equal to the fair market value of such stock as of the date of grant and have terms of ten years. Options vest in two or three equal annual installments. As of December 29, 1996, there were 852 employees and directors holding options. Stock option activity was as follows:
1996 1995 1994 ------------------ ------------------- ------------------- Weighted Weighted Weighted Average Average Average (in thousands, Exercise Exercise Exercise except per share amounts) Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------- Balance, beginning of year 3,273 $ 25.59 5,892 $ 22.52 5,408 $ 23.81 Granted 1,385 26.66 1,203 30.00 938 16.35 Forfeited (110) 27.12 (171) 20.79 (136) 21.72 Exercised (375) 20.67 (3,477) 21.99 (23) 19.78 Expired (209) 27.77 (174) 28.62 (295) 27.20 ----- ------- ----- ------- ----- ------- Balance, end of year 3,964 $ 26.28 3,273 $ 25.59 5,892 $ 22.52 ===== ======= ===== ======= ===== ======= Exercisable 1,788 1,555 4,178 Available for grant 132 1,473 2,261 Weighted-average fair value of options granted during the year $ 7.95 $ 8.82
49 Notes to Consolidated Financial Statements The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions: 1996 1995 - ----------------------------------------------------------------------------- Dividend yield 2.00% 2.00% Volatility rate 27.26% 26.02% Risk-free interest rate 6.18% 6.37% Expected option life 5 years 5 years The following table summarizes information about fixed stock options outstanding as of December 29, 1996:
(in thousands, except year and per share amounts) - -------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable ------------------------------------------------- ----------------------------- Weighted-Average Weighted-Average Weighted-Average Range of Number Remaining Exercise Number Exercise Exercise Prices Outstanding Contractual Life Price Exercisable Price - -------------------------------------------------------------------------------------------------- $15.63 - $22.97 917 6.7 years $18.47 719 $18.91 $23.07 - $31.87 2,114 7.6 years 26.39 651 26.34 $32.25 - $40.66 933 7.2 years 33.69 418 33.83 ----- ----- Total 3,964 1,788 ===== =====
Deferred Stock Plan The Company's Deferred Stock Plan provides for the award of hypothetical shares of Common Stock ("Units") to certain officers and key employees. The value of each Unit on the award date is equal to the current market value of a share of Common Stock. Benefits will be paid in cash and Common Stock as vested or, at the option of the holder, over varying periods after retirement. As of December 29, 1996, Units were held by 40 employees. The Company recognized compensation expense under the Deferred Stock Plan of $1.1 million in 1996, $2.1 million in 1995 and $3.4 million in 1994. Deferred Stock Plan activity was as follows: (in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------- Outstanding Units, beginning of year 537 559 631 Granted 39 108 8 Accrued dividends 7 19 16 Distributed (104) (77) (74) Canceled (105) (72) (22) ------ ------ ------ Outstanding Units, end of year 374 537 559 ====== ====== ====== Available for grant 1,043 1,099 Restricted and Incentive Stock Pursuant to the Company's 1996 Stock Incentive Plan and the Director Stock Ownership Plan, James River may also grant restricted stock and incentive stock awards to certain directors, officers and key employees. Restricted stock awards of 715,650 shares of Common Stock were granted in 1996 (of which 2,825 shares were deferred) at a weighted-average grant date fair value of $26.79 per share. Awards granted to officers and key employees will vest in eight years, with the potential for earlier vesting based on the Company's performance, and awards granted to directors will vest one year from the date of grant. Incentive stock awards of 150,000 shares of Common Stock were granted in 1996 at a weighted-average grant date fair value of $26.44 per share. Vesting of these shares is based on the Company's financial performance. James River recognized compensation expense related to restricted and incentive stock awards of $3.0 million in 1996. As of December 29, 1996, there were 1,489 thousand shares available for grant pursuant to the 1996 Stock Incentive Plan which may be granted as options, restricted stock or incentive stock. The Director Stock Ownership Plan has 94 thousand shares available for grant as of December 29, 1996. 50 Stock Plans for Employees The Company's StockPlus Investment Plan is available to substantially all domestic employees. Several alternative investment funds are available, including an investment fund consisting of Common Stock (the "James River Stock Fund"). Participating employees may contribute, through periodic payroll deductions, up to 10% of their compensation. Participant contributions of up to 6% of compensation are matched by the Company at a 50% rate. The Company additionally contributes 1% of all eligible employees' base salary to the plan. As of December 29, 1996, there were 22,000 participants in the plan, and the plan held 10 million shares of Common Stock and $77 million of other investments. Company contributions to this plan totaled $16.8 million in 1996, $15.2 million in 1995 and $16.1 million in 1994. In addition, the Company maintains a stock purchase plan for the benefit of certain Canadian employees. As of December 29, 1996, 65,000 shares of Common Stock were held in this plan. NOTE 15 - ------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENT LIABILITIES Leases The Company leases certain facilities, vehicles and equipment over varying periods. None of the agreements contain unusual renewal or purchase options. As of December 29, 1996, future minimum rental payments under noncancelable operating leases were as follows: Minimum (in millions) Rentals - ------------------------------------------------------ 1997 $ 25.1 1998 22.8 1999 20.5 2000 19.8 2001 16.6 Later years 48.4 --------- Total future minimum rentals $153.2 ========= Rent expense totaled $70.3 million in 1996, $71.6 million in 1995 and $72.7 million in 1994. Leases which may be considered capital leases are not material. Litigation and Environmental Matters The Company is a party to various legal proceedings generally incidental to its business and is subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, James River faces exposure from actual or potential claims and legal proceedings. During 1994, James River was sued in Morgan County, Alabama, in a class action and in Bridgeport, Connecticut, by certain former holders of James River's 103/4% Debentures due October 1, 2018. Most of these Debentures were retired by means of a tender offer to all holders which commenced on September 18, 1992. The remainder were redeemed on November 2, 1992. Merrill Lynch & Co., which acted as James River's dealer manager for the tender, is also named as a defendant in the Alabama case. In general, the complaints allege violations of a covenant prohibiting use of lower cost borrowed funds to redeem the Debentures before October 1, 1998, and of various disclosure obligations, and seek damages 51 Notes to Consolidated Financial Statements in excess of $50 million plus punitive damages in excess of $500 million. The Alabama case has been certified as a class action and holders of approximately one-half of the Debentures elected not to be part of the class. Most of the holders electing out of the class are plaintiffs in the Connecticut case. James River believes that these claims are without merit and intends to defend them vigorously. In May 1996, James River settled the claim of an institutional holder of approximately 16.54% of the Debentures for $425,000 plus reimbursement of attorneys' fees. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the present opinion of the Company's management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the consolidated financial condition of James River but could materially affect consolidated results of operations in a given year. In addition, James River has been identified as a potentially responsible party, along with others, at various U.S. Environmental Protection Agency ("EPA") designated superfund sites and is involved in remedial investigations and actions under federal and state laws. It is the Company's policy to accrue remediation costs on an undiscounted basis when it is probable that such costs will be incurred and when a range of loss can be reasonably estimated. James River's accrued environmental liabilities, including remediation and landfill closure costs, totaled $20.3 million and $24.2 million as of December 29, 1996, and December 31, 1995, respectively. The Company periodically reviews the status of all significant existing or potential environmental issues and adjusts its accruals as necessary. The accruals do not reflect any possible future insurance recoveries. Estimates of costs for future remediation are necessarily imprecise due to, among other things, the identification of presently unknown remediation sites and the allocation of costs among potentially responsible parties. The Company believes that its share of the costs of cleanup for its current remediation sites will not have a material adverse impact on its consolidated financial position but could have a material effect on consolidated results of operations in a given year. As is the case with most manufacturing and many other entities, there can be no assurance that the Company will not be named as a potentially responsible party at additional sites in the future or that the costs associated with such additional sites would not be material. In December 1993, the EPA published draft rules which contain proposed regulations affecting pulp and paper industry discharges of wastewater and gaseous emissions, commonly referred to as the "cluster rules." The final rules are likely to be issued in 1997. These rules may require significant changes in the pulping and/or bleaching processes presently used in some U.S. pulp mills, including several of James River's mills. Based on its evaluation of the rules as they are currently expected to be issued, the Company believes that capital expenditures of approximately $100 million may be required during the nominal compliance period of three years following the date of promulgation to bring James River's facilities into compliance. 52 NOTE 16 - ------------------------------------------------------------------------------- SEGMENT INFORMATION The Company operates in the following industry segments: (i) the Consumer Products segment, which consists of the manufacture and marketing of personal care products including tissue and towels and disposable tabletop products including napkins, plates and cutlery organized along retail and commercial market channels; (ii) the Packaging segment, which after the sale of the Flexible Packaging group, manufactures folding cartons and foodwrap papers principally for food and other consumer products manufacturers; and (iii) the Communications Papers segment, which after the spin-off to Vantage (see Note 2), manufactures and markets uncoated business and printing papers serving the commercial printing and office markets. The Company's operations are principally domestic other than the Consumer Products segment, which includes the European Consumer Products Business. The European Consumer Products Business' operations results have been included beginning in July 1994, when it became a consolidated subsidiary.
Consumer Products ------------------- Intersegment North Communications elimination/ (in millions) America Europe Packaging Papers Corporate Total - -------------------------------------------------------------------------------------------------------------- 1996 Net sales $2,642.3 $1,693.2 $1,109.6 $427.4 $(182.0) $5,690.5 Segment results before severance and other items 277.0 152.9 87.7 22.2 (96.2) 443.6 Severance and other items (13.1) (42.0) 49.0 (4.6) (10.7) --------- --------- -------- ------ -------- --------- Income from operations 263.9 110.9 136.7 22.2 (100.8) 432.9 Depreciation and amortization 189.7 119.7 61.5 48.6 4.4 423.9 Capital expenditures 222.9 90.5 63.4 34.1 15.2 426.1 Total assets 2,328.0 2,438.5 503.0 603.4 668.6 6,541.5 ============================================================================== 1995 Net sales $2,689.1 $1,654.7 $1,620.4 $1,038.8 $(203.5) $6,799.5 Segment results before severance and other items 235.1 45.9 61.0 191.2 (58.0) 475.2 Severance and other items (5.1) (22.3) (7.1) (2.2) (15.2) (51.9) --------- --------- --------- --------- -------- --------- Income from operations 230.0 23.6 53.9 189.0 (73.2) 423.3 Depreciation and amortization 179.3 128.9 72.2 103.1 4.3 487.8 Capital expenditures 203.5 91.2 99.5 45.7 1.3 441.2 Total assets 2,378.7 2,631.1 879.6 672.4 697.1 7,258.9 ============================================================================== 1994 Net sales $2,422.7 $ 630.9 $1,609.9 $ 929.7 $(175.9) $5,417.3 Segment results before severance and other items 143.4 6.9 97.4 (35.8) (55.3) 156.6 Severance and other items (5.8) (15.7) 11.3 2.2 (1.6) (9.6) -------- -------- -------- -------- -------- -------- Income from operations 137.6 (8.8) 108.7 (33.6) (56.9) 147.0 Depreciation and amortization 164.8 46.1 70.8 125.4 7.0 414.1 Capital expenditures 148.7 32.4 99.2 60.0 11.4 351.7 Total assets 2,230.5 2,495.2 1,079.9 1,457.4 661.3 7,924.3 ==============================================================================
53 Notes to Consolidated Financial Statements Intersegment sales are recorded at market prices and are eliminated in consolidation. Corporate assets consist primarily of cash and cash equivalents, current deferred income taxes, investments in unconsolidated affiliates, and the net pension asset. During each of the three years in the period ended December 29, 1996, export sales to foreign markets from the Company's domestic operations represented less than 10% of total sales to unaffiliated customers; no single customer accounted for more than 10% of total sales in any year. NOTE 17 - -------------------------------------------------------------------------------- SUBSEQUENT EVENTS In January and February 1997, the Company unwound $470 million in notional amount of foreign exchange contracts, along with related interest rate agreements, at a cost of $31 million, net of tax benefits. The foreign exchange contracts were designated as hedges of a portion of the Company's net investment in its European Consumer Products Business (see Note 11). The Company terminated such contracts prior to their original expiration in September 1998. Additionally, the Company effectively unwound $648 million of the $1,286 million in notional amount of interest rate swaps (see Note 11), following the overall reduction of debt in 1996. On February 21,1997, the Company signed an agreement for the sale of approximately 95,000 acres of timberlands located in Alabama and Mississippi. Cash proceeds from the sale are expected to be in excess of $110 million. NOTE 18 - -------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Per Common Share ------------------------------------ Stock Price (in millions, Gross Net Net Dividends --------------- except per share amounts) Net Sales Profit Income Income Declared High Low - ------------------------------------------------------------------------------------------------ December 1996:(a,b,c,d) 1st Quarter $1,486.6 $369.7 $20.5 $.07 $.15 $28 1/8 $22 3/8 2nd Quarter 1,496.8 387.9 30.5 .18 .15 27 3/8 24 3/4 3rd Quarter 1,407.4 383.0 70.9 .62 .15 27 1/4 24 5/8 4th Quarter 1,299.7 333.2 35.4 .24 .15 34 1/4 27 5/8 - ------------------------------------------------------------------------------------------------ December 1995:(e,f) 1st Quarter $1,667.6 $347.9 $26.5 $.14 $.15 $25 5/8 $20 2nd Quarter 1,817.9 410.9 41.0 .32 .15 28 5/8 23 1/4 3rd Quarter 1,734.7 412.0 37.3 .27 .15 37 3/8 25 3/8 4th Quarter 1,579.3 369.8 21.6 .08 .15 33 3/4 22 1/4 - ------------------------------------------------------------------------------------------------
(a) Results for the fourth quarter of 1996 included nonrecurring charges of $10.6 million ($8.2 million net of taxes, or $.09 per share) for severance costs, asset write-downs and net gains on asset dispositions. (b) Results for the third quarter of 1996 included a nonrecurring gain of $46.9 million ($24.2 million net of taxes, or $.24 per share) for the Flexible Packaging disposition and nonrecurring charges of $16.6 million ($10.4 million net of taxes, or $.10 per share) for severance costs. (c) Results for the second quarter of 1996 included nonrecurring charges of $7.0 million ($4.2 million net of taxes, or $.06 per share) for severance costs and net losses on asset dispositions. (d) Results for the first quarter of 1996 included nonrecurring charges of $23.4 million ($14.3 million net of taxes, or $.16 per share) for severance costs and net losses on asset dispositions. (e) Results for the fourth quarter of 1995 included nonrecurring charges of $26.1 million ($13.8 million net of taxes and minority interests, or $.17 per share) primarily for severance and related exit costs. (f) Results for the third quarter of 1995 included nonrecurring charges of $20.8 million ($14.0 million net of taxes and minority interests, or $.16 per share) primarily for severance and transaction costs related to the spin-off of Vantage. Also during the third quarter of 1995, the Company recorded a charge of $8.3 million ($7.1 million net of minority interests, or $.08 per share) for an increase in the French corporate tax rate. 54 SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION =============================================================================== (UNAUDITED) In August 1996, James River sold its Flexible Packaging group and in August 1995, James River completed the spin-off to shareholders of a large part of the Company's Communications Papers Business, along with the specialty paper-based portion of its Packaging Business (see Note 2). These transactions made reported results for 1996 not comparable to 1995. Accordingly, the following pro forma information is presented to report 1996 and 1995 on a more comparable basis. Results for 1996 and 1995 have been adjusted to give pro forma effect to (i) James River's receipt of cash in connection with the sale of the Flexible Packaging group and the spin-off of Vantage, (ii) the receipt of pay-in-kind notes to James River from Vantage and (iii) the execution of the transition agreements between James River and Vantage. The pro forma information is presented as if these transactions had been completed as of the beginning of each period for which pro forma consolidated operating data is presented. The pro forma financial information does not purport to be indicative of the results of operations which would actually have been reported if the transactions had occurred on the dates or for the periods indicated, or which may be reported in the future.
(in millions, except per share data) 1996 1995 - -------------------------------------------------------------------------------- Net sales: Consumer Products: North America $ 2,642.3 $ 2,697.1 Europe 1,693.2 1,654.7 Packaging 824.2 935.2 Communications Papers 427.4 592.9 Intersegment elimination (160.7) (166.4) ------------ ------------ Total net sales $ 5,426.4 $ 5,713.5 ============ ============ Segment results before severance and other items: Consumer Products: North America $ 277.0 $ 237.1 Europe 152.9 45.9 Packaging 85.3 75.8 Communications Papers 22.2 126.7 General corporate expenses (96.2) (52.3) Severance and other items (a) (10.7) (7.3) ------------ ------------ Income from operations $ 430.5 $ 425.9 ============ ============ Net income $ 164.4 $ 143.4 ============ ============ Net income per share $ 1.23 $ 1.01 ============ ============
(a) In 1996, pro forma severance and other items (expense) income included in segment income from operations would have been $(13.1) million, $(42.0) million, $49.0 million and $(4.6) million for the North American Consumer Products, European Consumer Products, Packaging and Corporate segments, respectively. In 1995, pro forma severance and other items (expense) income included in segment income from operations would have been $(5.1) million, $(22.3) million, $37.5 million, $(2.2) million and $(15.2) million for the North American Consumer Products, European Consumer Products, Packaging, Communications Papers and Corporate segments, respectively. 55 Management Responsibility Statement - ------------------------------------------------------------------------------- The management of James River Corporation of Virginia is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and other information contained in this Annual Report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles, and include, where necessary, amounts which are based on management's best estimates and judgments. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded, transactions are executed and recorded in accordance with proper authorizations, and financial records are maintained so as to permit the preparation of reliable financial statements. The system of internal controls is enhanced by written policies and procedures, an organizational structure which provides appropriate division of responsibilities, careful selection and training of qualified people, and a program of periodic audits by both internal auditors and independent accountants. The control environment is further enhanced by the Company's "Standards of Business Conduct Policy" which sets standards of professionalism and integrity for employees worldwide. The Audit Committee of the Board of Directors, composed entirely of non-employee directors, meets periodically with management, the internal auditors, and the independent accountants to review the adequacy of internal accounting controls, reported financial results, and the nature, extent and results of internal and external audits. The independent accountants and internal auditors have direct and independent access to the Audit Committee. /s/ Miles L. Marsh /s/ William A. Paterson Miles L. Marsh William A. Paterson Chairman and Chief Executive Officer Senior Vice President and Controller 56 Report of Independent Accountants - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS AND SHAREHOLDERS OF JAMES RIVER CORPORATION OF VIRGINIA: We have audited the accompanying consolidated balance sheets of James River Corporation of Virginia and Subsidiaries as of December 29, 1996, and December 31, 1995, and the related consolidated statements of operations, cash flows, and changes in capital accounts for each of the three fiscal years in the period ended December 29, 1996. These financial statements are the responsibility of the management of James River Corporation of Virginia. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of James River Corporation of Virginia and Subsidiaries as of December 29, 1996, and December 31, 1995, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Richmond, Virginia January 23, 1997, except as to the information presented in Note 17, for which the date is February 21, 1997 57 Selected Financial Data(a)
(in millions, except ratios and per share amounts) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Operations Net sales $5,690.5 $6,799.5 $5,417.3 Costs and expenses 5,246.9 6,324.3 5,260.7 Restructuring, severance and other items 10.7 51.9 9.6 Interest expense 165.4 226.4 185.6 Income (loss) before income taxes, minority interests, extraordinary items and accounting changes 289.1 237.2 (9.7) Extraordinary items and accounting changes, net of income tax benefits Net income (loss) 157.3 126.4 (13.0) Net income (loss) applicable to common shares 98.8 67.9 (58.8) ======== ======== ========= Financial Position, End of Year Total current assets $1,519.7 $1,870.5 $1,975.5 Property, plant and equipment, net 3,751.5 4,074.1 4,679.9 Investments in affiliates 154.6 146.8 125.1 Goodwill 730.0 771.7 776.0 Total assets 6,541.5 7,258.9 7,924.3 Total current liabilities 1,220.3 1,099.0 1,568.9 Current debt 116.9 44.8 446.5 Long-term debt 1,853.9 2,503.0 2,668.0 Minority interests 11.3 165.3 154.9 Preferred stock 738.4 740.3 740.3 Common shareholders' equity 1,568.0 1,513.9 1,421.3 ======== ======== ======== Common Stock Information Per Share of Common Stock Net income (loss) before extraordinary items and accounting changes $ 1.15 $ 0.81 $ (0.72) Extraordinary items and accounting changes Net income (loss) 1.15 0.81 (0.72) Annual rate of dividends declared 0.60 0.60 0.60 Book value 18.19 17.84 17.40 Common Stock Market Price High $ 34.25 $ 37.38 $ 24.75 Low 22.38 20.00 15.63 Year-end 34.00 24.13 21.00 Weighted-average number of common shares and equivalents 86.0 84.1 81.7 ======== ======== ========= Other Data Capital expenditures (excluding acquisitions) $ 426.1 $ 441.2 $ 351.7 Depreciation and amortization expense 426.6 487.8 414.1 Return on average capital employed 7.7% 7.1% 3.1% Return on average common equity 6.4% 4.6% (4.0)% Ratio of total debt to total capitalization 46.0% 51.3% 57.4% Current ratio 1.25 1.70 1.26 Cash dividend payout ratio 69.7% 85.9% +100% Ratio of earnings to interest 2.6 2.0 .9 ======== ======== =========
(a) Adjusted for three-for-two common stock splits on June 23, 1986. (b) Represents the 35-week transition period resulting from the change in fiscal year from April to December. Book value per common share: Common shareholders' equity less unrecognized accretion or unamortized discount on preferred stock, divided by outstanding shares of common stock. Return on average capital employed: Income (loss) before restructuring charges, extraordinary items, the cumulative effect of accounting changes, interest expense and income taxes, divided by average capital employed. Capital employed is calculated as total assets, excluding assets held for sale, minus non-interest bearing current liabilities. Income for the 35-week transition period ended December 1990 has been annualized. Return on average common equity: Income (loss) applicable to common shares before after-tax restructuring charges, extraordinary items, and the cumulative effect of accounting changes, divided by average common shareholders' equity. Common shareholders' equity has been adjusted to exclude net restructuring charges, extraordinary items, and accounting changes which occurred in that year. Income for the 35-week transition period ended December 1990 has been annualized. 58
(in millions, except ratios and per share amounts) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ Operations Net sales $4,650.2 $4,728.2 $4,561.7 Costs and expenses 4,536.2 4,678.9 4,317.7 Restructuring, severance and other items 111.7 Interest expense 137.6 149.1 138.0 Income (loss) before income taxes, minority interests, extraordinary items and accounting changes 16.7 (188.1) 132.9 Extraordinary items and accounting changes, net of income tax benefits (305.3) Net income (loss) (0.3) (427.3) 78.3 Net income (loss) applicable to common shares (33.1) (453.8) 53.7 ======== ======== ========= Financial Position, End of Year Total current assets $1,282.3 $1,697.2 $1,533.3 Property, plant and equipment, net 3,571.5 3,502.8 2,933.1 Investments in affiliates 519.4 587.8 619.7 Goodwill 153.3 158.0 172.4 Total assets 5,851.3 6,336.3 5,626.6 Total current liabilities 781.1 928.2 705.5 Current debt 97.3 212.7 131.0 Long-term debt 1,942.8 2,153.9 1,758.1 Minority interests 7.0 10.2 2.3 Preferred stock 454.1 454.3 354.6 Common shareholders' equity 1,514.1 1,659.3 2,220.8 ======== ======= ======= Common Stock Information Per Share of Common Stock Net income (loss) before extraordinary items and accounting changes $ (0.40) $ (1.82) $ 0.66 Extraordinary items and accounting changes (3.73) Net income (loss) (0.40) (5.55) 0.66 Annual rate of dividends declared 0.60 0.60 0.60 Book value 18.55 20.34 27.25 Common Stock Market Price High $ 23.38 $ 23.38 $ 29.25 Low 16.25 17.00 17.00 Year-end 18.50 18.00 19.88 Weighted-average number of common shares and equivalents 81.6 81.8 81.9 ======== ======== ======= Other Data Capital expenditures (excluding acquisitions) $ 331.1 $ 469.7 $ 467.5 Depreciation and amortization expense 365.9 364.5 298.6 Return on average capital employed 2.9% 1.4% 6.0% Return on average common equity (2.1)% (3.6)% 2.4% Ratio of total debt to total capitalization 50.8% 52.7% 42.3% Current ratio 1.64 1.83 2.17 Cash dividend payout ratio +100% +100% 88.6% Ratio of earnings to interest 1.1 .5 1.6 ======== ======== ========
(in millions, except ratios and per share amounts) 1990(b) 1990 1989 1988 - ------------------------------------------------------------------------------------------------------------------------------- Operations Net sales $3,391.5 $5,950.0 $5,871.8 $5,098.0 Costs and expenses 3,063.9 5,490.2 5,307.0 4,670.3 Restructuring, severance and other items 200.0 Interest expense 104.2 182.2 161.5 115.5 Income (loss) before income taxes, minority interests, extraordinary items and accounting changes 51.6 372.2 441.3 377.5 Extraordinary items and accounting changes, net of income tax benefits Net income (loss) 9.7 221.6 255.1 209.0 Net income (loss) applicable to common shares (6.9) 200.0 233.6 193.8 ======== ======== ======= ======= Financial Position, End of Year Total current assets $1,910.7 $1,454.4 $1,456.1 $1,443.9 Property, plant and equipment, net 2,843.4 3,491.9 3,386.0 2,935.7 Investments in affiliates 600.9 495.0 376.7 269.3 Goodwill 181.0 201.9 225.2 224.6 Total assets 5,741.4 5,818.4 5,558.1 5,005.7 Total current liabilities 788.8 811.8 734.6 730.1 Current debt 86.2 156.1 102.6 81.4 Long-term debt 1,801.9 1,771.2 1,918.3 1,623.0 Minority interests 2.3 18.8 12.2 7.8 Preferred stock 354.8 355.0 302.4 304.9 Common shareholders' equity 2,212.2 2,203.0 2,045.8 1,877.5 ======= ======= ======= ======= Common Stock Information Per Share of Common Stock Net income (loss) before extraordinary items and accounting changes $ (0.08) $ 2.45 $ 2.87 $ 2.36 Extraordinary items and accounting changes Net income (loss) (0.08) 2.45 2.87 2.36 Annual rate of dividends declared 0.60 0.60 0.48 0.40 Book value 27.21 27.14 25.24 23.12 Common Stock Market Price High $ 27.12 $ 34.38 $ 30.75 $ 39.00 Low 18.50 22.75 21.12 18.50 Year-end 26.38 22.88 28.50 24.63 Weighted-average number of common shares and equivalents 81.8 81.7 81.5 82.3 ======== ======== ======= ======= Other Data Capital expenditures (excluding acquisitions) $ 272.1 $ 574.6 $ 684.6 $ 623.1 Depreciation and amortization expense 202.1 307.6 253.3 209.5 Return on average capital employed 11.1% 10.8% 12.8% 12.2% Return on average common equity 8.8% 9.4% 11.9% 10.7% Ratio of total debt to total capitalization 42.4% 42.8% 46.1% 43.8% Current ratio 2.42 1.79 1.98 1.98 Cash dividend payout ratio +100% 34.4% 23.5% 22.5% Ratio of earnings to interest 2.8 2.6 3.1 3.6 ======= ======= ======= =======
(in millions, except ratios and per share amounts) 1987 1986 - --------------------------------------------------------------------------------------------------------- Operations Net sales $4,479.0 $2,607.0 Costs and expenses 4,071.1 2,421.7 Restructuring, severance and other items Interest expense 111.6 44.3 Income (loss) before income taxes, minority interests, extraordinary items and accounting changes 356.3 150.0 Extraordinary items and accounting changes, net of income tax benefits Net income (loss) 169.9 95.3 Net income (loss) applicable to common shares 165.9 89.2 ======= ======= Financial Position, End of Year Total current assets $1,343.1 $ 743.8 Property, plant and equipment, net 2,529.6 1,205.8 Investments in affiliates Goodwill 240.7 Total assets 4,210.5 1,972.2 Total current liabilities 631.3 303.0 Current debt 69.5 10.1 Long-term debt 1,280.4 646.5 Minority interests 5.9 2.7 Preferred stock 106.9 8.9 Common shareholders' equity 1,747.2 744.2 ======= ======= Common Stock Information Per Share of Common Stock Net income (loss) before extraordinary items and accounting changes $ 2.03 $ 1.73 Extraordinary items and accounting changes Net income (loss) 2.03 1.73 Annual rate of dividends declared 0.40 0.37 Book value 21.22 14.40 Common Stock Market Price High $ 43.75 $ 31.12 Low 22.00 17.12 Year-end 36.00 30.75 Weighted-average number of common shares and equivalents 81.8 51.5 ======= ======= Other Data Capital expenditures (excluding acquisitions) $ 509.0 $ 281.1 Depreciation and amortization expense 175.1 82.5 Return on average capital employed 17.4% 12.2% Return on average common equity 10.0% 13.2% Ratio of total debt to total capitalization 42.1% 46.5% Current ratio 2.13 2.45 Cash dividend payout ratio 21.4% 27.2% Ratio of earnings to interest 3.6 3.2 ======== =======
Ratio of total debt to total capitalization: Total debt divided by the sum of total debt, minority interests, preferred stock and common shareholder's equity. Current Ratio: Total current assets divided by total current liabilities. Cash dividend payout ratio: The sum of common and preferred stock cash dividends, divided by net income (loss). Ratio of earnings to interest: Income (loss) before restructuring charges, extraordinary items, the cumulative effect of accounting changes, interest expense and income taxes, divided by total interest cost. Total interest cost is interest expense, plus capitalized interest plus interest charged to the accrued restructuring liability, as applicable. 59 Exhibit 13 - Appendix A Operating Income - North American Consumer Products bar chart as defined by the following data points: (in millions) 1994 1995 1996 1st Quarter $28.3 $38.4 $67.4 2nd Quarter 47.0 58.4 60.4 3rd Quarter 44.0 77.2 82.9 4th Quarter 24.1 61.1 66.3 Operating Income - European Consumer Products bar chart as defined by the following data points: (in millions) 1994 1995 1996 1st Quarter $ 8.8 $24.8 2nd Quarter 12.9 41.8 3rd Quarter $0.5 8.5 47.8 4th Quarter 6.4 15.7 38.5 Operating Income - Packaging bar chart as defined by the following data points: (in millions) 1994 1995 1996 1st Quarter $26.6 $18.0 $26.1 2nd Quarter 34.3 16.5 24.1 3rd Quarter 16.5 8.5 20.5 4th Quarter 20.0 18.0 17.0 Operating Income - Communications Papers bar chart as defined by the following data points: (in millions) 1994 1995 1996 1st Quarter $(25.1) $44.5 $4.1 2nd Quarter (26.5) 60.2 3.1 3rd Quarter (4.1) 60.8 5.0 4th Quarter 19.9 25.7 10.0 Pretax Interest Coverage Ratio bar chart as defined by the following data points: 1992 1993 1994 1995 1996 Pretax interest coverage ratio .45 1.08 .98 2.21 2.73 Working Capital bar chart as defined by the following data points: (in millions) 1992 1993 1994 1995 1996 Working capital $769 $501 $407 $772 $299 Capital Expenditures and Cash Flow from Operations bar chart as defined by the following data points: (in millions) 1992 1993 1994 1995 1996 Capital expenditures $470 $331 $352 $441 $426 Cash flow from operations 313 441 411 609 719 Total Debt to Capitalization Ratio bar chart as defined by the following data points: 1992 1993 1994 1995 1996 Total debt to capitalization ratio 52.7 50.8 57.4 51.3 46.0 Total Capitalization bar chart as defined by the following data points: (in billions) 1992 1993 1994 1995 1996 Total debt $2.37 $2.04 $3.11 $2.55 $1.97 Minority interests .01 .01 .15 .17 .01 Total preferred stock .45 .45 .74 .74 .74 Common shareholders' equity 1.66 1.51 1.42 1.51 1.57 Total Assets bar chart as defined by the following data points: (in billions) 1992 1993 1994 1995 1996 Current assets $1.70 $1.28 $1.98 $1.87 $1.52 Net fixed and other assets 4.64 4.57 5.95 5.39 5.02 Annual Rate of Cash Dividends Per Common Share bar chart as defined by the following data points: (in dollars) 1992 1993 1994 1995 1996 Annual rate of cash dividends $.60 $.60 $.60 $.60 $.60 EX-21 6 EXHIBIT 21 TO FORM 10-K DATED 12/29/96 Exhibit 21 JAMES RIVER CORPORATION of Virginia SUBSIDIARIES (a)(b) as of December 29, 1996 James River Corporation of Virginia, a corporation organized under the laws of Virginia, has the following majority-owned subsidiaries: Organized Under Name the Laws of Brusara Participacoes, Ltda. Brazil Cartellas S.A. Greece Celtona B.V. Netherlands Crown Zellerbach AG Zug Switzerland Crown Zellerbach International, Inc. Delaware Diamond Occidental Forest Inc. Delaware Garant SarL France ILC Inc. Virginia James River Canada Inc. Canada James River Fiber Company Virginia James River International Holdings, Ltd. Virginia James River Maine, Inc. Maine James River-Marathon, Ltd. Ontario James River Paper Company, Inc. Virginia James River-Pennington, Inc. Alabama James River Timber Corporation Alabama E-5 Exhibit 21 (continued) Organized Under Name the Laws of James River Tredegar, Inc. Virginia Jamont N.V. Netherlands Jamont Services S.N.C. Belgium Jamont Ireland Ltd. Ireland Jamont Tisu S.A. Spain Jamont UK Limited United Kingdom Jarapar Participacoes, Ltda. Brazil JRF Immobiliere S.A. Belgium Kaysersberg, S.A. France Meridian & Bigbee Railroad Company Mississippi MidSouth Lumber Company Virginia Nokian Paperi Oy Finland St. Francis Insurance Company Ltd. Bermuda Sodipan S.A. France Unikay S.r.L. Italy (a) Certain subsidiaries which, if considered in the aggregate, would not constitute a significant subsidiary are not listed. (b) Unconsolidated affiliates for which the Company owns, directly or indirectly, 50% or less of the outstanding voting stock and which are not controlled by the Company have been excluded from this listing. EX-23 7 EXHIBIT 23 TO FORM 10-K DATED 12/29/96 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference: (i) in Registration Statement No. 33-54491 on Form S-8 pertaining to the James River Corporation of Virginia StockPlus Investment Plan; (ii) in Registration Statement No. 33-57153 on Form S-8 pertaining to the James River Corporation of Virginia Canadian Employees Stock Purchase Plan; (iii) in Registration Statement No. 33-43894 on Form S-8 pertaining to the James River Corporation of Virginia Stock Option Plan for Outside Directors; (iv) in Post-Effective Amendment No. 1 to Registration Statement No. 2-83979 on Form S-8, serving as Post-Effective Amendment No. 5 to Registration Statement No. 2-64057, and as Post- Effective Amendment No. 2 to Registration Statement No. 2-76900, each pertaining to the James River Corporation of Virginia Stock Option Plan; (v) in Registration Statement No. 33-56657 on Form S-8 pertaining to the James River Corporation of Virginia 1987 Stock Option Plan; (vi) in Registration Statement No. 33-53413 on Form S-3 pertaining to the shelf registration of $600,000,000 of debt securities of James River Corporation of Virginia; (vii) in Registration Statement No. 333-02217 on Form S-8 pertaining to the James River Corporation of Virginia 1996 Stock Incentive Plan; and (viii) in Registration Statement No. 333-02213 on Form S-8 pertaining to the James River Corporation of Virginia Director Stock Ownership Plan of our report, dated January 23, 1997, except as to the information presented in Note 17, for which the date is February 21, 1997, on our audits of the consolidated financial statements of James River Corporation of Virginia and Subsidiaries as of December 29, 1996 and December 31, 1995, and for each of the three fiscal years in the period ended December 29, 1996, which report is incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Richmond, Virginia March 26, 1997 E-6 EX-27 8 ARTICLE 5 FDS FOR FORM 10-K DATED 12/29/96
5 The schedule contains summary financial information extracted from James River Corporation of Virginia's December 29, 1996 Form 10-K financial statements and is qualified in its entirety by reference to such financial statements. 0000053117 James River Corporation of Virginia 1,000,000 YEAR DEC-29-1996 DEC-29-1996 34 0 718 0 650 1520 5867 2116 6542 1220 1854 0 738 9 1559 6542 5691 5691 4217 4217 11 0 165 289 127 157 0 0 0 157 1.15 1.14
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