RICHMOND, Va., October 23 /PRNewswire/ -- Fort James Corporation
(NYSE: FJ) today announced higher operating profits, earnings and earnings per
share for its third quarter ended September 28, 1997, excluding non-recurring
transactional and refinancing costs. Fort James was created through the
merger of James River Corporation and Fort Howard Corporation in August 1997.
The merger has been accounted for as a pooling of interests and, accordingly,
results for 1997 and 1996 have been restated to include those of both
companies.
Third Quarter Results
Compared with the third quarter of 1996, income from operations increased
five percent to $277.9 million from $264.6 million, net income rose 22 percent
to $122.6 million from $100.2 million and earnings per share climbed 20
percent to $.54 versus $.45, before the effects of the transactional and
refinancing costs and other nonoperating items. Net sales declined five
percent to $1,825 million from $1,926 million, primarily due to divestitures
and the impact of foreign currency translation. Excluding divested operations
and the impact of foreign currency translation, sales increased approximately
two percent over those of the prior year. Operating margins increased to 15.2
percent for the current quarter, from 13.7 percent in 1996.
Including the non-recurring items, third quarter 1997 income from
operations was $224 million and net income was $23.5 million, or $.07 per
share, while third quarter 1996 income from operations was $294.9 million and
net income was $114 million, or $.52 per share.
Non-recurring Items
Third quarter results for both 1997 and 1996 included certain non-
recurring items. Results for the current quarter reflect a pretax charge of
$53.9 million (not tax-deductible, equivalent to $.25 per share) for fees and
expenses associated with the merger and an extraordinary charge on the early
extinguishment of debt of $74.9 million ($45.2 million net of taxes, or $.22
per share). In the third quarter of 1996, the company reported a pretax
gain of $46.9 million ($24.2 million net of taxes, or $.12 per share) on the
sale of the Flexible Packaging division. This was partially offset by
severance and other costs of $16.6 million ($10.4 million net of taxes, or
$.05 per share).
Nine Months Results
For the first nine months, excluding non-recurring items, net income
increased 43 percent to $334.3 million, or $1.49 per share, in 1997 from $233
million, or $1.04 per share, in 1996. Net sales of $5,498 million in 1997
were approximately seven percent below the $5,922 million reported in 1996,
due to divestitures and foreign currency translation. Net sales increased
approximately one percent excluding these items.
Results by Business Segment
The North American Consumer Products Business posted operating profits of
$220 million and an operating margin of 19.8 percent in the current quarter,
similar to the $218 million operating profits and 20 percent margin reported
in the 1996 third quarter. The performance reflected lower sales volumes in
commercial foodservice markets, offset by increased volumes in away-from-home
tissue markets and reduced manufacturing costs.
The European Consumer Products Business reported operating profits of
$48.3 million in the third quarter of 1997, compared to $54.5 million in the
prior year. Changes in foreign currency translation associated with the
strengthening of the U.S. dollar caused the year-over-year decline in results.
Absent this change, results would have been modestly higher than those of the
prior year.
With operating profits of $22.7 million, the Packaging Business' third
quarter results were comparable to the $22.9 million reported in the prior
year. The benefits of improved sales volumes and cost reduction were largely
offset by lower average pricing, increased wastepaper costs and transition
costs incurred in connection with new customers. Quarterly operating profits
for the Communications Papers Business increased to $11 million, compared to
$4.8 million in 1996, on improved volumes and lower wood costs.
General corporate expenses declined to $24 million in the current quarter
compared to $35.4 million in the 1996 quarter, primarily as a result of
reduced spending on new, integrated management information systems.
Cash Flow and Refinancing Activities
For the first nine months of 1997, cash provided by operations totaled
$565 million and total debt was reduced by $415 million. Lower average debt
levels, combined with some initial benefits from the company's refinancing
activities, allowed the company to reduce interest expense by 15 percent in
the first nine months, from $327.3 million in 1996 to $277.6 million in 1997.
In early October, the company completed the refinancing of a total of
approximately $2.3 billion of debt, partially necessitated by the merger, as
well as to take advantage of Fort James' investment grade debt rating. An
additional extraordinary charge on the early extinguishment of debt of
approximately $80 million, net of taxes, is anticipated to be recorded in the
fourth quarter in connection with the completion of the refinancings. As a
result of this program, the company expects to reduce interest expense by more
than $50 million annually.
During the quarter, the company also converted its Series P preferred
stock into approximately 15.3 million common shares and called its Series O
preferred stock for redemption as of October 1. These actions will reduce
aggregate cash dividends by $25 million annually.
Restructuring Activities
The company is currently developing a detailed restructuring plan in
conjunction with the merger, and expects to recognize a restructuring charge
in the fourth quarter of 1997. The range of possible restructuring charges
cannot be reasonably estimated until this plan is complete.
Outlook
Commenting on the quarter, Miles Marsh, the company's chairman and chief
executive officer, said, "Conditions in the away-from-home tissue markets
continue to be quite good, however, conditions in the retail tissue markets
have become somewhat more competitive and are expected to remain this way for
the near-term. We are very pleased with the rapid and smooth completion of
the merger of our two companies, and we are now moving in a thoughtful manner
to integrate the two companies. We are on track with our rationalization
plans, which we continue to believe will ultimately provide merger savings in
excess of $200 million, and I am enthusiastic on the growth prospects for the
company."
Fort James is a leading international consumer products company, serving
consumers both at home and away-from-home with bathroom and facial tissue,
paper towels, napkins, and cups and plates. The company's popular brands
include Quilted Northern, Brawny, Dixie, Vanity Fair, Mardi Gras, Green
Forest, Soft 'N Gentle and So-Dri in North America and Lotus, Tenderly,
Colhogar and Kittensoft in Europe. Fort James also produces folding cartons
for packaging food and pharmaceuticals and communications papers such as
printing, publishing and office copy paper. The company has approximately
30,000 employees and more than 65 manufacturing facilities in the U.S., Canada
and 12 European countries.
Forward-looking statements in this release 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; opportunities that may be
presented to and pursued by the company; determinations by regulatory and
governmental authorities; the ability to successfully integrate the James
River and Fort Howard businesses; and the ability to achieve synergistic and
other cost reductions and efficiencies.
Copies of today's news release, along with additional information on Fort
James, is available, at no charge, by calling (888) 526 3711. You may also
access the company's Web site at Internet address http://www.fortjames.com.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fort James Corporation and Subsidiaries
Quarters Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
(in millions, 1997 (a)(b) 1996 (c)(d) 1997 (a)(b) 1996 (c)(d)
except per share amounts)
Net sales $1,825.4 $1,925.9 $5,497.5 $5,921.5
Cost of goods sold 1,270.4 1,358.8 3,834.6 4,258.4
Selling and administrative
expenses 277.1 302.5 848.3 954.0
Restructure and other
unusual items income
(expense) (53.9) 30.3 3.8 (.1)
Income from operations 224.0 294.9 818.4 709.0
Interest expense 87.3 102.2 277.6 327.3
Other income, net 11.1 5.0 22.3 12.4
Income before income taxes,
minority interests and
extraordinary item 147.8 197.7 563.1 394.1
Income tax expense 77.3 83.6 244.9 163.2
Income before minority
interests and extraordinary
item 70.5 114.1 318.2 230.9
Minority interests (1.8) (.1) (2.6) (2.6)
Income before extraordinary
item 68.7 114.0 315.6 228.3
Extraordinary loss on early
extinguishment of debt (45.2) -- (47.1) (3.3)
Net income $23.5 $114.0 $268.5 $225.0
Preferred dividend
requirements (8.1) (8.1) (24.4) (43.9)
Net income applicable to
common shares $15.4 $105.9 $244.1 $181.1
Net income per common share:
Before extraordinary item $.29 $.52 $1.41 $1.02
Extraordinary loss on early
extinguishment of debt (.22) -- (.23) (.02)
Net income per share $.07 $.52 $1.18 $1.00
Weighted average number
of common shares and
common share equivalents 209.4 204.1 207.7 181.1
SEGMENT INFORMATION (d)
Fort James Corporation and Subsidiaries
First Second Third Fourth
(in millions) Quarter Quarter Quarter Quarter Year
1997 Net sales:
Consumer products:
North America $1,077.4 $1,127.2 $1,109.2 -- $3,313.8
Europe 472.6 465.4 438.5 -- 1,376.5
Packaging 196.7 198.3 200.0 -- 595.0
Communications papers 119.3 112.0 117.8 -- 349.1
Intersegment elimination (48.2) (48.6) (40.1) -- (136.9)
Total net sales $1,817.8 $1,854.3 $1,825.4 -- $5,497.5
1996 Net sales:
Consumer products:
North America $1,091.0 $1,145.3 $1,086.2 $1,039.5 $4,362.0
Europe 510.4 496.7 491.6 481.5 1,980.2
Packaging 341.2 319.9 280.0 198.8 1,139.9
Communications papers 112.2 113.8 116.2 114.5 456.7
Intersegment elimination (73.8) (61.1) (48.1) (48.7) (231.7)
Total net sales $1,981.0 $2,014.6 $1,925.9 $1,785.6 $7,707.1
1997 Income (loss)
from operations (a):
Consumer products:
North America $204.6 $231.1 $219.9 -- $655.6
Europe 52.4 52.9 48.3 -- 153.6
Packaging 21.2 23.8 22.7 -- 67.7
Communications papers (3.6) 0.4 11.0 -- 7.8
General corporate
expenses (23.8) (22.3) (24.0) -- (70.1)
Restructure and other
unusual items income
(expense) -- 57.7 (53.9) -- 3.8
Income from operations $250.8 $343.6 $224.0 -- $818.4
1996 Income (loss)
from operations (c):
Consumer products:
North America $177.6 $184.2 $217.8 $173.7 $753.3
Europe 31.1 48.8 54.5 42.7 177.1
Packaging 29.8 24.0 22.9 15.2 91.9
Communications papers 4.2 3.2 4.8 10.0 22.2
General corporate
expenses (28.7) (29.7) (35.4) (30.7) (124.5)
Restructure and other
unusual items
income (expense) (23.4) (7.0) 30.3 (10.6) (10.7)
Income from operations $190.6 $223.5 $294.9 $200.3 $909.3
CONSOLIDATED BALANCE SHEETS (d)
Fort James Corporation and Subsidiaries Sept. 28, Dec. 29, Sept. 29,
(in millions) 1997 1996 1996
ASSETS:
Cash and cash equivalents $34.6 $34.6 $63.2
Accounts receivable 813.5 781.3 877.5
Inventories 843.0 801.6 783.0
Other current assets 135.1 191.1 169.9
Total current assets 1,826.2 1,808.6 1,893.6
Net property, plant and equipment 4,720.9 4,999.3 4,954.5
Investments in affiliates 163.5 154.6 152.9
Other assets 471.4 464.4 479.0
Goodwill 650.2 730.0 732.4
Total assets $7,832.2 $8,156.9 $8,212.4
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable
and accrued liabilities $1,376.4 $1,413.1 $1,341.7
Current portion of long-term debt 139.2 128.9 83.2
Total current liabilities 1,515.6 1,542.0 1,424.9
Long-term debt 3,879.9 4,305.3 4,534.3
Accrued postretirement benefits
other than pensions 475.1 475.9 475.8
Other long-term liabilities 254.8 291.7 295.4
Deferred income taxes 725.7 690.5 731.9
Preferred stock 450.4 738.4 738.4
Common shareholders' equity 530.7 113.1 11.7
Total liabilities
and shareholders' equity $7,832.2 $8,156.9 $8,212.4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fort James Corporation and Subsidiaries Nine Months Ended
(in millions) Sept. 28, 1997 Sept. 29, 1996
Operating activities:
Net income $268.5 $225.0
Depreciation expense and cost of timber
harvested 358.7 379.9
Amortization of goodwill 15.1 15.8
Deferred income tax provision 78.3 58.1
Restructure and other unusual items (3.8) .1
Loss on debt repurchases, net of taxes 47.1 3.3
Undistributed earnings of unconsolidated
affiliates 1.4 4.2
Change in current assets and liabilities:
Accounts receivable (109.4) 7.9
Inventories (63.4) 103.6
Other current assets 30.8 6.6
Current liabilities 13.8 25.6
Foreign currency hedge (31.5) --
Other, net (41.1) (26.2)
Cash provided by operating activities 564.5 803.9
Investing activities:
Expenditures for property, plant and equipment (313.5) (328.7)
Cash received from sale of assets 144.3 440.9
Cash paid for acquisitions, net -- (199.9)
Other, net 13.2 5.9
Cash used for investing activities (156.0) (81.8)
Financing activities:
Additions to long-term debt 633.4 3.4
Payments of long-term debt (982.3) (865.1)
Common stock issued, net of offering costs -- 205.1
Common and preferred stock cash dividends paid (82.4) (69.9)
Premiums paid on early extinguishment of debt (45.5) --
Common stock issued on exercise of stock options 68.3 3.9
Other, net -- (3.4)
Cash used for financing activities (408.5) (726.0)
Increase (decrease) in cash and cash equivalents -- $(3.9)
(a) Results for the third quarter of 1997 included a nonrecurring charge
related to transaction costs which are non-deductible for taxes
of $53.9 million (or $.25 per share). Results for the first nine
months of 1997 included the transaction costs offset by a nonrecurring
gain of $57.7 million ($35.2 million net of tax expense, or $.17 per
share) on the sale of 95,000 acres of southern timberlands.
(b) Net income for the third quarter of 1997 included a net charge of
$45.2 million (or $.22 per share) for extraordinary loss on early
extinguishment of debt. Net income for the first nine months of 1997
included a net charge of $47.1 million (or $.23 per share) related to
extraordinary loss on early extinguishment of debt.
(c) Results for the third quarter of 1996 included a nonrecurring gain of
$46.9 million ($24.2 million net of tax expense, or $.12 per share)
for the disposition of Flexible Packaging assets and nonrecurring
charges of $16.6 million ($10.4 million net of tax benefits, or $.05
per share) for severance and related exit costs. The results for the
first nine months of 1996 included a nonrecurring gain of $46.9
million ($24.2 million net of tax expense, or $.14 per share) for the
disposition of the Flexible Packaging assets and nonrecurring charges
of $47.0 million ($28.9 million net of tax benefits, or $.16 per
share) for severance and related exit costs and net losses on other
asset dispositions. Net income for the first nine months of 1996
included a net charge of $3.3 million (or $.02 per share) related to
extraordinary loss on early extinguishment of debt.
(d) All financial information for Fort James Corporation includes the
results of James River Corporation of Virginia and Fort Howard
Corporation for all periods presented giving retroactive effect to the
merger on August 13, 1997, which has been accounted for as a polling
of interests. Certain amounts in the prior year's financial
statements have been reclassified to conform to the current year's
presentation including a reclassification of customer freight charges
from net sales to cost of sales.
SOURCE Fort James Corporation
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CONTACT:
financial, Celeste Gunter, 804-649-4307 or
media, Dick Elder, 804-343-4785, both of Fort James
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