-----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, Ultyl+4FoOTg1Jl85v2t1aYmULUE8QVjMcVhGo2BQim1hNs19Xiab+7TV67+8A6C 09HHZwermBEG+3IoJhByHA== 0000053117-97-000017.txt : 19970811 0000053117-97-000017.hdr.sgml : 19970811 ACCESSION NUMBER: 0000053117-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970808 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07911 FILM NUMBER: 97653474 BUSINESS ADDRESS: STREET 1: 120 TREDEGAR ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8046494296 MAIL ADDRESS: STREET 1: P O BOX 2218 CITY: RICHMOND STATE: VA ZIP: 23218 10-Q 1 6/29/97 FORM 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: June 29, 1997 Commission File 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, VA 23219 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (804) 644-5411 Not Applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of $.10 par value common stock outstanding as of August 1, 1997: 90,031,822 shares JAMES RIVER CORPORATION of Virginia and Subsidiaries QUARTERLY REPORT ON FORM 10-Q June 29, 1997 TABLE OF CONTENTS Page No. PART I. FINANCIAL INFORMATION: ITEM 1. Financial Statements: Consolidated Balance Sheets as of June 29, 1997 and December 29, 1996 3 Consolidated Statements of Operations for the quarters and six months ended June 29, 1997 and June 30, 1996 5 Consolidated Statements of Cash Flows for the six months ended June 29, 1997 and June 30, 1996 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 14 PART II. OTHER INFORMATION: ITEM 1. Legal Proceedings 18 ITEM 2. Changes in Securities 18 ITEM 3. Defaults Upon Senior Securities 18 ITEM 4. Submission of Matters to a Vote of Security Holders 18 ITEM 5. Other Information 18 ITEM 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 20 2 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS
JAMES RIVER CORPORATION of Virginia and Subsidiaries CONSOLIDATED BALANCE SHEETS June 29, 1997 and December 29,1996 (in millions, except share data) June December 1997 1996 - ------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $213.1 $33.8 Accounts receivable 696.5 717.9 Inventories 683.2 650.4 Prepaid expenses and other current assets 41.4 39.1 Deferred income taxes 77.4 78.5 - ------------------------------------------------------------------------------------------------- Total current assets 1,711.6 1,519.7 - ------------------------------------------------------------------------------------------------- Property, plant and equipment 5,781.4 5,867.2 Accumulated depreciation (2,249.6) (2,115.7) - ------------------------------------------------------------------------------------------------- Net property, plant and equipment 3,531.8 3,751.5 Investments in affiliates 161.5 154.6 Other assets 428.6 385.7 Goodwill 663.8 730.0 - ------------------------------------------------------------------------------------------------- Total assets $6,497.3 $6,541.5 =================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 3
JAMES RIVER CORPORATION of Virginia and Subsidiaries CONSOLIDATED BALANCE SHEETS, Continued (in millions, except share data) June December 1997 1996 - ------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $502.0 $507.8 Accrued liabilities 570.7 595.6 Current portion of long-term debt 126.0 116.9 - ------------------------------------------------------------------------------------------------- Total current liabilities 1,198.7 1,220.3 - ------------------------------------------------------------------------------------------------- Long-term debt 1,824.2 1,853.9 Accrued postretirement benefits other than pensions 457.8 458.0 Deferred income taxes 488.3 443.0 Other long-term liabilities 224.2 259.9 - ------------------------------------------------------------------------------------------------- Total liabilities 4,193.2 4,235.1 - ------------------------------------------------------------------------------------------------- Preferred stock, $10 par value, 5,000,000 shares authorized, issuable in series; shares outstanding, 3,626,811 738.4 738.4 Common stock, $.10 par value, 150,000,000 shares authorized; shares outstanding, June 29, 1997 -- 86,666,827 and December 29, 1996 -- 86,194,612 8.7 8.6 Additional paid-in capital 1,321.2 1,307.6 Retained earnings 235.8 251.8 - ------------------------------------------------------------------------------------------------- Total shareholders' equity 2,304.1 2,306.4 - ------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $6,497.3 $6,541.5 =================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 4
JAMES RIVER CORPORATION of Virginia and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS For the Quarters (13 Weeks) and Six Months (26 Weeks) Ended June 29, 1997 and June 30, 1996 (in millions, except per share amounts) Second Quarter Six Months ------------------------------------------------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Net sales $1,412.4 $1,570.2 $2,794.3 $3,125.6 Cost of goods sold 1,029.1 1,177.9 2,048.3 2,359.9 Selling and administrative expenses 251.0 286.5 501.2 560.1 Severance and other items (income) expense (57.7) 7.0 (57.7) 30.4 - ------------------------------------------------------------------------------------------------------------------------------- Income from operations 190.0 98.8 302.5 175.2 Interest expense 37.4 42.7 75.3 88.1 Other income, net 4.9 4.4 12.7 8.4 - ------------------------------------------------------------------------------------------------------------------------------- Income before income taxes and minority interests 157.5 60.5 239.9 95.5 Income tax expense 66.2 26.6 100.8 42.0 - ------------------------------------------------------------------------------------------------------------------------------- Income before minority interests 91.3 33.9 139.1 53.5 Minority interests (.5) (3.4) (.8) (2.5) - ------------------------------------------------------------------------------------------------------------------------------- Net income $90.8 $30.5 $138.3 $51.0 =============================================================================================================================== Preferred dividend requirements (8.1) (14.6) (16.3) (29.3) - ------------------------------------------------------------------------------------------------------------------------------- Net income applicable to common shares $82.7 $15.9 $122.0 $21.7 =============================================================================================================================== Net income per common share and common share equivalent $.81 $.18 $1.19 $.25 =============================================================================================================================== Cash dividends per common share $.15 $.15 $.30 $.30 Weighted average number of common shares and common share equivalents 102.7 85.5 102.6 85.5 =============================================================================================================================== Net income per common share and common share equivalents, assuming full dilution $.78 $.18 $1.16 $.25 =============================================================================================================================== Weighted average number of common shares and common share equivalents, assuming full dilution 115.2 85.5 105.6 85.5 ===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 5
JAMES RIVER CORPORATION of Virginia and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months (26 Weeks) Ended June 29, 1997 and June 30, 1996 (in millions) 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) operating activities: Net income $138.3 $51.0 Depreciation expense and cost of timber harvested 190.6 205.3 Amortization of goodwill 10.2 10.3 Deferred income tax provision 53.6 4.8 Equity in earnings of unconsolidated affiliates (4.9) (1.4) Dividends received from unconsolidated affiliates 3.2 5.3 Severance and other items (57.7) 30.4 Retirement benefits expense in excess of funding (5.0) 2.0 Change in current assets and liabilities: Accounts receivable (31.8) (24.8) Inventories (47.9) 67.0 Prepaid expenses and other current assets 5.4 (.3) Accounts payable and accrued liabilities 23.2 31.5 Foreign currency hedge (31.5) Other, net (37.6) (22.6) - ------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 208.1 358.5 - ------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) investing activities: Expenditures for property, plant and equipment (133.7) (185.7) Cash received from sale of assets 113.3 66.5 Other, net 7.9 3.0 - ------------------------------------------------------------------------------------------------------------------- Cash used for investing activities (12.5) (116.2) - ------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) financing activities: Additions to long-term debt 38.9 1.6 Payments of long-term debt (10.5) (192.6) Common and preferred stock cash dividends paid (54.8) (55.2) Other, net 10.1 1.7 - ------------------------------------------------------------------------------------------------------------------- Cash used for financing activities (16.3) (244.5) - ------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 179.3 (2.2) Cash and cash equivalents, beginning of period 33.8 66.1 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $213.1 $63.9 ===================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Significant Accounting Policies Basis of Presentation: In the opinion of management, the accompanying unaudited consolidated financial statements of James River Corporation of Virginia and Subsidiaries (the "Company" or "James River") contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of June 29, 1997, and its results of operations and cash flows for the quarters (13 weeks) and six months (26 weeks) ended June 29, 1997, and June 30, 1996. The balance sheet as of December 29, 1996, was derived from audited financial statements as of that date. The results of operations for the six months ended June 29, 1997, are not necessarily indicative of the results to be expected for the full year. 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 instruments may be 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. Occasionally, the Company may terminate a derivative financial instrument. If an interest rate swap or an option is terminated because related debt no longer exists, any gain or loss is recognized into income immediately; otherwise, the gain or loss is deferred and amortized to interest expense over the remaining periods originally covered by the derivative contract. If a foreign exchange contract is terminated, the gain or loss is recognized in a separate component of equity, net of tax, consistent with the accounting treatment of the hedged item. Reclassifications: Certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation including a reclassification of customer freight charges from net sales to cost of sales of $68.8 million, $73.4 million, $71.4 million and $67.8 million for the first, second, third and fourth quarters of 1996, respectively. Reportable segments for all periods have been reconfigured to include bleached board operations (formerly in the North American Consumer Products segment) in the Packaging segment and to include the foodwrap operations (formerly in the Packaging segment) in the North American Consumer Products segment. Adoption of Accounting Pronouncements: In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is effective for periods beginning after December 15, 1997, including interim periods. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements, either in the statement of operations or a separate statement. Additionally, SFAS 130 requires the display of the accumulated balance of other comprehensive income. On a pro forma basis, for the quarters and six months ended June 29, 1997, and June 30, 1996, comprehensive income is a follows (in millions): 7
Second Quarter Six Months -------------------------------------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Net income $ 90.8 $ 30.5 $ 138.3 $ 51.0 Other comprehensive income, net of tax: Foreign currency translation (27.0) (4.9) (112.8) (24.9) Unrealized gain (loss) on securities 18.3 2.6 13.9 (0.6) - ------------------------------------------------------------------------------------------------------------------ Other comprehensive income (8.7) (2.3) (98.9) (25.5) - ------------------------------------------------------------------------------------------------------------------ Comprehensive income $ 82.1 $ 28.2 $ 39.4 $ 25.5 ==================================================================================================================
In June 1997, the Financial Accounting Standards Board also issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") which is effective for periods beginning after December 15, 1997, including interim periods after the year of initial adoption. SFAS 131 establishes standards for the way public companies report information about operating segments in both interim and annual financial statements, including related disclosures about products and services, geographic areas, and major customers. The Company has not determined what, if any, impact SFAS 131 will have on the operating segments reported nor the impact SFAS 131 will have on the related disclosures. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share ("SFAS 128"), which is effective for periods ending after December 15, 1997", including interim periods. SFAS 128 establishes standards for computing and presenting earnings per share ("EPS") by replacing primary EPS with the presentation of basic EPS and requiring dual presentation of basic and diluted EPS on the face of the income statement. On a pro forma basis, for the quarters and six months ended June 29, 1997, and June 30, 1996, EPS as reported would have been: Second Quarter Six Months ------------------------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------- Basic earnings per share $.89 $.19 $1.28 $.26 Diluted earnings per share .78 .19 1.18 .25 - ------------------------------------------------------------------------------- 2. Acquisitions and Dispositions On May 4, 1997, the Company, Fort Howard Corporation ("Fort Howard"), and a newly formed wholly-owned subsidiary of the Company entered into an Agreement and Plan of Merger (the "Agreement") pursuant to which Fort Howard would become a subsidiary of the Company in a merger transaction. Under the Agreement, shareholders of Fort Howard will receive 1.375 shares of the Company's common stock for each share of Fort Howard common stock. The transaction is structured to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, and it is anticipated that the merger will be accounted for as a pooling of interests. The merger, which is expected to be completed shortly after the special meeting of shareholders on August 12, 1997, is conditioned on, among other things, receiving requisite regulatory clearances and obtaining the requisite approvals of the shareholders of both companies. 8 As a part of the Company's ongoing program of timberland divestitures, on April 29, 1997, pursuant to an offering memorandum dated September 12, 1996, James River completed the sale of approximately 95,000 acres of timberlands located in Alabama and Mississippi for cash proceeds of $111 million. The Company recorded a gain of $57.7 million ($35.2 million net of taxes, or $.34 per share) in severance and other items. 3. Other Income The components of other income were as follows for the six months ended June 29, 1997, and June 30, 1996 (in millions): June June 1997 1996 - ------------------------------------------------------------------------------- Interest and investment income $4.3 $3.3 Equity in earnings of unconsolidated affiliates 4.9 1.5 Gain on sale of assets 2.6 4.6 Foreign currency exchange gain (loss) (.4) 1.2 Other, net 1.3 (2.2) - ------------------------------------------------------------------------------- Total other income $12.7 $8.4 =============================================================================== 4. Income Taxes The Company's effective income tax rate was 42% for the six months ended June 29, 1997, compared to 44% for the first six months of 1996. The decrease in the effective tax rate from the prior year was primarily due to the relative size of non-tax-deductible permanent differences to pretax income. 5. Inventories The components of inventories were as follows as of June 29, 1997, and December 29, 1996 (in millions): June December 1997 1996 - ------------------------------------------------------------------------------- Raw materials $137.1 $135.7 Finished goods and work in process 456.7 418.2 Stores and supplies 127.7 131.6 - ------------------------------------------------------------------------------ 721.5 685.5 Reduction to state certain inventories at last-in, first-out cost (38.3) (35.1) - ------------------------------------------------------------------------------- Total inventories $683.2 $650.4 =============================================================================== 9 6. Financial Instruments The Company held $638 million and $1,286 million in notional amount of interest rate swaps with fair value liabilities of $9 million and $15 million as of June 29, 1997 and December 29, 1996, respectively. During the first quarter of 1997, the Company effectively unwound $648 million in notional amount of interest rate swaps at a cost of approximately $8 million. The cost of unwinding the interest rate swaps will be amortized to interest expense over the remaining periods originally covered by the contracts. The original maturity dates were between September 1998 and January 1999. During the first quarter of 1997, the Company unwound $470 million in notional amount of foreign exchange contracts, along with 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. The net termination cost was recorded as a component of equity. The Company terminated such contracts prior to their original expiration in September 1998. The fair value of the Company's debt was $2,033 million and $2,065 million as of June 29, 1997, and December 29, 1996, respectively. Additionally, as of June 29, 1997, the pay-in-kind notes received from the spin-off of Crown Vantage Inc., valued at $89 million, are carried on the books at a fair value of approximately $109 million. The estimated fair values of the Company's financial instruments were based on quoted market prices of comparable instruments and current market rates as of June 29, 1997, and December 29, 1996, respectively. 7. Commitments and Contingent Liabilities 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. Future regulations could materially increase the Company's capital requirements and certain operating expenses in future years. In December 1993, the U.S. Environmental Protection Agency ("EPA") published draft rules which contain proposed regulations affecting pulp and paper industry discharges of wastewater and gaseous emissions, generally referred to as "Cluster Rules". The final rules are likely to be issued in 1997, with a nominal compliance date of 2000. These rules may require significant changes in the pulping and/or bleaching process presently used in some U.S. pulp mills, including several of James River's mills. The implementation of the rules could materially increase the Company's capital expenditures between 1998 and 2000. 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 to bring James River's facilities into compliance. This estimate could change, depending on several factors, including changes to the proposed regulations, new developments in control and process technology, and inflation. In addition, James River has been identified as a potentially responsible party ("PRP"), along with others, at various EPA designated Superfund sites and is involved in remedial investigations and actions under federal and state laws. It is James River's policy to accrue remediation costs when it is probable that such costs will be incurred and when they can be reasonably estimated. As of June 29, 1997, James River's accrued environmental liabilities, including remediation and landfill closure costs, totaled $21.3 million. The Company periodically reviews the status of all significant existing or potential environmental issues and adjusts its accrual as necessary. 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 PRP's. 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 quarter or 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 PRP at additional sites in the future or that the costs associated with such additional sites would not be material. 10 Litigation: In 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 10-3/4% 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 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. In June 1997, the Alabama court granted James River summary judgement on the remaining claims, and dismissed the action. The plaintiffs have appealed to the Alabama Supreme Court. Most of the holders electing out of the Alabama class are plaintiffs in the Connecticut case. James River believes that all 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 attorney's fees. In May 1997, the Attorney General of the State of Florida filed a civil action in the Gainesville Division of the United States District Court for the Northern District of Florida against the Company and nine other manufacturers of sanitary paper products alleging violations of federal and state antitrust and unfair competition laws. The complaint seeks civil penalty under Florida law of $1 million for each alleged violation against each defendant, an unspecified amount of treble damages and injunctive relief. Over the following weeks, additional civil class actions were filed in various federal and state courts against the same defendants alleging violations of federal and state antitrust statutes and seeking treble damages and injunctive relief. The actions are the subject of a motion for transfer and consolidation before the Joint Panel of Multidistrict Litigation. The litigation is in its earliest stages. The Company intends to defend the litigation vigorously. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the 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 quarter or year. 11 8. Segment Information James River's net sales and income from operations by business segment were as follows for the quarters and six months ended June 29, 1997, and June 30, 1996 (in millions):
CONSUMER PRODUCTS Communi- Intersegment North cations elimination/ America Europe Packaging Papers Corporate Total - ----------------------------------------------------------------------------------------------------------------------------------- Quarter ended June 1997 Net sales $733.6 $417.1 $198.3 $112.0 $(48.6) $1,412.4 Segment results before severance and other items 84.0 42.0 23.8 .4 (17.9) 132.3 Severance and other items income 57.7 57.7 _______ _______ _______ _______ _______ _______ Income from operations 141.7 42.0 23.8 .4 (17.9) 190.0 - ----------------------------------------------------------------------------------------------------------------------------------- Quarter ended June 1996 Net sales $745.2 $452.4 $319.9 $113.8 $(61.1) $1,570.2 Segment results before severance and other items 60.4 41.8 24.0 3.2 (23.6) 105.8 Severance and other items expense (3.3) (3.0) (.7) (7.0) _______ _______ _______ _______ _______ _______ Income from operations 57.1 41.8 21.0 3.2 (24.3) 98.8 - ----------------------------------------------------------------------------------------------------------------------------------- Six months ended June 1997 Net sales $1,421.1 $843.7 $395.0 $231.3 $(96.8) $2,794.3 Segment results before severance and other items 152.4 87.3 45.0 (3.2) (36.7) 244.8 Severance and other items income 57.7 57.7 _______ _______ _______ _______ _______ _______ Income from operations 210.1 87.3 45.0 (3.2) (36.7) 302.5 - ----------------------------------------------------------------------------------------------------------------------------------- Six months ended June 1996 Net sales $1,456.1 $917.3 $661.1 $226.0 $(134.9) $3,125.6 Segment results before severance and other items 124.0 66.6 53.8 7.4 (46.2) 205.6 Severance and other items expense (26.0) (3.3) (1.1) (30.4) _______ _______ _______ _______ _______ _______ Income from operations 98.0 66.6 50.5 7.4 (47.3) 175.2 - -----------------------------------------------------------------------------------------------------------------------------------
12 9. Subsequent Event In July 1997, James River announced that as of September 2, 1997, it is calling its Series P 9% Cumulative Convertible Preferred Stock for conversion into common stock at a conversion ratio of .9206 shares of common stock for each Series P depositary share. The conversion of the Series P depositary shares will reduce the Company's aggregate cash dividends by approximately $16.5 million per year. The conversion of Series P into common shares is not expected to have a material impact on the Company's calculation of earnings per share. In August 1997, James River announced that as of October 1, 1997, it is calling its Series O 8 1/4% Cumulative Preferred Stock for redemption at its face value of $98.1 million. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Overview James River reported net income of $90.8 million, or $.81 per share, for the second quarter ended June 29, 1997, compared with $30.5 million, or $.18 per share for the same quarter of the prior year. Net sales for the second quarter were $1,412 million, compared to $1,570 million in the prior year. For the six months ended June 29, 1997, net income was $138.3 million, or $1.19 per share, compared with $51.0 million, or $.25 per share in 1996. Net sales for the first six months of 1997 were $2,794 million compared to $3,126 million in 1996. The comparability of these results was impacted by nonrecurring charges and the 1996 divestitures of the Flexible Packaging and related Inks divisions, as well as several small domestic Consumer Products facilities. Items Affecting Comparability Nonrecurring charges for the quarters and six months ended June 29, 1997, and June 30, 1996, were as follows (in millions, except per share amounts):
June 29, 1997 June 30, 1996 --------------------------------------- -------------------------------------- Net Net Income Per Income Per Gross Impact Share Gross Impact Share - ------------------------------------------------------------------------------------------------------------------------ Quarters ended: Severance costs $4.9 $3.0 $.04 Net (gain) loss on asset divestitures ($57.7) ($35.2) ($.34) 2.1 1.2 .02 - --------------------------------------------------------------------------------- -------------------------------------- Total (income) expense ($57.7) ($35.2) ($.34) $7.0 $4.2 $.06 ======================================================================================================================== Six months ended: Severance costs $18.7 $11.4 $.14 Net (gain) loss on asset divestitures ($57.7) ($35.2) ($.34) 11.7 7.1 .08 - ------------------------------------------------------------------------------------------------------------------------ Total (income) expense ($57.7) ($35.2) ($.34) $30.4 $18.5 $.22 ========================================================================================================================
Net income for the quarters and six months ended June 29, 1997, excluding nonrecurring items, was $55.6 million or $.47 per share, and $103.1 million, or $.85 per share, respectively, compared with $34.7 million, or $.24 per share, and $69.5 million, or $.47 per share in the same periods of 1996. Net sales for the second quarter and six months, excluding divested operations, were $1,412 million and $2,794 million in 1997, respectively, compared with $1,438 million and $2,829 million for the comparable periods in 1996. North American Consumer Products Business Operating profits before severance and other items for the North American Consumer Products Business, excluding results from divestitures, increased by 37%, from $61.5 million in the second quarter of 1996 to $84.0 million in the current quarter. Net sales for the quarters were similar, excluding revenues from divested operations, at $734 million in 1997, compared to $733 million in 1996. Second quarter results reflect volume gains in retail and commercial towel and tissue and retail tabletop categories, reduced manufacturing and raw material costs, and benefits of cost reduction initiatives, partially offset by foodservice volume declines of 5% and lower average selling prices led by competitors in the second quarter of 1996 for retail towel and tissue products. 14 For the six months ended June 29, 1997, operating profits, excluding divestitures, were $152.4 million, an increase of 22% over the comparable six months in 1996. Excluding divestitures, revenues for the first six months of 1997 increased nearly 2% over the prior year. The increase in profitability over the first half of 1997 as compared to the prior year was also attributable to strong sales volumes, and reduced wood costs, combined with continued cost reduction benefits. Overall increased operating profits were partially offset by a decline in earnings attributable to market pulp sales. This business has approximately 200,000 tons of pulp capacity in excess of its annual requirements, which is sold as market pulp. Market pulp volume improvements of 10% over prior year's first six months levels were more than offset by average net selling price declines. European Consumer Products Business Operating profits for the European Consumer Products Business increased slightly to $42.0 million, compared to $41.8 million in the second quarter of 1996. Operating profits of $87.3 million for this business for the six months ended June 29, 1997, were 31% above the $66.6 million reported in the prior year. The improvement in the European Consumer Products Business' operating profits was attributable to a combination of stronger volumes and lower raw material costs and other cost reductions, partially offset by the strengthening of the U.S. dollar, lower average pricing and additional promotional costs. The net impact of foreign currency translation to the U.S. dollar for the six months ended June 29, 1997, was a reduction in profits of approximately 6%. As a net buyer of approximately 450,000 tons per year of market pulp, the European Consumer Products Business continues to benefit from year over year declines in the cost of this raw material. Net sales declined 8% in both the second quarter and the first six months of 1997 to $417 million and $844 million from $452 million and $917 million in the comparable periods of 1996. While finished product sales volumes improved more than 4% over the first half of 1996, revenues continue to be negatively impacted by the strengthening of the U.S. dollar and a decline in average pricing. Improved finished product sales volumes reflect a continued volume growth in nearly all geographic markets. Packaging Business Excluding the results attributable to the divestitures of the Flexible Packaging and Inks divisions in the second half of 1996, operating profits before severance and other items for the Packaging Business improved by 18% to $23.8 million in the current quarter from $20.1 million in the second quarter of 1996 while profits for the first six months decreased 2% to $45.0 million in 1997 from $45.9 million in the prior year. Net sales, adjusted for the Flexible Packaging and Inks transactions, were flat in the second quarters at $198 million in 1997 compared to $200 million in the prior year and decreased 6% to $395 million from $420 million for the six months ended June 29, 1997 and June 30, 1996, respectively. The current quarter's and six months' results reflect increased volumes for folding cartons and paperboard, lower manufacturing and raw material costs, partially offset by lower average selling prices. Communications Papers Business Operating profits for the Communications Papers Business declined to $.4 million from $3.2 million in the second quarter of 1996. The operating profits for the six months decreased to a loss of $3.2 million from a profit of $7.4 million for the same period in 1996. Net sales for the second quarter were similar at $112 million in 1997 and $114 million in 1996, while net sales for the six months improved more than 2% to $231 million from $226 million in the prior year. The improvement in net sales for the first half of 1997 over the prior year is attributable to increased volumes of 24% due primarily to market-related production curtailments, which occurred in the first half of 1996. However, volume gains were more than offset by selling price declines. 15 Other Income and Expense Items General corporate expenses, before severance and other items, totaled $17.9 million and $36.7 million in the second quarter and first six months of 1997, respectively, compared to $23.6 million and $46.2 million for the same periods in the prior year. The majority of the decrease was related to reductions in spending on new integrated management information systems, as design and installation projects are being completed and systems become operational. Interest expense decreased from $88.1 million to $75.3 million between the first six months of 1996 and the first six months of 1997. This decrease was attributable to the reduction in average outstanding debt since the second quarter of 1996. Other income increased to $12.7 million in 1997 from $8.4 million in 1996, principally due to improved earnings of unconsolidated affiliates. The change in the effective tax rate for 1997 is discussed in Note 4 of Notes to Consolidated Financial Statements. Adoption of Accounting Pronouncement In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is effective for periods beginning after December 15, 1997, including interim periods. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements, either in the statement of operations or a separate statement. Additionally, SFAS 130 requires the display of the accumulated balance of other comprehensive income. Note 1 of Notes to Consolidated Financial Statements describes the pro forma impact of SFAS 130 for the quarters and six months ended June 29, 1997, and June 30, 1996. In June 1997, the Financial Accounting Standards Board also issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") which is effective for periods beginning after December 15, 1997, including interim periods after the year of initial adoption. SFAS 131 established standards for the way public companies report information about operating segments in both interim and annual financial statements, including related disclosures about products and services, geographic areas, and major customers. The Company has not determined what, if any, impact SFAS 131 will have on the operating segments reported nor the impact SFAS 131 will have on the related disclosures. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("SFAS 128"), which is effective for periods ending after December 15, 1997, including interim periods. SFAS 128 establishes standards for computing and presenting earnings per share ("EPS") by replacing primary EPS with the presentation of basic EPS and requiring dual presentation of basic and diluted EPS on the face of the income statement. Note 1 of Notes to Consolidated Financial Statements describes the pro forma impact of SFAS 128 for the quarters and six months ended June 29, 1997, and June 30, 1996. Financial Condition Cash provided by operating activities totaled $208.1 million in the first half of 1997, compared with the $358.5 million provided in the prior year. This decrease in cash provided by operating activities resulted from a payment on the unwinding of the Company's foreign currency hedge (See Note 6 of Notes to Consolidated Financial Statements) and increases in working capital. The Company's current ratio was 1.4 as of June 29, 1997, and 1.2 as of December 29, 1996, reflecting a working capital increase to $513 million from $299 million for the same periods primarily due to a temporary increase in cash balances. Capital expenditures were $133.7 million in the current quarter, compared to $185.7 million in the first half of 1996 reflecting divested operations and timing of expenditures. 16 Total indebtedness decreased modestly from $1,971 million as of December 29, 1996, to $1,950 million as of June 29, 1997. As of June 29, 1997, the Company had outstanding borrowings of approximately $383 million supported by revolving credit facilities. These borrowings included $242 million outstanding under such facilities, $89 million of commercial paper and $52 million of money market notes. Total outstanding debt as of June 29, 1997, included approximately $1,492 million of fixed rate and $458 million of floating rate obligations. Note 6 of Notes to Consolidated Financial Statements describes the Company's interest rate swap agreements. James River's ratio of net debt to total capitalization decreased to 42.9% as of the end of the second quarter, from 45.5% as of the prior year end, resulting from a temporary increase in cash balances and a modest decrease in debt levels. For purposes of this calculation, the Company defines total capitalization as the sum of current and long-term debt, preferred and common equity and minority interests and net debt as total debt less cash and cash equivalents. As of June 29, 1997, under the most restrictive provisions of the Company's debt agreements, James River had additional borrowing capacity of approximately $1.6 billion and net worth in excess of the minimum requirements specified by such agreements of approximately $390 million. In August 1997, James River announced that as of October 1, 1997, it is calling its Series O 8 1/4% Cumulative Preferred Stock for redemption at its face value of $98.1 million. In July 1997, James River announced that as of September 2, 1997, it is calling its Series P 9% Cumulative Convertible Preferred Stock for conversion into common stock at a conversion ratio of .9206 shares of common stock for each Series P depositary share. The conversion of the Series P depositary shares will reduce the Company's aggregate cash dividends by approximately $16.5 million per year. The conversion of Series P into common shares is not expected to have a material impact on the Company's calculation of earnings per share. On May 4, 1997, the Company, Fort Howard Corporation ("Fort Howard"), and a newly formed wholly-owned subsidiary of the Company entered into an Agreement and Plan of Merger (the "Agreement") pursuant to which Fort Howard would become a subsidiary of the Company in a merger transaction. Under the Agreement, shareholders of Fort Howard will receive 1.375 shares of the Company's common stock for each share of Fort Howard common stock. The transaction is structured to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, and it is anticipated that the merger will be accounted for as a pooling of interests. The merger, which is expected to be completed shortly after the special meeting of shareholders on August 12, 1997, is conditioned on, among other things, receiving requisite regulatory clearances and obtaining the requisite approvals of the shareholders of both companies. As a part of the Company's ongoing program of timberland divestitures, on April 29, 1997, pursuant to an offering memorandum dated September 12, 1996, James River completed the sale of approximately 95,000 acres of timberlands located in Alabama and Mississippi for cash proceeds of $111 million. The Company recorded a second quarter after-tax gain of $35.2 million on this sale. Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and Company plans and objectives to differ materially from those projected. Such risks and uncertainties include, but are not limited to, the ability to affect the merger of James River and Fort Howard; general business and economic conditions; competitive pricing pressures for the Company's products; changes in raw material, energy and other costs; and opportunities that may be presented to and pursued by the Company. 17 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. None. Item 2. CHANGES IN SECURITIES. None. Item 3. DEFAULTS UPON SENIOR SECURITIES. None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. Item 5. OTHER INFORMATION. None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: The exhibits listed below are filed as part of this quarterly report. Each exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K. Exhibit Starts Number Description on Page 11 Computation of Earnings per Share -- filed herewith. 21 12 Computation of Ratio of Earnings to Fixed Charges -- filed herewith. 24 27(a) Financial Data Schedules for the six months ended June 29, 1997,(filed electronically only). 27(b) Financial Data Schedules restated for the six months ended June 30, 1996, (filed electronically only). 18 (b) Reports on Form 8-K: During the quarter ended June 29, 1997, and subsequent thereto, the Company filed the following Current Reports on Form 8-K: Date of Report Event Reported May 4, 1997 The Company filed an Agreement and Plan of Merger with Fort Howard Corporation dated May 4, 1997. July 2, 1997 The Company filed a Registration Statement on Form S-4 relating to the proposed merger with Fort Howard Corporation. July 24, 1997 The Company published a press release announcing its results of operations for the second quarter and six months ended June 29, 1997. 19 SIGNATURES Pursuant to the requirements 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 By:/s/William A. Paterson William A. Paterson Senior Vice President & Controller (Principal Financial and Accounting Officer) Date: August 7, 1997 20 EX-11 2 EXHIBIT 11 TO 6/29/97 FORM 10-Q Exhibit 11
JAMES RIVER CORPORATION of Virginia COMPUTATION OF EARNINGS PER SHARE For the Quarters (13 Weeks) and Six Months (26 Weeks) Ended June 29, 1997 and June 30, 1996 (in millions, except per share amounts) Second Quarter Six Months ---------------------------- ---------------------------- PRIMARY: 1997 1996 1996 1996 - ---------------------------------------------------------------------------------------------------------------------------- Net earnings applicable to common shares $82.7 $15.9 $122.0 $21.7 ============================================================================================================================ Weighted average number of common shares and common share equivalents: Common shares outstanding 86.5 85.0 86.4 85.0 Assumed conversion of convertible preferred stock 15.3 15.3 Issuable upon exercise of outstanding stock options and pursuant to a deferred stock award plan 3.3 2.0 3.4 2.0 Less assumed acquisition of common shares, using proceeds from stock options and the impact of a deferred stock award plan, under the treasury stock method (2.4) (1.5) (2.5) (1.5) - ---------------------------------------------------------------------------------------------------------------------------- 102.7 85.5 102.6 85.5 ============================================================================================================================ Primary earnings per common share $.81 $.18 $1.19 $.25 ============================================================================================================================
21 Exhibit 11 (continued)
JAMES RIVER CORPORATION of Virginia COMPUTATION OF EARNINGS PER SHARE For the Quarters (13 Weeks) and Six Months (26 Weeks) Ended June 29, 1997 and June 30, 1996 (in millions, except per share amounts) Second Quarter Six Months ------------------------------- ------------------------------- FULLY DILUTED: 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Net earnings applicable to common shares $88.7 $15.9 $122.0 $21.7 =========================================================================================================================== Weighted average number of common shares and common share equivalents: Common shares outstanding 86.5 85.0 86.4 85.0 Assumed conversion of convertible preferred stocks 27.5 17.9 Issuable upon exercise of outstanding stock options and pursuant to a deferred stock award plan 3.8 2.1 3.9 2.1 Less assumed acquisition of common shares, using proceeds from stock options and the impact of a deferred stock award plan, under the treasury stock method (2.6) (1.6) (2.6) (1.6) - --------------------------------------------------------------------------------------------------------------------------- 115.2 85.5 105.6 85.5 =========================================================================================================================== Fully diluted earnings per common share $.78 $.18 $1.16 $.25 ===========================================================================================================================
22 Exhibit 11 (continued) JAMES RIVER CORPORATION of Virginia NOTES TO COMPUTATIONS OF EARNINGS PER SHARE Primary earnings per common share is computed by dividing net income, after deducting dividends on outstanding preferred shares, by the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Common share equivalents consist of shares issuable pursuant to stock options and a deferred stock award plan, and are calculated using an average market price for the period. Common share equivalents also include the assumed conversion of the Company's Series P 9% Cumulative Convertible Preferred Stock, if dilutive. Fully diluted earnings per common share is computed using the same method as for the primary computation except that (i) common share equivalents are computed using the higher of the market price at the end of the period or the average market price for the period, and (ii) the average number of common shares and dilutive common share equivalents outstanding is increased by the assumed conversion, if dilutive, of the Company's Series K $3.375 Cumulative Convertible Exchangeable Preferred Stock, its Series L $14.00 Cumulative Convertible Exchangeable Preferred Stock, its Series N $14.00 Cumulative Convertible Exchangeable Preferred Stock, and its Series P 9% Cumulative Convertible Preferred Stock ("Series P"). Dilutive conversions have been assumed for all of the Company's convertible preferred stocks for the second quarter and for its Series P for the six months both ended June 29, 1997. No conversions of any of the convertible preferred stocks have been assumed for the quarter or six months ended June 30, 1996, as such conversions were not dilutive. 23 EX-12 3 EXHIBIT 12 TO 6/29/97 FORM 10-Q Exhibit 12
JAMES RIVER CORPORATION of Virginia COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (a) (Dollar amounts in millions) Fiscal Year Ended ----------------------------------------------------------------------------------- December December December December December 27, 1992 26, 1993 25, 1994 31, 1995 29, 1996 (52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks) - ------------------------------------------------------------------------------------------------------------------------------- (b,c) (c) Pretax income (loss) from continuing operations, before minority interests $(182.8) $14.1 $(15.7) $220.4 $284.1 Add: Interest charged to operations 193.0 183.0 210.1 236.0 174.7 Portion of rental expense representative of interest factor (assumed to be one-third) 9.4 19.1 24.2 23.9 23.4 - ------------------------------------------------------------------------------------------------------------------------------- Total earnings, as adjusted $29.6 $216.2 $218.6 $480.3 $482.2 =============================================================================================================================== Fixed charges: Interest charged to operations $193.0 $183.0 $210.1 $236.0 $174.7 Capitalized interest 12.8 5.3 3.1 6.9 5.1 Portion of rental expense representative of interest factor (assumed to be one-third) 19.4 19.1 24.2 23.9 23.4 - ------------------------------------------------------------------------------------------------------------------------------- Total fixed charges $225.2 $207.4 $237.4 $266.8 $203.2 =============================================================================================================================== Ratio - - 1.04 - - 1.80 2.37 ==============================================================================================================================
See accompanying footnote explanations. 24 Exhibit 12 (continued)
JAMES RIVER CORPORATION of Virginia COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (a) (Dollar amounts in millions) Quarter Ended ------------------------------------------- June 30, June 29, 1997 1996 (26 Weeks) (26 Weeks) - --------------------------------------------------------------------------------------------------------------- Pretax income from continuing operations, before minority interests $236.0 $97.0 Add: Interest charged to operations 79.7 92.8 Portion of rental expense representative of interest factor (assumed to be one-third) 11.8 11.9 - --------------------------------------------------------------------------------------------------------------- Total earnings, as adjusted $327.5 $201.7 =============================================================================================================== Fixed charges: Interest charged to operations $79.7 $92.8 Capitalized interest 2.6 2.4 Portion of rental expense representative of interest factor (assumed to be one-third) 11.8 11.9 - --------------------------------------------------------------------------------------------------------------- Total fixed charges $94.1 $107.1 =============================================================================================================== Ratio 3.48 1.88 ===============================================================================================================
See accompanying footnote explanations. 25 Exhibit 12 (continued) JAMES RIVER CORPORATION of Virginia NOTES TO COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (a) In computing the ratio of earnings to fixed charges, earnings consist of income before income taxes, minority interests, and fixed charges excluding capitalized interest. Fixed charges consist of interest expense, capitalized interest, and that portion of rental expense (one-third) deemed representative of the interest factor. Earnings and fixed charges also include the Company's proportionate share of such amounts for unconsolidated affiliates which are owned 50% or more and distributed income from less than 50% owned affiliates. (b) During 1992, the Company initiated a productivity enhancement program and recorded a $112 million pretax charge which has been included in the calculation of the ratio of earnings to fixed charges for this year. (c) For the following periods, earnings were inadequate to cover fixed charges, and the amounts of the deficiencies were: year ended December 27, 1992 - $195.6 million; year ended December 25, 1994 - $18.8 million. 26 EX-27 4 ARTICLE 5 FDS FOR 6/29/97 10-Q
5 The schedule contains summary financial information originally extracted from James River Corporation of Virginia's June 29, 1997, Form 10-Q Financial Statements and is qualified in its entirety by reference to such financial statements. 0000053117 JAMES RIVER COPORATION OF VIRGINIA 1,000,000 6-MOS DEC-28-1997 JUN-29-1997 213 0 697 0 683 1712 5781 2249 6497 1199 1824 0 738 9 1557 6497 2794 2794 2048 2048 (58) 0 75 240 101 138 0 0 0 138 1.19 1.16
EX-27 5 ARTICLE 5 FDS FOR 6/30/96 10-Q
5 The schedule contains summary financial information extracted from James River Corporation of Virginia's June 30, 1996, Form 10-Q Financial Statements as restated in the June 29, 1997, Form 10-Q financial statements and is qualified in its entirety by reference to such financial statements. 0000053117 JAMES RIVER COPORATION OF VIRGINIA 1,000,000 6-MOS DEC-29-1996 JUN-30-1996 64 0 843 0 714 1746 6181 2216 6990 1085 2295 0 740 9 1479 6990 3126 3126 2360 2360 30 0 88 96 42 51 0 0 0 51 0.25 0.25
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