SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1993
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-3053
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Champion International Corporation
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(Exact name of registrant as specified in its charter)
New York 13-1427390
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State or other jurisdiction of incorporation (I.R.S. Employer
or organization Identification No.)
One Champion Plaza, Stamford, Connecticut 06921
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(Address of principal executive offices)
(Zip Code)
203-358-7000
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(Registrant's telephone number, including area code)
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1993
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Common stock, $.50 par value 92,909,263
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
(in thousands, except per share)
Three Months Ended
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March 31,
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1993 1992
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Net Sales $1,266,976 $1,200,277
Cost of products sold 1,163,183 1,106,937
Selling, general, and administrative expenses 74,047 72,373
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Income From Operations 29,746 20,967
Interest and debt expense 53,573 53,268
Other (income) expense - net (Note 2) 22,946 (15,142)
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Income (Loss) Before Income Taxes and Cumulative Effect of
Accounting Changes (46,773) (17,159)
Income Taxes (18,709) (10,355)
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Income (Loss) Before Cumulative Effect of Accounting Changes (28,064) (6,804)
Cumulative Effect of Accounting Changes,
Net of Taxes (Note 3) (7,523) (454,314)
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Net Income (Loss) $ (35,587) $ (461,118)
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Dividends on Preference Stock 6,938 6,938
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Net Income (Loss) Applicable to Common Stock $ (42,525) $ (468,056)
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Average Number of Common Shares Outstanding 92,692 92,605
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Earnings (Loss) Per Common Share (Exhibit 11):
Income (Loss) Before Cumulative Effect of
Accounting Changes $ (.38) $ (.15)
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Cumulative Effect of Accounting Changes $ (.08) $ (4.90)
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Net Income (Loss) $ (.46) $ (5.05)
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Cash dividends declared $ .05 $ .05
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The accompanying notes are an integral part of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
March 31, December 31
1993 1992
(unaudited)
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ASSETS:
Current Assets:
Cash and cash equivalents $ 43,527 $ 36,678
Short-term investments 55,021 54,932
Receivables - net 495,379 469,846
Inventories 480,386 479,511
Prepaid expenses 24,857 24,622
Deferred income taxes 75,374 76,911
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Total Current Assets 1,174,544 1,142,500
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Timber and timberlands, at cost - less cost
of timber harvested 2,009,884 2,011,567
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Property, plant, and equipment, at cost 8,362,307 8,218,903
Less - Accumulated Depreciation (2,552,391) (2,456,043)
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5,809,916 5,762,860
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Other assets and deferred charges 463,885 464,505
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Total Assets $9,458,229 $9,381,432
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities
Current installments of long-term debt $ 21,234 $ 21,147
Accounts and notes payable and accrued
liabilities 727,775 757,092
Income taxes 9,652 8,132
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Total Current Liabilities 758,661 786,371
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Long-term debt 3,457,215 3,290,875
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Other liabilities 649,948 637,275
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Deferred income taxes 1,124,139 1,159,244
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Minority interest in subsidiaries 52,239 48,864
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Preference stock, $1.00 par value, $92.50
cumulative convertible series (redeemable
for $300,000) 300,000 300,000
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Shareholders' Equity:
Capital Shares -
Common (92,881,474 and 92,879,567 shares
outstanding at March 31, 1993 and
December 31, 1992 respectively) 48,111 48,079
Capital Surplus 1,159,773 1,158,150
Retained Earnings 2,016,950 2,064,120
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3,224,834 3,270,349
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Treasury shares, at cost (100,242) (100,201)
Cumulative translation adjustment ( 8,565) (11,345)
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Total Shareholders' Equity 3,116,027 3,158,803
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Total Liabilities and Shareholders' Equity $9,458,229 $9,381,432
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The accompanying notes are an integral part of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in thousands of dollars)
Three Months Ended
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March 31,
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1993 1992
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Cash flows from operating activities:
Net Income (Loss) $ (35,587) $(461,118)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Cumulative effect of accounting changes 7,523 454,314
Depreciation expense and cost of timber harvested 106,479 94,904
Deferrals of pre-operating and start-up costs (6,490) (3,443)
(Increase)/decrease in receivables (24,996) (14,120)
(Increase)/decrease in inventories 302 (986)
(Increase)/decrease in prepaid expenses (140) 2,042
Increase/(decrease) in accounts and notes payable and accrued
liabilities (21,215) (31,626)
Increase/(decrease) in accrued interest payable 19,725 11,437
Increase/(decrease) in income taxes 1,451 (4,250)
Increase/(decrease) in other liabilities 2,072 (1,542)
Increase/(decrease) in deferred income taxes (19,305) (11,690)
All other - net 10,757 3,872
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Net cash provided by (used in) operating activities 40,576 37,794
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Cash flows from investing activities:
Expenditures for property, plant, and equipment (135,852) (102,656)
Timber and timberlands expenditures (23,224) (16,719)
Proceeds from sales of property, plant, and equipment
and timber and timberlands 10,621 33,511
All other - net (2,609) (19,669)
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Net cash provided by (used in) investing activities (151,064) (105,533)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 258,834 248,454
Payments of current installments of long-term debt
and long-term debt (130,746) (159,235)
Cash dividends paid (11,580) (11,584)
All other - net 829 (2,794)
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Net cash provided by (used in) financing activities 117,337 74,841
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Increase/(decrease) in cash and cash equivalents 6,849 7,102
Cash and Cash Equivalents:
Beginning of period 36,678 112,696
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End of period $ 43,527 $ 119,798
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Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 31,693 $ 42,295
Income taxes (net of refunds) (116) 7,037
The accompanying notes are an integral part of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1993
Note 1.
The unaudited information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary to present fairly a
statement of the results for the interim periods reported. All such adjustments
made were of a normal recurring nature.
Note 2.
Other (income) expense - net for 1992 includes non-recurring pre-tax income of
$20 million from the sale of timberlands and from certain environmental
litigation settlements received by the company.
NOTE 3.
In the fourth quarter of 1993, the company adopted, retroactive to January 1,
1993, Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits". The standard requires an accrual
method of accounting for postemployment benefits. Prior to adoption, the
company was on a cash basis of accounting for certain of these postemployment
benefits. The cumulative effect of adopting Statement No. 112 as of January 1,
1993, resulted in an after-tax charge of $7.5 million ($.08 per share) to 1993
earnings after reduction of approximately $4.7 million for income tax effects.
The effect of adoption on 1993 results, after recording the cumulative effect,
was not material.
The cumulative effect of accounting changes for the three months ended March 31,
1992 is the after-tax effect of adopting a new accounting standard for
postretirement benefits other than pensions and a new accounting standard for
income taxes.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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Results of Operations
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Summary
In the fourth quarter of 1993, the company adopted, retroactive to January 1,
1993, Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits". The cumulative effect of adopting SFAS
No. 112, as of January 1, 1993, resulted in an after-tax charge of $7.5 million
($.08 per share) to 1993 earnings after reduction of approximately $4.7 million
for income tax effects.
Results for the first quarter of 1993 declined from a year ago and were
approximately even with last year's fourth quarter. The company reported a
first quarter loss before the cumulative effect of an accounting change of $28
million, compared to last year's loss of $7 million before the cumulative effect
of accounting changes and the loss of $29 million last quarter. The fully
diluted loss per share of 38 cents in the first quarter compared to the loss per
share of 15 cents a year ago before the cumulative effect of accounting changes
and the loss per share of 38 cents last quarter.
In last year's first and fourth quarters, non-recurring items added
approximately 15 cents and 18 cents, respectively, to earnings. Excluding
non-recurring items, the loss per share of 38 cents in the first quarter of 1993
compared to per share losses of 30 cents a year ago and 56 cents last quarter.
Operating income of $30 million improved from $21 million last year and $3
million last quarter due to record prices for plywood and lumber, which were
partially offset by lower prices for pulp and uncoated free sheet papers.
However, overall results were down from last year and were about the same as
last quarter due to a decline in other (income) expense - net and a smaller tax
benefit resulting from a lower effective tax rate.
Other (income) expense - net declined substantially from the first quarter of
last year, which included income of $20 million from non-recurring items,
principally sales of timberlands and various litigation settlements received by
the company. Other (income) expense - net also declined significantly from last
quarter, which included a net charge of $18 million related to several
non-recurring items and income of $30 million from the favorable resolution of
certain issues in Brazil.
Paper Segment
The first quarter loss from operations was $52 million, down from income of $5
million a year ago and a loss of $16 million last quarter.
The domestic printing and writing papers business incurred a significant
operating loss for the quarter, down substantially from the slight operating
loss last year and down from the operating loss last quarter. The decline was
attributable primarily to lower prices. A price increase for uncoated free
sheet papers which went into effect during the first quarter came too late to
significantly impact results. An additional price increase for uncoated free
sheet papers, which was announced in March, began to take effect in May.
Maintenance outages are scheduled at the four domestic printing and writing
papers mills in the second quarter.
Operating income at the Brazilian subsidiary, Champion Papel e Celulose Ltda.,
was up slightly from last year and last quarter. This improvement was due
primarily to higher pulp production, with several production records set during
the quarter. Prices were above last year but declined from last quarter. New
capacity additions by various
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competitors in Brazil are causing a decline in domestic prices. Reflecting weak
overall results at the company's U.S. operations, approximately 61% of the
company's operating income, before general corporate expense, was attributable
to the Brazilian subsidiary.
The loss for the publication papers business was less than the loss of a year
ago due to higher shipments, and was about even with last quarter. Improved
prices for lightweight coated groundwood papers during the quarter were offset
by a decline in prices for coated free sheet papers due to continued weak
demand. The company recently announced a price increase on all coated
groundwood grades effective June 1.
The company's U.S. and Canadian market pulp operations incurred an operating
loss for the quarter, down significantly from the operating income of a year ago
and last quarter. Prices for softwood and hardwood pulp declined from last year
and last quarter due to weak demand and excess industry capacity, which have
continued into the second quarter. The company's Canadian pulp operations have
scheduled maintenance outages in the second quarter.
The company's newsprint business incurred a sizeable loss for the quarter.
Results were approximately even with last year and down from last quarter.
Although newsprint prices were above last year and slightly above last quarter
due to a price increase which went into effect March 1, prices and shipments
were down for uncoated groundwood grades. Newsprint shipments were even with
last year and last quarter. Annual maintenance outages scheduled for the second
quarter at the company's two newsprint mills are expected to offset most of the
impact of the recent newsprint price increase.
Earnings for the packaging business were down from last year and last quarter as
prices for kraft paper and linerboard declined during the first quarter and into
the second quarter.
Wood Products Segment
The company's wood products segment, which includes the wood-related operations
of the Canadian subsidiary, Weldwood of Canada Limited, reported first quarter
income from operations of $94 million, up substantially from $28 million a year
ago and $32 million last quarter. Prices for lumber, studs and plywood were
much higher than last year and last quarter both in the U.S. and Canada,
reaching record levels. Price increases were due primarily to industry timber
shortages in the U.S., as the result of environmental considerations in the west
and weather conditions in the south. In addition, increased demand -- caused in
part by uncertainties regarding supply -- impacted prices. Prices declined late
in the first quarter and into the second quarter.
Financial Condition
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General
The company's current ratio was 1.5 to 1 at March 31, 1993 and at year-end 1992.
Total debt to total capitalization was 44% at March 31, 1993 and 42% at year-end
1992.
As discussed below, in the first three months of 1993 and 1992, the company's
net cash provided by operating activities was not sufficient to meet the
requirements of its investing activities (principally capital expenditures) and
its financing activities (principally debt payments and cash dividends). Each
year the approximate difference was financed through borrowings. Net borrowings
generated cash proceeds of $128 million in the first quarter of 1993, as
compared to $89 million in the first quarter of 1992.
Looking ahead, the company anticipates that net cash provided by operating
activities supplemented by the proceeds of any asset sales and by borrowings,
including borrowings under or supported by its bank lines of credit, will be
sufficient to meet the capital expenditure, debt payment and dividend
requirements of the company. The company's extensive capital improvement
program is nearing completion, with the remaining projects due to come on line
by the end of summer. After completing this program, the company plans to
reduce capital spending to levels required for routine capital replacements,
environmental compliance and incremental improvements.
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Operating Activities
For the first three months, net cash provided by operating activities of $41
million was up from $38 million a year ago. The decline in net income (loss)
before the cumulative effect of accounting changes was more than offset by
higher depreciation expense and working capital changes.
Investing Activities
Net cash used in investing activities of $151 million was up from $106 million a
year ago. The increase was principally due to lower proceeds from asset sales
and higher capital expenditures associated with the recent completion of the
de-inking project at the Sheldon, Texas mill, the construction of a new uncoated
paper machine at the Courtland, Alabama mill, the environmental improvement and
modernization project at the Canton, North Carolina mill and the construction of
a sawmill in Hinton, Alberta. All of these ongoing projects are scheduled for
completion by the end of summer.
The wood products facilities in Bonner and Libby, Montana, together with more
than 850,000 acres of timberlands in Montana, the wood products facility in
Abbeville, Alabama, and the sawmill complex at Lumber City and Swainsboro,
Georgia, remain for sale.
Financing Activities
Net cash provided by financing activities of $117 million was up from $75
million a year ago, principally as the result of an increase in net borrowings
used to fund the additional capital expenditure requirements described above.
At March 31, 1993, the company had $585 million of U.S. commercial paper and
other short-term obligations outstanding, all of which are classified as
long-term debt, down from $721 million at year-end 1992. In addition, at March
31, 1993, the company has $175 million of notes outstanding under its U.S. bank
lines of credit, as compared to $178 million at year-end 1992. Domestically, at
March 31, 1993, $585 million of the company's unused bank lines of credit of
$840 million support the classification of commercial paper and other short-term
obligations as long-term debt.
The annual principal payment requirements under the terms of all long-term debt
agreements for the period from April 1 through December 31, 1993 are $20 million
and for the years 1994 through 1997 are $264 million, $379 million, $1,013
million and $166 million, respectively.
On February 25, 1993, the company issued a $50 million medium-term note in a
private placement. The net proceeds were used to pay a portion of the company's
commercial paper and short-term notes at maturity.
On March 10, 1993, the company borrowed $54 million through the issuance of
long-term tax-exempt bonds. The net proceeds were applied to the payment of a
portion of the costs of construction related to the new uncoated paper machine
at the company's Courtland, Alabama mill.
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PART II. OTHER INFORMATION
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings.
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As most recently reported in the company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, on January 4, 1991, a class action was
brought against the company in state court in Tennessee. The class consisted of
all Tennessee residents who own or lease land around Douglas Lake or along the
Pigeon River. Subsequently, the case was transferred to the United States
District Court for the Eastern District of Tennessee. While the original
complaint sought $5 billion in compensatory and punitive damages, immediately
prior to trial the plaintiffs' reduced their demand to $367.9 million. The
plaintiffs originally claimed damages for both personal injury and property
damage, but the personal injury claims were dismissed. The case proceeded to
trial on plaintiffs' theory that discharges of hazardous materials, including
dioxin, from the company's Canton, North Carolina mill had decreased property
values along the river and the lake. The trial began on September 14, 1992 and
ended in a mistrial on October 16, 1992, when the jury was unable to reach a
unanimous verdict. On February 3, 1993, the court preliminarily approved a
settlement of the action providing for a payment of $6.5 million by the company.
On May 3, 1993, the court gave final approval to the settlement.
As reported in the company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, on September 18, 1992 an action was filed in the
District Court of Brazoria County, Texas against the company, Simpson Pasadena
Paper Company, the Gulf Coast Waste Disposal Authority and eight other
corporations and individuals seeking unspecified compensatory damages resulting
from the purported discharge of dioxin into the Brazos River, Galveston Bay,
the Neches River and their adjacent waters. The plaintiffs and defendents have
agreed to mediation of the case beginning May 19, 1993.
Item 6. Exhibits and Reports on Form 8-K.
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(a) See exhibit index following the signature page.
(b) The company filed a Current Report on Form 8-K dated January 27, 1993
which reported the sale of $200 million aggregate principal amount of
the company's 7.7% Notes due December 15, 1999 pursuant to the
company's shelf registration statements (No. 33-36998 and No.
33-47959).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the undersigned on behalf of the registrant as duly
authorized officers thereof and in their capacities as the chief accounting
officers of the registrant.
Champion International Corporation
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(Registrant)
Date: January 26, 1994 John M. Nimons
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(Signature)
John M. Nimons
Vice President and Controller
Date: January 26, 1994 Kenwood C. Nichols
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(Signature)
Kenwood C. Nichols
Vice Chairman
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EXHIBIT INDEX
Each exhibit is listed according to the number assigned to it in the Exhibit
Table of Item 601 of Regulations S-K.
3 - By-Laws of the Company, as amended through February 20, 1992 (filed by
incorporation by reference to Exhibit 3(ii).1 to the company's Form
10-Q for the quarter ended March 31, 1993, Commission File No. 1-3053).
10 - Amendment to Champion International Corporation 1986 Management
Incentive Program (filed by incorporation by reference
to Exhibit 10.1 to the company's Form 10-Q for the
quarter ended March 31, 1993, Commission File No. 1-3053).
11 - Calculation of Primary Earnings Per Common Share and Fully Diluted
Earnings per Common Share (unaudited).