RICHMOND, Va., July 24 /PRNewswire/ -- James River Corporation (NYSE: JR)
today reported significantly improved second quarter 1997 earnings.  Excluding
non-recurring items in both years, earnings were $.47 per share in the second
quarter of 1997, nearly double the $.24 per share posted in the second quarter
of 1996.  Net income, as reported, was $90.8 million, or $.81 per share, for
the quarter compared to $30.5 million, or $.18 per share for the same quarter
in the prior year.
    Sales for the current quarter were $1.4 billion, compared to $1.6 billion
reported in 1996.  Excluding divested operations, sales declined by
approximately 2 percent.  While unit sales volumes increased in each of the
company's businesses compared to last year, these gains were offset by lower
general market pricing and the effect of foreign currency translation.

    Non-Recurring Items
    During the second quarter of 1997, the company reported a pretax gain of
$57.7 million ($35.2 million net of taxes, or $.34 per share) on the sale of
approximately 95,000 acres of southern timberlands.  Results for the second
quarter of 1996 included non-recurring charges of $7 million ($4.2 million net
of taxes, or $.06 per share) for severance costs and net losses on asset
dispositions.

    First Half Results
    For the first six months, excluding non-recurring items, net income was
$103.1 million, or $.85 per share, in 1997 compared with $69.5 million, or
$.47 per share, in 1996.  Net sales of $2.8 billion in 1997 were approximately
11 percent below the $3.1 billion reported in 1996, principally due to
divestitures.  Excluding revenues of divested businesses, sales declined by
approximately 1 percent.

    Results by Business Segment
    James River's North American Consumer Products Business posted operating
profits of $84 million in the current quarter, 39 percent higher than the
$60.4 million reported in last year's second quarter.  Sales for the two
quarters were similar, at $734 million in 1997, compared to $733 million in
1996, excluding sales of the divested party goods business.  Improved results
were attributable to a combination of higher sales volumes for tissue-based
products sold in both retail and away-from-home markets, with a significant
contribution from new product offerings; reduced raw material and
manufacturing costs; and improved promotional effectiveness.  These gains were
partially offset by lower average selling prices and increased purchases of
unconverted tissue parent rolls, necessitated by the strong demand for the
company's products.
    Operating profits for the European Consumer Products Business were
$42 million in the second quarter of 1997, similar to the $41.8 million
reported in the prior year.  Sales declined to $417 million in the current
quarter from $452 million in the prior year.  While finished product sales
volumes were more than 5 percent higher than in the prior year, the operating
profit benefits from these stronger volumes and lower average raw material and
other costs were largely offset by the lower average selling prices and the
impact of foreign currency translation, due to the strengthening of the U.S.
dollar.
    The Packaging Business reported operating profits of $23.8 million,
slightly below the $24 million posted in the second quarter of 1996.  Due
primarily to the divestitures of the Flexible Packaging and Inks divisions,
sales declined from $320 million in the second quarter of 1996 to $198 million
in the current quarter.  Operating margins improved significantly from the
prior year due to the improved business mix, increased volumes for folding
cartons and paperboard, and lower manufacturing and raw material costs.  These
gains were partially offset by lower average selling prices.
    The Communications Papers Business reported lower operating income of $0.4
million in the current quarter, compared to $3.2 million in the prior year,
while sales were comparable at $112 million in 1997 and $114 million in 1996.
Compared to the prior year's quarter, stronger sales volumes and lower costs
were more than offset by lower average selling prices.  However, pricing for
uncoated printing and converting papers gradually improved during the current
quarter, allowing the business to post above-break-even results, as compared
to the $3.6 million operating loss reported in the first quarter of 1997.
    General corporate expenses declined 24 percent to $17.9 million in the
current quarter, compared to $23.6 million in the same quarter of the prior
year, primarily as a result of reduced spending on new, integrated management
information systems.

    Cash Flows and Other Activities
    For the first half of 1997, cash provided by operations totaled $208
million.  Net debt (total debt less cash and cash equivalents) declined to
$1,737 million as of June 29, 1997, compared to $1,937 million as of December
29, 1996.  Lower average debt levels allowed the company to reduce interest
expense by approximately 15 percent in the first half of the year, from $88.1
million in 1996 to $75.3 million in 1997.
    In July 1997, James River announced that as of September 2, 1997, it is
calling its Series P 9% Cumulative Convertible Preferred Stock for conversion
into common stock at a conversion ratio of .9206 shares of common stock for
each Series P depositary share. The conversion of the Series P depositary
shares will reduce the company's aggregate cash dividends by approximately
$16.5 million per year.  Based on current consensus earnings estimates, the
conversion of the Series P into common shares is not expected to have a
material impact on the company's calculation of fully diluted earnings per
share, excluding non-recurring charges.

    Merger With Fort Howard
    On May 5, 1997, the company announced the signing of a definitive merger
agreement with Fort Howard Corporation, to create a preeminent worldwide
consumer products company.  The merger will combine James River's strong
marketing capabilities, brands and global reach with Fort Howard's low cost
manufacturing capabilities and proprietary technologies.  In connection with
the merger, which is subject to regulatory clearance and shareholder approvals
at special meetings scheduled for August 12, 1997, Fort Howard shareholders
will receive 1.375 shares of James River common stock for each Fort Howard
common share.  James River shareholders will retain their current number of
shares.  The new, combined company will be named Fort James Corporation.
Excluding an anticipated reorganization charge, the merger is expected to be
accretive to earnings.  The company anticipates that the merger will generate
operating cost savings of more than $200 million per year over time, resulting
from combining complementary technologies, optimizing product manufacturing
and logistics across the combined systems, increasing purchasing efficiencies,
eliminating redundant overhead costs, consolidating work forces where
duplication exists and increasing product quality and productivity.

    Outlook
    Commenting on the quarter, Miles Marsh, the company's chairman and chief
executive officer, said, "I am pleased to be able to report a continuing trend
of strong year-over-year operating performance improvement, occurring despite
lower average prices in many of our product lines.  Our stronger performance
is a direct result of our profit improvement efforts over the past two years,
which have allowed us to focus the company more strongly on our less cyclical
consumer products related businesses, to achieve meaningful cost reductions
and productivity improvements, to build our brand equities and strengthen
market positions, and to significantly improve our financial position.  The
increasing financial health of the company, together with the excellent
progress being made organizationally to smoothly combine the two companies,
provides us with a high level of confidence that our merger with Fort Howard
will get off to a strong start."
    James River Corporation, headquartered in Richmond, Va., is a leading
marketer and manufacturer of paper-based consumer products, packaging, and
business, printing and converting papers.  The second largest worldwide
producer of tissue products, James River markets such leading brands as
Quilted Northern bathroom tissue, Brawny paper towels, Vanity Fair napkins,
and Dixie cups and plates in North America, and Lotus bathroom tissue, towels,
and facial tissue in Europe.  The company also markets Quilt-Rap sandwich
wrap, Qwik Wave microwave packaging, and Eureka! and Word Pro copy papers.
James River's current annual sales rate is approximately $5.6 billion.
    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; satisfaction of the conditions to
close the merger with Fort Howard; 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.

    CONSOLIDATED STATEMENTS OF OPERATIONS
    James River Corporation of Virginia and Subsidiaries

                             Quarters Ended             Six Months Ended
    (in millions, except  June 29,      June 30,     June 29,      June 30,
      per share amounts)  1997 (a)   1996 (b)(c)     1997 (a)   1996 (b)(c)
    Net sales             $1,412.4      $1,570.2     $2,794.3      $3,125.6
    Cost of goods sold     1,029.1       1,177.9      2,048.3       2,359.9
    Selling and
     administrative expenses 251.0         286.5        501.2         560.1
    Severance and other items
     (income) expense       (57.7)           7.0       (57.7)          30.4
      Income from operations 190.0          98.8        302.5         175.2
    Interest expense          37.4          42.7         75.3          88.1
    Other income, net                                                      4
.9
         4.4         12.7           8.4
      Income before income
       taxes and minority
       interests             157.5          60.5        239.9          95.5
    Income tax expense        66.2          26.6        100.8          42.0
      Income before minority
       interests              91.3          33.9        139.1          53.5
    Minority interests       (0.5)         (3.4)        (0.8)         (2.5)
      Net income             $90.8         $30.5       $138.3         $51.0
    Preferred dividend
     requirements            (8.1)        (14.6)       (16.3)        (29.3)
      Net income applicable
       to common shares      $82.7         $15.9       $122.0         $21.7
    Net income per common
     share and common
     share equivalents        $.81          $.18        $1.19          $.25
    Weighted average number
     of common shares and
     common share
     equivalents             102.7          85.5        102.6          85.5
    Net income per common
     share and common share
     equivalents, assuming
     full dilution            $.78          $.18        $1.16          $.25
    Weighted average number
     of common shares and
     common share
     equivalents, assuming
     full dilution           115.2          85.5        105.6          85.5
    CONSOLIDATED BALANCE SHEETS
    James River Corporation of Virginia
     and Subsidiaries              June 29,    December 29,      June 30,
    (in millions)                      1997            1996          1996
    ASSETS:
    Cash and cash equivalents        $213.1           $33.8         $63.9
    Accounts receivable               696.5           717.9         842.8
    Inventories                       683.2           650.4         714.0
    Other current assets              118.8           117.6         125.0
      Total current assets          1,711.6         1,519.7       1,745.7
    Net property, plant
     and equipment                  3,531.8         3,751.5       3,965.3
    Investments in affiliates         161.5           154.6         148.9
    Other assets                      428.6           385.7         386.8
    Goodwill                          663.8           730.0         743.3
      Total assets                 $6,497.3        $6,541.5      $6,990.0
    LIABILITIES AND SHAREHOLDERS' EQUITY:
    Accounts payable and accrued
     liabilities                   $1,072.7        $1,103.4      $1,063.9
    Current portion of long-term
     debt                             126.0           116.9          21.5
      Total current liabilities     1,198.7         1,220.3       1,085.4
    Long-term debt                  1,824.2         1,853.9       2,294.7
    Accrued postretirement benefits
     other than pensions              457.8           458.0         466.3
    Other long-term liabilities       224.2           259.9         475.2
    Deferred income taxes             488.3           443.0         440.6
    Preferred stock                   738.4           738.4         740.3
    Common shareholders' equity     1,565.7         1,568.0       1,487.5
      Total liabilities and
       shareholders' equity        $6,497.3        $6,541.5      $6,990.0

    SEGMENT INFORMATION
    James River Corporation of Virginia and Subsidiaries
    (in millions)
                                    1st      2nd      3rd    4th      Year
                                    Qtr.     Qtr.     Qtr.   Qtr.

    1997 Net sales:
      Consumer products:
        North America              $687.5   $733.6                   $1,421.1
        Europe                      426.6    417.1                      843.7
      Packaging                     196.7    198.3                      395.0
      Communications papers         119.3    112.0                      231.3
      Intersegment elimination      (48.2)   (48.6)                     (96.8)
        Total net sales          $1,381.9 $1,412.4                   $2,794.3
    1996 Net sales (b):
      Consumer products:
        North America              $710.9   $745.2   $685.3   $668.4 $2,809.8
        Europe                      464.9    452.4    445.2    434.7  1,797.2
      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)   (47.9)   (48.9)  (231.7)
        Total net sales          $1,555.4 $1,570.2 $1,478.8 $1,367.5 $5,971.9
    1997 Income (loss) from operations (a):
      Consumer products:
        North America               $68.4    $84.0                     $152.4
        Europe                       45.3     42.0                       87.3
      Packaging                      21.2     23.8                       45.0
      Communications papers          (3.6)     0.4                       (3.2)
      General corporate expenses    (18.8)   (17.9)                     (36.7)
      Severance and other
        items income                          57.7                       57.7
        Income from operations     $112.5   $190.0                     $302.5
    1996 Income (loss) from operations (b)(c):
      Consumer products:
        North America               $63.6    $60.4    $80.7    $68.1   $272.8
        Europe                       24.8     41.8     47.8     38.5    152.9
      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    (22.6)   (23.6)   (25.3)   (24.7)   (96.2)
      Severance and other
        items (expense) income      (23.4)    (7.0)    30.3    (10.6)   (10.7)
        Income from operations      $76.4    $98.8   $161.2    $96.5   $432.9

    (a) Results for the second quarter of 1997 included a nonrecurring gain of
$57.7 million ($35.2 million net of taxes, or $.34 per share) on the sale of
95,000 acres of southern timberlands.

    (b) Results for the second quarter of 1996 included nonrecurring charges
of $7.0 million ($4.2 million net of tax benefits, or $.06 per share) for
severance costs and net losses on asset dispositions.  Results for the first
six months included nonrecurring charges of $30.4 million ($18.5 million net
of tax benefits, or $.22 per share) for severance costs and net losses on
asset dispositions.

    (c) Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation including a
reclassification of customer freight charges from net sales to cost of sales
of $73.4 million and $142.2 million for the quarter and six months ended June
30, 1996, respectively.

    CONSOLIDATED STATEMENTS OF CASH FLOWS
    James River Corporation of Virginia and Subsidiaries
                                        Six Months Ended
    (in millions)           June 29, 1997           June 30, 1996
    Operating activities:
     Net income                    $138.3                   $51.0
     Depreciation expense and cost
      of timber harvested           190.6                   205.3
     Amortization of goodwill        10.2                    10.3
     Deferred income tax provision   53.6                     4.8
     Undistributed earnings of
      unconsolidated affiliates     (1.7)                     3.9
     Severance and other items
      (income) expense             (57.7)                    30.4
     Change in current assets
      and liabilities:
       Accounts receivable         (31.8)                  (24.8)
       Inventories                 (47.9)                    67.0
       Other current assets           5.4                    (.3)
       Current liabilities           23.2                    31.5
     Foreign currency hedge        (31.5)
     Other, net                    (42.6)                  (20.6)
       Cash provided by operating
        activities                  208.1                   358.5
    Investing activities:
     Expenditures for property,
      plant and equipment         (133.7)                 (185.7)
     Cash received from sale
      of assets                     113.3                    66.5
     Other, net                       7.9                     3.0
       Cash used for investing
        activities                 (12.5)                 (116.2)
     Financing activities:
      Additions to long-term debt    38.9                     1.6
      Payments of long-term debt   (10.5)                 (192.6)
      Dividends paid               (54.8)                  (55.2)
      Common stock issued on exercise
       of stock options              10.1                     1.7
        Cash used for financing
         activities                (16.3)                 (244.5)
    Increase (decrease) in cash
     and cash equivalents          $179.3                  $(2.2)

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