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 September 30, 1996
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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 (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
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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 October 31, 1996
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Common stock, $.50 par value 95,547,009
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
(in thousands, except per share)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- --------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
Net Sales $4,448,247 $5,231,120 $1,470,481 $1,840,664
Costs and Expenses:
Cost of products sold 3,829,869 3,885,513 1,283,000 1,297,543
Selling, general and administrative expenses 285,596 300,627 97,308 105,795
Interest and debt expenses 162,394 172,239 54,217 57,711
Other (income) expense - net (Note 2) (29,416) (35,288) (9,560) (4,035)
---------- ---------- ---------- ----------
Total costs and expenses 4,248,443 4,323,091 1,424,965 1,457,014
Income Before Income Taxes 199,804 908,029 45,516 383,650
Income Taxes 68,602 353,688 13,515 148,067
---------- ---------- ---------- ----------
Net Income $ 131,202 $ 554,341 $ 32,001 $ 235,583
========== ========== ========== ==========
Dividends on Preference Stock --- 13,258 --- ---
========== ========== ========== ==========
Net Income Applicable to Common Stock $ 131,202 $ 541,083 $ 32,001 $ 235,583
========== ========== ========== ==========
Average Number of Common Shares Outstanding 95,515 94,213 95,529 95,568
========== ========== ========== ==========
Earnings Per Common Share (Exhibit 11):
Primary $ 1.37 $ 5.74 $ .33 $ 2.47
========== ========== ========== ==========
Fully Diluted $ 1.37 $ 5.43 $ .33 $ 2.44
========== ========== ========== ==========
Cash dividends declared $ .15 $ .15 $ .05 $ .05
========== ========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
September 30, December 31,
1996 1995
(unaudited)
------------- -------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 283,906 $ 317,069
Short-term investments 3,671 98,275
Receivables - net 558,503 641,291
Inventories 429,899 484,001
Prepaid expenses 33,266 24,841
Deferred income taxes 72,698 75,329
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Total Current Assets 1,381,943 1,640,806
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Timber and timberlands, at cost - less cost of
timber harvested 2,260,910 2,007,685
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Property, plant and equipment, at cost 9,163,213 8,850,519
Less - Accumulated Depreciation (3,569,709) (3,335,945)
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5,593,504 5,514,574
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Other assets and deferred charges 465,441 380,237
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Total Assets $9,701,798 $9,543,302
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current installments of long-term debt $ 129,660 $ 77,760
Short-term bank borrowings 138,042 150,067
Accounts payable and accrued liabilities 671,103 726,206
Income taxes 8,374 125,840
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Total Current Liabilities 947,179 1,079,873
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Long-term debt 2,981,578 2,828,509
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Other liabilities 652,376 664,010
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Deferred income taxes 1,364,263 1,218,978
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Minority interest in subsidiaries (Note 3) 4,168 105,241
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Shareholders' Equity:
Capital Shares:
Common (110,312,191and 110,230,379
shares issued at September 30, 1996
and December 31, 1995, respectively) 55,156 55,115
Capital Surplus 1,649,880 1,653,456
Retained Earnings 2,734,883 2,618,033
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4,439,919 4,326,604
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Treasury shares, at cost (657,864) (650,049)
Cumulative translation adjustment (29,821) (29,864)
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Total Shareholders' Equity 3,752,234 3,646,691
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Total Liabilities and Shareholders' Equity $9,701,798 $9,543,302
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in thousands of dollars)
Nine Months Ended
September 30,
----------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 131,202 $ 554,341
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation expense 302,818 292,267
Cost of timber harvested 68,069 59,234
Net gain on sale of assets (16,547) (45,863)
(Increase) decrease in receivables 83,826 (132,363)
(Increase) decrease in inventories (10,934) (6,012)
(Increase) decrease in prepaid expenses (9,849) (13,606)
Increase (decrease) in accounts payable and
accrued liabilities (69,947) 78,777
Increase (decrease) in income taxes (117,270) 75,509
Increase (decrease) in other liabilities (41,889) (234)
Increase (decrease) in deferred income taxes 17,422 120,133
All other - net 8,750 65,024
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Net cash provided by operating activities 345,651 1,047,207
---------- ----------
Cash flows from investing activities:
Expenditures for property, plant and equipment (308,872) (239,723)
Timber and timberlands expenditures (91,607) (184,119)
Acquisition of timber subsidiary (Note 4) (71,990) ---
Proceeds from redemption of investments 94,604 ---
Proceeds from sales of property, plant and equipment
and timber and timberlands 33,406 172,613
All other - net 8,138 (11,328)
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Net cash used in investing activities (336,321) (262,557)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 812,135 495,635
Payments of current installments of long-term debt
and long-term debt (646,315) (541,848)
Purchase of Weldwood minority interest (Note 3) (189,533) ---
Cash dividends paid (14,371) (27,289)
Payments to acquire treasury stock (7,815) (496,530)
All other - net 3,406 37,542
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Net cash used in financing activities (42,493) (532,490)
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Increase (decrease) in cash and cash equivalents (33,163) 252,160
Cash and Cash Equivalents:
Beginning of period 317,069 90,948
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End of period $ 283,906 $ 343,108
========== ==========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 152,590 $ 162,673
Income taxes (net of refunds) 171,832 146,655
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
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CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 1996
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 the nine months ended September 30, 1995
includes gains of $89 million from the sales of certain operations in Canada and
charges of $68 million primarily for the writedown of certain U.S. paper and
wood products assets.
Note 3.
On July 3, 1996, Weldwood of Canada Limited acquired all of its publicly-held
shares for approximately (U.S.) $190 million and became a wholly-owned
subsidiary of Champion.
Note 4.
During the first quarter of 1996, the company acquired Lake Superior Land
Company for $76 million, before netting $4 million of cash owned by Lake
Superior Land Company, as well as an outstanding $44 million mortgage loan. The
acquisition was accounted for as a purchase. Liabilities recorded in connection
with the acquisition, including purchase accounting adjustments, were the $44
million mortgage loan, $68 million of deferred taxes payable and $13 million of
other liabilities.
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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.
----------------------
Results of Operations
Overall Quarterly Results
The company reported net income in the third quarter of 1996 of $32 million or
$.33 per share, compared to last year's third quarter net income of $236 million
or $2.44 per share, fully diluted, and last quarter's net income of $16 million
or $.16 per share.
Significant Income Statement Line Item Changes For The Three Months Ended
September 30, 1996
Net sales of $1.47 billion declined from $1.84 billion a year ago and increased
slightly from $1.44 billion last quarter. Gross profit was $187 million,
compared to $543 million last year and $158 million last quarter. Pre-tax income
of $46 million declined from $384 million a year ago but improved from $22
million last quarter. The declines in net sales, gross profit and pre-tax income
from last year were due primarily to lower prices for all of the company's pulp
and paper grades and, to a lesser extent, lower shipments of all groundwood
papers and plywood. The improvements in net sales, gross profit and pre-tax
income from last quarter were due principally to higher prices for market pulp
and lumber, increased shipments of coated free sheet papers and higher west
coast timber stumpage sales. The aggregate cost of products sold decreased
slightly from last year due mainly to lower costs for wood fiber and pulp, and
was approximately even with last quarter. Selling, general and administrative
expenses were down from last year and up from last quarter due primarily to the
impact of stock price fluctuations on the value of stock appreciation rights.
Interest and debt expense decreased from last year and increased slightly from
last quarter. The decrease from last year was due principally to a lower average
interest rate on outstanding debt. The increase from last quarter was due mainly
to an increase in the amount of debt. Other (income) expense - net increased
from both last year and last quarter due primarily to increased land sales and
lower minority interest expense. The decrease in minority interest expense
resulted from the purchase by the company's Canadian subsidiary, Weldwood of
Canada Limited ("Weldwood"), of all of its publicly-held shares on July 3, 1996
for approximately (U.S.) $190 million. Weldwood is now a wholly-owned subsidiary
of the company.
The income tax provision for the third quarter of 1996 reflected an effective
tax rate lower than last year and approximately even with last quarter. The
decrease from last year was due primarily to a larger proportion of income
derived from the company's operations in Brazil, whose tax rate is lower than
that applicable to the company's North American operations. In addition, the tax
rate in Brazil was reduced effective January 1, 1996.
Year-to-Date Results
For the first nine months, the company reported net income of $131 million or
$1.37 per share, compared to net income of $554 million or $5.43 per share,
fully diluted, a year ago.
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Paper Segment
For the company's paper segment, third quarter operating income was $58 million.
This compared to income of $419 million a year ago and $44 million last quarter.
Total paper, packaging and pulp shipments were 1,540,000 tons in the third
quarter, compared to 1,532,000 tons a year ago and 1,521,000 tons last quarter.
A small operating loss for the domestic printing and writing papers business
represented a significant decline from the operating income of a year ago due
mainly to lower prices for uncoated and coated free sheet papers. Earnings
improved from last quarter's loss due primarily to the receipt of $7.5 million
of insurance proceeds for a previously recognized loss resulting from a weather-
related outage. The average price for domestic uncoated free sheet papers, the
principal product of the printing and writing papers business, was $705 per ton
in the third quarter of this year, compared to $1,044 per ton last year and $706
per ton last quarter. The average price for coated free sheet papers was $1,067
this quarter, compared to $1,255 a year ago and $1,149 last quarter. Although a
price increase for several grades of uncoated free sheet papers was partially
implemented effective October 1, prices weakened during the fourth quarter.
Shipments of all printing and writing grades were 532,000 tons, compared to
526,000 tons last year and 521,000 tons last quarter.
Operating income at the Brazilian subsidiary, Champion Papel e Celulose Ltda.,
declined significantly from the year-ago quarter and slightly from last quarter
due principally to lower prices for both domestic and export uncoated free sheet
papers. The overall average price for uncoated free sheet papers was $788 per
ton in the third quarter of this year, compared to $1,126 per ton last year and
$813 per ton last quarter. Uncoated free sheet papers shipments of 97,000 tons
were approximately even with last year and last quarter. For the first nine
months of 1996, approximately 38.9 % of the company's consolidated pre-tax
income was attributable to the Brazilian subsidiary. A price increase for export
uncoated free sheet papers was implemented early in the fourth quarter.
Earnings for the publication papers business declined from last year due mainly
to lower prices for all grades and lower shipments of coated and uncoated
groundwood papers. Earnings declined from last quarter due primarily to lower
prices for all grades, which more than offset higher shipments of coated free
sheet and groundwood papers. The average price for coated groundwood papers was
$894 per ton this quarter, compared to $1,101 per ton last year and $1,003 per
ton last quarter. Shipments of all publication grades of 318,000 tons decreased
from 326,000 tons last year and increased from 284,000 tons last quarter. Prices
for coated groundwood papers continued to decline early in the fourth quarter.
Operating income for the company's U.S. and Canadian market pulp operations
represented a substantial decline from last year due to lower prices for all
pulp grades. Earnings improved from last quarter's loss due to higher prices for
all pulp grades. The average price for Canadian softwood pulp was $423 per ton
in the third quarter of this year, compared to $732 per ton last year and $362
per ton last quarter. Average prices for northern hardwood and southern pulp
grades also decreased from last year and increased from last quarter. Shipments
of all pulp grades of 236,000 tons increased from 224,000 tons last year but
decreased from 266,000 tons last quarter. Although a price increase for all
grades was implemented effective October 1, prices for all grades weakened
during the fourth quarter. Maintenance outages are scheduled at all of the major
market pulp mills in the fourth quarter.
-7-
Break-even results for the newsprint business represented a significant decline
from last year and a slight decline from last quarter due to lower prices and
shipments. Average newsprint prices (including freight) of $529 per ton in the
third quarter of 1996 compared to $655 per ton last year and $600 per ton last
quarter. Shipments of 227,000 short tons of newsprint, specialty and directory
grades declined from 236,000 tons last year and last quarter, due to weakening
demand. Prices for newsprint and several grades of groundwood specialty papers
continued to decline early in the fourth quarter.
Earnings for the packaging business represented a decline from last year but an
improvement from last quarter's break-even results. The decline from last year
was due primarily to lower prices for kraft paper and linerboard. The
improvement from last quarter, in which a scheduled maintenance outage occurred,
was due principally to increased shipments of kraft paper and linerboard.
Shipments of 130,000 tons improved from 125,000 tons last year and 116,000 tons
last quarter. A price increase for kraft paper was implemented effective
October 1.
Wood Products Segment
The company's wood products segment, which includes the wood-related operations
of Weldwood, reported third quarter income from operations of $42 million, up
from $34 million a year ago and $29 million last quarter. The improvement from
last year was due principally to a 39% increase in lumber prices and lower
purchased wood costs. The improvement from last quarter was due mainly to a 14%
increase in lumber prices as well as improved west coast timber stumpage sales.
Total wood products shipments declined from last year due to the closure of
various wood products facilities during 1995.
Foreign Operations
The company's major foreign operations, which are discussed above under their
respective business segment headings, are in Canada and Brazil. Net sales to
unaffiliated customers by the company's foreign subsidiaries for the first nine
months of 1996 were (U.S.) $591 million, accounting for 13% of consolidated net
sales of the company. Pre-tax income of the foreign subsidiaries for the first
nine months of 1996 was (U.S.) $124.6 million, accounting for 62% of the
consolidated pre-tax income of the company. Net income (after minority interest)
of the foreign subsidiaries for the first nine months of 1996 was (U.S.) $85.2
million, accounting for 64.9% of consolidated net income of the company.
Financial Condition
The company's current ratio was 1.5 to 1 at September 30, 1996, June 30,1996 and
year-end 1995. Total debt to total capitalization was 39% at September 30, 1996
as compared to 38% at June 30, 1996 and year-end 1995.
Significant Balance Sheet Line Item Changes For The Nine Months Ended September
30, 1996
Short-term investments declined by $95 million from December 31, 1995 to
partially fund the income tax payments, the reduction in accounts payable and
accrued liabilities, and the purchase of the publicly-held shares of Weldwood
referred to below. Receivables decreased by $83 million due mainly to
substantial price decreases for all of the company's major pulp and paper
grades. Inventories decreased by $54 million, primarily as a result of
reclassifying $58 million of maintenance parts as other assets. Timber and
timberlands - net increased by $253 million due principally to the acquisition
of Lake
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Superior Land Company in the first quarter of 1996 and the revaluation of timber
assets in connection with the Weldwood share purchase. Other assets and deferred
charges increased by $85 million reflecting the reclassification of maintenance
parts from inventory, pension contributions and the acquisition of real estate
land as part of the purchase of Lake Superior Land Company. Accounts payable and
accrued liabilities decreased by $55 million due mainly to the timing of
payments. Income taxes payable decreased by $117 million due to payments made in
the first nine months of 1996 for U.S. and foreign income taxes. The deferred
income tax liability increased by $145 million, which included $69 million
recorded in connection with the Lake Superior Land Company acquisition and $49
million recorded in connection with the Weldwood share purchase. Minority
interest in subsidiaries decreased by $101 million due to the Weldwood share
purchase. For a discussion of changes in long-term debt (including current
installments) and cash and cash equivalents, see below.
Cash Flows Statement - General
In the first nine months of 1996, the company's net cash provided by operating
activities and asset sales was not sufficient to meet the requirements of its
investing activities (principally capital expenditures and the acquisition of
Lake Superior Land Company) and its financing activities (principally debt
payments, cash dividends, the purchase of shares of the company's common stock
and the Weldwood share purchase). The difference was financed through borrowings
and the use of cash and cash equivalents. In the first nine months, net
borrowings generated cash proceeds of $166 million; long-term debt (including
current installments) increased by $205 million, including a $44 million
mortgage loan of Lake Superior Land Company which was outstanding at the time of
its acquisition. Cash and cash equivalents decreased by $33 million in the first
nine months to a total of $284 million, $241 million of which was held by the
company's Canadian and Brazilian subsidiaries.
In the first nine months of 1995, the company's net cash provided by operating
activities and asset sales exceeded the requirements of its investing activities
(principally capital expenditures). The approximate excess was used to pay
dividends, to pay a portion of the company's long-term debt (including current
installments), to increase cash and cash equivalents, and to purchase shares of
the company's common stock. Long-term debt (including current installments)
declined by $169 million; the substantial portion of this reduction was effected
through the conversion of virtually all $149,893,000 of the company's 6 1/2%
Convertible Subordinated Debentures into an aggregate of 4,309,070 shares of
common stock rather than through the use of cash. Cash and cash equivalents
increased by $252 million in the first nine months of 1995 to a total of $343
million. In the first nine months, the company purchased 9,964,737 shares of
common stock for $497 million.
Cash Flows Statement - Operating Activities
For the first nine months, net cash provided by operating activities of $346
million declined from $1,047 million a year ago. The decrease was due primarily
to lower earnings, higher income tax payments, lower deferred income taxes,
accounts payable and accrued liabilities and other liabilities, which were
partially offset by a decrease in receivables.
Cash Flows Statement - Investing Activities
For the first nine months, net cash used in investing activities of $336 million
increased from $263 million a year ago. The increase was due principally to the
acquisition of Lake Superior Land Company for $76 million (as well as a $44
million mortgage loan which was outstanding at the time of its acquisition), and
a decline in net proceeds from asset sales attributable to the sale of certain
operations in Canada last year, which were partially offset by an increase in
proceeds from the redemption of investments this year.
-9-
The company's Brazilian subsidiary is currently negotiating the possible
purchase of Amapa Florestal e Celulose (AMCEL), a Brazilian company that owns
approximately 430,000 acres of land and a chip mill in the State of Amapa,
Brazil. The company anticipates completing the purchase in the fourth quarter.
Cash Flows Statement - Financing Activities
Net cash used in financing activities of $42 million declined from $532 million
a year ago. The change mainly reflects the purchase of shares of common stock by
the company and the reduction in long-term debt (including current installments)
last year, partially offset by this year's Weldwood share purchase.
At September 30, 1996, the company had $40 million of U.S. commercial paper
outstanding, all of which is classified as long-term debt, down from $93 million
at June 30, 1996 and $58 million at year-end 1995. At September 30, 1996 and
June 30, 1996, no notes were outstanding under the company's U.S. bank lines of
credit, compared to $40 million of such notes outstanding at year-end 1995.
Domestically, at September 30, 1996, $40 million of the company's unused bank
lines of credit of $1,250 million supported the classification of commercial
paper as long-term debt. At September 30, 1996, Weldwood had unused bank lines
of credit of $190 million.
On September 18, 1996, the company borrowed $45,685,000 through the issuance of
long-term tax-exempt bonds. The net proceeds are being applied to the payment of
a portion of the costs of construction of solid waste and sewage treatment
facilities at the company's Pensacola, Florida mill. The annual principal
payments requirements under the terms of all long-term agreements for the period
from October 1 through December 31, 1996 are $12 million and for the years 1997
through 2000 are $195 million, $467 million, $269 million and $205 million,
respectively.
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PART II. OTHER INFORMATION
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) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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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: November 13, 1996 John M. Nimons
- -------------------------------------- ----------------------------------
(Signature)
John M. Nimons
Vice President and Controller
Date: November 13, 1996 Kenwood C. Nichols
- --------------------------------------- ---------------------------------
(Signature)
Kenwood C. Nichols
Vice Chairman and Executive Officer
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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.
3.1 - By-Laws of the company.
10.1 - Amendment dated as of August 15, 1996 to (i) Restated Agreement
between the company and Mr. Sigler, as amended as of February 19,
1987, April 21, 1988, August 18, 1988, September 19, 1991 and
November 17, 1994, and (ii) Agreement dated November 17, 1994
between the company and Mr. Sigler.
10.2 - Amendment dated as of August 15, 1996 to Agreement dated August 18,
1988 between the company and Mr. Heist, as amended as of September
19, 1991.
11 - Calculation of Primary Earnings Per Common Share and Fully Diluted
Earnings per Common Share (unaudited).
27 - Financial Data Schedule (unaudited).
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