<PAGE>
<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
<S> <C>
(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, 1997
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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 incorporation (I.R.S. Employer Identification No.)
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 October 31, 1997
-------------------------------------- ------------------------------------------------
Common stock, $.50 par value 96,128,737
</TABLE>
<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>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 4,252,585 $ 4,448,247 $ 1,478,405 $ 1,470,481
Costs and Expenses
Cost of products sold 3,860,715 3,829,869 1,298,026 1,283,000
Selling, general and administrative expenses 303,537 285,596 104,921 97,308
Interest and debt expenses 180,360 162,394 58,799 54,217
Other (income) expense - net (37,077) (29,416) (13,587) (9,560)
----------- ----------- ----------- -----------
Total costs and expenses 4,307,535 4,248,443 1,448,159 1,424,965
Income (Loss) Before Income Taxes (54,950) 199,804 30,246 45,516
Income Taxes (Benefit) (26,675) 68,602 10,080 13,515
----------- ----------- ----------- -----------
Net Income (Loss) $ (28,275) $ 131,202 $ 20,166 $ 32,001
=========== =========== =========== ===========
Average Number of Common Shares Outstanding 95,718 95,515 95,903 95,529
=========== =========== =========== ===========
Earnings (Loss) Per Common Share (Exhibit 11) $ (.30) $ 1.37 $ .21 $ .33
=========== =========== =========== ===========
Cash dividends declared $ .15 $ .15 $ .05 $ .05
=========== =========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
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<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS: (unaudited)
---------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 114,787 $ 174,638
Short-term investments 1,200 ---
Receivables - net 599,138 579,393
Inventories 414,441 458,043
Prepaid expenses 31,605 29,926
Deferred income taxes 76,031 73,732
---------------- ---------------
Total Current Assets 1,237,202 1,315,732
---------------- ---------------
Timber and timberlands, at cost - less cost of timber harvested 2,332,838 2,364,858
---------------- ---------------
Property, plant and equipment, at cost 9,492,622 9,297,557
Less - Accumulated depreciation 3,910,737 3,644,088
---------------- ---------------
5,581,885 5,653,469
---------------- ---------------
Other assets and deferred charges 502,913 485,933
---------------- ---------------
Total Assets $ 9,654,838 $ 9,819,992
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current installments of long-term debt $ 77,657 $ 80,900
Short-term borrowings 80,291 126,910
Accounts payable and accrued liabilities 693,185 713,132
Income taxes 7,033 23,098
---------------- ---------------
Total Current Liabilities 858,166 944,040
---------------- ---------------
Long-term debt 3,078,343 3,085,424
---------------- ---------------
Other liabilities 682,887 664,643
---------------- ---------------
Deferred income taxes 1,290,723 1,363,910
---------------- ---------------
Minority interest in subsidiaries 4,497 6,307
---------------- ---------------
Shareholders' Equity:
Capital Shares:
Common (110,790,046 and 110,323,099 shares issued at
September 30, 1997 and December 31, 1996, respectively) 55,395 55,162
Capital Surplus 1,682,691 1,651,454
Retained Earnings 2,697,547 2,740,196
---------------- ---------------
4,435,633 4,446,812
---------------- ---------------
Treasury shares, at cost (657,855) (657,864)
Cumulative translation adjustment (37,556) (33,280)
---------------- ---------------
Total Shareholders' Equity 3,740,222 3,755,668
---------------- ---------------
Total Liabilities and Shareholders' Equity $ 9,654,838 $ 9,819,992
================ ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
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<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (28,275) $ 131,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 317,993 302,818
Cost of timber harvested 67,913 68,069
Net gain on sale of assets (19,039) (16,547)
(Increase) decrease in:
Receivables (20,200) 83,826
Inventories 43,200 (10,934)
Prepaid expenses (1,728) (9,849)
Increase (decrease) in:
Accounts payable and accrued liabilities (21,110) (69,947)
Income taxes (15,991) (117,270)
Other liabilities 24,739 (41,889)
Deferred income taxes (59,744) 17,422
All other - net 41,515 8,750
---------------- ---------------
Net cash provided by operating activities 329,273 345,651
---------------- ---------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (237,394) (308,872)
Timber and timberlands expenditures (86,404) (91,607)
Purchase of Lake Superior Land Company (Note 2) --- (71,990)
Purchase of investments (22,114) ---
Proceeds from redemption of investments 20,914 94,604
Proceeds from sales of property, plant and equipment
and timber and timberlands 38,970 33,406
All other - net (11,093) 8,138
---------------- ---------------
Net cash used in investing activities (297,121) (336,321)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 113,512 812,135
Payments of long-term and short-term debt (204,327) (646,315)
Purchase of Weldwood minority interest (Note 3) --- (189,533)
Cash dividends paid (14,351) (14,371)
All other - net 13,163 (4,409)
---------------- ---------------
Net cash used in financing activities (92,003) (42,493)
---------------- ---------------
Decrease in cash and cash equivalents (59,851) (33,163)
Cash and Cash Equivalents:
Beginning of period 174,638 317,069
---------------- ---------------
End of period $ 114,787 $ 283,906
================ ===============
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 177,122 $ 152,590
Income taxes (net of refunds) 40,487 171,832
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
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<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 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.
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 the company.
Note 4.
In March 1997, the company adopted a performance share plan under which
share units were awarded to senior executives and other key managers.
These units entitle the executives, upon earn-out, to receive shares of
common stock. The earn-out of shares is dependent on the company's stock
price appreciation plus dividend yield (i.e., total shareholder return
or "TSR") increasing, at any time within three years from the date of
grant, to a value equivalent to approximately 15% per annum compounded
for three years. If the TSR goal is achieved, the amount of the payout
will depend on the company's TSR, during the performance period,
relative to an industry peer group. If the TSR goal is not achieved,
there will be no payout.
Based on the current dividend rate, the shares would be earned if the
common stock price reaches approximately $67 per share. The number of
shares that could be earned ranges from 340,000 shares to 720,000
shares.
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<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 5.
The company occasionally enters into foreign exchange contracts to
mitigate the risks associated with its exposure to fluctuations in
foreign currency exchange rates. The foreign exchange contracts are held
for purposes other than trading. At September 30, 1997, the company had
foreign exchange contracts covering approximately $95 million of
short-term investments and accounts receivable. The fair value of these
contracts approximated carrying value.
Note 6.
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 and nine months ended
September 30, 1997 and 1996 would have been the same as those reported
herein.
Note 7.
On October 7, 1997, the company approved a plan to maximize total
shareholder return by focusing on strategic businesses, increasing
profitability and improving financial discipline. As part of this plan,
the company will divest several non-strategic product segments with net
sales for the first nine months of 1997 of $970 million. The profit-
improvement program includes a targeted reduction of approximately 11%
in the company's worldwide workforce in the businesses remaining after
the divestitures.
The company will incur a pre-tax charge of $894 million ($553 million
after-tax), or $5.77 per share. Most of the charge will be recorded in
the fourth quarter of 1997.
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<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 third quarter of 1997 of $20
million or $.21 per share, compared to last year's third quarter net
income of $32 million or $.33 per share and last quarter's net loss of
$11 million or $.12 per share. As discussed below, the decline from last
year was primarily due to lower operating income in the company's wood
products segment, higher selling, general and administrative expenses
and higher interest expense, which more than offset higher earnings for
the paper segment. The improvement from last quarter was mainly due to
significantly higher earnings in the paper segment.
Significant Income Statement Line Item Changes for the Three Months
Ended September 30, 1997
Net sales of $1.48 billion increased from $1.47 billion last year and
$1.41 billion last quarter. Gross profit was $180 million, compared to
$187 million last year and $126 million last quarter. Pre-tax income of
$30 million declined from $46 million a year ago but improved from a
pre-tax loss of $26 million last quarter. The decline in gross profit
from last year was principally due to lower results for the company's
Canadian wood products operations, resulting from lower lumber and
plywood prices and lower lumber shipments, higher purchased wood costs
and the start-up of a new wood products facility. The decline in pre-tax
income from last year was primarily due to the lower gross profit as
well as higher selling, general and administrative expenses and higher
interest expense. The improvements in net sales, gross profit and
pre-tax income from last quarter were mainly due to higher prices for
most of the company's key pulp and paper grades, increased paper
shipments and lower pulp and paper manufacturing costs, which more than
offset lower results for the company's Canadian wood products
operations.
The aggregate cost of products sold increased from last year and last
quarter principally due to higher paper shipments. Selling, general and
administrative expenses increased from last year and were approximately
even with last quarter. The increase from last year was principally due
to the impact of stock price fluctuations on the value of stock
appreciation rights and of other stock-based compensation, including the
performance share units described in Note 4 to the consolidated
financial statements. Future stock price volatility would impact the
expense associated with the company's stock-based compensation plans.
Interest and debt expense increased from last year but decreased from
last quarter. The variances from both prior periods were primarily due
to changes in the amount of the company's long-term debt. Other (income)
expense - net improved from last year and was approximately even with
last quarter. The improvement from last year was due in part to the sale
of a warehouse facility this year.
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<PAGE>
The effective tax rate for the third quarter of 1997 was higher than
last year but significantly lower than the rate associated with the tax
benefit last quarter. The variances from both last year and last quarter
were principally due to the mix of earnings from the company's
operations in North America and Brazil. The Brazilian tax rate is lower
than that applicable to North American earnings.
Year-to-Date Results
For the first nine months, the company reported a net loss of $28
million or $.30 per share, compared to net income of $131 million or
$1.37 per share a year ago.
Paper Segment
For the company's paper segment, third quarter operating income was $72
million. This compared to income of $58 million a year ago and $3
million last quarter. Total paper, packaging and pulp shipments were
1,599,000 tons in the third quarter, compared to 1,538,000 tons a year
ago and 1,560,000 tons last quarter.
The operating income for the domestic free sheet business represented a
significant improvement from the operating income of last year and
slight operating loss of last quarter. The improvement from last year
was mainly due to lower manufacturing costs and to higher prices for
coated free sheet papers. The improvement from last quarter was
principally due to higher prices for coated and uncoated free sheet
papers and higher overall shipments. The average price for domestic
uncoated free sheet papers, the principal product of the free sheet
business, was $674 per ton in the third quarter of this year, compared
to $687 per ton in the third quarter of 1996 and $626 per ton last
quarter. The average price for coated free sheet papers was $879 per ton
this quarter, compared to $859 per ton a year ago and $833 per ton last
quarter. Shipments of all grades for the free sheet business were
572,000 tons, compared to 579,000 tons last year and 562,000 tons last
quarter. Maintenance outages are scheduled at the company's Courtland,
Alabama and Pensacola, Florida mills in the fourth quarter. A price
increase for many grades of uncoated free sheet papers was implemented
early in the fourth quarter.
Operating income at the Brazilian subsidiary, Champion Papel e Celulose
Ltda. ("Celulose"), declined slightly from both last year and last
quarter. The decline from last year was primarily due to lower domestic
prices for uncoated free sheet papers. The decline from last quarter was
mainly due to lower domestic prices for uncoated free sheet papers and a
scheduled maintenance outage in the third quarter. The overall average
price for uncoated free sheet papers was $715 per ton this quarter,
compared to $788 per ton last year and $714 per ton last quarter.
Uncoated free sheet papers shipments of 98,000 tons were approximately
even with last year and last quarter.
Operating income for the groundwood business declined from last year but
improved significantly from last quarter. The decline from last year was
principally due to lower prices for coated and uncoated groundwood
papers and newsprint, which more than offset higher overall shipments
and lower manufacturing costs. The improvement from last quarter was
primarily due to higher prices for coated groundwood papers and
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<PAGE>
newsprint as well as higher shipments. The average price for coated
groundwood papers was $870 per ton this quarter, compared to $910 per
ton last year and $799 per ton last quarter. The average price for
newsprint of $503 per ton this quarter declined from $529 per ton last
year but improved from $490 per ton last quarter. Shipments of all
groundwood and newsprint grades of 458,000 tons compared to 414,000 tons
last year and 443,000 tons last quarter. A maintenance outage is
scheduled at the company's Sheldon, Texas newsprint mill in the fourth
quarter.
Results for the specialty business declined slightly from last year but
improved somewhat from last quarter. This business incurred a modest
operating loss in each of the three quarters. The decline from last year
was mainly due to lower prices for most grades and higher purchased pulp
costs, which more than offset higher overall shipments. The improvement
from last quarter was principally due to higher prices for most grades,
higher overall shipments and lower manufacturing costs. Prices for
coated and uncoated groundwood papers and linerboard declined from last
year but improved from last quarter. Prices for coated premium free
sheet papers improved from both last year and last quarter. Prices for
kraft papers declined from last year and were approximately even with
last quarter. Shipments of all grades were 228,000 tons, compared to
214,000 tons last year and 218,000 tons last quarter. A maintenance
outage is scheduled at the company's Roanoke Rapids, North Carolina mill
in the fourth quarter. A price increase for kraft papers was implemented
early in the fourth quarter.
The operating profit for the company's U.S. and Canadian market pulp
operations represented a significant improvement from the operating
profit of a year ago and the slight operating loss last quarter. The
improvement from last year and last quarter was primarily due to higher
prices for all grades and lower manufacturing costs. The average price
for Canadian softwood pulp was (U.S.) $440 per ton in the third quarter
of this year, compared to $423 per ton last year and $398 last quarter.
The average price for northern hardwood pulp was $435 per ton this
quarter, compared to $395 per ton last year and $398 per ton last
quarter. Shipments of all pulp grades of 243,000 tons increased from
234,000 tons last year and 240,000 tons last quarter.
Wood Products Segment
The company's wood products segment, which includes the wood-related
operations of the company's Canadian subsidiary, Weldwood of Canada
Limited ("Weldwood") and Celulose, reported third quarter income from
operations of $25 million, down from $42 million a year ago and $37
million last quarter. The decline from both prior periods was mainly due
to lower results for Weldwood, including lower prices for lumber and
plywood, lower lumber shipments, higher purchased wood costs and the
start-up of a new wood products facility.
For U.S. and Canadian operations overall, the average price for plywood
was up 3.1% from last year but down 1.2% from last quarter. The average
price for lumber was 6.3% lower than last year and 6.7% lower than last
quarter. Lumber shipments declined from both last year and last quarter.
Plywood shipments increased slightly from last year and were somewhat
higher than last quarter. U.S. and Canadian lumber prices continued to
decline early in the fourth quarter.
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<PAGE>
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 1997 were (U.S.) $626 million,
accounting for 15% of consolidated net sales of the company. Pre-tax
income and net income of the foreign subsidiaries for the first nine
months of 1997 were (U.S.) $90 million and (U.S.) $75 million,
respectively, which were more than offset by the pre-tax loss and net
loss of the company's domestic operations.
Labor Contracts
New three-year labor contracts are in effect at most of Weldwood's wood
products plants. Efforts to reach new labor agreements continue at the
Hinton, Alberta, pulp mill and wood products plant, and the joint
venture pulp mill at Quesnel, British Columbia, which are presently
operating under the terms of their expired contracts.
Financial Condition
The company's current ratio was 1.4 to 1 at September 30, 1997, compared
to 1.5 to 1 at June 30, 1997 and 1.4 to 1 at year-end 1996. Total debt
to total capitalization was 39% at September 30, 1997, compared to 40%
at June 30, 1997 and 39% at year-end 1996.
Significant Balance Sheet Line Item Changes for the Nine Months
Ended September 30, 1997
Inventories declined by $44 million principally due to a decrease in log
inventories resulting from seasonal factors, as well as increased pulp
and paper shipments. Net property, plant and equipment decreased by $72
million primarily due to depreciation expense exceeding capital
additions in the first nine months of 1997. Short-term borrowings, and
accounts payable and accrued liabilities, decreased by $47 million and
$20 million, respectively, mainly due to the timing of payments. Income
taxes payable decreased by $16 million, as $40 million in net payments
were made in the first nine months of 1997 for U.S. and foreign income
taxes. The deferred income tax liability and retained earnings decreased
by $73 million and $43 million, respectively, primarily due to the
company's net loss for the first nine months of 1997. For a discussion
of changes in long-term debt (including current installments) and cash
and cash equivalents, see below.
Cash Flows Statement - General
1997
In the first nine 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 its financing activities (principally debt payments
and cash dividends). The difference was financed through the use of
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cash and cash equivalents. Cash and cash equivalents decreased by $60
million in the first nine months to a total of $115 million, $94 million
of which was held by the company's Canadian and Brazilian subsidiaries.
In the first nine months, net long-term and short-term debt payments in
the aggregate were $91 million; long-term and short-term debt (including
current installments) in the aggregate decreased by $57 million.
1996
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 and the
purchase by Weldwood of all of its publicly-held shares). The difference
was financed through borrowings and the use of cash and cash
equivalents. 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.
Cash Flows Statement - Operating Activities
For the first nine months, net cash provided by operating activities of
$329 million declined from $346 million a year ago. The decrease was
principally due to a net loss this year and an increase in receivables,
partially offset by lower income tax payments, a smaller decrease in
accounts payable and accrued liabilities, a significant decrease in
inventories and an increase in other liabilities.
Cash Flows Statement - Investing Activities
For the first nine months, net cash used in investing activities of $297
million declined from $336 million a year ago. The decrease was
primarily due to lower capital expenditures this year and the
acquisition of Lake Superior Land Company for $76 million (as well as an
outstanding $44 million mortgage loan) last year, partially offset by
lower proceeds from the redemption of investments this year.
Cash Flows Statement - Financing Activities
For the first nine months, net cash used in financing activities of $92
million increased from $42 million a year ago. The change was mainly due
to net debt payments this year, partially offset by the purchase of the
Weldwood shares last year.
At September 30, 1997, the company had $424 million of U.S. commercial
paper, current maturities of long-term debt and other short-term
obligations outstanding, all of which is classified as long-term debt,
up from $399 million at June 30, 1997 and $7 million at year-end 1996.
At September 30, 1997, June 30, 1997 and December 31, 1996, no notes
were outstanding under the company's U.S. bank lines of credit.
Domestically, at September 30, 1997, $424 million of the company's
unused bank lines of credit of $1,190 million supported the
classification of commercial paper, current maturities of long-term debt
and other short-term obligations as long-term debt.
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<PAGE>
At September 30, 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 October 1 through
December 31, 1997 are $7 million and for the years 1998 through 2001 are
$485 million, $255 million, $205 million and $205 million, respectively.
Capital Expenditures
The company currently anticipates that capital spending will be
approximately $425 million in 1997, a decrease of $75 million from the
estimate included in the company's 1996 Annual Report to Shareholders.
New Strategic Direction
On October 7, 1997, the company approved a plan to maximize total
shareholder return by focusing on strategic businesses, increasing
profitability and improving financial discipline. As part of this plan,
the company will divest several non-strategic product segments with net
sales for the first nine months of 1997 of $970 million. These product
segments include newsprint, the recycling business, coated and uncoated
groundwood specialty papers, premium papers, specialty uncoated papers
and liquid packaging and bleached board. Also to be divested are 325,000
acres of timberlands. The proceeds from these divestitures will
initially be used for debt repayment.
The plan also includes a profit-improvement program that is targeted to
increase the annual pre-tax profit of the company's on-going operations
by $400 million by the end of 1999 through cost reduction, productivity
increases and changes in product mix. As part of cost reduction, the
company has set a goal of reducing its worldwide workforce in the
businesses remaining after the divestitures by 11% by the end of 1999.
The company will incur a pre-tax charge of $894 million ($553 million
after-tax), or $5.77 per share. Most of the charge will be recorded in
the fourth quarter of 1997. The charge includes (i) approximately $700
million of expected non-cash expenses, primarily for asset impairment
and other asset write-offs, and (ii) approximately $200 million for
expected one-time cash costs, which include severance and other
expenses.
The Environment
In late 1996, the North Carolina Department of Environment, Health and
Natural Resources renewed the NPDES wastewater discharge permit for the
company's Canton, North Carolina mill which included a revised variance
from the North Carolina water quality standard for color in the Pigeon
River. In early 1997, the State of Tennessee filed an administrative
appeal of the permit, principally on the grounds that the color variance
fails to satisfy Tennessee's water quality standard for the portion of
the Pigeon River in Tennessee. The permit is effective pending a final
decision on the appeal. A hearing date on the appeal has been set for
June 1998. The company, the states of North Carolina and Tennessee and
the U.S. Environmental Protection Agency have been negotiating in an
attempt to settle the dispute.
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The company has announced that it will evaluate relocating the point of
discharge for its Pensacola, Florida mill's effluent due to potential
limitations on the assimilative capacity of the existing receiving body
of water. The results of the study are expected to be submitted to the
Florida Department of Environmental Protection by May 1998, and a
decision on a possible new point of discharge will then be made.
Forward-Looking Statements
Certain statements in this report that are neither reported financial
results nor other historical information are forward-looking statements.
Such forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual
results and company plans and objectives to differ materially from those
expressed in the forward-looking statements. Such risks and
uncertainties are discussed in the company's Annual Report on Form 10-K.
-13-
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PART II. OTHER INFORMATION
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings.
There is incorporated by reference herein the information under
Management's Discussion and Analysis of Financial Condition and Results
of Operations - The Environment in Part I of this report.
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
October 8, 1997 reporting the issuance of a press release
announcing the company's plan to maximize shareholder
value.
-14-
<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.
<TABLE>
<S> <C>
Champion International Corporation
--------------------------------------------------------
(Registrant)
Date: November 11, 1997 /s/ John M. Nimons
---------------------------------------------------------- --------------------------------------------------------
(Signature)
John M. Nimons
Vice President and Controller
Date: November 11, 1997 /s/ Kenwood C. Nichols
---------------------------------------------------------- --------------------------------------------------------
(Signature)
Kenwood C. Nichols
Vice Chairman and Executive Officer
</TABLE>
-15-
<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).
-16-
<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>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------- -----------------------------
1997 1996 1997 1996
--------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Primary earnings (loss) per common share:
Net Income (Loss) Applicable to Common Stock $(28,275) $131,202 $ 20,166 $ 32,001
======== ======== ======== ========
Average number of common shares outstanding 95,718 95,515 95,903 95,529
======== ======== ======== ========
Per share $ (.30) $ 1.37 $ .21 $ .33
======== ======== ======== ========
Fully diluted earnings (loss) per common share:
Net Income (Loss) Applicable to Common Stock $(28,275) $131,202 $ 20,166 $ 32,001
Add income effect, assuming conversion of
dilutive convertible securities -- -- -- --
-------- -------- -------- --------
Net income (loss) on a fully diluted basis $(28,275) $131,202 $ 20,166 $ 32,001
======== ======== ======== ========
Average number of common shares outstanding 95,718 95,515 95,903 95,529
Add common share effect, assuming conversion
of dilutive convertible securities -- -- -- --
-------- -------- -------- --------
Average number of common shares outstanding
on a fully diluted basis 95,718 95,515 95,903 95,529
======== ======== ======== ========
Per share $ (.30) $ 1.37 $ .21 $ .33
======== ======== ======== ========
</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 NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 114,787
<SECURITIES> 1,200
<RECEIVABLES> 618,393
<ALLOWANCES> 19,255
<INVENTORY> 414,441
<CURRENT-ASSETS> 1,237,202
<PP&E> 11,825,460 <F1>
<DEPRECIATION> 3,910,737
<TOTAL-ASSETS> 9,654,838
<CURRENT-LIABILITIES> 858,166
<BONDS> 3,078,343
0
0
<COMMON> 55,395
<OTHER-SE> 3,684,827
<TOTAL-LIABILITY-AND-EQUITY> 9,654,838
<SALES> 4,252,585
<TOTAL-REVENUES> 4,252,585
<CGS> 3,860,715
<TOTAL-COSTS> 3,860,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180,360
<INCOME-PRETAX> (54,950)
<INCOME-TAX> (26,675)
<INCOME-CONTINUING> (28,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,275)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
<FN>
<F1> Includes timber and timberlands.
</FN>
</TABLE>
