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 September 30, 1996
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)
(864) 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 November 1, 1996.
Class Outstanding at November 1, 1996
Common Stock, $1.00 Par Value 37,109,824 Shares
<PAGE>
BOWATER INCORPORATED
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheet at September 30, 1996
and December 31, 1995 3
Consolidated Statement of Operations for the Three
and Nine Months Ended September 30, 1996 and
September 30, 1995 4
Consolidated Statement of Capital Accounts for the
Nine Months Ended September 30, 1996 5
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1996 and September
30, 1995 6
Notes to Consolidated Financial Statements 7-8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
(2)
<PAGE>
PART I
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 134,134 $ 264,571
Marketable securities (Note 2) 246,021 -
Accounts receivable, net 210,387 241,847
Inventories (Note 3) 153,908 154,662
Other current assets 15,764 12,943
--------------- --------------
Total current assets 760,214 674,023
--------------- --------------
Timber and timberlands 396,090 430,400
Fixed assets, net 1,647,617 1,711,003
Intangible assets, net 20,174 23,733
Other assets 63,430 69,006
=============== ==============
$ 2,887,525 $ 2,908,165
=============== ==============
LIABILITIES AND CAPITAL
Current liabilities:
Current installments of long-term debt $ 1,604 $ 1,600
Accounts payable and accrued liabilities 194,150 189,424
Income taxes payable 3,164 85,472
Dividends payable 10,031 8,826
--------------- --------------
Total current liabilities 208,949 285,322
--------------- --------------
Long-term debt, net of current installments (Note 4) 764,385 816,532
Other long-term liabilities 186,221 181,411
Deferred income taxes 365,158 329,101
Minority interests in subsidiaries 146,894 150,768
Commitments and contingencies (Note 5)
Redeemable LIBOR preferred stock 49,715 49,619
Shareholders' equity:
Series B convertible preferred stock 111,333 111,333
Series C cumulative preferred stock 25,465 25,465
Common stock 39,941 39,501
Additional paid-in capital 423,047 410,007
Retained earnings 691,327 541,205
Equity adjustments (13,025) (13,128)
Loan to ESOT (6,759) (8,033)
Treasury stock, at cost (Note 6) (105,126) (10,938)
--------------- --------------
Total shareholders' equity 1,166,203 1,095,412
=============== ==============
$ 2,887,525 $ 2,908,165
=============== ==============
</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>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net sales $ 423,188 $ 520,907 $ 1,346,022 $ 1,457,221
Cost of sales (Note 7) 296,270 299,428 853,708 882,020
Depreciation, amortization and cost of timber harvested 43,402 43,201 131,084 130,593
----------- ----------- ----------- ------------
Gross profit 83,516 178,278 361,230 444,608
Selling and administrative expense (Note 7) 23,629 23,642 68,283 75,039
----------- ----------- ----------- ------------
Operating income 59,887 154,636 292,947 369,569
Other expense (income):
Interest income (Note 8) (4,837) (2,328) (14,880) (5,570)
Interest expense, net of capitalized interest (Note 8) 17,758 19,004 54,328 62,618
Gain on sale of timberlands (Note 9) (1,152) (1,489) (77,853) (1,874)
Estimated loss on planned sale of subsidiary (Note 10) -- 30,000 - 30,000
Other, net (Note 11) (1,096) (11,403) (3,449) (16,218)
----------- ----------- ----------- ------------
10,673 33,784 (41,854) 68,956
----------- ----------- ----------- ------------
Income before income taxes and minority interests 49,214 120,852 334,801 300,613
Provision for income taxes (Note 12) 18,209 55,838 123,877 122,350
Minority interests in net income of subsidiaries 2,738 6,911 25,409 15,276
----------- ----------- ----------- ------------
Income before extraordinary charge 28,267 58,103 185,515 162,987
Extraordinary charge, net of taxes of $1,012
and $3,276 for the three months and $2,234
and $7,084 for the nine months ended
September 30, 1996 and September 30, 1995 (Note 4) (1,600) (5,233) (3,531) (11,317)
----------- ----------- ----------- ------------
Net income $ 26,667 $ 52,870 $ 181,984 $ 151,670
=========== =========== =========== ============
Earnings per common share - primary (Note 13):
Income before extraordinary charge $ 0.65 $ 1.27 $ 4.28 $ 3.66
Extraordinary charge (0.04) (0.12) (0.08) (0.27)
=========== =========== =========== ============
Net income $ 0.61 $ 1.15 $ 4.20 $ 3.39
=========== =========== =========== ============
Average common and common equivalent shares outstanding 41,756 43,420 42,463 42,250
=========== =========== =========== ============
Earnings per common share - fully diluted (Note 13):
Income before extraordinary charge $ 0.64 $ 1.25 $ 4.19 $ 3.57
Extraordinary charge (0.04) (0.12) (0.08) (0.26)
=========== =========== =========== ============
Net income $ 0.60 $ 1.13 $ 4.11 $ 3.31
=========== =========== =========== ============
Average common and common equivalent shares outstanding 42,714 44,301 43,356 43,273
=========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Series A Series B Series C
LIBOR Convertible Cumulative Additional
Preferred Preferred Preferred Common Paid in Retained Equity Loan to Treasury
Stock Stock Stock Stock Capital Earnings Adjustments ESOT Stock
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $49,619 $111,333 $25,465 $ 39,501 $ 410,007 $ 541,205 $(13,128) $ (8,033) $(10,938)
Net income - - - - - 181,984 - - -
Dividends on common stock($.60 per share) - - - - - (22,244) - - -
Dividends on preferred stock:
LIBOR ($1.82 per share) - - - - - (1,820) - - -
Series B ($4.94 per share) - - - - - (6,037) - - -
Series C ($6.30 per share) - - - - - (1,665) - - -
Increase in stated value of LIBOR
preferred stock 96 - - - - (96) - - -
Common stock issued for exercise
of stock options - - - 440 10,745 - - - -
Tax benefit on exercise of stock options 2,240
Reduction in loan to ESOT - - - - - - - 1,274 -
Purchase of common stock (Note 6) - - - - - - - - (94,293)
Treasury stock used for employee benefit
and dividend reinvestment plans - - - - 55 - - - 105
Foreign currency translation - - - - - - 103 - -
==========================================================================================
Balance at September 30, 1996 $ 49,715 $111,333 $25,465 $39,941 $423,047 $691,327 $(13,025) $(6,759) $(105,126)
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 30,
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from (used for) operating activities:
Net income $ 181,984 $ 151,670
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 131,084 130,593
Deferred income taxes 40,176 51,375
Minority interests 25,409 15,276
Gain from sale of timberlands (77,853) (1,874)
Extraordinary charge, net of taxes 3,531 11,317
Estimated loss on planned sale of subsidiary -- 30,000
Change in working capital:
Accounts receivable, net 31,460 (30,681)
Inventories 754 (17,149)
Accounts payable and accrued liabilities (2,963) 33,407
Income taxes payable (76,258) 61,795
Other, net 3,154 (11,898)
--------- ---------
Net cash from operating activities 260,478 423,831
--------- ---------
Cash flows from (used for) investing activities:
Cash invested in fixed assets, timber and timberlands (64,596) (69,347)
Disposition of fixed assets, timber and timberlands 118,893 3,096
Cash invested in marketable securities (246,021) --
--------- ---------
Net cash used for investing activities (191,724) (66,251)
--------- ---------
Cash flows from (used for) financing activities:
Cash dividends, including minority interests (59,668) (31,057)
Purchase of common stock (Note 6) (94,293) --
Purchases / payments of long-term debt (57,695) (316,868)
Stock options exercised 11,185 56,192
Redemption of preferred stock of subsidiary -- (15,000)
Other 1,280 1,072
--------- ---------
Net cash used for financing activities (199,191) (305,661)
--------- ---------
Net increase (decrease) in cash and cash equivalents (130,437) 51,919
Cash and cash equivalents at beginning of year 264,571 154,768
--------- ---------
Cash and cash equivalents at end of period $ 134,134 $ 206,687
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ (51,962) $ (62,105)
Income taxes $(159,959) $ (9,180)
</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 sheets, statements of operations, capital accounts and cash flows
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 September 30, 1996, are not necessarily
indicative of the results to be expected for the full year.
(2) Cash equivalents consist of investment grade commercial paper and government
obligations with original maturities of three months or less. Marketable
securities consist of the same type of investments; however, original
maturities extend beyond three months but are less than one year. The
Company has both the ability and intent to hold these securities to maturity
and has recorded them at cost, which approximates market value.
(3) The composition of inventories at September 30, 1996, and December 31, 1995,
was as follows (in thousands):
September 30, 1996 December 31, 1995
(Unaudited)
At lower of cost or market:
Raw materials $ 27,504 $ 39,520
Work in process 3,442 3,014
Finished goods 63,987 48,854
Mill stores and other supplies 70,735 81,301
165,668 172,689
Excess of current cost over
LIFO inventory value (11,760) (18,027)
$153,908 $154,662
(4) During the third quarter of 1996, the Company repurchased $22.2 million of
its outstanding $272.2 million 9% debentures due 2009. This resulted in an
extraordinary charge of $1.6 million after-tax or $.04 per fully diluted
share for the premium and expenses related to the repurchase. The
extraordinary charge in the third quarter of 1995 related to the repurchase
of approximately $117 million of the Company's $125 million 8.25% Notes due
1999.
(5) The Company is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims, and other matters. The Company's management believes
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.
(6) During the third quarter of 1996, the Company repurchased 386,000 shares of
common stock as part of a previously announced stock repurchase plan. Since
initiation of the program in February 1996, the Company has repurchased
approximately 2.5 million shares, at a total cost of approximately $94.3
million. The shares are recorded in the Shareholders' equity section of the
Consolidated Balance Sheet at September 30, 1996, on the line entitled,
"Treasury stock, at cost".
(7)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Selling and administrative expense includes charges of $5.4 million and
$12.5 million for the three and nine months ended September 30, 1996,
respectively, and $1.7 million for the three and nine months ended
September 30, 1995, for an estimated payment under the Company's Long-Term
Cash Incentive Plan, established in January 1994. For the nine months ended
September 30, 1995, Cost of sales and Selling and administrative expense
include charges of $18.0 million and $6.0 million, respectively, relating
to 1995 personnel reductions.
(8) The increase in interest income for the third quarter and nine months ended
September 30, 1996, compared to the same periods last year is a result of a
higher level of investment in cash equivalents and short-term marketable
securities in 1996. The decrease in interest expense, comparing the same
periods, is a result of lower debt balances in 1996 due to debt repurchases
made primarily during 1995.
(9) During the third quarter of 1996, the Company sold approximately 1,700
acres of timberlands located primarily in Maine resulting in a pre-tax gain
of $1.2 million or $.02 per fully diluted share, after tax. During the
first half of 1996, the Company sold approximately 106,000 acres in Alabama
and South Carolina resulting in a pre-tax gain of $76.7 million or $.86 per
fully diluted share, after tax.
(10) During the third quarter of 1995, the Company recorded an estimated loss on
the planned sale of its paper converting subsidiary, Star Forms
Incorporated (formerly known as Bowater Communications Papers Incorporated)
totaling $30.0 million. On August 26, 1996, the Company signed a definitive
agreement to sell the business to CST Office Products, Inc. for $80
million, including $60 million in cash and $20 million in subordinated
notes. This transaction was completed on November 8, 1996.
(11) For the quarter and nine months ended September 30, 1995, the line entitled
"Other, net" in the Consolidated Statement of Operations includes a
settlement of a disputed charge of $7.1 million with an equipment vendor.
(12) The effective tax rate for the third quarter of 1996 was 37.0 percent
versus 46.2 percent for the third quarter of 1995. On a year-to-date basis,
the effective rate was 37.0 percent for 1996 and 40.7 percent for 1995. The
higher tax rates in 1995 were due to the recognition of an anticipated loss
on the planned sale of Star Forms Incorporated with no related tax
benefits.
(13) The calculation of earnings per share for the third quarter and nine months
ended September 30, 1996, includes a deduction of $1.2 million and $3.6
million, respectively, for the dividend requirements of the Company's LIBOR
and Series C preferred stock and the amortization of the difference between
the net proceeds from the LIBOR preferred stock and its mandatory
redemption value. For the third quarter and nine months ended September 30,
1995, the calculation of earnings per share included a deduction of $2.8
million and $8.5 million, respectively, for the same items.
(8)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Summary
Earnings for the third quarter of 1996 totaled $28.3 million, or $.64 per
fully diluted share, before an extraordinary charge of $1.6 million, or $.04 per
fully diluted share, for premium and expenses related to the repurchase of $22.2
million of the Company's outstanding $272.2 million 9% debentures due 2009. This
compares to earnings of $58.1 million, or $1.25 per fully diluted share, before
an extraordinary charge of $5.2 million, or $.12 per share, for the same period
last year. Net sales for the third quarter of 1996 totaled $423.2 million,
compared to $520.9 million for the third quarter of 1995.
For the first nine months of 1996, the Company's net income was $182.0
million, or $4.11 per fully diluted share, on net sales of $1.35 billion. In
addition to second and third quarter extraordinary charges, the 1996 nine month
results also include a gain on the sale of timberlands of $38.3 million after
tax, or $.88 per fully diluted share. Net income for the first nine months of
1995 was $151.7 million, or $3.31 per fully diluted share, on net sales of $1.46
billion.
Product Line Information:
(Unaudited, $ in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Net sales:
Newsprint $201,413 $219,154 $662,285 $584,840
Directory and uncoated
groundwood specialties 55,136 52,394 168,961 145,007
Coated groundwood 84,053 127,502 275,899 337,082
Pulp 46,098 66,005 114,871 186,128
Communication papers 40,393 56,576 135,656 193,326
Lumber, stumpage and
other products 29,359 26,382 78,791 90,120
Distribution costs (33,264) (27,106) (90,441) (79,282)
$423,188 $520,907 $1,346,022 $1,457,221
Operating income $59,887 $154,636 $292,947 $369,569
(9)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Third Quarter Ended September 30, 1996 versus September 30, 1995
For the third quarter of 1996, the Company's operating income of $59.9
million decreased $94.7 million compared to $154.6 million in the third quarter
of 1995. The significant drop in operating income was the result of lower
selling prices for most of the Company's major products.
The Company's newsprint average transaction price for the third quarter
of 1996 decreased 14 percent compared to the same period last year and decreased
12 percent compared to the second quarter of 1996. The Company's newsprint
tonnage shipments increased 7 percent comparing the third quarter periods.
Consumption of newsprint by commercial printers and U. S. daily newspapers began
to decline in 1995, and continued into 1996. This decline was largely a result
of lower advertising lineage and conservation measures taken to reduce newsprint
usage. Newsprint consumption by U. S. daily newspapers during the third quarter
of 1996 was approximately level with the year ago period; however, it declined
by 2 percent comparing the nine months ended September 30, 1996 to the same
period last year. This decline in consumption coupled with ample consumer and
producer inventories resulted in lower average pricing in the third quarter.
Export markets are also experiencing excessive inventories, with Asia having the
additional burden of new newsprint capacity coming on line. Weak demand and high
levels of producer inventories will continue to influence pricing in the fourth
quarter. However, inventories held by U. S. daily newspapers at the end of
September 1996 were at 39 days of supply (a more normal level), down from 46
days at September 1995, and a high of 57 days at February 1996. Future newsprint
price changes will depend on global economic conditions, publisher and mill
inventory levels, and capacity changes.
Comparing the third quarter of 1996 to both the third quarter of 1995
and the second quarter of 1996, the Company's coated groundwood paper average
transaction price decreased by 27 and 16 percent, respectively. A decline in
coated groundwood paper demand since the beginning of 1996 caused selling prices
to decline and producer inventory levels to increase. There are several reasons
for the shortfall in demand: Commercial printers and magazine and catalog
publishers continued to reduce large inventory levels from the prior year; the
level of paper purchases by catalog publishers for holiday catalog printing was
less than experienced in 1995; competition from other paper grades has
increased, and many end users have employed conservation measures to save on
paper costs. U. S. coated groundwood paper shipments for the third quarter of
1996 decreased 13 percent compared to the same quarter last year, while the
Company's shipments declined 10 percent comparing the same quarters. U. S.
coated groundwood mill inventory at the end of September 1996 totaled
approximately 300,000 short tons compared to 60,000 short tons at the end of
September 1995. At the present time, prices continue to be under pressure.
Future coated paper price changes will depend on consumption, mill inventory
levels, and capacity changes.
(10)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Third Quarter Ended September 30, 1996 versus September 30, 1995
During the third quarter of 1996, the Company's market pulp average
transaction price declined 47 percent since the third quarter of 1995. Compared
to the second quarter of 1996, the third quarter average transaction price
increased 19 percent. The decline in softwood market pulp prices, which was
first evident in late 1995, was a result of lower global paper demand and rising
producer pulp inventories. During the second quarter of this year, however, the
pulp market began to strengthen. The increased demand led major pulp producers
to announce a $60 per metric ton price increase on June 1, and a $50 per metric
ton price increase on July 1. Increased demand continued as third quarter 1996
NORSCAN (U.S., Canada, Finland, Norway, and Sweden) shipments of softwood market
pulp remained level with the same period last year, while the Company's market
pulp shipments increased 32 percent comparing the third quarter periods. During
the third quarter, several major producers of softwood market pulp announced a
$40/$50 price increase effective October 1, 1996. It is unclear at this time
whether the latest price increase will be completely implemented as inventory
levels of major pulp producers remain high. NORSCAN inventories totaled 1.2
million metric tons at the end of September 1996, compared to 790,000 metric
tons a year earlier. The ability to effect price changes in the pulp market is
dependent upon many factors including global economic conditions and producer
inventory levels.
The average transaction price of the Company's directory products
increased 19 percent comparing third quarter 1996 to the same quarter last year.
The directory market experienced strong demand during 1995 and early 1996,
similar to the newsprint market, causing prices to rise. In recent months,
however, demand has weakened. The Company's average transaction price declined
5 percent in the third quarter of 1996 compared to the second quarter of 1996.
The average transaction price for the Company's lumber products was
higher in the third quarter of 1996 versus the year ago period, increasing 27
percent. During 1995 and the early part of 1996, lumber prices were depressed
due to the decreased levels of new housing starts. During the second quarter of
1996, an increased volume of new housing starts, lower producer inventories, and
higher foreign demand helped to increase prices, trends which continued into the
third quarter.
The Communication Papers Division operating results decreased in the
third quarter of 1996 compared to the third quarter of last year. Average
transaction prices decreased 34 percent comparing these periods, offset in part
by lower raw material costs.
(11)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Nine Months Ended September 30, 1996 versus September 30, 1995
For the first nine months of 1996, the Company's operating income was
$292.9 million, compared to $369.6 million in the first nine months of 1995, a
$76.7 million decrease. This decline resulted from lower coated paper and market
pulp transaction prices, as well as lower shipments of coated paper. These
declines, however, were partially offset by higher newsprint transaction prices
and higher newsprint and market pulp shipments.
The Company's newsprint average transaction price for the first nine
months of 1996 increased 9 percent compared to the same period last year. This
increase reflects the favorable market conditions in 1995 which allowed
newsprint prices to increase in late 1995 and early 1996. However, as demand
weakened and producer inventories increased during the first nine months of
1996, prices have declined.
During the first nine months of 1996, the Company's coated groundwood
average transaction price decreased slightly compared to the same period last
year. Comparing the same periods, shipments decreased 14 percent. U. S.
shipments of coated groundwood paper decreased 19 percent during the first nine
months of 1996 compared to the year ago period. Lower demand and higher producer
inventories in 1996 have had a negative impact on prices and shipments.
The average transaction price for market pulp decreased 45 percent in
the first nine months of 1996 compared to the first nine months of 1995. Weak
demand and high producer inventories caused prices to decline in late 1995 and
the first six months of 1996. During the second quarter of 1996, however, the
market began to strengthen. Major pulp producers implemented two price increases
at mid-year, and announced a third one effective October 1. It is unclear at
this time, due to the uncertainty of market conditions, whether this increase
can be fully implemented.
The Company's average transaction price for directory paper increased
26 percent for the first nine months of 1996 compared to the prior year period.
The Company implemented a price increase in early 1996, as a result of increased
demand in 1995.
Liquidity and Capital Resources
During the first nine months of 1996, the Company's operations
generated $260.5 million of cash compared to $423.8 million of cash during the
first nine months of 1995, a decrease of $163.3 million. This decrease arose
primarily as a result of significantly higher tax payments of $150.8 million.
The Company was able to defer payment of its 1995 tax liability of $73.5 million
until this year with the balance representing estimated tax payments on its 1996
liability. Working capital needs, excluding income taxes, were lower by $43.7
million; interest income was higher by $9.3 million due to increased marketable
securities balances; and interest paid was lower by $10.1 million resulting from
debt prepayments completed in 1995. Offsetting these cash increases was lower
operating income of $76.6 million.
(12)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
Capital expenditures for the first nine months of 1996 decreased $4.8
million compared to the first nine months of 1995. The Company expects total
capital expenditures for 1996 to approximate less than $100 million and will
fund these expenditures from internal cash flow.
During the first nine months of 1996, the Company sold approximately
108,000 acres of timberlands located in Alabama, South Carolina, and Maine
resulting in proceeds of approximately $119.0 million. Currently, the Company
has no plans to transact significant timberland sales for the balance of this
year.
On January 4, 1996, the Board of Directors of Calhoun Newsprint Company
(a joint venture of which the Company owns approximately 51 percent) declared a
$60.0 million dividend. As a result, $29.4 million was paid to the minority
shareholder on January 5, 1996. This transaction accounted for the large
increase in cash dividends in the first nine months of 1996 versus the same
period last year. Also, in February 1996, the Company announced a 33 percent
increase in its quarterly common dividend from $.15 per share to $.20 per share,
effective with the April 1, 1996, dividend payment.
On February 9, 1996, the Company's Board of Directors authorized
management to repurchase up to 10 percent of the Company's outstanding common
stock within the next twelve months. During the first nine months, the Company
repurchased 2.5 million shares at a cost of $94.3 million, representing 63
percent of the total shares authorized for repurchase. The Company plans to
repurchase all of the shares authorized, subject to market conditions and
certain applicable laws.
During the first nine months of 1996, the Company repurchased $50.0
million of its $300 million 9% debentures due 2009 at a total cost of $55.4
million for payment of principal, premium and expenses related to the
transaction. During the first nine months of 1995, the Company similarly reduced
its capital by repurchasing $299 million of outstanding Notes at a total cost of
$315.6 million. At September 30, 1996, the Company's debt to capitalization
ratio was 36 percent. Depending on cash availability, its alternative uses, and
the general level of interest rates, the Company may, through various means,
repurchase additional debt.
As a result of the foregoing, the combined balance of cash, cash
equivalents, and marketable securities at September 30, 1996, was $380.2
million, an increase of $115.6 million since December 31, 1995. This compares to
an increase in those balances in the previous year period of $51.9 million,
resulting in a balance of $206.7 million at the end of September, 1995.
On November 8, 1996, the Company completed the sale of Star Forms
Incorporated to CST Office Products, Inc. for $80 million, including $60 million
in cash and $20 million in subordinated notes.
(13)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Environmental Issues
The referendum measure entitled "Initiated Bill to Promote Forest Rehabilitation
and Eliminate Clearcutting" (the "Referendum"), which qualified for the November
1996 Maine ballot, was voted on November 5, 1996, and failed to achieve a
plurality. The compromise to the referendum, the "Compact for Maine's Forests"
(the "Compact") received a plurality of the vote, approximately 47.2 percent,
which entitles it to be the subject of a yes or no vote on a future ballot.
Regardless of its passing, management believes the Compact, in its current form,
will not have a material adverse effect on the Company's financial condition or
results of operations.
(14)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. Description
10.1 Bowater Incorporated Equity Participation Rights Plan,
effective as of January 17, 1996.
10.1.1 First Amendment to the Bowater Incorporated Equity
Participation Rights Plan, effective as of March 1, 1996.
10.2 Bowater Incorporated Long Term Cash Incentive Deferred
Compensation Plan, effective as of September 16, 1996.
27.1 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
None.
(15)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
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 D. G. Maffucci
D. G. Maffucci
Senior Vice President -
Chief Financial Officer
By M. F. Nocito
M. F. Nocito
Vice President - Controller
Dated: November 13, 1996
(16)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.1 Bowater Incorporated Equity Participation Rights Plan, effective as of
January 17, 1996.
10.1.1 First Amendment to the Bowater Incorporated Equity Participation Rights
Plan, effective as of March 1, 1996.
10.2 Bowater Incorporated Long Term Cash Incentive Deferred Compensation
Plan, effective as of September 16, 1996.
27.1 Financial Data Schedule (electronic filing only).
</TABLE>
BOWATER INCORPORATED
EQUITY PARTICIPATION RIGHTS PLAN
<PAGE>
BOWATER INCORPORATED
EQUITY PARTICIPATION RIGHTS PLAN
1. PURPOSES.
The purposes of the Bowater Incorporated Equity Participation Rights
Plan (the "Plan") are to promote the interests of Bowater Incorporated (the
"Corporation") and its stockholders by attracting, retaining and stimulating the
performance of selected employees, giving such employees the opportunity to earn
additional compensation related to the success of the Corporation's business and
an increased personal interest in its continued success and progress.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms
have the meanings set forth below.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Human Resources and Compensation Committee of
the Board.
<PAGE>
- 2 -
A majority of the members of the Committee shall constitute a quorum.
All determinations of the Committee shall be made by a majority of its
members. Any decision or determination of the Committee reduced to
writing and signed by all of the members of the Committee shall be
fully as effective as if it had been made at a meeting duly called and
held.
"Common Stock" means the common stock of Bowater Incorporated, $1 par
value.
"Disability", as applied to a Grantee, shall have the meaning set forth
in Section 22(e)(3) of the Code.
"Equity Participation Right" means a contractual right to receive a
cash payment determined with reference to the increase in Fair Market
Value of a share of Common Stock subject to the terms and conditions
thereof.
"Fair Market Value" of a share of Common Stock on any particular date
is (1) the simple arithmetic mean between the highest and lowest prices
per share at which the Common Stock is traded on the New York Stock
Exchange Composite Transactions as reported in the Wall Street Journal
for that date or, if not so traded, (2) the simple arithmetic mean
between the closing bid-and-asked prices thereof as reported on such
Exchange on that date; provided, however, that the Committee may, if it
deems appropriate in view of stock market conditions, include in an
agreement evidencing an
<PAGE>
- 3 -
Equity Participation Right a value provision based upon the "Average
Fair Market Value" of a share of Common Stock on any particular date.
Such "Average Fair Market Value" is the average of the Fair Market
Values specified in clause (1) or (2) for the twenty business days
immediately preceding such date.
"Grant Date" means the date on which an Equity Participation Right is
granted by the Committee pursuant to the Plan.
"Grantee" means the individual to whom an Equity Participation Right is
granted pursuant to the Plan.
"Plan" means the Bowater Incorporated Equity Participation Rights Plan
as set forth herein and as amended from time to time.
"Retirement", as applies to an employee, shall have the meaning
provided under the qualified pension plan applicable to such employee.
"The 1934 Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
- 4 -
3. ADMINISTRATION.
(a) The Committee shall have all the powers vested in it by the terms
of the Plan, including exclusive authority (within the limitations described
herein) to select the employees to be granted Equity Participation Rights under
the Plan, to determine the type, size and terms of awards to be made to each
employee selected, to determine the time when Equity Participation Rights will
be granted to employees, to establish objectives and conditions, if any, for
earning such awards. The Committee shall have full power and authority to
administer and interpret the Plan and to adopt such rules, regulations,
agreements, guidelines and instruments for the administration of the Plan and
for the conduct of its business as the Committee deems necessary or advisable.
The Committee's interpretation of the Plan and all actions taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all parties concerned, including
the Corporation, its stockholders, any Grantees and any other employee of the
Corporation or any of its subsidiaries.
(b) Equity Participation Rights shall be evidenced by written
agreements which shall contain such terms and conditions consistent with the
Plan as may be determined by the Committee.
(c) All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and conclusive.
<PAGE>
- 5 -
4. ELIGIBILITY AND PARTICIPATION.
The participants in the Plan shall consist of selected employees of the
Corporation or its present or future parent or subsidiaries, as defined in
Section 424 of the Code, who serve in executive, administrative or professional
capacities, as may from time to time be so designated by the Committee; provided
that no person who is an officer of the Corporation within the contemplation of
Section 16 of the Securities Exchange Act of 1934 shall be a participant in the
Plan.
5. EFFECTIVE DATE OF THE PLAN AND TERM OF EXERCISE PERIOD.
The Plan shall become effective upon its adoption by the Committee.
Subject to the provisions of Articles 11 and 13 hereof, the period during which
an Equity Participation Right granted under the Plan may be exercised shall be
the period, expiring not later than the tenth anniversary of the Grant Date of
the award, as may be determined by the Committee.
6. AWARDS.
(a) Types. Awards under the Plan shall consist of Equity Participation
Rights.
(b) Performance Goals. The Committee may, but need not, establish
performance goals to be achieved within such performance periods as may be
selected by it in its sole discretion, using such measures of the performance of
the Corporation and/or its subsidiaries as it may select.
(c) Guidelines. From time to time, the Committee may adopt written
policies implementing the Plan. Such policies may include, but need not be
limited to, the type, size
<PAGE>
- 6 -
and terms of awards to be made to employees and the conditions for payment of
such awards. Grantees of Equity Participation Rights must accept such awards by
execution of a written agreement with the Corporation in such form as the
Committee determines not more than sixty (60) days following the Grant Date or
such rights shall expire.
(d) Maximum Awards. A Grantee may be granted multiple awards under the
Plan.
7. EQUITY PARTICIPATION RIGHTS.
(a) An Equity Participation Right shall not be exercisable after the
expiration of the exercise period set forth in its related Equity Participation
Right Agreement. The Committee may provide in such Agreement for the lapse of
the Equity Participation Right prior to expiration of the exercise period, upon
the occurrence of any event specified by the Committee.
(b) The Common Stock price referenced in an Equity Participation Right
granted under the Plan shall not be less than fifty percent of the Fair Market
Value (including the permitted use of the "Average Fair Market Value") per share
of Common Stock on the Grant Date.
(c) Upon exercise of an Equity Participation Right, the Grantee shall
be entitled to receive, subject to the provisions of the Plan and such rules and
regulations as may be established by the Committee (including the permitted use
of the "Average Fair Market Value"), a cash payment equal to the product of (A)
the excess of (i) the Fair Market Value of one share of Common Stock at the time
of such exercise over (ii) the price per share specified in the related Equity
Participation Rights Agreement, times (B) the number of shares specified
<PAGE>
- 7 -
in such Equity Participation Rights Agreement or the portion thereof being
exercised. An Equity Participation Right held by a Grantee shall not be
exercisable during the first six months from the Grant Date of the Equity
Participation Right.
8. EXERCISES.
(a) Each Equity Participation Right granted shall be exercisable in
whole or in part at any time, or from time to time, during the period as the
Committee may determine and specify in the agreement pursuant to which such
Equity Participation Right is granted, provided that the election to exercise an
Equity Participation Right shall be made in accordance with applicable Federal
laws and regulations.
(b) No right may at any time be exercised with respect to a fractional
share or exercised in part with respect to fewer than one hundred shares.
9. WITHHOLDING TAXES FOR AWARDS.
The Corporation shall withhold from amounts otherwise payable hereunder
the amount, if any, required to be withheld under applicable Federal and State
income tax laws.
10. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as hereinafter defined)
all Equity Participation Rights shall become immediately exercisable in full for
cash at the Acceleration Price, which shall be paid by the Corporation within a
period of thirty days following a Change in Control.
<PAGE>
- 8 -
(b) The "Acceleration Price" is the excess over the exercise price, of
the highest of the following on the date of a Change in Control:
(i) the highest reported sales price of the Common Stock
within the sixty days preceding the date of the
Change in Control, as reported on any securities
exchange upon which the Common Stock is listed,
(ii) the highest price of the Common Stock reported in a
Schedule 13D or an amendment thereto as paid within
the sixty days preceding the date of the Change in
Control,
(iii) the highest tender offer price paid for the Common
Stock, and
(iv) any cash merger or similar price.
(c) A "Change in Control" is the occurrence of any one of the
following events:
(i) any Person (other than a Grantee, the Corporation or
any trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation (or
of any subsidiary of the Corporation)) is or becomes
an "Acquiring Person";
(ii) less than two-thirds (2/3) of the total membership of
the Board shall be Continuing Directors; or
(iii) the stockholders of the Corporation shall
approve a merger or consolidation of the
Corporation or a plan of complete
liquidation of the Corporation or an
agreement for the sale or disposition by the
Corporation of all or substantially all of
the Corporation's assets.
(d) For purposes of this Article 10:
(i) "Acquiring Person" shall mean any Person who is or
becomes a "beneficial owner" (as defined in Rule
13d-3 of the 1934 Act) of securities of the
Corporation representing twenty percent (20%) or more
of the combined voting power of the Corporation's
then outstanding
<PAGE>
- 9 -
voting securities, unless such Person has filed
Schedule 13G and all required amendments thereto
with respect to its holdings and continues to hold
such securities for investment in a manner
qualifying such Person to utilize Schedule 13G
for reporting of ownership.
(ii) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the 1934 Act as
in effect on the date hereof.
(iii) "Continuing Directors" shall mean any member of the
Board who was a member of the Board prior to the date
hereof, and any successor of a Continuing Director
while such successor is a member of the Board who is
not an Acquiring Person or an Affiliate or Associate
of an Acquiring Person or of any such Affiliate or
Associate and is recommended or elected to succeed
the Continuing Director by a majority of the
Continuing Directors.
(iv) "Person" shall mean any individual, corporation,
partnership, group, association or other "person", as
such term is used in Section 13(d) and 14(d) of the
1934 Act.
11. TRANSFER OF AWARDS.
Awards granted under the Plan may not be transferred except by will or the
laws of descent and distribution, and, during the Grantee's lifetime, may be
exercised only by said Grantee or by said Grantee's guardian or legal
representative.
<PAGE>
- 10 -
12. DEATH, DISABILITY, RETIREMENT AND TERMINATION OF EMPLOYMENT.
(a) An Equity Participation Right that has not theretofore expired,
shall terminate at the time of the death of the Grantee or of the termination
for any reason of the Grantee's employment with the Corporation, its parent
or subsidiaries, except that, subject to the condition that no Equity
Participation Right may be exercised in whole or in part after the date
determined by the Committee which date cannot be later than the tenth
anniversary of the Grant Date:
(i) Upon the termination of the employment of any such
Grantee due to Disability or Retirement, the Grantee
may, within a period of up to five years after the
date of such termination, as determined by the
Committee, exercise some or all of the Equity
Participation Right, to the extent it was exercisable
immediately prior to such termination; and
(ii) Upon the death of any such Grantee while in active
service or of any such disabled or retired Grantee
within the above-referenced period, the person or
persons to whom the rights under the Equity
Participation Right are transferred by will or the
laws of descent and distribution may, within twelve
months after the date the Grantee's death, exercise
some or all of the Equity Participation Right, to the
extent it was exercisable on the date of death by the
Grantee.
Leaves of absence for such periods and purposes conforming to the
personnel policy of the Corporation as may be approved by the Committee shall
not be deemed terminations or interruptions of employment.
(b) In the event that a Grantee to whom an Equity Participation Right
has been granted ceases employment with the Corporation, its parent and
subsidiaries for any reason, including death, Disability or Retirement, such
Equity Participation Right shall be exercisable only to the extent and upon the
conditions provided in its related Equity Participation Rights Agreement.
<PAGE>
- 11 -
(c) The Committee may adopt rules and regulations, whether or not
inconsistent with this Article, setting forth the terms and conditions of awards
relating to the Grantee's rights in the event of termination of employment.
13. CHANGES IN COMMON STOCK.
In the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other changes in corporate
structure or capitalization affecting the Common Stock, such appropriate
adjustment shall be made in the number, kind, exercise price, etc., of shares
subject to Equity Participation Rights granted under the Plan, as may be
determined by the Committee.
14. NO RIGHT TO EMPLOYMENT.
Nothing in the Plan or any instrument executed pursuant hereto shall
confer upon any employee any right to continue in the employ of the Corporation
nor shall anything in the Plan affect the right of the Corporation to terminate
the employment of any employee, with or without cause.
15. LEGAL RESTRICTIONS.
The Corporation will not be obligated to make any payment if counsel to
the Corporation determines that such issuance or payment would violate any law
or regulation of any governmental authority or any agreement between the
Corporation and any national
<PAGE>
- 12 -
securities exchange upon which the Common Stock is listed. The Corporation shall
in no event be obliged to take any action in order to cause the exercise of
any award under the Plan.
16. NO RIGHTS AS SHAREHOLDERS.
No Grantee, and no beneficiary or other person claiming through a
Grantee, shall have any interest in any shares of Common Stock allocated for
the purposes of the Plan or subject to any award. Furthermore, the existence
of awards under the Plan shall not affect: the right or power of the
Corporation or its stockholders to make adjustments, recapitalizations,
reorganizations or other changes in the Corporation's capital structure; the
dissolution or liquidation of the Corporation, or the sale or transfer of any
part of its assets or business; or any other corporate act, whether of a
similar character or otherwise. No shares of Common Stock may be delivered or
purchased under the Plan.
17. CHOICE OF LAW.
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations or decisions made thereunder, and the rights
of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with the laws of the
State of Delaware.
<PAGE>
- 13 -
18. AMENDMENT AND DISCONTINUANCE.
The Committee may alter, suspend, or discontinue the Plan, but may not,
materially and adversely affect any outstanding award without the consent of the
holder thereof.
IN WITNESS WHEREOF, this Plan has been executed on behalf of the
Corporation by its duly authorized officers this 23rd day of January, 1996.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
Name: Richard F. Frisch
Title: Vice President - Human Resources
FIRST AMENDMENT TO THE
BOWATER INCORPORATED
EQUITY PARTICIPATION RIGHTS PLAN
WHEREAS, Bowater Incorporated adopted the Bowater Incorporated Equity
Participation Rights Plan (the "Plan"), effective January 17, 1996; and
WHEREAS, under Article 18 of the Plan, the Human Resources and
Compensation Committee of the Board of Directors of the Company (the
"Committee") may amend the Plan, and the Committee has authorized an amendment
to the Plan to expand the classes of employees eligible to receive grants
thereunder;
NOW, THEREFORE, effective March 1, 1996, Article 4 of the Plan is
amended to read as follows:
"4. ELIGIBILITY AND PARTICIPATION.
The participants in the Plan shall consist of selected employees of the
Corporation or its present or future parents or subsidiaries, as defined in
section 424 of the Code, who serve in executive, administrative or professional
capacities, as may from time to time be so designated by the Committee."
IN WITNESS WHEREOF, this First Amendment has been executed on behalf of
the Corporation by its duly authorized officer this 26 day of April, 1996.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
Richard F. Frisch
Its: Vice President Human Resources
1
BOWATER INCORPORATED
LONG TERM CASH INCENTIVE
DEFERRED COMPENSATION PLAN
Effective September 16, 1996
<PAGE>
BOWATER INCORPORATED
LONG TERM CASH INCENTIVE
DEFERRED COMPENSATION PLAN
This deferred compensation plan is adopted to provide certain employees
with an opportunity to elect to defer a portion of their compensation otherwise
payable by Bowater Incorporated under the terms of the Bowater Incorporated Long
Term Cash Incentive Plan or such other plans as may be designated in the future
by the Plan Administrator.
NOW, THEREFORE, BOWATER INCORPORATED HEREBY ADOPTS THE BOWATER
INCORPORATED LONG TERM CASH INCENTIVE DEFERRED COMPENSATION PLAN, EFFECTIVE
SEPTEMBER 16, 1996, TO READ AS FOLLOWS:
1. DEFINITIONS.
(a) "Account" shall mean a Participant's interest under the Plan.
(b) "Active Employee" shall mean an employee of an Employer other than
one who is on leave of absence, is receiving severance pay, or whose services
for all Employers is interrupted because of a Disability.
(c) "Bowater" shall mean Bowater Incorporated, a Delaware corporation,
and any successor by merger or acquisition.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Disability" shall mean total and permanent disability as defined
under the long term disability plan sponsored by Bowater for the benefit of the
affected employee, or, in the absence of such a plan, an illness or injury that,
in the opinion of the Plan Administrator, will substantially and indefinitely
interfere with a Participant's performance of his or her duties for an Employer.
(f) "Eligible Employee" shall mean any Active Employee who is currently
designated by the Plan Administrator as eligible to participate in the Plan.
(g) "Employer" shall mean Bowater and any other Related Employer.
(h) "Incentive Payment" shall mean an award amount which becomes
payable to a Participant under an Incentive Plan.
(i) "Incentive Plan" shall mean the Bowater Incorporated Long Term Cash
Incentive Plan and such other compensation or benefit plans as may be designated
by the Plan Administrator.
<PAGE>
- 2 -
(j) "Insolvency" shall mean with regard to Bowater:
(i) Bowater's inability to pay its debts as they become due,
or
(ii) Bowater's being subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
(k) "Notice" shall mean a written election by a Participant to defer
Incentive Payments under the Plan in the form prescribed by Bowater.
(l) "Participant" shall mean an Eligible Employee who has made the
election described in Paragraph 2 of the Plan. Any such Eligible Employee shall
remain a Participant until no election to defer Incentive Payments under the
Plan remains effective for him or her and all amounts contributed to the Plan
for him or her have been distributed.
(m) "Plan" shall mean the Bowater Incorporated Long Term Cash Incentive
Deferred Compensation Plan, as set forth herein.
(n) "Plan Administrator" shall mean the Vice President-Human Resources
of Bowater, or such other person or entity designated by the Chief Executive
Officer.
(o) "Plan Year" shall mean each January 1 through December 31 from and
after the effective date of the Plan.
(p) "Rate of Interest" shall mean the rate of return computed on a
monthly basis earned by the Fixed Income Fund offered as an investment option
under the Bowater Incorporated Salaried Employees' Savings Plan.
(q) "Related Employer" shall mean any company that is related to
Bowater as described in Section 414(b), (c), (m) or (o) of the Code, or any
other company determined by the Plan Administrator to be related by ownership or
otherwise to an extent justifying the participation of its Eligible Employees
hereunder.
(r) "Unforeseeable Emergency" shall mean a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident of
the Participant or of a dependent (as defined in Section 152(a) of the Code) of
the Participant, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that will
constitute an unforeseeable emergency will depend upon the facts of each case,
but, in any case, payment may not be made to the extent that such hardship is or
may be relieved:
(i) through reimbursement or compensation by insurance or otherwise;
<PAGE>
- 3 -
(ii) by liquidation of the Participant's assets, to the extent
the liquidation of such assets would not itself cause severe financial
hardship; or
(iii) by cessation of deferrals under the Plan.
For purposes of the Plan, an "Unforeseeable Emergency" shall not
include a Participant's need to send his or her child to college or a
Participant's desire to purchase a home.
2. EMPLOYEE CONTRIBUTIONS.
(a) An Eligible Employee who is a participant in the Incentive Plan may
elect to defer a whole percentage (up to a maximum of 100%) of an Incentive
Payment otherwise payable to him or her under the Incentive Plan, less any
applicable taxes or other amounts that are required to be withheld thereon. A
deferral election hereunder shall be made by filing a Notice with the Plan
Administrator no later than (i) except as provided in clause (ii), at least one
full Plan Year before the Incentive Payment would otherwise be payable; or (ii)
in the first Plan Year, by October 15, 1996.
(b) Each Notice shall be effective only for the Incentive Payment for
which it is filed.
(c) An Account shall be established on behalf of each Participant for
contributions made pursuant to subparagraph (a) above. The Account shall be a
bookkeeping record credited with contributions and earnings and charged for
distributions and shall not require a segregation of any assets of Bowater. Each
Participant shall be an unsecured general creditor of Bowater with respect to
his or her Account and shall have no right or claim to any specific asset of
Bowater.
(d) Contributions will be credited to each Participant's Account as of
the date an Incentive Payment becomes distributable from an Incentive Plan.
(e) A Participant shall always have a fully vested interest in the
adjusted balance of his or her Account.
3. EARNINGS; MAINTENANCE OF ACCOUNTS.
(a) Each Participant's Account shall be credited as of the last
business day of each month with earnings at the Rate of Interest on the average
balance of the Account for the month.
(b) A Participant's Account may not be encumbered or assigned by a
Participant or any beneficiary and any attempt to encumber or assign any Account
under the Plan shall be null and void. No interest of any person or entity in
the Plan, nor any right to receive a benefit hereunder,
<PAGE>
- 4 -
shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor may
such interest or right to receive a benefit be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
4. DISTRIBUTIONS.
(a) Distribution of a Participant's Account shall be made (in the case
of a lump sum distribution) or commenced (in the case of a distribution made in
installments) as of the first to occur of (i) the date selected by the
Participant as described in subparagraph (c) below: or (ii) the last day of the
first calendar month that is at least thirty (30) days after the date that the
Participant's employment with all Employers terminates.
(b) A distribution under the Plan will be made in a lump sum as soon as
practicable after the date described in subparagraph (a) above, unless the
Participant has elected to receive distribution of his Account in five (5)
substantially equal (as determined by the Plan Administrator) annual
installments, by specifying such distribution form on the first Notice filed by
him or her pursuant to the Plan. Upon the approval of the Plan Administrator, a
Participant who has elected distribution in installments may amend the election
to elect distribution in a lump sum or a Participant who has not previously
elected distribution in installments may make such an election, provided that
such later election is made before January 1 of the Plan Year immediately
preceding the date as of which the Participant's distribution is made or
commenced.
All distributions under the Plan shall be made in cash.
(c) A Participant may select a distribution date for his or her
Account, by specifying such distribution date on the first Notice filed by him
or her pursuant to the Plan. Upon the approval of the Plan Administrator, a
Participant who has elected a distribution date may amend the election to elect
a different distribution date, provided that such subsequent election is made
before January 1 of the Plan Year immediately preceding the distribution date
previously elected. Notwithstanding any provision herein to the contrary, upon
the termination of a Participant's employment with all Employers for any reason
other than retirement, the Participant's Account (or the remainder thereof)
shall be distributed in a lump sum. For purposes of this section, "retirement"
shall occur if, when the participant terminates employment with all Employers,
he or she is then eligible for immediate payment of a benefit under the defined
benefit retirement plan sponsored by his or her Employer.
(d) Notwithstanding any provision of the Plan to the contrary, if a
Participant incurs an Unforeseeable Emergency, he or she may elect to make a
withdrawal from his or her Account, but only to the extent reasonably needed to
satisfy the Emergency need. A Participant who wishes to receive a distribution
pursuant to this subparagraph (d) shall apply for such distribution on forms
prescribed by the Plan Administrator and shall provide information to the Plan
Administrator reasonably necessary to permit the Plan Administrator to determine
whether an
<PAGE>
- 5 -
Unforeseeable Emergency exists and the amount of the distribution reasonably
needed to satisfy the emergency need. Distributions of less than all of a
Participant's Account will be charged first to the most recent contributions
made to his or her Account.
(e) If a Participant dies before distribution has been made under the
Plan, distribution of his or her Account shall be made, in a lump sum, to the
beneficiary or beneficiaries designated in the Participant's Notice or on other
forms prescribed by Bowater as soon as reasonably practicable. If no beneficiary
designation has been made, then such distribution shall be made in a lump sum to
the Participant's estate.
(f) At the option of the Plan Administrator, a Participant may elect to
have all or part of the earnings under the Plan distributed to him or her
currently, on such forms and subject to such conditions and restrictions as are
established by the Plan Administrator.
5. CHANGE IN CONTROL . Notwithstanding any provision of the Plan to the
contrary, if a Change in Control of Bowater occurs, all Participants' Accounts
shall be distributed immediately. For this purpose:
(a) "Acquiring Person" shall mean any Person who is or becomes a
"beneficial owner" (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of securities of Bowater representing
twenty percent (20%) or more of combined voting power of Bowater's then
outstanding voting securities, unless such Person has filed Schedule 13G and all
required amendments thereto with respect to its holdings and continues to hold
such securities for investment in a manner qualifying such Person to utilize
Schedule 13G for reporting of ownership.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date hereof.
(c) "Board" shall mean the Board of Directors of Bowater.
(d) "Change in Control" of Bowater shall be deemed to have occurred if:
(i) any Person is or becomes an Acquiring Person;
(ii) less than two-thirds (2/3) of the total membership of the
Board shall be
Continuing Directors; or
(iii) the shareholders of Bowater shall approve a merger or
consolidation of Bowater or a plan of complete liquidation of Bowater
or an agreement for the sale or disposition by Bowater of all or
substantially all of Bowater's assets.
<PAGE>
- 6 -
(e) "Continuing Directors" shall mean any member of the Board who was a
member of the Board prior to the date hereof, and any successor of a Continuing
Director while such successor is a member of the Board, who is not an Acquiring
Person or an Affiliate or Associate of an Acquiring Person or of any such
Affiliate or Associate and is recommended or elected to succeed the Continuing
Director by a majority of the Continuing Directors.
(f) "Person" shall mean any individual, corporation, partnership,
group, association or other "person" as such term is used in Section 13(d) and
14(d) of the Exchange Act.
6. NOTICES IRREVOCABLE. Except to the extent specifically provided for
in Sections 2 and 4, any election to defer Incentive Payments made by a
Participant under the Incentive Plan in a Plan Year shall be irrevocable.
Notwithstanding the foregoing, if a Participant incurs an Unforeseeable
Emergency, he or she may elect to amend or revoke his or her Notice (but only to
the extent reasonably needed to relieve the Unforeseeable Emergency) by filing
such forms as are prescribed by the Plan Administrator.
7. ADMINISTRATION. The Plan shall be administered by the Plan
Administrator, who shall have all powers necessary to carry out the provisions
of the Plan. The Plan Administrator shall have the sole, final and discretionary
authority to interpret the Plan, and his or her determinations including those
regarding the eligibility, status, and rights of Eligible Employees and
Participants, and factual determinations of the Plan Administrator shall be
conclusive and binding on all persons; provided that if the Plan Administrator
is a Participant, then determinations regarding such Participant's benefits
under the Plan shall be made by the Board or its designee.
8. ARBITRATION. At the election of Bowater, disputes under the Plan
shall be submitted to binding arbitration, conducted in the principal offices of
Bowater, in accordance with the rules of the American Arbitration Association.
Each party to such arbitration shall bear its own costs provided that any
unallocated costs shall be borne equally by the parties.
9. AMENDMENTS TO THE PLAN. The Plan Administrator may amend the Plan at
any time, without the consent of Participants or their beneficiaries, provided,
however, that no amendment shall divest any Participant or beneficiary of the
credits to his or her Accounts, or of any rights to which he or she would have
been entitled if the Plan had been terminated immediately prior to the effective
date of such amendment.
10. TERMINATION OF THE PLAN. The Plan Administrator may terminate the
Plan at any time. Upon termination of the Plan, distribution of Participants'
Accounts shall be made in the
<PAGE>
- 7 -
manner and at the time heretofore prescribed; provided that no additional
amounts shall be credited to the Accounts of a Participant following termination
of the Plan other than pursuant to subparagraph 3(a).
11. EXPENSES. Costs of administration of the Plan will be paid by
Bowater.
12. NOTICES. Any notice or election required or permitted to be given
to the Plan Administrator hereunder shall be in writing and shall be deemed to
be filed (a) on the date it is personally delivered to the Plan Administrator,
or (b) three (3) business days after it is sent by registered or certified mail
addressed to the Plan Administrator at the principal offices of Bowater.
13. NO GUARANTEE OF EMPLOYMENT. Nothing in the Plan shall constitute a
contract or guarantee of employment or impede or otherwise affect the right of
Bowater to terminate the employment of any Participant or Eligible Employee.
14. GOVERNING LAW. Except to the extent preempted by Federal law, the
Plan, Notices, and matters related thereto, shall be construed under and
governed by the laws of the State of Delaware.
15. INCAPACITY. If any person entitled to a payment under the Plan is
deemed by the Plan Administrator to be incapable of personally receiving and
giving a valid receipt for such payment, then, unless and until claim therefor
shall have been made by a duly appointed guardian or other legal representative
of such person, Bowater may provide for such payment or any part thereof to be
made to any other person or institution then contributing toward or providing
for the care and maintenance of such person. Any such payment shall be a payment
for the account of such person and a complete discharge of any liability of the
Company, all Employers, the Plan Administrator, and the Plan therefor.
16. LIABILITY LIMITED. Notwithstanding any of the preceding provisions
of the Plan, neither any Employer, the Plan Administrator, nor any individual
acting as an employee or agent of any Employer or the Plan Administrator shall
be liable to any Participant, former Participant, beneficiary or any other
person for any claim, loss, liability, or expense incurred in connection with
the Plan.
17. CLAIMS PROCEDURE.
<PAGE>
- 8 -
(a) Any person claiming a benefit, requesting an interpretation or
ruling under the Plan, or requesting information under the Plan shall present
the request in writing to the Plan Administrator, who shall respond in writing
within sixty (60) days.
(b) If the claim or request is denied, the written notice of denial
shall state:
(i) The reason for denial, with specific reference to the Plan
provision on which the denial is based.
(ii) A description of any additional material or information
required and an explanation of why it is necessary.
(iii) An explanation of the Plan's claim review procedure.
(c) Any person whose claim or request is denied or who has not received
a response within thirty (30) days may request review by notice given in writing
to the Plan Administrator. The claim or request shall be reviewed by the Plan
Administrator who may, but shall not be required to, grant the claimant a
hearing. On review, the claimant may have representation, examine pertinent
documents, and submit issues and comments in writing.
(d) The decision on review shall normally be made within sixty (60)
days. If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be one
hundred twenty (120) days. The decision shall be in writing and shall state the
reason and the relevant Plan provisions. All decisions on review shall be final
and binding on all parties concerned.
IN WITNESS WHEREOF, Bowater has caused this document to be executed by
its duly authorized officer as of the 16th day of September, 1996.
BOWATER INCORPORATED
By /s/ Richard F. Frisch
Richard F. Frisch
Its Vice President-Human Resources
Date signed: 9/16/96
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49,715 49,715
136,798 136,798
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<CGS> 296,270 853,708
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<INCOME-PRETAX> 49,214 334,801
<INCOME-TAX> 18,209 123,877
<INCOME-CONTINUING> 28,267 185,515
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