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
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. EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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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
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
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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, 1997
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Common stock, $.50 par value 95,638,774
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)
Three Months Ended
March 31,
------------------------------------
1997 1996
----------------- -----------------
Net Sales $1,366,720 $1,533,182
Costs and Expenses
Cost of products sold 1,281,103 1,260,453
Selling, general and administrative expenses 93,864 97,015
Interest and debt expenses 60,799 54,959
Other (income) expense - net (Note 2) (9,502) (11,168)
----------------- -----------------
Total costs and expenses 1,426,264 1,401,259
Income (Loss) Before Income Taxes (59,544) 131,923
Income Taxes (Benefit) (22,461) 48,274
----------------- -----------------
Net Income (Loss) $ (37,083) $ 83,649
================= =================
Average Number of Common Shares Outstanding 95,590 95,505
================= =================
Earnings (Loss) Per Common Share (Exhibit 11) $ (.39) $ .88
================= =================
Cash dividends declared $ .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)
March 31, December 31,
1997 1996
ASSETS: (unaudited)
----------------- -----------------
Current Assets:
Cash and cash equivalents $ 112,032 $ 174,638
Short-term investments 20,914 ---
Receivables - net 565,320 579,393
Inventories 458,056 458,043
Prepaid expenses 29,125 29,926
Deferred income taxes 74,400 73,732
----------------- -----------------
Total Current Assets 1,259,847 1,315,732
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Timber and timberlands, at cost - less cost of
timber harvested 2,354,038 2,364,858
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Property, plant and equipment, at cost 9,360,528 9,297,557
Less - Accumulated depreciation 3,738,275 3,644,088
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5,622,253 5,653,469
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Other assets and deferred charges 504,489 485,933
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Total Assets $9,740,627 $9,819,992
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current installments of long-term debt $ 60,735 $ 80,900
Short-term bank borrowings 98,385 126,910
Accounts payable and accrued liabilities 648,992 713,132
Income taxes 8,359 23,098
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Total Current Liabilities 816,471 944,040
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Long-term debt 3,218,185 3,085,424
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Other liabilities 659,925 664,643
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Deferred income taxes 1,329,169 1,363,910
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Minority interest in subsidiaries 5,327 6,307
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Shareholders' Equity:
Capital Shares:
Common (110,395,585 and 110,323,099
shares issued at March 31, 1997 and
December 31, 1996, respectively) 55,198 55,162
Capital Surplus 1,654,948 1,651,454
Retained Earnings 2,698,329 2,740,196
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4,408,475 4,446,812
Treasury shares, at cost (657,855) (657,864)
Cumulative translation adjustment (39,070) (33,280)
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Total Shareholders' Equity 3,711,550 3,755,668
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Total Liabilities and Shareholders' Equity $9,740,627 $9,819,992
================= =================
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)
Three Months Ended
March 31,
------------------------------------
1997 1996
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Cash flows from operating activities:
Net income (1oss) $(37,083) $ 83,649
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 104,760 100,061
Cost of timber harvested 22,686 22,661
Net gain on sale of assets (2,692) (2,960)
(Increase) decrease in:
Receivables 13,464 82,848
Inventories (819) (60,136)
Prepaid expenses 736 (2,679)
Increase (decrease) in:
Accounts payable and accrued liabilities (58,987) (62,539)
Income taxes (14,640) (91,370)
Other liabilities (6,103) (14,303)
Deferred income taxes (33,394) 13,675
All other - net 12,372 17,335
----------------- -----------------
Net cash provided by operating activities 300 86,242
----------------- -----------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (67,114) (73,417)
Timber and timberlands expenditures (25,293) (30,326)
Purchase of Lake Superior Land Company (Note 2) --- (71,775)
Purchase of investments (20,914) ---
Proceeds from redemption of investments --- 9,218
Proceeds from sales of property, plant and equipment
and timber and timberlands 3,425 8,139
All other - net 3,612 (13,292)
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Net cash used in investing activities (106,284) (171,453)
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 77,525 342,039
Payments of current installments of long-term debt
and long-term debt (29,980) (313,287)
Cash dividends paid (4,780) (4,797)
Payments to acquire treasury stock --- (7,815)
All other - net 613 1,619
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Net cash provided by financing activities 43,378 17,759
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Decrease in cash and cash equivalents (62,606) (67,452)
Cash and Cash Equivalents:
Beginning of period 174,638 317,069
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End of period $112,032 $249,617
================= =================
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 56,048 $ 44,844
Income taxes (net of refunds) 18,279 122,776
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)
March 31, 1997
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.
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.
Note 3.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("EPS"), which establishes standards for computing and presenting EPS, is
effective for reporting periods ending after December 15, 1997. Had EPS been
determined in accordance with this standard, the company's basic and diluted
EPS for the three months ended March 31, 1997 and 1996 would have been the
same as those currently reported for primary and fully diluted earnings per
share, respectively.
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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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Overall Quarterly Results
The company reported a net loss of $37 million or $.39 per share, fully
diluted, compared to last year's first quarter net income of $84 million or
$.88 per share and last quarter's net income of $10 million or $.11 per
share. The decline from last year and last quarter was primarily due to
lower operating income in the paper segment, as discussed below.
Significant Income Statement Line Item Changes For The Three Months Ended
March 31, 1997
Net sales of $1.37 billion declined from $1.53 billion a year ago and $1.43
billion last quarter. Gross profit was $86 million, compared to $273 million
last year and $128 million last quarter. A pre-tax loss of $60 million
represented a decline from pre-tax income of $132 million a year ago and $5
million last quarter. The declines in net sales, gross profit and pre-tax
income from last year were mainly due to sharply lower prices for all of the
company's major pulp and paper grades, which more than offset higher pulp
and paper shipments, higher prices for lumber in the U.S. and Canada and
higher plywood prices in Canada. The declines from last quarter were
principally due to lower prices for uncoated free sheet and coated
groundwood papers and pulp, as well as lower West Coast timber sales.
The aggregate cost of products sold increased from last year but declined
from last quarter. The increase from last year was mainly due to higher pulp
and paper shipments, which more than offset lower purchased pulp costs. The
decline from last quarter was primarily due to lower sales volumes for the
company's paper merchant business, Nationwide Papers, lower maintenance
outage expense and lower timber sales.
Selling, general and administrative expenses were approximately even with
last year but significantly higher than last quarter due to higher benefits
expense and the impact of stock price fluctuations on the value of stock
appreciation rights.
The income tax benefit in the first quarter of 1997 reflected an effective
tax rate approximately even with last year but higher than last quarter. The
increase from last quarter was mainly due to the impact on the fourth
quarter rate of adjustments to the 1996 Brazilian income tax provision.
Paper Segment
For the company's paper segment, the first quarter operating loss was $30
million. This compared to income of $167 million a year ago and $21 million
last quarter. Total paper, packaging and pulp shipments were 1,539,000 tons
in the first quarter, compared to 1,386,000 tons a year ago and 1,545,000
tons last quarter.
The operating loss for the domestic free sheet business represented a
decline from the operating income of a year ago and the smaller operating
loss last quarter. The decline from the year-ago quarter was principally due
to lower prices for coated and uncoated free sheet papers, which more than
offset higher shipments and lower manufacturing costs. The decline from last
quarter was mainly due to lower prices for uncoated free sheet papers. The
average price for domestic uncoated free sheet papers, the principal product
of the free sheet business, was $619 per ton in the first quarter of this
year, compared to $793 per ton in the first quarter of 1996 and $671 per ton
last quarter. The
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average price for coated free sheet papers declined significantly from a
year ago and slightly from last quarter. Shipments of all grades for the
free sheet business were 554,000 tons, compared to 519,000 tons last year
and 556,000 tons last quarter. A price increase for most grades of uncoated
free sheet papers was implemented early in the second quarter.
Operating income at the Brazilian subsidiary, Champion Papel e Celulose
Ltda. ("Celulose"), declined significantly from last year and moderately
from last quarter primarily due to lower export and domestic prices for
uncoated free sheet papers, which more than offset lower manufacturing
costs. The overall average price for uncoated free sheet papers was $743 per
ton this quarter, compared to $961 per ton in the year-ago quarter and $795
per ton last quarter. Uncoated free sheet papers shipments of 97,000 tons
were approximately even with last year and last quarter.
An operating loss for the groundwood business represented a considerable
decline from the operating income of last year and last quarter. The decline
from last year was due to significantly lower prices for coated and uncoated
groundwood papers and newsprint, which more than offset higher shipments and
lower purchased pulp costs. The decline from last quarter was mainly due to
lower prices for coated groundwood papers. The average price for coated
groundwood papers was $772 per ton this quarter, compared to $1,152 per ton
last year and $810 per ton last quarter. The average price for newsprint was
$460 per ton this quarter, compared to $681 per ton last year and $460 per
ton last quarter. Shipments of all groundwood and newsprint grades were
444,000 tons, compared to 385,000 tons last year and 446,000 tons last
quarter. A domestic price increase for newsprint was implemented late in the
first quarter and, early in the second quarter, a discount reduction for
coated groundwood papers was also implemented.
An operating loss for the specialty business represented a decline from the
operating income of last year and last quarter. The decline from last year
was principally due to lower prices for coated and uncoated groundwood
papers and linerboard, which more than offset lower purchased pulp costs.
The decline from last quarter was mainly due to lower prices for coated
groundwood papers and linerboard and a decrease in the LIFO inventory
reserve last quarter. Prices for coated and uncoated groundwood papers,
linerboard and kraft papers declined from last year and last quarter. Prices
for coated premium free sheet papers declined from last year but improved
slightly from last quarter. Shipments of all grades were 220,000 tons,
compared to 211,000 tons last year and 225,000 tons last quarter.
Maintenance outages are scheduled at the company's Hamilton, Ohio, and
Roanoke Rapids, North Carolina, mills in the second quarter.
The operating loss for the company's U.S. and Canadian market pulp
operations represented a decline from the operating income of last year and
last quarter. The decline from the year-ago quarter was primarily due to
significantly lower prices for all grades, which more than offset increased
shipments and lower wood chip costs in Canada. The decline from last quarter
was principally due to lower prices for northern hardwood and Canadian
softwood pulps. The average price for Canadian softwood pulp was (U.S.) $403
per ton in the first quarter of this year, compared to $500 per ton last
year and $423 per ton last quarter. Prices for northern hardwood pulp also
decreased from last year and last quarter. Shipments of all pulp grades of
224,000 tons increased from 174,000 tons last year and 220,000 tons last
quarter. Price increases for all softwood pulp grades were implemented May
1. Maintenance outages are scheduled at all of the company's northern
hardwood and Canadian softwood market pulp mills in the second quarter.
Wood Products Segment
The company's wood products segment, which includes the wood-related
operations of Weldwood of Canada, Limited ("Weldwood") and Celulose,
reported first quarter income from operations of $31 million, compared to
$19 million a year ago and $36 million last quarter. The improvement from
last year was mainly due to higher lumber prices in the U.S. and Canada,
higher plywood prices in Canada and higher timber sales, which more than
offset increased wood costs. The decline from last quarter was primarily due
to lower West Coast timber sales and increased wood costs, which more than
offset higher lumber shipments.
-7-
The average price for plywood overall was up slightly from both prior
quarters. The average price for lumber overall was 38% higher than last year
and approximately even with last quarter. Wood products shipments were down
significantly from last year but up from last quarter. The decrease in
shipments from last year was primarily due to the sale and closure of
various wood products facilities, while the increase from last quarter was
due to seasonal factors.
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 quarter of 1997 were (U.S.) $217 million, accounting for 16% of
consolidated net sales of the company. Pre-tax income and net income of the
foreign subsidiaries for the first quarter of 1997 was (U.S.) $28 million
and (U.S.) $23 million, respectively, which were more than offset by the
pre-tax loss and net loss of the company's domestic operations.
Labor Contracts
At Weldwood, the labor agreement covering the joint venture pulp mill at
Quesnel, British Columbia, has run past its expiration date. This facility
presently is operating under the terms of its expired contract while efforts
to negotiate a new labor agreement continue. The labor agreement at the
Hinton, Alberta, pulp mill and wood products plant expires on May 31, 1997
and the labor agreements at several of Weldwood's wood products plants
expire on June 30, 1997.
Financial Condition
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The company's current ratio was 1.5 to 1 at March 31, 1997, compared to 1.4
to 1 at year-end 1996. Total debt to total capitalization was 40% at March
31, 1997, compared to 39% at year-end 1996.
Significant Balance Sheet Line Item Changes
Short-term investments increased by $21 million mainly due to the investment
of excess cash by the company's Brazilian subsidiary. Net property, plant
and equipment decreased by $31 million primarily due to depreciation expense
exceeding capital additions in the first quarter. Short-term borrowings, and
accounts payable and accrued liabilities, decreased by $29 million and $64
million, respectively, principally due to the timing of payments. Income
taxes payable decreased by $15 million, as $18 million in net payments were
made in the first quarter of 1997 for U.S. and foreign income taxes. The
deferred income tax liability and shareholders' equity decreased $35 million
and $44 million, respectively, mainly due to the company's first quarter net
loss. For a discussion of changes in long-term debt (including current
installments) and cash and cash equivalents, see below.
Cash Flows Statement - General
1997
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In the first three months of 1997, 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 purchase of investments) and its financing activities (principally
debt payments and cash dividends). The difference was financed through
borrowings and the use of cash and cash equivalents. In the first three
months, net borrowings generated cash proceeds of $48 million; long-term
debt (including current installments) increased by $113 million. Cash and
cash equivalents decreased by $63 million in the first three months to a
total of $112 million, $67 million of which was held by the company's
Canadian and Brazilian subsidiaries.
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1996
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In the first three 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, and the purchase of
shares of the company's common stock). The difference was financed through
borrowings and the use of cash and cash equivalents. Net borrowings
generated cash proceeds of $29 million; long-term debt (including current
installments) increased by $83 million. Cash and cash equivalents decreased
by $67 million.
Cash Flows Statement - Operating Activities
For the first three months, net cash provided by operating activities of
$300,000 declined from $86 million a year ago. The decrease was primarily
due to a net loss this year and a smaller decrease in receivables, partially
offset by lower income tax payments and a smaller increase in inventories.
Cash Flows Statement - Investing Activities
For the first three months, net cash used in investing activities of $106
million declined from $171 million a year ago. The decrease was mainly due
to the acquisition of Lake Superior Land Company for $76 million (as well as
an outstanding $44 million mortgage loan) last year.
Cash Flows Statement - Financing Activities
Net cash provided by financing activities of $43 million increased from $18
million a year ago. The change was principally due to higher net borrowings
this year, which in turn reflected the decrease in net cash provided by
operating activities, as discussed above.
At March 31, 1997, the company had $102 million U.S. commercial paper and
other short-term obligations outstanding, all of which is classified as
long-term debt, up from $7 million at year-end 1996. At March 31, 1997, the
company had $15 million of notes outstanding under its U.S. bank lines of
credit. At December 31, 1996, no notes were outstanding under these lines of
credit. Domestically, at March 31, 1997, $102 million of the company's
unused bank lines of credit of $1,235 million supported the classification
of commercial paper and other short-term obligations as long-term debt. At
March 31, 1997, Weldwood had unused bank lines of credit of (U.S.) $130
million.
The annual principal payment requirements under the terms of all long-term
agreements for the period from April 1 through December 31, 1997 are $84
million and for the years 1998 through 2001 are $439 million, $372 million,
$206 million and $206 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
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(Registrant)
Date: May 13, 1997 John M. Nimons
- --------------------------------- -------------------------------------------
(Signature)
John M. Nimons
Vice President and Controller
Date: May 13, 1997 Kenwood C. Nichols
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(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.
10.1 -Form of Restricted Stock Unit Grant Letter dated February 18, 1997.
10.2 -Champion International Corporation 1997 Incentive Compensation Plan.
10.3 -Champion International Corporation 1997 Performance Share Plan.
10.4 -Compensation Plan for Non-Employee Directors.
10.5 -Amendment to Champion International Corporation Retirement Plan for
Outside Directors.
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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