-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALqHNnFNiyvHZ/NdEakHTVvcFIB00kUcdcvANOA13NxxvR0vn08N1d7wtjWoxcOP g1t33d4tWgFiA+LN0napvQ== 0000950130-99-003088.txt : 19990518 0000950130-99-003088.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950130-99-003088 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION INTERNATIONAL CORP CENTRAL INDEX KEY: 0000019150 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 131427390 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03053 FILM NUMBER: 99626650 BUSINESS ADDRESS: STREET 1: ONE CHAMPION PLAZA CITY: STAMFORD STATE: CT ZIP: 06921 BUSINESS PHONE: 2033587000 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES PLYWOOD CHAMPION PAPERS IN DATE OF NAME CHANGE: 19720821 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 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, 1999 --------------------------------------------- OR - ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ------ SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------------------------- Commission File Number 1-3053 -------------------------------------------------------- Champion International Corporation - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 13-1427390 - -------------------------------------------- --------------------------- State or other jurisdiction of incorporation (I.R.S. Employer or organization Identification No.) 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, 1999 - ----------------------------------- ------------------------------------- Common stock, $.50 par value 95,737,185 PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements. - ------------------------------ CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (unaudited) (in millions, except per share)
Three Months Ended March 31, ------------------------------------- 1999 1998 ----------------- ----------------- Net Sales $1,274.6 $1,477.0 Costs and Expenses Cost of products sold 1,130.5 1,292.5 Selling, general and administrative expenses 83.6 93.9 Interest and debt expenses 62.8 67.4 Other (income) expense - net (Note 2) (43.1) (1.9) ----------------- ----------------- Total costs and expenses 1,233.8 1,451.9 Income Before Income Taxes 40.8 25.1 Income Taxes (Benefit) (0.8) 6.1 ----------------- ----------------- Net Income 41.6 $ 19.0 ================= ================= Average Number of Common Shares Outstanding 95.6 96.1 ================= ================= Earnings Per Common Share (Exhibit 11): Basic $ .44 $ .20 ================= ================= Diluted $ .43 $ .20 ================= ================= Cash dividends declared $ .05 $ .05 ================= ================= The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
2 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions of dollars)
March 31, December 31, 1999 1998 ASSETS: (unaudited) ----------------- ----------------- Current Assets: Cash and cash equivalents $ 247.6 $ 300.4 Receivables - net 531.2 520.5 Inventories 532.8 503.5 Prepaid expenses 24.4 27.5 Deferred income taxes 85.2 86.6 ----------------- ----------------- Total Current Assets 1,421.2 1,438.5 ----------------- ----------------- Timber and timberlands, at cost - less cost of timber harvested 2,341.3 2,430.4 ----------------- ----------------- Property, plant and equipment, at cost 8,461.5 8,585.3 Less - Accumulated depreciation 4,384.4 4,356.5 ----------------- ----------------- 4,077.1 4,228.8 ----------------- ----------------- Other assets and deferred charges 646.8 742.2 ----------------- ----------------- Total Assets $8,486.4 $8,839.9 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Current installments of long-term debt $ 225.5 $ 228.0 Short-term borrowings 88.5 89.8 Accounts payable and accrued liabilities 695.9 720.3 Income taxes 5.2 10.4 ----------------- ----------------- Total Current Liabilities 1,015.1 1,048.5 ----------------- ----------------- Long-term debt 2,843.4 2,947.5 ----------------- ----------------- Other liabilities 779.4 786.8 ----------------- ----------------- Deferred income taxes 940.1 961.2 ----------------- ----------------- Shareholders' Equity: Capital Shares: Common (111,097,179 and 111,025,755, shares issued at March 31, 1999 and December 31, 1998, respectively) 55.5 55.5 Capital surplus 1,708.7 1,705.5 Retained Earnings 2,265.2 2,228.4 ----------------- ----------------- 4,029.4 3,989.4 Treasury shares, at cost (689.7) (689.7) Accumulated other comprehensive income (431.3) (203.8) ----------------- ----------------- Total Shareholders' Equity 2,908.4 3,095.9 ----------------- ----------------- Total Liabilities and Shareholders' Equity $8,486.4 $8,839.9 ================= ================= The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
3 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CASH FLOWS (unaudited) (in millions of dollars)
Three Months Ended March 31, ------------------------------------- 1999 1998 ----------------- ----------------- Cash flows from operating activities: Net income (loss) $ 41.6 $ 19.0 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation expense 91.8 107.8 Cost of timber harvested 21.0 22.3 Net gain on sale of assets (2.3) (1.9) Brazilian foreign currency transaction (gain) loss (38.6) 0.1 Changes in assets and liabilities, net of acquisitions and divestitures: Receivables (39.8) (3.5) Inventories (42.2) (38.4) Prepaid expenses 0.1 (2.1) Accounts payable and accrued liabilities 7.3 (36.8) Income taxes payable 0.2 (7.2) Other liabilities (8.1) 6.4 Deferred income taxes (8.4) 3.7 All other - net 4.0 4.9 ----------------- ----------------- Net cash provided by operating activities 26.6 74.3 ----------------- ----------------- Cash flows from investing activities: Expenditures for property, plant and equipment (41.7) (62.9) Timber and timberlands expenditures (28.1) (29.3) Acquisitions of timberlands and mills (Note 3) - (58.0) Purchase of investments - (4.8) Proceeds from sales of property, plant and equipment and timber and timberlands 4.5 5.6 All other - net (0.4) 2.3 ----------------- ----------------- Net cash used in investing activities (65.7) (147.1) ----------------- ----------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 25.4 353.3 Payments of current installments of long-term debt and long-term debt (31.2) (390.6) Cash dividends paid (4.8) (4.8) All other - net (3.1) (4.3) ----------------- ----------------- Net cash used in financing activities (13.7) (46.4) ----------------- ----------------- Decrease in cash and cash equivalents (52.8) (119.2) Cash and Cash Equivalents: Beginning of period 300.4 275.0 ----------------- ----------------- End of period $ 247.6 $ 155.8 ================= ================= Supplemental cash flow disclosures: Cash paid during the period for: Interest (net of capitalized amounts) $ 44.7 $ 58.7 Income taxes (net of refunds) 7.4 9.5 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
4 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) March 31, 1999 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. Certain amounts for 1998 have been reclassified to conform to the current year's presentation. Note 2. Other income (expense) - net for the three months ended March 31, 1999 includes a net foreign currency transaction gain of $38.6 million for the company's Brazilian operations. Note 3. In 1998, the company's Brazilian subsidiary acquired Inpacel and its forestry affiliate for $75 million, before netting $17 million of cash and cash equivalents owned by Inpacel. At the time of its acquisition, Inpacel had outstanding debt of $277 million and $55 million of other liabilities. The acquisition was accounted for as a purchase. Note 4. The company occasionally enters into forward exchange contracts to hedge certain assets that are denominated in foreign currencies. At March 31, 1999, the company had no significant forward exchange contracts outstanding. The company does not hold financial instruments for trading purposes. Note 5. 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 has divested and will divest several non-strategic product segments and approximately 354,000 acres of timberlands. The profit-improvement program includes a reduction in the company's world-wide workforce in the businesses remaining after the divestitures by 11%, or approximately 2,000 positions, by the end of 1999. In the fourth quarter of 1997, the company recorded a pre-tax charge of $891 million ($552 million after-tax, or $5.76 per share) in connection with this plan. In the fourth quarter of 1998, the company recorded a pre-tax charge of $80 million ($49 million after-tax, or $.52 per share) to recognize additional costs associated with the divestiture of the non-strategic product segments. 5 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Through March 31, 1999, the company had reduced its world-wide workforce in the businesses which are not part of the planned divestitures (excluding positions added as the result of acquisitions in Canada, Brazil and Maine) by 1,751 positions. In 1998, the company sold its newsprint business, including related working capital, its Texas recycling centers and its Belvidere, Illinois tray plant for a total of $481.5 million. In December 1998, the company agreed to sell approximately 300,000 acres of timberlands in the northeast to the Conservation Fund for $76.2 million. The transaction is expected to close in mid-1999. In May 1999, the Company agreed to sell its mill in Deferiet, New York to The Deferiet Paper Company. The transaction is expected to close in the second quarter of 1999. On May 14 1999, the company sold its mill in Canton, North Carolina and its liquid packaging business to Blue Ridge Paper Products Inc. for $200 million, consisting of $170 million in cash and a $30 million note. The agreement also provides the opportunity for the company to receive an additional contingency payment in the future. The company is continuing to actively pursue the sale of its mill in Hamilton, Ohio. In addition, the company has offered for sale approximately 54,000 acres of timberlands in North Carolina and Tennessee. Results of operations for the product segments divested and to be divested are as follows.
Three Months Ended March 31, ------------------------------------- (in millions of dollars) 1999 1998 ------------------------------------------------------- ----------------- ----------------- Net sales $ 184.5 $ 327.7 Costs and expenses 189.5 327.3 ----------------- ----------------- Income (loss) from operations $ (5.0) $ 0.4 ================= =================
The consolidated balance sheet includes the following amounts related to the product segments to be divested, net of the asset impairment provision: March 31, 1999 ------------------------------------------------------- ----------------- (in millions of dollars) Current assets $ 178.3 Long-term assets (primarily property, plant and equipment) 728.1 Current liabilities (52.6) Long-term liabilities (0.6) ----------------- Net assets $ 853.2 =================
6 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) First quarter 1999 activity of the remaining reserves and liabilities associated with the provision for restructuring is as follows:
Asset Balance at Retirements Balance at December 31, and Cash March 31, (in millions of dollars) 1998 Payments 1999 ------------------------------------------------------- ---------------- ----------------- ----------------- Reserve for asset impairment $ 569.0 $ (0.3) $ 568.7 Liabilities 92.5 (4.6) 87.9 ---------------- ----------------- ----------------- $ 661.5 $ (4.9) $ 656.6 ================ ================= =================
Note 6. Statement of Financial Accounting Standards No. 130 requires the disclosure of comprehensive income to reflect changes in equity that result from transactions and economic events from nonowner sources. Comprehensive income for the periods presented below included foreign currency translation items associated with the company's Brazilian and Canadian operations. There was no tax expense or tax benefit associated with the foreign currency translation items, other than the cumulative tax effect described below. Comprehensive income (unaudited) Three Months Ended (in millions of dollars) March 31, ------------------------------------------------------- ------------------------------------- 1999 1998 ----------------- ----------------- Net income $ 41.6 $ 19.0 Foreign currency translation adjustments: Cumulative tax effect of changing the functional currency for Brazilian operations to the Brazilian Real - (51.5) Other foreign currency translation adjustments (227.5) (13.7) ----------------- ----------------- Net foreign currency translation adjustment (227.5) (65.2) ----------------- ----------------- Comprehensive loss $(185.9) $ (46.2) ================= =================
7 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 7. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement, which will be effective for the company beginning in the fiscal year 2000, establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or a liability measured at its fair value. The Statement requires that changes in each derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. The company has not yet quantified the anticipated impact on the financial statements of adopting the Statement. However, given the current level of the company's derivative and hedging activities, the impact is not expected to be material. Note 8. Information about the company's operations in different businesses is as follows:
Three Months Ended March 31, ------------------------------------- (in millions of dollars) 1999 1998 ------------------------------------------------------- ----------------- ----------------- Net Sales to Unaffiliated Customers Pulp and Paper North America $ 711.3 $ 929.7 Brazil 85.6 107.0 Distribution 199.6 217.5 ----------------- ----------------- Total Pulp and Paper 996.5 1,254.2 ----------------- ----------------- Wood Products 278.1 222.8 ----------------- ----------------- Total $ 1,274.6 $ 1,477.0 ================= ================= Intersegment Sales Pulp and Paper North America $ 33.8 $ 37.2 Brazil 4.4 6.2 Distribution 3.2 2.0 ----------------- ----------------- Total Pulp and Paper 41.4 45.4 ----------------- ----------------- Wood Products 111.7 138.5 ----------------- ----------------- Total $ 153.1 $ 183.9 ================= =================
8 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, ------------------------------------- (in millions of dollars) 1999 1998 ------------------------------------------------------- ----------------- ----------------- Income From Operations Pulp and Paper North America $ (10.7) $ 62.0 Brazil 32.1 22.1 Distribution 6.1 5.2 ----------------- ----------------- Total Pulp and Paper 27.5 89.3 ----------------- ----------------- Wood Products 42.4 14.3 ----------------- ----------------- General Corporate Expense (9.4) (13.0) ----------------- ----------------- Total $ 60.5 $ 90.6 ================= =================
9 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 1999 of $42 million or 43 cents per diluted share. Results included earnings of $39 million or 40 cents per share reflecting the impact of the devaluation of the Brazilian currency on U.S. dollar-denominated investments held by the company's Brazilian operations. Excluding this special item, first quarter net income of $3 million or three cents per share compared to net income of $19 million or 20 cents per share for the first quarter of 1998. In the fourth quarter of 1998, net income was $12 million or 13 cents per share, excluding special items, which consisted of a charge related to the additional costs associated with the divestiture of the company's non-strategic product segments and a benefit resulting from the reversal of reserves that were no longer required. Including these special items, the net loss was $7 million or seven cents per share in the fourth quarter of 1998. As discussed below, excluding special items, the decline from the first quarter of 1998 was principally due to lower overall operating income in the paper segments, which more than offset higher operating income in the wood products segment, lower selling, general and administrative expenses and lower interest expense. The decline from last quarter was mainly due to lower overall operating income in the paper segments and, excluding special items, lower other (income) expense - net, which more than offset higher operating income in the wood products segment. Significant Income Statement Changes Net sales of $1.27 billion decreased from $1.48 billion last year and $1.34 billion last quarter. Gross profit was $144 million, compared to $184 million last year and $152 million last quarter. Pre-tax income of $2 million before a special item declined from $25 million a year ago and $7 million, before the impact of special items, last quarter. The declines in net sales, gross profit and pre-tax income from the year-ago quarter were mainly due to (i) the June 1998 sale of the company's newsprint business, (ii) lower prices for pulp and most of the company's paper grades and (iii) market-related outages at the company's groundwood papers mills, all of which more than offset higher plywood prices and increased shipments of lumber and plywood. The declines in gross profit and pre-tax income from last quarter were primarily the result of lower prices for coated and uncoated groundwood papers and the market-related outages at the company's groundwood papers mills, which more than offset higher prices for lumber and plywood. Compared to last quarter, net sales declined primarily due to lower prices for coated and uncoated groundwood papers and the impact on domestic sales of the company's Brazilian subsidiary, Champion Papel e Celulose Ltda. ("CPC"), due to the devaluation of the Real. The aggregate cost of products sold declined from last year and last quarter. The decline from last year was principally due to lower paper shipments resulting from the sale of the company's newsprint 10 business and lower manufacturing costs in Brazil due to the devaluation of the Real. The decline from last quarter was mainly due to lower manufacturing costs in Brazil and North America. Selling, general and administrative expenses declined from last year and last quarter. The declines were primarily due to corporate and sales staff reductions resulting from the company's profit-improvement program as well as the impact of stock price fluctuations on the value of stock appreciation rights and other stock-based compensation. Interest and debt expense decreased from last year and last quarter. The decrease from last year was principally due to lower domestic debt, which was partially offset by higher average outstanding foreign debt. The decline from last quarter was primarily due to lower debt for the company's Brazilian operations due to the devaluation of the Real. Other (income) expense - net included a net foreign currency transaction gain of $39 million for the company's Brazilian operations. Excluding this item, other (income) expense - net was approximately even with last year and down from last quarter. The decline from last quarter was mainly due to lower interest income and lower gains from the dispositions of fixed assets and timberlands. The income tax benefit for the first quarter of 1999 reflected the impact of the $39 million net foreign currency transaction gain, which is not taxable, and the mix of earnings from the company's operations in North America and Brazil. The tax rate applicable to North American operations is higher than the Brazilian tax rate. Pulp, Paper and Distribution Each of the company's North American and Brazilian pulp and paper segments and its distribution segment is discussed separately below. For these segments in the aggregate, first quarter operating income of $28 million compared with $89 million a year ago and $43 million in the fourth quarter of last year. The principal reasons for the decline from the prior periods are discussed above under "Significant Income Statement Changes." Total paper, packaging and pulp shipments of approximately 1.3 million tons in the first quarter declined from 1.5 million tons in the year-ago quarter and were approximately even with last quarter. The decline from the year-ago quarter was principally due to the sale of the company's newsprint business in June 1998. North American Pulp and Paper Segment The North American pulp and paper segment consists of the company's domestic pulp and paper operations, excluding its distribution business, as well as the softwood market pulp operations at the company's Canadian subsidiary, Weldwood of Canada Limited ("Weldwood"). The operating loss for the company's North American pulp and paper segment of $11 million represented a significant decline from the operating income of $62 million a year ago and $6 million last quarter. Total North American paper, packaging and pulp shipments of approximately 1.2 million tons decreased from 1.4 million tons last year and were approximately even with last quarter. 11 A summary of shipments and prices of the company's major U.S. paper products is as follows:
Shipments (Thousands of Short Tons) Average Price Per Ton -------------------------------------- ---------------------------------------- 1st Qtr 4th Qtr 1st Qtr 1st Qtr 4th Qtr 1st Qtr Product 1999 1998 1998 1999 1998 1998 - ------- ---- ---- ---- ---- ---- ---- Uncoated Free Sheet 371 397 350 $587 $584 $725 Coated Free Sheet 147 139 138 $855 $856 $965 Coated Groundwood 170 186 186 $835 $876 $931 Uncoated Groundwood 50 65 100 $698 $735 $643 Kraft Paper & Linerboard 133 119 128 $344 $339 $398
The mills in the domestic coated papers business are in Bucksport, Maine; Quinnesec, Michigan; and Sartell, Minnesota. Pulp sales at Quinnesec and uncoated groundwood papers produced at Sartell also are included in the results of this business. Operating income for the domestic coated papers business declined significantly from last year and last quarter. The declines were primarily due to lower prices for coated groundwood papers, pulp and, compared to the year-ago quarter, coated free sheet papers. In order to bring inventory levels for coated papers in balance with business conditions, the company took market-related downtime at all of its groundwood papers mills during the first quarter, eliminating approximately 15,000 tons of production. A maintenance outage is scheduled at the Quinnesec pulp mill in the second quarter. Prices for coated groundwood and free sheet papers continued to decline early in the second quarter. The mills in the domestic uncoated papers business are in Pensacola, Florida and Courtland, Alabama. Pulp sales at Pensacola and Courtland and coated free sheet papers sales at Courtland also are included in the results of this business. The operating loss for the domestic uncoated papers business represented a significant decline from the operating income of last year, and was approximately even with last quarter. The decline from last year was mainly due to lower prices for uncoated and coated free sheet papers and pulp. Linerboard and kraft papers are produced at the Roanoke Rapids, North Carolina mill. Operating income for the kraft papers business decreased from last year, but improved from the operating loss of last quarter. The decline from last year was principally due to lower prices for kraft papers and linerboard. The improvement from last quarter was due to a scheduled capital improvement and maintenance outage last quarter and higher shipments this quarter. A price increase for certain linerboard grades was implemented on March 1. The pulp and paper operations to be divested by the company as of March 31, 1999 included the mills at Canton, North Carolina, including the liquid packaging business; Deferiet, New York; and Hamilton, Ohio. For these operations, the operating loss was larger than the operating loss of last year, which included the newsprint business 12 which was sold in June 1998, and was approximately even with last quarter. The larger operating loss compared to the year-ago quarter was primarily due to lower prices for uncoated free sheet and coated groundwood papers, market- related downtime at Deferiet and the operating profit at the newsprint business last year. Maintenance outages are scheduled at Deferiet in the second quarter. As described below, the company has agreed to sell the Deferiet mill and on May 14, 1999, the company sold the Canton mill and the liquid packaging business. The Deferiet mill has an annual capacity of 230,000 tons of groundwood papers. The Canton mill and the liquid packaging business have an annual capacity of 245,000 tons of uncoated free sheet papers and 269,000 tons of bleached board. Weldwood's market pulp operations consist of its mill in Hinton, Alberta and a 50% interest in a joint venture pulp mill in Quesnel, British Columbia. The operating loss for these operations was approximately even with the year-ago quarter and was larger than the operating loss last quarter. The larger loss compared to last quarter was mainly due to higher manufacturing costs for northern bleached softwood kraft ("NBSK") pulp, partially offset by higher shipments. The Hinton pulp mill was shut down due to a two-week strike, which ended on April 5, eliminating approximately 14,500 tons of NBSK pulp production during the first quarter and approximately 10,000 tons in the second quarter. The average price for NBSK pulp was (U.S.) $323 per ton in the first quarter of 1999, down from $360 per ton in the first quarter of 1998 and $325 per ton in the fourth quarter of 1998. Shipments of 168,000 tons increased from 144,000 tons last year and 147,000 tons last quarter. Maintenance outages are scheduled at both pulp mills in the second quarter. Brazilian Pulp and Paper Segment In January 1999, the government of Brazil ceased its efforts to control the rate of devaluation of the Brazilian currency, the Real, and allowed the exchange rate for the Real to float freely. As a result, the Real devalued 30% against the U.S. dollar in the first quarter of 1999. This devaluation reduced the overall cost of manufacturing, thereby improving the competitive position, for exports by CPC. At any given time exports account for between 34% and 60% of CPC's sales. However, the devaluation reduced the domestic selling prices on a U.S. dollar basis. As a result, the effect of the devaluation on CPC's operating income was not significant. In March and April, the Real strengthened somewhat relative to the U.S. dollar. The Brazilian pulp and paper segment consists primarily of the pulp and paper operations of CPC. In addition, the segment includes CPC's wood-related operations. Operating income of $32 million improved from $22 million last year but declined from $34 million last quarter. The improvement from the first quarter of 1998 was principally due to higher operating income of Inpacel, which was acquired at the end of January 1998, and lower manufacturing costs primarily due to the devaluation of the Real. The decline from the prior quarter was mainly due to lower domestic prices. Compared to last quarter, exports increased from 34% to 42% of sales. The overall average price for uncoated free sheet papers was $542 per ton in the first quarter, compared to $697 per ton last year and $715 per ton last quarter. The average price for coated groundwood papers at Inpacel was $650 per ton, compared to $871 per ton last 13 year and $789 per ton last quarter. Uncoated free sheet papers shipments of 98,000 tons were even with last year and declined from 103,000 tons last quarter. Coated groundwood papers shipments of 48,000 tons increased from 30,000 tons last year and 44,000 tons last quarter. Distribution Segment For the company's distribution segment, income from operations of $6 million improved from $5 million last year and $3 million last quarter. The improvement from last quarter was principally due to sales rebates received this quarter. Wood Products Segment A summary of shipments and prices of the company's major wood products is as follows:
Shipments Price Per Unit -------------------------------------- ---------------------------------------- 1st Qtr 4th Qtr 1st Qtr 1st Qtr 4th Qtr 1st Qtr Product 1999 1998 1998 1999 1998 1998 - ------- ---- ---- ---- ---- ---- ---- U.S. Lumber - MMBF 119 112 108 $328 $308 $331 Softwood Plywood - MMSF 3/8" 229 246 222 $267 $242 $223 Canada Lumber - MMBF 229 248 196 $281 $269 $293 Softwood Plywood - MMSF 3/8" 98 100 67 $238 $229 $216
For the company's wood products segment, which includes the wood-related operations of Weldwood, income from operations of $42 million improved from $14 million in the first quarter of 1998 and $23 million in the fourth quarter of 1998. The improvement from the year-ago quarter was due to higher plywood prices and increased shipments of lumber and plywood. The improvement from last quarter was due to higher lumber and plywood prices and lower lumber and plywood manufacturing costs in the United States. 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 (including intracompany transfers) for CPC and Weldwood for the first quarter of 1999 were (U.S.) $89 million and (U.S.) $160 million, accounting for 7% and 13%, respectively, of consolidated net sales of the company. Excluding the foreign currency transaction gain of $39 million, pre-tax income and net income of CPC for the first quarter of 1999 were $25 million and $18 million, respectively. Pre-tax income and net income of Weldwood for the first quarter of 1999 were $4 million and $2 million, respectively. The pre-tax income and net income of CPC and Weldwood for the first quarter of 1999 accounted for all of the company's pre-tax and net income. 14 Labor Contracts At Weldwood, a new labor contract is in effect at the Hinton, Alberta pulp mill and wood products plant. The contract expires in May 2003. Financial Condition - ------------------- General The company's current ratio was 1.4 to 1 at March 31, 1999 and year-end 1998. Total debt to total capitalization was 45% at March 31, 1999 and year-end 1998. Significant Balance Sheet Changes The 30% devaluation of the Brazilian currency relative to the U.S. dollar was the main reason for the decreases in timber and timberlands - net, property, plant and equipment-net, other assets and deferred charges, long-term debt and shareholders' equity. The net effect of foreign currency fluctuations relative to the U.S. dollar was a $228 million increase in the cumulative translation adjustment from December 31, 1998 in the accumulated other comprehensive income component of shareholders' equity. The increase in inventories was primarily due to decreased shipments of uncoated free sheet and coated and uncoated groundwood papers, reflecting weak markets, as well as a seasonal log inventory buildup in Canada. For a discussion of changes in long-term debt (including current installments), short-term borrowings and cash and cash equivalents, see below. Cash Flows Statement - General 1999 - ---- In the first three months of 1999, 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 financing activities (principally debt payments and cash dividends). The difference was financed through the use of cash and cash equivalents. Cash and cash equivalents decreased by $53 million in the first three months to a total of $248 million, $163 million of which was held by the company's Brazilian and Canadian subsidiaries. In the first three months, net debt payments were $6 million. Long-term debt (including current installments) and short-term borrowings in the aggregate decreased by $108 million, mainly due to the impact of devaluation on the debt of the company's Brazilian subsidiary. 1998 - ---- In the first three months of 1998, 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 Inpacel) and financing activities (principally debt payments and cash dividends). The difference was financed through the use of cash and cash equivalents. Cash and cash equivalents decreased by $119 million to a total of $156 million. 15 Cash Flows Statement - Operating Activities For the first three months, net cash provided by operating activities of $27 million decreased from $74 million a year ago. The decrease was primarily due to lower net income, excluding the Brazilian foreign currency transaction gain, a higher increase in receivables and decreases in other liabilities and deferred income taxes, partially offset by an increase in accounts payable and accrued liabilities. Cash Flows Statement - Investing Activities For the first three months, net cash used in investing activities of $66 million decreased from $147 million a year ago. The decrease was mainly due to lower capital expenditures this year and the acquisition of Inpacel last year. Cash Flows Statement - Financing Activities For the first three months, net cash used in financing activities of $14 million decreased from $46 million last year. The decrease was principally due to lower net payments of long-term debt. At March 31, 1999 and December 31, 1998, the company had no U.S. commercial paper, current maturities of long-term debt and other short-term obligations classified as long-term debt. At March 31, 1999 and December 31, 1998, no notes were outstanding under the company's U.S. bank lines of credit. Domestically, at March 31, 1999, the company had unused bank lines of credit of $1.1 billion. At March 31, 1999, Weldwood had unused bank lines of credit of (U.S.) $42 million. The annual principal payment requirements under the terms of all long-term agreements for the period from April 1 through December 31, 1999 are $225 million and for the years 2000 through 2003 are $282 million, $229 million, $29 million and $26 million, respectively. Divestiture Program In December 1998, the company agreed to sell approximately 300,000 acres of timberlands in the northeast to the Conservation Fund for $76.2 million. The transaction is expected to close in mid-1999. In May 1999, the company agreed to sell its mill in Deferiet, New York to The Deferiet Paper Company. The transaction is expected to close in the second quarter of 1999. On May 14 1999, the company sold its mill in Canton, North Carolina and its liquid packaging business to Blue Ridge Paper Products Inc. for $200 million, consisting of $170 million in cash and a $30 million note. The agreement also provides the opportunity for the company to receive an additional contingency payment in the future. The company is continuing to actively pursue the sale of its mill in Hamilton, Ohio. In addition, the company has offered for sale approximately 54,000 acres of timberlands in North Carolina and Tennessee. 16 Year 2000 Computer Issue - ------------------------ The company, as well as its customers and suppliers and the financial institutions and governmental entities with which it deals (collectively, "Third Parties"), utilize information systems that will be affected by the date change to the year 2000. Many of these systems, if not modified or replaced, will be unable to properly recognize and process date-sensitive information before, on and after January 1, 2000. State of Readiness In early 1996, the company organized a Year 2000 project team to assess the impact of the Year 2000 issue on its operations, develop plans to address the issue and implement compliance. The project team developed a company-wide, Year 2000 remediation plan which consists of a five-step process with respect to the company's own systems: (1) planning; (2) inventory (identification of systems that require reprogramming or replacement); (3) analysis (assessment of risks, identification of where failures may occur and development of solutions); (4) programming (remediation and/or replacement of non-compliant systems); and (5) testing. The project team also developed plans to seek information regarding and to assess the Year 2000 compliance status and remediation efforts of major Third Parties. The company's information systems consist of business-information systems and process-control systems. The business-information systems support financial and administrative processes such as order entry, payroll, accounts payable and accounts receivable. The process-control systems are used primarily in manufacturing operations; they include information-technology systems as well as embedded technology, such as chips embedded in various machine components. With respect to the business-information systems, the planning, inventory, analysis and programming stages are completed and the testing stage is substantially completed. The company expects to finish testing by mid-1999. With respect to the process-control systems, the planning and inventory stages are completed and the analysis and programming stages are substantially completed. The company expects to complete those stages and conduct and finish testing by mid-1999. This schedule assumes timely assistance by the vendors of certain process-control systems in the remediation of such systems. The vendors of those systems that are essential to the company's operations have provided or agreed to provide such assistance. The Year 2000 issue also will impact the information systems of Third Parties. The company, through meetings in some cases and written requests in others, is in the process of seeking to ascertain and assess the progress of major Third Parties in identifying and addressing problems with respect to the Year 2000 issue. Many of these Third Parties have indicated that they expect to successfully address the issue in timely fashion. Some others, however, have not yet provided information regarding their state of readiness or have provided responses deemed unsatisfactory by the company. The company will continue to seek and to assess information regarding Year 2000 compliance by major Third Parties. 17 No significant information technology projects have been deferred as a result of the company's Year 2000 program. Estimated Cost of Remediation The company currently estimates total expenditures of approximately $20 million, of which approximately $13 million had been expended as of March 31, 1999, to make the required Year 2000 modifications and replacements to its own systems. Approximately two-thirds of the estimated total cost is associated with the remediation and replacement of process-control systems. All modification and maintenance costs, including costs to replace embedded technology that does not significantly extend the life or improve the performance of the related asset, are expensed as incurred. Costs to purchase new hardware and software and to replace embedded technology that does significantly extend the life or improve the performance of the related asset are capitalized and depreciated over the assets' useful lives. All of these costs are being funded through internal cash flow. The estimated total cost does not include any expenditures that may be incurred in connection with the implementation of contingency plans, discussed below. Most Reasonably Likely Worst-Case Scenario The company currently believes that it will be able to modify or replace its own affected systems in timely fashion so as to minimize detrimental effects on its operations, subject to timely assistance by the vendors of certain process- control systems. The company has received written assurances regarding Year 2000 compliance from some, but not all, Third Parties with respect to their own systems and is not in a position to reliably predict whether Third Parties will experience remediation problems. If the company or major Third Parties fail to successfully address the Year 2000 issue, there could be a material adverse impact on the business and results of operations of the company. For example, while the company self-generates approximately 55% of its electrical power requirements, it purchases the balance from outside sources. If the electrical power grid is disrupted as the result of Year 2000 systems failures, the company expects to curtail production until the grid is restored. The company has not determined the most reasonably likely worst-case scenario that would result from any failure by the company or Third Parties to resolve the Year 2000 issue. The company is considering this matter in connection with its development of contingency plans, discussed below. However, such a scenario could include a temporary curtailment or cessation of manufacturing operations at one or more of the company's facilities, with a resulting loss of production; safety and environmental exposures; a temporary inability on the part of the company to process orders and deliver finished products to customers on a timely basis; and, in the event of Year 2000 disruptions in the operations of the company's customers, increased inventory and receivable levels. If these various events were to occur, they would result in lower sales, earnings and cash flows. However, failure to meet critical milestones identified in company plans would provide advance notice and steps would be taken to prevent injuries to employees and others, to prevent environmental contamination and to minimize the loss of production. 18 Contingency Plans The company is in the process of developing contingency plans to address and mitigate the potential risks associated with the most reasonably likely worst- case scenario, and expects to have such plans in place by mid-1999. Such plans may include, among other things, seeking alternative sources of supply, stockpiling raw materials and increasing inventory levels. * * * The company's Year 2000 program is an ongoing process. Estimates of remediation costs and completion dates as well as projections of the possible effects of any non-compliance are subject to change. Item 3. Quantitative and Qualitative Disclosures About Market Risk. - -------------------------------------------------------------------- The company's financial market risk arises from fluctuations in interest rates and foreign currencies. Most of the company's debt obligations are at fixed interest rates. Consequently, a 10% change in market interest rates would not have a material effect on the company's pre-tax earnings or cash flows. The company has no material sensitivity to changes in foreign currency exchange rates on its derivative financial instrument position. The company does not hold financial instruments for trading purposes. 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 the 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. Without limiting the generality of the foregoing, the disclosure in this report concerning the Year 2000 computer issue includes estimates of remediation costs and completion dates, projections of the possible effects of any non-compliance, possible contingency plans and other statements that are based on the company's current estimate of future events. All of these statements constitute forward- looking statements and are subject to risks and uncertainties including, but not limited to, the ability of the company to identify and remediate on a timely basis Year 2000 issues that affect its own systems; the availability of resources including, in particular, timely assistance by the vendors of certain process-control systems; and the ability of the company's suppliers and customers and other third parties with which it deals to identify and remediate on a timely basis Year 2000 issues that affect their systems. 19 PART II. OTHER INFORMATION CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES Item 2. Changes in Securities and Use of Proceeds. - --------------------------------------------------- (a) The company's By-Laws were amended on February 18, 1999 to change the date by which the holders of Common Stock must submit director nominations and business proposals for any annual meeting of shareholders. In general, such submissions must be received by the company not less than 120 days before the date which is the anniversary of the date the company's proxy statement was released to shareholders in connection with the previous year's annual meeting. Reference is made to Section 9 of Article I of the By-Laws, annexed hereto as Exhibit 3.1, the full provisions of which govern. Item 6. Exhibits and Reports on Form 8-K. ------------------------------------------ (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. 20 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 14, 1999 /s/ John M. Nimons ---------------------- ------------------------------------- (Signature) John M. Nimons Vice President and Controller Date: May 14, 1999 /s/ Kenwood C. Nichols ---------------------- ------------------------------------- (Signature) Kenwood C. Nichols Vice Chairman and Executive Officer 21 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, as amended to and including February 18, 1999. 11 - Calculation of Basic Earnings Per Common Share and Diluted Earnings per Common Share (unaudited). 27 - Financial Data Schedule (unaudited). 22 EX-3.1 2 BY-LAWS EXHIBIT 3.1 By-Laws CHAMPION INTERNATIONAL CORPORATION (As amended to and including February 18, 1999) Page ---- Index To By-Laws Article I. Meetings of Shareholders 1 Section 1. Annual Meetings Section 2. Special Meetings Section 3. Place of Meetings Section 4. Notice of Meetings Section 5. Quorum Section 6. Voting Section 7. List of Shareholders Section 8. Inspectors of Election Section 9. Notice of Shareholder Nominations of Directors and Shareholder- Proposed Business at Annual Meetings Article II. Board of Directors 4 Section 1. Number, Election and Term of Office Section 2. Vacancies Section 3. Duties and Powers; Committees Section 4. Annual and Regular Meetings; Notices Section 5. Special Meetings; Notice Section 6. Chairman Section 7. Quorum Section 8. Manner of Acting Section 9. Resignation Section 10. Removal Section 11. Compensation of Certain Directors Section 12. Participation in Meeting by Telephone or Similar Equipment Page ---- Article III. Officers Section 1. Number, Qualification, Election and Term of Office 8 Section 2. Resignation Section 3. Removal Section 4. Vacancies Section 5. Chief Executive Officer Section 6. Chairman of the Board Section 7. Vice Chairmen Section 8. President Section 9. Vice Presidents Section 10. Secretary Section 11. Treasurer Section 12. Other Officers Section 13. Salaries Section 14. Sureties and Bonds Article IV. Shares of Stocks 10 Section 1. Certificates Representing Shares Section 2. Lost or Destroyed Certificates Section 3. Holders of Record Section 4. Regulations Section 5. Fixing of Record Date Article V. Dividends 11 Article VI. Right to Inspect Books 12 Article VII. Execution of Instruments 12 Section 1. Execution of Instruments Section 2. Proxies Article VIII. Fiscal Year 12 Article IX. Corporate Seal 12 Article X. Offices 13 Section 1. Office of the Corporation Section 2. Other Offices Article XI. Amendments 13 Article XII. Interpretation 13 By-Laws of Champion International Corporation (As amended to and including February 18, 1999) Article I. Meetings of Shareholders Section 1. Annual Meetings: The annual meeting of the shareholders of the Corporation for the election of directors and for the transaction of such other business as may come before the meeting shall be held on the third Thursday in May of each year, if not a legal holiday, or, if a legal holiday, then on the next succeeding day not a legal holiday or in all events on such other day, not a legal holiday, as may be fixed by the Board of Directors. Section 2. Special Meetings: Special meetings of the shareholders or of the holders of a particular class or series of stock may be called at any time by the Chairman of the Board or a Vice Chairman or the President, and shall be called by the Chairman of the Board or a Vice Chairman or the President or the Secretary at the written request of a majority of the Board of Directors. Section 3. Place of Meetings: All meetings of shareholders shall be held at the principal office of the Corporation in the City of Stamford, State of Connecticut, or at such other places as the Board of Directors may select, or as shall be specified in the respective notices or waivers of notices of such meetings. Section 4. Notice of Meetings: (a) Written notice of each meeting of shareholders, whether annual or special, stating the purpose for which the meeting is called and the place, date and hour of the meeting shall be served either personally or by mail, not less than ten nor more than fifty days before the meeting, upon each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be directed to each such shareholder at his address as it appears on the stock books of the Corporation, unless he shall have previously filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address. (b) Notice of any meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, before or after the meeting, or who attends a meeting in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice thereof. 1 Section 5. Quorum: (a) At all meetings of shareholders of the Corporation there shall be necessary and sufficient to constitute a quorum for the transaction of any business the presence in person or by proxy of shareholders holding of record shares having in the aggregate a majority of the total number of votes of all shares of the Corporation then issued and outstanding and entitled to vote on such business at such meeting. (b) In the absence of a quorum at any annual or special meeting of shareholders, the shareholders present in person or by proxy and entitled to vote thereat or, if no shareholders entitled to vote are present in person or by proxy, any officer authorized to preside at or to act as secretary of such meeting, may adjourn the meeting to a time and place determined by majority vote of the shareholders present in person or by proxy, or by such officer, as the case may be. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been present. Section 6. Voting: (a) Whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders, it shall be authorized by the majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. (b) At each meeting of shareholders each holder of record of shares of stock of the Corporation entitled to vote shall be entitled to vote the shares of such stock held by him and registered in his name on the books of the Corporation at the time of such meeting unless, pursuant to the provisions of Section 5 of Article IV of these by-laws, a date shall have been fixed as a record date for the determination of the shareholders entitled to vote. (c) Each shareholder entitled to vote may vote by proxy, provided, however, that the instrument authorizing such proxy to act shall have been executed in writing by the shareholder himself, or by his attorney thereunto duly authorized in writing. No proxy shall be valid after the expiration of eleven months from the date of its execution unless the person executing it shall have specified therein the length of time it is to continue in force. Section 7. List of Shareholders: It shall be the duty of the Secretary to prepare or have prepared before each meeting of shareholders a complete list of the shareholders entitled to vote thereat. Such list shall be produced at such meeting upon the request thereat or prior thereto of any shareholder. Section 8. Inspectors of Election: Unless the Board of Directors shall have made such appointment prior to such meeting, at each meeting of the shareholders the chairman of the meeting may, and at the request of any shareholder entitled to vote thereat shall, appoint one or more persons, who need not be 2 shareholders, to act as inspectors of election at such meeting. The inspectors so appointed, before entering on the discharge of their duties, shall take and subscribe an oath or affirmation faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of their ability. Section 9. Notice of Shareholder Nominations of Directors and Shareholder-Proposed Business at Annual Meetings: At any annual meeting of shareholders, only persons who are nominated or business that is proposed in accordance with the requirements set forth in this Section 9 shall be eligible for election as directors or considered for action by shareholders. Nominations of persons for election to the Board of Directors of the Corporation may be made or business may be proposed at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation entitled to vote at the meeting who complies with the notice and other requirements set forth in this Section 9. Such nominations or business proposals by a shareholder shall be made pursuant to timely notice in writing to the Secretary of the Corporation and such business proposals must, under applicable law, be proper matters for shareholder action. To be timely, a shareholder's notice must be received at the principal executive offices of the Corporation not less than 120 days before the date which is the anniversary of the date the Corporation's proxy statement was released to shareholders in connection with the previous year's annual meeting; provided, however, that if the date of the applicable annual meeting has been changed by more than 30 days from the date which is the anniversary of the date of the previous year's annual meeting, such notice must be so received not less than the later of 90 days before the date of the applicable annual meeting or the 15th day following the day on which notice or prior public disclosure of the date of the meeting is first mailed or made by the Corporation. In no event shall the adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to each person whom such shareholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A (or any successor thereto) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of such business and any material interest in such business of such shareholder and of the beneficial owner, if any, on whose behalf such proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such shareholder, as they appear on the Corporation's books, and of any such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and any such beneficial owner. 3 No person shall be eligible for election as a director of the Corporation and no business shall be conducted at an annual meeting of shareholders except in accordance with the requirements set forth in this Section 9. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination or proposal was not made in accordance with the provisions of this Section 9 and, if he should so determine, he shall so declare to the meeting and the defective nomination or proposal shall be disregarded. In addition to the foregoing requirements of this Section 9, a shareholder shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to director nominations and other business that the shareholder proposes to introduce at an annual meeting. Nothing in this Section 9 shall be deemed to affect any rights (a) of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or any successor thererto) under the Exchange Act, or (b) of the holders of any series of Preference Stock of the Corporation to elect directors pursuant to the provisions of the Corporation's Restated Certificate of Incorporation or of such series of Preference Stock. Article II. Board of Directors Section 1. Number, Election and Term of Office: (a) The number of directors, exclusive of directors who may be elected pursuant to paragraph (b) of this Section 1, shall not be less than nine nor more than twenty; the exact number shall be fixed from time to time by resolution of the Board of Directors adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Directors shall be divided into three classes with the class expiring at succeeding annual meetings of shareholders. All classes shall be as nearly equal in number as possible, and no class shall include less than three directors. At each annual meeting, directors to replace those whose terms expire at such annual meeting shall be elected, each such director to hold office until the third succeeding annual meeting and until his successor is elected and qualified, or until his death, resignation or removal. Terms of office of directors are further subject to the provisions of paragraph (d) of this Section 1. Any newly created directorships, or any decrease in directorships, shall be apportioned among the three classes of directors as to make all classes as nearly equal in number as possible. When the number of directors is increased by the Board of Directors any newly created directorships may be filled by a majority vote of the directors then in office even though less than a quorum. There shall be no classification of the additional directors until the next annual meeting of shareholders. No decrease by the Board of Directors of the number of directors shall shorten the term of office of any incumbent director. 4 (b) In the event that the Preference Stock of the Corporation shall be entitled at any annual meeting of shareholders to vote separately as a single class to elect two directors pursuant to the Certificate of Incorporation, the number of directors to be elected at such annual meeting shall be increased by two, after any reduction and reclassification of directors which may be made prior to or effective at such annual meeting by the Board of Directors pursuant to paragraph (a) of this Section 1. The directors to be so elected by said Preference Stock shall not be classified. Each director so elected by said Preference Stock shall hold office until the annual meeting of shareholders next succeeding his election and until his successor, if any, is elected by said Preference Stock and qualified, or until his death, resignation or removal. (c) Except as otherwise provided herein, the members of the Board of Directors of the Corporation shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. (d) Except as the Board of Directors may otherwise provide from time to time, no person shall be eligible to serve as a director after the annual meeting of shareholders immediately following his seventieth birthday. Section 2. Vacancies: Any vacancy in the Board of Directors, occurring by reason of the death, resignation, disqualification, removal for cause or inability to act of any director, shall be filled by a majority vote of the remaining directors though less than a quorum. Any director elected by the Board of Directors to fill such a vacancy shall hold office until the annual meeting of shareholders next succeeding his election and until his successor is elected and qualified, or until his death, resignation or removal. Section 3. Duties and Powers; Committees: (a) The business of the Corporation shall be managed under the direction of the Board of Directors. The Board of Directors may exercise all powers of the Corporation except as herein, in the Certificate of Incorporation or by statute expressly conferred upon or reserved to the shareholders. (b) The Board of Directors may, by resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies, designate from its number the members of an Audit Committee, a Board Affairs Committee, a Compensation and Stock Option Committee, a Pension Funding and Investment Committee and one or more other committees, each of which shall consist of three or more directors, and each of which shall have such authority and powers as may from time to time be delegated to it by resolution adopted in the same manner. 5 Section 4. Annual and Regular Meetings; Notices: (a) A regular annual meeting of the Board of Directors shall be held as promptly as practicable following the annual meeting of the shareholders at the place of such annual meeting of shareholders, or at such other place or time as the Board of Directors may determine. (b) The Board of Directors from time to time may provide by resolution for the holding of other regular meetings of the Board of Directors and may fix the time and place thereof. (c) Notice of any regular meeting of the Board of Directors shall not be required to be given; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be directed to the residence or usual place of business of each director who shall not have been present at the meeting at which such action was taken, unless such notice shall be waived in the manner set forth in paragraph (c) of Section 5 of this Article II. Such notice may be given by first class mail if mailed at least five days before the day of the meeting or may be given by courier, telex or telephone, facsimile or any other method of telecommunication at least 48 hours before the time of the meeting. Section 5. Special Meetings; Notice: (a) Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or by a Vice Chairman or by the President or by any two or more directors at such time and place as may be specified in the respective notices or waivers of notice thereof. (b) Notice of such special meeting shall specify the purpose of the meeting, and shall be directed to each director at his residence or usual place of business. Such notice may be given by first class mail if mailed at least five days before the day of the meeting or may be given by courier, telex or telephone, facsimile or any other method of telecommunication at least 48 hours before the time of the meeting. (c) Notice of any special meeting shall not be required to be given to any director who shall attend such meeting in person without protesting, prior thereto or at its commencement, the lack of notice to him, or to any director who shall waive notice of such meeting in writing or by telex, facsimile or any other method of telecommunication whether before or after the time of such meeting. Notice of any adjourned meeting need not be given. Section 6. Chairman: At all meetings of the Board of Directors the Chairman of the Board or, in his absence, one of the Vice Chairmen (determined on the basis of seniority in such office) or, in the absence of all of the Vice Chairmen, the President or, in the absence of all of them, a chairman chosen by the directors present shall preside. 6 Section 7. Quorum: (a) At all meetings of the Board of Directors the presence of a majority of the total number of directors which the Corporation would have if there were no vacancies shall be necessary and sufficient to constitute a quorum for the transaction of business. (b) A majority of the directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the same from time to time without further notice until a quorum shall be present. Section 8. Manner of Acting: (a) At all meetings of the Board of Directors each director present shall have one vote. (b) Except as otherwise provided herein, the vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors. Section 9. Resignation: Any director may resign at any time by giving written notice to the Board, of Directors, the Chairman of the Board, a Vice Chairman, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or by such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 10. Removal: Any director may be removed with or without cause at any time by the vote of the holders of the respective class or classes of stock by which such director was elected, given at a special meeting of the shareholders of such class or classes called for the purpose. Section 11. Compensation of Certain Directors: Directors who are not officers or employees of the Corporation may receive such compensation for their services, and allowances for expenses, as the Board of Directors may fix from time to time. Section 12. Participation in Meeting by Telephone or Similar Equipment: Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. 7 Article III. Officers Section 1. Number, Qualification, Election and Term of Office: (a) The officers of the Corporation shall be a Chairman of the Board of Directors and/or a President (one of whom shall be designated Chief Executive Officer), and one or more Vice Presidents, a Secretary, a Treasurer and such other officers as the Board of Directors may from time to time determine. The Chairman of the Board, each Vice Chairman and the President shall each be and remain a director of the Corporation during the term of his office. Any two offices, except the offices of the President and Secretary, may be held by the same person. (b) Each officer of the Corporation shall be elected by the Board of Directors and shall hold office until the annual meeting of the Board of Directors next succeeding his election and until his successor shall have been elected and qualified or until his death, resignation or removal. Section 2. Resignation: Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, a Vice Chairman, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or by such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 3. Removal: Any officer may be removed, either for or without cause, and a successor elected, by the Board of Directors. Section 4. Vacancies: A vacancy in any office, occurring by reason of death, resignation, inability to act, disqualification, removal or any other cause, may be filled for the unexpired portion of the term by the Board of Directors. Section 5. Chief Executive Officer: The Chief Executive Officer shall serve as general manager of the property, business and affairs of the Corporation, its subsidiaries, affiliates and divisions, and shall report directly to the Board of Directors, with all other officers and personnel reporting directly or indirectly to him. Section 6. Chairman of the Board: The Chairman of the Board shall preside at meetings of the shareholders and at meetings of the Board of Directors, and shall have such other powers and shall discharge such other duties as are generally incident to the office of Chairman of the Board or as may be assigned to him from time to time by the Board of Directors. If the Chairman of the Board is not the Chief Executive Officer, he shall have such additional powers and duties as may be assigned to him from time to time by the Chief Executive Officer. 8 Section 7. Vice Chairmen: The Vice Chairmen shall have such powers and shall discharge such duties as are generally incident to the office of Vice Chairman. In the absence of the Chairman of the Board, one of the Vice Chairmen (determined on the basis of seniority in such office) shall preside at meetings of the shareholders and at meetings of the Board of Directors. Each Vice Chairman shall have such additional powers and duties as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. Section 8. President: The President shall have such powers and shall discharge such duties as are generally incident to the office of President or as may be assigned to him from time to time by the Board of Directors. In the absence of the Chairman of the Board and all of the Vice Chairmen, the President shall preside at meetings of the shareholders and at meetings of the Board of Directors. If the President is not the Chief Executive Officer, he shall have such additional powers and duties as may be assigned to him from time to time by the Chief Executive Officer. Section 9. Vice Presidents: The Vice Presidents shall have such powers and shall discharge such duties as are generally incident to the office of Vice President. Each Vice President shall have such other powers and discharge such other duties as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board, a Vice Chairman or the President. Section 10. Secretary: The Secretary shall record the minutes of the meetings of the shareholders and of the Board of Directors in books to be kept for that purpose, and shall perform like duties for committees appointed by the Board of Directors when required. He shall give, or cause to be given, all notices required pursuant to these by-laws. He shall have custody of the corporate seal and shall have authority to affix the same to all instruments executed and delivered on behalf of the Corporation, and he shall have authority to attest the corporate seal when so affixed. He shall have charge of the shareholder records, which may be kept by a transfer agent or agents under his direction. The Secretary shall have such other powers and discharge such other duties as are generally incident to the office of Secretary or as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board, a Vice Chairman or the President. If there shall be one or more Assistant Secretaries, each shall, in the absence of the Secretary, or at his request, have his powers and discharge his duties. Section 11. Treasurer: The Treasurer shall have custody of all funds and securities of the Corporation, shall keep full and accurate accounts of receipts and disbursements in books to be kept for the purpose and shall deposit all money and other valuable effects in the name and to the credit of the Corporation in 9 such depositories as may be designated in a manner authorized by the Board of Directors. He shall borrow, invest and disburse funds on behalf of the Corporation as may be authorized by the Board of Directors and shall render periodic accounts of his transactions as Treasurer. The Treasurer shall have such other powers and shall discharge such other duties as are generally incident to the office of Treasurer or as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board, a Vice Chairman or the President. If there shall be one or more Assistant Treasurers, each shall, in the absence of the Treasurer, or at his request, have his powers and discharge his duties. Section 12. Other Officers: Each other officer shall have such powers and discharge such duties as are prescribed by law or as may be assigned to him from time to time by the Board of Directors or by the Chairman of the Board or a Vice Chairman or the President of the Corporation. Section 13. Salaries: No officer shall be prevented from receiving a salary or any other compensation by reason of the fact that he is also a director of the Corporation. Section 14. Sureties and Bonds: In case the Board of Directors shall so require, any officer or agent of the Corporation shall execute to the Corporation a bond in such sum and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands. Article IV. Shares of Stock Section 1. Certificates Representing Shares: The shares of the Corporation shall be represented by certificates or shall be uncertificated shares. Certificates shall be signed by the Chairman of the Board or a Vice Chairman or the President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar acting on behalf of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 2. Lost or Destroyed Certificates: The holder of any shares of stock of the Corporation represented by a certificate shall immediately notify the Corporation and its registrar and transfer agent of the loss or destruction of such 10 certificate. The Corporation may issue a new certificate in the place of any certificate theretofore issued by it alleged to have been lost or destroyed and the Board of Directors may require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond in such sum as the Board of Directors, or any person delegated by it, may direct and with such surety or sureties as may be satisfactory to the Board of Directors, or any person delegated by it, to indemnify the Corporation against any claim that may be made against it and/or its transfer agent and/or registrar on account of the alleged loss or destruction of any such certificate. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper to do so. Section 3. Holders of Record: The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person whether or not it or they shall have express or other notice thereof. Section 4. Regulations: The Board of Directors may make such rules and regulations as it may deem expedient, including the appointment of co-transfer agents and co-registrars in or outside of the State of New York, concerning the issuance, transfer and registration of shares of stock of the Corporation either represented by certificates or uncertificated, and may require all certificates representing any class of stock to bear the signature or signatures of a transfer agent and/or registrar appointed for such class of stock. Section 5. Fixing of Record Date: The Board of Directors may fix a day (i) not more than fifty days nor less than ten days prior to the day of holding any meeting of shareholders or (ii) not more than fifty days prior to the last day on which the consent or dissent of shareholders may be expressed for any purpose without a meeting, or the day fixed for the payment of any dividend or the distribution of any subscription or other rights or interests, or the day on which any other action is to be taken, as a record date for the determination of the shareholders who are entitled to notice of and to vote at such meeting or any adjournment thereof, or whose consent or dissent is required or may be expressed for any purpose, or who are entitled to receive such dividends or rights or interests or whose identity is to be determined for the purposes of any such other action. Article V. Dividends Dividends may be declared and paid out of any funds available therefor as often, in such amounts and at such time or times as the Board of Directors may determine. 11 Article VI. Right to Inspect Books The Board of Directors is authorized from time to time to determine whether and to what extent, at what time and place, and under what conditions and regulations, the books and accounts of the Corporation or any of them shall be open to the inspection of any shareholder. Article VII. Execution of Instruments Section 1. Execution of Instruments: Any drafts, bills of exchange, acceptances, bonds, endorsements, notes or other obligations or evidences of indebtedness of the Corporation, and all deeds, mortgages, indentures, bills of sale, conveyances, endorsements, assignments, transfers, stock powers or other instruments of transfer, contracts, agreements, dividend or other orders, powers of attorney, waivers, consents, returns, reports, certificates, demands, notices or documents, and other instruments of any nature may be signed, executed, verified, acknowledged and delivered by the Chairman of the Board, a Vice Chairman or the President or by such other officers, agents or employees of the Corporation, or any of them, as from time to time may be determined by the Board of Directors, provided, however, that authority to sign, execute, verify, acknowledge and deliver any contracts of, or other documents and instruments requiring execution by, the Corporation may be conferred by the Board of Directors upon any person whether or not such person be an officer of the Corporation; and provided further, that such person may delegate from time to time by instrument in writing all or any part of such authority to any other person if authorized so to do by the Board of Directors. Section 2. Proxies: Proxies to vote with respect to shares of stock of other corporations owned by or standing in the name of the Corporation and waivers of notice of meetings of the shareholders of other corporations, the stock of which is owned by or stands in the name of the Corporation, may be executed and delivered from time to time on behalf of the Corporation by the Chairman of the Board, a Vice Chairman, the President, the Secretary or any other person or persons thereunto authorized by the Board of Directors. Article VIII. Fiscal Year The fiscal year of the Corporation shall begin on the 1st day of January and end on the 31st day of December in each year. Article IX. Corporate Seal The corporate seal shall be circular in form and shall bear the name of the Corporation, the words "Corporate Seal" and words and figures denoting its organization under the laws of the State of New York, and the year thereof, and otherwise shall be in such form as shall be approved from time to time by the Board of Directors. 12 Article X. Offices Section 1. Office of the Corporation: The office of the Corporation (as defined in Section 102 of the New York Business Corporation Law) shall be in the Borough of Manhattan, City and State of New York. Section 2. Other Offices: The Corporation may establish and maintain one or more offices outside of the State of New York in such places as the Board of Directors may from time to time deem advisable. Article XI. Amendments (a) All by-laws of the Corporation shall be subject to amendment or repeal, and new by-laws may be adopted, by the vote of the shareholders at any annual or special meeting, the notice or waiver of notice of which shall have summarized or set forth in full the proposed amendment. (b) The Board of Directors shall have power, by majority vote of the total number of directors which the Corporation would have if there were no vacancies, to adopt, amend and repeal from time to time by-laws of the Corporation; provided, however, that the shareholders may amend or repeal by-laws made by the Board of Directors and may from time to time limit or define the right of the Board of Directors to amend or repeal any by-law or by-laws adopted by the shareholders. Without limiting the generality of the foregoing, the provisions of paragraph (a) of Section 1 of Article II and any other provisions hereof relating to the classification of directors may be repealed by the majority vote of the total number of directors which the Corporation would have if there were no vacancies or may be amended or supplemented, by such vote, in any manner not resulting in a term of office of directors longer than that provided in said provisions. Article XII. Interpretation These by-laws are subject and subordinate to the provisions of applicable law, including without limitation the Business Corporation Law of the State of New York, and the provisions of the Certificate of Incorporation, as the same may be in effect from time to time. As used in these by-laws, the term Certificate of Incorporation shall mean the Restated Certificate of Incorporation of the Corporation and any amendments thereto. 13 EX-11 3 CALCULATION OF BASIC EARNINGS PER COMMON SHARE EXHIBIT 11 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES Calculation of Basic Earnings Per Common Share and Diluted Earnings Per Common Share (unaudited) (in millions, except per share)
Three Months Ended March 31, ------------------------------------- 1999 1998 ----------------- ----------------- Basic earnings per common share (1): Net income applicable to common stock $ 41.6 $ 19.0 ================= ================= Average number of common shares outstanding 95.6 96.1 ================= ================= Basic earnings per common share $ .44 $ .20 ================= ================= Diluted earnings per common share: (1, 2): Net income applicable to common stock $ 41.6 $ 19.0 ================= ================= Average number of common shares outstanding 95.6 96.1 Add common share effect, assuming conversion of potentially dilutive securities .6 .9 ----------------- ----------------- Average number of common shares outstanding on a diluted basis 96.2 97.0 ================= ================= Diluted earnings per common share $ .43 $ .20 ================= =================
NOTES: ------------------------ (1) Basic earnings per common share is computed by dividing net income applicable to common stockholders by the average number of common shares outstanding. The computation of dilutive earnings per common share assumes that the average number of common shares outstanding is increased by dilutive common share equivalents. (2) Potentially dilutive securities at March 31, 1999 included shares issuable pursuant to certain stock-based compensation arrangements. These securities included 319,500 shares issuable upon the vesting of the restricted share units as well as 155,000 shares issuable upon the exercise of stock options calculated using the treasury stock method. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 248 0 548 17 533 1,421 10,803 4,384 8,486 1,015 2,843 0 0 56 2,853 8,486 1,275 1,275 1,131 1,131 0 0 63 41 (1) 42 0 0 0 42 .44 .43
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