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 27, 1998 Commission File Number: 1-7911
- ---------------------------------------- ------------------------------
FORT JAMES CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0848173
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1650 Lake Cook Road, Deerfield, IL 60015-4753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 317-5000
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Not Applicable
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(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 October 28,
1998:
220,465,695 shares
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<PAGE>
FORT JAMES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
September 27, 1998
<TABLE><S><C>
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of September 27, 1998 and
December 28, 1997 3
Consolidated Statements of Operations for the quarters
and nine months ended September 27, 1998 and
September 28, 1997 5
Consolidated Statements of Cash Flows for the nine months
ended September 27, 1998 and September 28, 1997 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 17
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 17
SIGNATURES 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FORT JAMES CORPORATION
CONSOLIDATED BALANCE SHEETS
September 27, 1998 and December 28, 1997
(in millions, except share data)
September December
1998 1997
- --------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $ 19.9 $ 33.6
Accounts receivable 967.0 787.8
Inventories 868.6 854.3
Deferred income taxes 168.1 214.4
Prepaid expenses and other current assets 18.9 26.4
- --------------------------------------------------------------------------------
Total current assets 2,042.5 1,916.5
- --------------------------------------------------------------------------------
Property, plant and equipment 8,059.0 7,784.1
Accumulated depreciation (3,476.2) (3,218.8)
- --------------------------------------------------------------------------------
Net property, plant and equipment 4,582.8 4,565.3
Goodwill 648.6 636.9
Other assets 596.8 614.5
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Total assets $ 7,870.7 $ 7,733.2
================================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED BALANCE SHEETS, Continued
(in millions, except share data)
September December
1998 1997
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 634.9 $ 636.5
Accrued liabilities 841.6 913.0
Current portion of long-term debt 40.2 34.4
- --------------------------------------------------------------------------------
Total current liabilities 1,516.7 1,583.9
- --------------------------------------------------------------------------------
Long-term debt 3,933.3 4,155.5
Deferred income taxes 727.5 650.8
Accrued postretirement benefits
other than pensions 467.4 474.8
Other long-term liabilities 264.3 283.9
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Total liabilities 6,909.2 7,148.9
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Preferred stock, $10 par value, 5.0 million
shares authorized, issuable in series;
3.3 million shares outstanding December 28, 1997 - 352.7
Common stock, $0.10 par value, 500.0 million
shares authorized; shares outstanding,
September 27, 1998 -- 220.4 million and
December 28, 1997 -- 209.3 million 22.0 20.9
Additional paid-in capital 3,189.2 2,807.9
Accumulated comprehensive loss (89.5) (137.6)
Accumulated deficit (2,160.2) (2,459.6)
- --------------------------------------------------------------------------------
Total shareholders' equity 961.5 584.3
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Total liabilities and shareholders' equity $ 7,870.7 $ 7,733.2
================================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters (13 Weeks)and Nine Months (39 Weeks)Ended
September 27, 1998 and September 28, 1997
(in millions, except per share amounts)
Quarter Nine months
-----------------------------------------
1998 1997 1998 1997
----------------------------------------------------------------------------
Net sales $1,841.9 $1,825.4 $5,494.5 $5,497.5
Cost of goods sold 1,240.2 1,270.4 3,751.3 3,834.6
Selling and administrative expenses 300.2 277.1 868.8 848.3
Restructure and other unusual items 14.5 53.9 31.7 (3.8)
----------------------------------------------------------------------------
Income from operations 287.0 224.0 842.7 818.4
Interest expense 71.7 87.3 220.6 277.6
Other income (expense), net (4.3) 9.5 (1.8) 20.7
----------------------------------------------------------------------------
Income before income taxes
and extraordinary item 211.0 146.2 620.3 561.5
Income tax expense 60.3 77.5 215.8 245.9
----------------------------------------------------------------------------
Income before extraordinary
item 150.7 68.7 404.5 315.6
Extraordinary loss on early
extinguishment of debt, net of taxes - (45.2) (2.6) (47.1)
----------------------------------------------------------------------------
Net income 150.7 23.5 401.9 268.5
Preferred dividend requirements - (8.1) (5.2) (37.3)
----------------------------------------------------------------------------
Net income available to
common stockholders $ 150.7 $ 15.4 $ 396.7 $ 231.2
============================================================================
Basic earnings per share:
Income before extraordinary
item $ 0.70 $ 0.31 $ 1.86 $ 1.45
Extraordinary loss on early
extinguishment of debt - (0.23) (0.01) (0.24)
----------------------------------------------------------------------------
Net income $ 0.70 $ 0.08 $ 1.85 $ 1.21
----------------------------------------------------------------------------
Weighted average common
shares outstanding 219.0 197.7 215.0 191.6
============================================================================
Diluted earnings per share:
Income before extraordinary
item $ 0.69 $ 0.29 $ 1.84 $ 1.40
Extraordinary loss on
early extinguishment of debt - (0.22) (0.01) (0.22)
----------------------------------------------------------------------------
Net income $ 0.69 $ 0.07 $ 1.83 $ 1.18
----------------------------------------------------------------------------
Weighted average common shares and
common share equivalents
outstanding 220.0 208.3 217.1 206.9
============================================================================
Cash dividends per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
============================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months (39 Weeks) Ended September 27, 1998
and September 28, 1997
(in millions)
1998 1997
- --------------------------------------------------------------------------------
Cash provided by (used for) operating activities:
Net income $ 401.9 $ 268.5
Depreciation expense and cost of timber harvested 349.8 358.7
Amortization of goodwill 14.6 15.1
Deferred income tax provision 128.0 78.3
Restructure and other unusual items 31.7 (3.8)
Loss on early extinguishment of debt, net of tax 2.6 47.1
Change in current assets and liabilities:
Accounts receivable (153.5) (109.4)
Inventories (2.0) (63.4)
Prepaid expenses and other current assets 6.9 30.8
Accounts payable and accrued liabilities 32.2 44.0
Restructure and integration payments (127.8) (30.2)
Foreign currency hedge - (31.5)
Retirement benefits expense in excess of funding (28.9) (13.4)
Other, net (10.4) (26.3)
- --------------------------------------------------------------------------------
Cash provided by operating activities 645.1 564.5
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Cash provided by (used for) investing activities:
Expenditures for property, plant and equipment (359.0) (305.6)
Proceeds from sale of assets 5.9 144.3
Other, net 6.1 5.3
- -------------------------------------------------------------------------------
Cash used for investing activities (347.0) (156.0)
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Cash provided by (used for) financing activities:
Additions to long-term debt 466.1 633.4
Payments of long-term debt (689.0) (982.3)
Common and preferred stock cash dividends paid (106.6) (82.4)
Premiums paid on early extinguishment of debt (3.2) (45.5)
Redemption of preferred stock (6.6) -
Proceeds from exercise of stock options 27.5 68.3
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Cash used for financing activities (311.8) (408.5)
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Increase (decrease) in cash and cash equivalents (13.7) -
Cash and cash equivalents, beginning of period 33.6 34.6
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 19.9 $ 34.6
================================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
--------------------------------
Basis of Presentation:
The consolidated financial statements of Fort James Corporation (the
"Company" or "Fort James") have been prepared to give retroactive effect to the
merger of a wholly-owned subsidiary of James River Corporation of Virginia
("James River") with and into Fort Howard Corporation ("Fort Howard") on August
13, 1997. The merger was accounted for as a pooling of interests. In connection
with the merger, James River was renamed Fort James Corporation. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combination to include the combined financial
results of James River and Fort Howard.
In the opinion of management, the accompanying unaudited consolidated
financial statements of Fort James contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of September 27, 1998, its results of
operations for the quarters (13 weeks) and nine months (39 weeks) ended
September 27, 1998 and September 28, 1997, and its cash flows for the nine
months (39 weeks) ended September 27, 1998 and September 28, 1997. The balance
sheet as of December 28, 1997 was derived from audited financial statements as
of that date. The results of operations for the quarter and nine months ended
September 27, 1998 are not necessarily indicative of the results to be expected
for the full year.
Certain amounts in the financial statements and supporting footnote
disclosures have been reclassified to conform to the current year's
classification.
Adoption of Accounting Pronouncements:
In 1998, the Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 130, "Reporting Comprehensive Income." Comprehensive income for
the nine months ended September 27, 1998 and September 28, 1997, was $450.0
million and $146.5 million, respectively. The difference between net income and
comprehensive income is primarily due to unrealized foreign currency translation
losses and unrealized holding gains and losses on available-for-sale securities.
In 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which establishes standards for the way
public companies report information about operating segments, including related
disclosure about products and services, geographic areas and major customers.
The Company has not determined what, if any, impact Statement No. 131 will have
on its reported operating segments and the related disclosures. Statement No.
131 is effective for periods ending after December 15, 1998.
In February 1998, the FASB issued Statement No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits an amendment to
FASB Statements No. 87, No. 88, and No. 106" which will require the Company to
revise disclosures about pension and other postretirement benefit plans.
Statement No. 132 is effective for fiscal years beginning after December 15,
1997.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires the recognition of
all derivatives in the statement of financial position as either assets or
liabilities and their measurement at fair value. Depending upon the nature of
the derivative, changes in fair value are either recognized in other
comprehensive income or in earnings. The Company has not determined what, if
any, impact Statement No. 133 will have on the Company's results of operations
or financial position. Statement No. 133 is effective for fiscal years beginning
after June 15, 1999.
In April 1998, the AICPA issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities". This SOP provides guidance on
the financial reporting of start-up and organization costs. It requires such
costs to be expensed as incurred and is effective for fiscal years beginning
after December 15, 1998. The Company is currently evaluating the impact of this
new statement.
<PAGE>
2. Restructure and Other Unusual Items
-----------------------------------
Results for the quarter and nine months ended September 27, 1998 included
net pretax charges for restructure and other unusual items of $14.5 million
($8.9 million net of taxes or $0.04 per diluted share) and $31.7 million ($19.4
million net of taxes or $0.09 per diluted share), respectively. Pretax charges
for the nine months ended September 27, 1998 included $65 million for severance,
relocation and other merger-related costs, which were not accruable in 1997
under generally accepted accounting principles, and were partially offset by
contract terminations on terms more favorable than anticipated in the
restructure plan. In addition, the Company reversed $10.5 million ($0.05 per
diluted share for both the quarter and nine months) of merger-related tax
reserves established in 1997 in accordance with temporary IRS regulations, which
have since been rescinded.
Since December 28, 1997, accruals for restructure costs have been reduced
by approximately $168.4 million for charges related to facility closures and
asset write-downs, severance, contract terminations, and other restructure
costs. Payments for restructure related expenses, including merger-related costs
which were not accruable in 1997, totaled $127.8 million for the nine months
ended September 27, 1998.
Results for the third quarter of 1997 included a non tax-deductible charge
of $53.9 million ($0.25 per diluted share) for fees and expenses associated with
the merger of James River and Fort Howard and an extraordinary charge on the
early extinguishment of debt of $74.9 million ($45.2 million net of taxes or
$0.22 per diluted share). Results for the first nine months of 1997 included
transaction costs and an extraordinary loss on early extinguishment of debt
($47.1 million net of taxes or $0.22 per diluted share). These costs were offset
by a nonrecurring gain of $57.7 million ($35.2 million net of taxes or $0.16 per
diluted share) on the sale of southern timberlands.
3. Net Income Per Common Share and Common Share Equivalent
-------------------------------------------------------
Income and share information used in determining earnings per share for
the quarters and nine months ended September 27, 1998 and September 28, 1997,
were calculated as follows (in millions):
1998 1997
--------------------------------------------
Income Shares Income Shares
- --------------------------------------------------------------------------------
Quarter:
Income before extraordinary item $150.7 $ 68.7
Less: Preferred stock dividends (8.1)
- --------------------------------------------------------------------------------
Amounts used to compute basic
earnings per share 150.7 219.0 60.6 197.7
Effect of dilutive securities:
Options 1.0 2.7
Convertible preferred stock 7.9
- --------------------------------------------------------------------------------
Amounts used to compute diluted
earnings per share $150.7 220.0 $ 60.6 208.3
- --------------------------------------------------------------------------------
Nine Months:
Income before extraordinary item $404.5 $315.6
Less: Preferred stock dividends (5.2) (37.3)
- --------------------------------------------------------------------------------
Amounts used to compute basic
earnings per share 399.3 215.0 278.3 191.6
Effect of dilutive securities:
Options 2.1 2.5
Convertible preferred stock 12.9 12.8
- --------------------------------------------------------------------------------
Amounts used to compute diluted
earnings per share $399.3 217.1 $291.2 206.9
================================================================================
Series K, L and N preferred stocks were antidilutive for all periods
presented. An immaterial number of outstanding options to purchase shares of
common stock for which the exercise price of the option was greater than the
average market price of the common shares were excluded from the computation of
diluted earnings per share.
<PAGE>
4. Other Income (Expense)
----------------------
The components of other income (expense) were as follows for the quarter
and nine months ended September 27, 1998 and September 28, 1997 (in millions):
Quarter Nine months
----------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Interest and investment income $ - $ 2.7 $ 1.4 $ 7.6
Equity (loss)in earnings
of unconsolidated affiliates 1.9 1.6 (0.4 5.6
Gain on sale of assets - 6.1 2.8 8.7
Minority interests (1.4) (1.6) (3.2) (1.6)
Foreign currency exchange
gain (loss) (6.1) - (5.9) (0.4)
Other, net 1.3 0.7 3.5 0.8
- --------------------------------------------------------------------------------
Total other income (expense) $ (4.3) $ 9.5 $ (1.8) $ 20.7
================================================================================
5. Income Taxes
------------
The Company's effective income tax rate, excluding tax effects of
restructure and other unusual items, was 36.5% for the nine months ended
September 27, 1998, compared to 40.1% for the first nine months of 1997. The
decrease in the effective tax rate from the prior year was primarily the result
of the benefits of tax planning actions.
Including restructure and other unusual items, the effective tax rate was
34.8% for the nine months ended September 27, 1998, compared to 43.8% for the
first nine months of 1997. The reported effective tax rates were impacted by
non-deductible merger costs in 1997 and the reversal of merger-related tax
reserves in 1998.
6. Inventories
-----------
The components of inventories were as follows as of September 27,1998
and December 28,1997 (in millions):
September December
1998 1997
- --------------------------------------------------------------------------------
Raw materials $ 183.4 $ 184.3
Finished goods and work in process 554.5 550.2
Stores and supplies 168.8 159.4
- --------------------------------------------------------------------------------
906.7 893.9
Reduction to state certain inventories
at last-in, first-out cost (38.1) (39.6)
- --------------------------------------------------------------------------------
Total inventories $ 868.6 $ 854.3
================================================================================
7. Commitments and Contingent Liabilities
--------------------------------------
Environmental Matters:
Like its competitors, the Company 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, including effluent and emission limitations, on the discharge of
materials into the environment as well as require the Company to obtain and
operate in compliance with the conditions of permits and other governmental
authorizations. Future regulations could materially increase the Company's
capital requirements and certain operating expenses in future years.
The Company has been identified as a potentially responsible party ("PRP"),
along with others, at various U.S. Environmental Protection Agency ("EPA")
designated Superfund sites and is involved in remedial investigations and
actions under federal and state laws. Among these sites, the Company, along with
six other current and former operators of pulp and paper facilities, has been
identified as a PRP by the U.S. Fish and Wildlife Service and other state and
federal agencies, including the EPA, and tribal entities, regarding
contamination of the lower Fox River by hazardous substances. These agencies and
tribes seek primary restoration of the river and natural resources damages. The
Company, in conjunction with other PRPs, is engaged in negotiations with federal
and state agencies and tribes to resolve outstanding claims.
It is the Company's policy to accrue remediation costs on an undiscounted
basis when it is probable that such costs will be incurred and when a range of
loss can be reasonably estimated. As of September 27, 1998, Fort James' accrued
environmental liabilities, including remediation and landfill closure costs,
totaled $56.8 million.
Litigation:
In May 1997, the Attorney General of the State of Florida filed a civil
action in the United States District Court for the Northern District of Florida
at Gainesville (the "Florida District Court"), against the Company and seven
other manufacturers of sanitary commercial paper products alleging violations of
federal and state antitrust and unfair competition laws. The complaint seeks
damages on behalf of the state under Florida law of $1 million for each
violation against each defendant, unspecified treble damages and injunctive
relief. Three other state attorney generals have brought similar suits which are
expected to be consolidated in the Florida District Court. In addition, numerous
other filings have been filed in federal courts on behalf of an alleged class of
direct purchasers, all seeking similar damages for similar alleged violations.
The class actions were consolidated in the Florida District Court, and in July
1998, the Court conditionally certified the class. State class actions also have
been filed in certain states, on behalf of an alleged class of indirect
purchasers, seeking similar damages for similar alleged violations under state
law. The Company believes that these cases are without merit and is vigorously
defending both the federal and state actions.
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 material adverse effect on the consolidated
financial condition of Fort James but could have a material effect on
consolidated results of operations in a given quarter or year.
8. Fort James Operating Company
-----------------------------
Fort James Operating Company ("FJOC") is an obligor of certain securities
registered under the Securities Act of 1933, thus subjecting it to reporting
requirements under Section 13 or 15 (d) of the Securities Exchange Act of 1934.
In accordance with Staff Accounting Bulletin No. 53, the following condensed
financial information for FJOC for the quarters and nine months ended September
27, 1998 and September 28, 1997 and as of September 27, 1998 and December 28,
1997 is presented in lieu of consolidated financial statements because the
securities are fully and unconditionally guaranteed by Fort James and management
has determined that such information is not material to the holders of the
securities:
Quarter Nine months
-------------------------------------------
(in millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Condensed income statement information:
Net sales $ 1,242.8 $ 1,232.1 $ 3,682.1 $ 3,680.3
Gross profit 394.1 371.1 1,142.4 1,098.1
Income before extraordinary item (29.2) 36.2 68.5 155.9
Income before extraordinary item
and nonrecurring and other
unusual items (20.6) 69.1 85.1 188.8
Net income (29.2) 19.3 65.9 137.1
================================================================================
September December
(in millions) 1998 1997
- -----------------------------------------------------------
Condensed balance sheet information:
Current assets $ 1,005.0 $ 928.4
Noncurrent assets 3,484.7 3,292.8
Current liabilities 727.8 861.1
Noncurrent liabilities 5,158.3 4,989.3
Deficit (1,396.4) (1,629.2)
============================================================
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Overview
- --------
Quarter Nine Months
(in millions) 1998 1997 1998 1997
----------------------------------------------
Net sales $1,841.9 $1,825.4 $ 5,494.5 $ 5,497.5
Income from operations
before restructure
and nonrecurring items 301.5 277.9 874.4 814.6
Net income 150.7 23.5 401.9 268.5
Net income before restructure
and nonrecurring items 149.1 122.6 413.4 334.3
Diluted earnings per share:
Net income $ 0.69 $ 0.07 $ 1.83 $ 1.18
Net income before restructure
and non recurring items $ 0.68 $ 0.54 $ 1.88 $ 1.49
==============================================
Items Affecting Comparability
- -----------------------------
Third quarter results for both 1998 and 1997 included certain non-recurring
items. Results for the current quarter included a pretax charge of $14.5 million
($8.9 million net of taxes or $0.04 per diluted share) for merger-related costs
not accruable in 1997. In addition, the Company reversed $10.5 million ($0.05
per diluted share) of merger-related tax reserves that were established in 1997
in accordance with temporary IRS regulations, which have since been rescinded.
Results for the third quarter of 1997 reflected a non tax-deductible charge of
$53.9 million ($0.25 per diluted share) for fees and expenses associated with
the merger of James River and Fort Howard and an extraordinary charge on the
early extinguishment of debt of $74.9 million ($45.2 million net of taxes or
$0.22 per diluted share).
For the nine months ended September 27, 1998, the Company recorded net
charges for restructure and other unusual items of $31.7 million ($8.9 million
net of taxes including the reversal of tax reserves, or $0.04 per diluted share)
and an extraordinary loss on the early extinguishment of debt of $4.2 million
($2.6 million net of taxes or $0.01 per diluted share). Results for the first
nine months of 1997 included the third quarter merger costs and an extraordinary
loss on early extinguishment of debt ($47.1 million net of taxes or $0.22 per
diluted share). These costs were offset by a nonrecurring gain of $57.7 million
($35.2 million net of taxes or $0.16 per diluted share) on the sale of southern
timberlands.
North American Consumer Products Business
- -----------------------------------------
Quarter Nine months
------------------ -----------------------
(in millions) 1998 1997 1998 1997
-------------------------------------------
Net sales $ 1,122.4 $ 1,109.2 $ 3,329.1 $ 3,313.8
Income from operations 240.5 219.9 685.3 713.3
Restructure and other unusual items (4.6) - (19.6) 57.7
Segment results before restructure --------------------------------------------
and other unusual items $ 245.1 $ 219.9 $ 704.9 $ 655.6
===========================================
The North American Consumer Products Business posted improved segment
results before restructure and other unusual items on comparable sales, both in
the current quarter and year-to-date. Merger synergies and other cost
reductions, higher retail pricing and strong retail tissue volume were the
primary drivers of the improved profitability. These favorable factors were
partially offset by raw material cost inflation. Competitive conditions in the
away-from-home tissue business resulted in marginally lower pricing for the
third quarter and flat pricing year-to-date. During the third quarter, the
Company completed the successful start-up of a new 65,000-ton per year tissue
machine at its Savannah River Mill. Product rationalization activities in the
food service area resulted in lower Dixie cup and plate volumes; however, Dixie
margins continued to increase due to modestly higher average prices and cost
reduction benefits.
European Consumer Products Business
- -----------------------------------
Quarter Nine months
-------------------- ----------------------
(in millions) 1998 1997 1998 1997
--------------------------------------------
Net sales $ 463.5 $ 438.5 $ 1,387.7 $ 1,376.5
Income from operations 58.9 48.3 170.8 153.6
Restructure and other unusual
items (0.4) - (1.6) -
Segment results before restructure --------------------------------------------
and other unusual items $ 59.3 $ 48.3 $ 172.4 $ 153.6
============================================
The European Consumer Products Business reported a 23 percent improvement
in segment results before restructure and other unusual items for the quarter
and a 12 percent improvement year-to-date. The strong improvement for the
quarter was the result of higher finished goods volumes and cost reduction
efforts, partially offset by lower prices. Finished goods sales volumes for the
quarter averaged 8 percent higher than the prior year, with above-market growth
rates posted in most countries. Year-to-date results reflected strong finished
goods volume growth, though somewhat less than for the quarter, and flat
pricing.
Packaging Business
- ------------------
Quarter Nine months
-------------------- ----------------------
(in millions) 1998 1997 1998 1997
--------------------------------------------
Net sales $ 184.1 $ 200.0 $ 550.4 $ 595.0
Income from operations 14.8 22.7 37.9 67.7
Restructure and other unusual items (1.8) - (3.6) -
Segment results before restructure -------------------------------------------
and other unusual items $ 16.6 $ 22.7 $ 41.5 $ 67.7
===========================================
Packaging results before restructure and other unusual items declined
compared to the prior year due to a combination of reduced volumes following a
turnover in customer base and lower average carton and paperboard pricing.
Sequentially, however, profits improved modestly in the last three quarters as
the business continues to rebuild volume
Communications Papers Business
- ------------------------------
Quarter Nine months
-------------------- ---------------------
(in millions) 1998 1997 1998 1997
-------------------------------------------
Net sales $ 113.7 $ 117.8 $ 358.8 $ 349.1
Income from operations $ 2.8 $ 11.0 $ 21.7 $ 7.8
===========================================
Third quarter results for the Communications Paper Business declined over
prior year due to lower prices and volumes for uncoated free sheet papers,
partially offset by improved pricing for uncoated groundwood papers.
Year-to-date, favorable pricing in both uncoated free sheet and groundwood
papers was primarily responsible for the improved operating results.
<PAGE>
Other Income and Expense Items
- ------------------------------
Lower average borrowing costs and reduced debt levels continue to
positively impact interest costs. For the current quarter, interest costs
declined by $15.6 million, or 18 percent. Year-to-date interest expense declined
by $57.0 million, or 21 percent.
The company reported other, non-operating expenses of $4.3 million in the
current quarter, compared to other income of $9.5 million in 1997. Foreign
currency translation losses at our Canadian subsidiary accounted for a
significant portion of the change. For the nine months, other expenses were $1.8
million in 1998 compared to other income of $20.7 million in 1997.
The Company's effective income tax rate, excluding tax effects of
restructure and other unusual items, was 36.5 percent for the nine months ended
September 27, 1998, compared to 40.1 percent for the first nine months of 1997.
The decrease in the effective tax rate from the prior year was primarily the
result of the benefits of tax planning actions. Including restructure and other
unusual items, the effective tax rate was 34.8 percent for the nine months ended
September 27, 1998, compared to 43.8 percent for the first nine months of 1997.
The reported effective tax rates were impacted by non-deductible merger costs in
1997 and the reversal of merger-related tax reserves in 1998.
Effect of New Accounting Standards
- ----------------------------------
See Note 1 to the Consolidated Financial Statements.
Year 2000
- ---------
In 1997, the Company commenced an enterprise-wide project to assess and
implement necessary changes for all areas of the Company's business to ensure
that computer based systems and applications will recognize and process date
sensitive information on and after January 1, 2000 (Year 2000). The assessments
were conducted on the Company's business computer systems (including mainframe,
midrange desktop, communications, and research and development), manufacturing
control systems and other imbedded chip devices within Company facilities. In
addition, the Company is surveying customers, suppliers and other stakeholders
to assess their level of Year 2000 readiness.
The assessment and remediation efforts for the Company's business computer
systems are centrally managed by the Company's staff, with substantial support
from outside consultants. The project procedures for identifying affected
assets, making programming changes, replacing software and hardware, and testing
are designed to ensure that there is no material adverse effect on any of the
Company's core businesses. The Company is well under way with these efforts
which are presently scheduled to be completed during the third quarter of 1999,
however, additional refinements and testing may continue through the end of that
year.
In 1997 and for the nine months ended September 27, 1998, the Company spent
approximately $8 million and $25 million, respectively, on the Year 2000
project. While it is difficult, at present, to fully quantify the overall cost
of this work, the Company currently estimates total spending of approximately
$85 million to $95 million to make the required Year 2000 system modifications
and replacements and for testing. The range is a function of ongoing evaluation
as to whether certain systems and equipment will be corrected or replaced, which
is largely dependent on information to be obtained from suppliers or other
external sources. Costs for system maintenance and modification are expensed as
incurred while spending for new software or to replace existing systems is
capitalized and amortized over the assets' useful lives.
The foregoing timetable and assessments of costs reflect management's best
estimates. These estimates were derived utilizing numerous assumptions of future
events. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and the ability
of technology vendors to deliver new systems on schedule. There can be no
assurance, however, that these estimates will be achieved and actual results
could differ materially from those anticipated.
The Company expects its Year 2000 project to be completed on a timely
basis; however, due to the interdependent nature of computer systems there can
be no assurance that the systems of other entities on which the Company's
systems rely will be remediated in a timely manner. The inability of the Company
or its customers or suppliers to resolve their Year 2000 problems, may result in
production delays and the inability to process orders or deliver finished goods.
The Company is in the process of developing a comprehensive contingency plan to
minimize its exposure if its own Year 2000 project is not properly completed in
time. Additionally, the Company is working to minimize the risks associated with
a customer or supplier not resolving its Year 2000 problems as part of its
contingency planning process. There can be no assurance that these efforts will
prevent the failure to become Year 2000 capable from having a material adverse
affect on the Company's financial condition or results of operations.
Euro Conversion
- ---------------
On January 1, 1999, eleven of the fifteen members of the European Union
(the "Participating Countries") are scheduled to establish fixed conversion
rates between their existing sovereign currencies (the "Legacy Currencies") and
a single currency called the Euro. For a three-year transition period, both the
Euro and the Legacy Currencies will remain in circulation. After June 30, 2002,
the Euro will be the sole legal tender of the participating countries. The
adoption of the Euro will affect a multitude of financial systems and business
applications as the commerce of these nations will be transacted in both the
Euro and the existing national currency during the transition period.
The Company has operations in seven of the Participating Countries. The
Company's European businesses affected by the Euro conversion are in the process
of establishing plans to address the systems issues raised by the Euro currency
conversion and are cognizant of the potential business implications of
converting to a common currency. As part of these plans, the Company will
evaluate its information technology systems. At this time, management believes
that significant changes will not be required to accommodate the conversion and
transition to the Euro. The Company is unable to determine the ultimate
financial impact of the conversion on its operations, if any, given that the
impact will be dependent upon the competitive situations which exist in the
various regional markets in which the Company participates and potential actions
which may or may not be taken by the Company's competitors and suppliers.
Financial Condition
- -------------------
Cash provided by operating activities totaled $645.1 million in the nine
months of 1998, compared with $564.5 million in the prior year. The increase is
primarily due to higher earnings offset by restructure, merger, and integration
spending. During the first nine months of 1998, the Company spent $127.8
million, excluding tax benefits, on restructure-related items and achieved
estimated synergy and cost related savings in excess of $200 million. In
addition, productivity improvements to the Company's paper machines have
resulted in approximately 64,000 tons of incremental tissue production. The
Company's current ratio was 1.3 as of September 27, 1998, and 1.2 as of December
28, 1997, while working capital increased to $525.8 million from $332.6 million
for the same periods. The increase in working capital is primarily due to higher
accounts receivable. Capital expenditures were $359.0 million for the nine
months ended September 27, 1998, compared to $305.6 million in the prior year.
The increase in capital expenditures is primarily attributable to construction
of the new tissue machine at the Savannah River Mill.
Total indebtedness decreased by $216.4 million from $4,190 million as of
December 28, 1997, to $3,974 million as of September 27, 1998. As of September
27, 1998, the Company had outstanding borrowings of approximately $1,138 million
supported by revolving credit facilities compared to $1,732 million as of
December 28, 1997. In March 1998, the Company issued $300 million of 6.234%
notes and in August 1998 issued $81 million in tax-exempt municipal bonds with
an interest rate of 5.625%. The proceeds from both issuances were used to reduce
borrowings under the revolving credit facilities. As of September 27, 1998,
total outstanding debt (including the effect of interest rate swaps) included
approximately $2,847 million of fixed rate and $1,127 million of floating rate
obligations compared to $2,266 million and $1,924 million, respectively, as of
December 28, 1997. The change in fixed/floating rate obligations was caused
primarily by the expiration of approximately $500 million in interest rate swap
contracts that exchanged fixed for floating interest rates. As of September 27,
1998, under the most restrictive provisions of the Company's debt agreements,
Fort James had additional borrowing capacity of approximately $2.1 billion.
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, 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; determinations by regulatory and governmental
authorities; the ability to successfully integrate the former James River and
Fort Howard businesses; the ability to achieve synergistic and other cost
reductions and efficiencies; and the ability to successfully remediate Year 2000
problems.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
In the fourth quarter of 1997, Fort James received a notice of violation
from the Maine Department of Environmental Protection concerning alleged air
emission license violations between 1991 and 1997. The case has been settled and
the Company has paid $73,000 in penalties.
See footnote 7 to the Consolidated Financial Statements of this Quarterly
Report on Form 10-Q for additional litigation.
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
Number
10 Separation Agreement and Mutual Release
27 Financial Data Schedules for the nine months ended
September 27, 1998 (filed electronically only)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company
during the quarter ended September 27, 1998, and subsequent thereto.
<PAGE>
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.
FORT JAMES CORPORATION
By:/s/William A. Paterson
William A. Paterson
Senior Vice President and Controller
(Principal Accounting Officer)
Date: November 11, 1998
SEPARATION AGREEMENT AND MUTUAL RELEASE
This is an Agreement dated as of June 1, 1998 between Fort James Operating
Company, its parent, affiliates, subsidiaries, predecessors, successors and
assigns (collectively 'Fort James' or the 'Company') and James K. Goodwin
('Goodwin').
A. Goodwin has been employed by Fort James as President, North American
Consumer Products business under his employment agreement dated as of May 27,
1997 (the 'Employment Agreement') and wishes to resign that employment. Fort
James and Goodwin have agreed on the terms under which he will terminate his
employment with the Company. The parties desire to resolve matters involving
Goodwin's employment, the Employment Agreement and Goodwin's separation from
employment with Fort James.
B. Goodwin and Fort James further desire to settle, resolve and release any
and all existing or potential claims, controversies, differences, disputes or
disagreements, known or unknown, that Goodwin may have with Fort James in
exchange for Fort James' agreement to provide Goodwin certain compensation and
benefits to which he otherwise he may not be entitled.
C. Fort James also desires to provide Goodwin with additional compensation
over the next two (2) years in return for Goodwin agreeing (i) not to compete
against Fort James, (ii) not to hire former Fort James employees who worked with
Goodwin in the Consumer Products Business of Fort James and (iii) to cooperate
with Fort James.
THEREFORE, in consideration of the above premises and the mutual covenants and
promises contained herein, Goodwin and Fort James agree as follows: 1.
Termination of Employment. Goodwin agrees to voluntarily terminate his
employment effective at the close of business on June 30, 1998 (his 'Date of
Termination'). He will be paid all of his regular compensation and benefits
through that date. His last day of work and responsibilities shall be June 30,
1998. 2. Severance Payment. Fort James shall pay Goodwin in a lump sum, the
amount of $2,675,574 representing three (3) times the sum of (i) his current
base salary and (ii) his 1997 Management Incentive Bonus, less authorized
deductions and deductions for required taxes. 3. Additional Bonus Payment. Fort
James shall pay Goodwin $192,600, representing an amount equivalent to a
pro-rata bonus under the 1998 Management Incentive Plan, based on target level
company and personal performance, had Goodwin been otherwise eligible for such a
MIP bonus, as well as payments for any unused and accrued vacation to which
Goodwin might be entitled on termination and which payment shall be in lieu of
any other benefit continuation which Goodwin shall expressly waive and elect not
to accept in this Agreement. 4. Pension, SERP and Other Benefits. (a) The
Company shall pay Goodwin in a lump sum an amount equal to the excess of (A) the
actuarial equivalent of the benefit under the Company's qualified defined
benefit retirement plan and any excess or supplemental retirement plan in which
Goodwin participates (the'SERP') which Goodwin would receive if his employment
continued for three (3) years after the Effective Date, over (B) the actuarial
equivalent of Goodwin's actual benefit, as provided in Section 4(a)(i)(C) of the
Employment Agreement. (b) All Company provided medical, prescription and dental
coverage, life insurance, accidental death and dismemberment and long term
disability benefits shall be provided to Goodwin and members of his family for
three (3) years following his Date of Termination, to the extent provided in
Section (a)(iii) of his Employment Agreement. (c) Goodwin is the beneficiary of
27,650 restricted shares and 75,650 performance shares issued pursuant to the
1996 Stock Incentive Plan (the 'Plan'). Goodwin agrees to relinquish all right
to the restricted and performance shares as of June 1, 1998. In return, the
Company agrees to pay Goodwin as follows:
(i) On July 15, 1998, an amount equivalent to the value on July 1, 1998 of
54,913 shares of Common Stock of the Company (the 'Common Stock') determined by
calculating the average of the high and low price (the 'Average Price') of the
Common Stock plus an amount equal to $61,747.80, representing the accrued
dividends on such shares.
(ii) On July 15, 1998, an amount equivalent to the value on July 1, 1998 of
9,217 shares of Common Stock determined by calculating the Average Price of the
Common Stock plus an amount equal to $1,382.55, representing the quarterly
dividend on such shares.
(iii) On July 15, 1999, an amount equivalent to the value on July 1, 1999
of 19,585 shares of Common Stock using the Average Price of the Common Stock
plus an amount equal to the dividends which would have accrued but have been
unpaid on such shares as of July 1, 1999.
(iv) On July 15, 2000, an amount equivalent to the value on July 1, 2000 of
19,585 shares of Common Stock using the Average Price of the Common Stock plus
an amount equal to the dividends which would have accrued but have been unpaid
on such shares as of July 1, 2000.
(d) Goodwin's existing stock options shall be amended effective June
30, 1998 as set forth in Exhibit A hereto.
(e) Nothing herein shall forfeit or otherwise affect Goodwin's right
to vested benefits in Fort James's StockPlus or Retirement Plans, including SERP
Plans which benefits shall be paid to Goodwin according to such plans.
(f) Goodwin shall not be entitled to any other bonus payments or
profit sharing awards including any payments under the Management Incentive
Plan.
(g) All payments referred to herein are gross payments from which Fort
James may withhold legal and authorized amounts for payment to taxing
authorities as required by law.
(h) The Company shall reimburse Goodwin for reasonable tax preparation
expenses for calendar year 1998 and for legal expenses in 1998 for tax advice,
estate planning and negotiation of this Agreement.
5. Method of Payment. All cash payments required by this Agreement shall be
made by wire transfer to Goodwin's account or accounts which he shall designate
in writing to the Company's Senior Vice President, General Counsel. Such
transfers shall be authorized and released in advance so as to arrive in
Goodwin's account(s) by July 15, 1998, the 'Payment Date', except for amounts
representing shares vesting in 1999 and 2000, which will be paid July 15, 1999
and July 15, 2000 respectively.
6. Company Car. Fort James agrees to transfer to Goodwin no later than July
31, 1998, the certificate of title to the automobile previously provided him for
his personal and business use. Goodwin acknowledges that after transfer of the
title to the car to him, Fort James will no longer be responsible for providing
insurance or maintenance for the vehicle in any manner and he shall be
responsible for all costs associated with the vehicle from that date forward.
7. General Release. In consideration of all payments due him hereunder or
under the Employment Agreement, Goodwin hereby agrees, for himself, his
successors, heirs, representatives, executors, agents and assigns, to release
and forever discharge Fort James, including its affiliates, subsidiaries,
parents, predecessors, successors and assigns and their respective directors,
officers, employees and agents thereof from any and all claims, debts,
responsibilities and liabilities of every kind and character whatsoever, known
or unknown, suspected or unsuspected, which he has ever had or may have against
Fort James, including but not limited to, any and all claims arising out of
Goodwin's employment or termination of employment with Fort James. Goodwin
acknowledges that this Release includes any and all claims whether in contract
or in tort, claims that may be brought on his behalf by others, claims brought
before any court or administrative agency, or claims under any national,
federal, state or local statute or ordinance, including any claims under Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Americans with Disabilities Act or any other law.
It is acknowledged that this Separation Agreement does not release
Goodwin's right to any vested benefits under the Fort James Corporation
Retirement Plan for Salaried and Other Non-Bargaining Unit Employees (the
'Retirement Plan') or any vested rights in the Fort James Corporation StockPlus
Plan (the 'StockPlus Plan'). Goodwin's eligibility for benefits under the
Retirement Plan, or the StockPlus Plan will be controlled by the terms of the
plans.
8. Special Release Notification. This Mutual Release includes a release of
all claims under the Age Discrimination in Employment Act, ('ADEA'), and,
therefore, pursuant to the requirements of the ADEA, Goodwin acknowledges that
he has been advised (1) that this Release includes but is not limited to, all
rights or claims arising under the ADEA up to and including the date of
execution of this release, but does not waive rights or claims that may arise
after the date of execution; (2) to consult with an attorney or other advisor of
his choosing concerning his rights and obligations under this Release; (3) to
fully consider this Release before executing it, and that he has been offered at
least twenty-one (21) days to do so; (4) that this Release shall become
effective and enforceable seven (7) days following execution of this Separation
Agreement, during which seven (7) day period Goodwin understands that he may
revoke his acceptance of this Separation Agreement and Mutual Release by
delivering written notice to Clifford A. Cutchins, IV, Senior Vice President and
General Counsel, Fort James Corporation, 1650 Lake Cook Road, Deerfield,
Illinois 60015.
9. Post Employment Restrictions, Obligations
(a) Goodwin agrees to comply with the terms of his Confidentiality
Agreement executed May 13, 1991 between himself and Fort James and not to
otherwise use or disclose Fort James confidential information in the future. A
copy of this Agreement is attached as Exhibit B.
(b) In return for the extension of the option exercise period, the
extension of the vesting period for the restricted shares and the conversion of
the performance shares to restricted shares as set forth herein, Goodwin agrees,
in order to protect the Company's goodwill, trade secrets and confidential
information and thereby help ensure the long-term success and development of the
business, not to engage in competitive activities on behalf of a competitive
business for a period of two (2) years following the Date of Termination with
the Company for whatever reason, without first obtaining written permission from
either the Senior Vice President and General Counsel or the Senior Vice
President, Human Resources, which shall not be unnecessarily withheld or
delayed. 'Engage in competitive activities' means rendering services or being
involved directly or indirectly in any way or in any capacity whether as an
officer, director, employee, agent, owner, shareholder or consultant (excluding
ownership of less than 5% of the stock of a publicly traded company), in the
manufacture, development, promotion or sale of any towel, tissue, foodservice,
communications paper, or folding cartons for food packaging, of the type
manufactured by Fort James (the 'Covered Products'). A 'competitive business'
means any person or entity engaged in the manufacture or non-retail sale of the
Covered Products. Goodwin acknowledges that products of the Company are sold
throughout North America and Western Europe. Accordingly, the geographic area
covered by this restraint shall include any county, city, town, province or
comparable unit of local government where the Covered Products are manufactured,
marketed or sold by the Company. The parties agree that this non-compete
provision supersedes all prior agreements between them on this subject. The
foregoing shall not prevent Goodwin from lecturing on behalf of companies not in
competition with the Company at which lecture employees of competitors may be
present.
(c) Goodwin agrees for a period of two (2) years not to solicit
directly or indirectly for employment any employee or former employee of Fort
James or its affiliates, who worked in the Consumer Products business, without
the written consent of the Senior Vice President, Human Resources for the
Company, which shall not be unreasonably withheld or delayed. Further, Goodwin
agrees that if any Fort James employee approaches him for employment, he will
refer them to the appropriate hiring official of his employer and will have no
involvement either in the hiring of the employee or in working with the employee
should such employee work for the same company for which Goodwin works.
(d) Goodwin agrees that as President of the Company's North American
Consumer Products business, he possesses intimate knowledge about all aspects of
the Company's business, business plans and other confidential or propriety
information. He also agrees that these restrictions are reasonable and necessary
to protect the Company's business and in consideration of the substantial
benefits provided him hereunder. If Goodwin violates any of his obligations
under this paragraph 9, the Company shall have no further obligation to him
under this Agreement as on the date of breach. Goodwin agrees that the Company
will be irreparably harmed and will be entitled to immediate injunctive relief
in the event of such breach in addition to any other monetary remedies.
(e) If any aspect of the above post employment restrictions are deemed
void or unenforceable by any court of competent jurisdiction, the parties agree
that the court should modify these restrictions to a point they would be
enforceable and enforce the restrictions to that extent.
10. Indemnity. Fort James agrees to continue to indemnify and save Goodwin
harmless from all claims, actions and liabilities which may arise in connection
with his reasonable performance of his duties for the Company. Such
indemnification shall be to the same extent as its indemnification of active
executives of equal rank but shall relate only to Goodwin's alleged actions or
failure to act during the period in which he was employed by the Company.
11. Future Cooperation. Goodwin agrees to cooperate in providing transition
assistance related to his departure as may be reasonably required of him by Fort
James, including presences as a witness in legal proceedings as may be
necessary, both before and after his Date of Termination. Fort James will
reimburse Goodwin for any reasonable expenses incurred in this regard.
12. Resignation. By his signature hereto, Goodwin hereby resigns his
position as President, North American Consumer Products and any and all other
positions with the Company, its subsidiaries, its parent and its affiliates.
13. Confidentiality. Goodwin agrees that he will not divulge the contents
of this Agreement which are agreed to be confidential in nature except (a)
Goodwin may divulge the contents to his spouse, attorney, financial advisor and
income tax preparer; or (b) except as may be required to comply with legal
process. It is further agreed by Goodwin that if it is necessary that this
Agreement or a significant portion be disclosed to those listed above, Goodwin
agrees to instruct and request each of them, or use such other efforts as may be
reasonable, to keep any information so disclosed confidential. If Goodwin
materially breaches this provision, the Company will have no further obligation
to him under this Agreement.
14. Entire Agreement. Goodwin understands and agrees that all terms of this
Separation Agreement and Mutual Release are contractual and are not a mere
recital. The parties represent and warrant that in negotiating and executing
this Separation Agreement and Mutual Release, each have had an opportunity to
consult with legal counsel or other representatives of their own choosing
concerning the meaning and effect of each term or provision hereof, and that
there are no representations, promises or agreements other than those
specifically referred to or set forth in writing herein.
The parties represent and warrant that they have read this Separation
Agreement and Mutual Release in its entirety, fully understand and agree to its
term and provisions, and intend and agree that it is a final and legal binding
settlement and release of all claims Goodwin and/or Fort James may have.
15. Severability. If any portions of this Separation Agreement and Mutual
Release are void or deemed unenforceable for any reason, the unenforceable
portions shall be deemed severed from the remaining portions of this Agreement
which shall otherwise remain in full force and effect.
16. No Waiver. The decision of either party not to assert a claim for
breach of the Agreement shall not be construed as a waiver of that or any
subsequent breach which might occur.
17. Corporate Authority. The officer executing this Agreement on behalf of
Fort James represents that he has full corporate authority to do so and to bind
the Company, its parents, affiliates, subsidiaries, predecessors, successors and
assigns.
18. Governing Law. This Agreement shall be governed and construed according
to the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties have affixed their signatures:
By:/s/James K. Goodwin
James K. Goodwin
FORT JAMES OPERATING COMPANY
By:/s/Daniel J. Girvan
Daniel J. Girvan
Senior Vice President
FORT JAMES CORPORATION
AMENDMENT TO STOCK OPTIONS
FORT JAMES CORPORATION (the "Company") and James K. Goodwin (the
"Participant") hereby agree to this Amendment to Stock Options as of June
30, 1998.
WHEREAS, the Participant has been granted certain options to
acquire the shares of common stock of the Company ("Company Stock")which are
listed below.
WHEREAS, in connection with the Participant's termination of
employment, the Company and the Participant wish to modify certain
terms of such options.
WHEREAS, the terms of this Amendment to Stock Options have been
approved by the Compensation Committee of Fort James Corporation
(the "Committee").
THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter, the Company and the Participant agree as
follows:
1. In addition to any portion that has previously vested, the
options granted to the Participant on July 24, 1995 for 50,800
shares (the '1995 Option') and on July 1, 1996 for 30,000 shares
(the 1996 Option) shall be fully vested and exercisable as of
July 1, 1998.
2. To the extent vested, the 1995 Option and the 1996 Option and
all previously vested options being the May 6, 1991 grant, the
June 13, 1991 grant, the May 1, 1992 grant and the May 23, 1994
grant may be exercised at any time on or before June 30, 2000. To
the extent not previously exercised, the 1995 Option and the 1996
Option shall expire and cease to be exercisable on July 1, 2000.
3. The options granted to the Participant on January 6, 1998 for
80,000 shares (the '1998 Option') shall be vested and exercisable
under the following schedule:
Tranche Number of Shares Vesting Date
1 40,000 January 6, 1999
2 40,000 January 6, 2000
4. When vested, Tranche 1 of the 1998 Option may be exercised at
any time on or before January 5, 2001. To the extent not
previously exercised, Tranche 1 of the 1998 Option shall expire
and cease to be exercisable of January 6, 2001. When vested,
Tranche 2 of the 1998 Option may be exercised at any time on or
before January 5, 2002. To the extent not previously exercised,
Tranche 2 of the 1998 Option shall expire and cease to be
exercisable on January 6, 2002.
5. Any provisions of the options relating to the time for vesting or the period
to exercise the options are superseded by this
Amendment to Stock Options, including provisions requiring the
continuing employment of the Participant or measuring periods to
exercise the options based on termination of employment by the
Participant.
6. To the extent not specifically amended by the provisions of this Amendment
to Stock Options, the terms and conditions of the
options shall continue to apply.
7. Any controversy concerning this Amendment to Stock Options shall be
resolved by the Committee as it deems proper, and any
interpretation of this Amendment to Stock Options or other
decision of the Committee shall be final and conclusive.
8. If the Participant dies before an option expires as provided
in Sections 2 or 4, all of the options that he held at the time
of his death (without regard to whether it has become exercisable
pursuant to Sections 1 or 3) may be exercised by the personal
representative of his estate. The options may be exercised at any
time until the expiration date of the options as provided in
Sections 2 or 4.
9. As a further condition of this Amendment to Stock Options, and in
consideration of receipt of these rights, the Participant
agrees to comply with all provisions of the Separation Agreement
and Mutual Release between the Participant and Fort James
Operating Company. If the Committee determines that the
Participant has violated the provisions of the Separation
Agreement, the options shall terminate as of the date when a
violation of the Separation Agreement first occurred as
determined by the Committee (the 'Violation Date') and the
options shall no longer be exercisable as of the Violation Date.
10. Any notice to be given under the terms of this Amendment to Stock Options
shall be addressed to Fort James Corporation,
Corporate Secretary, P.O. Box 89, Deerfield, Illinois 60015, and
any notice to be given to the Participant or to his personal
representative shall be addressed to him at the last address on
the records of the Company or at such other address as either
party may hereafter designate in writing to the other. Notices
shall be deemed to have been duly given if mailed, postage
prepaid, addressed as aforesaid.
IN WITNESS WHEREOF, the Company and the Participant have caused this
Amendment to Stock Options to be signed, as of the dates below.
FORT JAMES CORPORATION
Date ____________________ By:/s/Miles Marsh
Miles Marsh
Chairman of the Board and CEO
JAMES K. GOODWIN
Date ____________________ By:/s/James K. Goodwin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FORT JAMES
CORPORATION'S SEPTEMBER 28, 1998,
FORM 10-Q FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<NAME> FORT JAMES CORPORATION
<CIK> 0000053117
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-27-1998
<PERIOD-END> Sep-27-1998
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 967
<ALLOWANCES> 0
<INVENTORY> 869
<CURRENT-ASSETS> 2,043
<PP&E> 8,059
<DEPRECIATION> 3,476
<TOTAL-ASSETS> 7,871
<CURRENT-LIABILITIES> 1,517
<BONDS> 3,933
0
0
<COMMON> 22
<OTHER-SE> 940
<TOTAL-LIABILITY-AND-EQUITY> 7,871
<SALES> 5,495
<TOTAL-REVENUES> 5,495
<CGS> 3,751
<TOTAL-COSTS> 3,751
<OTHER-EXPENSES> (32)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 620
<INCOME-TAX> 216
<INCOME-CONTINUING> 405
<DISCONTINUED> 0
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.83
</TABLE>
