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 June 30, 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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-1427390
- ------------------------------ ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
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 July 31, 1994
- -------------------------------- ------------------------------------
Common stock, $.50 par value 93,008,732
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)
Six Months Ended Three Months Ended
----------------------- -----------------------
June 30, June 30,
----------------------- -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Net Sales $2,468,078 $2,523,275 $1,241,958 $1,256,299
Cost of products sold 2,304,184 2,327,036 1,161,508 1,163,853
Selling, general and administrative expenses 142,913 150,932 76,278 76,885
---------- ---------- ---------- ----------
Income From Operations 20,981 45,307 4,172 15,561
Interest and debt expense 115,427 107,876 58,890 54,303
Other (income) expense - net (8,387) 21,440 (8,627) (1,506)
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Change (86,059) (84,009) (46,091) (37,236)
Income Taxes (23,975) (33,603) (14,993) (14,894)
---------- ---------- ---------- ----------
Income (Loss) Before Cumulative Effect of
Accounting Change (62,084) (50,406) (31,098) (22,342)
Cumulative Effect of Accounting Change,
Net of Taxes (Note 2) --- (7,523) --- ---
---------- ---------- ---------- ----------
Net Income (Loss) $ (62,084) $ (57,929) $ (31,098) $ (22,342)
========== ========== ========== ==========
Dividends on Preference Stock 13,875 13,875 6,938 6,938
========== ========== ========== ==========
Net Income (Loss) Applicable to Common Stock $ (75,959) $ (71,804) $ (38,036) $ (29,280)
========== ========== ========== ==========
Average Number of Common Shares Outstanding 92,962 92,731 92,977 92,769
========== ========== ========== ==========
Earnings (Loss) Per Common Share (Exhibit 11):
Income (Loss) Before Cumulative Effect
of Accounting Change $ (.82) $ (.69) $ (.41) $ (.31)
========== ========== ========== ==========
Cumulative Effect of Accounting Change $ --- $ (.08) $ --- $ ---
========== ========== ========== ==========
Net Income (Loss) $ (.82) $ (.77) $ (.41) $ (.31)
========== ========== ========== ==========
Cash dividends declared $ .10 $ .10 $ .05 $ .05
========== ========== ========== ==========
The accompanying Notes to Consolidated Financial
Statements are an integral part of this statement.
-2-
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
June 30, December 31,
1994 1993
(unaudited)
----------- ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 84,290 $ 55,653
Short-term investments 11,690 7,197
Receivables - net 516,714 494,426
Inventories 446,876 469,269
Prepaid expenses 30,536 22,818
Deferred income taxes 64,099 65,064
----------- -----------
Total Current Assets 1,154,205 1,114,427
----------- -----------
Timber and timberlands, at cost - less cost of
timber harvested 1,830,996 1,838,550
----------- -----------
Property, plant and equipment, at cost 8,504,328 8,467,756
Less - Accumulated Depreciation (2,816,272) (2,665,720)
----------- -----------
5,688,056 5,802,036
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Other assets and deferred charges 357,940 387,756
----------- -----------
Total Assets $ 9,031,197 $ 9,142,769
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current installments of long-term debt $ 90,272 $ 88,052
Short-term bank borrowings 112,174 88,258
Accounts payable and accrued liabilities 544,601 591,153
Income taxes 12,224 4,841
----------- -----------
Total Current Liabilities 759,271 772,304
----------- -----------
Long-term debt 3,355,778 3,316,165
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Other liabilities 672,506 672,788
----------- -----------
Deferred income taxes 1,030,833 1,077,234
----------- -----------
Minority interest in subsidiaries 57,591 54,160
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Preference stock, $1.00 par value, $92.50 cumulative
convertible series; 300,000 shares issued and
outstanding (redeemable at maturity for $300,000) 300,000 300,000
----------- -----------
Shareholders' Equity:
Preference stock, no series designated, 8,231,431
shares authorized but unissued --- ---
Capital Shares:
Common (92,990,640 and 93,026,400 shares
outstanding at June 30, 1994 and
December 31, 1993, respectively) 48,241 48,184
Capital Surplus 1,166,669 1,163,555
Retained Earnings 1,776,275 1,861,535
----------- -----------
2,991,185 3,073,274
----------- -----------
Treasury shares, at cost (100,308) (100,233)
Cumulative translation adjustment (35,659) (22,923)
----------- -----------
Total Shareholders' Equity 2,855,218 2,950,118
----------- -----------
Total Liabilities and Shareholders' Equity $ 9,031,197 $ 9,142,769
=========== ===========
The accompanying Notes to Consolidated Financial
Statements are an integral part of this statement.
-3-
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in thousands of dollars)
Six Months Ended
--------------------------
June 30,
--------------------------
1994 1993
----------- ------------
Cash flows from operating activities:
Net income (loss) $ (62,084) $ (57,929)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Cumulative effect of accounting change --- 7,523
Depreciation expense 182,747 176,651
Cost of timber harvested 36,395 37,006
(Increase)/decrease in receivables (22,803) (31,674)
(Increase)/decrease in inventories 17,727 (8,417)
(Increase)/decrease in prepaid expenses (8,119) (9,733)
Increase/(decrease) in accounts payable and
accrued liabilities (43,401) (19,990)
Increase/(decrease) in income taxes 7,594 (469)
Increase/(decrease) in other liabilities (2,894) 6,903
Increase/(decrease) in deferred income taxes (40,974) (47,935)
Amortization of pre-operating and start-up costs 14,454 14,295
All other - net 17,594 (2,401)
----------- ------------
Net cash provided by operating activities 96,236 63,830
----------- ------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (90,534) (270,012)
Timber and timberlands expenditures (36,382) (53,539)
Purchase of investments (28,859) (82,621)
Proceeds from redemption of investments 25,389 80,436
Proceeds from sales of property, plant and equipment
and timber and timberlands 14,450 13,093
All other - net (7,541) (16,090)
----------- ------------
Net cash used in investing activities (123,477) (328,733)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 465,906 819,814
Payments of current installments of long-term debt
and long-term debt (389,273) (548,394)
Cash dividends paid (23,177) (23,163)
All other - net 2,422 1,661
----------- ------------
Net cash provided by financing activities 55,878 249,918
----------- ------------
Increase/(decrease) in cash and cash equivalents 28,637 (14,985)
Cash and Cash Equivalents:
Beginning of period 55,653 36,678
----------- ------------
End of period $ 84,290 $ 21,693
=========== ============
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 118,897 $ 111,465
Income taxes 7,823 4,986
The accompanying Notes to Consolidated Financial
Statements are an integral part of this statement.
-4-
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 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 six month period ended June 30,
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
-----------------------------------------------------------------------
of Operations.
--------------
Results of Operations
- ---------------------
Summary
The company reported a loss in the second quarter of 1994 of $31 million or 41
cents per share, compared to last year's second quarter loss of $22 million or
31 cents per share and last quarter's loss of $31 million or 41 cents per share.
Operating income of $4 million declined from $16 million a year ago and $17
million last quarter. The decline from last year was due primarily to lower
income in the wood products segment and a slightly larger loss in the paper
segment. The decline from last quarter was due to lower income in the wood
products segment and higher general corporate expense mainly attributable to the
impact of stock price fluctuations on the value of stock appreciation rights.
Overall results were the same as last quarter because the decline in operating
income was approximately offset by increases in other (income) expense - net and
income tax benefits, as described below.
Prices for lumber and average prices for uncoated free sheet and coated
groundwood grades were lower than last quarter. However, prices for pulp,
newsprint and linerboard improved during the second quarter. The effect of these
price increases, as well as recent increases in prices for uncoated free sheet
and coated groundwood grades, largely were not reflected in second quarter
results but will be reflected in third quarter results.
The enactment of a new economic program in Brazil effective March 15, 1994
significantly reduced the inflationary impact on sales and purchases in Brazil
as reported on a U.S. dollar basis. As the result of this program, second
quarter operating income of the company's Brazilian subsidiary, Champion Papel e
Celulose Ltda., declined by approximately $8 million, which was offset by an $8
million favorable adjustment to the foreign currency translation loss included
in other (income) expense - net. Net income of the company's Brazilian
subsidiary for the second quarter was approximately even with last quarter.
Other (income) expense - net improved from a year ago and last quarter primarily
due to the Brazilian currency translation item described above and interest
income of $5.5 million associated with an income tax refund, partially offset by
other charges and currency translation items.
The income tax benefit attributable to the loss in the second 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 due to
currency translation gains associated with the income tax provision of the
company's Brazilian subsidiary.
For the first six months, the company reported a loss of $62 million and a per
share loss of 82 cents, compared to year-ago losses before the cumulative effect
of an accounting change of $50 million and 69 cents per share.
Paper Segment
The second quarter loss from operations in the company's paper segment was $38
million, compared to losses of $36 million a year ago and $40 million last
quarter.
-6-
The domestic printing and writing papers business incurred a significant
operating loss for the quarter, exceeding the operating losses of a year ago and
last quarter. Shipments of uncoated free sheet papers increased compared to a
year ago and last quarter. However, average prices for coated and uncoated free
sheet grades were lower than last year and last quarter. A price increase for
uncoated free sheet papers which went into effect during the second quarter came
too late to significantly impact results. Results also were affected by semi-
annual maintenance outages at three of the four domestic printing and writing
papers mills during the quarter. Price increases were implemented for certain
grades of uncoated free sheet papers on July 1 and certain grades on August 1,
the effect of which largely will not be reflected in results until late in the
third quarter.
Operating income at the Brazilian subsidiary declined from last year and was
approximately even with last quarter, excluding the $8 million impact of the new
economic program in Brazil described above. The decline from last year was due
to lower domestic prices and higher operating costs. Compared to last quarter,
higher domestic and export prices and increased shipments were offset by higher
operating costs.
The small operating loss for the publication papers business represented a
decline from last year's operating profit and slightly exceeded last quarter's
operating loss. The decline from a year ago was due primarily to lower prices
for coated groundwood and free sheet grades. Compared to last quarter, shipments
were up for coated groundwood but down for other paper grades. Average prices
for coated groundwood papers declined during the quarter, while prices increased
slightly for other grades. Costs for purchased pulp were higher than last year
and last quarter. A discount reduction for coated groundwood papers was
implemented July 1, the effect of which largely will not be reflected in results
until late in the third quarter.
Earnings for the company's U.S. and Canadian market pulp operations represented
a significant improvement from the operating losses of a year ago and last
quarter. Results reflected the impact of price increases for most grades that
were implemented April 1. Price increases for most grades of market pulp also
went into effect on June 1, and additional price increases for all grades went
into effect on August 1.
The newsprint business incurred a sizeable loss for the quarter. However,
results improved from a year ago and last quarter. Compared to last year, lower
prices were more than offset by higher shipments as well as lower operating
costs primarily due to productivity gains and less downtime for scheduled
maintenance outages. Results improved from last quarter due to a discount
reduction, attributable to increased demand, that was fully implemented June 1.
The company has announced an additional discount reduction effective August 15.
Earnings for the packaging business were up modestly from a year ago and last
quarter primarily due to higher prices for linerboard. The company implemented a
price increase on certain grades of linerboard effective July 1.
Wood Products Segment
The company's wood products segment, which includes the wood-related operations
of the Canadian subsidiary, Weldwood of Canada Limited, reported second quarter
income from operations of $56 million, down from $65 million a year ago and $64
million last quarter. Lower shipments of lumber and plywood and reduced timber
stumpage prices in the Pacific region primarily were responsible for the decline
in earnings from last year. The lower shipments mainly reflected the fourth
quarter 1993 sale of the company's Montana lumber and plywood operations.
Compared to last quarter, lower lumber and plywood prices more than offset
higher overall shipments and increased timber stumpage sales in the Pacific
region. Early in the third quarter, lumber and plywood prices continued to
decline.
Stumpage costs for wood cut on government-owned timberlands in British Columbia
were increased effective May 1. The effect of this increase largely will not be
reflected in results until the third quarter and thereafter.
-7-
The lumber mill at Klickitat, Washington was closed for an indefinite period
effective August 1. The annual capacity of that facility is 89 million board
feet.
Labor Contracts
Labor contracts have run past their expiration dates at Weldwood's Hinton,
Alberta, Canada pulp mill and joint venture pulp mill at Quesnel, British
Columbia, Canada, as well as all of its wood products plants except those at
Longlac, Ontario. Each of these facilities presently is operating under the
terms of its respective expired contract while efforts to negotiate new labor
contracts continue. The impact on Weldwood and the company of a strike, if any,
would depend on which facilities were affected and the duration of any such
strike.
There is a possibility of a strike against one or more forest products companies
in British Columbia, including Weldwood's facilities in that province. Any
prolonged strike involving a significant portion of the forest products industry
in British Columbia, including Weldwood, would have a material adverse effect on
Weldwood, which would be partially offset by an anticipated favorable impact on
the company's United States pulp, newsprint and wood products operations.
Financial Condition
General
The company's current ratio was 1.5 to 1 at June 30, 1994 and at March 31, 1994,
as compared to 1.4 to 1 at year-end 1993. Total debt to total capitalization was
46% at June 30, 1994, as compared to 45% at March 31, 1994 and 44% at year-end
1993.
As discussed below, in the first six months of 1994 and 1993, 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 difference was financed through borrowings and, in 1993, through the
use of cash and cash equivalents. Net borrowings generated cash proceeds of $77
million in the first six months of 1994, as compared to $271 million in the
first six months of 1993. Cash and cash equivalents increased by $29 million in
the first six months of 1994 and decreased by $15 million in the first six
months of 1993.
Looking ahead, the company anticipates that net cash provided by operating
activities supplemented, if and to the extent necessary, 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. 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 six months, net cash provided by operating activities of $96
million increased from $64 million a year ago. The increase primarily was due to
changes in certain components of working capital and lower deferrals of start-up
costs associated with major capital projects.
Investing Activities
Net cash used in investing activities of $123 million declined from $329 million
a year ago, principally due to substantially lower capital expenditures.
-8-
Financing Activities
Net cash provided by financing activities of $56 million declined from $250
million a year ago, principally as the result of a substantial decrease in net
borrowings, which reflected the lower capital expenditures discussed above.
At June 30, 1994, the company had $606 million of U.S. commercial paper and
other short-term obligations outstanding, all of which are classified as long-
term debt, up from $556 million at March 31, 1994 and $559 million at year-end
1993. In addition, at June 30, 1994, the company had $145 million of notes
outstanding under its U.S. bank lines of credit, down from $260 million at March
31, 1994 and $224 million at year-end 1993. Domestically, at June 30, 1994, $606
million of the company's unused bank lines of credit of $870 million support the
classification of commercial paper and other short-term obligations as long-term
debt.
During the second quarter, the company issued medium-term notes in the aggregate
principal amount of $150 million in private placements. 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 July 1 through December 31, 1994 are $50 million
and for the years 1995 through 1998 are $258 million, $871 million, $245 million
and $396 million, respectively.
Environmental Legal Proceeding
As previously reported, the company is a defendant in a class action which
originally sought $500 million in damages allegedly resulting from the purported
discharge of hazardous substances, including dioxin, from the company's
Pensacola, Florida, mill into Eleven Mile Creek, which flows into Perdido Bay.
In February 1994 the plaintiffs reduced their demand to not more than $50,000
for each class member. It is anticipated that the class, which was certified by
the court in June 1994, will consist of approximately 2,000 members.
-9-
PART II. OTHER INFORMATION
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings.
- ---------------------------
As most recently reported in the company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, on November 9, 1992, an action was brought
against the company in the Circuit Court for Baldwin County, Alabama, on behalf
of a class consisting of all persons who own land along Perdido Bay in Florida
and Alabama. The action originally sought $500 million in compensatory and
punitive damages for personal injury, intentional infliction of emotional
distress and diminution in property value allegedly resulting from the purported
discharge of hazardous substances, including dioxin, from the company's
Pensacola, Florida, mill into Eleven Mile Creek, which flows into Perdido Bay.
However, in February 1994, the plaintiffs reduced their demand to not more than
$50,000 for each class member, and in June 1994, the personal injury claims were
dismissed. It is anticipated that the class, which was certified by the court in
June 1994, will consist of approximately 2,000 members. The parties currently
are engaged in discovery.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
(a) The Annual Meeting of Shareholders of the company was held on May
19, 1994.
(b) N/A
(c) (i) Five nominees were elected to the Board of Directors at the 1994
Annual Meeting.
L. C. Heist - 86,464,911 votes were cast in favor of his election and
1,406,181 votes were withheld.
H. Barclay Morley - 86,444,375 votes were cast in favor of his
election and 1,426,717 votes were withheld.
Walter V. Shipley - 86,491,148 votes were cast in favor of his
election and 1,379,944 votes were withheld.
James S. Tisch - 87,036,128 votes were cast in favor of his election
and 834,964 votes were withheld.
Richard E. Walton - 86,488,636 votes were cast in favor of his
election and 1,382,455 votes were withheld.
(ii) The shareholders approved the appointment of Arthur Andersen & Co.
as the company's auditors for 1994. There were 87,368,514 votes cast
in favor of the proposal, 135,856 votes cast against the proposal and
366,722 abstentions.
(iii) The shareholders rejected a shareholder proposal concerning a non-
executive chairperson. There were 11,860,620 votes cast in favor of
the proposal, 68,781,780 votes cast against the proposal, 2,072,627
abstentions and 5,156,065 broker non-votes.
(d) N/A
-10-
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) See exhibit index following the signature page.
(b) The company filed a Current Report on Form 8-K dated July 18, 1994
reporting the issuance of a press release announcing certain unaudited
consolidated financial results of the company for the three months and
six months ended June 30, 1994, with the consolidated statement of
income for the three months and six months ended June 30, 1994 and June
30, 1993 and consolidated balance sheet as of June 30, 1994 and
December 31, 1993 as exhibits thereto.
-11-
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: August 9, 1994 John M. Nimons
- ---------------------------------- ----------------------------------
(Signature)
John M. Nimons
Vice President and Controller
Date: August 9, 1994 Kenwood C. Nichols
- ---------------------------------- ----------------------------------
(Signature)
Kenwood C. Nichols
Vice Chairman
-12-
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).
-13-
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES EXHIBIT 11
Calculation of Primary Earnings (Loss) Per Common Share and
Fully Diluted Earnings (Loss) Per Common Share (unaudited)
(in thousands, except per share)
Six Months Ended Three Months Ended
-------------------------------- -----------------------------
June 30, June 30,
-------------------------------- -----------------------------
1994 1993 1994 1993
--------------- -------------- ------------- -------------
Primary earnings (loss) per common share:
Net Income (Loss) $ (62,084) $ (57,929) $ (31,098) $ (22,342)
Dividends on Preference Shares 13,875 13,875 6,938 6,938
--------------- -------------- ------------- -------------
Net Income (Loss) Applicable to Common Stock $ (75,959) $ (71,804) $ (38,036) $ (29,280)
=============== ============== ============= =============
Average number of common shares outstanding 92,962 92,731 92,977 92,769
=============== ============== ============= =============
Per share $ (.82) $ (.77) $ (.41) $ (.31)
=============== ============== ============= =============
Fully diluted earnings (loss) per common share:
Net Income (Loss) Applicable to Common Stock $ (75,959) $ (71,804) $ (38,036) $ (29,280)
Add income effect, assuming conversion of
dilutive convertible securities --- --- --- ---
--------------- -------------- ------------- -------------
Net income (loss) on a fully diluted basis $ (75,959) $ (71,804) $ (38,036) $ (29,280)
--------------- -------------- ------------- -------------
Average number of common shares outstanding 92,962 92,731 92,977 92,769
Add common share effect, assuming conversion
of dilutive convertible securities --- --- --- ---
--------------- -------------- ------------- -------------
Average number of common shares outstanding on
a fully diluted basis 92,962 92,731 92,977 92,769
=============== ============== ============= =============
Per share $ (.82) $ (.77) $ (.41) $ (.31)
=============== ============== ============= =============
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.
-14-