UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1994
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 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602
(Address of principal executive offices) (Zip Code)
(803) 271-7733
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 3, 1994.
Class Outstanding at May 3, 1994
Common Stock, $1.00 Par Value 36,485,850 Shares
<PAGE>
BOWATER INCORPORATED
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheet at April 2, 1994
and December 31, 1993 3
Consolidated Statement of Operations for the Three
Months Ended April 2, 1994 and April 3, 1993 4
Consolidated Statement of Capital Accounts
for the Three Months Ended April 2, 1994 5
Consolidated Statement of Cash Flows for the
Three Months Ended April 2, 1994 and April 3, 1993 6
Notes to Consolidated Financial Statements 7-8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
(2)
<PAGE>
PART I BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In Thousands)
<TABLE>
April 2, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,446 $ 16,258
Marketable securities, at cost which approximates market 209,874 65,408
Accounts receivable, net 148,860 170,737
Inventories 169,010 149,431
Deferred income taxes 10,923 10,923
Other current assets 3,439 6,720
Total current assets 550,552 419,477
Timber and timberlands 424,356 422,521
Fixed assets, net 1,725,607 1,750,719
Intangible assets 56,586 57,208
Other assets 75,529 76,253
$ 2,832,630 $ 2,726,178
LIABILITIES AND CAPITAL
Current liabilities:
Current instalments of long-term debt $ 1,797 $ 1,796
Accounts payable and accrued liabilities 192,213 195,546
Income taxes payable 6,152 35,882
Dividends payable 2,025 6,079
Total current liabilities 202,187 239,303
Long-term debt, net of current instalments 1,118,019 1,118,403
Other long-term liabilities 146,458 144,802
Deferred income taxes 259,429 272,065
Minority interests in subsidiaries 140,642 144,749
Commitments and contingencies (See note 8.)
Redeemable LIBOR preferred stock 74,397 74,368
Shareholders' equity:
Common stock 36,929 36,913
Series B Convertible Preferred Stock 111,519 -
Series C Cumulative Preferred Stock 82,048 -
Additional paid-in capital 333,018 332,661
Retained earnings 358,748 388,663
Equity adjustment from foreign currency translation (7,237) (1,351)
Loan to ESOT (10,839) (11,245)
Treasury stock, at cost (12,688) (13,153)
Total shareholders' equity 891,498 732,488
$ 2,832,630 $ 2,726,178
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
Three Months Ended
April 2, April 3,
1994 1993
<S> <C> <C>
Net sales $ 308,892 $ 348,921
Cost of sales 262,908 307,848
Depreciation, amortization and cost of timber harvested 42,161 42,175
Gross profit (loss) 3,823 (1,102)
Selling and administrative expense 18,563 16,793
Operating loss (14,740) (17,895)
Other expense (income):
Interest income (1,296) (2,369)
Interest expense 24,919 24,391
Other, net 109 (1,161)
23,732 20,861
Loss before income taxes and minority interests (38,472) (38,756)
Provision for income taxes (14,425) (14,339)
Minority interests in net loss of subsidiaries (2,607) (1,472)
Net loss $ (21,440) $ (22,945)
Loss per share $ (0.67) $ (0.65)
Average shares outstanding 36,459 36,330
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
Three Months Ended April 2, 1994
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
Equity
LIBOR Series B Series C Additional Adjustment -
Preferred Convertible Cumulative Common Paid in Retained Foreign Loan to Treasury
Stock Preferred Preferred Stock Capital Earnings Currency ESOT Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $74,368 $ - $ - $36,913 $332,661 $388,663 $(1,351) $(11,245) $(13,153)
Net loss - - - - - (21,440) - - -
Common stock dividends
($.15 per share) - - - - - 5,362) - - -
Preferred stock dividends
Libor ($.33 per share) - - - - - (495) - - -
Series B ($.96 per share) - - - - - (1,185) - - -
Series C ($1.56 per share) - - - - - (1,329) - - -
Increase in stated value of LIBOR
preferred stock 29 - - - - (29) - - -
Common stock issued under stock
option plans - - - 16 357 - - - -
Preferred stock issued, net
of issuance costs - 111,519 82,048 - - - - - -
Reduction in loan to ESOT - - - - - - - 406 -
Treasury stock used for employee
benefit and dividend
reinvestment plans - - - - - (75) - - 465
Foreign currency
translation - - - - - - (5,886) - -
Balance at April 2, 1994 $74,397 $111,519 $82,048 $36,929 $333,018 $358,748 $(7,237) $(10,839) $(12,688)
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
Three Months Ended
April 2, April 3,
1994 1993
<S> <C> <C>
Cash flow from (used for) operating activities:
Operating loss $ (14,740) $ (17,895)
Depreciation, amortization and cost of timber harvested 42,161 42,175
Changes in working capital:
Receivables 21,876 (73,169)
Inventories (19,579) 440
Accounts payable and accrued liabilities (7,923) (15,298)
Other working capital 3,282 6,142
Interest paid, net of capitalized interest (18,267) (17,767)
Income taxes refunded (paid) (28,072) 19,703
Other income, net 2,105 5,109
(19,157) (50,560)
Cash flow from (used for) investing activities:
Cash invested in fixed assets, timber and
timberlands (26,671) (39,934)
Disposition of fixed assets, timber and timberlands 878 129
(25,793) (39,805)
Cash flow from (used for) financing activities:
Issuance of Series B & C preferred stock, net of issuance costs 193,567 -
Cash dividends, including minority interests (12,337) 16,819)
Net borrowings (payments) (405) 1,355
Funds released from trustee - 16,872
Other 779 417
181,604 1,825
Increase (decrease) in cash and marketable securities 136,654 (88,540)
Cash and marketable securities:
Beginning of year 81,666 65,942
End of period $ 218,320 $ 77,402
</TABLE>
See accompanying notes to consolidated financial statements.
(6)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1) The accompanying consolidated financial statements include
the accounts of Bowater Incorporated and Subsidiaries (the Company). The
consolidated balance sheet as of April 2, 1994 and the related
consolidated statements of operations, capital accounts and cash flows
for the interim periods ended April 2, 1994 and April 3, 1993 are
unaudited. However, in the opinion of Company management, all
adjustments (consisting of normal recurring adjustments) necessary
for fair presentation of the interim financial statements have been
made. The results of the interim period ended April 2, 1994 are not
necessarily indicative of the results to be expected for the full year.
2) The composition of inventories at April 2, 1994 and December
31, 1993 was as follows (in thousands):
April 2, 1994 December 31, 1993
(Unaudited)
At lower of cost or market:
Raw materials $ 39,351 $ 33,090
Work in process 2,209 2,697
Finished goods 55,856 41,070
Mill stores and other supplies 79,103 79,209
176,519 156,066
Excess of current cost over
LIFO inventory value (7,509) (6,635)
$169,010 $149,431
3) During the first quarter of 1994, the Company completed two
public offerings of preferred stock. The Company sold 4,893,616
depositary shares, priced at $23.50 per share, representing
one-fourth of a share of 7% Series B Convertible Preferred Stock
referred to as Preferred Redeemable Increased Dividend
Equity Securities (PRIDES). The conversion premium is 22 percent.
The Company also sold 3,400,000 depositary shares, priced at $25.00 per
share, representing one-fourth of a share of 8.40% Series C Cumulative
Preferred Stock. The net proceeds of both offerings, after deducting
applicable issuance costs and expenses were $193,567,000.
4) Net loss used in the calculation of loss per share has been increased by
the dividend requirements of the Company's LIBOR, Series B, and
Series C preferred stock. The shares of 7% PRIDES are common stock
equivalents. However, due to the net loss incurred, the effect on loss
per share is antidilutive.
5) Total interest incurred during the first quarter of 1994 and 1993 was
$24,999,000 and $25,595,000 respectively. In 1994 and 1993, $80,000 and
$1,204,000 of interest expense was capitalized, respectively.
6) The Company's marketable securities are recorded at cost which
approximates market value. The securities are investment grade with
maturities of less than 90 days and the Company has the intent and
ability to hold these securities until maturity.
(7)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7) In the first quarter of 1994, the Company changed its classification of
certain selling and administrative expenses and allocation of certain
costs due to the recent consolidation of the corporate office with
operations in Greenville, South Carolina. These changes are reflected
in the Consolidated Statement of Operations for the three month period
ended April 2, 1994. Prior year amounts have not been restated due to
the prospective nature of the change. The comparable amounts for the
three month period ended April 3, 1993 for the lines entitled "Cost
of Goods Sold" and "Selling and Administrative Expense" are
$304,919,000 and $19,722,000, respectively.
8) Payment for the new recovery boiler at the Company's Calhoun, Tennessee,
mill site is expected to be made during the second quarter of 1994
totaling approximately $105,000,000.
The Company is also involved in various litigation relating to contracts,
commercial disputes, tax, environmental, workers' compensation and other
matters. The Company's management is of the opinion that the ultimate
disposition of these matters will not have a material adverse effect on
the Company's operations or its financial condition taken as a whole.
(8)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Summary
Bowater Incorporated incurred a net loss for the first quarter of 1994 of
$21.4 million, or $.67 per share, on net sales of $308.9 million. For the same
period of 1993, the Company incurred a loss of $22.9 million, or $.65 per
share, on net sales of $348.9 million. During the first quarter of 1994,
the Company completed the public offering of 7% PRIDES and 8.40% Series C
Cumulative Preferred Stock. Preferred dividends relating to these issues
increased the loss per share by $.07 for the first quarter of 1994.
In the first quarter of 1994, the Company changed its segment reporting by
eliminating the Communication Papers segment. All of the Company's products
are now classified as pulp, paper, and related products. This is a
result of the Company's decision to manufacture a substantial portion
of the paper used by the communication papers converting business, thereby
integrating it with its core business. For comparison purposes, prior
year information relating to the Communication Papers segment has also
been combined.
Product Line Information:
Quarter Ended
April 2, April 3,
1994 1993
Net sales:
Newsprint $138,293 $156,787
Directory and uncoated
specialties 40,098 47,500
Coated paper 73,635 74,365
Pulp 21,958 28,571
Communication papers 45,383 52,452
Lumber, stumpage and
other products 21,993 27,223
Distribution costs (32,468) (37,977)
$308,892 $348,921
Operating loss $(14,740) $(17,895)
(9)
<PAGE>
Three Months Ended April 2, 1994 versus April 3, 1993
Product Line Information
For the first three months of 1994, the Company's operating
loss of $14.7 million declined $3.2 million compared to the first
three months of 1993. Coated paper operating results improved from
first quarter 1993, with the balance of the Company's products, except
newsprint, also improving. During the first quarter of 1994, the Company
continued its efforts to reduce operating costs for all of its product
lines through plans developed and initiated during 1993. A detailed review
of the Company's major product lines follows.
Coated paper operating results improved significantly in the
first quarter of 1994 compared to the first quarter of 1993 due to a
decrease in operating costs, including distribution costs. Average
transaction prices and sales tonnage during the first quarter of 1994
were consistent with the first quarter of 1993. U. S. purchases of coated
groundwood papers during the first three months of 1994 was essentially
the same as the first three months of 1993. Increases in demand have been
forecasted for later this year by some industry observers and producers,
which could result in a price increase at that time. No assurance can be
given, however, that a price increase can be achieved.
The operating results from the Company's newsprint product line
deteriorated during the first quarter of 1994 versus the first quarter of
1993 as average transaction prices declined 8.1 percent. Excess capacity
and the continued weakening of the Canadian dollar contributed to the
Company's inability to effect higher selling prices. The 7 percent reduction
in discounts allowed off list price, effective March 1, 1994, has not been
completely implemented. The complete implementation of this price increase
is not expected until late in the second quarter.In addition, the Company's
tonnage shipments were 4.1 percent lower during the first three months of
1994 compared to the same period last year. Severe weather conditions
contributed to the lower sales volume. During the first quarter of 1994, the
Company was able to reduce newsprint operating costs, including distribution
costs, through plans developed and initiated during 1993. U. S. newsprint
consumption increased 3.7 percent for the first three months of 1994 compared
to the same period in 1993. Significant improvements in the newsprint sector
are dependent upon continued increases in the rate of consumption and the
amount of economic recovery worldwide.
Operating results for directory paper improved during the first quarter
of 1994 compared to the first quarter of 1993. Although the Company's
shipments during the 1994 first quarter were lower than the comparable period
in 1993, average transaction prices increased 13.8 percent comparing the same
periods due to changes in product mix. This increase led to the improved
operating results. U. S. shipments of uncoated groundwood papers, which
includes directory, increased 7.4 percent during the first three months of
1994 compared to the first three months of 1993.
(10)
<PAGE>
The Company's market pulp operating results improved during the first
three months of 1994 compared to the first three months of 1993, as softwood
market pulp average transaction prices increased slightly and operating costs
decreased, comparing the same periods. On January 1, 1994, a $50 per metric
ton list price increase went into effect for softwood market pulp. On March 1,
1994, an additional $50 per metric ton list price increase went into effect
for softwood market pulp. A $60 per metric ton list price increase has been
announced by major producers of softwood market pulp for June 1, 1994. The
impetus for these increases came from several sources: NORSCAN (U.S., Canada,
Finland, Norway, and Sweden) shipments of softwood market pulp increased 6.6
percent during the first quarter of 1994 compared to the first quarter of
1993; producer inventories remained low during the first quarter of 1994 due
to the increased demand during the quarter and downtime taken in 1993; a
possible strike in British Columbia is threatened; wood shortages have
affected overseas producers; and lastly, several new Asian pulp mills
scheduled to begin production in the second quarter, have been delayed to
late 1994.
Communication papers operating results improved comparing the first
three months of 1994 with the same period in 1993. The Company continues
to integrate the production of communication papers with its primary
business in an effort to maximize the Company's profitability and decrease
operating costs. The profitability of this product depends on the Company's
ability to stimulate demand with new product developments while maintaining
control over operating costs.
The Company's lumber operating results improved during the first quarter
of 1994 compared to the same period in 1993 as the Company's average
transaction prices rose 18.2 percent comparing the same periods. New housing
starts in the United States increased 21 percent during the first three
months of 1994 compared to the first three months of 1993, causing a surge
in demand. Some industry observers fear the current increases in mortgage
interest rates will reduce demand, causing prices to stabilize or fall.
Interest Expense
Total interest expense for the first quarter of 1994 was $25.0 million
versus $25.6 million for the first quarter of 1993, due to the slightly lower
average level of borrowings outstanding during 1994. In 1994's first quarter,
$80,000 of interest was capitalized versus $1.2 million in 1993, due to the
lower level of qualifying capital expenditures in 1994.
Income Taxes
The Company provided an income tax benefit for the first three months of
1994 and 1993 due to the pre-tax loss incurred in both years. The effective
tax rate for the first quarter of 1994 was 37.5 percent versus 37.0 percent
for the same period last year. During the first quarter of 1994, the Company
paid $29.4 million to the Internal Revenue Service for tax assessments
relating to prior years. This amount was fully provided for in the
Consolidated Balance Sheet as of December 31, 1993.
(11)
<PAGE>
Liquidity and Capital Resources
For the first quarter of 1994, the Company's operations used $19.2
million of cash compared to using $50.6 million of cash during the first
quarter of 1993, a $31.4 million improvement. In the first quarter of 1993,
the Company discontinued selling receivables under the asset securitization
program, which accounted for $74.0 million of the total improvement in
working capital. Offsetting this was an increase in income taxes paid of
$47.8 million. In the first quarter of 1993, the Company received tax refunds
of $19.7 million due to the loss incurred in 1992. In the first quarter of
1994, the Company paid $29.4 million for tax assessments relating to prior
years, offset by tax refunds of $1.3 million due to the loss incurred in
1993.
During the first quarter of 1994, the Company completed the public
offering of 7% PRIDES and 8.40% Series C Cumulative Preferred Stock. The net
proceeds of both offerings, after deducting applicable issuance costs and
expenses, were $193,567,000. The proceeds of the offerings will be used by the
Company to fund: the new recovery boiler at the Calhoun, Tennessee, mill;
capital expenditures and other costs associated with the closure of certain
obsolete facilities at the Millinocket, Maine, mill; the costs associated with
the recently announced companywide personnel reductions and general corporate
purposes.
Capital expenditures for the first three months of 1994 decreased $14.0
million compared to the first quarter of 1993. The completion of the newsprint
recycling plant at the East Millinocket, Maine, mill and the near completion
of the new recovery boiler at the Calhoun, Tennessee, mill accounted
for the reduced cash expenditures.
On March 31, 1994, the Company's $250.0 million credit line provided by
its Credit Agreement was reduced to $200.0 million. The amendment to the
Credit Agreement was requested by the Company as a result of raising
additional equity capital through the sale of 7% PRIDES and 8.40% Series C
Cumulative Preferred Stock.
As of April 2, 1994, the Company had $209.9 million of marketable
securities. The large increase from December 31, 1993, was a result of the two
preferred stock offerings completed during the first quarter of 1994. The
securities are of investment grade with maturities of less than 90 days.
(12)
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The Company filed with the Securities and Exchange
Commission Current Reports on Form 8-K as follows:
(1) On January 18, 1994, a Current Report on Form 8-K
dated January 18, 1994, reporting under Item 5 (Other
Events) the issuance of a press release that announced
the Company's 1993 fourth quarter and year-end
results, including unaudited summary consolidated
financial information and segment information; and
(2) On February 16, 1994, a Current Report on Form 8-K
dated February 1, 1994, filing as exhibits under Item
7 (Financial Statements and Exhibits) the final
versions of agreements and documents in connection
with the Company's offerings of its 7% PRIDES, Series
B Convertible Preferred Stock and its 8.40% Series C
Cumulative Preferred Stock.
(13)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOWATER INCORPORATED
By R. C. Lancaster
R. C. Lancaster
Senior Vice President and
Chief Financial Officer
By M. F. Nocito
M. F. Nocito
Vice President - Controller
Dated: May 3, 1994
(14)
