SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: June 28, 1998 Commission File Number: 1-7911
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FORT JAMES CORPORATION
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(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 July 31, 1998:
220,578,642 shares
<PAGE>
FORT JAMES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
June 28, 1998
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of June 28, 1998
and December 28, 1997 3
Consolidated Statements of Operations for the
quarters and six months ended June 28, 1998 and
June 29, 1997 5
Consolidated Statements of Cash Flows for the six
months ended June 28, 1998 and June 29, 1997 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk 17
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FORT JAMES CORPORATION
CONSOLIDATED BALANCE SHEETS
June 28, 1998 and December 28, 1997
(in millions, except share data)
June December
1998 1997
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ASSETS:
Current assets:
Cash and cash equivalents $ 6.0 $ 33.6
Accounts receivable 916.7 787.8
Inventories 854.7 854.3
Deferred income taxes 191.0 214.4
Prepaid expenses and other current assets 23.3 26.4
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Total current assets 1,991.7 1,916.5
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Property, plant and equipment 7,913.7 7,784.1
Accumulated depreciation (3,374.6) (3,218.8)
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Net property, plant and equipment 4,539.1 4,565.3
Goodwill 619.9 636.9
Other assets 604.1 614.5
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Total assets $ 7,754.8 $ 7,733.2
=================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED BALANCE SHEETS, Continued
(in millions, except share data)
<TABLE>
<CAPTION>
June December
1998 1997
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<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 641.8 $ 636.5
Accrued liabilities 799.6 913.0
Current portion of long-term debt 39.1 34.4
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Total current liabilities 1,480.5 1,583.9
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Long-term debt 4,064.7 4,155.5
Deferred income taxes 717.3 650.8
Accrued postretirement benefits
other than pensions 467.8 474.8
Other long-term liabilities 263.8 283.9
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Total liabilities 6,994.1 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, $.10 par value, 500.0 million
shares authorized; shares outstanding,
June 28, 1998 -- 220.5 million and
December 28, 1997 -- 209.3 million 22.1 20.9
Additional paid-in capital 3,185.0 2,807.9
Accumulated comprehensive loss (168.6) (137.6)
Accumulated deficit (2,277.8) (2,459.6)
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Total shareholders' equity 760.7 584.3
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Total liabilities and shareholders' equity $ 7,754.8 $ 7,733.2
=================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
4
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters (13 Weeks) and Six Months (26 Weeks) Ended
June 28, 1998 and June 29, 1997
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Quarter Six months
----------------------------- -----------------------------
1998 1997 1998 1997
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<S> <C>
Net sales $ 1,857.0 $ 1,854.3 $ 3,652.6 $ 3,672.1
Cost of goods sold 1,268.0 1,286.1 2,511.1 2,564.2
Selling and administrative expenses 284.8 282.3 568.6 571.2
Restructure and other unusual items 9.7 (57.7) 17.2 (57.7)
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Income from operations 294.5 343.6 555.7 594.4
Interest expense 73.9 94.5 148.9 190.3
Other income (expense), net (6.3) 4.1 2.5 11.2
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Income before income taxes and extraordinary item 214.3 253.2 409.3 415.3
Income tax expense 78.1 103.5 155.5 168.4
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Income before extraordinary item 136.2 149.7 253.8 246.9
Extraordinary loss on early extinguishment of debt, net of taxes - (0.6) (2.6) (1.9)
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Net income 136.2 149.1 251.2 245.0
Preferred dividend requirements - (14.6) (5.2) (29.2)
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Net income available to common stockholders $ 136.2 $ 134.5 $ 246.0 $ 215.8
================================================================================================================================
Basic earnings per share:
Income before extraordinary item $ 0.63 $ 0.71 $ 1.16 $ 1.14
Extraordinary loss on early extinguishment of debt - - (0.01) -
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Net income $ 0.63 $ 0.71 $ 1.15 $ 1.14
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Weighted average common shares outstanding 217.6 189.1 213.1 188.5
================================================================================================================================
Diluted earnings per share:
Income before extraordinary item $ 0.62 $ 0.68 $ 1.15 $ 1.11
Extraordinary loss on early extinguishment of debt - - (0.01) -
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Net income $ 0.62 $ 0.68 $ 1.14 $ 1.11
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Weighted average common shares and
common share equivalents outstanding 220.3 216.3 215.6 206.2
================================================================================================================================
Cash dividends per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months (26 Weeks) Ended
June 28, 1998 and June 29, 1997
(in millions)
<TABLE>
<CAPTION>
1998 1997
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<S> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income $ 251.2 $ 245.0
Depreciation expense and cost of timber harvested 232.7 242.2
Amortization of goodwill 9.7 10.2
Deferred income tax provision 103.1 77.6
Restructure and other unusual items 17.2 (57.7)
Loss on early extinguishment of debt, net of tax 2.6 1.9
Change in current assets and liabilities:
Accounts receivable (133.8) (46.1)
Inventories 0.1 (46.7)
Prepaid expenses and other current assets 1.9 15.5
Accounts payable and accrued liabilities (4.6) (24.4)
Restructure and integration payments (95.9) (13.3)
Foreign currency hedge - (31.5)
Retirement benefits expense in excess of funding (21.1) (4.6)
Other, net (21.6) (26.0)
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Cash provided by operating activities 341.5 342.1
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CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (238.8) (178.1)
Proceeds from sale of assets 10.2 113.3
Other, net (1.6) 7.9
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Cash used for investing activities (230.2) (56.9)
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CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Additions to long-term debt 384.8 75.2
Payments of long-term debt (464.0) (170.1)
Common and preferred stock cash dividends paid (73.4) (54.8)
Redemption of preferred stock (6.6) -
Proceeds from exercise of stock options 23.6 47.1
Other, net (3.3) -
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Cash used for financing activities (138.9) (102.6)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27.6) 182.6
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33.6 34.6
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6.0 $ 217.2
========================================================================================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6
<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, which 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 June 28, 1998, its
results of operations for the quarters (13 weeks) and six months (26 weeks)
ended June 28, 1998, and June 29, 1997, and its cash flows for the six months
(26 weeks) ended June 28, 1998 and June 29, 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 six months ended June 28,
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 six months ended June 28, 1998, and June 29, 1997, was $220.2 million and
$144.0 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.
7
<PAGE>
The Company has not determined what, if any, impact Statement No. 133 will have
on the Company's results or financial position. Statement No. 133 is effective
for fiscal years beginning after June 15, 1998.
2. Restructure and Other Unusual Items
Results for the quarter and six months ended June 28, 1998 included
restructure and other unusual costs of $9.7 million ($5.9 million net of taxes,
or $0.03 per diluted share) and $17.2 million ($10.5 million net of taxes, or
$0.05 per diluted share), respectively. The Company recorded charges of
approximately $43 million and $50 million for the quarter and six months,
respectively, for severance, relocation and other merger-related costs which
were not accruable in 1997 under generally accepted accounting principles. Such
costs were partially offset by contract terminations on terms more favorable
than anticipated in the restructure plan.
Since December 28, 1997, accruals for restructure costs have been reduced
by approximately $135.2 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 $95.9 million for the six months ended
June 28, 1998.
In the second quarter of 1997, the Company realized a 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 six months ended June 28, 1998, and June 29, 1997, were
calculated as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------
Income Shares Income Shares
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<S> <C>
QUARTER:
Income before extraordinary item $ 136.2 $ 149.7
Less: Preferred stock dividends - (14.6)
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Amounts used to compute basic earnings per share 136.2 217.6 135.1 189.1
Effect of dilutive securities:
Options 2.7 2.3
Convertible preferred stock - 12.6 24.9
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Amounts used to compute diluted earnings per share $ 136.2 220.3 $ 147.7 216.3
====================================================================================================================
SIX MONTHS:
Income before extraordinary item $ 253.8 $ 246.9
Less: Preferred stock dividends (5.2) (29.2)
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Amounts used to compute basic earnings per share 248.6 213.1 217.7 188.5
Effect of dilutive securities:
Options 2.5 2.4
Convertible preferred stock - 12.9 15.3
- --------------------------------------------------------------------------------------------------------------------
Amounts used to compute diluted earnings per share $ 248.6 215.6 $ 230.6 206.2
====================================================================================================================
</TABLE>
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.
8
<PAGE>
4. Other Income (Expense)
The components of other income (expense) were as follows for the quarter
and six months ended June 28, 1998, and June 29, 1997 (in millions):
<TABLE>
<CAPTION>
Quarter Six months
-----------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest and investment income $ 0.5 $ 3.2 $ 1.4 $ 4.9
Equity in (loss) earnings of unconsolidated affiliates (2.1) 1.0 (2.3) 4.0
Gain on sale of assets 0.8 0.5 2.8 2.6
Minority interests (0.7) (0.1) (1.8) -
Foreign currency exchange gain (loss) (5.1) (0.1) 0.2 (0.4)
Other, net 0.3 (0.4) 2.2 0.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) $ (6.3) $ 4.1 $ 2.5 $ 11.2
===================================================================================================================================
</TABLE>
5. Income Taxes
The Company's effective income tax rate, excluding tax effects of
restructure and other unusual items, was 38% for the six months ended June 28,
1998, compared to 40.8% for the first six 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.
6. Inventories
The components of inventories were as follows as of June 28, 1998, and
December 28, 1997 (in millions):
<TABLE>
<CAPTION>
June December
1998 1997
- -------------------------------------------------------------------------------------
<S> <C>
Raw materials $ 176.9 $ 184.3
Finished goods and work in process 549.5 550.2
Stores and supplies 165.6 159.4
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892.0 893.9
Reduction to state certain inventories
at last-in, first-out cost (37.3) (39.6)
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Total inventories $ 854.7 $ 854.3
======================================================================================
</TABLE>
9
<PAGE>
7. Commitments and Contingent Liabilities
Environmental Matters:
Like its competitors, Fort James 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.
Fort James 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 Fort James' 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 June 28, 1998, Fort James' accrued
environmental liabilities, including remediation and landfill closure costs,
totaled $53.8 million. The Company periodically reviews the status of all
significant existing or potential environmental issues and adjusts its accruals
as necessary. The accruals do not reflect any possible future insurance
recoveries. Estimates of costs for future remediation are necessarily imprecise
due to, among other things, the identification of presently unknown remediation
sites and the allocation of costs among PRPs. 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.
Litigation:
During 1994, James River was sued in Morgan County, Alabama, in a class
action and in Bridgeport, Connecticut, by certain former holders of James
River's 10-3/4% Debentures due October 1, 2018 (the "Debentures"), all of which
were retired by means of a tender offer to all holders or redeemed on November
2, 1992. In general, the complaints alleged 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 sought damages in excess of $50
million plus punitive damages in excess of $500 million. In 1996 and 1997, the
Company settled the claims of an institutional holder and the Connecticut
plaintiffs, representing approximately 55 percent of the Debentures, for a total
of $1.4 million plus reimbursement of attorney's fees. In June 1997, the Alabama
court granted James River summary judgment on the claims and dismissed the
action. The plaintiffs appealed to the Alabama Supreme Court, which in a
decision dated June 19, 1998, affirmed the dismissal. The time within which the
plaintiffs could apply for further relief has expired. The Company has no
further liability in this matter.
10
<PAGE>
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. That filing was followed by numerous other filings 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.
11
<PAGE>
8. Segment Information
Fort James' net sales and income from operations by business segment were
as follows for the quarters and six months ended June 28, 1998, and June 29,
1997 (in millions):
<TABLE>
<CAPTION>
Consumer Products
--------------------------- Communi- Intersegment
North cations elimination/
America Europe Packaging Papers Corporate Total
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<S> <C>
QUARTER ENDED JUNE 1998
Net sales $ 1,133.3 $ 466.2 $ 185.9 $ 118.2 $ (46.6) $ 1,857.0
Segment results before restructure
and other unusual items 245.4 57.4 14.6 8.0 (21.2) 304.2
Restructure and other unusual items (12.4) (1.2) (0.8) - 4.7 (9.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations $ 233.0 $ 56.2 $ 13.8 $ 8.0 $ (16.5) $ 294.5
==================================================================================================================================
QUARTER ENDED JUNE 1997
Net sales $ 1,127.2 $ 465.4 $ 198.3 $ 112.0 $ (48.6) $ 1,854.3
Segment results before restructure
and other unusual items 231.1 52.9 23.8 0.4 (22.3) 285.9
Restructure and other unusual items 57.7 - - - - 57.7
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations $ 288.8 $ 52.9 $ 23.8 $ 0.4 $ (22.3) $ 343.6
==================================================================================================================================
SIX MONTHS ENDED JUNE 1998
Net sales $ 2,206.7 $ 924.2 $ 366.3 $ 245.1 $ (89.7) $ 3,652.6
Segment results before restructure
and other unusual items 459.8 113.1 24.9 18.9 (43.8) 572.9
Restructure and other unusual items (15.0) (1.2) (1.8) - 0.8 (17.2)
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations $ 444.8 $ 111.9 $ 23.1 $ 18.9 $ (43.0) $ 555.7
==================================================================================================================================
SIX MONTHS ENDED JUNE 1997
Net sales $ 2,204.6 $ 938.0 $ 395.0 $ 231.3 $ (96.8) $ 3,672.1
Segment results before restructure
and other unusual items 435.7 105.3 45.0 (3.2) (46.1) 536.7
Restructure and other unusual items 57.7 - - - - 57.7
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations $ 493.4 $ 105.3 $ 45.0 $ (3.2) $ (46.1) $ 594.4
==================================================================================================================================
</TABLE>
12
<PAGE>
9. Fort James Operating Company
Fort James Operating Company ("FJOC") is an obligor of certain securities
registered under the Securities Act of 1933, thus subjecting them 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 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 (in millions):
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------------------- ----------------------------
June 1998 June 1997 June 1998 June 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CONDENSED INCOME STATEMENT INFORMATION:
Net sales $ 1,245.8 $ 1,243.7 $ 2,439.2 $ 2,448.2
Gross profit 387.9 380.3 748.4 727.0
Income before extraordinary item 54.5 74.9 97.7 119.7
Income before extraordinary item and nonrecurring
and other unusual items 58.0 74.9 105.8 119.7
Net income 54.5 74.3 95.1 117.8
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June December
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C>
CONDENSED BALANCE SHEET INFORMATION:
Current assets $ 981.0 $ 928.4
Noncurrent assets 3,483.1 3,292.8
Current liabilities 725.3 861.1
Noncurrent liabilities 5,106.0 4,989.3
Deficit (1,367.2) (1,629.2)
================================================================================================
</TABLE>
10. Preferred Stock Redemption:
In April 1998, the Company completed the redemption and conversion of its
Series K $3.375 Cumulative Convertible Exchangeable Preferred Stock, its Series
L $14.00 Cumulative Convertible Exchangeable Preferred Stock and its Series N
$14.00 Cumulative Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). Substantially all of the outstanding Preferred Stock was converted
into 9.5 million shares of common stock with the balance redeemed for $1.8
million in cash. The conversion will reduce annual dividend payments by $18.7
million.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Fort James reported net income of $136.2 million, or $0.62 per diluted
share, for the quarter ended June 28, 1998, compared with $149.1 million, or
$0.68 per diluted share for the same quarter of the prior year. For the six
months ended June 28, 1998, net income was $251.2 million, or $1.14 per diluted
share, compared with $245.0 million, or $1.11 per share in 1997. Net sales for
the second quarter were $1,857.0 million, compared to $1,854.3 million in the
prior year. Net sales for the first six months of 1998 were
13
<PAGE>
$3,652.6 million compared to $3,672.1 million in 1997. The comparability of
these results was impacted by nonrecurring charges in the first six months of
1998.
Items Affecting Comparability
Results for the second quarter included restructure and other unusual
costs of $9.7 million ($5.9 million net of taxes, or $0.03 per diluted share),
which could not be accrued in 1997 under applicable accounting principles. In
the second quarter of 1997, the Company realized a gain of $57.7 million ($35.2
million net of taxes, or $0.16 per diluted share) on the sale of southern
timberlands and an extraordinary loss of $1.0 million ($0.6 million net of
taxes) on the early extinguishment of debt. For the six months ended June 28,
1998, the Company recorded charges for restructure and other unusual costs of
$17.2 million ($10.5 million net of taxes, or $0.05 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).
Excluding non-recurring items, income from operations for the second
quarter increased 6.4 percent to $304.2 million from $285.9 million in the prior
year, and net income increased 24.1 percent to $142.1 million or $0.65 per
diluted share from $114.5 million or $0.52 per diluted share in 1997. Excluding
the estimated impact of foreign currency translation and the effect of
divestitures, sales and operating income would have increased by 1.5 percent and
7.6 percent, respectively. For the first six months of 1998, excluding
non-recurring items, income from operations increased 6.7 percent to $572.9
million from $536.7 million in the prior year, and net income increased 24.8
percent to $264.3 million or $1.20 per diluted share from $211.7 million or
$0.95 per diluted share in 1997.
North American Consumer Products Business
The North American Consumer Products Business posted operating profits
before restructure and unusual items of $245.4 million in the current quarter
compared to $231.1 million reported in the second quarter of 1997. Sales were
comparable at $1,133.3 million in 1998 versus $1,127.2 million in 1997. For the
six months ended June 28, 1998, operating results, before restructure and
unusual items, were $459.8 million, an increase of 6% over the comparable six
months in 1997. Net sales for the six months ended June 28, 1998 of $2,206.7
million were comparable to prior year sales of $2,204.6 million.
The improvement in profitability was primarily driven by reduced
manufacturing costs resulting from merger synergies and other cost reductions
and higher average prices and volume for retail tissue products, partially
offset by raw material cost inflation. In the away-from-home tissue business,
volumes declined modestly compared to exceptionally strong 1997 volumes. Tissue
volumes were impacted by the transition of volume from the Ashland and Carthage
mills, which were closed in the spring of 1998, to the remaining mill system.
Competitive conditions eroded the benefits of announced away-from-home tissue
price increases and only modest pricing gains were realized. The Dixie cup and
plate business also posted lower year-over-year volumes, principally due to
product rationalization activities in the commercial foodservice area; however,
improved average pricing and ongoing cost reduction benefits led to margin
improvements.
European Consumer Products Business
The European Consumer Products Business reported operating profits before
restructure charges of $57.4 million in the second quarter of 1998, a 9%
improvement over the $52.9 million reported in the prior year. Sales for the
second quarter at $466.2 million were comparable to $465.4 million in 1997.
14
<PAGE>
For the six months ended June 28, 1998, operating profits before
restructure charges of $113.1 million were 7% above the $105.3 million reported
in the prior year. Net sales of $924.2 million were comparable to the same
six-month period in 1997.
Changes in foreign currency translation associated with the strengthening
of the dollar impacted both sales and operating profits. Absent this change,
sales would have increased 3% for both the current quarter and six months, and
operating profits would have increased 11% and 12%, respectively, compared to
the prior year. The improvement in profits, particularly for the six months,
resulted primarily from increased finished goods volumes.
Packaging Business
The Packaging Business reported second quarter 1998 profits of $14.6
million before restructure charges on sales of $185.9 million, compared to $23.8
million of profits on $198.3 million of sales in the prior year. Operating
results, before restructure charges, declined to $24.9 million from $45.0
million in the first six months of 1997. Net sales decreased 7% to $366.3
million from $395.0 million for the same period in 1997. Results for the
Packaging Business declined from prior year levels due to a combination of lower
folding carton volumes associated with a turnover in its customer base and lower
average carton and paperboard pricing. However, profits increased from the first
quarter 1998 level of $10.3 million, as the business continued to replace
volume.
Communications Papers Business
Operating profits for the Communications Papers Business increased to $8.0
million in the current quarter, compared to $0.4 million in 1997. Sales
increased by 6%, to $118.2 million in 1998 compared to $112.0 million in 1997.
For the six months ended June 28, 1998, operating profits improved from a loss
of $3.2 million in 1997 to a profit of $18.9 million in 1998. Net sales
increased 6% to $245.1 million over 1997 sales. The increased profitability for
both the quarter and six months was principally the result of improved pricing
for both uncoated free sheet and uncoated groundwood papers, partially offset by
higher wood costs and lower volumes.
Other Income and Expense Items
Interest expense declined by $20.6 million, or 22%, to $73.9 million for
the first quarter of 1998. Interest expense decreased from $190.3 million to
$148.9 million between the first six months of 1997 and the first six months of
1998. The decrease was attributable to debt refinancing activities in 1997 and
1998, which reduced average outstanding debt and lowered average interest rates.
The Company reported other, non-operating expenses of $6.3 million in the
current quarter, compared to other income of $4.1 million in 1997. For the six
months ended June 28, 1998, other income decreased from $11.2 million in 1997 to
$2.5 million in 1998. Foreign currency translation losses and additional
expenses associated with the Company's investment in a Chinese tissue plant
joint venture accounted for the majority of the change in other income.
The effective tax rate, excluding tax effects of restructure and other
unusual items, for the six months declined to 38% in 1998, from 40.5% in 1997,
principally as a result of the benefits of tax planning actions.
15
<PAGE>
Effect of New Accounting Standards
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 or financial
position. Statement No. 133 is effective for fiscal years beginning after June
15, 1998.
Year 2000 Date Conversion
In 1997, the Company commenced an enterprise-wide Year 2000 date conversion
project to address all necessary code conversion, software replacement, testing
and implementation, as well as contingency planning. The project includes review
of the Company's customers, suppliers and other stakeholders, and of computer
technology used in the following general categories: mainframe, midrange,
desktop, manufacturing/process control, communications, research and development
and infrastructure. In 1997 and for the six months ended June 28, 1998, the
Company spent approximately $8 million and $15 million, respectively, on the
Year 2000 project. The Company currently estimates total spending of
approximately $50 million to $75 million to make the required Year 2000 system
modifications and replacements. Included in such amounts is accelerated spending
for planned capital projects to replace systems which are not Year 2000
compliant. The financial impact of such spending has not been and is not
expected to be material to the Company's consolidated financial position or
results of operations. The Company expects its Year 2000 conversion 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 also be timely converted or that any such
failure to convert by another entity would not have an adverse effect on the
Company's systems. In order to minimize this risk, the Company is actively
addressing its exposure within its extended value chain by surveying customers,
suppliers, and other stakeholders to assess their Year 2000 readiness and, where
necessary, adopt appropriate contingency plans.
FINANCIAL CONDITION
Cash provided by operating activities totaled $341.5 million in the first
half of 1998, compared with $342.1 million provided in the prior year. In the
first half of 1998, the Company spent $95.9 million, excluding tax benefits, on
restructure-related items and achieved estimated synergy and cost related
savings of approximately $120 million. The Company anticipates that
substantially all restructure-related spending will be completed in 1998. The
Company's current ratio was 1.3 as of June 28, 1998, and 1.2 as of December 28,
1997, while working capital increased to $511.2 million from $332.6 million for
the same
16
<PAGE>
periods primarily due to higher accounts receivable. The increase was
primarily due to seasonally higher sales. Capital expenditures were $238.8
million for the six months ended June 28, 1998, compared to $178.1 million in
the prior year. The increase in capital expenditures is primarily attributable
to construction of a new paper machine at the Savannah Mill.
Total indebtedness decreased by $86.1 million from $4,189.9 million as of
December 28, 1997, to $4,103.8 million as of June 28, 1998. As of June 28, 1998,
the Company had outstanding borrowings of approximately $1,346 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 used
the proceeds to reduce borrowings under revolving credit facilities. As of June
28, 1998, total outstanding debt (including the effect of interest rate swaps)
included approximately $2,193 million of fixed rate and $1,911 million of
floating rate obligations compared to $2,266 million and $1,924 million,
respectively, as of December 28, 1997. As of June 28, 1998, under the most
restrictive provisions of the Company's debt agreements, Fort James had
additional borrowing capacity of approximately $1,803 million.
In April 1998, the Company completed the redemption and conversion of its
Series K $3.375 Cumulative Convertible Exchangeable Preferred Stock, its Series
L $14.00 Cumulative Convertible Exchangeable Preferred Stock and its Series N
$14.00 Cumulative Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). Substantially all of the outstanding Preferred Stock was converted into
9.5 million shares of common stock with the balance redeemed for $1.8 million in
cash. The conversion will reduce annual dividend payments by $18.7 million.
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; and the ability to achieve synergistic and other cost
reductions and efficiencies.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
17
<PAGE>
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 agency proposed a penalty
of approximately $130,000. The Company is currently negotiating a settlement.
See footnote 7 to the financial statements 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 Starts
Number on Page
10 Fort James Corporation Supplemental Retirement Plan
for Miles L. Marsh
10(a) Separation Agreement and Mutual Release
27 Financial Data Schedules for the six months ended
June 28, 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 June 28, 1998, and subsequent thereto.
18
<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: August 7, 1998
19
FORT JAMES CORPORATION
SUPPLEMENTAL RETIREMENT PLAN
FOR MILES L. MARSH
1. Purpose. The Plan is an amendment and restatement of the James River
Corporation of Virginia Supplemental Retirement Plan for Miles L. Marsh,
originally effective as of May 1, 1997. The Plan is an unfunded deferred
compensation arrangement established for the benefit of Miles L. Marsh
("Executive"), one of a select group of management or highly compensated
employees. The Plan is intended to be exempt from the participation, vesting,
funding and fiduciary responsibility provisions of the Employee Retirement
Income Security Act of 1974, as amended. The Board has determined that the
benefits to be paid to Executive constitute reasonable compensation for the
services rendered and to be rendered by such Executive. This amendment and
restatement is effective as of August 12, 1997.
2. Definitions. As used in the Plan, the following terms have the meanings
indicated:
a) "Actuarial Equivalent" means an amount or benefit equal in
value to the aggregate amounts expected to be received under
different forms of payment based on assumptions as to the
occurrence of future events. The future events to be taken
into account are mortality for Executive, mortality for
Beneficiaries, and an interest discount for the time value of
money. For this Plan, the actuarial assumptions are the same
as those defined in the Pension Plan at the time that the
Actuarial Equivalent is being determined.
b) "Basic Benefit" means the lifetime annual benefit payable to
Executive pursuant to Section 3(a).
c) "Beneficiary" means the person or entity who is to receive
benefits attributable to Executive under the Pension Plan
after Executive's death.
d) "Board" means the Board of Directors of the Company.
e) "Cause" means fraud or material misappropriation with respect
to the business or assets of the Company; persistent refusal
or willful failure of the Executive to perform his duties and
responsibilities to the Company which continues after the
Executive receives written notice of such refusal or failure;
willful misconduct that materially harms or has the potential
to cause material harm to the Company; breach of a fiduciary
duty which has a material adverse effect on the Company;
conviction of a felony or crime involving moral turpitude; or
the use of drugs or alcohol that interferes materially with
the Executive's performance of his duties.
f) "Change of Control" means:
i) the acquisition by any unrelated person of beneficial
ownership (as that term is used for purposes of the
Securities Exchange Act of 1934 (the "Act")) of 20%
or more of the then outstanding shares of common
stock of the Company or the combined voting power of
the then outstanding voting securities of the Company
entitled to vote generally in the election of
directors. The term "unrelated person" means any
person other than (x) the Company and its
subsidiaries, (y) an employee benefit plan or trust
of the Company or its subsidiaries, and (z) a person
who acquires stock of the Company pursuant to an
agreement with the Company that is approved by the
Board in advance of the acquisition, unless the
acquisition results in a Change of Control pursuant
to subsection (ii) below. For purposes of this
subsection, a "person" means an individual, entity or
group, as that term is used for purposes of the Act;
ii) any tender or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions, the persons who were directors of the
Company before such transactions shall cease to
constitute a majority of the Board of Directors of
the Company or any successor to the Company.
g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and regulations thereunder.
h) "Committee" means the Compensation Committee of the Board.
i) "Company" means Fort James Corporation or any successor by
merger or otherwise.
j) "Compensation" means an amount equal to the sum of:
i) twelve times Executive's monthly salary at the
highest rate in effect during the Plan Year in which
Executive Retires, and
ii) the greater of (x) the aggregate cash incentive
compensation paid or payable to Executive under the
Company's cash incentive plan or plans for the Plan
Year preceding the Plan Year in which Executive
Retires, or (y) the aggregate cash incentive
compensation that would be payable to Executive under
the Company's cash incentive plan or plans for the
Plan Year in which Executive Retires based on actual
target goal results and Executive's actual salary at
the time of Executive's Retirement, and annualized.
The term "Compensation" does not include income recognized
upon the exercise of any stock option granted by the Company
or any subsidiary of the Company, and any contributions for
benefits under this Plan or any other plan of deferred
compensation maintained by the Company or any subsidiary of
the Company. The term "Compensation" also does not include
special allowances, such as amounts paid to Executive during
an authorized leave of absence, moving expenses, car expenses,
tuition reimbursement, meal allowances, the cost of excess
group life insurance income includable in taxable income, and
similar items.
k) "Employment Agreement" means the Amended and Restated
Employment Agreement between the Company and Executive, dated
June 10, 1997 (or any successor agreement).
l) "Normal Retirement Date" means the first day of the month
coinciding with or next following the date on which Executive
attains age 55.
m) "Pension Benefit" means the benefit payable to Executive under
the Pension Plan as a single life annuity at his Normal
Retirement Date. In computing the benefit offsets pursuant to
Section 3(c), if Executive becomes entitled to benefits under
this Plan before he is eligible to receive benefits under the
Pension Plan, his Pension Benefit means the amount of the
benefit that will be payable at the earliest possible date
under the Pension Plan.
n) "Pension Plan" means the James River Corporation of Virginia
Retirement Plan for Salaried and Other Non-Bargaining Unit
Employees, as amended and in effect from time to time.
o) "Plan" means the Fort James Corporation Supplemental
Retirement Plan for Miles L. Marsh.
p) "Plan Year" means a calendar year.
q) "Preretirement Death Benefit" means an amount, payable to
Executive's surviving Spouse pursuant to Section 8 in the
event of Executive's death before his Retirement while
employed by the Company.
r) "Retirement" or "Retires" means the termination of Executive's
employment for reasons other than death or Cause.
s) "Service" means years of employment in years and completed
full months with the Company or any subsidiary of the Company.
t) "Social Security Benefit" means the benefit payable to
Executive under the Social Security Act at the time of
Executive's Retirement. In computing the benefit offsets
pursuant to Section 3(c), if Executive becomes entitled to
benefits under this Plan before he is eligible to receive
benefits under the Social Security Act, his Social Security
Benefit means the amount of the benefit that will be payable
at the earliest date when benefits could become payable to
Executive under the Social Security Act, based solely on
amounts accrued or earned for purposes of the Social Security
Act at the time of Executive's Retirement, as determined by
the Committee.
u) "Spouse" means the person who is Executive's "spouse," as such
term is defined in the Pension Plan.
3. Benefits at Retirement.
a) The Basic Benefit. If Executive Retires, he will be entitled
to receive a lifetime annual benefit (payable monthly)
beginning on the date of his Retirement that is equal to 50%
of his Compensation, subject to the adjustments and offsets
described in Section 3(b), (c) and (d) below. If Executive
Retires at any time after his Normal Retirement Date, his
benefit shall be at least equal to the benefit that he would
have received had he retired as of his Normal Retirement Date,
subject to the adjustments and offsets described in 3(b), (c)
and (d).
b) Service Adjustment. If at the time of Retirement Executive
has completed fewer than 6 years and 10 months of Service, the
amount determined in (a) shall be reduced proportionately to
the extent that Executive has less than 6 years and 10 months
of Service.
c) Benefit Offsets. The amount of the benefit determined under
the preceding paragraphs shall be offset by the sum of the
amount of Executive's Pension Benefit and the amount of
Executive's Social Security Benefit.
d) Form of Benefit Adjustment. If instead of a lifetime annual
benefit Executive elects to receive the benefit determined
under the preceding paragraphs in one of the optional forms of
payment permitted under the Pension Plan or in a single lump
sum, the benefit shall be actuarially adjusted in accordance
with the factors, methods and assumptions then used under the
Pension Plan for determining optional forms of benefit
payments or for determining lump sum payments, as applicable.
4. Commencement and Form of Benefit. Executive may elect when payment of
his benefit will commence after Retirement. Executive may elect to
have his benefit under this Plan paid in any one of the forms of
payment described in the Pension Plan, or in the form of a single lump
sum, when benefits under this Plan commence. If payment of Executive's
benefit is to commence before his Normal Retirement Date, the amount
determined under Section 3 shall be further adjusted to reflect the
earlier payment commencement date and longer period of payment as
follows:
a) Age 53 to Normal Retirement Date. If commencement of
Executive's benefit occurs before his Normal Retirement Date
and after attainment of age 53, his benefit will be reduced by
4% for each year (calculated monthly) by which Executive's age
at commencement of his benefits is less than 55 and more than
52.
b) Prior to Age 53. If commencement of Executive's benefits
occurs before attainment of age 53, his benefit will be
further reduced (in addition to the reduction pursuant to (a))
by 6% for each year (calculated monthly) by which the
Executive's age at commencement of his benefits is less than
age 53.
5. Benefit Enhancements Upon Change of Control. If a Change of Control
occurs, the following adjustments and enhancements will apply:
a) Benefit Accrual. At Retirement, Executive will be credited
with an additional two full years of Service for purposes of
Section 3(b).
b) Benefit Rate Increase. The Basic Benefit determined under
Section 3(a) shall be increased by (i) 5% if Executive Retires
at age 54, and (ii) 10% if Executive Retires at or after his
Normal Retirement Date.
c) Payment Reduction Factors. If payment of Executive's benefit
begins before Executive has attained his Normal Retirement
Date, the reduction factors for early payment set forth in
Section 4 shall not apply.
d) Lump Sum Payment. The present value of the benefit which
Executive would be entitled to receive over time upon his
Retirement, as determined under Sections 4 and 5, shall be
paid in a single lump sum. The determination of the amount of
the lump sum payment shall be made by the Company's actuaries
in accordance with the methods, factors and assumptions then
used in determining lump sum payments under the Pension Plan.
e) No Forfeiture on Termination for Cause. If Executive is
terminated for Cause, his rights under the Plan shall be
determined as if the termination were not for Cause.
6. Service Crediting Upon Certain Terminations of Employment. If
Executive experiences a termination of employment which under the terms
of Executive's Employment Agreement entitles Executive to be credited
with additional full years of Service for purposes of calculating the
benefits payable to Executive under the Employment Agreement, Executive
shall be credited with an identical number of full years of Service for
purposes of calculating Executive's benefits under this Plan.
7. Termination of Employment for Cause. If Executive's employment is
terminated by the Company or a subsidiary of the Company for Cause, as
determined by the Committee, and a Change of Control has not occurred,
Executive's rights under the Plan shall immediately terminate and
neither Executive nor his Spouse shall be entitled to any benefit under
the Plan.
8. Death Before Retirement/Preretirement Death Benefit.
a) If Executive dies before Retirement and while still an
employee of the Company or a subsidiary of the Company,
Executive's Spouse shall be entitled to receive a
Preretirement Death Benefit beginning with the first day of
the month coinciding with or next following the date of the
Executive's death. The Preretirement Death Benefit is an
annual benefit (payable monthly) equal to 50% of the Basic
Benefit (determined under Sections 3(a) and (b), before the
offset and adjustment under Section 3(c) and (d), and with
adjustments and enhancements pursuant to Section 5, if
applicable) that would have been payable to Executive had he
Retired the day before his death.
b) The monthly Preretirement Death Benefit payment will then be
reduced by an amount equal to the sum of the surviving
Spouse's preretirement monthly benefit when payable under the
Pension Plan and the Spouse's monthly benefit when payable
under the Social Security Act, as determined by the Committee.
If as to the Executive and his Spouse the preretirement death
benefit provisions of the Pension Plan do not apply, the
Preretirement Death Benefit will be reduced at the time and in
the amount equal to the preretirement death benefit under the
Pension Plan that would have otherwise been payable to the
Spouse if it had applied.
9. Exclusion from Supplemental Benefit Plan. The benefit provided to
Executive and his Spouse under the Plan are in lieu of benefits that
might otherwise be available to Executive and his Spouse, or either of
them, under the Company's Supplemental Benefit Plan (or any of its
component parts), as amended and restated, or as later amended, and
Executive's participation in the Plan and the attendant benefit
available to Executive and his Spouse that thereby accrue, constitutes
a waiver of all his and his Spouse's rights under the Supplemental
Benefit Plan.
10. Administration.
a) This Plan shall be administered by the Committee. Subject to
the Plan's provisions, the Committee may adopt rules and
regulations necessary to carry out the Plan's purposes,
including rules concerning the timing of elections for benefit
commencement and benefit forms. The amount of and entitlement
to the payment of benefits under, and the general
administration of, this Plan with respect to the computation
and entitlement to benefits in determining offsets and
adjustments shall be determined by the provisions of the
Pension Plan, and the rules, regulations and interpretations
adopted in administering the Pension Plan. Beneficiary
designations made with respect to benefits payable under the
Pension Plan shall apply to this Plan unless otherwise
specifically designated by the Executive.
b) If for any reason a benefit under the Plan is not paid when
due, the individual entitled to the benefit may file a written
claim with the Committee. If the claim is denied or if no
response is received within 90 days (in which case the claim
will be deemed to have been denied), the individual may appeal
the denial to the Committee within 60 days of the denial. In
pursuing an appeal, an individual may request that the
Committee review the denial and the individual may review
pertinent documents and submit issues and comments in writing.
A decision on appeal will be made within 60 days after the
appeal is made, unless special circumstances require the
Committee to extend the period for another 60 days.
11. Restrictions and Transfer. Any benefits to which Executive or his
Spouse or Beneficiary may become entitled under this Plan are not
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, or encumbrance, and any attempt to do so is void.
Benefits are not subject to attachment or legal process for the debts,
contracts, liabilities, engagements or torts of Executive or his Spouse
or Beneficiary. This Plan does not give Executive or his Spouse or
Beneficiary any interest, lien, or claim against any specific assets of
the Company, and they have only the rights of a general creditor of the
Company.
12. Amendment and Termination. The Board may amend the Plan at any time;
provided that the Plan may not be terminated and no amendment may be
made to the Plan that would adversely affect the right of Executive or
his Spouse or Beneficiary to receive a benefit under the Plan or which
would reduce the amount of any benefit payable under the Plan, unless
Executive (or his Spouse or Beneficiary following his death) has
provided prior written consent to such termination or amendment.
13. Method of Payment of Benefits. The Company has the obligation to pay
all benefits provided for in the Plan as they become due. Without
affecting its obligations to or rights of Executive under the Plan, the
Company may establish a grantor trust (within the meaning of Sections
671 through 679 of the Code) for Executive and deposit funds with the
trustee of such trust for investment to provide the benefits to which
the Executive (or the Executive's Spouse or Beneficiary) may be
entitled under the Plan. The funds deposited with the trustee or
trustees of any such trust, and the earnings thereon, will be dedicated
to the payment of the benefits under the Plan but shall remain subject
to the claims of the general creditors of the Company. The expenses of
establishing and maintaining such trust shall be paid by the Company.
When Executive (or Executive's Spouse or Beneficiary) becomes eligible
for payment of benefits under the Plan, such benefits will be paid out
of the trust fund or funds unless paid directly by the Company.
14. Construction. This Plan shall be construed in accordance with the laws
of the Commonwealth of Virginia. The headings in this Plan have been
inserted for convenience of reference only and are to be ignored in any
construction of the provision. If a provision of this Plan is not
valid, that invalidity does not affect other provisions.
WITNESS the following signatures.
FORT JAMES CORPORATION
By: /s/ Robert M. O'Neil
___________________________
Robert M. O'Neil,
Chairman, Compensation
Committee
Dated: 4/27/98
By: /s/ Miles L. Marsh
___________________________
Miles L. Marsh
Dated: 4/22/98
SEPARATION AGREEMENT AND MUTUAL RELEASE
This is an Agreement between Fort James Operating Company, its parent,
affiliates, subsidiaries, predecessors, successors and assigns (collectively
"Fort James" or the "Company") and Michael T. Riordan ("Riordan").
A. Riordan has been employed by Fort James as President and Chief
Operating Officer under his Amended and Restated Employment Agreement dated as
of June 26, 1997 (the "Employment Agreement") and wishes to resign that
employment. Fort James and Riordan have agreed on the terms under which he will
terminate his employment with the Company. The parties desire to resolve matters
involving Riordan's employment, the Employment Agreement and Riordan's
separation from employment with Fort James. For purposes of interpreting the
Employment Agreement or any other applicable plan, arrangement or agreement
between Riordan and the Company including, without limitation, any retirement,
pension, management equity, stock option or restricted stock plan or agreement,
Riordan will be considered to have been terminated by Fort James other than for
"cause".
B. Riordan 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 Riordan or Fort James may have against
the other.
C. Fort James also desires to provide Riordan with additional compensation
and benefits in return for Riordan agreeing to be bound by certain covenants, as
described below.
THEREFORE, in consideration of the above premises and the mutual covenants
and promises contained herein, Riordan and Fort James agree as follows:
1. TERMINATION OF EMPLOYMENT. Riordan agrees to voluntarily
terminate his employment effective at the close of business on August 14, 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
August 14, 1998.
2. SEVERANCE PAYMENT. Fort James shall pay Riordan in a lump sum,
the amount of $4,575,000 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 Riordan $511,500
in a lump sum, an amount representing the equivalent of a pro-rata bonus for his
1998 service under the 1998 Management Incentive Plan which payment shall be in
lieu of any other bonus for the 1998 fiscal year which Riordan shall expressly
waive and elect not to accept in this Agreement.
4. PENSION, SERP AND OTHER BENEFITS.
(a) Fort James shall pay Riordan $3,755,234.71 in a lump sum
in settlement of Riordan's right to receive the retirement plan payments
described in Sections 2(b)(iv) and 4(a)(i)(C) of the Employment Agreement and
the balance of his Fort Howard SERP.
(b) All Company provided medical, prescription and dental
coverage, life insurance, accidental death and dismemberment and long term
disability and any other welfare benefits shall be provided to Riordan and
members of his family for three (3) years (or such longer period as may be
provided by the applicable plan, program, practice or policy) following his Date
of Termination, to the extent, and on the terms, provided in Section 4(a)(iii)
of his Employment Agreement. In addition, thereafter for the remainder of
Riordan's life and, if Riordan predeceases his spouse, for the remainder of his
spouse's life, the Company will continue to provide him, his wife and any
eligible children with healthcare and dental benefits under the Company's
healthcare and dental plans on the same terms and conditions as are applicable
to active senior executive officers of the Company (with a Medicare offset
commencing at age 65, if required by such plan), except for any period during
which Riordan and his family receive such benefits through another employer,
during which time Fort James' benefits will be coordinated and secondary only.
Riordan shall pay the Company the applicable premium on such healthcare and
dental plans as other executive officers pay.
(c) Riordan is the owner of 100,000 restricted shares and
50,000 performance shares issued pursuant to the Company's Amended and Restated
1996 Stock Incentive Plan (the "Plan"). Effective June 30, 1998, the 100,000
restricted shares and 50,000 performance shares shall vest. In lieu of
delivering the actual shares to Riordan, the Company and Riordan agree that the
Company will calculate the average of the high and low price (the "Average
Price") for the Common Stock of the Company on August 14, 1998, multiply the
Average Price times 150,000 and pay such amount to Riordan by August 21, 1998,
in lieu of issuing the shares. In addition, the Company shall pay Riordan, at
the same time as the payment in the preceding sentence, $30,000, representing
the dividends accrued on the 50,000 performance shares.
(d) Riordan's existing stock options granted in 1995, 1996,
1997 and 1998, as listed in Exhibit A hereto (the "Amended Options"), shall be
amended effective August 14, 1998 as set forth in Exhibit A. Riordan agrees not
to exercise any of his Amended Options before August 14, 1999, except that this
condition shall lapse and be of no further force and effect should either of the
following events occur:
(i) Miles L. Marsh ceases to be Chief Executive
Officer of the Company or
(ii) a change of control (within the meaning of the 1996
Plan) occurs.
<PAGE>
(e) Attached as Exhibit B is a list of Riordan's other stock
options originally granted by Fort Howard Corporation, including the applicable
number of shares, date of grant, exercise price and exercise period following
the Date of Termination. Nothing herein shall forfeit or otherwise affect the
terms and conditions of such options.
(f) Nothing herein shall forfeit or otherwise affect Riordan's
right to vested benefits under the Fort Howard 401(k) Plan.
(g) Riordan shall receive $78,975.79 in a lump sum, being the
cash equivalent amount equal to three (3) years of benefits for mortgage
buydown, financial planning and tax preparation and company automobile
maintenance and insurance following the Date of Termination. In addition, the
Company will continue to pay for three (3) years following the Date of
Termination the premiums for Riordan's split dollar insurance.
(h) Riordan shall receive $7500, this amount to be grossed up
for applicable taxes to provide for his second year of country club dues in
Chicago.
(i) The Company agrees to pay the reasonable legal fees and
expenses of Shearman & Sterling in connection with their advice to Riordan.
(j) 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.
5. METHOD OF PAYMENT. All cash payments required by this Agreement
shall be made by wire transfer to Riordan'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
Riordan's account(s) by August 21, 1998, the "Payment Date".
<PAGE>
6. COMPANY CAR. Fort James agrees to transfer to Riordan no later
than September 15, 1998, the certificate of title to the automobile previously
provided him for his personal and business use. Riordan 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.
(a) In consideration of all payments due him hereunder or
under the Employment Agreement, Riordan 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, actions and
causes of action of every kind and character whatsoever, known or unknown,
suspected or unsuspected (collectively, "Claims"), which he has ever had or may
have against Fort James arising out of (x) Riordan's employment or termination
of employment with Fort James or (y) any event, condition or circumstance that
existed or arose on or prior to the Date of Termination. Riordan 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. The foregoing release will not apply to the
obligations of the Company under this Separation Agreement and Mutual Release
and the Sections of the Employment Agreement referred to herein.
<PAGE>
(b) Fort James, including its affiliates, subsidiaries,
parents, predecessors, successors and assigns and their respective directors,
officers, employees and agents thereof hereby release and forever discharge
Riordan, his successors, heirs, representatives, executors, agents and assigns
from any and all Claims, which it has ever had or may have against Riordan or
any of the foregoing persons, arising out of (x) Riordan's employment or
termination of employment with Fort James or (y) any event, condition or
circumstance that existed or arose on or prior to the Date of Termination. The
foregoing release will not apply to Riordan's obligations under this Separation
Agreement and Mutual Release. Fort James acknowledges that this Release includes
all Claims whether in contract or in tort, Claims that may be brought on its
behalf by others, Claims brought before any court or administrative agency, or
Claims under any national, federal, state or local statute or ordinance.
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, Riordan 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 Riordan 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 West Lake Cook Road, Deerfield,
Illinois 60015.
<PAGE>
9. POST EMPLOYMENT RESTRICTIONS, OBLIGATIONS
(a) Riordan agrees to comply with the confidentiality covenant
set forth in Section 5(a) of the Employment Agreement.
(b) In return for the extension of the time to exercise
his Amended Options, Riordan agrees, in order to protect the Company's goodwill,
trade secrets and confidential information, not to engage in competitive
activities on behalf of a competitive business (as such terms are defined below)
for a period of two (2) years following the Date of Termination 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 or development of any towel or tissue
products of the type manufactured by Fort James (the "Covered Products"). A
"competitive business" means Procter & Gamble, Kimberly Clark, Georgia Pacific
or Chesapeake (including Wisconsin Tissue). Riordan acknowledges that products
of the Company are sold throughout North America and Western Europe.
Accordingly, the geographic area covered by this restraint shall be 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 including, without limitation, any provisions in the Employment
Agreement or in any management equity, stock option or restricted stock plan or
agreement of the Company.
<PAGE>
(c) Riordan agrees for a period of two (2) years following the
Date of Termination not to solicit directly or through any other person acting
at Riordan's direction, for employment or hire any of the current Executive Vice
Presidents or Senior Vice Presidents of Fort James or its affiliates without the
written consent of the Senior Vice President, Human Resources for the Company,
which shall not be unreasonably withheld or delayed. Further, Riordan agrees
that if any such Fort James employee approaches him for employment, he will
refer them to the appropriate hiring official of his employer and will have no
involvement in the hiring of such employee.
(d) Riordan agrees that as President and Chief Operating
Officer of the Company, he possesses intimate knowledge about 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 Riordan materially violates any of his material obligations under
this Section 9 and after written notice from the Company within seven (7) days
fails to cure his violation, then the Amended Options shall be exercisable only
for a period of 90 days following the end of such seven day period (and any
restrictions against exercising any of the Amended Options prior to August 14,
1999, if still applicable, shall lapse). Riordan 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) Riordan also agrees to reasonably cooperate in the future
to the extent he is needed by the Company as a witness in any litigation and in
any transition matters related to his departure taking into account Riordan's
other commitments. The Company will reimburse Riordan for any reasonable
out-of-pocket expenses he incurs in connection with his compliance with this
Section 9(e).
10. INDEMNITY. Fort James agrees to continue to indemnify and save
Riordan harmless from all claims, actions, omissions and liabilities which may
arise in connection with his performance of his duties as an employee, officer,
agent or director of the Company. Such indemnification shall be to the same
extent as its indemnification of active executives of equal rank to Riordan
(prior to the Date of Termination) but shall relate only to Riordan's alleged
actions or failure to act during the period in which he was employed by or
served as an officer, agent or director of the Company. In the event that the
State of Wisconsin imposes any tax liability on Riordan for any taxable period
(or portion thereof) after August 14, 1997 with respect to any compensation or
benefits provided by the Company, and Riordan also incurs a tax liability to the
State of Illinois (or other state to which Riordan has relocated other than
Wisconsin) with respect to all or any portion of such compensation or benefits,
the Company shall indemnify and hold Riordan harmless, on an after-tax basis
(taking into account all resulting Federal and State tax consequences), with
respect to (i) Riordan's tax liability to the State of Illinois (or such other
state), (ii) Riordan's liability for any penalties or interest due to the State
of Wisconsin with respect to any compensation or benefits provided by the
Company and (iii) any reasonable attorney's and/or accountant's fees Riordan may
incur. Fort James also agrees to indemnify and hold Riordan harmless on an
after-tax basis, for any reasonable tax preparation fees with respect thereto.
11. RESIGNATION. By his signature hereto, as of the Date of
Termination Riordan hereby resigns his position as President and Chief Operating
Officer, as a director of Fort James Corporation and any and all other positions
with the Company, its subsidiaries, its parent and its affiliates.
<PAGE>
12. OPTIONS. The Company agrees that Riordan may exercise his stock
options in the same manner that would have been available to him as an active
employee of the Company.
13. CERTAIN CONTINUING PROVISIONS. Sections 6, 7 and 8 of the
Employment Agreement shall continue in full force and effect in accordance with
their terms, and such Sections of the Employment Agreement are incorporated
herein by reference as if such Sections were set forth herein in full.
14. ENTIRE AGREEMENT. Riordan 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 terms and provisions, and intend and agree that it is a final and
legal binding settlement and release of all claims Riordan 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.
<PAGE>
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:
Date 6-25-98 /s/ Michael T. Riordan
---------- ----------------------
Michael T. Riordan
FORT JAMES OPERATING COMPANY
Date 6-22-98 By: /s/ Daniel J. Girvan
---------- --------------------
Daniel J. Girvan
Senior Vice President
<PAGE>
Exhibit A
FORT JAMES CORPORATION
AMENDMENT TO STOCK OPTIONS
FORT JAMES CORPORATION (the "Company") and Michael.T. Riordan (the
"Participant") hereby agree to this Amendment to Stock Options as of August
14, 1998.
WHEREAS, the Participant has been granted certain options to acquire
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 December 6, 1995 for 137,500 shares
at $14.36, on December 9, 1996 for 171,875 shares at $20.18, on
August 13, 1997 for 250,000 shares at $43.05, and on January 6,
1998 for 80,000 shares at $37.25 (collectively, the "Amended
Options") shall be fully vested as of August 14, 1998.
2. Except as provided in paragraph 3, the Amended Options may be
exercised at any time on or after August 14, 1999 and before
August 14, 2004. To the extent not previously exercised, the
Amended Options shall expire and cease to be exercisable on
August 14, 2004.
3. The limits on exercise of the Amended Options until August 14,
1999 contained in Section 4(d) (as modified by Section 9(d)) of
the Separation Agreement and Mutual Release between the Participant
and Fort James Operating Company are incorporated into this
Agreement to Stock Options.
4. Any provisions of the Amended Options relating to the time for
vesting or the period to exercise the Amended Options are superseded
by this Amendment to Stock Options, including provisions requiring
the continuing employment of the Participant or measuring periods
to exercise the Amended Options based on termination of employment
by the Participant.
5. To the extent not specifically amended by the provisions of this
Amendment to Stock Options, the terms and conditions of the
Amended Options shall continue to apply.
<PAGE>
6. If the Participant dies before an Amended Option expires as provided in
Section 2, all of the Amended Options that he held at the time of his
death (without regard to whether it has become exercisable pursuant to
Section 3) may be exercised by the personal representative of his
estate. The Amended Options may be exercised at any time until the
expiration date of the Amended Options as provided in Section 2.
7. 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 6-25-98 By /s/ Miles L. Marsh
-------------
Chairman of the Board and CEO
MICHAEL T. RIORDAN
Date 6-25-98 Signature /s/ Michael T. Riordan
----------------------
Michael T. Riordan
<PAGE>
Exhibit B
Fort James Other Stock Options
Held by Michael T. Riordan
<TABLE>
<CAPTION>
Other Options
<S> <C>
Grant Grant Type Options Options Option Expiration Options
Date Granted Outstanding Price Date Vested
- ----------------------------------------------------------------------------------------------------------------
6/27/1990 Non-Qualified 17,875 17,875 $13.42 6/27/2000 17,875
4/30/1991 Non-Qualified 44,688 44,688 $13.42 4/30/2001 44,688
4/30/1993 Non-Qualified 67,031 67,031 $13.42 4/30/2003 67,031
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> JUN-28-1998
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 917
<ALLOWANCES> 0
<INVENTORY> 855
<CURRENT-ASSETS> 1,992
<PP&E> 7,914
<DEPRECIATION> 3,375
<TOTAL-ASSETS> 7,755
<CURRENT-LIABILITIES> 1,481
<BONDS> 4,065
0
0
<COMMON> 22
<OTHER-SE> 739
<TOTAL-LIABILITY-AND-EQUITY> 7,755
<SALES> 3,653
<TOTAL-REVENUES> 3,653
<CGS> 2,511
<TOTAL-COSTS> 2,511
<OTHER-EXPENSES> 17
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 409
<INCOME-TAX> 156
<INCOME-CONTINUING> 254
<DISCONTINUED> 0
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> 251
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.14
</TABLE>
