SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1994
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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 (I.R.S. Employer
of incorporation 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
--- ---
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, 1994
- - --------------------------------- -----------------------------------
Common stock, $.50 par value 92,970,324
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
-----------------------
March 31,
-----------------------
1994 1993
---------- ----------
Net Sales $1,226,120 $1,266,976
Cost of products sold 1,142,676 1,163,183
Selling, general and administrative expenses 66,635 74,047
---------- ----------
Income From Operations 16,809 29,746
Interest and debt expense 56,537 53,573
Other (income) expense - net 240 22,946
---------- ----------
Income (Loss) Before Income Taxes and Cumulative
Effect of Accounting Change (39,968) (46,773)
Income Taxes (8,982) (18,709)
---------- ----------
Income (Loss) Before Cumulative Effect of
Accounting Change (30,986) (28,064)
Cumulative Effect of Accounting Change,
Net of Taxes (Note 2) --- (7,523)
---------- ----------
Net Income (Loss) $ (30,986) $ (35,587)
========== ==========
Dividends on Preference Stock 6,938 6,938
========== ==========
Net Income (Loss) Applicable to Common Stock $ (37,924) $ (42,525)
========== ==========
Average Number of Common Shares Outstanding 92,946 92,692
========== ==========
Earnings (Loss) Per Common Share (Exhibit 11):
Income (Loss) Before Cumulative Effect of
Accounting Change $ (.41) $ (.38)
========== ==========
Cumulative Effect of Accounting Change $ --- $ (.08)
========== ==========
Net Income (Loss) $ (.41) $ (.46)
========== ==========
Cash dividends declared $ .05 $ .05
========== ==========
The accompanying notes are an integral part of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
March 31, December 31,
1994 1993
(unaudited)
----------- ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 75,039 $ 55,653
Short-term investments 17,169 7,197
Receivables - net 494,813 494,426
Inventories 483,497 469,269
Prepaid expenses 27,580 22,818
Deferred income taxes 64,847 65,064
---------- ----------
Total Current Assets 1,162,945 1,114,427
---------- ----------
Timber and timberlands, at cost - less
cost of timber harvested 1,836,531 1,838,550
---------- ----------
Property, plant and equipment, at cost 8,472,284 8,467,756
Less - Accumulated depreciation (2,737,356) (2,665,720)
---------- ----------
5,734,928 5,802,036
---------- ----------
Other assets and deferred charges 363,613 387,756
---------- ----------
Total Assets $9,098,017 $9,142,769
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current installments of long-term debt $ 84,928 $ 88,052
Short-term bank borrowings 105,718 88,258
Accounts payable and accrued liabilities 566,431 591,153
Income taxes 5,449 4,841
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Total Current Liabilities 762,526 772,304
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Long-term debt 3,363,104 3,316,165
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Other liabilities 668,705 672,788
---------- ----------
Deferred income taxes 1,051,974 1,077,234
---------- ----------
Minority interest in subsidiaries 54,487 54,160
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Preference stock, $1.00 par value,
$92.50 cumulative convertible series;
300,000 shares issued and outstanding
(redeemable for $300,000) 300,000 300,000
---------- ----------
Shareholders' Equity:
Preference stock, no series, 8,231,431
shares authorized but unissued --- ---
Capital Shares:
Common (92,968,916 and 93,026,400
shares outstanding at March 31, 1994
and December 31, 1993, respectively) 48,231 48,184
Capital Surplus 1,166,112 1,163,555
Retained Earnings 1,818,962 1,861,535
---------- ----------
3,033,305 3,073,274
---------- ----------
Treasury shares, at cost (100,308) (100,233)
Cumulative translation adjustment (35,776) (22,923)
---------- ----------
Total Shareholders' Equity 2,897,221 2,950,118
---------- ----------
Total Liabilities and Shareholders'
Equity $9,098,017 $9,142,769
========== ==========
The accompanying notes are an integral part of this statement.
-3-
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in thousands of dollars)
Three Months Ended
----------------------
March 31,
----------------------
1994 1993
---------- ----------
Cash flows from operating activities:
Net income (loss) $(30,986) $(35,587)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Cumulative effect of accounting change --- 7,523
Depreciation expense 90,985 88,128
Cost of timber harvested 19,697 18,351
(Increase)/decrease in receivables (2,925) (24,996)
(Increase)/decrease in inventories (18,937) 302
(Increase)/decrease in prepaid expenses (5,166) (140)
Increase/(decrease) in accounts payable and
accrued liabilities (21,540) (1,490)
Increase/(decrease) in income taxes 821 1,451
Increase/(decrease) in other liabilities (5,389) 2,072
Increase/(decrease) in deferred income taxes (15,787) (19,305)
All other - net 14,124 4,267
-------- --------
Net cash provided by (used in) operating activities 24,897 40,576
-------- --------
Cash flows from investing activities:
Expenditures for property, plant and equipment (42,590) (135,852)
Timber and timberlands expenditures (18,669) (23,224)
Purchase of investments (17,169) (18,332)
Proceeds from redemption of investments 7,788 29,800
Proceeds from sales of property, plant and
equipment and timber and timberlands 4,022 10,621
All other - net (1,052) (14,077)
-------- --------
Net cash provided by (used in) investing activities (67,670) (151,064)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 202,117 258,834
Payments of current installments of long-term
debt and long-term debt (130,401) (130,746)
Cash dividends paid (11,588) (11,580)
All other - net 2,031 829
-------- --------
Net cash provided by (used in) financing activities 62,159 117,337
-------- --------
Increase/(decrease) in cash and cash equivalents 19,386 6,849
Cash and Cash Equivalents:
Beginning of period 55,653 36,678
-------- --------
End of period $ 75,039 $ 43,527
======== ========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 42,554 $ 31,693
Income taxes (net of refunds) 3,910 (116)
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, 1994
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.
Cumulative effect of accounting change for the three month period ended March
31, 1993 reflects the after-tax effect of adopting, retroactive to January 1,
1993, a new accounting standard for postemployment benefits.
-5-
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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Results of Operations
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Summary
The company reported a loss in the first quarter of 1994 of $31 million or 41
cents per share, compared to last year's first quarter loss of $36 million or 46
cents per share and last year's fourth quarter loss of $45 million or 56 cents
per share. In last year's first and fourth quarters, non-recurring items reduced
earnings per share by approximately 8 cents and 21 cents, respectively.
Excluding non-recurring items, the loss per share of 41 cents in the first
quarter of 1994 compared to per share losses of 38 cents a year ago and 35 cents
last quarter.
Operating income of $17 million declined from $30 million a year ago and $19
million last quarter. The decline from last year was due to lower income in the
wood products segment. The decline from last quarter was attributable to
significantly lower prices for certain of the company's key paper grades, which
more than offset higher income in the wood products segment, improved pulp
prices and lower general corporate expense.
Other (income) expense - net improved substantially from a year ago due to
foreign currency gains and lower miscellaneous expenses. However, other (income)
expense - net declined from last quarter, which included non-recurring pre-tax
income of $10 million.
The income tax benefit attributable to the loss in the first quarter of 1994 was
less favorable than last year due to changes in the ratio of foreign and
domestic pre-tax income, but was more favorable than last quarter, which
included a provision of $11 million to reflect a one-time adjustment to the
company's deferred tax liability.
Paper Segment
The first quarter loss from operations in the company's paper segment was $40
million, compared to losses of $52 million a year ago and $24 million last
quarter.
The domestic printing and writing papers business incurred a sizeable loss for
the quarter. Results improved from the operating loss a year ago, but exceeded
last quarter's operating loss. The improvement from last year was principally
due to increased shipments. However, prices for coated and uncoated free sheet
grades declined from last year and last quarter. Maintenance outages are
scheduled at three of the four domestic printing and writing papers mills in the
second quarter.
Operating income at the Brazilian subsidiary, Champion Papel e Celulose Ltda.,
declined from last year due to lower domestic and export prices resulting from
increased industry capacity and weak demand in the export markets. However,
operating income improved from last quarter, as lower prices were more than
offset by reduced operating costs.
The small operating loss for the publication papers business improved from the
loss a year ago due to increased shipments, but represented a significant
decline from last quarter's operating income. Prices for all publication grades
were lower than last year and last quarter and continued to decline in April.
Maintenance outages are scheduled at two of the four publication papers mills in
the second quarter.
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The modest operating loss for the company's U.S. and Canadian market pulp
operations represented an improvement from the losses of last year and last
quarter. Prices for southern and Canadian softwood grades improved from a year
ago and last quarter primarily due to increased demand. In addition, a $50 per
ton price increase for most grades of market pulp went into effect April 1. The
company's principal pulp operations have scheduled maintenance outages in the
second quarter.
The newsprint business incurred a sizeable loss for the quarter. Results
declined slightly from last year primarily due to lower prices, but improved
slightly from last quarter primarily due to lower manufacturing costs.
Maintenance outages are scheduled at the two newsprint mills in the second
quarter.
Earnings for the packaging business were about even with last year and up
slightly from last quarter. Shipments increased slightly from last year and last
quarter. Linerboard prices were down from last year but up slightly from last
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 $64 million, down from the record earnings of $94
million a year ago but up from $57 million last quarter. Lower shipments, higher
wood costs and reduced timber stumpage sales were responsible for the decline in
earnings from last year. Shipments and timber stumpage sales also declined from
last quarter, but this was more than offset by price increases for lumber and
plywood. The lower shipments primarily reflect the fourth quarter 1993 sale of
the company's Montana lumber and plywood operations. Lumber and plywood prices
declined in April.
Stumpage costs for wood cut on government-owned timberlands in British Columbia
were increased effective May 1. While this increase is not expected to have a
material impact on the company's wood products operations in the second quarter,
it may adversely affect results thereafter.
Financial Condition
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General
The company's current ratio was 1.5 to 1 at March 31, 1994 as compared to 1.4 to
1 at year-end 1993. Total debt to total capitalization was 45% at March 31, 1994
as compared to 44% at year-end 1993.
As discussed below, in the first three months of 1994 and 1993, the company's
net cash provided by operating activities was not sufficient to meet the cash
requirements of its investing activities (principally capital expenditures) and
its financing activities (principally debt payments and cash dividends). Each
year, borrowings by the company financed the difference and also resulted in an
increase in cash and cash equivalents. Net borrowings generated cash proceeds of
$72 million in the first quarter of 1994, as compared to $128 million in the
first quarter of 1993.
Looking ahead, the company anticipates that net cash provided by operating
activities supplemented by the proceeds of 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. With
the completion of the company's extensive capital improvement program in 1993,
the company has reduced capital spending to levels required for routine capital
replacements, environmental compliance and incremental improvements.
Operating Activities
For the first three months, net cash provided by operating activities of $25
million declined from $41 million a year ago. The decrease was primarily due to
changes in certain components of working capital.
-7-
Investing Activities
Net cash used in investing activities of $68 million declined from $151 million
a year ago, principally due to substantially lower capital expenditures
partially offset by reduced proceeds from asset sales and from sales of
investments in marketable securities.
Financing Activities
Net cash provided by financing activities of $62 million declined from $117
million a year ago, principally as the result of a decrease in net borrowings,
which reflected the lower capital expenditures discussed above.
At March 31, 1994, the company had $556 million of U.S. commercial paper and
other short-term obligations outstanding, all of which are classified as long-
term debt, down from $559 million at year-end 1993. In addition, at March 31,
1994, the company had $260 million of notes outstanding under its U.S. bank
lines of credit, up from $224 million at year-end 1993. Domestically, at March
31, 1994, $556 million of the company's unused bank lines of credit of $755
million supported the classification of commercial paper and other short-term
obligations as long-term debt.
On March 31, 1994, the company issued a $30 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.
The annual principal payment requirements under the terms of all long-term debt
agreements for the period from April 1 through December 31, 1994 are $85 million
and for the years 1995 through 1998 are $308 million, $937 million, $245 million
and $326 million, respectively.
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PART II. OTHER INFORMATION
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 18, 1994
reporting certain consolidated results of the company for the three
months and twelve months ended December 31, 1993, with the consolidated
statement of income for the three months and twelve months ended December
31, 1993 and the consolidated balance sheet as of December 31, 1993 as
exhibits thereto.
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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
----------------------------------
(Registrant)
Date: May 12, 1994 John M. Nimons
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(Signature)
John M. Nimons
Vice President and Controller
Date: May 12, 1994 Kenwood C. Nichols
---------------------------- ----------------------------------
(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 Regulation S-K.
11 - Calculation of Primary Earnings Per Common Share and Fully Diluted
Earnings per Common Share (unaudited).
-11-
EXHIBIT 11
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Calculation of Primary Earnings (Loss) Per Common Share and
Fully Diluted Earnings (Loss) Per Common Share (unaudited)
(in thousands, except per share)
Three Months Ended
----------------------
March 31,
----------------------
1994 1993
---------- ----------
Primary earnings (loss) per common share:
Net Income (Loss) $(30,986) $(35,587)
Dividends on Preference Shares 6,938 6,938
-------- --------
Net Income (Loss) Applicable to Common Stock $(37,924) $(42,525)
======== ========
Average number of common shares outstanding 92,946 92,692
======== ========
Per share $ (.41) $ (.46)
======== ========
Fully diluted earnings (loss) per common share:
Net Income (Loss) Applicable to Common Stock $(37,924) $(42,525)
Add income effect, assuming conversion of
dilutive convertible securities --- ---
-------- --------
Net income (loss) on a fully diluted basis $(37,924) $(42,525)
======== ========
Average number of common shares outstanding 92,946 92,692
Add common share effect, assuming conversion
of dilutive convertible securities --- ---
-------- --------
Average number of common shares outstanding on
a fully diluted basis 92,946 92,692
======== ========
Per share $ (.41) $ (.46)
======== ========
NOTE:
(1) The computation of fully diluted earnings per common share assumes that the
average number of common shares outstanding during the period is increased
by the conversion of securities having a dilutive effect, and that net
income applicable to common stock is increased by dividends and after-tax
interest on such securities.
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