<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
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 (I.R.S. Employer Identification No.)
incorporation or organization
One Champion Plaza, Stamford, Connecticut 06921
(Address of principal executive offices)
(Zip Code)
203-358-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
Common stock, $.50 par value 96,611,438
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
(in millions, except per share)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
------- -------
<S> <C> <C>
Net Sales $ 1,368 $ 1,275
Costs and Expenses
Cost of products sold 1,087 1,131
Selling, general and administrative expenses 88 83
Interest and debt expense 50 63
Other (income) expense - net (Note 2) (6) (43)
------- -------
Total costs and expenses 1,219 1,234
Income Before Income Taxes and
Extraordinary Item 149 41
Income Taxes 51 (1)
------- -------
Net Income $ 98 $ 42
======= =======
Average Number of Common Shares Outstanding 96.5 95.6
======= =======
Earnings Per Common Share (Exhibit 11):
Basic $ 1.01 $ .44
======= =======
Diluted $ 1.01 $ .43
======= =======
Cash Dividends Declared $ .15 $ .05
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
2
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 287 $ 418
Receivables - net 551 540
Inventories 473 421
Prepaid expenses 22 24
Deferred income taxes 78 79
------- -------
Total Current Assets 1,411 1,482
------- -------
Timber and timberlands, at cost - less cost of timber harvested 2,288 2,273
------- -------
Property, plant and equipment, at cost 7,538 7,484
Less - Accumulated depreciation 3,665 3,608
------- -------
3,873 3,876
------- -------
Other assets and deferred charges 841 687
------- -------
Total Assets $ 8,413 $ 8,318
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued liabilities $ 645 $ 691
Current installments of long-term debt 128 127
Short-term borrowings 111 72
Income taxes 16 33
------- -------
Total Current Liabilities 900 923
------- -------
Long-term debt 2,526 2,526
------- -------
Other liabilities 827 813
------- -------
Deferred income taxes 973 961
------- -------
Shareholders' Equity:
Capital Shares:
Common (112,030,297 and 111,767,273 shares issued at
March 31, 2000 and December 31, 1999, respectively) 56 56
Capital surplus 1,733 1,743
Retained Earnings 2,521 2,437
------- -------
4,310 4,236
Treasury shares, at cost (689) (689)
Accumulated other comprehensive income (434) (452)
------- -------
Total Shareholders' Equity 3,187 3,095
------- -------
Total Liabilities and Shareholders' Equity $ 8,413 $ 8,318
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
3
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS (unaudited)
(in millions of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 98 $ 42
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 79 92
Cost of timber harvested 19 21
Net gain on sale of assets (2) (2)
Foreign currency transaction (gain) loss 3 (39)
Changes in assets and liabilities, net of acquisitions
and divestitures:
Receivables (9) (40)
Inventories (51) (42)
Prepaid expenses 2 --
Accounts payable and accrued liabilities (53) 7
Income taxes payable (15) --
Other liabilities 11 (8)
Deferred income taxes 30 (8)
All other - net (2) 4
----- -----
Net cash provided by operating activities 110 27
----- -----
Cash flows from investing activities:
Expenditures for property, plant and equipment (67) (42)
Timber and timberlands expenditures (27) (28)
Funding of deferred compensation trust (159) --
Proceeds from sales of property, plant and equipment
and timber and timberlands 3 5
All other - net (5) --
----- -----
Net cash used in investing activities (255) (65)
----- -----
Cash flows from financing activities:
Proceeds from issuance of debt 49 25
Payments of current installments of long-term
debt and short-term borrowings (14) (31)
Cash dividends paid (10) (5)
All other - net (11) (3)
----- -----
Net cash provided by (used in) financing activities 14 (14)
----- -----
Decrease in cash and cash equivalents (131) (52)
Cash and Cash Equivalents:
Beginning of period 418 300
----- -----
End of period $ 287 $ 248
===== =====
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 44 $ 45
Income taxes (net of refunds) 37 7
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
4
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2000
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 1999 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 included
a net foreign currency transaction gain of $38.6 million for the company's
Brazilian operations.
Note 3.
Information about the company's operations in different businesses is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
(in millions of dollars) 2000 1999
- ----------------------------------------- ------ ------
<S> <C> <C>
Net Sales to Unaffiliated Customers
Pulp and Paper
North America $ 692 $ 711
Brazil 116 86
Distribution 233 200
------ ------
Total Pulp and Paper 1,041 997
------ ------
Wood Products 327 278
------ ------
Total $1,368 $1,275
====== ======
Intersegment Sales
Pulp and Paper
North America $ 36 $ 34
Brazil 5 4
Distribution 5 3
------ ------
Total Pulp and Paper 46 41
------ ------
Wood Products 88 112
------ ------
Total $ 134 $ 153
====== ======
</TABLE>
5
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
(in millions of dollars) 2000 1999
- ------------------------------------- ------ ------
<S> <C> <C>
Income From Operations
Pulp and Paper
North America $ 87 $ (10)
Brazil 49 32
Distribution 6 6
----- -----
Total Pulp and Paper 142 28
----- -----
Wood Products 57 42
----- -----
General Corporate Expense (6) (9)
----- -----
Total $ 193 $ 61
===== =====
</TABLE>
Note 4.
Comprehensive income reflects changes in equity that result from transactions
and economic events from nonowner sources. Comprehensive income for the periods
presented below includes 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.
Comprehensive income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
(in millions of dollars) 2000 1999
- --------------------------------------- ------ ------
<S> <C> <C>
Net income $ 98 $ 42
Foreign currency translation
adjustments 17 (228)
----- -----
Comprehensive income (loss) $ 115 $(186)
===== =====
</TABLE>
6
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 5.
The company occasionally enters into forward exchange contracts and interest
rate swap agreements to hedge certain assets that are denominated in foreign
currencies. In addition, the company occasionally enters into interest rate swap
agreements which convert variable rate debt to fixed interest rate. At March 31,
2000, the company had no significant forward exchange contracts or interest rate
swap agreements outstanding. The company does not hold financial instruments for
trading purposes.
Note 6.
In September 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 2001, 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.
7
<PAGE>
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Overall Quarterly Results
The company reported net income in the first quarter of 2000 of $98 million or
$1.01 per diluted share. This compared with net income of $42 million or 43
cents per diluted share for the first quarter of 1999, which included earnings
of $39 million or 40 cents per share from the impact of the devaluation of the
Brazilian currency on U.S.-denominated investments held by the company's
Brazilian operation. In the fourth quarter of 1999, net income was $79 million
or 82 cents per diluted share, before an extraordinary charge of $2 million or
three cents per share for the early retirement of debt. As discussed below, the
improvement from the first quarter of 1999 was mainly due to higher operating
income in the pulp and paper segments and the wood products segment and lower
interest expense. The improvement from last quarter was principally due to
higher operating income in North American pulp and paper segment, lower selling,
general and administrative expenses and lower interest expense.
Prices for many of the company's key pulp and paper grades began to gradually
improve during the last nine months of 1999 and into early 2000, reflecting the
gradual economic recovery in Asia, as well as strong demand attributable to
economic growth in North America and Europe. In addition, on the supply side,
there have been relatively few capacity additions in the industry since 1998,
although manufacturers have increased paper production from existing facilities.
This improved the demand/supply relationship and contributed to progressively
higher earnings in the company's pulp and paper segments during the last three
quarters of 1999 and the first quarter of 2000. The company believes that
markets for pulp and paper will continue to improve into the next several
quarters. However, the company's second quarter results will be adversely
impacted by an unscheduled maintenance outage at the Hinton, Alberta pulp mill
to repair its recovery boilers, as well as several scheduled maintenance outages
at other facilities.
Significant Income Statement Changes
Net sales of $1.37 billion increased from $1.27 billion last year and $1.35
billion last quarter. Gross profit was $281 million, compared with $144 million
last year and $281 million last quarter. Pre-tax income of $149 million
increased from $2 million a year ago, before a special item, and $115 million
last quarter, before the extraordinary item. The increases in net sales, gross
profit and pre-tax income from the year-ago quarter were primarily due to (i)
improved prices for pulp and most of the company's paper grades, (ii) increased
shipments and higher prices for Canadian lumber and plywood and higher West
Coast timber sales and (iii) continued progress in the company's profit
improvement program. The improvement in pre-tax income from last quarter was
mainly due to (i) higher prices for pulp and coated
8
<PAGE>
freesheet papers and improved product mix in the uncoated freesheet papers
business, (ii) higher U.S. and Canadian plywood shipments and prices and (iii)
continued progress in the company's profit improvement program.
The aggregate cost of products sold declined from last year and increased
slightly from last quarter. The decline from last year was principally due to
lower shipments resulting from the May 1999 sale of the company's mill in
Canton, North Carolina and the liquid packaging business (the Canton System) and
the June 1999 sale of the company's groundwood specialty mill in Deferiet, New
York. The increase from last quarter was primarily due to higher purchased fiber
and energy costs.
Selling, general and administrative expenses increased slightly from last year
but declined significantly from last quarter. The increase from last year was
mainly due to higher performance-based compensation. The decline from last
quarter was principally due to lower legal and professional costs and the impact
of stock price fluctuations on the value of stock appreciation rights and other
stock-based compensation. During the first quarter of 2000, the company recorded
pre-tax income of $21 million related to the termination of the performance
share plan which did not achieve its targeted stock price in the earn-out period
that ended in March 2000. In addition, during the quarter, the company recorded
$10 million of bad debt expense, $5 million of expenses associated with the
proposed merger with UPM- Kymmene Corporation, and $3 million of additional
compensation costs.
Interest and debt expense decreased from last year and last quarter. The
decreases were principally due to lower outstanding debt.
Other (income) expense - net for the first quarter of 1999 included a net
foreign currency transaction gain of $39 million on investments held by the
company's Brazilian subsidiary, Champion Papel e Celulose, Ltda. (CPC).
Excluding this item, other (income) expense - net for the first quarter of 2000
improved slightly from last year and last quarter. The improvement from last
year was mainly due to higher interest income. The improvement from last quarter
was primarily due to lower net foreign currency transaction losses.
The company's effective tax rate reflects 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. The income tax
benefit for the first quarter of 1999 reflected the impact of the $39 million
net foreign currency transaction gain, which was not taxable.
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 $142 million compared with $28
million a year ago and $130 million in the fourth quarter of last year. The
improvement from the year-ago quarter was mainly due to higher prices for pulp
and most of the company's paper grades. The improvement from last quarter was
primarily due to higher prices for pulp and coated freesheet papers and improved
product mix in the uncoated freesheet papers business.
9
<PAGE>
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).
Operating income for the company's North American pulp and paper segment of $87
million improved significantly from the operating loss of $10 million in the
year-ago quarter and operating income of $77 million last quarter. Total North
American paper, packaging and pulp shipments of 1.0 million tons decreased from
1.2 million tons last year and were approximately even with last quarter. The
decline in shipments from last year was due to the divestiture of various
facilities discussed above under "Significant Income Statement Changes,"
partially offset by increased shipments from ongoing operations.
A summary of shipments and prices of the company's major U.S. paper products
from ongoing operations is as follows:
<TABLE>
<CAPTION>
Shipments
(Thousands of Short Tons) Average Price Per Ton
------------------------------ -----------------------------
1st Qtr 4th Qtr 1st Qtr 1st Qtr 4th Qtr 1st Qtr
Product 2000 1999 1999 2000 1999 1999
- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Uncoated Freesheet 331 298 298 $707 $704 $572
Coated Freesheet 123 131 122 $825 $798 $758
Coated Groundwood 168 180 150 $867 $869 $835
Uncoated Groundwood 23 30 21 $654 $689 $724
Kraft Paper & Linerboard 132 133 133 $414 $408 $344
</TABLE>
The mills in the domestic coated papers business are in Bucksport, Maine;
Quinnesec, Michigan; and Sartell, Minnesota. Northern bleached hardwood kraft
(NBHK) 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 increased from last year but declined from
last quarter. The improvement from last year was principally due to higher
prices for NBHK pulp and for coated groundwood and freesheet papers. The decline
from last quarter was mainly due to a capital improvement outage at the Sartell
mill during the first quarter of 2000, which was completed on April 5, and
higher purchased fiber and energy costs. A price increase of $45 per ton for
NBHK pulp was implemented April 1. Prices for coated freesheet and groundwood
papers continued to improve early in the second quarter. A maintenance outage is
scheduled for the Quinnesec pulp mill and paper machine 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 freesheet
papers sales at Courtland also are included in the results of this business.
Operating income improved significantly from the operating loss last year and
the operating income last quarter. The improvement from last year was mainly due
to
10
<PAGE>
higher prices and shipments for uncoated freesheet papers and higher prices for
coated freesheet papers and pulp. The improvement from last quarter was
primarily due to improved product mix, higher prices for pulp and coated
freesheet papers and higher shipments of uncoated freesheet papers. Prices for
coated and uncoated freesheet papers and pulp continued to improve early in the
second quarter. A maintenance outage is scheduled at the Courtland and Pensacola
mills in the second quarter.
Linerboard and kraft papers are produced at the Roanoke Rapids, North Carolina
mill. Operating income for the kraft papers business improved from last year and
last quarter. The improvement from both prior quarters was mainly due to higher
prices for linerboard and kraft papers.
In the first quarter of 2000, the only remaining pulp and paper operation to be
divested was the Hamilton, Ohio mill. Operations previously divested include the
Canton System and the Deferiet, New York mill, which were sold in May 1999 and
June 1999, respectively. The first quarter 2000 operating loss for the Hamilton
mill was slightly larger than the operating loss for these operations (Canton
System, Deferiet and Hamilton mills) in the year-ago quarter and was
approximately even with last quarter. The larger loss compared with the year-ago
quarter was due to lower prices for premium coated and uncoated freesheet
papers.
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.
Operating income for these operations improved significantly from the operating
loss last year and the operating income last quarter. The improvement from both
prior quarters was due to higher prices for northern bleached softwood kraft
(NBSK) pulp. The loss in the year-ago quarter also reflected higher
manufacturing costs due to a two-week strike at the Hinton mill which ended on
April 5, 1999. The average price for NBSK pulp of (U.S.) $466 per ton in the
first quarter of 2000 increased from $323 per ton in the first quarter of 1999
and $415 per ton in the fourth quarter of 1999. Shipments of 166,000 tons
compared with 168,000 tons last year and 164,000 tons last quarter. As discussed
above, the Hinton, Alberta pulp mill experienced an unscheduled maintenance
outage early in the second quarter of 2000 to repair its two recovery boilers.
The company currently anticipates that the outage on each boiler will last
approximately one month and eliminate a total of approximately 40,000 tons of
NBSK pulp production. During the outage, the company also performed maintenance
which had been scheduled for October 2000, thereby eliminating the need for such
fourth quarter maintenance outage. As a result, planned fourth quarter NBSK pulp
production is expected to increase by approximately 11,000 tons. Prices for NBSK
pulp continued to improve early in the second quarter. A price increase of $40
per ton for NBSK pulp was implemented April 1.
Brazilian Pulp and Paper Segment
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 $49 million compared with $32 million last year
and $50 million last quarter. The improvement from the first quarter of 1999 was
principally due to higher prices for uncoated freesheet and coated groundwood
papers, which more than offset higher manufacturing costs. Compared to last
quarter, higher prices for pulp and
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<PAGE>
paper were offset by lower paper shipments, partially attributable to a capital
improvement outage on one of the uncoated freesheet paper machines, and higher
manufacturing costs. The overall average price for uncoated freesheet papers was
$731 per ton in the first quarter, compared with $542 per ton last year and $662
per ton last quarter. The average price for coated groundwood papers was $857
per ton, compared with $650 per ton last year and $785 per ton last quarter.
Uncoated freesheet papers shipments of 97,000 tons declined from 98,000 tons
last year and 107,000 tons last quarter. Coated groundwood papers shipments of
45,000 tons declined from 48,000 tons last year and 51,000 tons last quarter. A
capital improvement outage on an uncoated freesheet paper machine is scheduled
in the second quarter.
Distribution Segment
For the company's distribution segment, income from operations of $6 million was
even with last year and increased from $3 million last quarter. The improvement
from last quarter was mainly due to higher sales.
Wood Products Segment
A summary of shipments and prices of the company's major wood products is as
follows:
<TABLE>
<CAPTION>
Shipments Price Per Unit
----------------------------- -----------------------------
1st Qtr 4th Qtr 1st Qtr 1st Qtr 4th Qtr 1st Qtr
Product 2000 1999 1999 2000 1999 1999
- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U.S.
Lumber - MMBF 128 121 119 $320 $321 $328
Softwood Plywood - MMSF 3/8" 243 220 229 $250 $243 $267
Canada
Lumber - MMBF 260 268 229 $311 $308 $281
Softwood Plywood - MMSF 3/8" 120 116 98 $262 $254 $238
</TABLE>
For the company's wood products segment, which includes the wood-related
operations of Weldwood, income from operations of $57 million improved from $42
million in the first quarter of 1999 and $53 million last quarter. The
improvement from the year-ago quarter was primarily due to increased shipments
and higher prices for Canadian lumber and plywood and higher West Coast timber
sales. The improvement from the fourth quarter of 1999 was mainly due to higher
U.S. and Canadian plywood shipments and prices. Prices for lumber and plywood
were somewhat higher early in the second quarter.
Foreign Operations
The company's major foreign operations, which are discussed above under their
respective business segment headings, are in Brazil and Canada. Net sales
(including intracompany transfers) for CPC and Weldwood for the first quarter of
2000 were (U.S.) $121 million and (U.S.) $212 million, respectively,
12
<PAGE>
accounting for 9% and 16%, respectively, of consolidated net sales of the
company. Pre-tax income for CPC and Weldwood was $45 million and $42 million,
respectively, accounting for 30% and 28%, respectively, of consolidated pre-tax
income of the company. Net income for the first quarter of 2000 for CPC and
Weldwood was $33 million and $26 million, respectively, accounting for 34% and
27%, respectively, of consolidated net income of the company.
Labor Contracts
The union contract relating to the Bucksport, Maine groundwood papers mill
expired on April 30, 2000. The mill is operating under the terms of the expired
contract while efforts to reach a new agreement continue.
At Weldwood, union contracts covering the wood products facilities, except the
Hinton, Alberta plant, will expire on June 30, 2000. Negotiations for new labor
agreements are currently taking place.
Financial Condition
General
The company's current ratio was 1.6 to 1 at March 31, 2000 and year-end 1999.
Total debt to total capitalization was 40% at March 31, 2000 and year-end 1999.
Significant Balance Sheet Changes
Inventories increased from December 31, 1999 due to the seasonal increase in
Canadian log inventories and higher paper inventories held at distribution
centers. Other assets and deferred charges increased from year-end 1999 due to
the $159 million funding of a deferred compensation trust. Accounts payable and
accrued liabilities decreased from year-end 1999 primarily due to the timing of
payments.
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
2000
In the first three months of 2000, 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 funding of a
deferred compensation trust) and financing activities (principally debt payments
and cash dividends). The difference was financed through the use of cash and
cash equivalents and short-term borrowings. Cash and cash equivalents decreased
by $131 million in the first three months to a total of $287 million, $251
million of which was held by the company's Brazilian
13
<PAGE>
and Canadian subsidiaries. In the first three months, net borrowings generated
cash proceeds of $35 million. Long-term debt (including current installments)
and short-term borrowings in the aggregate increased by $40 million.
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 $52 million to a total of $248 million.
Cash Flows Statement - Operating Activities
For the first three months, net cash provided by operating activities of $110
million increased from $27 million a year ago. The increase was primarily due to
higher net income, the net foreign currency transaction gain last year, a
smaller decrease in receivables and increases in other liabilities and deferred
income taxes. This was partially offset by lower non-cash expenses for
depreciation and cost of timber harvested, a decrease in accounts payable and
accrued liabilities and higher income tax payments.
Cash Flows Statement - Investing Activities
For the first three months, net cash used in investing activities of $255
million increased from $65 million a year ago. The increase was mainly due to
the funding of a deferred compensation trust and higher capital expenditures.
Cash Flows Statement - Financing Activities
For the first three months, net cash provided by financing activities of $14
million compared with net cash used in financing activities of $14 million last
year. The change was principally due to net borrowings this year.
At March 31, 2000 and December 31, 1999, 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, 2000, the company had $43 million of
U.S. commercial paper outstanding, all of which is classified as short-term
debt. At March 31, 2000 and December 31, 1999, no notes were outstanding under
the company's U.S. bank lines of credit. Domestically, at March 31, 2000, the
company had unused bank lines of credit of $1.1 billion. At March 31, 2000,
Weldwood had unused bank lines of credit of (U.S.) $145 million.
The annual principal payment requirements under the terms of all long-term
agreements for the period from April 1 through December 31, 2000 are $128
million and for the years 2001 through 2004 are $144 million, $30 million, $28
million and $24 million, respectively.
14
<PAGE>
Divestiture Program
The company is continuing to actively pursue the sale of its Hamilton, Ohio
mill.
The Environment
Environmental Legal Proceedings
There is incorporated by reference herein the information in the first paragraph
under Item 1. Legal Proceedings in Part II of this report.
Effluent Discharge from Pensacola, Florida Mill
As previously reported, the company has been evaluating alternative options for
the discharge of effluent from its Pensacola, Florida mill. In April 2000, the
company entered into an agreement with the Florida Department of Environmental
Protection and the Escambia County Utility Authority (ECUA) to evaluate the
feasibility of constructing a wastewater treatment plant to treat effluent from
the Pensacola mill and a portion of Escambia County's residential effluent. The
agreement also provides for the company to evaluate the potential use of treated
residential effluent from other ECUA treatment plants as process water at the
Pensacola mill. The evaluation is expected to be completed in one year.
Environmental Information Request
As part of a national enforcement initiative by the United States Environmental
Protection Agency (EPA), several forest products companies have received
requests for information under Section 114 of the Clean Air Act (Act) and/or
notices of violation relating to compliance with permitting requirements under
the Act. The company has received a Section 114 request at its Quinnesec,
Michigan mill and has submitted its response to the EPA.
Nitrogen Oxide Regulations
In September 1998, the EPA issued final regulations requiring a 60% reduction in
Nitrogen Oxide (NOx) emissions in 22 states. As a result of a lawsuit, those
regulations were overturned; however, they were reinstated on appeal. The states
are required to submit plans by September 2000 for reducing NOx emissions from
industrial sources and to implement their plans by 2003. In addition, the EPA
has granted previously filed petitions (Section 126 Petitions) from various
northeastern states to impose NOx reductions on certain of the 22 states. Four
of the company's mills are affected by the NOx regulations and the Section 126
Petitions. Based upon a preliminary review, the company presently anticipates
that it could incur capital expenditures of $20 million to $40 million over a
multi-year period and ongoing operating costs to comply with the required NOx
reductions. Approximately $5 million of the estimated
15
<PAGE>
costs are attributable to the Hamilton, Ohio mill, which the company has offered
for sale. These estimated expenditures assume that the technology identified by
the EPA is capable of achieving the NOx reductions projected by the EPA, which
the company has not independently confirmed.
Other
Merger Announcement
On February 17, 2000, the company and UPM-Kymmene Corporation entered into a
definitive merger agreement.
On May 10, 2000, the company announced that it had received a proposal from
International Paper Company to acquire all of the outstanding shares of the
company's common stock. In the proposal, International Paper offered to purchase
2/3 of the company's common stock for $75 per share in cash, to be followed by a
merger in which each remaining share would be converted into International Paper
common stock with a market value of $75. The proposal indicated that
International Paper would maintain the value of the stock component of its
proposal down to a price of $34.50 per International Paper share. If
International Paper's shares are trading at less than $34.50 per share at the
time of the merger, each remaining company share would be converted into 2.17391
International Paper shares.
Item 3. Quantitive and Qualitive 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.
16
<PAGE>
PART II. OTHER INFORMATION
CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings.
On March 25, 2000, the company received a draft civil complaint from the
Attorney General of Maine alleging violations by the company of wastewater
discharge regulations and licenses at its Costigan and Passadumkeag, Maine
sawmills. Included with the complaint was an offer to settle the complaint by
payment of a civil penalty of $1,106,900. The company will meet with the
Attorney General's office to discuss possible settlement.
In March and April 2000, the company and the ten members of its board of
directors were served with six lawsuits that have been filed in Supreme Court
for the State of New York, New York County. Each of the suits purports to be a
class action filed on behalf of company shareholders and alleges that the
defendants breached their fiduciary duties in connection with the proposed
merger with UPM-Kymmene Corporation and the proposal from International Paper
Company.
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 February 18, 2000
reporting the issuance of a press release announcing the execution of an
Agreement and Plan of Merger between the company and UPM-Kymmene.
The company filed a Current Report on Form 8-K dated February 25, 2000
reporting that the company and UPM-Kymmene entered into three stock option
agreements in connection with their Agreement and Plan of Merger.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the undersigned on behalf of the registrant as duly
authorized officers thereof and in their capacities as the chief accounting
officers of the registrant.
Champion International Corporation
(Registrant)
Date: May 12, 2000 /s/ John M. Nimons
--------------------------
(Signature)
John M. Nimons
Vice President and Controller
Date: May 12, 2000 /s/ Kenwood C. Nichols
--------------------------
(Signature)
Kenwood C. Nichols
Vice Chairman and Executive Officer
18
<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 Basic Earnings Per Common Share and Diluted Earnings Per
Common Share (unaudited).
27 - Financial Data Schedule (unaudited)
19
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
------- ------
<S> <C> <C>
Basic earnings per common share (1):
Net income applicable to common stock $ 98 $ 42
====== ======
Average number of common shares outstanding 96.5 95.6
====== ======
Basic earnings per common share $ 1.01 $ .44
====== ======
Diluted earnings per common share: (1, 2):
Net income applicable to common stock $ 98 $ 42
====== ======
Average number of common shares outstanding 96.5 95.6
Add common share effect, assuming conversion
of potentially dilutive securities .6 .6
------ ------
Average number of common shares outstanding
on a diluted basis 97.1 96.2
====== ======
Diluted earnings per common share $ 1.01 $ .43
====== ======
</TABLE>
- ----------
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 diluted 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, 2000 included shares
issuable pursuant to certain stock-based compensation arrangements.
These securities included 312,000 shares issuable upon the vesting of
the restricted share units as well as 314,000 shares issuable upon the
exercise of stock options calculated using the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 569
<ALLOWANCES> 18
<INVENTORY> 473
<CURRENT-ASSETS> 1,411
<PP&E> 7,538 <F1>
<DEPRECIATION> 3,665
<TOTAL-ASSETS> 8,413
<CURRENT-LIABILITIES> 900
<BONDS> 2,526
0
0
<COMMON> 56
<OTHER-SE> 3,131
<TOTAL-LIABILITY-AND-EQUITY> 8,413
<SALES> 1,368
<TOTAL-REVENUES> 1,368
<CGS> 1,087
<TOTAL-COSTS> 1,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 149
<INCOME-TAX> 51
<INCOME-CONTINUING> 98
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
<FN>
<F1> Includes timber and timberlands.
</FN>
</TABLE>
