SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


  For Quarter Ended: September 27, 1998          Commission File Number: 1-7911
----------------------------------------         ------------------------------

                             FORT JAMES CORPORATION
                            ----------------------
             (Exact name of registrant as specified in its charter)


       Virginia                                                 54-0848173
--------------------------------------------------------------------------------
 State or other jurisdiction of                             (I.R.S. Employer
  incorporation or organization)                            identification No.)


  1650 Lake Cook Road, Deerfield, IL                           60015-4753
--------------------------------------------------------------------------------
 (Address of principal executive offices)                        (Zip Code)



       Registrant's telephone number, including area code: (847) 317-5000
--------------------------------------------------------------------------------

                                 Not Applicable
--------------------------------------------------------------------------------
              (Former name, former address, and former fiscal year,
                          if changed since last report)

       Indicate by check mark whether the  registrant  (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of
  1934 during the  preceding 12 months,  and (2) has been subject to such filing
  requirements for the past 90 days. Yes X No

Number of shares of $.10 par value  common stock  outstanding  as of October 28,
1998:

                                  220,465,695 shares
                                   ----------


<PAGE>



                             FORT JAMES CORPORATION
                          QUARTERLY REPORT ON FORM 10-Q
                               September 27, 1998

<TABLE><S><C>

                                TABLE OF CONTENTS

                                                                        Page No.
PART I.  FINANCIAL INFORMATION:

      ITEM 1.  Financial Statements:

           Consolidated Balance Sheets as of September 27, 1998 and
               December 28, 1997                                              3

           Consolidated Statements of Operations for the quarters
               and nine months ended September 27, 1998 and
               September 28, 1997                                             5

           Consolidated Statements of Cash Flows for the nine months
               ended September 27, 1998 and September 28, 1997                6

           Notes to Consolidated Financial Statements                         7

      ITEM 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations                          12

      ITEM 3. Quantitative and Qualitative Disclosures About Market Risk     17

PART II.  OTHER INFORMATION:

      ITEM 1.  Legal Proceedings                                             17

      ITEM 2.  Changes in Securities                                         17

      ITEM 3.  Defaults Upon Senior Securities                               17

      ITEM 4.  Submission of Matters to a Vote of Security Holders           17

      ITEM 5.  Other Information                                             17

      ITEM 6.  Exhibits and Reports on Form 8-K                              17

      SIGNATURES                                                             18


</TABLE>



<PAGE>


PART I.  FINANCIAL INFORMATION

Item 1.           FINANCIAL STATEMENTS

                             FORT JAMES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                    September 27, 1998 and December 28, 1997
                        (in millions, except share data)

                                                   September      December
                                                     1998           1997
--------------------------------------------------------------------------------
ASSETS:

Current assets:
    Cash and cash equivalents                      $ 19.9        $ 33.6
    Accounts receivable                             967.0         787.8
    Inventories                                     868.6         854.3
    Deferred income taxes                           168.1         214.4
    Prepaid expenses and other current assets        18.9          26.4
--------------------------------------------------------------------------------

       Total current assets                       2,042.5       1,916.5
--------------------------------------------------------------------------------

Property, plant and equipment                     8,059.0       7,784.1
Accumulated depreciation                         (3,476.2)     (3,218.8)
--------------------------------------------------------------------------------

    Net property, plant and equipment             4,582.8       4,565.3

Goodwill                                            648.6         636.9

Other assets                                        596.8         614.5
--------------------------------------------------------------------------------
       Total assets                             $ 7,870.7     $ 7,733.2
================================================================================


               The accompanying notes are an integral part of the
                       consolidated financial statements.


<PAGE>



                             FORT JAMES CORPORATION
                     CONSOLIDATED BALANCE SHEETS, Continued
                        (in millions, except share data)


                                                       September      December
                                                          1998          1997
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities:
    Accounts payable                                      $ 634.9       $ 636.5
    Accrued liabilities                                     841.6         913.0
    Current portion of long-term debt                        40.2          34.4
--------------------------------------------------------------------------------

       Total current liabilities                          1,516.7       1,583.9
--------------------------------------------------------------------------------

Long-term debt                                            3,933.3       4,155.5
Deferred income taxes                                       727.5         650.8
Accrued postretirement benefits
    other than pensions                                     467.4         474.8
Other long-term liabilities                                 264.3         283.9
--------------------------------------------------------------------------------

       Total liabilities                                  6,909.2       7,148.9
--------------------------------------------------------------------------------

Preferred stock, $10 par value, 5.0 million
    shares authorized, issuable in series;
    3.3 million shares outstanding December 28, 1997            -         352.7

Common  stock,  $0.10  par  value,  500.0  million
    shares   authorized;   shares outstanding,
    September 27, 1998 -- 220.4 million and
    December 28, 1997 -- 209.3 million                       22.0          20.9
Additional paid-in capital                                3,189.2       2,807.9
Accumulated comprehensive loss                              (89.5)       (137.6)
Accumulated deficit                                      (2,160.2)     (2,459.6)
--------------------------------------------------------------------------------

       Total shareholders' equity                           961.5         584.3
--------------------------------------------------------------------------------

       Total liabilities and shareholders' equity       $ 7,870.7     $ 7,733.2
================================================================================

               The accompanying notes are an integral part of the
                       consolidated financial statements.


<PAGE>

                             FORT JAMES CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
          For the Quarters (13 Weeks)and Nine Months (39 Weeks)Ended
                    September 27, 1998 and September 28, 1997
                     (in millions, except per share amounts)

                                           Quarter               Nine months
                                       -----------------------------------------

                                         1998       1997        1998      1997
    ----------------------------------------------------------------------------

    Net sales                         $1,841.9   $1,825.4    $5,494.5  $5,497.5
    Cost of goods sold                 1,240.2    1,270.4     3,751.3   3,834.6
    Selling and administrative expenses  300.2      277.1       868.8     848.3
    Restructure and other unusual items   14.5       53.9        31.7      (3.8)
    ----------------------------------------------------------------------------
        Income from operations           287.0      224.0       842.7     818.4

    Interest expense                      71.7       87.3       220.6     277.6
    Other income (expense), net           (4.3)       9.5        (1.8)     20.7
    ----------------------------------------------------------------------------
        Income before income taxes
          and extraordinary item         211.0      146.2       620.3     561.5

    Income tax expense                    60.3       77.5       215.8     245.9
    ----------------------------------------------------------------------------
         Income before extraordinary
          item                           150.7       68.7       404.5     315.6

    Extraordinary loss on early
     extinguishment of debt, net of taxes    -      (45.2)       (2.6)    (47.1)
    ----------------------------------------------------------------------------
         Net income                      150.7       23.5       401.9     268.5

    Preferred dividend requirements          -       (8.1)       (5.2)    (37.3)
    ----------------------------------------------------------------------------
        Net income available to
          common stockholders          $ 150.7     $ 15.4     $ 396.7   $ 231.2
    ============================================================================
    Basic earnings per share:
        Income before extraordinary
          item                           $ 0.70     $ 0.31      $ 1.86   $ 1.45
        Extraordinary loss on early
           extinguishment of debt             -      (0.23)      (0.01)   (0.24)
    ----------------------------------------------------------------------------
             Net income                  $ 0.70     $ 0.08      $ 1.85   $ 1.21
    ----------------------------------------------------------------------------
    Weighted average common
     shares outstanding                  219.0      197.7       215.0     191.6
    ============================================================================
    Diluted earnings per share:
        Income before extraordinary
          item                          $ 0.69     $ 0.29      $ 1.84    $ 1.40
        Extraordinary loss on
          early extinguishment of debt       -      (0.22)      (0.01)    (0.22)
    ----------------------------------------------------------------------------
             Net income                 $ 0.69     $ 0.07      $ 1.83    $ 1.18
    ----------------------------------------------------------------------------
    Weighted average common shares and
         common share equivalents
           outstanding                   220.0      208.3       217.1     206.9
    ============================================================================

    Cash dividends per common share     $ 0.15     $ 0.15      $ 0.45    $ 0.45
    ============================================================================

               The accompanying notes are an integral part of the
                       consolidated financial statements.


<PAGE>


                             FORT JAMES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Nine Months (39 Weeks) Ended September 27, 1998
                             and September 28, 1997
                                  (in millions)
                                                          1998        1997
--------------------------------------------------------------------------------
Cash provided by (used for) operating activities:
  Net income                                            $ 401.9     $ 268.5
  Depreciation expense and cost of timber harvested       349.8       358.7
  Amortization of goodwill                                 14.6        15.1
  Deferred income tax provision                           128.0        78.3
  Restructure and other unusual items                      31.7        (3.8)
  Loss on early extinguishment of debt, net of tax          2.6        47.1
  Change in current assets and liabilities:
     Accounts receivable                                 (153.5)     (109.4)
     Inventories                                           (2.0)      (63.4)
     Prepaid expenses and other current assets              6.9        30.8
     Accounts payable and accrued liabilities              32.2        44.0
     Restructure and integration payments                (127.8)      (30.2)
  Foreign currency hedge                                      -       (31.5)
  Retirement benefits expense in excess of funding        (28.9)      (13.4)
  Other, net                                              (10.4)      (26.3)
--------------------------------------------------------------------------------

      Cash provided by operating activities               645.1       564.5
--------------------------------------------------------------------------------

Cash provided by (used for) investing activities:
  Expenditures for property, plant and equipment         (359.0)     (305.6)
  Proceeds from sale of assets                              5.9       144.3
  Other, net                                                6.1         5.3
-------------------------------------------------------------------------------
      Cash used for investing activities                 (347.0)     (156.0)
-------------------------------------------------------------------------------
Cash provided by (used for) financing activities:
  Additions to long-term debt                             466.1       633.4
  Payments of long-term debt                             (689.0)     (982.3)
  Common and preferred stock cash dividends paid         (106.6)      (82.4)
  Premiums paid on early extinguishment of debt            (3.2)      (45.5)
  Redemption of preferred stock                            (6.6)          -
  Proceeds from exercise of stock options                  27.5        68.3
--------------------------------------------------------------------------------

      Cash used for financing activities                 (311.8)     (408.5)
-------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents          (13.7)         -
Cash and cash equivalents, beginning of period             33.6        34.6
-------------------------------------------------------------------------------

Cash and cash equivalents, end of period                 $ 19.9      $ 34.6
================================================================================


               The accompanying notes are an integral part of the
                       consolidated financial statements.


<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Significant Accounting Policies
         --------------------------------

         Basis of Presentation:

     The  consolidated  financial  statements  of Fort  James  Corporation  (the
"Company" or "Fort James") have been prepared to give retroactive  effect to the
merger of a  wholly-owned  subsidiary  of James  River  Corporation  of Virginia
("James River") with and into Fort Howard  Corporation ("Fort Howard") on August
13, 1997. The merger was accounted for as a pooling of interests.  In connection
with the merger,  James River was renamed Fort James  Corporation.  Accordingly,
the  Company's  consolidated  financial  statements  have been  restated for all
periods  prior to the business  combination  to include the  combined  financial
results of James River and Fort Howard.

     In the  opinion of  management,  the  accompanying  unaudited  consolidated
financial  statements of Fort James contain all adjustments  (consisting of only
normal   recurring   accruals)   necessary  to  present   fairly  the  Company's
consolidated  financial  position  as of  September  27,  1998,  its  results of
operations  for the  quarters  (13  weeks)  and nine  months  (39  weeks)  ended
September  27, 1998   and  September  28, 1997,  and its cash flows for the nine
months (39 weeks) ended  September 27, 1998 and September 28, 1997.  The balance
sheet as of December 28, 1997 was derived from audited  financial  statements as
of that date.  The results of  operations  for the quarter and nine months ended
September 27, 1998 are not necessarily  indicative of the results to be expected
for the full year.

     Certain  amounts  in  the  financial  statements  and  supporting  footnote
disclosures   have  been   reclassified   to  conform  to  the  current   year's
classification.

         Adoption of Accounting Pronouncements:

     In 1998, the Company adopted Financial  Accounting Standards Board ("FASB")
Statement No. 130, "Reporting  Comprehensive  Income."  Comprehensive income for
the nine months ended  September 27, 1998   and  September 28, 1997,  was $450.0
million and $146.5 million,  respectively. The difference between net income and
comprehensive income is primarily due to unrealized foreign currency translation
losses and unrealized holding gains and losses on available-for-sale securities.

     In 1997, the FASB issued Statement No. 131,  "Disclosures about Segments of
an Enterprise and Related  Information" which establishes  standards for the way
public companies report information about operating segments,  including related
disclosure  about products and services,  geographic  areas and major customers.
The Company has not determined  what, if any, impact Statement No. 131 will have
on its reported  operating segments and the related  disclosures.  Statement No.
131 is effective for periods ending after December 15, 1998.

     In  February  1998,  the  FASB  issued   Statement  No.  132,  "Employer's
Disclosures  about Pensions and Other  Postretirement  Benefits an  amendment to
FASB  Statements  No. 87, No. 88, and No. 106" which will require the Company to
revise  disclosures  about  pension  and  other  postretirement  benefit  plans.
Statement No. 132 is effective  for fiscal years  beginning  after  December 15,
1997.

     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities".  This statement requires the recognition of
all  derivatives  in the  statement  of financial  position as either  assets or
liabilities  and their  measurement at fair value.  Depending upon the nature of
the  derivative,   changes  in  fair  value  are  either   recognized  in  other
comprehensive  income or in earnings.  The Company has not  determined  what, if
any, impact  Statement No. 133 will have on the Company's  results of operations
or financial position. Statement No. 133 is effective for fiscal years beginning
after June 15, 1999.

     In April  1998,  the AICPA  issued  Statement  of  Position  ("SOP")  98-5,
"Reporting on the Costs of Start-Up  Activities".  This SOP provides guidance on
the financial  reporting of start-up and  organization  costs.  It requires such
costs to be expensed as incurred  and is effective  for fiscal  years  beginning
after December 15, 1998. The Company is currently  evaluating the impact of this
new statement.

<PAGE>

2.       Restructure and Other Unusual Items
         ----------------------------------- 
     Results for the quarter and nine months ended  September  27, 1998 included
net pretax  charges for  restructure  and other  unusual  items of $14.5 million
($8.9 million net of taxes or $0.04 per diluted  share) and $31.7 million ($19.4
million net of taxes or $0.09 per diluted share),  respectively.  Pretax charges
for the nine months ended September 27, 1998 included $65 million for severance,
relocation  and other  merger-related  costs,  which were not  accruable in 1997
under generally  accepted  accounting  principles,  and were partially offset by
contract   terminations  on  terms  more  favorable  than   anticipated  in  the
restructure  plan. In addition,  the Company  reversed  $10.5 million ($0.05 per
diluted  share for both the  quarter  and nine  months)  of  merger-related  tax
reserves established in 1997 in accordance with temporary IRS regulations, which
have since been rescinded.

     Since December 28, 1997,  accruals for restructure  costs have been reduced
by  approximately  $168.4 million for charges  related to facility  closures and
asset  write-downs,  severance,  contract  terminations,  and other  restructure
costs. Payments for restructure related expenses, including merger-related costs
which were not  accruable in 1997,  totaled  $127.8  million for the nine months
ended September 27, 1998.

     Results for the third quarter of 1997 included a non tax-deductible  charge
of $53.9 million ($0.25 per diluted share) for fees and expenses associated with
the merger of James  River and Fort  Howard and an  extraordinary  charge on the
early  extinguishment  of debt of $74.9 million  ($45.2  million net of taxes or
$0.22 per diluted  share).  Results  for the first nine months of 1997  included
transaction  costs and an  extraordinary  loss on early  extinguishment  of debt
($47.1 million net of taxes or $0.22 per diluted share). These costs were offset
by a nonrecurring gain of $57.7 million ($35.2 million net of taxes or $0.16 per
diluted share) on the sale of southern timberlands.

3.       Net Income Per Common Share and Common Share Equivalent
         -------------------------------------------------------

         Income and share information used in determining earnings per share for
the quarters and nine months ended  September 27, 1998   and September 28, 1997,
were calculated as follows (in millions):

                                          1998                    1997
                                    --------------------------------------------
                                    Income     Shares      Income      Shares
--------------------------------------------------------------------------------
Quarter:
Income before extraordinary item    $150.7                   $ 68.7
Less: Preferred stock dividends                                (8.1)
--------------------------------------------------------------------------------
Amounts used to compute basic
     earnings per share              150.7       219.0         60.6      197.7
Effect of dilutive securities:
   Options                                         1.0                     2.7
   Convertible preferred stock                                             7.9
--------------------------------------------------------------------------------
Amounts used to compute diluted
      earnings per share            $150.7       220.0       $ 60.6      208.3
--------------------------------------------------------------------------------
Nine Months:
Income before extraordinary item    $404.5                   $315.6
Less: Preferred stock dividends       (5.2)                   (37.3)
--------------------------------------------------------------------------------
Amounts used to compute basic
      earnings per share              399.3      215.0        278.3      191.6
Effect of dilutive securities:
   Options                                         2.1                     2.5
   Convertible preferred stock                                 12.9       12.8
--------------------------------------------------------------------------------
Amounts used to compute diluted
     earnings per share              $399.3      217.1       $291.2      206.9
================================================================================

         Series K, L and N preferred  stocks were  antidilutive  for all periods
presented.  An immaterial  number of outstanding  options to purchase  shares of
common  stock for which the  exercise  price of the option was greater  than the
average market price of the common shares were excluded from the  computation of
diluted earnings per share.

<PAGE>
4.       Other Income (Expense)
         ----------------------

     The  components of other income  (expense)  were as follows for the quarter
 and nine months ended September 27, 1998 and September 28, 1997 (in millions):
 
                                         Quarter           Nine months
                                  ----------------------------------------------
                                       1998      1997       1998          1997
--------------------------------------------------------------------------------
Interest and investment income        $ -       $ 2.7        $ 1.4      $ 7.6
Equity (loss)in  earnings
     of unconsolidated affiliates      1.9        1.6         (0.4        5.6
Gain on sale of assets                  -         6.1          2.8        8.7
Minority interests                    (1.4)      (1.6)        (3.2)      (1.6)
Foreign currency exchange
     gain (loss)                      (6.1)      -            (5.9)      (0.4)
Other, net                             1.3        0.7          3.5        0.8
--------------------------------------------------------------------------------

    Total other income (expense)    $ (4.3)     $ 9.5       $ (1.8)    $ 20.7
================================================================================

5.       Income Taxes
         ------------

         The  Company's  effective  income tax rate,  excluding  tax  effects of
restructure  and  other  unusual  items,  was 36.5%  for the nine  months  ended
September  27,  1998,  compared to 40.1% for the first nine months of 1997.  The
decrease in the  effective tax rate from the prior year was primarily the result
of the benefits of tax planning actions.

     Including  restructure and other unusual items,  the effective tax rate was
34.8% for the nine months ended  September  27, 1998,  compared to 43.8% for the
first nine months of 1997.  The reported  effective  tax rates were  impacted by
non-deductible  merger  costs in 1997 and the  reversal  of  merger-related  tax
reserves in 1998.

6.       Inventories
         -----------

         The components of inventories were as follows as of  September  27,1998
and December 28,1997 (in millions):

                                                   September         December
                                                      1998             1997
--------------------------------------------------------------------------------
Raw materials                                       $ 183.4          $ 184.3
Finished goods and work in process                    554.5            550.2
Stores and supplies                                   168.8            159.4
--------------------------------------------------------------------------------
                                                      906.7            893.9
Reduction to state certain inventories
  at last-in, first-out cost                          (38.1)           (39.6)
--------------------------------------------------------------------------------

    Total inventories                                $ 868.6          $ 854.3
================================================================================


7.       Commitments and Contingent Liabilities
         --------------------------------------

         Environmental Matters:

     Like its  competitors,  the Company is subject to extensive  regulation  by
various federal,  state,  provincial,  and local agencies concerning  compliance
with  environmental  control statutes and regulations.  These regulations impose
limitations,  including effluent and emission  limitations,  on the discharge of
materials  into the  environment  as well as require  the  Company to obtain and
operate in  compliance  with the  conditions  of permits and other  governmental
authorizations.  Future  regulations  could  materially  increase the  Company's
capital requirements and certain operating expenses in future years.
 
     The Company has been identified as a potentially responsible party ("PRP"),
along with  others,  at various U.S.  Environmental  Protection  Agency  ("EPA")
designated  Superfund  sites and is  involved  in  remedial  investigations  and
actions under federal and state laws. Among these sites, the Company, along with
six other current and former  operators of pulp and paper  facilities,  has been
identified  as a PRP by the U.S.  Fish and Wildlife  Service and other state and
federal   agencies,   including   the  EPA,  and  tribal   entities,   regarding
contamination of the lower Fox River by hazardous substances. These agencies and
tribes seek primary restoration of the river and natural resources damages.  The
Company, in conjunction with other PRPs, is engaged in negotiations with federal
and state agencies and tribes to resolve outstanding claims.

     It is the Company's policy to accrue remediation  costs on an  undiscounted
basis when it is probable  that such costs will be incurred  and when a range of
loss can be reasonably estimated.  As of September 27, 1998, Fort James' accrued
environmental  liabilities,  including  remediation and landfill  closure costs,
totaled $56.8 million.

         Litigation:
 
     In May 1997,  the  Attorney  General of the State of Florida  filed a civil
action in the United States District Court for the Northern  District of Florida
at Gainesville  (the "Florida  District  Court"),  against the Company and seven
other manufacturers of sanitary commercial paper products alleging violations of
federal and state  antitrust and unfair  competition  laws. The complaint  seeks
damages  on  behalf  of the  state  under  Florida  law of $1  million  for each
violation  against each  defendant,  unspecified  treble  damages and injunctive
relief. Three other state attorney generals have brought similar suits which are
expected to be consolidated in the Florida District Court. In addition, numerous
other filings have been filed in federal courts on behalf of an alleged class of
direct purchasers,  all seeking similar damages for similar alleged  violations.
The class actions were  consolidated in the Florida  District Court, and in July
1998, the Court conditionally certified the class. State class actions also have
been  filed in  certain  states,  on  behalf  of an  alleged  class of  indirect
purchasers,  seeking similar damages for similar alleged  violations under state
law. The Company  believes  that these cases are without merit and is vigorously
defending both the federal and state actions.

     Although the ultimate  disposition of legal proceedings cannot be predicted
with certainty,  it is the opinion of the Company's  management that the outcome
of any  claim  which is  pending  or  threatened,  either  individually  or on a
combined  basis,  will not have a material  adverse  effect on the  consolidated
financial  condition  of  Fort  James  but  could  have  a  material  effect  on
consolidated results of operations in a given quarter or year.

 8.      Fort James Operating Company
         -----------------------------

     Fort James Operating  Company ("FJOC") is an obligor of certain  securities
registered  under the  Securities Act of 1933,  thus  subjecting it to reporting
requirements under Section 13 or 15 (d) of the Securities  Exchange Act of 1934.
In accordance  with Staff  Accounting  Bulletin No. 53, the following  condensed
financial  information for FJOC for the quarters and nine months ended September
27, 1998 and  September  28, 1997 and as of September  27, 1998 and December 28,
1997 is  presented  in lieu of  consolidated  financial  statements  because the
securities are fully and unconditionally guaranteed by Fort James and management
has  determined  that such  information  is not  material  to the holders of the
securities:

                                          Quarter               Nine months
                                     -------------------------------------------
(in millions)                         1998       1997        1998          1997
--------------------------------------------------------------------------------
Condensed income statement information:
Net sales                         $ 1,242.8   $ 1,232.1   $ 3,682.1   $ 3,680.3
Gross profit                          394.1       371.1     1,142.4     1,098.1
Income before extraordinary item      (29.2)       36.2        68.5       155.9
Income before extraordinary item
     and nonrecurring and other
     unusual items                    (20.6)       69.1         85.1      188.8
Net income                            (29.2)       19.3         65.9      137.1
================================================================================

                                    September     December
(in millions)                         1998         1997
-----------------------------------------------------------
Condensed balance sheet information:
Current assets                     $ 1,005.0     $ 928.4
Noncurrent assets                    3,484.7     3,292.8
Current liabilities                    727.8       861.1
Noncurrent liabilities               5,158.3     4,989.3
Deficit                             (1,396.4)   (1,629.2)
============================================================




<PAGE>



Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Results of Operations

Overview
--------

                                          Quarter              Nine Months
(in millions)                         1998     1997         1998        1997
                                  ----------------------------------------------
Net sales                         $1,841.9   $1,825.4   $ 5,494.5   $ 5,497.5
Income from operations
   before restructure
   and nonrecurring items            301.5      277.9       874.4       814.6
Net income                           150.7       23.5       401.9       268.5
Net income before restructure
   and nonrecurring items            149.1      122.6       413.4       334.3
Diluted earnings per share:
   Net income                       $ 0.69     $ 0.07      $ 1.83      $ 1.18
   Net income before restructure 
      and non recurring items       $ 0.68     $ 0.54      $ 1.88      $ 1.49
                                  ==============================================
                                

Items Affecting Comparability
-----------------------------

     Third quarter results for both 1998 and 1997 included certain non-recurring
items. Results for the current quarter included a pretax charge of $14.5 million
($8.9 million net of taxes or $0.04 per diluted share) for merger-related  costs
not accruable in 1997. In addition,  the Company  reversed  $10.5 million ($0.05
per diluted share) of merger-related  tax reserves that were established in 1997
in accordance with temporary IRS  regulations,  which have since been rescinded.
Results for the third quarter of 1997 reflected a non  tax-deductible  charge of
$53.9 million  ($0.25 per diluted share) for fees and expenses  associated  with
the merger of James  River and Fort  Howard and an  extraordinary  charge on the
early  extinguishment  of debt of $74.9 million  ($45.2  million net of taxes or
$0.22 per diluted share).

     For the nine months  ended  September  27, 1998,  the Company  recorded net
charges for  restructure  and other unusual items of $31.7 million ($8.9 million
net of taxes including the reversal of tax reserves, or $0.04 per diluted share)
and an extraordinary  loss on the early  extinguishment  of debt of $4.2 million
($2.6  million net of taxes or $0.01 per diluted  share).  Results for the first
nine months of 1997 included the third quarter merger costs and an extraordinary
loss on early  extinguishment  of debt ($47.1  million net of taxes or $0.22 per
diluted share).  These costs were offset by a nonrecurring gain of $57.7 million
($35.2 million net of taxes  or $0.16 per diluted share) on the sale of southern
timberlands.

North American Consumer Products Business
-----------------------------------------

                                          Quarter               Nine months
                                    ------------------  -----------------------
 (in millions)                         1998      1997         1998      1997
                                     -------------------------------------------
 Net sales                         $ 1,122.4 $ 1,109.2    $ 3,329.1  $ 3,313.8
 Income from operations                240.5     219.9        685.3      713.3
 Restructure and other unusual items    (4.6)        -        (19.6)      57.7
 Segment results before restructure --------------------------------------------
     and other unusual items        $  245.1 $  219.9     $  704.9   $   655.6
                                     ===========================================
 
                                    
     The North American  Consumer  Products  Business  posted  improved  segment
results before  restructure and other unusual items on comparable sales, both in
the  current  quarter  and   year-to-date.   Merger  synergies  and  other  cost
reductions,  higher  retail  pricing and strong  retail  tissue  volume were the
primary  drivers of the improved  profitability.  These  favorable  factors were
partially offset by raw material cost inflation.  Competitive  conditions in the
away-from-home  tissue  business  resulted in  marginally  lower pricing for the
third  quarter and flat  pricing  year-to-date.  During the third  quarter,  the
Company  completed the  successful  start-up of a new 65,000-ton per year tissue
machine at its Savannah River Mill.  Product  rationalization  activities in the
food service area resulted in lower Dixie cup and plate volumes;  however, Dixie
margins  continued to increase due to modestly  higher  average  prices and cost
reduction benefits.


European Consumer Products Business
-----------------------------------
                                           Quarter               Nine months
                                    --------------------  ----------------------
 (in millions)                        1998      1997         1998        1997
                                    --------------------------------------------
 Net sales                         $ 463.5   $ 438.5    $ 1,387.7   $ 1,376.5
 Income from operations               58.9      48.3        170.8       153.6
 Restructure and other unusual
      items                           (0.4)        -         (1.6)          -
 Segment results before restructure --------------------------------------------
     and other unusual items       $ 59.3    $  48.3    $   172.4   $   153.6
                                   ============================================
 
                                    
     The European Consumer  Products Business reported a 23 percent  improvement
in segment  results before  restructure  and other unusual items for the quarter
and a 12  percent  improvement  year-to-date.  The  strong  improvement  for the
quarter  was the result of higher  finished  goods  volumes  and cost  reduction
efforts,  partially offset by lower prices. Finished goods sales volumes for the
quarter averaged 8 percent higher than the prior year, with above-market  growth
rates posted in most countries.  Year-to-date  results reflected strong finished
goods  volume  growth,  though  somewhat  less  than for the  quarter,  and flat
pricing.

Packaging Business
------------------
                                          Quarter              Nine months
                                    --------------------  ----------------------
 (in millions)                         1998      1997         1998        1997
                                    --------------------------------------------
 Net sales                          $ 184.1   $ 200.0      $ 550.4     $ 595.0
 Income from operations                14.8      22.7         37.9        67.7
 Restructure and other unusual items   (1.8)        -         (3.6)          -
 Segment results before restructure  -------------------------------------------
     and other unusual items        $  16.6   $  22.7      $  41.5     $  67.7
                                     ===========================================
                                    
     Packaging  results  before  restructure  and other unusual  items  declined
compared to the prior year due to a combination of reduced  volumes  following a
turnover in  customer  base and lower  average  carton and  paperboard  pricing.
Sequentially,  however,  profits improved modestly in the last three quarters as
the business continues to rebuild volume

Communications Papers Business
------------------------------

                                         Quarter                  Nine months
                                     --------------------  ---------------------
  (in millions)                       1998      1997         1998        1997
                                     -------------------------------------------
 Net sales                         $ 113.7   $ 117.8      $ 358.8     $ 349.1
 
 Income from operations            $   2.8   $  11.0      $  21.7     $   7.8
                                     ===========================================

     Third quarter results for the  Communications  Paper Business declined over
prior year due to lower  prices and  volumes  for  uncoated  free sheet  papers,
partially   offset  by  improved   pricing  for  uncoated   groundwood   papers.
Year-to-date,  favorable  pricing in both  uncoated  free  sheet and  groundwood
papers was primarily responsible for the improved operating results.

<PAGE>

Other Income and Expense Items
------------------------------

     Lower  average   borrowing  costs  and  reduced  debt  levels  continue  to
positively  impact  interest  costs.  For the current  quarter,  interest  costs
declined by $15.6 million, or 18 percent. Year-to-date interest expense declined
by $57.0 million, or 21 percent.

     The company reported other,  non-operating  expenses of $4.3 million in the
current  quarter,  compared  to other  income of $9.5  million in 1997.  Foreign
currency   translation  losses  at  our  Canadian  subsidiary  accounted  for  a
significant portion of the change. For the nine months, other expenses were $1.8
million in 1998 compared to other income of $20.7 million in 1997.

     The  Company's  effective  income  tax  rate,   excluding  tax  effects  of
restructure and other unusual items,  was 36.5 percent for the nine months ended
September 27, 1998,  compared to 40.1 percent for the first nine months of 1997.
The decrease in the  effective  tax rate from the prior year was  primarily  the
result of the benefits of tax planning actions.  Including restructure and other
unusual items, the effective tax rate was 34.8 percent for the nine months ended
September 27, 1998,  compared to 43.8 percent for the first nine months of 1997.
The reported effective tax rates were impacted by non-deductible merger costs in
1997 and the reversal of merger-related tax reserves in 1998.

Effect of New Accounting Standards
----------------------------------
         See Note 1 to the Consolidated Financial Statements.

Year 2000 
---------
     In 1997,  the Company  commenced an  enterprise-wide  project to assess and
implement  necessary  changes for all areas of the Company's  business to ensure
that computer  based systems and  applications  will  recognize and process date
sensitive  information on and after January 1, 2000 (Year 2000). The assessments
were conducted on the Company's business computer systems (including  mainframe,
midrange desktop, communications,  and research and development),  manufacturing
control  systems and other imbedded chip devices within Company  facilities.  In
addition,  the Company is surveying customers,  suppliers and other stakeholders
to assess their level of Year 2000 readiness.

     The assessment and remediation  efforts for the Company's business computer
systems are centrally managed by the Company's staff,  with substantial  support
from  outside  consultants.  The project  procedures  for  identifying  affected
assets, making programming changes, replacing software and hardware, and testing
are  designed to ensure that there is no material  adverse  effect on any of the
Company's  core  businesses.  The  Company is well under way with these  efforts
which are presently  scheduled to be completed during the third quarter of 1999,
however, additional refinements and testing may continue through the end of that
year.

     In 1997 and for the nine months ended September 27, 1998, the Company spent
approximately  $8  million  and $25  million,  respectively,  on the  Year  2000
project.  While it is difficult,  at present, to fully quantify the overall cost
of this work, the Company  currently  estimates total spending of  approximately
$85 million to $95 million to make the required  Year 2000 system  modifications
and replacements and for testing.  The range is a function of ongoing evaluation
as to whether certain systems and equipment will be corrected or replaced, which
is largely  dependent  on  information  to be obtained  from  suppliers or other
external sources.  Costs for system maintenance and modification are expensed as
incurred  while  spending  for new  software or to replace  existing  systems is
capitalized and amortized over the assets' useful lives.

     The foregoing timetable and assessments of costs reflect  management's best
estimates. These estimates were derived utilizing numerous assumptions of future
events. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant  computer codes,  and the ability
of  technology  vendors to deliver  new  systems  on  schedule.  There can be no
assurance,  however,  that these  estimates  will be achieved and actual results
could differ materially from those anticipated.

     The  Company  expects  its Year 2000  project to be  completed  on a timely
basis;  however, due to the interdependent  nature of computer systems there can
be no  assurance  that the  systems  of other  entities  on which the  Company's
systems rely will be remediated in a timely manner. The inability of the Company
or its customers or suppliers to resolve their Year 2000 problems, may result in
production delays and the inability to process orders or deliver finished goods.
The Company is in the process of developing a comprehensive  contingency plan to
minimize its exposure if its own Year 2000 project is not properly  completed in
time. Additionally, the Company is working to minimize the risks associated with
a customer  or  supplier  not  resolving  its Year 2000  problems as part of its
contingency planning process.  There can be no assurance that these efforts will
prevent the failure to become Year 2000 capable  from having a material  adverse
affect on the Company's financial condition or results of operations.

Euro Conversion
---------------
     On January 1, 1999,  eleven of the fifteen  members of the  European  Union
(the  "Participating  Countries")  are scheduled to establish  fixed  conversion
rates between their existing sovereign  currencies (the "Legacy Currencies") and
a single currency called the Euro. For a three-year  transition period, both the
Euro and the Legacy Currencies will remain in circulation.  After June 30, 2002,
the Euro will be the sole  legal  tender  of the  participating  countries.  The
adoption of the Euro will affect a multitude of  financial  systems and business
applications  as the commerce of these  nations will be  transacted  in both the
Euro and the existing national currency during the transition period.

     The Company has  operations in seven of the  Participating  Countries.  The
Company's European businesses affected by the Euro conversion are in the process
of establishing  plans to address the systems issues raised by the Euro currency
conversion  and  are  cognizant  of  the  potential  business   implications  of
converting  to a common  currency.  As part of these  plans,  the  Company  will
evaluate its information  technology systems. At this time,  management believes
that  significant changes will not be required to accommodate the conversion and
transition  to the  Euro.  The  Company  is  unable to  determine  the  ultimate
financial  impact of the  conversion on its  operations,  if any, given that the
impact will be  dependent  upon the  competitive  situations  which exist in the
various regional markets in which the Company participates and potential actions
which may or may not be taken by the Company's competitors and suppliers.

Financial Condition
-------------------
     Cash provided by operating  activities  totaled  $645.1 million in the nine
months of 1998,  compared with $564.5 million in the prior year. The increase is
primarily due to higher earnings offset by restructure,  merger, and integration
spending.  During  the first  nine  months of 1998,  the  Company  spent  $127.8
million,  excluding  tax  benefits,  on  restructure-related  items and achieved
estimated  synergy  and cost  related  savings  in  excess of $200  million.  In
addition,  productivity  improvements  to  the  Company's  paper  machines  have
resulted in  approximately  64,000 tons of incremental  tissue  production.  The
Company's current ratio was 1.3 as of September 27, 1998, and 1.2 as of December
28, 1997, while working capital  increased to $525.8 million from $332.6 million
for the same periods. The increase in working capital is primarily due to higher
accounts  receivable.  Capital  expenditures  were  $359.0  million for the nine
months ended  September 27, 1998,  compared to $305.6 million in the prior year.
The increase in capital  expenditures is primarily  attributable to construction
of the new tissue machine at the Savannah River Mill.

     Total  indebtedness  decreased by $216.4  million from $4,190 million as of
December 28, 1997,  to $3,974  million as of September 27, 1998. As of September
27, 1998, the Company had outstanding borrowings of approximately $1,138 million
supported  by  revolving  credit  facilities  compared  to $1,732  million as of
December  28,  1997.  In March 1998,  the Company  issued $300 million of 6.234%
notes and in August 1998 issued $81 million in tax-exempt  municipal  bonds with
an interest rate of 5.625%. The proceeds from both issuances were used to reduce
borrowings  under the  revolving  credit  facilities.  As of September 27, 1998,
total  outstanding  debt  (including the effect of interest rate swaps) included
approximately  $2,847  million of fixed rate and $1,127 million of floating rate
obligations compared to $2,266 million and $1,924 million,  respectively,  as of
December 28, 1997.  The change in  fixed/floating  rate  obligations  was caused
primarily by the expiration of approximately  $500 million in interest rate swap
contracts that exchanged fixed for floating  interest rates. As of September 27,
1998,  under the most  restrictive  provisions of the Company's debt agreements,
Fort James had additional borrowing capacity of approximately $2.1 billion.

     Forward-looking  statements  in this  report are made  pursuant to the safe
harbor provisions of the Private Securities  Litigation Reform Act of 1995. Such
forward-looking  statements  are not  guarantees of future  performance  and are
subject to risks and  uncertainties  that could cause actual results and Company
plans and objectives to differ  materially from those projected.  Such risks and
uncertainties  include,  but are not limited to,  general  business and economic
conditions; competitive pricing pressures for the Company's products; changes in
raw material, energy and other costs; and opportunities that may be presented to
and  pursued by the  Company;  determinations  by  regulatory  and  governmental
authorities;  the ability to  successfully  integrate the former James River and
Fort  Howard  businesses;  the  ability  to achieve  synergistic  and other cost
reductions and efficiencies; and the ability to successfully remediate Year 2000
problems.

<PAGE>

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         None

PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS.

     In the fourth  quarter of 1997,  Fort James  received a notice of violation
from the Maine Department of  Environmental  Protection  concerning  alleged air
emission license violations between 1991 and 1997. The case has been settled and
the Company has paid $73,000 in penalties.

     See footnote 7 to the Consolidated  Financial  Statements of this Quarterly
Report on Form 10-Q for additional litigation.

Item 2.  CHANGES IN SECURITIES.

         None.

Item 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None

Item 5.  OTHER INFORMATION.

         None.

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits:

                  The exhibits  listed below are filed as part of this quarterly
                  report.  Each  exhibit  is  listed  according  to  the  number
                  assigned to it in the Exhibit  Table of Item 601 of Regulation
                  S-K.

                 Exhibit
                  Number

                  10       Separation Agreement and Mutual Release

                  27       Financial  Data  Schedules  for the nine months ended
                           September 27, 1998 (filed electronically only)

         (b)      Reports on Form 8-K:
                           No  reports  on Form  8-K were  filed by the  Company
         during the quarter ended September 27, 1998, and subsequent thereto.





<PAGE>




                                 SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                             FORT JAMES CORPORATION


                               By:/s/William A. Paterson
                               William A. Paterson
                               Senior Vice President and Controller
                              (Principal Accounting Officer)




  Date:  November 11, 1998