<PAGE>
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, 1995
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------------------------
1-3053
---------------------------------------
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
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
203-358-7000
-------------------------------------------------------
(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, 1995
- ------------------------------------ -------------------------------------
Common stock, $.50 par value 93,555,068
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
- -------------------------------
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
(in thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Sales $1,634,024 $1,226,120
Cost of products sold 1,276,961 1,142,676
Selling, general and administrative expenses 96,659 66,635
---------- ----------
Income From Operations (Note 2) 260,404 16,809
Interest and debt expense 59,717 56,537
Other (income) expense - net (Note 3) (19,776) 240
---------- ----------
Income (Loss) Before Income Taxes 220,463 (39,968)
Income Taxes 89,238 (8,982)
---------- ----------
Net Income (Loss) (Note 3) $ 131,225 $ (30,986)
========== ==========
Dividends on Preference Stock 6,938 6,938
========== ==========
Net Income (Loss) Applicable to Common Stock $ 124,287 $ (37,924)
========== ==========
Average Number of Common Shares Outstanding 93,385 92,946
========== ==========
Earnings (Loss) Per Common Share (Exhibit 11):
Primary $ 1.33 $ (.41)
========== ==========
Fully Diluted $ 1.26 $ (.41)
========== ==========
Cash dividends declared $ .05 $ .05
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
-2-
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(unaudited)
----------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 167,022 $ 90,948
Receivables - net 612,258 562,085
Inventories 424,824 441,430
Prepaid expenses 22,657 23,286
Deferred income taxes 61,392 61,032
---------- ----------
Total Current Assets 1,288,153 1,178,781
---------- ----------
Timber and timberlands, at cost - less cost of
timber harvested 1,865,004 1,846,823
---------- ----------
Property, plant and equipment, at cost 8,582,295 8,579,254
Less - Accumulated depreciation (3,060,855) (2,976,640)
---------- ----------
5,521,440 5,602,614
---------- ----------
Other assets and deferred charges 322,062 335,410
---------- ----------
Total Assets $8,996,659 $8,963,628
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities;
Current installments of long-term debt $ 203,235 $ 308,922
Short-term bank borrowings 96,879 90,184
Accounts payable and accrued liabilities 582,710 592,033
Income taxes 55,111 43,273
---------- ----------
Total Current Liabilities 937,935 1,034,412
---------- ----------
Long-term debt 2,837,423 2,889,252
---------- ----------
Other liabilities 680,055 670,761
---------- ----------
Deferred income taxes 1,074,707 1,039,927
---------- ----------
Minority interest in subsidiaries 79,962 68,531
---------- ----------
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:
Capital Shares:
Preference stock, no series, 8,231,431 shares
authorized but unissued -- --
Common (96,962,086 and 96,786,039 shares
issued at March 31, 1995 and December 31,
1994, respectively) 48,481 48,393
Capital Surplus 1,180,052 1,175,008
Retained Earnings 1,998,089 1,878,476
---------- ----------
3,226,622 3,101,877
---------- ----------
Treasury shares, at cost (100,308) (100,308)
Cumulative translation adjustment (39,737) (40,824)
---------- ----------
Total Shareholders' Equity 3,086,577 2,960,745
---------- ----------
Total Liabilities and Shareholders'
Equity $8,996,659 $8,963,628
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
-3-
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 131,225 $ (30,986)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation expense 96,805 90,985
Cost of timber harvested 18,644 19,697
Net gain on sale of assets (22,976) (438)
(Increase)/decrease in receivables (48,116) (2,925)
(Increase)/decrease in inventories (16,570) (18,937)
(Increase)/decrease in prepaid expenses (4,517) (5,166)
Increase/(decrease) in accounts payable and
accrued liabilities (20,541) (21,540)
Increase/(decrease) in income taxes 11,736 821
Increase/(decrease) in other liabilities (1,116) (5,389)
Increase/(decrease) in deferred income taxes 34,478 (15,787)
All other - net 21,846 14,562
--------- ---------
Net cash provided by (used in)
operating activities 200,898 24,897
--------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment (56,530) (42,590)
Timber and timberlands expenditures (42,831) (18,669)
Purchase of investments -- (17,169)
Proceeds from redemption of investments -- 7,788
Proceeds from sales of property, plant and
equipment and timber and timberlands 130,328 4,022
All other - net (1,729) (1,052)
--------- ---------
Net cash provided by (used in) investing
activities 29,238 (67,670)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 36,089 202,117
Payments of current installments of long-term
debt and long-term debt (183,957) (130,401)
Cash dividends paid (11,601) (11,588)
All other - net 5,407 2,031
--------- ---------
Net cash provided by (used in) financing
activities (154,062) 62,159
--------- ---------
Increase/(decrease) in cash and cash equivalents 76,074 19,386
Cash and Cash Equivalents:
Beginning of period 90,948 55,653
--------- ---------
End of period $ 167,022 $ 75,039
========= =========
Supplemental Cash Flow Disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 47,932 $ 42,554
Income taxes (net of refunds) 41,861 3,910
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
-4-
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1995
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.
Income from operations for the three months ended March 31, 1995 includes $13
million of non-recurring expenses primarily for the writedown of certain
receivables from customers in Mexico and for certain legal contingencies.
Note 3.
Other (income) expense -- net for the three months ended March 31, 1995 includes
a $50 million gain from the sale of certain operations in Canada and a charge of
$36 million primarily for the writedown of certain U.S. paper and wood products
assets.
-5-
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations.
- ----------------------
Results of Operations
- ---------------------
Overall Quarterly Results
The company reported net income in the first quarter of 1995 of $131 million or
$1.26 per share, compared to last year's first quarter loss of $31 million or 41
cents per share and last year's fourth quarter net income of $102 million or
$1.02 per share. Excluding non-recurring items, earnings per share were 73 cents
in the fourth quarter of last year.
Significant Line Item Changes
Net sales of $1.63 billion improved from $1.47 billion a year ago and $1.23
billion last quarter. Operating income of $260 million increased from $17
million a year ago and $164 million last quarter. These improvements were due
principally to higher prices for all of the company's pulp and paper grades,
which reflected strong demand attributable to favorable economic conditions in
the United States and Europe and, on the supply side, few capacity increases
in the industry. The increase in paper segment operating income more than offset
the decline in operating income in the wood products segment. General corporate
expense was up from last year and last quarter primarily as the result of the
impact of a higher stock price on the value of stock appreciation rights.
Long-term debt, including current installments, declined from last year and last
quarter. However, interest and debt expense increased slightly from a year ago
and last quarter, reflecting higher interest rates and less capitalization of
interest related to capital projects.
Other (income) expense - net improved substantially from a year ago principally
due to a $50 million gain from the sale by the company's Canadian subsidiary,
Weldwood of Canada Limited, of its coastal British Columbia solid wood
operations. This gain was partially offset by a charge of $36 million primarily
for the writedown of certain U.S. paper and wood products assets. However, other
(income) expense -- net declined from last quarter, which included non-recurring
income of $34 million.
The income tax provision for the first quarter of 1995 reflected a significantly
higher effective tax rate than last year and last quarter as the result of an
increase in the proportion of income derived from North American operations and
a corresponding decrease from Brazilian operations.
Paper Segment
For the company's paper segment, first quarter operating income was $230
million, compared to a loss of $40 million a year ago and income of $113 million
last quarter. Excluding non-recurring expenses primarily for the writedown of
certain receivables from customers in Mexico and for certain legal
contingencies, first quarter 1995 paper segment operating income was $243
million.
-6-
<PAGE>
Operating income for the domestic printing and writing papers business improved
considerably from the loss a year ago and from last quarter's earnings
principally due to higher prices for all coated and uncoated free sheet grades.
Shipments increased compared to a year ago but declined slightly from last
quarter. Additional price increases for most coated and uncoated grades were
effective early in the second quarter. Maintenance outages have been 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.,
improved from the year-ago and prior quarters, primarily due to higher domestic
and export prices. Domestic and export prices continued to strengthen early in
the second quarter.
Earnings for the publication papers business improved significantly from the
small loss a year ago and from last quarter's operating income. Prices for all
publication grades were higher than last year and last quarter, more than
offsetting increased purchased pulp costs. Shipments were higher than a year ago
and approximately even with last quarter. Additional price increases for most
coated grades were effective in April, and additional price increases for
certain uncoated grades were effective early in May.
Operating income for the company's U.S. and Canadian market pulp operations
represented a considerable improvement from the loss a year ago and the earnings
of last quarter. Prices for all pulp grades were significantly higher than last
year and last quarter. Shipments were down from a year ago principally due to
outages at certain of the company's market pulp mills, but were higher than last
quarter. Additional price increases for all grades have been announced for June.
Maintenance outages have been scheduled at all of the market pulp mills in the
second quarter.
Modest earnings for the newsprint business represented an improvement from the
sizeable loss of a year ago and the small loss last quarter principally due to
higher prices. Shipments were higher than last year but slightly lower than last
quarter. A price increase was effective in early May. Maintenance outages have
been scheduled at both of the newsprint papers mills in the second quarter.
Earnings for the packaging business exceeded those of a year ago and last
quarter primarily due to higher prices for kraft paper and linerboard. Shipments
decreased slightly from last year but were up somewhat from last quarter.
Additional price increases for kraft paper and linerboard were effective in
April. A maintenance outage has been scheduled at the company's kraft paper and
linerboard mill in the second quarter.
Wood Products Segment
The company's wood products segment, which includes the wood-related operations
of Weldwood, reported first quarter income from operations of $49 million, down
from earnings of $64 million a year ago and $61 million last quarter. Lower
prices for lumber and higher wood costs principally were responsible for the
decline from last year. The decline from last quarter was due to lower lumber
and plywood prices, higher wood costs and reduced Pacific region timber stumpage
sales. Shipments of lumber and plywood increased from a year ago and last
quarter. Plywood prices improved slightly early in the second quarter, while
lumber prices declined.
Labor Contracts
New five year labor contracts were ratified in May at the company's Sartell,
Minnesota, and Bucksport, Maine, publication papers mills.
-7-
<PAGE>
A new three year labor contract is in effect at Weldwood's joint venture pulp
mill at Quesnel, British Columbia. Efforts to reach new labor agreements
continue at the Hinton, Alberta, pulp mill and timberlands operation, which
are presently operating under the terms of their respective expired contracts.
Weldwood and the union representing the Hinton timberlands employees have
reached agreement on a new contract, which is subject to ratification by the
timberlands employees.
Financial Condition
- -------------------
General
The company's current ratio was 1.4 to 1 at March 31, 1995 as compared to 1.1 to
1 at year-end 1994. Total debt to total capitalization was 41% at March 31, 1995
as compared to 43% at year-end 1994.
Reflecting strong earnings and the sale of certain assets, in the first three
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 as well as a
portion of the company's long-term debt (including current installments) and to
increase cash and cash equivalents. Since year-end 1994, long-term debt
(including current installments) has declined by $158 million and cash and cash
equivalents have increased by $76 million.
In the first three months of 1994, 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). 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, while cash and cash equivalents increased by $19 million.
Operating Activities
For the first three months, net cash provided by operating activities of $201
million increased from $25 million a year ago. The increase was due primarily to
significantly higher earnings and higher deferred income taxes, which more than
offset an increase in receivables.
Investing Activities
Net cash provided by investing activities of $29 million compared with net cash
used in investing activities of $68 million a year ago. The improvement was due
to higher net proceeds from asset sales, principally the sale of Weldwood's
coastal British Columbia solid wood operations, which more than offset an
increase in capital expenditures.
Weldwood is negotiating with the Hancock Timber Resource Group to sell
approximately 32,000 acres of Weldwood's fee-owned timberlands in coastal
British Columbia.
During the first quarter of 1995, the company's Brazilian subsidiary entered
into several foreign exchange contracts with two banks. Under these contracts,
the Brazilian subsidiary pays premiums in order to mitigate the risk
associated with the potential devaluation of the Brazilian currency relative to
the U.S. dollar with respect to certain of its short-term investments. At March
31, 1995, $43 million of the Brazilian subsidiary's short-term investments
were covered by these foreign exchange contracts.
Financing Activities
Net cash used in financing activities of $154 million compared with net cash
provided by financing activities of $62 million a year ago. This was primarily
due to the reduction of debt this quarter, reflecting the strong earnings and
asset sales discussed above, as compared to the increase in debt in the year-ago
quarter.
-8-
<PAGE>
At March 31, 1995, the company had $335 million of U.S. commercial paper and
other short-term obligations outstanding, all of which are classified as long-
term debt, down from $382 million at year-end 1994. In addition, at March 31,
1995, the company had $130 million of notes outstanding under its U.S. bank
lines of credit, up from $65 million at year-end of 1994. Domestically, at March
31, 1995, $335 million of the company's unused bank lines of credit of $1,070
million supported the classification of commercial paper and other short-term
obligations as long-term debt.
The annual principal payment requirements under the terms of all long-term
agreements for the period from April 1 through December 31, 1995 are $203
million and for the years 1996 through 1999 are $78 million, $194 million, $385
million and $754 million, respectively.
-9-
<PAGE>
PART II. OTHER INFORMATION
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
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 January 9, 1995
reporting the issuance of a press release announcing certain unaudited
consolidated financial results of the company for the three months and
twelve months ended December 31, 1994, with the consolidated statement of
income for the three months and twelve months ended December 31, 1994
(unaudited) and December 31, 1993 as an exhibit thereto.
-10-
<PAGE>
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, 1995 John M. Nimons
- -------------------------------- -----------------------------------
(Signature)
John M. Nimons
Vice President and Controller
Date: May 12, 1995 Kenwood C. Nichols
- -------------------------------- -----------------------------------
(Signature)
Kenwood C. Nichols
Vice Chairman
-11-
<PAGE>
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).
27 - Financial Data Schedule (unaudited).
-12-
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Primary earnings (loss) per common share:
Net Income (Loss) $ 131,225 $ (30,986)
Dividends on Preference Shares 6,938 6,938
--------- ---------
Net Income (Loss) Applicable to Common Stock $ 124,287 $ (37,924)
========= =========
Average number of common shares outstanding 93,385 92,946
========= =========
Per share $ 1.33 $ (.41)
========= =========
Fully diluted earnings (loss) per common share:
Net Income (Loss) Applicable to Common Stock $ 124,287 $ (37,924)
Add income effect, assuming conversion of
dilutive convertible securities 8,522 --
--------- ---------
Net income (loss) on a fully diluted basis $ 132,809 $ (37,924)
========= =========
Average number of common shares outstanding 93,385 92,946
Add common share effect, assuming conversion
of dilutive convertible securities 12,211 --
--------- ---------
Average number of common shares outstanding on
a fully diluted basis 105,596 92,946
========= =========
Per share $ 1.26 $ (.41)
========= =========
</TABLE>
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 167,022
<SECURITIES> 0
<RECEIVABLES> 630,831
<ALLOWANCES> 18,573
<INVENTORY> 424,824
<CURRENT-ASSETS> 1,288,153
<PP&E> 10,447,299<F1>
<DEPRECIATION> 3,060,855
<TOTAL-ASSETS> 8,996,659
<CURRENT-LIABILITIES> 937,935
<BONDS> 2,837,423
<COMMON> 48,481
300,000
0
<OTHER-SE> 3,038,096
<TOTAL-LIABILITY-AND-EQUITY> 8,996,659
<SALES> 1,634,024
<TOTAL-REVENUES> 1,634,024
<CGS> 1,276,961
<TOTAL-COSTS> 1,276,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,717
<INCOME-PRETAX> 220,463
<INCOME-TAX> 89,238
<INCOME-CONTINUING> 131,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,225
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.26
<FN>
<F1>Includes timber and timberlands.
</FN>
</TABLE>
