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: September 25, 1994 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
November 1, 1994:
81,690,298 shares
JAMES RIVER CORPORATION
of Virginia
QUARTERLY REPORT ON FORM 10-Q
September 25, 1994
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of September 25, 1994 and
December 26, 1993 3
Consolidated Statements of Operations for the quarters and
nine months
ended September 25, 1994 and September 26, 1993 5
Consolidated Statements of Cash Flows for the nine months
ended September 25, 1994 and September 26, 1993 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 25, 1994 and December 26, 1993
(in thousands, except share data)
September December
1994 1993
ASSETS
Current assets:
Cash and short-term securities $68,472 $23,620
Accounts receivable 918,717 422,894
Inventories 871,582 666,464
Prepaid expenses and other current assets 40,862 22,939
Refundable income taxes 3,982
Deferred income taxes 80,882 83,538
Net assets held for sale 68,929 62,868
Total current assets 2,053,426 1,282,323
Property, plant, and equipment 6,878,991 5,400,759
Accumulated depreciation (2,204,883) (1,829,267)
Net property, plant, and equipment 4,674,108 3,571,492
Investments in affiliates 122,019 519,448
Other assets 364,175 324,724
Goodwill 773,791 153,315
$7,987,519 $5,851,302
The accompanying notes are an integral part
of the consolidated financial statements.
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
CONSOLIDATED BALANCE SHEETS, Continued
(in thousands, except share data)
September December
1994 1993
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable and accrued
liabilities $1,055,526 $616,192
Income taxes payable 8,758 4,463
Short-term borrowings 153,736
Current portion of long-term debt 146,952 97,287
Accrued restructuring liability 43,588 63,134
Total current liabilities 1,408,560 781,076
Long-term debt 2,859,037 1,942,836
Accrued postretirement benefits
other than pensions 546,387 541,823
Other long-term liabilities 254,632 179,955
Deferred income taxes 567,896 430,421
Minority interests 156,487 7,010
Preferred stock, $10 par value, 5,000,000
shares authorized, issuable in series;
shares outstanding,
September 25, 1994 -- 3,630,704 and
December 26, 1993 -- 3,477,037 740,308 454,108
Common stock, $.10 par value, 150,000,000
shares authorized; shares outstanding,
September 25, 1994 -- 81,686,289 and
December 26, 1993 -- 81,628,047 8,169 8,163
Additional paid-in capital 1,211,799 1,219,043
Retained earnings 234,244 286,867
$7,987,519 $5,851,302
The accompanying notes are an integral part
of the consolidated financial statements.
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters (13 Weeks) and Nine Months (39 Weeks) Ended
September 25, 1994 and September 26, 1993
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Third Nine Months
Quarter
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $1,444,773 $1,183,507 $3,748,421 $3,495,266
Cost of goods sold 1,182,954 972,253 3,108,517 2,890,310
Selling and administrative expenses 214,557 175,771 529,872 509,631
Income from operations 47,262 35,483 110,032 95,325
Interest expense 51,824 31,760 123,334 104,262
Other income, net 6,653 17,107 24,348 33,992
Income before income tax expense 2,091 20,830 11,046 25,055
Income tax expense:
Tax on current income 1,909 9,142 5,455 10,795
Effect of tax rate change 10,981 10,981
Total income tax expense 1,909 20,123 5,455 21,776
Income before minority interests 182 707 5,591 3,279
Minority interests (281) 478 124 1,512
Net income (loss) $(99) $1,185 $5,715 $4,791
Preferred dividend requirements (14,442) (8,205) (30,845) (24,618)
Net loss applicable to common shares $(14,541) $(7,020) $(25,130) $(19,827)
Net loss per common share $(.18) $(.08) $(.31) $(.24)
Cash dividends per common share $.15 $.15 $.45 $.45
Weighted average number of common shares 81,686 81,625 81,663 81,604
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months (39 Weeks) Ended
September 25, 1994 and September 26, 1993
(in thousands)
1994 1993
Cash provided by (used for) operating activities:
Net income $5,715 $4,791
Items not affecting cash:
Depreciation expense and cost of timber harvested 284,016 270,714
Deferred income tax provision (benefit) (2,221) 18,659
Undistributed earnings of unconsolidated affiliates (6,736) (3,751)
Amortization and other 13,375 11,224
Change in current assets and liabilities:
Accounts receivable (30,006) 1,858
Inventories 10,509 17,920
Prepaid expenses and other current assets (12,277) 13,768
Net assets held for sale 888 4,820
Accounts payable and accrued liabilities (23,866) 4,824
Income taxes payable 16,287 14,960
Accrued restructuring liability (18,312) (27,436)
Retirement benefits expense in excess of funding 11,092 25,310
Other, net (15,611) 6,255
Cash provided by operating activities $232,853 $363,916
Cash provided by (used for) investing activities:
Expenditures for property, plant, and equipment (220,752) (225,664)
Cash paid for acquisitions, net (538,009)
Cash received from sale of assets 18,853 28,148
Investments in affiliates (11,835) (220)
Proceeds received from redemption of SCI preferred stock 47,050
Other, net 6,113 4,952
Cash used for investing activities (745,630) (145,734)
Cash provided by (used for) financing activities:
Additions to long-term debt 370,142 38,220
Increase in short-term borrowings 47,469
Payments of long-term debt (76,439) (532,316)
Preferred stock issued, net of issuance costs 278,928
Common and preferred stock cash dividends paid (61,332) (61,265)
Other, net (1,139) 135
Cash provided by (used for) financing activities 557,629 (555,226)
Increase (decrease) in cash and short-term securities 44,852 (337,044)
Cash and short-term securities, beginning of period 23,620 375,492
Cash and short-term securities, end of period $68,472 $38,448
The accompanying notes are an integral part
of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 September 25, 1994 and September 26, 1993, its results
of operations for the quarters (13 weeks) and the nine months (39
weeks) then ended, and its cash flows for the nine months then ended.
The balance sheet as of December 26, 1993 was derived from audited
financial statements as of that date. The results of operations for
the nine months ended September 25, 1994 are not necessarily
indicative of the results to be expected for the full year. The
consolidated results of Jamont Holdings N.V. ("Jamont Holdings"), the
Company's European consumer products subsidiary, are included on the
basis of closing dates which lag the Company's fiscal periods by one
month.
Certain amounts in the prior year's financial statements and
supporting footnote disclosures have been reclassified to conform to
the current year's presentation.
2. Acquisitions and Dispositions
Prior to July 5, 1994, James River and Rayne Holdings Inc.
("Rayne") each owned 50% of Jamont Holdings which, in turn, owned
86.4% of Jamont N.V. ("Jamont"). In February 1994, the Company made
an additional investment of $11.8 million in Jamont Holdings which,
in accordance with the terms of an agreement with Rayne, did not
result in a change in James River's then 50% ownership interest in
Jamont Holdings. On July 5, 1994, James River completed the
acquisition of Rayne's 43.2% indirect ownership interest in Jamont
for approximately $575 million in cash. The value of assets
consolidated, representing 100% of Jamont Holdings, totalled $2.5
billion, which included cash of $38.9 million, net property, plant,
and equipment of $1.2 billion, and goodwill of $614.2 million;
liabilities consolidated totalled $1.5 billion, which included $596.1
million of long-term debt. Jamont, with annual sales of $1.5
billion, produces branded and private label tissue, hygiene, and
foodservice products for the retail and away-from-home markets.
Jamont, which is currently accounted for on a one-month lag, has been
included as a consolidated subsidiary for two months of the third
quarter; prior to the acquisition of Rayne's indirect interest,
Jamont was accounted for using the equity method. (See Notes 8(a)
and 10 for other information regarding James River's investment in
Jamont Holdings).
In March 1994, the Company sold its 50% interest in Coastal
Paper Company, a Mississippi-based producer of lightweight papers.
In September 1994, the Company completed the sale of certain
nonoperating assets held in connection with its facility in
Fitchburg, Massachusetts, for proceeds of $8.4 million. During the
first nine months of 1994, James River also completed the sale of
30,400 acres of timberlands that it had acquired as part of its
acquisition of Diamond Occidental Forest Inc. in 1993. The estimated
realizable value of the timberlands was included in net assets held
for sale prior to their disposition.
3. Other Income
The components of other income were as follows for the nine
months ended September 25, 1994 and September 26, 1993 (in
thousands):
September September
1994 1993
Interest and investment income $9,535 $32,396
Equity in net income of
unconsolidated affiliates 6,736 5,054
Foreign currency exchange losses (348) (11,710)
Other, net 8,425 8,252
Total other income $24,348 $33,992
Interest income for the nine months ended September 25, 1994 and
September 26, 1993 includes $9.0 million and $14.3 million,
respectively, of interest on refunds resulting from the favorable
settlement of certain prior years' income tax returns.
4. Income Taxes
The Company's effective income tax rate was 49.4% for the nine
months ended September 25, 1994, compared to 43% for the comparable
period of 1993 (excluding the effects of the tax rate change in 1993
resulting from the enactment of the Omnibus Budget Reconciliation Act
of 1993). The increase in the effective tax rate from the prior year
was primarily due to (i) the relative size of non-tax-deductible
permanent differences, the most significant of which relates to
goodwill resulting from the consolidation of Jamont in the third
quarter of 1994, and (ii) foreign net operating losses for which
valuation allowances have been established.
5. Inventories
The components of inventories were as follows as of September
25, 1994 and December 26, 1993 (in thousands):
September December
1994 1993
Raw materials $193,059 $161,093
Finished goods and work in process 560,138 425,640
Stores and supplies 178,960 139,457
932,157 726,190
Reduction to state certain inventories
at last-in, first-out cost (60,575) (59,726)
Total inventories $871,582 $666,464
6. Indebtedness
Short-term borrowings consisted of indebtedness under existing
lines of credit held by Jamont as of September 25, 1994. The Company
has an effective shelf registration statement with the Securities and
Exchange Commission for the issuance of up to $600 million of debt
securities.
The Company is a party to interest rate swap agreements maturing
between September 1, 1998 and January 19, 1999 that hedge a portion
of its bond portfolio. Subsequent to the end of the third quarter,
the Company implemented a program to modify its interest rate swap
position resulting in the Company having a notional amount of $1,286
million of LIBOR-based floating rate debt. To manage its exposure to
floating rate debt, James River has entered into interest rate
protection agreements with respect to a notional amount of $646
million of such LIBOR-based floating rate debt, which effectively
protect the Company against six-month LIBOR rates rising above 6.5%
provided those rates stay below 8.01%.
7. Preferred Stock
On June 29, 1994, the Company issued its Series P 9% Cumulative
Convertible Preferred Stock as a Dividend Enhanced Convertible Stock
("DECS"), in the form of depositary shares, with each depositary
share representing a one-hundredth interest in a share of the
preferred stock. A total of 16.7 million depositary shares were
issued at $17.25 per share, for total gross proceeds of $287.5
million, after reflecting the exercise of the underwriters over-
allotment option. The net proceeds from this issuance were used to
partially finance the Company's acquisition of the additional
interest in Jamont Holdings. Each depositary share is entitled to
.8547 of a vote, voting as a single group with holders of the
Company's common stock. The DECS are convertible into common stock
at the option of the holder, at anytime, at a rate of .8547 common
shares for each depositary share, subject to adjustment in certain
events, and are redeemable by the Company beginning in July 1997 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 the
Company's common stock at the time of redemption. If still
outstanding, the DECS will automatically convert into common shares
on a one-for-one basis in July 1998.
8. Commitments and Contingent Liabilities
(a) Put and Call Arrangements:
James River's acquisition of Rayne's 50% ownership interest
in Jamont Holdings on July 5, 1994, (see Note 2) terminated a
put and call arrangement that had existed between James River
and Rayne related to such interest.
James River is a party to a put and call arrangement
related to the 13.6% minority interest in Jamont currently owned
by EuroPaper Inc. ("EuroPaper"). Pursuant to the agreement,
EuroPaper may put its interest in Jamont (the "EuroPaper
Shares") to James River during May 1996 and James River may call
the EuroPaper Shares during August 1996, each at a fixed price
of approximately 1.04 billion French francs (approximately $196
million using exchange rates in effect as of September 30,
1994). In addition, Jamont Holdings has a separate call
agreement with EuroPaper under which it may call the EuroPaper
Shares through April 1996 at a formula price.
James River and CRSS Capital, Inc. ("CRSS") each own 50% of
the Naheola Cogeneration Limited Partnership (the "Naheola
Partnership"), which was formed in order to develop and operate
a $300 million chemical recovery unit at the Company's Naheola
mill. Effective November 4, 1994, James River exercised its
call option for CRSS's 50% interest in the Naheola Partnership.
The call price will be determined based on a formula established
at the inception of the partnership. James River's exercise of
its call option has terminated a put option held by CRSS.
(b) Foreign Currency Hedge Agreements:
The Company is a party to foreign currency contracts that
hedge a portion of the foreign currency exposure of its net
investment in Jamont. As of September 25, 1994, the Company had
outstanding foreign currency contracts covering a total notional
principal amount of $488 million, primarily denominated in
French francs, British pounds, Belgian francs, and Spanish
pesetas. Subsequent to the end of the third quarter, the
Company implemented a program to modify its currency hedge
position. Under such program, the Company has effectively
changed the notional amount of its hedge of the foreign currency
exposure of its net investment in Jamont from $488 million to
$470 million denominated in various currencies; the Company
intends to reduce such notional amount to $330 million
denominated in French francs. The various contracts mature on
September 1, 1998. In connection with these contracts, James
River has entered into interest rate swap agreements to fix the
French franc interest cost of the hedge.
(c) 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
(the "EPA") published draft rules, informally referred to as the
"cluster rules," which contain proposed revisions to the
effluent guidelines under the Clean Water Act in conjunction
with new regulations relating to the discharge of certain
substances under the Clean Air Act. The final rules are likely
to be issued in late 1996, with a nominal compliance date of
1999. The new 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,
necessitating additional capital expenditures to achieve
compliance by approximately 1999. Based on preliminary
estimates, the Company anticipates that such capital
expenditures could be at least $300 million for James River. In
addition, the Company estimates that annual operating expenses
could increase by approximately $75 million to $135 million as a
result of compliance with the new cluster rules, if such rules
are enacted as currently proposed. These estimates could
change, depending on several factors, including, among others,
(i) the ability of the Company and other pulp manufacturers to
convince the EPA that the proposed regulations are unnecessarily
complex, burdensome, and environmentally unjustified; (ii) the
outcome of potential administrative and judicial challenges;
(iii) new developments in control and process technology; and
(iv) any unfavorable revisions to the proposed cluster rules
based on public comment.
In addition, James River has been identified as a
potentially responsible party ("PRP") 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 September 25, 1994,
James River's accrued environmental remediation liabilities
totalled $15.5 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.
(d) Bond Litigation:
In August 1994, James River was sued in Morgan County,
Alabama, in a purported class action brought on behalf of
certain former holders of James River's 10-3/4% Debentures due
October 1, 2018. Subsequent to the end of the third quarter, a
similar action was brought against James River by certain former
bondholders in Bridgeport, Connecticut. Most of these
Debentures were retired by means of a tender offer to all
holders 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. James River believes that these claims are without
merit and intends to defend them vigorously.
9. Segment Information
James River's net sales and income from operations by business
segment were as follows for the quarters and nine months ended
September 25, 1994 and September 26, 1993 (in thousands):
Third Nine Months
Quarter
September September September September
1994 1993 1994 1993
Net sales:
Consumer products:
North America $626,480 $603,038 $1,805,074 $1,777,775
Europe 222,388 222,388
Total consumer products 848,868 603,038 2,027,462 1,777,775
Food and consumer packaging 412,808 397,546 1,187,873 1,174,281
Communications papers 227,988 225,323 663,485 678,953
Intersegment elimination (44,891) (42,400) (130,399) (135,743)
Total net sales $1,444,773 $1,183,507 $3,748,421 $3,495,266
Operating profit (loss):
Consumer Products:
North America $44,042 $33,572 $119,349 $90,647
Europe 486 486
Total consumer products 44,528 33,572 119,835 90,647
Food and consumer packaging 16,477 22,335 77,420 75,320
Communications papers (4,099) (6,389) (55,674) (38,967)
General corporate expenses (9,644) (14,035) (31,549) (31,675)
Income from operations $47,262 $35,483 $110,032 $95,325
10. Pro Forma Data
The following pro forma information gives effect to (i) the
acquisition by James River of the remaining 50% ownership interest in
Jamont Holdings for a purchase price of $575 million in cash and (ii)
the financing of such acquisition with the proceeds from the issuance
of $287.5 million of debt securities and $287.5 million of preferred
stock. The pro forma information is presented as if these
transactions had been completed as of the first day of the periods
presented and had resulted in the consolidation of Jamont Holdings by
James River. 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 for the periods
indicated or which may be reported in the future. Pro forma
information for the quarter ended September 25, 1994 reflects the
results of Jamont Holdings for three months versus the two months of
actual results reported due to the one-month reporting lag.
<TABLE>
<CAPTION>
Quarter Nine Months Ended
Ended
Pro Forma Consolidated Operating Data September September September September
(in millions, except per share data) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $1,535.3 $1,443.2 $4,535.6 $4,487.9
Operating profit 52.3 60.3 143.9 140.3
Net income (loss) .4 2.6 .3 (4.3)
Net loss applicable to common shares (14.0) (12.1) (43.4) (48.3)
(after preferred dividend requirements)
Net loss per common share $(.17) $(.15) $(.53) $(.59)
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company reported a net loss of $0.1 million, or a loss of
$.18 per share after preferred dividends, for the quarter versus net
income of $1.2 million, or a loss of $.08 per share after preferred
dividends, in the prior year's quarter. Results for the third
quarter of 1993 included a non-cash charge of $11.0 million, or $.13
per share, resulting from the 1% increase in the federal corporate
income tax rate and after tax income of $3.3 million, or $.04 per
share, of nonrecurring interest income. Net sales for the third
quarter of 1994 were $1.4 billion, an increase of 22% over the $1.2
billion of sales in the prior year's quarter. The third quarter
consolidation of Jamont, which represents James River's European
Consumer Products Business, was the primary reason for the increase
in sales.
As of July 5, 1994, James River purchased an additional 43.2%
interest in Jamont for approximately $575 million, increasing the
Company's total ownership interest to 86.4%. Jamont, which is
currently accounted for on a one-month lag, has been included as a
consolidated subsidiary for two months of the third quarter. One-
half of the purchase price was financed with the proceeds from the
issuance of preferred stock and the remainder was financed with debt,
the effect of which was to increase quarterly preferred dividend
requirements by $6.5 million and quarterly interest expense by
approximately $6.0 million. This transaction eliminated James
River's potential obligation to buy these shares in 1996 and 1998 for
a total of $820 million. With annual sales of approximately $1.5
billion, Jamont is the number two European producer of towel and
tissue products.
Income from operations totalled $47.3 million in the third
quarter, 33% above the prior year's quarter and 11% above the second
quarter results. For the domestic Consumer Products Business,
operating results of $44.0 million were more than 30% ahead of last
year's quarter, but were slightly lower than second quarter results
due to seasonal volume declines in tabletop products combined with
the impact of labor outages during the third quarter. While pricing
remains competitive in retail markets, increases have been announced
for commercial tissue and foodservice products which should benefit
fourth quarter results. The European Consumer Products Business
contributed operating profits of $0.5 million for the two months of
the quarter during which Jamont was consolidated. Operating profits
were significantly below levels reported by Jamont during the first
half of the year due to the rapid escalation in raw materials costs
not yet recovered in pricing for finished goods. Pricing increases
which have been announced throughout Jamont's various operations
should begin to reduce the dilutive effect of the financing and
consolidation of Jamont in the fourth quarter. Operating income for
the Food and Consumer Packaging Business declined to $16.5 million in
the third quarter, compared to $22.3 million in the prior year and
$34.3 million in the second quarter. The current quarter was
negatively impacted by major raw material cost increases, including
plastic resins and recycled fiber, as well as the effect of a labor
outage at the Company's Kalamazoo, Michigan, recycled board and
folding carton facilities. Pricing increases are being aggressively
pursued to recover the raw material cost increases. The
Communications Papers Business experienced a dramatic improvement in
results. Operating losses for the quarter were cut to $4.1 million,
compared with losses of $26.5 million in the second quarter, and the
business closed the quarter with profitable operations in the month
of September. Communications Papers benefited from improving
pricing in all of its major grades, as well as continued progress in
reducing costs. During the quarter, additional programs were
implemented at the Company's St. Francisville, Louisiana, Camas,
Washington, and Berlin, New Hampshire, mills which will further
reduce costs. Similar programs are in progress at other
Communications Papers mills.
For the nine months, James River reported sales of $3.7 billion
in 1994, compared to $3.5 billion in 1993. Net income for the first
nine months of 1994 was $5.7 million, or a loss of $.31 per share
after preferred dividend requirements, compared to 1993's net income
of $4.8 million, or a loss of $.24 per share after preferred dividend
requirements. Results for 1994 included net income of $5.4 million,
or $.07 per share, from nonrecurring interest income while 1993
results included a net charge of $3.6 million, or $.04 per share,
from the net effect of nonrecurring interest income, write downs, and
the change in the corporate income tax rate. Interest expense for
the first nine months of 1994 increased by $19.1 million compared
with the same period in 1993. The increase in interest expense
reflects the consolidation of Jamont's interest expense, as well as
the effect of financing the purchase of the additional interest in
Jamont. Other income decreased to $24.3 million for the first nine
months of 1994 from $34.0 million for 1993. Both periods include
interest income on refunds resulting from the favorable settlement of
certain prior years' income tax returns. In addition, the amount for
the first nine months of 1993 includes increased interest income
generated by the higher-than-normal levels of cash and short-term
securities held during the early part of 1993 in connection with the
refinancing program, which was completed in April 1993. (See Note 3
of Notes to Consolidated Financial Statements). The change in the
effective tax rate for 1994 is discussed in Note 4 of Notes to
Consolidated Financial Statements.
On September 3, 1994, the Inlandboatman's Union of the Columbia
River Region, representing 270 hourly employees at James River's
Western Transportation facilities, rejected management's offer
addressing wages and health care benefits and went on strike. These
operations provide warehouse space and tug and barge systems that
serve multiple customers. Services continue to be provided from
these facilities during the strike period. As of November 4, 1994,
the strike is still underway. Results for the domestic Consumer
Products and Communications Papers Businesses are impacted by this
strike.
Financial Condition
Capital expenditures for the first nine months of 1994 totalled
$220.8 million, comparable to the $225.7 million of spending in the
first nine months of 1993. This reflects the Company's continued
focus on a reduced level of capital appropriations in response to
recent operating performance. Cash provided by operations for the
nine months ended September 25, 1994 totalled $232.9 million,
compared to $363.9 million in the comparable period of 1993. This
decrease is primarily due to changes in working capital components,
mainly increased receivables and reduced payables. The Company's
current ratio decreased to 1.46 as of September 25, 1994 from 1.64 as
of December 26, 1993 and working capital increased to $645 million
from $501 million for the same time period. The increase in working
capital of $144 million was primarily attributable to the
consolidation of Jamont, as well as an increase in receivables.
During the first nine months of 1994, the Company realized a
total of $18.9 million in cash from the sale of assets, including the
sale of certain timberlands. These transactions are described in
Note 2 of Notes to Consolidated Financial Statements.
James River's ratio of total debt, including the current portion
and short-term borrowings, to total capitalization was 57.3% as of
September 25, 1994, compared to 50.8% as of December 26, 1993. For
purposes of calculating this ratio, total capitalization represents
the sum of current and long-term debt, including short-term
borrowings, minority interests, and equity accounts. For the year
ended December 26, 1993 and the nine months ended September 25, 1994,
the ratio of earnings to fixed charges was 1.04.
As of September 25, 1994, under the most restrictive provisions
of the Company's debt agreements, the Company had additional
borrowing capacity of approximately $350 million and net worth in
excess of the minimum requirement specified by such agreements of
approximately $500 million. The Company and its lenders are
currently discussing the possible refinancing of James River's $750
million revolver and Jamont's ECU 400 million borrowing facility in
order to provide additional financing flexibility for both James
River and Jamont.
In April 1994, Standard & Poor's and Moody's Investors Service
Inc. ("Moody's") each placed James River's securities ratings under
review following the announcement of James River's intent to acquire
a controlling interest in Jamont and the potential increase in the
Company's debt levels associated with this acquisition. In June
1994, Standard & Poor's and Moody's each downgraded James River's
securities ratings. Standard & Poor's lowered its ratings on (i)
James River's senior debt from BBB to BBB-, (ii) James River's
preferred stock from BBB- to BB+, and (iii) James River's commercial
paper from A-2 to A-3. Moody's downgraded (i) the Company's senior
debt from Baa1 to Baa3, (ii) the Company's preferred stock from baa2
to ba2, and (iii) the Company's commercial paper from Prime-2 to
Prime-3. Both rating agencies currently hold a stable outlook on
James River's current securities ratings.
Effective November 4, 1994, James River exercised its call
option for CRSS's 50% interest in the Naheola Partnership. The call
price will be determined based on a formula established at the
inception of the partnership. The Company plans to remarket the
interest to a new investor to take advantage of favorable market
conditions while maintaining the partnership structure.
James River continues to explore strategic options that could
sharpen the focus of the Company, reduce debt, and improve
profitability. Options under review include possible divestiture of
certain assets, formation of joint ventures, and the sale of business
unit equity in the U.S. and Europe. As the Communications Paper
Business continues to improve with further intensive cost reduction
and price increases, opportunities to raise cash and reduce debt
through divestiture, joint venture, or spin-off to shareholders as a
separate public company, will be thoroughly studied. The strong
competitive position of the Packaging Business will be further
developed through ongoing productivity improvements and priority
investments in new folding carton and plastic film technology and
processes. The possibilities of faster business growth and clearer
recognition of value in the financial markets through a separate
equity position for this business are being evaluated. Improved
financial flexibility could allow the company to intensify its
efforts to improve the performance of its U.S. and European Consumer
Products Business through accelerated product innovation, process
automation, asset consolidation, and continued productivity gains.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
James River has been notified by the U.S. Environmental
Protection Agency (the "EPA") of a proposed civil action relating to
certain environmental violations at the Company's Berlin, New
Hampshire, mill. The Company is currently negotiating a settlement
with the EPA and the Department of Justice relating to this action
which may involve penalties ranging from $100,000 to $250,000. In
addition, the Company may agree to implement environmentally
beneficial capital improvements at a cost of less than $500,000.
On August 31, 1994, a lawsuit was filed by Mutual Savings Life
Insurance Company of Decatur, Transamerica Occidental Life Insurance
Company, and Lawrence Wasserman against the Company in Morgan County,
Alabama, in a purported class action as former holders of James
River's 10-3/4% Debentures due October 1, 2018. Subsequent to the
end of the third quarter, on October 19, 1994, a similar action was
brought in Bridgeport, Connecticut, by Life Reassurance Corporation
of America, General Electric Capital Assurance, SAFECO Life Insurance
Company, SAFECO Insurance Company of Illinois, and eleven other
parties against James River as former bondholders. Most of these
debentures were retired by means of a tender offer to all holders
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. James River believes that these
claims are without merit and intends to defend them vigorously.
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
12 Computation of Ratio of Earnings to Fixed
Charges -- filed herewith. 21
27 Financial Data Schedules (filed
electronically only)
(b) Reports on Form 8-K:
During the quarter ended September 25, 1994, and subsequent
thereto, the Company filed the following Current Reports on
Form 8-K:
1) June 29, 1994 The Company published a press release
announcing the completion of a public
offering of 15,000,000 depositary
shares, each representing a one-
hundredth interest in a share of James
River's Series P 9% Cumulative
Convertible Preferred Stock (the
"Series P Preferred Stock"). The
related Underwriting Agreement,
Articles of Amendment, and Deposit
Agreement were also included.
2) July 5, 1994 The Company announced the completion of
the acquisition of the 43.2% indirect
ownership interest in Jamont N.V.
previously owned by Rayne Holdings Inc.
for a total consideration of
approximately $575 million in cash.
Related to the acquisition, the Company
received notice from Salomon Brothers
Inc, as representatives for the
Underwriters of the Series P Preferred
Stock, of such Underwriters' full
exercise of an option to purchase up to
an additional 1,666,666 depositary
shares for the purpose of covering over-
allotments.
3) July 21, 1994 The Company published a press release
announcing its results of operations
for the second quarter and six months
ended June 26, 1994.
4) August 22, 1994 The Company reported the resolution of
the labor strike at its Lexington,
Kentucky, manufacturing plant and the
status of the labor strike at James
River's Western Transportation
facilities. Additionally, the Company
reported that it has been sued in
Morgan County, Alabama, in a purported
class action brought on behalf of
certain former holders of James River's
10-3/4% Debentures due October 1, 2018.
5) September 28, 1994 The Company published a press
release announcing that it is exploring
strategic options including possible
divestiture of certain assets,
formation of joint ventures, and the
sale of business unit equity in the
U.S. and Europe.
6) October 26, 1994 The Company reported that it
implemented a program to modify its
currency hedge and interest rate swap
position.
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/Stephen E. Hare
Stephen E. Hare
Senior Vice President, Corporate Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 4, 1994
Exhibit 12
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (a)
(Dollar amounts in 000's)
<TABLE>
<CAPTION>
Fiscal Year Ended
April April December December December December
30, 1989 29, 1990 30, 1990 29, 1991 27, 1992 26, 1993
(53 (52 (35 (52 (52 (52
weeks) weeks) weeks) weeks) weeks) weeks)
(b) (c,d)
<S> <C> <C> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations,
before minority interests $446,954 $371,501 $44,352 $115,170 $(182,817) $14,115
Add:
Interest charged to operations 171,964 198,743 133,716 191,344 192,962 183,035
Portion of rental expense
representative of interest
factor (assumed to be one-third) 19,900 23,400 15,100 19,891 19,426 19,094
Total earnings, as adjusted $638,818 $593,644 $193,168 $326,405 $29,571 $216,244
Fixed charges:
Interest charged to operations $171,964 $198,743 $133,716 $191,344 $192,962 $183,035
Capitalized interest 28,793 25,475 10,759 31,740 12,778 5,291
Portion of rental expense
representative of interest
factor (assumed to be one-third) 19,900 23,400 15,100 19,891 19,426 19,094
Total fixed charges $220,657 $247,618 $159,575 $242,975 $225,166 $207,420
Ratio 2.90 2.40 1.21 1.34 -- 1.04
See accompanying footnote explanations.
</TABLE>
Exhibit 12 (continued)
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (a)
(Dollar amounts in 000's)
Nine
Months
Ended
Sept. 26, Sept. 25,
1993 1994
(39 Weeks) (39 Weeks)
Pretax income (loss) from continuing
operations, before minority interests $25,701 $9,116
Add:
Interest charged to operations 134,669 146,600
Portion of rental expense representative of
interest factor (assumed to be one-third) 14,570 14,320
Total earnings, as adjusted $174,940 $170,036
Fixed charges:
Interest charged to operations $134,669 $146,600
Capitalized interest 4,496 2,114
Portion of rental expense representative of
interest factor (assumed to be one-third) 14,570 14,320
Total fixed charges $153,735 $163,034
Ratio 1.14 1.04
See accompanying footnote explanations.
Exhibit 12 (continued)
JAMES RIVER CORPORATION
of Virginia and Subsidiaries
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 1990, the Company changed its fiscal year from one ending
on the last Sunday in April to one ending on the last Sunday in
December. During this period, the Company initiated an
operational restructuring program designed to focus the
Company's operations on those businesses in which it commands a
substantial market share and which are less cyclical. In
connection with that program, the Company recorded a $200
million pretax charge which has been included in the calculation
of the ratio of earnings to fixed charges for this period.
(c) 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.
(d) For the year ended December 27, 1992, earnings were inadequate
to cover fixed charges by $195.6 million.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JAMES RIVER
CORPORATION OF VIRGINIA'S SEPTEMBER 25, 1994 FORM 10-Q FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000053117
<NAME> JAMES RIVER CORPORATION OF VIRGINIA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-END> SEP-25-1994
<CASH> 68,472
<SECURITIES> 0
<RECEIVABLES> 918,717
<ALLOWANCES> 0
<INVENTORY> 871,582
<CURRENT-ASSETS> 2,053,426
<PP&E> 6,878,991
<DEPRECIATION> 2,204,883
<TOTAL-ASSETS> 7,987,519
<CURRENT-LIABILITIES> 1,408,560
<BONDS> 2,859,037
<COMMON> 8,169
0
740,308
<OTHER-SE> 1,446,043
<TOTAL-LIABILITY-AND-EQUITY> 7,987,519
<SALES> 3,748,421
<TOTAL-REVENUES> 3,748,421
<CGS> 3,108,517
<TOTAL-COSTS> 3,108,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,334
<INCOME-PRETAX> 11,046
<INCOME-TAX> 5,455
<INCOME-CONTINUING> 5,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,715
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
