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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 1-8712
Bowater Incorporated
(Exact name of registrant as specified in its charter)
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DELAWARE 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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55 EAST CAMPERDOWN WAY
P. O. BOX 1028
GREENVILLE, SOUTH CAROLINA 29602
(Address of principal executive offices)
(864) 271-7733
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock, par value $1 per share New York Stock Exchange, Inc.
Pacific Exchange, Inc.
The London Stock Exchange
The Swiss Stock Exchanges
Depositary Shares, each representing one-fourth New York Stock Exchange, Inc.
of a share of 8.40% Series C Cumulative
Preferred Stock, par value $1 per share
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 23, 1998, was $2,237,473,722.
As of March 23, 1998, there were 40,473,842 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
parts of this report indicated below:
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Annual Report to Shareholders for the year ended December 31, 1997. Parts I, II and IV
Proxy Statement with respect to the Annual Meeting of Shareholders to Part III
be held on May 20, 1998.
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PART I
Item 1. Business
General
Bowater Incorporated (together with its consolidated subsidiaries, the
"Company") is engaged in the manufacture, sale and distribution of newsprint,
directory paper, uncoated groundwood specialties, coated groundwood paper,
market pulp and lumber. The Company operates facilities in both the United
States and Canada, and, as of December 31, 1997, managed and controlled
approximately 3.5 million acres of timberlands to support these facilities. The
Company markets and distributes its various products in North and South America
and overseas.
The Company was incorporated in Delaware in 1964. The Company's principal
executive offices are located at 55 East Camperdown Way, Greenville, South
Carolina 29601, and its telephone number at that address is (864) 271-7733.
All three of the Company's divisions have been classified within a single
business segment, Pulp, Paper and Related Products. Information regarding net
export sales is incorporated herein by reference to page 38 of the Company's
1997 Annual Report (the "Annual Report"). Information regarding the amount of
total revenue contributed by each of the Company's product lines is incorporated
herein by reference to pages 40-41 of the Annual Report. Information regarding
the Company's fixed assets is incorporated herein by reference to page 32 of the
Annual Report.
Information regarding the Company's liquidity and capital resources is
incorporated herein by reference to pages 21-25 of the Annual Report.
Information regarding the sales of real property and subsidiaries is
incorporated herein by reference to page 31 of the Annual Report.
Information regarding the Company's agreement to acquire the outstanding
shares of Avenor Inc. common stock is incorporated herein by reference to pages
21-22 and page 31 of the Annual Report.
Operating Divisions
The Company operates through three divisions: the Newsprint and Directory
Division, the Coated Paper and Pulp Division and the Forest Products Division.
In 1997, the Company consolidated its directory paper business into the former
Newsprint Division, replacing the Great Northern Paper Division. In addition,
the Company reorganized its United States and Canadian forest and wood products
operations into a new division called the Forest Products Division.
The Newsprint and Directory Division consists of four manufacturing
facilities: the Calhoun Operations and Calhoun Newsprint Company ("CNC") (which
is owned approximately 51 percent by the Company and approximately 49 percent by
Herald Company, Inc.) located in Calhoun, Tennessee; Bowater Mersey Paper
Company Limited ("Mersey Operations") (which is owned 51 percent by the Company
and 49 percent by The Washington Post Company) located in Liverpool, Nova
Scotia; Great Northern Paper, Inc. ("GNP"), East Operations located in East
Millinocket, Maine; and GNP, Millinocket Operations located in Millinocket,
Maine. This division is also supported by four domestic sales offices, which are
responsible for marketing all of the Company's domestic newsprint, directory
paper and some uncoated groundwood specialties. Bowater Asia Pte Ltd (formerly
Paper Traders International Pte Ltd), a wholly-owned subsidiary located in
Singapore, is responsible for the Company's newsprint sales in Asia and Pacific
Rim countries.
The Coated Paper and Pulp Division consists of the Catawba Operations
located in Catawba, South Carolina, and three sales offices. This division is
responsible for selling all of the Company's coated groundwood paper, as well as
all of the Company's market pulp and some uncoated groundwood specialties.
The Forest Products Division consists of three manufacturing facilities:
Bowater Lumber Company located in Albertville, Alabama; Bowater Mersey Paper
Company Limited Oakhill Sawmill (which is owned 51 percent by the Company and 49
percent by The Washington Post Company) located in Bridgewater, Nova Scotia; and
Pinkham Lumber Company located in Ashland, Maine. This division is supported by
four business offices and is responsible for managing the Company's timberlands
and selling all of the Company's timber, softwood lumber and non-strategic
timberlands.
Additional descriptive information regarding the Company's divisions is
incorporated herein by reference to pages 6-7 of the Annual Report.
1
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Newsprint, Directory Paper and Uncoated Groundwood Specialties
The Company is the largest manufacturer of newsprint and directory paper in
the United States. Including its Mersey Operations, the Company's annual
production capacity of newsprint, directory paper and uncoated groundwood
specialties is approximately 8 percent of the North American capacity total and
approximately 4 percent of the worldwide capacity total. Its market share in the
United States is 9 percent. These amounts were generated internally using data
from Paper Trader, a monthly publication by Resource Information Systems, Inc.
The Calhoun Operations, located on the Hiwassee River in Tennessee, is one
of the largest and most productive newsprint mills in North America. At this
facility, the Company operates four paper machines, which produced 594,000 tons
of newsprint and uncoated groundwood specialties in 1997. Also located at this
facility is CNC's paper machine, which produced 239,000 tons of newsprint in
1997. Although the Company manages and operates the entire facility, CNC also
owns 68.4 percent of the thermomechanical pulp ("TMP") mill and 100 percent of
the recycled fiber plant at the facility. The Company owns the remaining 31.6
percent of the TMP mill and 100 percent of the other assets at this location.
These other assets include kraft and stone groundwood pulp mills and other
support equipment necessary to produce the finished product. The Company is
currently in the process of expanding the TMP mill at this location.
The Mersey Operations, located on an ice-free port providing economical
access to ports along the eastern seaboard of the United States and throughout
the world, has two paper machines. Built in 1929, they were rebuilt between 1983
and 1985 and produced 263,000 tons of newsprint in 1997. This facility also
operates a TMP mill, a wastewater treatment facility and other support equipment
required to produce the finished product.
Newsprint, directory paper and uncoated groundwood specialties are also
produced at three other Company locations. The newsprint machine at the Catawba
Operations, located on the Catawba River in South Carolina, produced 248,000
tons in 1997 and is one of the largest and most productive newsprint machines in
the industry. The Company's East Millinocket Operations, located on the West
Branch of the Penobscot River in northern Maine, has two paper machines that
were built in 1954 and rebuilt in 1986. These two machines produced a total of
296,000 tons of newsprint, directory paper and uncoated groundwood specialties
in 1997. This facility also operates a groundwood pulp mill, a recycled fiber
plant and other support equipment required to produce the finished product.
Beginning in 1999, the Company plans to modernize this facility over a two-year
period at an estimated cost of $220 million. The Company's Millinocket
Operations, located eight miles from the East Millinocket Operations, has four
paper machines that produced 128,000 tons of directory paper and uncoated
groundwood specialties in 1997. These paper grades are used in directories,
catalogs, newspaper advertising inserts and magazines, and are sold primarily to
customers east of the Mississippi River. The Company is seeking a buyer for this
facility as it no longer meets the Company's long-term objectives.
Domestic newsprint, directory paper and uncoated groundwood specialty paper
sales are made directly by the Company through its regional sales offices
located near major metropolitan areas in the eastern half of the United States.
Sales to Asia and Pacific Rim countries are made through Bowater Asia Pte Ltd,
while the balance of export sales is made primarily through international sales
agents local to their markets. CNC's minority shareholder and its affiliates
purchase the equivalent of all of CNC's annual output, and The Washington Post
Company purchases approximately 70,000 tons of newsprint annually. Combined,
these two customers in 1997 accounted for approximately 9 percent of the
Company's consolidated net sales and approximately 20 percent of the Company's
newsprint net sales. The Company distributes newsprint, directory paper and
uncoated groundwood specialties by rail, truck, ship and barge.
Coated Groundwood Paper
The Company is one of the largest producers of coated groundwood paper in
the United States and North America with approximately 11 percent and 9 percent
of the United States and North American capacity, respectively. These amounts
were generated internally using data from the American Forest and Paper
Association and Pulp & Paper Magazine. Coated groundwood paper produced by the
Company is primarily light weight coated paper and is used in magazines,
catalogs, advertising pieces, textbooks, direct mail pieces and coupons.
The Company manufactures a variety of coated grades on two paper machines
at the Catawba Operations and on three of the four paper machines at the
Millinocket Operations. Both machines at the Catawba Operations utilize
off-machine blade coaters. At the Millinocket Operations, two machines produce a
base stock that is coated on an off-machine blade coater while the third machine
has an on-machine roll coater. In 1997, the two coated machines at the Catawba
Operations produced 349,000 tons of coated groundwood paper, and the three
machines at the Millinocket Operations produced 124,000 tons of coated
groundwood paper. The Catawba Operations include a kraft mill, a TMP mill and
other support equipment
2
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required to produce the finished product. The Millinocket Operations include a
sulphite mill and other support equipment required to produce the finished
product.
Coated groundwood paper is sold domestically by the Company and paper
brokers to major printers, publishers, and catalogers. It is distributed by
truck and rail from the Catawba and Millinocket facilities. These facilities are
strategically located to supply the southeastern and northeastern United States,
respectively, and jointly serve the mid-western market. Export markets are
serviced primarily through international agents.
Market Pulp
In addition to furnishing its internal pulp requirements, the Company
produced 260,000 tons of softwood market pulp at its Catawba Operations in 1997
for use by manufacturers of fine paper, tissues and other paper products. The
Calhoun Operations produced 153,000 tons of hardwood market pulp for sale to its
customers. In 1997, the Calhoun facility benefited from a pulp dryer rebuild
completed in late 1996. This enabled the Company to significantly increase
market pulp production in 1997 from the 118,000 tons of hardwood market pulp
produced by the Calhoun Operations in 1996.
In 1997, 59 percent of the Company's market pulp was sold to the export
market. Export sales are made through international sales agents local to their
markets, while domestic sales are made directly by the Company and its sales
agents. The Company distributes market pulp primarily by rail and ship.
Forest Products
In addition to market pulp and paper, the Company sells pulpwood,
sawtimber, lumber and wood chips to a variety of customers located in the
eastern United States, the United Kingdom and Canada. The Company also sells
non-strategic timberland tracts and provides its manufacturing facilities with a
portion of the wood needed for pulp, paper and lumber production.
At December 31, 1997, the Company owned or managed under lease
approximately 3.5 million acres of timberlands throughout the United States and
Canada. Approximately 2 million acres of these timberlands are located in the
state of Maine, 900,000 acres are located in the southeastern United States, and
600,000 acres are located in Nova Scotia. This timberland base supplies a
portion of the needs of the Company's paper mills and sawmills, as well as many
independently owned forest products businesses. The Company maintains one
nursery and contracts with numerous other nurseries in order to replace trees
harvested from its timberlands and from the timberlands of small private
landowners. The Company also employs harvest activities designed to promote
natural regeneration.
In 1997, the Company consumed 8 million tons of wood for pulp, paper and
lumber production. Of this amount, 2 million tons of wood were harvested from
Company-owned properties, while 6 million tons were purchased, primarily under
contract, from local wood producers, private landowners and sawmills (in the
form of residual chips) at market prices. In addition, the Company harvested 2
million tons of wood from Company-owned properties to sell to other sawmills and
paper companies.
The Company operates three sawmills that produce construction grade lumber.
Bowater Lumber Company produced 95 million board feet of lumber in 1997. This
lumber is sold in the southeastern and mid-western United States. The Bowater
Mersey Paper Company Limited Oakhill Sawmill, which produced 35 million board
feet of lumber in 1997, sells to customers in eastern Canada, the northeastern
United States, and the United Kingdom. Pinkham Lumber Company produced 71
million board feet of lumber in 1997, also selling to customers in eastern
Canada and in the northeastern United States. The Company distributes lumber by
truck and rail.
Recycling Capability
The Company has focused its efforts in recent years on meeting the demand
for recycled-content paper products, which provides an environmental benefit in
reducing solid waste landfill deposits. In addition, this effort allows
publishers and other customers to meet recycled-content standards.
The Company operates recycling plants at its Calhoun and East Millinocket
Operations. Taking a mixture of old newspapers and old magazines ("recovered
paper"), these plants utilize advanced mechanical and chemical processes to
manufacture high quality pulp. When this recycled fiber is combined with virgin
fiber, the resulting products, which include recycled-content newsprint,
directory paper, coated groundwood paper and uncoated groundwood specialties,
are comparable in quality to paper produced with 100 percent virgin fiber pulp.
In 1997, the Company processed 342,000 tons of recovered paper.
3
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Recovered paper is purchased from suppliers in the regions of the Company's
recycling plants. These suppliers collect, sort and bale the material before
selling it to the Company, primarily under long-term contracts, with prices and
quantities fluctuating according to market conditions. The Company is one of the
largest purchasers of recovered paper in North America.
Competition
In general, the Company's products are globally-traded commodities. Pricing
and the level of shipments of these products are influenced by the balance
between supply and demand as affected by global economic conditions, changes in
consumption and capacity, the level of customer and producer inventories, and
fluctuations in exchange rates.
Newsprint and market pulp, two of the Company's principal products, are
produced by numerous worldwide manufacturers. Aside from quality specifications
to meet customer needs, the production of newsprint and market pulp generally do
not depend upon a proprietary process or formula. There are approximately 20
major worldwide producers of newsprint with which the Company competes. In
addition, the Company faces actual and potential competition from numerous
smaller producers located around the world. Price, quality, service and the
ability to produce paper with recycled content are important competitive
determinants. The Company is not a major producer in the pulp market.
The Company competes with approximately 13 coated groundwood producers
located in North America. In addition, there are approximately six major
offshore suppliers of coated groundwood paper that sell into the North American
market. As a major supplier to printers in North America, the Company also
competes with numerous worldwide suppliers of other grades of paper such as
coated freesheet, supercalendered and uncoated groundwood papers. Price, quality
and service are important competitive determinants, but a degree of proprietary
knowledge is required in both the manufacture and use of this product, which
requires close customer-supplier relationships.
The Company competes with three major worldwide producers and several
smaller producers of directory paper. Price, quality and service, as well as the
ability to produce lower basis weights and recycled products, are all important
competitive determinants.
The Company is not a major producer in the uncoated groundwood specialties
or lumber markets.
As with other globally manufactured and sold commodities, the competitive
position of the Company's products is significantly affected by the volatility
of currency exchange rates. With several of the Company's primary competitors
located in Canada, Sweden and Finland, the relative rates of exchange between
those countries' currencies and the United States dollar can have a substantial
effect on the Company's ability to compete. In addition, the degree to which the
Company competes with foreign producers depends in part on the level of demand
abroad. Shipping costs generally cause producers to prefer to sell in local
markets when the demand is sufficient in those markets.
Trends in electronic data transmission and storage could adversely affect
traditional print media, including products of the Company's customers; however,
neither the timing nor the extent of those trends can be predicted with
certainty. Industry reports indicate that the Company's newspaper publishing
customers in North America have experienced some loss of market share to other
forms of media and advertising, such as direct mailings and newspaper inserts
(both of which are end uses for several of the Company's products), cable
television and the Internet. Some of these customers are also facing a decline
in newspaper readership, circulation and advertising lineage. The Company does
not believe that this is the case in most overseas markets. The Company's
magazine and catalog publishing customers have also been affected by the use of
electronic media for merchandising products, while benefiting from the increase
in magazine and catalog publications dealing with electronic media, especially
computer hardware and software.
Part of the Company's competitive strategy is to be a lower-cost producer
of its products while maintaining strict quality standards and responding to
environmental concerns. The Company's two recycling facilities have further
enhanced its competitive position by enabling it to respond to customer demand
for recycled-content newsprint, directory paper, coated groundwood paper and
uncoated groundwood specialties.
Raw Materials and Energy
The manufacture of pulp and paper requires significant amounts of wood and
energy. The wood needed for pulp, paper and lumber production is obtained from
Company-owned properties and purchased from local producers. The Company also
uses recovered paper as raw material when producing recycled-content paper
grades. See Forest Products and Recycling Capability on page 3 of this Form 10-K
for information regarding the Company's use of raw materials.
4
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Steam and electrical power are the primary forms of energy used in pulp and
paper production. Process steam is produced in boilers at the various mill sites
from a variety of fuel sources. Internally generated electrical power at the
Calhoun and Catawba Operations is used to supplement purchased electrical power.
The Mersey Operations purchases all of its steam and electrical power
requirements. It has the ability, however, to produce some of its steam
requirements. GNP has the capacity to be totally self-sufficient electrically
with six hydroelectric facilities located on the West Branch of the Penobscot
River (containing 31 hydroelectric generators) and seven steam turbine
generators located in the mill power plants.
The Company operates its Maine hydroelectric facilities pursuant to
long-term licenses granted by the Federal Energy Regulatory Commission ("FERC")
or its predecessor, the Federal Power Commission. The licenses for certain dams
expired at the end of 1993, and the Company continued to operate those dams
under interim licenses. In October 1996, FERC issued new 30-year licenses
allowing the Company to continue operating its hydroelectric facilities with
substantially similar terms and conditions as the old licenses. In November
1996, five intervenors filed requests for a rehearing, generally rearguing
issues already considered by FERC. These requests are pending before FERC, and,
although no assurances can be given, management believes that the requests
should not result in any material adverse change to the terms or conditions of
the licenses.
Employees
As of December 31, 1997, the Company employed 5,000 people, of whom 3,600
were represented by bargaining units. The labor contract at the Company's
Catawba Operations, which covers all of the plant's hourly employees, expires in
April 2003. The labor contract with most of the plant's hourly employees at the
Calhoun Operations expires in July 2002. The labor agreement for the majority of
unionized employees at GNP expires in July 2001, while all other labor
agreements there expire during 2002. The labor contract covering all unionized
employees at the Mersey Operations expires in April 1998. All plant facilities
are situated in areas where adequate labor pools exist. Relations with employees
are considered good.
Trademarks and Name
The Company owns the trademarked Company logo exclusively throughout the
world. Effective June 30, 1997, the Company obtained from the former Bowater
plc, now Rexam plc, ownership of the name "Bowater" in connection with the sale
of all of the Company's products exclusively throughout the world, with a
limited exception for a few non-conflicting uses by Rexam plc. The Company
considers its interests in the Company logo and name to be valuable and
necessary to the conduct of its business.
Environmental Matters
Information regarding environmental matters is incorporated herein by
reference to page 22 of the Annual Report.
The Company believes that its United States and Canadian operations are in
substantial compliance with all applicable federal, state and provincial
environmental regulations and that all currently-required control equipment is
in operation. While it is impossible to predict future environmental regulations
that may be established, the Company believes that it will not be at a
competitive disadvantage with regard to meeting future United States or Canadian
standards.
The Company has taken positive action to address concerns about municipal
solid waste by constructing a recycled fiber plant at its Calhoun and East
Millinocket Operations. See Recycling Capability on page 3 of this Form 10-K.
Item 2. Properties
Information regarding the Company's properties is incorporated herein by
reference to the material included in Item 1, "Business" of this Form 10-K, and
on page 42 and the back cover page of the Annual Report.
In addition to the properties that it owns, the Company also leases under
long-term leases certain timberlands, office premises, and office and
transportation equipment. Information regarding timberland leases and operating
leases is incorporated herein by reference to page 38 of the Annual Report.
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
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Executive Officers of the Registrant as of March 23, 1998
The Company's executive officers, who are elected by the Board of Directors
to serve one-year terms, are listed below. There are no family relationships
among officers and no arrangements or understandings between any officer and any
other person pursuant to which the officer was selected.
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Served as
Name Age Position Officer Since
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Arnold M. Nemirow 54 Chairman, President and Chief Executive Officer 1994
Arthur D. Fuller 53 Executive Vice President and President -- Newsprint and 1995
Directory Division
Anthony H. Barash 55 Senior Vice President -- Corporate Affairs and General Counsel 1996
E. Patrick Duffy 56 Senior Vice President and President -- Coated Paper and Pulp 1995
Division
David G. Maffucci 47 Senior Vice President and Chief Financial Officer 1992
Donald G. McNeil 47 Senior Vice President and President -- Great Northern 1995
Paper, Inc.
James H. Dorton 41 Vice President and Treasurer 1996
Richard F. Frisch 50 Vice President -- Human Resources 1995
Richard K. Hamilton 49 Vice President and President -- Forest Products Division 1997
Steven G. Lanzl 49 Vice President -- Information Technology 1996
Robert A. Moran 53 Vice President -- Manufacturing Services 1992
Michael F. Nocito 42 Vice President and Controller 1993
Wendy C. Shiba 47 Vice President, Secretary and Assistant General Counsel 1993
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Arnold M. Nemirow became Chairman in March 1996, and Chief Executive
Officer in March 1995. He has been President and a director of the Company since
September 1994 and was Chief Operating Officer from September 1994 through
February 1995. Previously he was President, Chief Executive Officer and a
director of Wausau Paper Mills Company, a pulp and paper company, from July 1990
through July 1994, Chairman, President, Chief Executive Officer and a director
of Nekoosa Papers, Inc., the business papers division of Great Northern Nekoosa
Corporation, from 1988 to March 1990 and Vice President of Great Northern
Nekoosa Corporation from 1984 to March 1990.
Arthur D. Fuller became Executive Vice President and President -- Newsprint
and Directory Division in August 1997. From 1995 to August 1997, he was Senior
Vice President and President -- Newsprint Division. He was Vice President
Finance, Planning & Administration of MacMillan Bloedel Packaging Inc., the
containerboard and packaging business of MacMillan Bloedel Ltd., from 1994 to
1995. From 1991 to 1993 he was a partner of Nukraft, which sought to develop a
recycled linerboard mill, and from 1987 to 1990 he was Vice President and
General Manager of Great Southern Paper Company, the containerboard division of
Great Northern Nekoosa Corporation. Earlier he held various management positions
with Great Southern Paper Company.
Anthony H. Barash became Senior Vice President -- Corporate Affairs and
General Counsel in April 1996. From 1993 through March 1996, he was a partner of
the law firm Seyfarth, Shaw, Fairweather & Geraldson, where he was a member of
the firm's Business Law and Real Estate Group. Previously, from 1980 to 1993, he
was a senior partner of the law firm Barash & Hill, where he also concentrated
in business and real estate law.
E. Patrick Duffy became Senior Vice President and President -- Coated Paper
and Pulp Division in 1995. He was President of the Telecommunications Business
Unit of R.R. Donnelly and Sons, a printing company located in Chicago, Illinois,
from 1993 to 1995, where he was responsible for the sale and manufacture of
printed products, and President of its Catalog Group from 1990 to 1992.
Previously he was a Senior Vice President of R.R. Donnelly and Sons.
David G. Maffucci became Senior Vice President and Chief Financial Officer
in 1995. He had served as Vice President -- Treasurer since 1993 and Treasurer
from 1992 to 1993 and relinquished the title of Treasurer in August 1996. From
1977 to 1992 he held various positions of increasing responsibility in the
Company's Finance Department.
Donald G. McNeil became Senior Vice President in 1995, and has been
President of GNP since 1994. He was President and General Manager of Bowater
Mersey Paper Company, a subsidiary of the Company ("Mersey"), from 1992 to 1994.
He was General Manager of Mersey from 1991 to 1992 and Assistant General Manager
from 1990 to 1991. From 1977 through 1989 he held various engineering and
management positions with Mersey.
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James H. Dorton became Vice President and Treasurer in 1996. From 1990
through 1996, he was Treasurer of Intergraph Corporation, a manufacturer and
designer of computers and software for engineering applications, where he was
responsible for treasury management, corporate finance and shareholder
relations. He was Assistant Treasurer of Intergraph Corporation from 1986 to
1990.
Richard F. Frisch became Vice President -- Human Resources in 1995. He was
Director of Compensation and Benefits from 1994 to 1995. Prieviously he was
employed by Scott Paper Company, a pulp and paper company, at its Philadelphia,
Pennsylvania, headquarters, most recently as Director of Benefits from 1991 to
1994, where he was responsible for strategic design and management of benefit
plans.
Richard K. Hamilton became Vice President and President -- Forest Products
Division in August 1997. He was Vice President Wood Products -- Newsprint
Division from 1995 to 1997. From 1993 to 1995, he was Group Manager -- Forest
Resources Division of Georgia-Pacific Corporation, a building products and pulp
and paper company, where he was responsible for a woodlands organization
management of about 340,000 acres of timberland and the procurement, production
and sale of pulpwood, logs and wood chips. Previously, he held various woodlands
positions with Great Southern Paper Company and Scott Paper Company.
Steven G. Lanzl became Vice President -- Information Technology in 1996.
From 1992 to 1996 he was with E.I. du Pont de Nemours and Company, a diversified
chemical and petroleum products company, where he was responsible for planning
information system initiatives. Earlier he was with DuPont Asia Pacific, Ltd. in
Japan as Manager of Information Systems Planning.
Robert A. Moran became Vice President -- Manufacturing Services in 1996 and
was Vice President -- Pulp and Paper Manufacturing Services from 1992 to 1996.
He was Vice President -- Manufacturing Services for the Pulp and Paper Group
from 1991 and Director of Planning and Development for the Pulp and Paper Group
from 1988 to 1991. He also served as Assistant General Manager of the Catawba
Operations during 1988.
Michael F. Nocito became Vice President and Controller in 1993. He was
Controller of the Calhoun Operations from 1992 to 1993 and Assistant Controller
of the Calhoun Operations from 1988 to 1992. From 1978 to 1988 he held various
positions of increasing responsibility in the Company's Finance Department.
Wendy C. Shiba became Vice President in May 1997 and has been Secretary and
Assistant General Counsel since 1993. From 1992 to 1993, she was Corporate Chair
of the City of Philadelphia Law Department where she managed the Corporate
Group, which was responsible for all of the City's nonlitigation legal work. She
was Associate Professor of Law from 1990 to 1993 and Assistant Professor of Law
from 1985 to 1990 at Temple University School of Law, where she taught subjects
relating to corporate law and served as a consultant in legal writing and
corporate law. Earlier she practiced corporate law in the private sector.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders
Matters
(a) The Company's common stock, $1 par value ("Common Stock"), is listed on
the New York Stock Exchange (stock symbol BOW), the Pacific Exchange, Inc., the
London Stock Exchange and the Swiss Stock Exchanges. Price information with
respect to the Company's Common Stock on page 45 of the Annual Report is
incorporated herein by reference.
(b) As of March 23, 1998, there were 5,099 holders of record of the
Company's Common Stock.
(c) The Company paid consecutive quarterly dividends of $.15 per share of
Common Stock during 1995. The quarterly dividend was increased to $.20 per share
of Common Stock effective with the dividend payable April 1, 1996. This amount
was paid quarterly during the balance of 1996 and in 1997.
Future declarations of dividends on the Company's Common Stock are
discretionary with the Board of Directors, and the declaration of any such
dividends will depend upon, among other things, the Company's earnings, capital
requirements and financial condition. Dividends on the Common Stock may not be
paid if there are any unpaid or undeclared accrued dividends on the Company's
outstanding preferred stock, which currently consists of the Company's 8.40%
Series C Cumulative Preferred Stock. At December 31, 1997, there were no
arrearages on dividends accrued on the Company's preferred stock.
In addition, the Company's ability to pay dividends on its preferred stock
and on its Common Stock depends on its maintaining adequate net worth and
compliance with the required ratio of total debt to total capital as defined in
and required
7
<PAGE>
by the Company's current credit agreement (the "Credit Agreement"). The Credit
Agreement requires the Company to maintain a minimum net worth (generally
defined therein as common shareholders' equity plus any outstanding preferred
stock) of $1.0 billion as of December 31, 1997. In addition, the Credit
Agreement imposes a maximum 60 percent ratio of total debt to total capital
(defined therein as total debt plus net worth). The Company anticipates that its
new one-year committed $1 billion credit facility (see page 22 of the Annual
Report) will contain substantially similar requirements. At December 31, 1997,
the net worth of the Company and the ratio of total debt to total capital as
defined under the Credit Agreement were $1.2 billion and 40 percent,
respectively.
Item 6. Selected Financial Data
Information regarding the Company's financial position and operating record
is incorporated herein by reference to pages 40-41 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information regarding the Company's business and financial results is
incorporated herein by reference to pages 19-25 of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is incorporated herein by reference to
pages 26-39 of the Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's directors is incorporated herein by
reference to the material under the heading "Election of Directors --
Information on Nominees and Directors" in the Company's Proxy Statement with
respect to the Annual Meeting of Shareholders scheduled to be held May 20, 1998
(the "Proxy Statement"), filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.
Information regarding the Company's executive officers is provided under
the caption "Executive Officers of the Registrant as of March 23, 1998" on pages
6-7 of this Form 10-K.
Information regarding Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by reference to the material under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated herein by
reference to the material under the headings "Election of Directors --
Information on Nominees and Directors -- Director Compensation", "Human
Resources and Compensation Committee Report on Executive Compensation", "Total
Shareholder Return" and "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning (1) any person or group known to the Company to be
the beneficial owner of more than 5 percent of the Company's voting stock, and
(2) ownership of the Company's equity securities by management is incorporated
herein by reference to the material under the heading "Certain Information
Concerning Stock Ownership" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated herein by reference to the material under the heading "Related
Party Transactions" in the Proxy Statement.
8
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following are filed as a part of this Report on Form 10-K:
(1) The following are included at the indicated page in the Annual Report
and are incorporated by reference herein:
<TABLE>
<CAPTION>
Page(s)
--------
<S> <C>
Consolidated Statement of Operations for Each of the Years in the Three-Year Period
Ended December 31, 1997 .......................................................... 26
Consolidated Balance Sheet at December 31, 1997 and 1996 ........................... 27
Consolidated Statement of Capital Accounts for Each of the Years in the Three-Year
Period Ended December 31, 1997 ................................................... 28
Consolidated Statement of Cash Flows for Each of the Years in the Three-Year Period
Ended December 31, 1997 .......................................................... 29
Notes to Consolidated Financial Statements. ........................................ 30-38
Management's Statement of Responsibility and Independent Auditors' Report .......... 39
</TABLE>
(2) All financial statement schedules are omitted because they are not
applicable, the amounts associated with them are immaterial, or because
the required information is included in the financial statements or notes
thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated
February 1, 1994, File No. 1-8712 (the "February 1994 8-K")).
3.3 Certificate of Designations of the 8.40% Series C Cumulative Preferred Stock of the Company
(incorporated by reference to Exhibit 4.2 to the February 1994 8-K).
3.4 Bylaws of the Company amended and restated as of July 26, 1995 (incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1995, File
No. 1-8712 (the "September 1995 10-Q")).
3.4.1 * Amendment to Bylaws dated as of February 27, 1998.
4.1 Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to provide the Commission upon request copies of
certain other instruments with respect to long-term debt not being registered where the amount of
securities authorized under each such instrument does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement No. 2-93455).
4.2 Indenture, dated as of August 1, 1989, by and between the Company and Manufacturers Hanover Trust
Company, as Trustee, with respect to the 9% Debentures Due 2009 (incorporated by reference to Exhibit
4.7 to the Company's Registration Statement No. 33-61219).
4.3 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank,
N.A., as Trustee, with respect to the 9 3/8% Debentures Due 2021 (incorporated by reference to Exhibit
4.8 to the Company's Annual Report on Form 10-K for the period ending December 31, 1991, File
No. 1-8712 (the "1991 10-K")).
4.4 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank,
N.A., as Trustee, with respect to the 8 1/2% Notes Due 2001 (incorporated by reference to Exhibit 4.9 to
the 1991 10-K).
4.5 Indenture, dated as of October 15, 1992, by and between the Company and The Chase Manhattan Bank
(N.A.) as Trustee, with respect to the 8 1/4% Notes Due 1999 (incorporated by reference to Exhibit 4.10
to the Company's Annual Report on Form 10-K for the period ending December 31, 1992, File
No. 1-8712 (the "1992 10-K")).
4.6 Indenture, dated as of October 15, 1992, between the Company and The Chase Manhattan Bank (N.A.)
as Trustee, with respect to the 9 1/2% Debentures Due 2012 (incorporated by reference to Exhibit 4.11 to
the 1992 10-K).
4.7 Deposit Agreement, dated as of February 1, 1994, by and among the Company, Trust Company Bank, as
Depositary, and the holders from time to time of the Depositary Receipts relating to the Company's
8.40% Series C Cumulative Preferred Stock, together with form of Depositary Receipt (incorporated by
reference to Exhibit 4.4 to the February 1994 8-K).
4.8 See Exhibits 3.1, 3.3, 3.4 and 3.4.1.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -------------
<S> <C>
+10.1 Employment Agreement, dated as of July 20, 1994, by and between the Company and Arnold M.
Nemirow (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the period ending December 31, 1994, File No. 1-8712 (the "1994 10-K")).
+10.2 Employment Agreement, dated as of October 21, 1996, by and between the Company and Steven G.
Lanzl (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
period ending December 31, 1996, File No. 1-8712 (the "1996 10-K")).
+10.3 Employment Agreement, dated as of April 1, 1995, by and between the Company and E. Patrick Duffy
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
period ending March 31, 1995, File No. 1-8712).
+10.4 Form of Employment Agreement by and between the Company and each of Robert A. Moran and
Michael F. Nocito (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the period ending December 31, 1993, File No. 1-8712 (the "1993 10-K")).
+10.5 Form of Change in Control Agreement, by and between the Company and each of Edward Patrick
Duffy, Richard F. Frisch, David G. Maffucci, Donald G. McNeil, Robert A. Moran, Arnold M. Nemirow,
and Michael F. Nocito (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1995, File No. 1-8712 (the "1995 10-K")).
+10.6 Form of Change in Control Agreement by and between the Company and each of Anthony H. Barash,
James H. Dorton and Steven G. Lanzl (incorporated by reference to Exhibit 10.6 to the 1996 10-K).
+10.7 Employment Agreement, dated as of May 21, 1997, by and between the Company and Wendy C. Shiba
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ending June 30, 1997, File No. 1-8712 (the "June 1997 10-Q")).
+10.8 Change in Control Agreement, dated as of May 21, 1997, by and between the Company and Wendy C.
Shiba (incorporated by reference to Exhibit 10.2 to the June 1997 10-Q).
+10.9 Employment Agreement, dated as of June 1, 1995, by and between the Company and Richard F. Frisch
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ending June 30, 1995, File No. 1-8712).
+10.10 Employment Agreement, dated as of August 6, 1996, by and between the Company and James H.
Dorton (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the period ending June 30, 1996, File No. 1-8712 (the "June 1996 10-Q")).
+10.11 Employment Agreement, dated as of August 1, 1997, by and between the Company and Arthur D. Fuller
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1997, File No. 1-8712 (the "September 1997 10-Q")).
+10.12 Change in Control Agreement, dated as of August 1, 1997, by and between the Company and Arthur D.
Fuller (incorporated by reference to Exhibit 10.2 to the September 1997 10-Q).
+10.13 Employment Agreement, dated as of November 1, 1995, by and between the Company and David G.
Maffucci (incorporated by reference to Exhibit 10.12 to the 1995 10-K).
+10.14 Employment Agreement, dated as of March 1, 1995, by and between the Company and Donald G.
McNeil (incorporated by reference to Exhibit 10.12 to the 1994 10-K).
+10.15 Employment Agreement, dated as of April 1, 1996, by and between the Company and Anthony H.
Barash (incorporated by reference to Exhibit 10.14 to the 1995 10-K).
+10.16 * Employment Agreement, dated as of August 1, 1997, by and between the Company and Richard K.
Hamilton.
+10.17 * Change in Control Agreement, dated as of August 1, 1997, by and between the Company and
Richard K. Hamilton.
+10.18 Compensatory Benefits Plan of the Company, as amended and restated as of April 30, 1991
(incorporated by reference to Exhibit 10.8 to the 1991 10-K).
+10.18.1 Amendment, effective as of January 1, 1996, to the Compensatory Benefits Plan of the Company
(incorporated by reference to Exhibit 10.15.1 to the 1996 10-K).
+10.18.2 * Second Amendment, effective as of January 1, 1997, to the Compensatory Benefits Plan of the
Company.
+10.19 Annual Bonus Plan of the Company (incorporated by reference to Exhibit 10.16 to the 1994 10-K).
+10.19.1 * Administrative Guide to Annual Bonus Plan of the Company.
+10.20 Deferred Compensation Plan for Outside Directors of the Company, as amended and restated effective
as of January 1, 1996 (incorporated by reference to Exhibit 10.18 to the 1995 10-K).
+10.20.1 Deferred Compensation Plan for Outside Directors of the Company, as amended and restated effective
January 1, 1997 (incorporated by reference to Exhibit 10.18.1 to the 1996 10-K).
+10.21 Retirement Plan for Outside Directors of the Company, effective as of July 1, 1988 (incorporated by
reference to Exhibit 10.19 to the 1995 10-K).
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
+10.21.1 First Amendment to Retirement Plan for Outside Directors
(incorporated by reference to Exhibit 10.19.1 to the 1995 10-K).
+10.21.2 * Second Amendment to Retirement Plan for Outside Directors.
+10.22 Supplemental Benefit Plan for Designated Employees of Bowater
Incorporated and Affiliated Companies, as amended and restated
effective as of November 1, 1995 (incorporated by reference to
Exhibit 10.20 to the 1995 10-K).
+10.22.1 First Amendment, dated as of March 18, 1996, to the Supplemental
Benefit Plan for Designated Employees of Bowater Incorporated and
Affiliated Companies (incorporated by reference to Exhibit 10.20.1
to the 1995 10-K).
+10.23 Executive Deferred Compensation Plan of the Company, effective as
of July 1, 1994, and as amended as of January 1, 1995
(incorporated by reference to Exhibit 10.29.1 to the 1994 10-K).
+10.23.1 Amendment to Executive Deferred Compensation Plan, dated as of
November 14, 1995 (incorporated by reference to Exhibit 10.21.1 to
the 1995 10-K).
+10.24 Equity Participation Rights Plan, effective as of January 17, 1996
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ending September 30,
1996, File No. 1-8712 (the "September 1996 10-Q")).
+10.24.1 First Amendment to Equity Participation Rights Plan, effective as
of March 1, 1996 (incorporated by reference to Exhibit 10.1.1 to
the September 1996 10-Q).
+10.25 1988 Stock Incentive Plan of the Company (incorporated by
reference to the Company's Proxy Statement for 1988, File No.
1-8712).
+10.25.1 Amendment to 1988 Stock Incentive Plan of the Company, dated as of
August 23, 1989 (incorporated by reference to Exhibit 10.16A to
the 1989 10-K).
+10.26 Benefit Plan Grantor Trust of the Company, dated as of May 20,
1988 (incorporated by reference to Exhibit 10.17 to the 1989
10-K).
+10.26.1 Amendment to Benefit Plan Grantor Trust, dated as of August 23,
1989 (incorporated by reference to Exhibit 10.17A to the 1989
10-K).
+10.26.2 Amendment Number 2 to Benefit Plan Grantor Trust, dated as of
November 20, 1996 (incorporated by reference to Exhibit 10.24.2 to
the 1996 10-K).
+10.26.3 Supplemental Agreement to Benefit Plan Grantor Trust, dated as of
May 20, 1988 (incorporated by reference to Exhibit 10.28.2 to the
1995 10-K).
+10.27 Form of Indemnification Agreement, by and between the Company and
each of James H. Dorton, Richard F. Frisch, David G. Maffucci and
Wendy C. Shiba (incorporated by reference to Exhibit 10.1 to the
June 1996 10-Q).
+10.28 Executive Severance Grantor Trust of the Company, dated as of
September 1, 1989 (incorporated by reference to Exhibit 10.18 to
the 1989 10-K).
+10.28.1 Supplemental Agreement to Executive Severance Grantor Trust of the
Company, dated as of September 1, 1989 (incorporated by reference
to Exhibit 10.29.1 to the 1995 10-K).
+10.29 Outside Directors Benefit Plan Grantor Trust of the Company, dated
as of September 5, 1989 (incorporated by reference to Exhibit
10.19 to the 1989 10-K).
+10.29.1 Supplemental Agreement to Outside Directors Benefit Plan Grantor
Trust of the Company, dated as of September 5, 1989 (incorporated
by reference to Exhibit 10.30.1 to the 1995 10-K).
+10.30 Benefits Equalization Plan, dated as of August 22, 1990
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the period ending December 31,
1990, File No. 1-8712 (the "1990 10-K")).
+10.30.1 First Amendment to Bowater Incorporated Benefits Equalization
Plan, effective as of January 1, 1996 (incorporated by reference
to Exhibit 10.28.1 to the 1996 10-K).
+10.31 1992 Stock Incentive Plan (incorporated by reference to Exhibit
10.23 to the 1991 10-K).
+10.32 Long-Term Cash Incentive Plan, dated as of January 1, 1994
(incorporated by reference to Exhibit 10.33 to the 1995 10-K).
+10.32.1 First Amendment, dated as of March 18, 1996, to the Long-Term Cash
Incentive Plan dated as of January 1, 1994 (incorporated by
reference to Exhibit 10.33.1 to the 1995 10-K).
+10.32.2 Long-Term Cash Incentive Deferred Compensation Plan, effective as of
September 16, 1996 (incorporated by reference to Exhibit 10.2 to
the September 1996 10-Q).
+10.33 Bowater Incorporated 1997 Stock Option Plan, effective as of
January 1, 1997, as amended and restated (incorporated by
reference to Exhibit 10.31 to the 1996 10-K).
+10.34 Bowater Incorporated 1997-1999 Long-Term Incentive Plan, effective
as of January 1, 1997, as amended and restated (incorporated by
reference to Exhibit 10.32 to the 1996 10-K).
10.35 Restated Agreement, dated as of January 1, 1991, by and among the
Company, Advance Publications, Inc. and Calhoun Newsprint Company
(incorporated by reference to Exhibit 10.11 to the 1990 10-K).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
10.36 Recycle Agreement, dated as of January 1, 1991, by and among the
Company, Advance Publications, Inc., and Calhoun Newsprint Company
(incorporated by reference to Exhibit 10.19.1 to the 1993 10-K).
10.37 Agreement, dated as of February 21, 1963, by and between Bowater
Canadian Limited and The Washington Post Company (incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement
No. 2-90172).
10.38 Licensing Agreement, dated as of December 30, 1976, as amended,
between the Company and Bowater Industries plc (incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement
No. 2-90172).
10.39 Trademark Agreement, dated May 8, 1984, between the Company and
Bowater Corporation plc (incorporated by reference to Exhibit
10.17 to the Company's Registration Statement No. 2-90172).
10.40 * World-Wide Trademark Ownership, Use and Assignment Agreement,
effective as of June 30, 1997, by and between the Company and
Rexam plc (formerly Bowater plc).
10.41 Credit Agreement, dated as of September 29, 1995, among the
Company, each of the banks signatory thereto (the "Banks"), and
The Chase Manhattan Bank (National Association), as administrative
agent for the Banks (incorporated by reference to Exhibit 10.1 to
the September 1995 10-Q).
13.1 * Copy of the Company's 1997 Annual Report to Stockholders (except
for those portions that are expressly incorporated by reference in
this Report on Form 10-K, this exhibit is furnished for the
information of the Commission and is not deemed to be filed as
part hereof).
21.1 * Subsidiaries of the registrant.
23.1 * Consent of Independent Auditors.
27.1 * Financial Data Schedule (electronic filing only).
</TABLE>
- ---------
* Filed herewith
+ This is a management contract or compensatory plan or arrangement.
(b) None.
(c) The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOWATER INCORPORATED
By: /s/ ARNOLD M. NEMIROW
------------------------
Arnold M. Nemirow
Chairman, President and
Chief Executive Officer
Date: March 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated, as of March 23, 1998.
<TABLE>
<CAPTION>
Signature Title
---------- -------
<S> <C>
/s/ ARNOLD M. NEMIROW Director, Chairman, President and Chief
- ---------------------------------------
Arnold M. Nemirow Executive Officer
/s/ DAVID G. MAFFUCCI Senior Vice President and Chief
- ---------------------------------------
David G. Maffucci Financial Officer
/s/ MICHAEL F. NOCITO Vice President and Controller
- ---------------------------------------
Michael F. Nocito
/s/ FRANCIS J. AGUILAR Director
- ---------------------------------------
Francis J. Aguilar
/s/ H. DAVID AYCOCK Director
- ---------------------------------------
H. David Aycock
/s/ RICHARD BARTH Director
- ---------------------------------------
Richard Barth
/s/ KENNETH M. CURTIS Director
- ---------------------------------------
Kenneth M. Curtis
/s/ CHARLES J. HOWARD Director
- ---------------------------------------
Charles J. Howard
/s/ DONALD R. MELVILLE Director
- ---------------------------------------
Donald R. Melville
/s/ JAMES L. PATE Director
- ---------------------------------------
James L. Pate
/s/ JOHN A. ROLLS Director
- ---------------------------------------
John A. Rolls
</TABLE>
13
<PAGE>
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated
February 1, 1994, File No. 1-8712 (the "February 1994 8-K")).
3.3 Certificate of Designations of the 8.40% Series C Cumulative Preferred Stock of the Company
(incorporated by reference to Exhibit 4.2 to the February 1994 8-K).
3.4 Bylaws of the Company amended and restated as of July 26, 1995 (incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1995, File
No. 1-8712 (the "September 1995 10-Q")).
3.4.1 * Amendment to Bylaws dated as of February 27, 1998.
4.1 Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to provide the Commission upon request copies of
certain other instruments with respect to long-term debt not being registered where the amount of
securities authorized under each such instrument does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement No. 2-93455).
4.2 Indenture, dated as of August 1, 1989, by and between the Company and Manufacturers Hanover Trust
Company, as Trustee, with respect to the 9% Debentures Due 2009 (incorporated by reference to Exhibit
4.7 to the Company's Registration Statement No. 33-61219).
4.3 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank,
N.A., as Trustee, with respect to the 9 3/8% Debentures Due 2021 (incorporated by reference to Exhibit
4.8 to the Company's Annual Report on Form 10-K for the period ending December 31, 1991, File
No. 1-8712 (the "1991 10-K")).
4.4 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank,
N.A., as Trustee, with respect to the 8 1/2% Notes Due 2001 (incorporated by reference to Exhibit 4.9 to
the 1991 10-K).
4.5 Indenture, dated as of October 15, 1992, by and between the Company and The Chase Manhattan Bank
(N.A.) as Trustee, with respect to the 8 1/4% Notes Due 1999 (incorporated by reference to Exhibit 4.10
to the Company's Annual Report on Form 10-K for the period ending December 31, 1992, File
No. 1-8712 (the "1992 10-K")).
4.6 Indenture, dated as of October 15, 1992, between the Company and The Chase Manhattan Bank (N.A.)
as Trustee, with respect to the 9 1/2% Debentures Due 2012 (incorporated by reference to Exhibit 4.11 to
the 1992 10-K).
4.7 Deposit Agreement, dated as of February 1, 1994, by and among the Company, Trust Company Bank, as
Depositary, and the holders from time to time of the Depositary Receipts relating to the Company's
8.40% Series C Cumulative Preferred Stock, together with form of Depositary Receipt (incorporated by
reference to Exhibit 4.4 to the February 1994 8-K).
4.8 See Exhibits 3.1, 3.3, 3.4 and 3.4.1.
+10.1 Employment Agreement, dated as of July 20, 1994, by and between the Company and Arnold M.
Nemirow (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the period ending December 31, 1994, File No. 1-8712 (the "1994 10-K")).
+10.2 Employment Agreement, dated as of October 21, 1996, by and between the Company and Steven G.
Lanzl (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
period ending December 31, 1996, File No. 1-8712 (the "1996 10-K")).
+10.3 Employment Agreement, dated as of April 1, 1995, by and between the Company and E. Patrick Duffy
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
period ending March 31, 1995, File No. 1-8712).
+10.4 Form of Employment Agreement by and between the Company and each of Robert A. Moran and
Michael F. Nocito (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the period ending December 31, 1993, File No. 1-8712 (the "1993 10-K")).
+10.5 Form of Change in Control Agreement, by and between the Company and each of Edward Patrick
Duffy, Richard F. Frisch, David G. Maffucci, Donald G. McNeil, Robert A. Moran, Arnold M. Nemirow,
and Michael F. Nocito (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1995, File No. 1-8712 (the "1995 10-K")).
+10.6 Form of Change in Control Agreement by and between the Company and each of Anthony H. Barash,
James H. Dorton and Steven G. Lanzl (incorporated by reference to Exhibit 10.6 to the 1996 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
+10.7 Employment Agreement, dated as of May 21, 1997, by and between the Company and Wendy C. Shiba
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ending June 30, 1997, File No. 1-8712 (the "June 1997 10-Q")).
+10.8 Change in Control Agreement, dated as of May 21, 1997, by and between the Company and Wendy C.
Shiba (incorporated by reference to Exhibit 10.2 to the June 1997 10-Q).
+10.9 Employment Agreement, dated as of June 1, 1995, by and between the Company and Richard F. Frisch
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ending June 30, 1995, File No. 1-8712).
+10.10 Employment Agreement, dated as of August 6, 1996, by and between the Company and James H.
Dorton (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the period ending June 30, 1996, File No. 1-8712 (the "June 1996 10-Q")).
+10.11 Employment Agreement, dated as of August 1, 1997, by and between the Company and Arthur D. Fuller
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1997, File No. 1-8712 (the "September 1997 10-Q")).
+10.12 Change in Control Agreement, dated as of August 1, 1997, by and between the Company and Arthur D.
Fuller (incorporated by reference to Exhibit 10.2 to the September 1997 10-Q).
+10.13 Employment Agreement, dated as of November 1, 1995, by and between the Company and David G.
Maffucci (incorporated by reference to Exhibit 10.12 to the 1995 10-K).
+10.14 Employment Agreement, dated as of March 1, 1995, by and between the Company and Donald G.
McNeil (incorporated by reference to Exhibit 10.12 to the 1994 10-K).
+10.15 Employment Agreement, dated as of April 1, 1996, by and between the Company and Anthony H.
Barash (incorporated by reference to Exhibit 10.14 to the 1995 10-K).
+10.16 * Employment Agreement, dated as of August 1, 1997, by and between the Company and Richard K.
Hamilton.
+10.17 * Change in Control Agreement, dated as of August 1, 1997, by and
between the Company and Richard K. Hamilton.
+10.18 Compensatory Benefits Plan of the Company, as amended and
restated as of April 30, 1991 (incorporated by reference to
Exhibit 10.8 to the 1991 10-K).
+10.18.1 Amendment, effective as of January 1, 1996, to the Compensatory
Benefits Plan of the Company (incorporated by reference to
Exhibit 10.15.1 to the 1996 10-K).
+10.18.2 * Second Amendment, effective as of January 1, 1997, to the
Compensatory Benefits Plan of the Company.
+10.19 Annual Bonus Plan of the Company (incorporated by reference to
Exhibit 10.16 to the 1994 10-K).
+10.19.1 * Administrative Guide to Annual Bonus Plan of the Company.
+10.20 Deferred Compensation Plan for Outside Directors of the Company,
as amended and restated effective as of January 1, 1996
(incorporated by reference to Exhibit 10.18 to the 1995 10-K).
+10.20.1 Deferred Compensation Plan for Outside Directors of the Company,
as amended and restated effective January 1, 1997 (incorporated
by reference to Exhibit 10.18.1 to the 1996 10-K).
10.21 Retirement Plan for Outside Directors of the Company, effective
as of July 1, 1988 (incorporated by reference to Exhibit 10.19 to
the 1995 10-K).
+10.21.1 First Amendment to Retirement Plan for Outside Directors
(incorporated by reference to Exhibit 10.19.1 to the 1995 10-K).
+10.21.2 * Second Amendment to Retirement Plan for Outside Directors.
+10.22 Supplemental Benefit Plan for Designated Employees of Bowater
Incorporated and Affiliated Companies, as amended and restated
effective as of November 1, 1995 (incorporated by reference to
Exhibit 10.20 to the 1995 10-K).
+10.22.1 First Amendment, dated as of March 18, 1996, to the Supplemental
Benefit Plan for Designated Employees of Bowater Incorporated
and Affiliated Companies (incorporated by reference to Exhibit
10.20.1 to the 1995 10-K).
+10.23 Executive Deferred Compensation Plan of the Company, effective
as of July 1, 1994, and as amended as of January 1, 1995
(incorporated by reference to Exhibit 10.29.1 to the 1994
10-K).
+10.23.1 Amendment to Executive Deferred Compensation Plan, dated as of
November 14, 1995 (incorporated by reference to Exhibit 10.21.1
to the 1995 10-K).
+10.24 Equity Participation Rights Plan, effective as of January 17,
1996 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ending
September 30, 1996, File No. 1-8712 (the "September 1996
10-Q")).
+10.24.1 First Amendment to Equity Participation Rights Plan,
effective as of March 1, 1996 (incorporated by reference to
Exhibit 10.1.1 to the September 1996 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------
<S> <C>
+10.25 1988 Stock Incentive Plan of the Company (incorporated by
reference to the Company's Proxy Statement for 1988, File No.
1-8712).
+10.25.1 Amendment to 1988 Stock Incentive Plan of the Company, dated as of
August 23, 1989 (incorporated by reference to Exhibit 10.16A to
the 1989 10-K).
+10.26 Benefit Plan Grantor Trust of the Company, dated as of May 20,
1988 (incorporated by reference to Exhibit 10.17 to the 1989
10-K).
+10.26.1 Amendment to Benefit Plan Grantor Trust, dated as of August 23,
1989 (incorporated by reference to Exhibit 10.17A to the 1989
10-K).
+10.26.2 Amendment Number 2 to Benefit Plan Grantor Trust, dated as of
November 20, 1996 (incorporated by reference to Exhibit 10.24.2 to
the 1996 10-K).
+10.26.3 Supplemental Agreement to Benefit Plan Grantor Trust, dated as of
May 20, 1988 (incorporated by reference to Exhibit 10.28.2 to the
1995 10-K).
+10.27 Form of Indemnification Agreement, by and between the Company and
each of James H. Dorton, Richard F. Frisch, David G. Maffucci and
Wendy C. Shiba (incorporated by reference to Exhibit 10.1 to the
June 1996 10-Q).
+10.28 Executive Severance Grantor Trust of the Company, dated as of
September 1, 1989 (incorporated by reference to Exhibit 10.18 to
the 1989 10-K).
+10.28.1 Supplemental Agreement to Executive Severance Grantor Trust of the
Company, dated as of September 1, 1989 (incorporated by reference
to Exhibit 10.29.1 to the 1995 10-K).
+10.29 Outside Directors Benefit Plan Grantor Trust of the Company, dated
as of September 5, 1989 (incorporated by reference to Exhibit
10.19 to the 1989 10-K).
+10.29.1 Supplemental Agreement to Outside Directors Benefit Plan Grantor
Trust of the Company, dated as of September 5, 1989 (incorporated
by reference to Exhibit 10.30.1 to the 1995 10-K).
+10.30 Benefits Equalization Plan, dated as of August 22, 1990
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the period ending December 31,
1990, File No. 1-8712 (the "1990 10-K")).
+10.30.1 First Amendment to Bowater Incorporated Benefits Equalization
Plan, effective as of January 1, 1996 (incorporated by reference
to Exhibit 10.28.1 to the 1996 10-K).
+10.31 1992 Stock Incentive Plan (incorporated by reference to Exhibit
10.23 to the 1991 10-K).
+10.32 Long-Term Cash Incentive Plan, dated as of January 1, 1994
(incorporated by reference to Exhibit 10.33 to the 1995 10-K).
+10.32.1 First Amendment, dated as of March 18, 1996, to the Long-Term Cash
Incentive Plan dated as of January 1, 1994 (incorporated by
reference to Exhibit 10.33.1 to the 1995 10-K).
+10.32.2 Long-Term Cash Incentive Deferred Compensation Plan, effective as
of September 16, 1996 (incorporated by reference to Exhibit 10.2
to the September 1996 10-Q).
+10.33 Bowater Incorporated 1997 Stock Option Plan, effective as of
January 1, 1997, as amended and restated (incorporated by
reference to Exhibit 10.31 to the 1996 10-K).
+10.34 Bowater Incorporated 1997-1999 Long-Term Incentive Plan, effective
as of January 1, 1997, as amended and restated (incorporated by
reference to Exhibit 10.32 to the 1996 10-K).
10.35 Restated Agreement, dated as of January 1, 1991, by and among the
Company, Advance Publications, Inc. and Calhoun Newsprint Company
(incorporated by reference to Exhibit 10.11 to the 1990 10-K).
10.36 Recycle Agreement, dated as of January 1, 1991, by and among the
Company, Advance Publications, Inc., and Calhoun Newsprint Company
(incorporated by reference to Exhibit 10.19.1 to the 1993 10-K).
10.37 Agreement, dated as of February 21, 1963, by and between Bowater
Canadian Limited and The Washington Post Company (incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement
No. 2-90172).
10.38 Licensing Agreement, dated as of December 30, 1976, as amended,
between the Company and Bowater Industries plc (incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement
No. 2-90172).
10.39 Trademark Agreement, dated May 8, 1984, between the Company and
Bowater Corporation plc (incorporated by reference to Exhibit
10.17 to the Company's Registration Statement No. 2-90172).
10.40* World-Wide Trademark, Ownership, Use and Assignment Agreement,
effective as of June 30, 1997, by and between the Company and
Rexam plc (formerly Bowater plc).
10.41 Credit Agreement, dated as of September 29, 1995, among the
Company, each of the banks signatory thereto (the "Banks"), and
The Chase Manhattan Bank (National Association), as administrative
agent for the Banks (incorporated by reference to Exhibit 10.1 to
the September 1995 10-Q).
13.1 * Copy of the Company's 1997 Annual Report to Stockholders (except
for those portions that are expressly incorporated by reference in
this Report on Form 10-K, this exhibit is furnished for the
information of the Commission and is not deemed to be filed as
part hereof).
21.1 * Subsidiaries of the registrant.
23.1 * Consent of Independent Auditors.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27.1 * Financial Data Schedule (electronic filing only).
</TABLE>
- ---------
* Filed herewith
+ This is a management contract or compensatory plan or arrangement.
Exhibit 3.4.1
AMENDMENT TO BY-LAWS
Amendment effective as of the 27th day of February, 1998, to the By-laws
of Bowater Incorporated, as amended and restated to date (the "By-laws"):
The second sentence of Section 4.15 of the By-laws is hereby deleted and
replaced with the following:
Except as provided in the following sentence, no Outside Director shall be
eligible to stand for re-election to a term on the Board of Directors after
he or she has reached age 70. The Board of Directors may, however, by
resolution waive the mandatory retirement requirement with respect to an
Outside Director if the Board of Directors determines that such action is
in the best interests of the Corporation.
In all other respects the By-Laws shall remain unchanged.
1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 1st day of August, 1997, by and
between BOWATER INCORPORATED, a Delaware corporation having a mailing address of
55 East Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"),
and Richard K. Hamilton, 442 Bellefounte Road, NE, Cleveland, TN 37312 (the
"Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President of the Corporation and as President of the Forest Products Division;
and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacity;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. During the term of this Agreement the Corporation agrees
to continue to employ the Executive, and the Executive agrees to continue in the
employ of the Corporation, in accordance with and subject to the provisions of
this Agreement.
2. Term.
(a) Subject to the provisions of subparagraphs (b) and (c) of this
Section 2, the term of this Agreement shall begin on the Date
hereof and shall continue thereafter until terminated by either
party by written notice given to the other party at least thirty
(30) days prior to the effective date of any such termination.
The effective date of the termination shall be the date stated in
such notice, provided that if the Corporation specifies an
effective date that is more than thirty (30) days following the
date of such notice, the Executive may, upon thirty (30) days'
written notice to the Corporation, accelerate the effective date
of such termination.
1
<PAGE>
(b) Notwithstanding Section 2(a), upon the occurrence of a Change in
Control as defined in the Change in Control Agreement of even
date herewith between the Corporation and the Executive (the
"Change in Control Agreement"), the term of this Agreement shall
be deemed to continue until terminated, but in any event, for a
period of not less than three (3) years following the date of the
Change in Control, unless such termination shall be at the
Executive's election for other than "Good Reason" as that term is
defined in the Change in Control Agreement.
(c) Notwithstanding Section 2(a), the term of this Agreement shall
end upon:
(i) the death of the Executive;
(ii) the inability of the Executive to perform his duties
properly, whether by reason of ill-health, accident or other
cause, for a period of one hundred and eighty (180)
consecutive days or for periods totaling one hundred and
eighty (180) days occurring within any twelve (12) consecutive
calendar months; or
(iii) the executive's retirement on his early or normal
retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President of the Corporation and President of the Forest
Products Division (Salary Grade 32), with the duties and responsibilities
customarily attendant to that office, provided that the Executive shall
undertake such other and further assignments and responsibilities of at least
comparable status as the Board of Directors may direct. The Executive shall
diligently and faithfully devote his full working time and best efforts to the
performance of the services under this Agreement and to the furtherance of the
best interests of the Corporation.
4. Place of Employment. The Executive will be employed at the
Corporation's offices in Calhoun, Tennessee or at such other place as the
Corporation shall designate from time to time, provided, however, that if the
Executive is transferred
2
<PAGE>
to another place of employment, necessitating a change in his residence, the
Executive shall be entitled to financial assistance in accordance with the terms
of the Corporation's relocation policy then in effect.
5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the Executive a base
salary of $205,000 payable in substantially equal periodic
installments on the Corporation's regular payroll dates. The
Executive's base salary shall be reviewed at least annually and
from time to time may be increased (or reduced, if such
reduction is effected pursuant to across-the-board salary
reductions similarly affecting all management personnel of the
Corporation).
(b) Bonus Plan. In addition to his base salary, the Executive shall
be entitled to receive a bonus under the Corporation's bonus
plan in effect from time to time determined in the manner, at
the time, and in the amounts set forth under such plan.
(c) Benefit Plans. The Corporation shall make contributions on the
Executive's behalf to the various benefit plans and programs of
the Corporation in which the Executive is eligible to
participate in accordance with the provisions thereof as in
effect from time to time.
(d) Vacations. The Executive shall be entitled to paid vacation, in
keeping with the Corporate policy as in effect from time to
time, to be taken at such time or times as may be approved by
the Corporation.
(e) Expenses. The Corporation shall reimburse the Executive for all
reasonable expenses properly incurred, and appropriately
documented, by the Executive in connection with the business of
the Corporation.
(f) Perquisites. The Corporation shall make available to the
Executive all perquisites to which he is entitled by virtue of
his position.
3
<PAGE>
6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
the Corporation, disclose or use directly or indirectly, (except in the course
of employment hereunder and in furtherance of the business of the Corporation or
any of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of the Corporation or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same or similar
businesses.
7. Noncompetition. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of the
Corporation in the same or a similar capacity engage in or invest in, or aid or
assist anyone else in the conduct of any business (other than the businesses of
the Corporation and its subsidiaries and affiliates) which directly competes
with the business of the Corporation and its subsidiaries and affiliates as
conducted during the term hereof. If any court of competent jurisdiction shall
determine that any of the provisions of this Section 7 shall not be enforceable
because of the duration or scope thereof, the parties hereto agree that said
court shall have the power to reduce the duration and scope of such provision to
the extent necessary to make it enforceable and this Agreement in its reduced
form shall be valid and enforceable to the extent permitted by law. The
Executive acknowledges that the Corporation's remedy at law for a breach by the
Executive of the provisions of this Section 7 will be inadequate. Accordingly,
in the event of the breach or threatened breach by the Executive of this Section
7, the Corporation shall be entitled to injunctive relief in addition to any
other remedy it may have.
8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to twenty-four (24) months of the Executive's base salary on the effective
date of the termination, plus 1/12 of the amount of the last bonus paid to the
Executive under the Corporation's bonus plan applicable to the Executive for
each month in the period beginning on January 1 of the year in which the date of
the termination occurs and ending on the date of the termination and for each
months' base salary to which the Executive is entitled under this Section 8,
provided, however, that any amount paid to the Executive by the Corporation for
services rendered
4
<PAGE>
subsequent to the thirtieth (30th) day following the communication to the
Executive of notice of termination shall be deducted from the severance pay
otherwise due hereunder. Such payment shall be made in a lump sum within ten
(10) business days following the effective date of the termination. The
severance pay shall be in lieu of all other compensation or payments of any kind
relating to the termination of the Executive's employment hereunder; provided
that the Executive's entitlement to compensation or payments under the
Corporation's retirement plans, stock option or incentive plans, savings plans
or bonus plans attributable to service rendered prior to the effective date of
the termination shall not be affected by this clause and shall continue to be
governed by the applicable provisions of such plans; and further provided that
in lieu hereof, at his election, the Executive shall be entitled to the benefits
of the Change in Control Agreement of even date hereof between the Corporation
and the Executive, if termination occurs in a manner and at a time when such
Change in Control Agreement is applicable. For purposes of this Agreement, the
term for "Cause" shall mean because of gross negligence or willful misconduct by
the Executive either in the course of his employment hereunder or which has a
material adverse effect on the Corporation or the Executive's ability to perform
adequately and effectively his duties hereunder.
9. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered or mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, or to such other
address as any party hereto shall designate to the other party in writing
pursuant to the terms of this Section 9.
10. Severability. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
11. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of Delaware.
12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
5
<PAGE>
13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Arnold M. Nemirow /s/ Richard K. Hamilton
---------------------------------- ------------------------------
Arnold M. Nemirow, Richard K. Hamilton
Chairman, President and
Chief Executive Officer
6
EXHIBIT 10.17
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 1st day of August, 1997, by and between
Bowater Incorporated, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"), and
Richard K. Hamilton of 442 Bellefounte Road, NE, Cleveland, TN 37312 (the
"Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(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 the Corporation representing twenty percent
(20%) or more of the combined voting power of the
Corporation's then outstanding voting securities, unless such
Person has filed Schedule 13G and all required amendments
<PAGE>
-2-
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) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
(d) "Change in Control" of the Corporation 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 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.
<PAGE>
-3-
(e) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
(f) "Continuing Directors" shall mean any member of the Board who
was a member of the Board immediately 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.
(g) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(h) "Good Reason" shall mean:
(i) an adverse change in the Executive's status, duties or
responsibilities as an executive of the Corporation as
in effect immediately prior to the Change in Control,
provided that the Executive shall have given the
Corporation written notice of the alleged adverse
change and the Corporation shall have failed to cure
such change within thirty (30) days after its receipt
of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment Agreement
between the Corporation and the Executive in effect on
the date of the Change in Control, or under any
benefit plans or policies in which the Executive was
participating at the time of the Change in Control
(including, without limitation, any incentive, bonus,
stock option, restricted stock, health, accident,
disability, life insurance, thrift, vacation pay,
deferred compensation and retirement plans or
policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation (including
the elimination of a plan without providing
substitutes therefor, the reduction of the Executive's
awards thereunder or failure to continue the
Executive's participation therein) that would
substantially diminish the aggregate projected value
of the
<PAGE>
-4-
Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(h)(ii) in which the Executive was
participating at the time of the Change in Control;
(v) a failure by the Corporation to obtain from any
successor the assent to this Agreement contemplated
by Section 5 hereof; or
(vi) the relocation of the principal office at which the
Executive is to perform his services on behalf of the
Corporation to a location more than thirty-five (35)
miles from its location immediately prior to the
Change in Control or a substantial increase in the
Executive's business travel obligations subsequent to
the Change in Control.
Any circumstance described in this Section 1(h) shall
constitute Good Reason even if such circumstance would not
constitute a breach by the Corporation of the terms of the
Employment Agreement between the Corporation and the Executive
in effect on the date of the Change in Control. The Executive
shall be deemed to have terminated his employment for Good
Reason effective upon the effective date stated in a written
notice of such termination given by him to the Corporation
(which notice shall not be given, in circumstances described
in Section 1(h)(i), before the end of the thirty (30) day
period described therein) setting forth in reasonable detail
the facts and circumstances claimed to provide the basis for
termination, provided that the effective date may not precede,
nor be more than sixty (60) days from, the date such notice is
given. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to,
any circumstances constituting Good Reason hereunder.
(i) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
(j) "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.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the period
beginning on the Commencement Date and ending on the day
before the third anniversary of the Commencement Date. The
term of this Agreement shall automatically be extended on the
first anniversary of the Commencement Date until the day
before the fourth anniversary of the Commencement Date without
further action
<PAGE>
-5-
by the parties, and shall be automatically extended by an
additional year on each succeeding anniversary of the
Commencement Date, unless either the Corporation or the
Executive shall have served notice upon the other party prior
to such anniversary of its or his intention either that the
term of this Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated, provided,
however, that if a Change in Control of the Corporation shall
occur during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance with the
foregoing, but in any event for a period of not less than
three (3) years from the date of the Change in Control.
(b) Notwithstanding Section 2(a), the term of this Agreement shall
end upon the termination of the Executive's employment if,
prior to a Change in Control of the Corporation, the
Executive's employment with the Corporation shall have
terminated under the provisions of any Employment Agreement
between the Corporation and the Executive then in effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the effective date of
termination), at the time such payments are due pursuant to
the terms of such benefit plans or policies as in effect
immediately prior to the Change in Control (or, if more
favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
<PAGE>
-6-
(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control.
<PAGE>
-7-
(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date, whichever is
earlier. Notwithstanding any conflicting restrictions in the
Plans or the fact of the termination of the Executive's
employment, until the Executive's Normal Retirement Date, the
Executive or his surviving spouse and his children shall
maintain a continuing right to receive the pension and other
benefits under the above Plans with payments to begin upon
retirement and to elect an imputed retirement on the
Executive's 50th birthdate or any of his birthdates thereafter
until his Normal Retirement Date, such election to be made by
so notifying the Corporation within one (1) year after
termination of his employment.
<PAGE>
-8-
(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall pay to the Executive an additional
amount such that the total amount of all such payments and
benefits (including payments made pursuant to this Section
3(e) net of the Excise Tax and all other applicable federal,
state and local taxes) shall equal the total amount of all
such payments and benefits to which the Executive would have
been entitled, but for this Section 3(e), net of all
applicable federal, state and local taxes except the Excise
Tax. For purposes of this Section 3(e), the term "Excise Tax"
shall mean the tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (the "Code") and any similar tax that may
hereafter be imposed.
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall
be deemed to be subject to the Excise Tax except to
the extent that, in the opinion of tax counsel
selected by the firm of certified public accountants
charged with estimating the payment to the Executive
under this Section 3(e), such payments or benefits
are not subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that
<PAGE>
-9-
the amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(g) If any payment to the Executive required by this Section 3 is
not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
6. NOTICE
Any notices and all other communications provided for herein shall be
in writing and shall be deemed to have been duly given when delivered
or mailed, by certified or registered mail, return receipt requested,
postage prepaid addressed to the respective
<PAGE>
-10-
addresses set forth on the first page of this Agreement or to such
other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt. All notices to the
Corporation shall be addressed to the attention of the Board with a
copy to each of the General Counsel, the Vice President-Human Resources
and the Secretary of the Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either party hereto of the breach of
any condition or provision of this Agreement shall be deemed a waiver
of any other condition or provision at the same or any other time.
8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9 VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the state in which
the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association by one arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The
Corporation hereby waives its right to contest the personal
jurisdiction or venue of any court, federal or state, in an action
brought to enforce this Agreement or any award of an arbitrator
hereunder which action is brought in the jurisdiction in which such
arbitration was conducted, or, if no arbitration was elected, in which
arbitration could have been conducted pursuant to this provision.
<PAGE>
-11-
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
12. SUPERSEDURE
This Agreement shall cancel and supersede any and all prior agreements
between the Executive and the Corporation entitled "Severance
Agreement" or "Change in Control Agreement".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Arnold M. Nemirow /s/ Richard K. Hamilton
------------------------- -------------------------
Arnold M. Nemirow Richard K. Hamilton
Its: Chairman, President and
Chief Executive Officer
EXHIBIT 10.18.2
SECOND AMENDMENT
TO BOWATER INCORPORATED
COMPENSATORY BENEFITS PLAN
AS AMENDED AND RESTATED
EFFECTIVE APRIL 30, 1991
The Bowater Incorporated Compensatory Benefits Plan, as amended and
restated effective April 30, 1991 (the "Plan"), is hereby further amended
effective January 1, 1997, in the following respects:
1. Paragraph 1 is amended by adding the following at the end thereof:
"The Plan shall consist of two separate plans, one that is maintained solely for
the purpose of providing benefits for employees in excess of the limitations on
contributions imposed by Section 415 of the Internal Revenue Code of 1986 (an
"Excess Benefit Plan"), and one which is maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees (a "Top-Hat Plan")."
2. Paragraph 3 is amended by adding the following at the end thereof:
"An Eligible Employee who is not a member of a select group of management or
highly compensated employees, within the contemplation of the Employee
Retirement Income Security Act of 1974 (as determined by the Plan
Administrator), shall be eligible to participate only in the portion of the Plan
that is an 'Excess Benefit Plan,' and shall not be eligible to participate in
the portion of the Plan that is a 'Top-Hat Plan.'"
3. Paragraph 4(a) is amended to add the phrase "If the Eligible
Employee participates in the portion of the Plan that is a Top-Hat Plan," at the
beginning of clauses (i) and (iii). Such Paragraph is further amended by
deleting clause (ii).
4. Paragraph 4(b) is amended by deleting the reference to "Section
4.01(b) and replacing it with "Section 4.01 or 4.02."
5. Paragraph 5(b) is amended by deleting the reference to "Investment
Fund B" and replacing it with "the Bowater Stock Fund."
6. Paragraph 5(c) is amended by deleting the phrase "other than an
officer of the Company who is subject to the requirements of Section 16 under
the Securities Exchange Act of 1934." Paragraph 5(c) is further amended by
deleting the reference to "Investment Fund C" and replacing it with "the Fixed
Income Fund."
7. Paragraph 7(a) is amended by deleting the proviso and inserting a
period after the phrase "ten years."
<PAGE>
8. Paragraph 11 is amended to read as follows:
"11. Plan Unfunded. The benefits payable under the Plan shall not be
funded for purposes of the Internal Revenue Code of 1986 or the Employee
Retirement Income Security Act of 1974, but shall be payable out of the general
funds of the Company or its Benefit Plan Grantor Trust, when and as benefits
become payable."
9. Paragraph 14 is amended to read as follows:
"14. Governing Law. The Plan shall be interpreted and enforced in
accordance with the laws of the State of Delaware."
IN WITNESS WHEREOF, the Company has caused this Second Amendment to be
executed by its duly authorized officers this 2nd day of December, 1997.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
---------------------------------------
Name: Richard F. Frisch
Title: Vice President - Human Resources
Date signed: December 2, 1997
-2-
EXHIBIT 10.19.1
1. GOAL
The Bowater Annual Incentive Plan is designed to provide incentive compensation
to key employees who are in the most critical roles to make important
contributions to the Company's performance. Specific Plan objectives are to:
o Reward for meeting or exceeding specific performance criteria
o Provide significant award potential for achieving outstanding
performance
o Attract, motivate and retain highly talented and competent
individuals
2. PERFORMANCE MEASURES
The award earned in 1998 will be based on the following performance measures:
(See Attachment A):
-- Return on Net Assets (RONA)
-- Return on Capital Spending (ROCS)
-- Mill Performance
-- Forest Products Performance
-- Sales Goals
3. PLAN PARTICIPANTS
At the beginning of or during, the Plan year, key employees will be selected to
participate in the Plan. Each participant will be informed of his or her target
incentive award (as a percent of salary) and the percentage weighting each of
the factors will have in determining the participant's award.
Plan participation is extended to selected employees who, in the opinion of the
Chief Executive Officer (CEO) and the Human Resources and Compensation Committee
(HRCC) of the Board of Directors, have the opportunity to have a significant
impact on the annual operating success of the Company. These employees are
notified in writing of their selection to participate in the Plan. Participation
in the Plan does not constitute a contract for continued employment; nor does
participation in the Plan in 1998 guarantee the right to participate in future
years.
<PAGE>
A participating employee will be eligible for awards if he or she has been
employed by the Company or one of its subsidiaries for at least 6 months, has
been in eligibility status for 4 months and is an active employee as of December
31 of the plan year (unless termination before December 31 is caused by death,
disability or retirement, in which case the employee or beneficiary will be
eligible for a prorated award as long as the other two criteria are satisfied).
Employees who receive bonus-equivalent payments pursuant to the severance terms
of separate agreement will not be eligible for an award under this Plan.
Payments will be made in a lump sum cash amount prorated to the number of months
the employee was a participant and/or actively at work if less than the full
plan year. The payments will be made as soon as possible after the computation
of results.
4. HRCC APPROVAL OF AWARDS AND RIGHT TO AMEND
The Human Resources and Compensation Committee of the Board of Directors will
approve all awards before payments are made. The Committee reserves the right to
adjust any or all awards; this includes the right to eliminate any or all awards
for any year if, in the Committee's judgment, they are not warranted. The Board
of Directors may alter, amend or terminate the Annual Incentive Plan at any
time.
5. PARTICIPANT GROUP MEASUREMENT WEIGHTINGS
<TABLE>
<CAPTION>
Forest Individual
Products Sales
RONA ROCS Mill Performance Performance Goals
--------------------------------------------------------------------------------------------------------------
Consol-
idated Consolidated Division Consolidated Division Division Division Total
----------- --------------- --------- --------------- ----------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Staff 50.0% 25.0% 25.0% 100.0%
Presidents 25.0% 25.0% 25.0% 25.0% 100.0%
Newsprint/
Directory;
Coated/Pulp
Newsprint/ 25.0% 25.0% 35.0% 15.0% 100.0%
Directory;
Coated/Pulp
Forest Products 25.0% 15.0% 25.0% 35.0% 100.0%
(1)
Sales - Vice 13.4% 13.3% 13.3% 60.0% 100.0%
Presidents (2)
Sales Force (2) 6.8% 6.6% 6.6% 80.0% 100.0%
</TABLE>
(1) See attached for Forest Products Division specific weightings
(2) Sales employees are included in a separate sales bonus plan
Exhibit 10.21.2
SECOND AMENDMENT TO RETIREMENT PLAN FOR OUTSIDE DIRECTORS
WHEREAS, the Bowater Incorporated Retirement Plan for Outside Directors, as
amended to date (the "Plan") was established, effective July 1, 1988, for the
benefit of Directors of Bowater Incorporated (the "Company") who are not
employees of the Company.
NOW, THEREFORE, pursuant to and in accordance with Section 8.06 of the
Plan, the Plan is hereby amended effective immediately, as follows:
The first sentence of Section 3.03 "POSTPONED RETIREMENT" of the Plan shall
be deleted and replaced with the following:
A Participating Director who remains a Director of the Company beyond
attainment of age sixty-five (65) may Retire on the first day of any month
following his attainment of age sixty-five (65) and the completion of five
(5) years of Service in Continuous Service but not later than the
expiration of the final term on the Board of Directors to which he was
elected in accordance with Section 4.15 of the Company's By-laws.
In all other respects the Plan shall remain unchanged.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
Richard F. Frisch
Title: Vice President -- Human Resources
Date: As of February 27, 1998
EXHIBIT 10.40
WORLD-WIDE TRADEMARK
OWNERSHIP, USE AND ASSIGNMENT AGREEMENT
Effective 30th June, 1997
Signed 18 December, 1997
<PAGE>
WORLD-WIDE TRADEMARK
OWNERSHIP, USE AND ASSIGNMENT AGREEMENT
AGREEMENT effective as of this thirtieth (30th) day of June, 1997, by and
between Bowater Incorporated, a Delaware corporation ("BOWATER USA"), and Rexam
plc (formerly called BOWATER PLC), and English company ("REXAM") (collectively,
the "PARTIES").
WHEREAS, the PARTIES each have an interest in the "Bowater" trade name
(including corporate names), the "Bowater" word mark, dimunitives, contractions
and variations thereof, and the "Bowater" house mark (collectively, the "BOWATER
MARKS").
WHEREAS, BOWATER USA, including its predecessors in interest, and REXAM have
previously entered into certain AGREEMENTS, (collectively the "PRIOR
AGREEMENTS") regarding the use, ownership, distribution, territories and rights
to the BOWATER MARKS.
WHEREAS, REXAM, has heretofore conveyed many individual registrations of the
"Bowater" house mark to BOWATER USA.
WHEREAS, REXAM and its subsidiaries (together "Rexam Group") have adopted and
are using the "Rexam" name and marks in connection with most of their products
and services and no longer use the BOWATER MARKS, except those rights reserved
in Section 2 of this Agreement.
WHEREAS, BOWATER USA desires to acquire substantially all of Rexam Group's
rights in or to the BOWATER MARKS, to the extent that it has not heretofore
acquired the same, and
1
<PAGE>
REXAM desires to convey such rights in the BOWATER MARKS to BOWATER USA as Rexam
Group has with Rexam Group retaining those rights in and to the BOWATER MARKS as
set out in Section 2, subject to the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements set forth hereinafter, together with other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
PARTIES agree as follows:
1. REXAM warrants that, as far as it is aware neither it nor any member of the
Rexam Group has (i) assigned to any third party any rights in and to the
BOWATER MARKS except those previously transferred to BOWATER USA; or, (ii)
granted any licenses that are currently in use, to use the BOWATER MARKS
other than in respect of the RESERVED RIGHTS (as defined below) and a
license granted to Land Securities plc in relation to Bowater House,
Knightsbridge, London.
2.1 REXAM Group shall retain (and does not hereby transfer or assign to BOWATER
USA) the following rights (collectively, the "RESERVED RIGHTS") in and to
the BOWATER MARKS:
(a) All rights in the BOWATER MARKS, with the exception of the
"Bowater" housemark, in relation to those product categories or any
new products developed within the product categories, listed in the
Schedule which may now or hereafter be manufactured or distributed
by the SUBSIDIARIES listed in the Schedule attached hereto, or any
successor in interest to any of them.
2
<PAGE>
(b) REXAM shall be free to expand its manufacturing and sales
facilities for the product categories as defined in the Schedule
anywhere in the EASTERN HEMISPHERE provided that any use of the
BOWATER MARKS be accompanied by a term that is product specific,
e.g. "Bowater Windows" and "Bowater Security Papers." REXAM shall
not have the right to expand its manufacturing facilities, sales
offices, or corporate name into the WESTERN HEMISPHERE in
conjunction with the RESERVED RIGHTS. As used herein, the EASTERN
HEMISPHERE means all of the world except the WESTERN HEMISPHERE as
defined in Section 3 infra.
(c) All rights in the name of "Bowater House" Knightsbridge in London,
England, in connection with that building;
(d) All rights in the BOWATER MARKS for all ministerial and
administrative purposes as:
(i) are necessarily incidental to, or appropriate to, further
facilitate REXAM Group's use of the RESERVED RIGHTS, including, but
not limited to, registration of any such RESERVED RIGHTS described
in (a) or (b) above as and when required; and/or
(ii) arise as a result of Rexam Group's previous connection with
the BOWATER MARKS, in particular the name `Bowater', including,
without limitation, using the name in dealings with registry and
administrative and other offices that hold registrations,
agreements or other information in the former names of Rexam
3
<PAGE>
Group companies, references in existing or commissioned marketing
literature, product information, catalogues or similar materials,
and indicating the former name of any Rexam Group company where
appropriate to do so.
2.2 (a) Where it is appropriate to do so, REXAM shall, at such time as
subsequent dealings are required with regard to the
above-referenced registry, administrative, and other office, use
reasonable endeavors to ensure that reference to the Bowater name
will be deleted from the relevant registry or office and the
appropriate correction entered on the record. With regard to the
above-referenced existing or commissioned marketing literature,
product information, catalogs, or similar material, when such
material is replaced and subsequent inventory created, the new
material will appropriately identify the relevant Rexam entity.
(b) This Section 2 and its limitations shall run with the exercise of
the rights retained herein and shall be binding upon any transferee
of all or a substantial part of any business which relates to any
of the PRODUCTS to which any of the RESERVED RIGHTS apply;
(c) The RESERVED RIGHTS retained herein shall be transferable only with
the sale of all or a substantial part of any business which relates
to any of the PRODUCTS to which any such rights apply. In the event
of a sale and transfer of the RESERVED RIGHTS, REXAM undertakes to
use its best efforts to negotiate a two-year transition period in
which the prospective buyer will cease using the BOWATER MARKS.
4
<PAGE>
(d) Nothing herein shall prevent BOWATER USA from adopting and using
any of the RESERVED RIGHTS which REXAM notifies BOWATER USA in
writing heretofore have been or hereafter will be abandoned by
REXAM or become abandoned as a matter of law provided that, in such
circumstances, BOWATER USA shall confirm such abandonment with
REXAM before adopting and using the affected RESERVED RIGHTS.
3. REXAM hereby assigns and conveys to BOWATER USA such right, title and
interest as the Rexam Group may have, including such goodwill associated
therewith that REXAM may have (if any) which arises exclusively from the use
thereof by BOWATER USA, including its predecessors in interest, in and to
the BOWATER MARKS world-wide for any and all goods and services
(collectively, the "RIGHTS"), subject to Section 2, above. Rexam shall not
utilize the BOWATER MARKS now or in the future in any territory worldwide
except as provided in Section 2. Further, REXAM undertakes that it shall not
use the BOWATER MARKS in any part of North, Central and South America
together with all contiguous islands under the governmental control of any
country located therein and together with all countries of the Caribbean
group of islands, including Bermuda and the Falkland Islands ("WESTERN
HEMISPHERE") except as may arise as a consequence of the RESERVED RIGHTS.
4. Upon BOWATER USA's request and expense therefor, REXAM shall execute such
documents to assign and shall procure that other members of the Rexam Group
shall execute such documents to assign, to the extent not already assigned,
by separate
5
<PAGE>
documents all existing trademark or service mark registrations of the
BOWATER MARKS, except those registrations relating to the RESERVED, to
BOWATER USA and further agrees to cooperate by executing any and all
documents which may be required to effect the transfer and assignment of
such trade and service mark registrations.
5. Each of the PARTIES agrees that it shall use reasonable endeavors to use the
BOWATER MARKS in a way which minimizes confusion between the respective
PARTIES. In the unlikely event that any confusion should arise from the
PARTIES' respective uses of the BOWATER MARKS for their respective products
and/or services, the PARTIES will cooperate in good faith to abate such
confusion.
6. BOWATER USA represents and warrants that no assignments or outstanding
licenses have been granted by BOWATER USA or its subsidiaries to third
parties in respect of the BOWATER MARKS.
7. BOWATER USA agrees to pay REXAM concurrently with execution of this
Agreement consideration for the RIGHTS in the amount of $1,650,000 in U.S.
funds, which funds shall be delivered to REXAM via wire transfer.
8. Subject to Section 2, REXAM shall not oppose or otherwise obstruct BOWATER
USA's attempt to register the BOWATER MARKS or any registration resulting
therefrom and shall provide reasonable assistance with registration whenever
and wherever needed, at BOWATER USA's request and sole expense.
6
<PAGE>
9. With the exception of the RESERVED RIGHTS, all uses heretofore of the
BOWATER MARKS by BOWATER USA and any of their predecessors, subsidiaries,
affiliates, or licensees shall inure to the benefit of BOWATER USA.
10. Except as specifically limited herein, this Agreement shall be binding upon
and inure to the benefit of the PARTIES hereto and their successors, and
assigns. As used herein, the successors shall include, but not be limited
to, any successor by way of merger, consolidation, sale of all or
substantially all of its assets, or similar reorganization.
11. This Agreement contains the entire understanding between the PARTIES hereto
and supersedes all other oral (if any) and written PRIOR AGREEMENTS or
understandings between them in relation to the use of the BOWATER MARKS and
the matters dealt with in this Agreement. No further rights or obligations
from the PRIOR AGREEMENTS in relation to the use of the BOWATER MARKS and
the matters dealt with in this Agreement remain except to the extent
specifically set forth herein.
12. No modification or addition hereto or waiver or cancellation of any
provision of this Agreement shall be valid except as specified in writing
signed by the party to be charged therewith.
13. The validity and construction of this Agreement or of any of its provisions
shall be determined under the laws of England. The invalidity or
enforceability of any provision of this Agreement shall not affect or limit
the validity and enforceability of the other provisions hereof.
7
<PAGE>
14. In the event of any dispute, controversy or claim arising out of or relating
to this Agreement or the breach, termination, or validity thereof, except
for disputes in respect of which equitable relief is sought (individually, a
"DISPUTE"), the PARTIES shall make a good faith attempt to settle the
DISPUTE by mediation pursuant to the provisions of this Section 14 before
resorting to the procedure set forth in Section 15 below:
(a) Unless the parties agree otherwise, the mediation shall be conducted in
accordance with the Commercial Mediation Rules of the American
Arbitration Association as modified pursuant to this Section 14, by a
mediator who (x) has the qualifications and experience set forth in
paragraph (b) of this Section 14 and (y) is selected as provided in
paragraph (c) of this Section 14.
(b) Unless the PARTIES agree otherwise, the mediator shall be a mediator
certified by the International Trademark Association who has mediated
cases involving large commercial transactions for the federal or state
courts.
(c) Either party (the "INITIATING PARTY") may initiate mediation of the
DISPUTE by giving the other party (the "RECIPIENT PARTY") written notice
(a "MEDIATION NOTICE") setting forth a list of the names and resumes of
qualifications and experience of three (3) impartial persons who the
INITIATING PARTY believes would be qualified as a mediator pursuant to
the provisions of paragraph (b) hereof. Within seven (7) days after the
delivery of the MEDIATION NOTICE, the RECIPIENT PARTY shall give a
counter-notice (the "COUNTER-NOTICE") to the INITIATING PARTY in which
the RECIPIENT
8
<PAGE>
PARTY may designate a person to serve as the mediator from among the
three (3) persons listed by the INITIATING PARTY in the MEDIATION NOTICE
(in which event such designated person shall be the mediator). If none
of the persons listed in the MEDIATION NOTICE is designated by the
RECIPIENT PARTY to serve as the mediator, the COUNTER-NOTICE shall set
forth a list of the names and resumes of three (3) impartial persons who
the RECIPIENT PARTY believes would be qualified as a mediator pursuant
to the provisions of paragraph (b) hereof. Within seven (7) days after
the delivery of the COUNTER-NOTICE, the INITIATING PARTY may designate a
person to serve as the mediator form among the three (3) persons listed
by the RECIPIENT PARTY in the COUNTER-NOTICE (in which event such
designated person shall be the mediator). If the PARTIES cannot agree on
a mediator from the three (3) names from the other party's list, each
party shall strike two (2) names form the other party's list, and the
two (2) remaining persons on both lists will jointly select as the
mediator any person who has the qualifications and experience set forth
in paragraph (b) hereof. If the two (2) persons are unable to agree,
then the mediator will be selected by the American Arbitration
Association.
(d) If the DISPUTE cannot be settled within 30 days after the mediator has
been selected as provided above, either party may give the other and the
mediator a written notice declaring the mediation process at an end, in
which event the DISPUTE shall be resolved as hereinafter provided.
9
<PAGE>
(e) All conferences and discussions which occur in connection with mediation
conducted pursuant to this Agreement shall be deemed settlement
discussions, and nothing said or disclosed, nor any document produced
which is not otherwise independently discoverable, shall be offered or
received as evidence or used for impeachment or for any other purpose in
any current or future arbitration or litigation.
(f) Each party shall bear its own costs and expenses with respect to
mediation, provided, however, that the costs of the mediator shall be
shared equally between the parties.
15. Any DISPUTE not settled in accordance with the procedures set forth in
Section 14 of this Agreement shall, at the request of either party, be
settled by the courts of England. Each of the parties hereby consents to
service of process by registered mail, by receipt of Federal Express or
other courier delivery, or by personal delivery at its address set forth
below and agrees that its submission to jurisdiction and its consent to
service of process by mail is made for the express benefit of the other
party.
16. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
and the same instrument. Execution of this Agreement may be effected by
facsimile transmission and facsimile signatures will have the same effect
and force as an original signature.
10
<PAGE>
17. All notices hereunder shall be deemed given if in writing, and delivered
personally (including by commercial courier or delivery service) or sent by
facsimile, or by registered or certified mail (return receipt requested) to
the PARTIES at the following addresses (or at such other addresses as shall
be specified by like notice):
(a) if to REXAM, to: Rexam PLC
114 Knightsbridge
London SW1X7NN United Kingdom
Fax: 011-44-171-581-1194
Attention: Michael J. Hartnall
Finance Director
(b) if to BOWATER USA, to: Bowater Incorporated
55 East Camperdown Way
Greenville, SC 29602 USA
Fax: (864) 282-9468
Attention: Anthony H. Barash
Sr. Vice President
Corporate Affairs and
General Counsel
11
<PAGE>
The PARTIES have caused this Agreement to be signed as of the day and year first
above written, whereupon it became a legally binding agreement in accordance
with its terms and conditions thereof.
Witness: BOWATER INCORPORATED
/s/ Harry F. Geair /s/ Anthony H. Barash
/s/ Suzanne J. Sherman By: Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
Date: December 16, 1997
Witness: REXAM PLC
/s/ [illegible signature]
/s/ Rose Barreto /s/ Michael J. Hartnall
By: Michael J. Hartnall
Title: Finance Director
Date: 18 December 1997
12
<PAGE>
SCHEDULE
<TABLE>
<CAPTION>
PRODUCT CURRENT MANUFACTURING COUNTRIES WHERE
CURRENT BUSINESS CATEGORIES LOCATION (TERRITORIES) SUBSIDIARY AND PLACE OF PRODUCT IS SOLD
(PRODUCT) MARK INCORPORATION
<S> <C> <C> <C> <C> <C>
Bowater Windows window and door None except Czech Republic Bowater Windows Limited - U.K
products subsidiary U.K. (England) Slovakia
corporate names Germany Bowater Halo Limited - Germany
Poland (England) Belgium
Netherlands
Luxembourg
Czech Republic
Poland
Croatia
Russia
Lithuania
Estonia
South Africa
Singapore
Hungary
Ireland
France
Austria
Bowater Business computer BOWJET England Bowater Business Forms U.K.
Forms stationery and BOWLIST Limited - (England) Northern Ireland
business forms Subsidiary Republic of
corporate name Ireland
USA
Kenya
Malta
Ghana
Nigeria
Uganda
Israel
Libya
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRODUCT CURRENT MANUFACTURING COUNTRIES WHERE
CURRENT BUSINESS CATEGORIES LOCATION (TERRITORIES) SUBSIDIARY AND PLACE OF PRODUCT IS SOLD
(PRODUCT) MARK INCORPORATION
<S> <C> <C> <C> <C> <C>
Bowater Security business *BOWJET England Bowater Security Products U.K.
Products stationery, TOPCHEX Northern Ireland Limited - (England) Northern Ireland
security Republic of Ireland Republic of
printing and *BOWATER Ireland
encoded CHEXPRESS Channel Islands
documentation
Subsidiary
corporate name
*Both
registered in
Great Britain
and Northern
Ireland
Rexam Food and food and BOWTOP England Rexam PKL Limited - Worldwide
Beverage beverage BOWPAK (England) Worldwide
Packaging packaging
Rexam Paper copy paper BOWLASER Australia None relevant Australia
Products BOWCOPY
</TABLE>
BOWATER
[GRAPIC APPEARS HERE]
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
(In millions, except per-share amounts) 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,484.5 $ 1,718.3
Operating income 135.7 301.2
Net income 53.7 200.2
Diluted earnings per common share $ 1.25 $ 4.55
Average common and common equivalent
shares outstanding 40.8 42.9
Dividends declared per common share $ .80 $ .80
Total assets 2,745.8 2,865.5
Total shareholders' equity $1,154.2 $ 1,171.1
Percent return on average common equity 4.5% 18.6%
Total debt $ 758.9 $ 760.6
Total debt as a percentage of total capitalization 37.2% 36.5%
Current ratio 3.69x 2.97x
Capital expenditures, including timberlands $ 99.6 $ 107.0
- ----------------------------------------------------------------------------------
Registered shareholders 5,200 5,600
Employees 5,000 5,000
Common stock price range $37 - 55-5/8 $31-3/4 - 41-1/4
</TABLE>
Contents:
Fellow Shareholders 1
Bowater At-A-Glance 6
Delivering High Performance 9
Poised for Growth 13
Safety and Environment 14
Financial Report 18
Directors 43
Officers 44
Shareholder Information 45
<PAGE>
Fellow Shareholders:
Bowater posted another good year in 1997, although not as strong an earnings
performance as in 1996. The year began with a cyclical low in pulp and paper
prices, but Bowater's financial performance improved each quarter, culminating
with a very profitable fourth quarter. In addition to benefiting from better
pricing levels, Bowater continued to control costs and focus on high-return
capital investments.
I am also pleased to report that Bowater's common stock price rose 18
percent during 1997, with total returns to shareholders, including dividends,
exceeding 20 percent. Bowater's returns were well above the paper and forest
products industry averages: the Dow Jones Paper Products Group, an index of
seven U.S. paper companies, rose only 6 percent in 1997. In its annual
"Shareholder Scoreboard" published last month, THE WALL STREET JOURNAL ranked
Bowater first among the top 10 U.S. paper companies in total shareholder return
for 1997 and for the past five years. I believe that our stock performance
reflects the financial markets' recognition of the company's focus on
optimizing our rich asset base while pursuing growth opportunities.
Our financial condition has never been better. Our balance sheet is one of
the strongest in the industry. This gives us the flexibility to respond to a
variety of internal and external opportunities. Last week we signed a definitive
agreement with Avenor Inc. by which Bowater will acquire one of the leading
forest products companies in Canada. This combination will create the second
largest newsprint producer in the world with eight well positioned mills and a
secure fiber base. Earlier this year, we entered into negotiations to acquire a
significant interest in a newsprint mill in Korea. All of this sets the stage
for a promising 1998.
Financial and Operating Results
Net income in 1997 was $53.7 million, or $1.25 per diluted share, on net sales
of $1.5 billion. This compares to net income of $200.2 million, or $4.55 per
diluted share, including $57.4 million, or $1.34 per diluted share for asset
sales, on net sales of $1.7 billion in 1996. Lower average prices for our
products were primarily responsible for the decline in revenue and profitability
in 1997 compared with 1996, but the bottom of the pricing cycle occurred early
in the year, and prices for all of our major products improved throughout the
year.
Bowater experienced strong demand for its products during most of last year,
due in large part to a focused strategy to supply the long-term needs of key
customers, rather than chasing prices in the spot markets. This strategy was
particularly successful in maintaining sustained demand in Asia, where the
markets were weakened by the financial crisis in the region.
Bowater's strong customer relationships supported our ability to operate at
full capacity for the entire year and avoid costly market downtime. We increased
shipments in each product line, except the communications papers business, which
was sold in 1996.
1
<PAGE>
Newsprint, our largest product line, is a very healthy business for us. In
1997, total U.S. demand for newsprint was up 7.1 percent and remains very strong
this year, supported by continuing strength in the economy. North American
capacity is essentially unchanged, inventories are at favorable levels and
pricing is continuing to improve. As newspaper advertising remains the medium of
choice, our customers continue to expand. This provides a growing demand for
Bowater's newsprint.
Coated paper is another key product line for Bowater, and one with excellent
long-term prospects. Shipments of coated groundwood papers in the United States
rose nearly 20 percent in 1997, shrinking inventories throughout the year.
Magazine advertising pages grew by 5 percent, and the number of catalog mailings
rose by an estimated 8 percent. All of this pushed up prices and order backlogs
as we started the new year.
The market for directory paper continues to be a strong and profitable
portion of our business. Demand is good and prices are stable.
Although economic turmoil in Southeast Asia weakened pulp prices by the first
quarter of 1998, market pulp continues to be a profitable product line as U.S.
demand for Bowater's pulp is growing and our manufacturing costs remain low.
The first half of 1997 saw record prices for lumber, while the market
softened during the second half. Housing starts are projected to be only
slightly lower in 1998, and this is expected to lead to solid performance by our
lumber operations. Bowater's three sawmills are in the eastern United States
and Canada. With declining timber harvests in western North America, we expect
demand for our structural lumber products to remain strong into the future.
Optimizing Assets
Bowater's ultimate goal is to increase the total value of our shareholders'
investment through improved financial performance on a sustained basis. Rich in
assets, Bowater intends to optimize them by making existing operations more
productive and efficient, and therefore more profitable. We have been proactive
in taking steps to enhance the value of your investment.
o Great Northern Paper. After an extensive study, we announced in late January
1998, a major decision involving Bowater's operations in Maine. A capital
investment program of approximately $220 million over the next three years is
designed to transform the East Millinocket site into a truly world-class mill,
within the lowest quartile of costs for all newsprint and directory paper mills
in North America. Concurrent with the decision to invest capital in the East
Millinocket mill, the company also decided that the West Millinocket mill no
longer meets the company's long-term objectives, and it has been put up for
sale. The sale of this mill and the possible monetization of related assets are
expected to make the capital improvement program at the East Millinocket mill
substantially self-funding.
2
<PAGE>
o Improvements at Calhoun. In September, Bowater announced plans to invest
approximately $180 million over the next two years to modernize the Calhoun,
Tenn., newsprint facility. This project includes a new thermomechanical pulp
facility, a new woodyard and conversion of an idle recovery boiler into a
waste-burning unit. The project will result in significant operating cost
reductions and will make this mill, already among the lowest cost mills in North
America, even more competitive.
o Catawba Initiatives. In July, our Catawba, S.C., mill installed a twin-wire
former on its #2 paper machine. This $17 million project improved the quality of
our coated paper products and increased production as well. This facility is in
the process of identifying other projects, upstream and downstream from each of
its three paper machines and pulp dryer, to improve the productivity and
efficiency of the operation.
o Optimizing Timberland Value. At midyear, we announced the creation of a
separate Forest Products Division with the simple but challenging goal of
getting the most income and long-term appreciation in value from our vast
holdings of timberlands. From an operating standpoint, we intend to complete the
separation of the new division from the papermaking side of our business in
1998. We may then restructure this new business into a separately financed,
stand-alone company, depending on our current need for capital and other
factors. In no event, however, will we place our mills in jeopardy of losing
their essential fiber supplies.
o Continuing Cost Reduction. In the past three years, Bowater has reduced its
costs and improved its operating efficiencies by $150 million on an annualized
basis. Although further cost reductions and productivity gains will be driven
primarily by new capital investments, your company will be continually focused
on improving its cost structure in all aspects of its operations.
o Human Resources. There is no more important asset for us than our dedicated
employees. We have established a comprehensive, incentive-based compensation
structure to align employee interests at all levels with those of our
shareholders. For example, about 95 percent of our employees participate in
gainsharing awards and similar incentives that provide cash payments for
attaining specified goals set for cost reduction, productivity, quality and
safety improvements.
Poised for Growth
Another important way to improve our financial performance on a sustained basis
is to grow our production and marketing capabilities. In the current economic
setting, we believe this can best be accomplished by acquiring existing
businesses related to ours. Our preference for growth is through acquisition
rather than by building large, new production facilities. With its strong
financial condition and operational efficiencies, Bowater is in an excellent
position to do so. The pending acquisition of Avenor Inc., with excellent mills
and experienced management teams, provides the opportunity to enhance our
position in all regional newsprint markets throughout North America and
significantly expand our international business.
3
<PAGE>
We are confident about the prospects for Bowater's market growth in Asia
despite the current financial crisis there. If our negotiations to acquire the
Korean newsprint mill are successful, this facility, which started up in late
1996, will become a platform for growth in Asia. It will also provide new export
opportunities in Latin America and Europe for our East Coast Canadian mill,
which has supplied Asian customers in recent years.
Looking Ahead
Our goals are clear. We expect to:
o Optimize our existing production assets by creating value-added strategies for
timberlands, selling underperforming facilities and investing in high-return
capital projects to continually improve our asset base, and
o Grow our production and marketing capabilities through the successful
integration of our pending acquisitions.
Although Bowater has achieved an excellent competitive position in the past
few years, we will continue to capitalize on a significant asset and customer
base. I believe this strategy is the key to increasing the value of your
investment in Bowater.
Finally, I would like to thank Donald R. Melville for his many years of
valuable service as a member of Bowater's Board of Directors. Don, who will
retire later this year, joined our Board in 1984, at the creation of Bowater as
a newly independent, New York Stock Exchange-listed company. His contributions
over the years have enhanced the value of your company, and we will miss him.
Sincerely,
Arnold M. Nemirow
Chairman, President and Chief Executive Officer
March 16, 1998
[PHOTO OF ARNOLD M. NEMIROW APPEARS AT LEFT OF SIGNATURE]
4
<PAGE>
About Bowater
Bowater Incorporated, headquartered in Greenville, S.C., is a major producer of
wood fiber products. We manufacture newsprint, coated papers, groundwood
specialty papers, directory paper, market pulp and lumber. Bowater is the
largest U.S. manufacturer of both newsprint and directory paper and one of North
America's largest manufacturers of coated groundwood paper. Our pulp and paper
products are marketed worldwide. Bowater employs about 5,000 people.
Our strategically located paper mills in the United States and Canada produce
2.7 million tons of paper and pulp products. Bowater facilities are ISO 9002
certified and are located in Catawba, S.C.; Calhoun, Tenn.; Millinocket and East
Millinocket, Maine; and Liverpool, Nova Scotia, Canada. Bowater's three
softwood sawmills, which annually produce 200 million board feet of construction
grade lumber, are located in Bridgewater, Nova Scotia, Canada; Ashland, Maine;
and Albertville, Ala.
Supporting these operations are 3.5 million acres of timberlands owned or
managed by Bowater. Approximately 2 million acres are located in Maine, 900,000
acres are in the Southern United States and 600,000 acres are situated in Nova
Scotia. This timberland base supplies our paper mills and sawmills as well as
many independently-owned forest products businesses.
Bowater is organized into three operating divisions: Newsprint and Directory,
Coated Paper and Pulp, and Forest Products.
5
<PAGE>
Bowater At-A-Glance
[GRAPHIC APPEARS AT LEFT OF PAGE]
Newsprint and Directory Division
- --------------------------------------------------------------------------------
Bowater is the largest manufacturer of newsprint and directory paper in the
United States, selling to newspaper publishers, telecommunications companies,
advertisers and commercial printers the world over. Our customers include The
Washington Post, The New York Times, Scripps Howard, Advance Publications,
Gannett, Knight-Ridder, O Globo in Brazil, Apple Daily in Hong Kong, BellSouth,
Bell Atlantic, Southwestern Bell and Australia's Pacific Access Pty. Ltd.
(formerly Telstra).
In 1997, we sold about 1.8 million short tons of newsprint, directory paper
and uncoated groundwood specialties, or 8 percent of North American production
capacity and 9 percent of U.S. market share.
Products
- --------------------------------------------------------------------------------
The Division manufactures 24 to 32 lb. newsprint, 18 to 25 lb. directory paper,
32 to 45 lb. uncoated groundwood specialties, 36 to 60 lb. coated papers and
fully bleached hardwood kraft market pulp. Coated paper and fully bleached
hardwood kraft market pulp are marketed through Bowater's Coated Paper and Pulp
Division.
Markets
- --------------------------------------------------------------------------------
The Division markets newsprint, directory paper and uncoated groundwood
specialties to customers in the United States, Canada, Europe, Asia, Latin
America and the Middle East.
Coated Paper and Pulp Division
- --------------------------------------------------------------------------------
Bowater is one of North America's largest manufacturers of coated groundwood
paper, selling nearly 500,000 short tons in 1997 with 8.7 percent of North
American market share. Our web offset and rotogravure printing papers are used
by commercial printers such as World Color Press, Inc., Quebecor, Inc., R.R.
Donnelley & Sons Co., Inc. and Quad/Graphics. Our customers also include major
magazine publishers such as News America, Cahners/Reed, The New York Times
Company and Reader's Digest, catalog publishers such as J. Crew, Talbots,
Spiegel and L. L. Bean, and book publishers such as Simon & Schuster,
McGraw-Hill and Harcourt Brace.
In 1997, the Division sold about 400,000 short tons of fully bleached
softwood and hardwood kraft market pulp used in numerous products such as fine
paper, tissue and packaging by customers including Kye Sung, Nippon Paper,
Wausau-Mosinee, Westvaco, Williamette, Cartiere Burgo and Manpa.
Products
- --------------------------------------------------------------------------------
The Division manufactures 36 to 60 lb. coated groundwood papers, fully bleached
softwood kraft market pulp, 27.6 to 32 lb. newsprint and 30 to 35 lb. uncoated
groundwood paper. Newsprint is marketed through Bowater's Newsprint and
Directory Division.
Markets
- --------------------------------------------------------------------------------
The Division markets coated groundwood papers, fully bleached softwood and
hardwood market pulp and uncoated groundwood specialties to customers in the
United States, Africa, Asia, Europe and Latin America.
6
<PAGE>
- --------------------------------------------------------------------------------
Forest Products Division
Created in 1997, the Division is responsible for managing Bowater's sawmills
and maximizing the returns from Bowater's 3.5 million acres of timberlands in
the United States and Canada. The Division sells pulpwood, sawtimber, lumber and
wood chips to a variety of customers. Because of the proximity of the
Division's land base to Bowater's operating mills, these manufacturing
facilities are the Division's most significant customers. The Division, however,
has considerable latitude and incentive to sell its products in the open market.
In 1997 the Division manufactured and marketed approximately 200 million
board feet of construction grade lumber.
Products
- --------------------------------------------------------------------------------
The Division produces and procures more than 10 million tons of chips, sawtimber
and pulpwood.
Markets
- --------------------------------------------------------------------------------
The Division markets pulpwood and sawtimber in the eastern United States and
Canada. The Division also markets softwood lumber to customers in the eastern
United States, the United Kingdom and Canada.
7
<PAGE>
[Graphics and a Photo appears here]
8
<PAGE>
Delivering
High Performance
To increase the value of the enterprise, Bowater's focus emphasizes two
corporate goals: optimizing our assets and growing our market position,
preferably through acquisition. Our strong financial condition positions us to
capture value opportunities as they arise.
Our Focus
Bowater has differentiated itself from its peers by employing a rigorous process
to analyze and select capital projects that both sustain the business and
increase yields targeted to exceed the cost of capital. Senior management is
charged with the responsibility of balancing required investments - compliance
projects and routine replacements - with projects that produce the highest
return on the capital invested. This process has generated a very favorable mix
of new investments while keeping overall spending to appropriate levels. Return
on Investment and Economic Value Added (R) are two of the measurement tools used
to evaluate capital spending. This focus on disciplined investing has been
intensified by linking a portion of the annual incentive compensation of key
managers to the returns on total spending.
Optimizing Our Assets
In July 1997, we completed a major capital upgrade of the No. 2 coated paper
machine at our Catawba, S.C., facility by installing a twin-wire former. This
upgrade provides the paper qualities and printing characteristics demanded by
today's marketplace. The project was completed on time and under budget and had
an excellent start-up that attained performance goals in record time. This
upgrade was partially responsible for an increase in productivity at Catawba
this year.
At the Calhoun, Tenn., newsprint facility, a $180 million modernization
project launched in 1997 will expand our thermomechanical pulp (TMP)
capabilities, upgrade the woodyard and convert an idle recovery boiler to a
fluidized bed boiler. The new TMP facility will replace an outdated groundwood
mill. TMP's high yield makes optimum use of the mill's wood supply while
significantly lowering operating costs. In addition, the introduction of higher
quality TMP allows the mill to optimize the fiber blend used in the manufacture
of newsprint.
As part of this modernization, we are upgrading the woodyard operations to
improve the mill's cost structure by taking advantage of the economies of
scale. This investment will result in higher operating efficiencies and lower
operating costs, which should make Calhoun one of the lowest cost mills in the
industry.
We are also converting an idle recovery boiler to a fluidized bed boiler that
will transform old tires, wood waste, bark and wood fiber sludge into energy for
the Calhoun mill. The Tennessee Department of Environment and Conservation
Percent of
Total 1997 Revenues
[PIE CHART APPEARS HERE]
o Newsprint and Directory 60%
o Coated Paper and Pulp 31%
o Forest Products 9%
Facing Page: Bowater's Calhoun, Tenn., mill is the largest newsprint
manufacturing operation in North America. The facility produced nearly 833,000
tons of newsprint and uncoated groundwood specialities, and 153,000 tons of
market pulp in 1997.
9
<PAGE>
1997 Shipments by Mill
(thousands of short tons)
Calhoun 970
Catawba 876
Mersey 276
Great Northern 558
Facing Page: Bowater is one of the largest directory paper manufacturers in
North America. Our two facilities in Maine produce virgin and 40 percent
recycled fiber content directory paper.
recognized the financial and environmental significance of this conversion when
it awarded Bowater an Innovative Technology Grant.
Bowater takes pride in its relentless focus on cost reduction. We have
established a Materials and Supply Strategy Team (MSST) composed of
cross-divisional, cross-functional members from maintenance, operations, end
users and purchasing. The MSST developed and implemented a process to review and
evaluate Bowater's annual expenditures for materials and supplies, resulting in
consolidation of suppliers and ongoing cost reductions.
In July, we announced the reorganization of our U.S. and Canadian forest and
wood products operations into the Forest Products Division. This consolidation
will allow us to identify and pursue opportunities to improve returns on our
timberlands through increased outside sales, reduced costs and better forest
management. We continue to study financial structures that will add
opportunities to increase value from our timber assets.
The creation of the Forest Products Division represents a major shift from
the traditional role of a woodlands operation as a support operation for the
paper mills. The Division's new role is that of a stand-alone business
enterprise whose management team is expected to demonstrate business leadership
as well as forest management expertise.
Meanwhile, the most important first step in the reorganization has been taken
- - putting in place a management team and strategic plan. The management team is
highly experienced in woodlands and sawmill operations. This leadership team is
focused on managing the Forest Products Division as a distinct business unit
that improves yield, efficiencies, profitability and asset returns.
This shift in focus is already contributing to improved operations. For
example, in the woodland basins that surround our Calhoun and Catawba mills, we
have begun initiatives designed to increase growth rates. These initiatives will
result in a shortened planting-to-harvesting rotation, from 30 to 22 years at
both operations. An investment in forest fertilization was just one piece of a
larger plan to improve growth rates on company lands.
In 1997, Bowater continued to invest in its sawmills to improve lumber yield
from company-harvested trees as well as those purchased on the open market. For
example, we invested in optimization equipment that allows us to use more of the
sawlog and to process smaller trees more efficiently, thereby capturing greater
value.
We are investing approximately $220 million in our mill at East Millinocket,
Maine, to build a new TMP facility to replace the older stone groundwood mill,
modernize two paper machines and make other improvements in the energy and
electrical systems. Construction is anticipated to begin in early 1999 and take
up to 24 months to complete. The project is expected to improve productivity and
reduce operating costs, positioning the site to be a first quartile cost mill.
We are seeking a buyer for our nearby Millinocket, Maine, mill because that
facility no longer meets our long-term objectives.
10
<PAGE>
[GRAPHICS AND A PHOTO APPEARS HERE]
11
<PAGE>
[GRAPHICS AND A PHOTO APPEARS HERE]
12
<PAGE>
Poised For Growth
Bowater has been actively pursuing growth opportunities through acquisition,
using existing product lines as platforms for growth. As we turn our focus
toward the successful integration of our pending acquisitions, we will leverage
our strengths.
Financial Capacity For Growth
Bowater has one of the strongest balance sheets in the industry. We have
significantly reduced our debt, exercised discipline in capital investments and
maximized operating cash flows. At year-end 1997, Bowater had more than $400
million in cash and marketable securities, an investment-grade debt rating and
the ability to use equity for the right opportunities. These factors provide the
financial flexibility to pursue growth opportunities.
Incentives For Growth
Bowater has developed a work force that operates according to a shared set of
well-understood values-customer focused, cost conscious, results oriented and
flexible.
To provide incentives that effectively align employee interests with those of
our shareholders, we recently developed a series of compensation programs that
will recognize and reward contributions to our successful and profitable
long-term growth. These programs include:
o A gainsharing program and similar incentives that reward improvements in
safety, productivity, quality and cost. About 4,600 employees currently
participate.
o A management incentive compensation plan based on the performance measures of
return on net assets, return on capital spending and operational performance.
o A savings plan with a company match of employee contributions linked to
return on net assets.
o A sales force incentive program based on meeting individualized sales goals
tied to specific performance standards.
o A long-term incentive plan for senior management in which payment is based on
Bowater's stock price and asset returns that must exceed the average for peer
companies.
Growing With Our Customers
During 1997, Bowater consolidated its newsprint and directory paper businesses
into the Newsprint and Directory Division. The combination of these
complementary core products has enhanced our opportunities to improve service to
our uncoated groundwood paper customers by leveraging our knowledge of customers
and territories.
The consolidation taking place in the publishing industry presents
opportunities for Bowater to enhance our relationships with customers who have
strong market
1997 Shipments
by Destination
(percent)
[BAR CHART APPEARS BELOW WITH THE FOLLOWING INFORMATION:]
Export Domestic
Newsprint 18 82
Coated 3 97
Directory 20 80
Market pulp 62 38
Facing Page: A supercalendar at Bowater's coated paper mill in Catawba, S.C. is
capable of handling paper more than 25 feet in width. Supercalendars tailor
product characteristics, such as gloss and smoothness, to meet specific
customer requirements.
13
<PAGE>
1997 Sales by Product
(millions of dollars)
[BAR GRAPH APPEARS BELOW WITH THE FOLLOWING INFORMATION:]
Newsprint 731
Coated groundwood 338
Directory 179
Market pulp 173
Uncoated groundwood specialities 44
Lumber and other wood products 135
Facing Page: In 1997, Bowater produced about 400,000 tons of fully bleached
softwood and hardwood market pulp at its Catawba, S.C., and Calhoun, Tenn.,
facilities. Bowater pulp is used throughout the world to produce many products,
including fine papers and tissue papers.
positions. At the same time, we deliver the highest level of
products and services possible to ensure that our customers maintain healthy,
profitable businesses. When our customers thrive, we thrive. When our customers
win, we win.
Indeed, Bowater has sustained its focus on developing strong,
mutually-beneficial relationships with customers through individualized
attention. Our goal is to encourage the growth of print as a medium by making
our customers' businesses more successful. Partnership initiatives with our
customers include mill and pressroom visits, production department crew
exchanges, quality audits, inventory control and continuous training programs.
In recent independent surveys, customers rated Bowater number one in valuing
its commitments and relationships. Customers described Bowater's performance in
customer service, product quality and technical assistance as exceptional.
Global Growth Opportunities
Markets in many other parts of the world are growing at a faster rate than the
North American market. Bowater has the ability to grow internationally while
preserving strong partnerships with its domestic customers. Our reputation for
quality products and service, a culture that is financially disciplined and a
decentralized organization that encourages rapid response, position us to be
competitive in the global marketplace. Our ultimate success in expanding
globally will be built on seizing the right opportunity, including forging
strong partnerships and joint ventures both domestically and internationally.
Safety and Environment
Bowater is committed to providing a safe working environment. Our goal is to
achieve safety leadership in the pulp and paper industry. A natural dependency
exists between Bowater and the environment; wood and water are the major raw
materials for pulp and paper.
Operating Safely
A renewed focus on long-term safety goals begun in 1996 has led to a 17 percent
reduction in Bowater's Occupational Safety and Health Administration (OSHA)
incident rate in 1997 over 1996, and a 34 percent decrease since 1995. Examples
of significant safety improvements include our Calhoun mill, which achieved its
all-time lowest injury rate in 1997 with a 39 percent reduction in the number of
injuries. The injury rate at the Mersey mill decreased by 30 percent and the
Catawba mill experienced a 25 percent reduction. Bowater Lumber Company, which
improved 55 percent year over year, the Oakhill Sawmill and the Mersey woodlands
ended 1997 with the best safety records ever. The Catawba and Calhoun woodlands
had no recordable injuries in 1997.
14
<PAGE>
[PHOTO APPEARS HERE]
15
<PAGE>
Bowater Timberland Holdings
(acres in thousands)
Nova Scotia 613
Maine 2,015
Tennessee 364
South Carolina 304
North Carolina 99
Georgia 99
Alabama 33
Facing Page: Bowater personnel continually monitor wastewater treatment
equipment to ensure that the company meets or exceeds state environmental
standards. Clarifiers at each Bowater location remove solids from mill
wastewater before it is biologically treated.
Several successful programs are responsible for these dramatic improvements.
For example, at our Catawba facility, we restructured our safety program to
enhance employee involvement by forming high-performance work teams. Many of the
principles of OSHA's Voluntary Protection Program are an integral part of
overall continuous improvement, including an ergonomics team that assesses all
human engineering factors in the office, production and maintenance areas.
Respect For The Environment
Bowater has taken affirmative steps toward compliance with the Cluster Rule
issued by the Environmental Protection Agency in 1997. We are proceeding with
modifications at our Millinocket, Catawba and Calhoun mills to comply with the
new air and effluent regulations, which require U.S. paper grade pulp producers
to eliminate the use of elemental chlorine from their pulp bleaching operations
by early 2001.
In 1997, Bowater recycled 342,000 tons of old newspapers, directories and
magazines into newsprint, directory paper and groundwood specialty papers,
eliminating the need for nearly 710,000 cubic yards of landfill. In addition, we
converted more than 1.3 million tons of tires, bark, sawdust and sludge into
energy-waste that would have gone to landfills or incinerators.
Although the Compact for Maine's Forests was narrowly defeated in a 1997
referendum vote, Bowater will manage its Maine lands under the principles of the
Compact while proposals for new forest policies are debated within the state.
Major components of the Compact included clear and reasonable harvesting
guidelines, a sustainable management audit program and other new forestry
initiatives.
Bowater is committed to the best forestry management practices endorsed by
the American Forest & Paper Association, including the Sustainable Forestry
Initiative(SM).
Providing Recreational Opportunities
Much of the land owned or managed by Bowater is available for recreational use.
Bowater has established and maintains 58 miles of scenic hiking trails. Several
trails wind through "Pocket Wilderness" areas that have been set aside by
Bowater for preservation in their natural states. Thousands of hikers and other
recreationists regularly enjoy the resources of the land.
In Maine, we have created two "Remote Recreation Areas" where the public can
enjoy non-motorized recreation in the summer and snowmobiling in the winter. In
total, there are 400 miles of snowmobile trails, 60 miles of cross-country ski
trails and six miles of hiking trails.
Almost 80,000 acres in Nova Scotia are reserved for recreational programs. In
June 1997, the Nova Scotia Environmental Assessment Board recognized Bowater's
forest recreation program with an Award of Merit.
Approximately 338,000 acres in Tennessee, North Carolina, South Carolina and
Georgia are included in management agreements with those states' wildlife
management organizations to enhance wildlife habitat and provide recreational
opportunities.
16
<PAGE>
[PHOTO APPEARS HERE]
17
<PAGE>
Financial Report 1997
[PHOTO APPEARS HERE]
Contents:
Business and Financial Review 19
Consolidated Financial Statements 26
Notes to Consolidated Financial Statements 30
Management's and Auditors' Statements 39
Financial and
Operating Record 40
18
<PAGE>
Business and Financial Review Bowater Incorporated and Subsidiaries
Overview
The company's net income for 1997 was $54 million, or $1.25 per diluted share,
on net sales of $1.5 billion. Although lower than 1996, the company's net
income during the latter half of 1997 improved significantly as selling prices
for the company's major products improved. Net income for 1996 was $200
million, or $4.55 per diluted share, which included gains on the sale of assets
of $57 million after tax and minority interest, or $1.34 per diluted share, and
extraordinary charges of $4 million after tax, or $.09 per diluted share,
relating to the repurchase of outstanding debt. Net sales for 1996 totaled $1.7
billion.
Fourth Quarter of 1997: Net income for the fourth quarter of 1997 was $30
million, or $.72 per diluted share, on net sales of $401 million. For the fourth
quarter of 1996, the company earned net income of $18 million, or $.41 per
diluted share, on net sales of $372 million. Fourth quarter 1996 net income
included after-tax gains on asset sales of $19 million, or $.46 per diluted
share.
Operating income for the fourth quarter of 1997 was $62 million,
significantly higher than operating income for the fourth quarter of 1996 of $8
million, as quarterly average transaction prices increased for all of the
company's products except directory paper and lumber. Operating income for the
fourth quarter of 1997 was also the highest since the second quarter of 1996.
The company's fourth quarter newsprint and market pulp average transaction
prices were 7 percent higher than in the fourth quarter of 1996, while the
average transaction price for coated paper increased 14 percent. Comparing the
same periods, the company's shipments increased for all products except market
pulp. The devaluation of certain Asian currencies in the latter half of 1997 did
not materially affect the company's newsprint and market pulp export sales. In
addition to higher selling prices and shipments, the company's cost of sales,
and selling and administrative expenses were lower in the fourth quarter of
1997. This was due to the absence of costs relating to Star Forms Incorporated
("Star Forms," formerly Bowater Communication Papers Inc.), which was sold in
1996, and expenses recognized in the fourth quarter of 1996 relating to an
incentive compensation program.
Results of Operations:
1997 Compared with 1996
The company's operating income was $136 million in 1997 on net sales of $1.5
billion, compared with $301 million on net sales of $1.7 billion in 1996. Annual
average transaction prices for all of the company's products, except market
pulp and lumber, were lower in 1997. These lower selling prices accounted for
the majority of the operating income decline. Net income for 1997 was $54
million, compared to $200 million in 1996.
Product Line Information: Although all company operations are grouped in a
single segment, market and operating trends are discussed by major product. In
general, the company's products are globally traded commodities. Pricing and
the level of shipments of these products will continue to be influenced by the
balance between supply and demand as affected by global economic conditions,
changes in consumption and capacity, the level of customer and producer
inventories, and fluctuations in exchange rates.
The information provided in the following product line discussions concerning
market and industry conditions was obtained from the following sources: the
Newspaper Association of America; the Canadian Pulp and Paper Association; the
American Forest & Paper Association; and the Media Industry Newsletter. This
information is provided to enhance the reader's understanding of the company's
financial results and the conditions under which these results were achieved.
Newsprint In contrast to 1996, conditions in the newsprint market improved
throughout 1997. In 1996, newsprint consumption declined as high prices in 1995
caused many newspaper and commercial printers to reduce usage. Lower demand
caused prices to decline and producer inventories to increase during 1996. By
the end of the year, consumption began to increase, causing a recovery in the
newsprint market. This recovery continued throughout 1997 as consumption of
newsprint by U.S. daily newspapers and total U.S. newsprint consumption
increased compared to 1996. North American newsprint producer inventory levels
decreased, while U.S. daily newspapers' newsprint inventory increased slightly
at the end of the comparable periods. The newsprint export market experienced a
similar recovery. These improved market conditions enabled the company to
increase prices in 1997. In March,
Operating Income (Loss)
($ millions)
[BAR GRAPHS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
93 94 95 96 97
-- -- -- -- --
(63) 42 549 301 136
<TABLE>
<CAPTION>
Newsprint
93 94 95 96 97
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
Average Transaction Price (per short ton) 423 414 600 585 493
Shipments (thousands of short tons) 1,437 1,460 1,402 1,446 1,482
</TABLE>
19
<PAGE>
[BAR GRAPHS APPEAR BELOW WITH THE FOLLOWING INFORMATION:]
Coated Groundwood
93 94 95 96 97
-- -- -- -- --
Average Transaction Price (per short ton) 696 677 975 824 705
Shipments (thousands of short tons) 454 453 476 432 479
Directory Paper
93 94 95 96 97
-- -- -- -- --
Average Transaction Price (per short ton) 685 679 709 871 784
Shipments (thousands of short tons) 202 189 229 211 228
the company announced a $75 per metric tonne domestic price increase, and in
October, it announced a $35 per metric tonne domestic price increase. The
company realized slightly less than the anticipated increases from these
announcements. Although the company's average transaction price was 16 percent
lower in 1997 compared to 1996, improved market conditions in 1997 led to
quarterly average transaction price increases in the second, third and fourth
quarters. Shipments were slightly higher comparing 1997 to 1996, while the
company's newsprint inventory at the end of 1997 was at its lowest level in the
company's history. In January 1998, the company announced a $40 per metric tonne
domestic price increase effective April 1.
Coated Groundwood The coated paper market also improved in 1997 compared to
1996, when coated groundwood paper demand declined due to conservation measures
and inventory reductions initiated by commercial printers and publishers. During
the first quarter of 1997, consumption began to increase and market conditions
improved. Comparing the full year of 1997 to 1996, U.S. coated groundwood
shipments and magazine ad pages increased while U.S. coated groundwood producer
inventory levels decreased. These favorable market conditions allowed the
company to increase coated groundwood transaction prices four times. In April
1997, the company increased prices $60 per ton; in July it increased prices
between $50 and $80 per ton; in October it increased prices up to $40 per ton;
and in January 1998, it increased prices $60 per ton. The realization of these
price increases varied, however, according to market segment and the timing of
implementation. The company's average transaction price for the second, third
and fourth quarters of 1997 was higher than the respective prior quarters.
Compared to 1996, the average transaction price for 1997 was 15 percent lower,
while shipments increased 11 percent. The company's inventory at the end of
1997 was at its lowest level since 1992.
Directory Paper Sales of the company's directory products in 1997 decreased
compared to 1996. The company's average transaction price decreased 10 percent
compared to 1996, partially offset by an increase in shipments of 8 percent.
During 1996, demand decreased in the directory paper market caused by
conservation measures initiated by telephone directory publishers, which had the
effect of lowering prices. This also affected the company's prices in 1997,
since a large portion of the company's sales are based on contracts, the
pricing of which was determined in 1996. In addition, the company sold more
higher priced grades of directory paper in 1996 compared to 1997.
Market Pulp The pulp market showed signs of improvement in 1997 in comparison
to the conditions and pricing that existed in 1996. In 1997, NORSCAN (United
States, Canada, Finland, Norway and Sweden) softwood market pulp shipments
increased compared to 1996, while NORSCAN inventory levels decreased at the end
of the comparable periods. Beginning in the second quarter of 1997, the
company's average transaction price began to improve, and for the full year, it
was $34 per metric tonne, or 8 percent higher compared to the average
transaction price for 1996. Shipments increased 4 percent over 1996 levels. Late
in the fourth quarter of 1997, the devaluation of Asian currencies negatively
affected pulp pricing, particularly in the export market. The company's market
pulp transaction prices and shipments were not materially affected.
Lumber In the first half of 1997, favorable conditions in the lumber
market carried over from 1996, as demand from U.S. housing starts, low producer
inventories and strong foreign consumption kept market prices at or above prior
year levels. During the balance of 1997, however, prices decreased as supply
outpaced demand. In the United States, housing starts totaled 1.4 million in
1997, slightly less than 1996. In addition, a slowdown in the Japanese housing
market caused some producers to divert lumber to the U.S. market. The company's
average transaction price increased in the first three quarters of 1997 compared
to the same 1996 quarters. The company's fourth quarter 1997 average
transaction price, however, was 8 percent lower than the fourth quarter of 1996.
For the full year of 1997, the company's average transaction price was 10
percent higher than 1996, while shipments were 3 percent higher.
Cost of Sales and Other Income
and Expenses: Cost of sales decreased 4 percent in 1997 compared to 1996. This
decrease was due to the absence of costs relating to Star Forms, partially
offset by higher costs due to increased shipments in 1997.
Selling and administrative expenses decreased 22 percent comparing 1997 to
1996. This decrease was also due to the absence of expenses relating to Star
Forms. In addition, administrative costs in 1996 included the major portion of
expense associated with a three-year incentive compensation plan established in
1994.
Interest expense decreased 5 percent in 1997, due to lower average debt
balances in 1997 compared to 1996. Interest income increased 2 percent,
comparing the same periods, due to higher average investment balances.
In 1997, the company sold 1,000 acres of timberlands resulting in a pre-tax
gain of $.8 million. In 1996, the company sold 121,000 acres of timberlands
resulting in a pre-tax gain of $81 million, and sold Star Forms resulting in a
gain of $17 mil-
20
<PAGE>
lion. The company did not incur any extraordinary charges in 1997. In 1996, the
extraordinary charge of $4 million, net of taxes of $2 million, represented the
fees and expenses incurred to retire long-term debt.
Liquidity And Capital Resources
The company's cash, cash equivalents, and marketable securities balance at
year-end 1997 was $406 million, a decrease of $25 million from $431 million at
year-end 1996.
Cash and cash equivalents increased to $229 million at year-end 1997, from
$85 million at year-end 1996, an increase of $144 million. The company generated
$196 million of cash from operations and $73 million from investing activities,
while it used $125 million of cash for financing activities. Significant
transactions for the year included: the maturity of $169 million of marketable
securities, the purchase of 1.6 million shares of the company's common stock at
a cost of $67 million, the redemption of the remaining 500,000 shares of LIBOR
Series A (LIBOR) Preferred Stock for $25 million and the payment of cash
dividends of $21 million to the minority shareholder of Calhoun Newsprint
Company (CNC).
Cash from Operating Activities: The company's operations generated $196 million
of cash in 1997, $141 million less than the cash generated from operations in
1996. This decrease was largely the result of lower operating income of $166
million due to lower selling prices for most of the company's products. Working
capital changes, excluding taxes, were unfavorable by $114 million. Tax payments
in 1997 were $136 million lower than in 1996, due to the lower level of income
in 1997. In addition, 1996 tax payments included payments for the company's
1995 liability, which it was able to defer for one year.
Cash from Investing Activities: Cash inflow from investing activities in 1997
was $73 million versus a cash outflow of $272 million in 1996. Capital
expenditures in 1997 totaled $100 million, slightly less than the $107 million
spent in 1996. Pre-tax cash proceeds from the disposal of fixed assets, timber
and timberlands totaled $4 million in 1997 versus $127 million in 1996. In 1996,
the company sold 121,000 acres of timberlands for $122 million. Also in 1996,
the company sold Star Forms resulting in net cash proceeds of $54 million. In
1997, the company realized $169 million from the maturity of marketable
securities, while in 1996, it invested $345 million.
Several years ago, the company undertook an initiative to eliminate
non-strategic assets, including non-strategic timberland tracts. Since 1993, the
company has sold 434,000 acres of timberlands throughout the United States and
Canada. This includes the sale of 19,000 acres in January 1998 with gross
proceeds of approximately $30 million. Currently, the company owns and leases a
total of 3.5 million acres of timberlands. Sales of non-strategic timberlands
are processed through the company's Forest Products Division.
In September 1997, the company announced its plan to invest approximately
$180 million over the next two years to modernize its Calhoun, Tenn., newsprint
facility. The plan calls for a new thermomechanical pulp facility, an upgraded
woodyard and conversion of an idle recovery boiler. In addition to reducing
operating costs, these changes will have a positive environmental impact by
burning a variety of waste products that would otherwise be sent to landfills.
In January 1998, the company announced its plan to invest approximately $220
million to modernize its East Millinocket, Maine, pulp and paper mill. The plan
encompasses a new thermomechanical pulp mill facility, modernization of two
paper machines, which produce newsprint and directory paper, and other
improvements to the site's energy and electrical systems. Although the project
will not increase the company's papermaking capacity, it is expected to reduce
operating costs and improve productivity. Construction is anticipated to begin
in early 1999 and take up to two years to complete. The company also announced
its intention to seek a buyer for its Millinocket, Maine, paper mill, which
includes four paper machines and related assets. This facility no longer meets
the company's long-term objectives.
The company anticipates capital spending of approximately $250 million in
1998, which includes approximately $100 million for the Calhoun modernization.
Also in January 1998, the company announced that it was in negotiations to
acquire a significant interest in the Daebul Newsprint Mill owned by Halla Pulp
& Paper Co. Ltd., which is part of the Halla Group of Seoul, Korea. The Korean
mill started up in late 1996 and has an annual production capacity of
approximately 250,000 metric tonnes of recycled newsprint for the Korean and
other Asian markets. These negotiations are continuing.
On March 9, 1998, the company signed a definitive agreement by which it will
acquire all of the outstanding shares of Avenor Inc. common stock for C$35 per
share (U.S.$24.67 per share as of March 9). The purchase price, including
assumed debt, is approximately C$3.5 billion (U.S.$2.5 billion as of March 9).
The combination has been approved by the Boards of Directors of both companies
and is expected to be completed by the end of June 1998, subject to the approval
of the shareholders of both companies and appropriate regulatory authorities.
The transaction will be financed through a combination of cash, additional debt
and common stock. The cash portion of the transaction is limited to 60 percent
of the purchase price and could be as low as 50 percent. Conversely, the equity
portion could be as much as 50 percent, but
<TABLE>
<CAPTION>
Market Pulp
93 94 95 96 97
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
Average Transaction Price (per short ton) 317 436 717 393 424
Shipments (thousands of short tons) 312 300 325 393 407
</TABLE>
Capital Expenditures
Including Timberlands
($ millions)
93 94 95 96 97
- -- -- -- -- --
122 216 96 107 100
21
<PAGE>
in no event, less than 40 percent. The company anticipates using its existing
cash reserves and replacing its current $150 million Credit Agreement with a new
one-year committed $1 billion credit facility to fund the cash portion of the
transaction. The company intends to sell Avenor's uncoated freesheet mill and
pulp mill in Dryden, Ontario, with the proceeds used to repay debt.
Avenor Inc. is an international forest products company that manufactures
newsprint, pulp, uncoated freesheet paper and wood products. In 1997, its net
sales were C$2.0 billion, and at December 31, 1997, its total assets were C$2.7
billion. If the acquisition is approved, Bowater Incorporated will double its
annual newsprint and groundwood paper making capacity and become a major
producer of market pulp, making it the second largest newsprint producer in the
world and the third largest market pulp producer in North America.
Cash from Financing Activities: Cash flow used for financing activities was $125
million in 1997, $119 million lower than the amount spent in 1996. In 1997, the
company's cash dividends were $13 million lower due to reduced dividend
payments to the minority shareholder of CNC. The company also paid lower
preferred stock dividends due to the conversion of the company's 7% PRIDES
Series B Convertible Preferred Stock (PRIDES) into common stock and the
redemption of the company's remaining shares of LIBOR Preferred Stock. In 1997,
the company used $2 million for current payments on long-term debt obligations,
while in 1996 it used $64 million to repurchase and extinguish outstanding debt
in addition to normal long-term debt payments. Common stock repurchases were
also lower in 1997 by $32 million, while the company received an additional $12
million from the exercise of stock options in 1997 compared to 1996.
In January 1997, the company converted all of its PRIDES resulting in the
issuance of 4,012,765 common shares, which was reflected in the Consolidated
Balance Sheet on December 31, 1996.
In February 1997, the company completed the repurchase of approximately 10
percent of its outstanding common stock, purchasing 4 million shares at a cost
of $156 million, as part of a previously announced stock repurchase program.
During January and February 1997, the company purchased 1.4 million common
shares at a cost of $57 million. In November 1997, the company announced a new
stock repurchase program, authorizing it to purchase up to 10 percent of the
company's outstanding common stock in the open market, subject to normal
trading restrictions. In December 1997, the company purchased 220,000 shares
under the new program at a total cost of $10 million.
In May 1997, the company redeemed for $25 million the remaining 500,000
outstanding shares of LIBOR Preferred Stock at its par value of $50 per share,
plus accrued and unpaid dividends.
In January 1998, the Board of Directors of CNC declared a $31 million
dividend. As a result, $15 million was paid to the minority shareholder of CNC
in February 1998.
Environmental Items
The company is subject to a variety of federal, state and provincial
environmental laws and regulations in jurisdictions in which it operates. The
company believes its operations are currently in substantial compliance with
applicable environmental laws and regulations.
In late 1993, the U.S. Environmental Protection Agency (EPA) proposed
regulations that would impose new air and water quality standards aimed at
further reductions of pollutants. Known as the "Cluster Rule", these regulations
were issued in final form by the EPA in November 1997. The company's compliance
period begins in the first quarter of 1998 and extends until the year 2006;
however, the majority of the compliance requirements must be met by the year
2001. These new rules will require capital expenditures at all of the company's
U.S. paper mills.
The company anticipates spending approximately $60 million to $75 million to
comply with the new effluent guidelines, with the majority to be spent at the
company's Catawba, S.C., location. Additional capital will also be required to
meet the new air quality standards. Engineering studies are currently under way
to define this additional cost, which is expected to be in the same range as the
requirement for the effluent guideline expenditure. The company's capital
spending plan for 1998 includes amounts relating to this study and
implementation of the new effluent quality regulations.
Other than the Cluster Rule regulations described above, the company
anticipates approximately $10 million to $15 million of capital expenditures per
year for the foreseeable future to maintain compliance with environmental
regulations.
The company is not involved in any proceeding under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, that
it believes will result in liabilities that will have a material adverse effect
on the company's future cash flow, financial condition or results of
operations.
While it is difficult to predict with certainty the nature of future
environmental regulations, the company believes it will not be at a competitive
disadvantage in meeting future U.S. or Canadian standards.
Organizational Matters
In July 1997, the company announced the reorganization of its U.S. and Canadian
forest and wood products operations into a new division called the Forest
Products Division. The consolidation of
22
<PAGE>
these operations will enable the company to explore new opportunities to improve
returns on its forest products assets. These opportunities include: optimizing
the use of existing properties by using wood to its highest value end-use,
optimizing land management practices to maximize sustainable harvest goals,
selling certain non-strategic timberland tracts and evaluating alternate
financial structures that could provide an enhanced market valuation.
The company also announced the consolidation of its newsprint and directory
paper businesses into one division called the Newsprint and Directory Division.
The combination of these businesses will enhance the company's opportunities to
better serve its groundwood-based customers while developing strategies for
improving financial returns.
Year 2000 Compliance
Since 1990, the company has reengineered its major internally developed software
programs. During this effort, the company examined potential problems arising
from the inability of certain application software programs to recognize the
year 2000. A formal review of all internally developed software was completed in
1997. No major problems were encountered. In addition, all major third-party
licensed application software programs have been reviewed and are either
compliant or have released a compliant version to which the company will migrate
during 1998. The costs associated with this project are currently expected to be
less than $1 million.
Adoption of Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". Comprehensive income includes net income and certain changes in
shareholders' equity. This standard requires the disclosure of comprehensive
income items in a financial statement that is displayed with the same prominence
as other financial statements. The company will adopt this standard in the first
quarter of 1998. It will not have an impact on the company's results of
operations or financial condition.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". This standard requires a public
company to disclose financial information about its reportable operating
segments. Reportable operating segments are to be determined on a basis
consistent with that used for internal management reporting. The company will
adopt this standard for the year ended 1998. It will not have an impact on the
company's results of operations or financial condition.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits." This standard revises the
required disclosures for pensions and other postretirement benefits. The company
will adopt this standard for the year ended 1998. It will not have an impact on
the company's results of operations or financial condition.
Historical Reference:
1996 Compared With 1995
The company's financial performance for 1996 was one of the best in its
history. Net income for 1996 was $200 million, or $4.55 per diluted share, which
included gains on the sale of assets of $57 million after tax and minority
interest, or $1.34 per diluted share, and extraordinary charges of $4 million
after tax, or $.09 per diluted share, relating to the repurchase of outstanding
debt. Net sales for 1996 totaled $1.7 billion. This compares to net income in
1995 of $247 million, or $5.22 per diluted share, on net sales of $2 billion.
Results from 1995 include: a gain on the sale of timberlands of $1 million after
tax and minority interest, or $.03 per diluted share; an after-tax charge of $14
million, or $.33 per diluted share, relating to salaried personnel reductions;
an after-tax charge of $30 million, or $.69 per diluted share, relating to the
write-down of the company's investment in Star Forms; and extraordinary charges
of $11 million after tax, or $.26 per diluted share, for premiums and expenses
related to the repurchase of approximately $300 million of outstanding debt.
Also included in the $5.22 per diluted share for 1995 is a $.23 per share charge
relating to the partial redemption of the company's 8.40% Series C Cumulative
Preferred Stock.
The company's operating income was $301 million in 1996 on net sales of $1.7
billion, compared with $549 million on net sales of $2 billion in 1995. Average
transaction prices for all of the company's products, except directory paper
and lumber, were lower in 1996. These lower selling prices accounted for over 90
percent of the operating income decline.
Product Line Information:
Newsprint The company's newsprint average transaction price for 1996 decreased
3 percent, while its newsprint shipments increased 3 percent, compared to 1995.
The decline in price was largely driven by market factors, while the increase in
shipments was due to changes in the company's product mix. In response to
record-high transaction prices in 1995, U.S. daily newspapers and commercial
printers instituted conservation measures to reduce newsprint usage. This, along
with lower circulation, resulted in a decline in consumption. In 1996, these
conditions continued, causing U.S. daily newspaper consumption and total U.S.
consumption to decrease compared to 1995. This decline in consumption, coupled
with high consumer and producer inventories, resulted in lower average newsprint
prices during 1996. Export market prices were also lower in 1996,
23
<PAGE>
caused by an increase in North American exports and new capacity primarily in
Asia. Inventories held by U.S. daily newspapers at the end of 1996 were at 36
days of supply, down from 43 days at the end of 1995, and from a high of 57 days
at the end of February 1996. North American producer inventories at the end of
1996 were 512,000 metric tonnes, 80 percent higher than the level at the end of
1995, but lower than the third quarter of 1996.
Coated Groundwood The company's coated groundwood paper average transaction
price decreased 15 percent in 1996 compared to the average price in 1995.
Shipments decreased 9 percent during the same periods, primarily due to the
conversion of coated book paper production to uncoated grades and lower
production associated with quality enhancements. A decline in coated groundwood
paper demand throughout 1996 caused selling prices to decline and producer
inventory levels to remain above historical averages. There were several reasons
for the shortfall in demand from 1995: commercial printers and magazine and
catalog publishers continued to reduce excess inventory levels; paper purchases
by catalog publishers for holiday catalog printing declined; and many end users
employed conservation measures to reduce paper costs. U.S. coated groundwood
paper shipments for 1996 decreased compared to 1995, while U.S. coated
groundwood producer inventories at the end of 1996 totaled 242,000 tons compared
to 113,000 tons at the end of 1995.
Directory Paper The directory paper market experienced strong demand during 1995
and early 1996, similar to demand in the newsprint market, causing prices to
rise significantly. Higher prices in 1996 caused many U.S. telephone directory
publishers to initiate conservation measures, decreasing the amount of paper
needed and resulting in decreased consumption compared to 1995. In the export
market, however, higher prices had a lesser impact on consumption. Despite these
market conditions, the company's directory paper average transaction price
increased 23 percent comparing 1996 to 1995, since a large portion of the
company's sales are based on contracts, the pricing of which was determined in
1995.
Market Pulp The company's market pulp average transaction price for 1996
declined 45 percent from 1995's average price, while shipments increased 21
percent. The increase in shipments was due to higher market pulp production by
the company, as well as improving market conditions as the year progressed. The
decline in market pulp prices, which was first evident in late 1995, was a
result of lower global paper demand and rising inventories. During the second
quarter of 1996, however, the pulp market began to strengthen. This allowed
producers to increase prices by $60 per metric tonne in June, and by $50 per
metric tonne in July. A third price increase scheduled for the fourth quarter of
1996 was not implemented, as the surge in demand experienced earlier in the year
subsided and NORSCAN inventories in the fourth quarter increased from third
quarter levels.
Lumber The average transaction price for the company's lumber products was 13
percent higher in 1996 versus 1995. During 1995 and the early part of 1996,
lumber prices were depressed due to the low levels of new housing starts. During
the second quarter of 1996, higher new housing starts, lower producer
inventories and higher foreign demand helped to increase prices, trends that
continued into the third and fourth quarters of 1996. For 1996, U.S. housing
starts totaled 1.5 million units, to date the highest in the decade.
Communication Papers In November 1996, the company sold its Star Forms
converting business to CST Office Products, Inc., for $80 million, including $60
million in cash and a $20 million 13% Junior Subordinated Note. The company
recorded a gain on the sale of $17 million after tax. Star Forms' shortened
operating results for 1996 were lower than the full year of 1995, as average
transaction prices decreased 21 percent, offset in part by lower raw material
costs.
Cost of Sales and Other Income and Expenses: Cost of sales decreased 3 percent
from 1995 to 1996. In 1996, cost of sales continued to benefit from cost
reduction and operating efficiency programs initiated over the last three years.
In 1995, cost of sales included an $18 million charge related to salaried
personnel reductions.
Selling and administrative expenses decreased slightly from 1995 to 1996.
Included in 1996 expenses was a $22 million charge, the major portion of expense
associated with a three-year incentive compensation plan established in 1994.
The plan compensated senior management based on the company's significant
improvement in financial performance compared with a peer group and a 64 percent
increase in the company's share price, both of which were measures used in
determining expense associated with the plan. A large portion of this expense
was offset by savings and reductions in other areas. In 1995, selling and
administrative expenses included a $6 million charge related to salaried
personnel reductions.
Interest expense decreased 11 percent from 1995 to 1996, as the company
reduced its long-term debt by $58 million in 1996, and $300 million in 1995.
Interest income increased over 100 percent, compared to 1995, as a result of
excess cash that was invested in high-grade, short-term securities in 1996.
Other income in 1996 included a $17 million gain from the sale of Star Forms
and an $81 million gain from the sale of approximately
24
<PAGE>
121,000 acres of timberlands located primarily in Alabama, South Carolina and
Maine. The 1996 extraordinary charge of $4 million, net of taxes of $2 million,
represents the fees and expenses incurred to retire long-term debt. Other income
and expense in 1995 included a $2 million gain on the sale of 2,300 acres of
timberlands and a charge of $30 million relating to the write-down of the
company's investment in Star Forms. The 1995 extraordinary charge of $11
million, net of taxes of $7 million, represents the fees and expenses incurred
to retire approximately $300 million of long-term debt.
Liquidity and Capital Resources
The company's cash, cash equivalents, and marketable securities totaled $431
million at year-end 1996, increasing $166 million from the prior year-end
balance of $265 million.
Cash and cash equivalents decreased from year-end 1995, to year-end 1996, by
$179 million. The company's operations generated $336 million of cash during
the year while $272 million and $244 million were used for investing and
financing activities, respectively. Significant transactions for the year
included the purchase of $345 million of marketable securities, the retirement
of $58 million of debt and the repurchase of 2.6 million shares of common stock
at a cost of $99 million. Long-term debt decreased 7 percent during 1996, while
total shareholders' equity increased 7 percent, compared to 1995. The ratio of
total debt to total capital decreased from 38.7 percent in 1995 to 36.5 percent
in 1996.
Cash from Operating Activities: The company's operations generated $336 million
of cash in 1996, $272 million less than the cash generated from operations in
1995. This decrease was largely the result of lower operating income and higher
tax payments, as the company was able to defer $75 million of tax payments from
1995 into the first quarter of 1996. The decrease was partially offset by
favorable working capital changes.
Cash from Investing Activities: In 1996, the company invested $107 million in
its facilities, $11 million more than in 1995. The most significant project in
1996 involved making $13 million in improvements to market pulp production
facilities at the Calhoun mill. Cash from disposal of fixed assets, timber and
timberlands totaled $127 million. The large majority of this inflow was from the
sale of 121,000 acres of timberlands. The company also sold Star Forms,
resulting in net cash proceeds of $54 million. Lastly, the company invested $345
million in marketable securities during the year. The net cash outflow from all
of these activities totaled $272 million.
Cash from Financing Activities: During 1996, the company reduced fixed charges
from interest expense and preferred stock dividends. In June and July of 1996,
the company repurchased approximately $50 million of its $300 million 9%
Debentures due 2009 at a cost of $55 million for payment of principal, premium
and expenses. In December 1996, the company extinguished $5 million of debt
prior to its scheduled maturity at a cost of $5 million. Including other
repayments, $64 million was used to reduce the company's debt balances in 1996.
Also in December 1996, the company made the second of three $25 million
installments to redeem its LIBOR Preferred Stock and called for the redemption
of all of its outstanding PRIDES on January 9, 1997. Approximately 4.9 million
outstanding Series B depositary shares (each representing a one-fourth interest
in a share of PRIDES) would have converted into common stock at a 1 to 1 ratio
as of January 1, 1998, based on the mandatory conversion provision of the
PRIDES. However, the company was able to reduce the dilution to existing common
shareholders by initiating the optional conversion at a rate of .82 of a share
of common stock for each depositary share outstanding (approximately 4 million
shares of common stock). Based on an annual dividend of $.80 per share, cash
dividends on the newly issued common stock represent $5 million in annual
savings versus the previous enhanced dividend on the PRIDES.
In January 1996, the Board of Directors of CNC declared a $60 million
dividend. As a result, $29 million was paid to the minority shareholder. In
December 1996, the Board of Directors of CNC declared a $40 million dividend. As
a result, $20 million was paid to the minority shareholder in January 1997.
In February 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 12 months. During 1996, the company purchased 2.6 million shares at a
cost of $99 million, representing 66 percent of the total shares originally
authorized for repurchase.
The company's ratio of debt to total capital improved from 38.7 percent to
36.5 percent during 1996. The company achieved this reduced leverage despite
repurchasing $99 million of common shares, redeeming $25 million of LIBOR
Preferred Stock and declaring aggregate dividends of $49 million payable to the
minority shareholder of CNC. Strong company earnings and $58 million in total
debt reductions contributed to the company's success. As a result of 1996
transactions, interest payments and preferred dividends were reduced on an
annual basis by $5 million and $9 million, respectively.
25
<PAGE>
Consolidated Statement of Operations Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
Years ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,598,943 $1,839,161 $2,108,071
Distribution costs 114,440 120,892 106,930
- ----------------------------------------------------------------------------------------------------------------
Net sales 1,484,503 1,718,269 2,001,141
Cost of sales 1,106,811 1,149,593 1,183,977
Depreciation, amortization and cost of timber harvested 169,824 174,404 174,176
- ----------------------------------------------------------------------------------------------------------------
Gross profit 207,868 394,272 642,988
- ----------------------------------------------------------------------------------------------------------------
Selling and administrative expense 72,200 93,090 93,737
Operating income 135,668 301,182 549,251
Other expense (income):
Interest income (21,575) (21,074) (8,923)
Interest expense, net of capitalized interest 67,488 71,347 80,513
Gain on sale of timberlands (768) (81,065) (2,152)
Gain/loss on sale of Star Forms - (17,019) 30,000
Other, net 1,040 (4,195) (14,757)
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes, minority interests
and extraordinary charges 89,483 353,188 464,570
Provision for income tax expense 33,109 124,393 183,090
Minority interests in net income of subsidiaries 2,683 24,719 23,235
- ----------------------------------------------------------------------------------------------------------------
Income before extraordinary charges 53,691 204,076 258,245
Extraordinary charges from early extinguishment of debt,
net of income tax benefit of $2,234 in 1996 and $7,084 in 1995 - (3,922) (11,317)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 53,691 $ 200,154 $ 246,928
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic earnings per common share:
Income before extraordinary charges $ 1.26 $ 5.07 $ 6.06
Extraordinary charges - (0.10) (0.30)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 1.26 $ 4.97 $ 5.76
- ----------------------------------------------------------------------------------------------------------------
Average common shares outstanding 40,287 37,690 37,992
Diluted earnings per common share:
Income before extraordinary charges $ 1.25 $ 4.64 $ 5.48
Extraordinary charges - (0.09) (0.26)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 1.25 $ 4.55 $ 5.22
- ----------------------------------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding 40,812 42,922 43,448
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
Consolidated Balance Sheet Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
At December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 228,688 $ 85,259
Marketable securities 176,834 345,398
Accounts receivable, net 190,594 185,724
Inventories 105,514 123,745
Other current assets 16,745 13,629
- -----------------------------------------------------------------------------------------------------------------
Total current assets 718,375 753,755
- -----------------------------------------------------------------------------------------------------------------
Timber and timberlands 394,039 395,675
Fixed assets, net 1,554,529 1,636,705
Other assets 78,855 79,409
- -----------------------------------------------------------------------------------------------------------------
Total assets $2,745,798 $2,865,544
- -----------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Current installments of long-term debt $ 1,800 $ 1,604
Accounts payable and accrued liabilities 168,327 216,328
Income taxes payable 15,861 6,057
Dividends payable 8,663 29,892
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 194,651 253,881
- -----------------------------------------------------------------------------------------------------------------
Long-term debt, net of current installments 757,100 759,029
Other long-term liabilities 169,510 171,651
Deferred income taxes 345,166 358,858
Minority interests in subsidiaries 125,206 126,246
Commitments and contingencies (See note 12)
Redeemable preferred stock: $1 par value. Issued LIBOR preferred stock,
Series A, 500,000 shares at December 31, 1996 - 24,746
Shareholders'equity:
Cumulative preferred stock, $1 par value. Issued, 8.40% Series C, 264,318 shares
(liquidation value $26,432) 25,465 25,465
Common stock, $1 par value. Authorized 100,000,000 shares; issued 44,927,890 and
43,994,070 shares at December 31, 1997 and 1996, respectively 44,928 43,994
Additional paid-in capital 563,096 531,598
Retained earnings 716,961 698,301
Equity adjustments (15,449) (12,370)
Loan to ESOT (4,536) (6,324)
Treasury stock at cost, 4,606,785 and 2,980,965 shares at December 31, 1997
and 1996, respectively (176,300) (109,531)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders'equity 1,154,165 1,171,133
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'equity $2,745,798 $2,865,544
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
Consolidated Statement of Capital Accounts
Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Series B Series C
LIBOR Convertible Cumulative Additional
(In thousands, Preferred Preferred Preferred Common Paid-in
except per-share amounts) Stock Stock Stock Stock Capital
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 74,492 $ 111,333 $ 81,892 $ 37,121 $ 336,990
- ------------------------------------------------------------------------------------------
Net income - - - - -
Dividends on:
Common ($.60 per share) - - - - -
LIBOR ($2.67 per share) - - - - -
Series B ($6.58 per share) - - - - -
Series C ($8.40 per share) - - - - -
Increase in stated value of
LIBOR preferred stock 127 - - - -
Reduction in loan to ESOT - - - - -
Foreign currency translation - - - - -
Stock options exercised - - - 2,380 55,350
Tax benefit on exercise of stock options - - - - 17,602
Partial redemption of LIBOR and
Series C preferred stock (25,000) - (56,427) - -
Pension plan additional minimum
liability, net of tax benefit of $6,941 - - - - -
Use of treasury stock - - - - 65
- ------------------------------------------------------------------------------------------
Balance at December 31, 1995 $49,619 $ 111,333 $ 25,465 $ 39,501 $ 410,007
- ------------------------------------------------------------------------------------------
Net income - - - - -
Dividends on:
Common ($.80 per share) - - - - -
LIBOR ($2.42 per share) - - - - -
Series B ($6.58 per share) - - - - -
Series C ($8.40 per share) - - - - -
Increase in stated value of
LIBOR preferred stock 127 - - - -
Reduction in loan to ESOT - - - - -
Foreign currency translation - - - - -
Stock options exercised - - - 480 11,795
Tax benefit on exercise of stock options - - - - 2,431
Partial redemption of LIBOR
preferred stock (25,000) - - - -
Conversion of Series B preferred
into common stock - $(111,333) - 4,013 107,310
Pension plan additional minimum
liability, net of taxes of $670 - - - - -
Purchase of common stock - - - - -
Use of treasury stock - - - - 55
- ------------------------------------------------------------------------------------------
Balance at December 31, 1996 $24,746 $ - $ 25,465 $ 43,994 $ 531,598
- ------------------------------------------------------------------------------------------
Net income - - - - -
Dividends on:
Common ($.80 per share) - - - - -
LIBOR ($.79 per share) - - - - -
Series C ($8.40 per share) - - - - -
Increase in stated value of
LIBOR preferred stock 254 - - - -
Reduction in loan to ESOT - - - - -
Foreign currency translation - - - - -
Stock options exercised - - - 934 23,573
Tax benefit on exercise of stock options - - - - 7,919
Redemption of LIBOR preferred stock (25,000) - - - -
Pension plan additional minimum
liability, net of tax benefit of $372 - - - - -
Purchase of common stock - - - - -
Use of treasury stock - - - - 6
- ------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ - $ - $25,465 $44,928 $563,096
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(In thousands, Retained Equity Loan to Treasury
except per-share amounts) Earnings Adjustments ESOT Stock
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 344,852 $ (3,410) $ (9,643) $(11,710)
- --------------------------------------------------------------------------------
Net income 246,928 - - -
Dividends on:
Common ($.60 per share) (22,600) - - -
LIBOR ($2.67 per share) (4,005) - - -
Series B ($6.58 per share) (8,050) - - -
Series C ($8.40 per share) (5,910) - - -
Increase in stated value of
LIBOR preferred stock (127) - - -
Reduction in loan to ESOT - - 1,610 -
Foreign currency translation - 1,071 - -
Stock options exercised - - - -
Tax benefit on exercise of stock options - - - -
Partial redemption of LIBOR and
Series C preferred stock (9,883) - - -
Pension plan additional minimum
liability, net of tax benefit of $6,941 - (10,789) - -
Use of treasury stock - - - 772
- --------------------------------------------------------------------------------
Balance at December 31, 1995 $ 541,205 $ (13,128) $ (8,033) $ (10,938)
- --------------------------------------------------------------------------------
Net income 200,154 - - -
Dividends on:
Common ($.80 per share) (30,241) - - -
LIBOR ($2.42 per share) (2,420) - - -
Series B ($6.58 per share) (8,050) - - -
Series C ($8.40 per share) (2,220) - - -
Increase in stated value of
LIBOR preferred stock (127) - - -
Reduction in loan to ESOT - - 1,709 -
Foreign currency translation - (289) - -
Stock options exercised - - - -
Tax benefit on exercise of stock options - - - -
Partial redemption of LIBOR
preferred stock - - - -
Conversion of Series B preferred
into common stock - - - -
Pension plan additional minimum
liability, net of taxes of $670 - 1,047 - -
Purchase of common stock - - - (98,762)
Use of treasury stock - - - 169
- --------------------------------------------------------------------------------
Balance at December 31, 1996 $ 698,301 $ (12,370) $ (6,324) $(109,531)
- --------------------------------------------------------------------------------
Net income 53,691 - - -
Dividends on:
Common ($.80 per share) (32,164) - - -
LIBOR ($.79 per share) (393) - - -
Series C ($8.40 per share) (2,220) - - -
Increase in stated value of
LIBOR preferred stock (254) - - -
Reduction in loan to ESOT - - 1,788 -
Foreign currency translation - (2,500) - -
Stock options exercised - - - -
Tax benefit on exercise of stock options - - - -
Redemption of LIBOR preferred stock - - - -
Pension plan additional minimum
liability, net of tax benefit of $372 - (579) - -
Purchase of common stock - - - (66,845)
Use of treasury stock - - - 76
- --------------------------------------------------------------------------------
Balance at December 31, 1997 $716,961 $(15,449) $(4,536) $(176,300)
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
Consolidated Statement of Cash Flows Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
Years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 53,691 $200,154 $ 246,928
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 169,824 174,404 174,176
Deferred income taxes (3,355) 36,979 75,122
Minority interests 2,683 24,719 23,235
Gain on sale of timberlands (768) (81,065) (2,152)
Gain/loss on sale of Star Forms - (17,019) 30,000
Extraordinary charge, net of taxes - 3,922 11,317
Changes in working capital:
Accounts receivable, net (4,870) 39,916 (44,374)
Inventories 18,231 13,884 (3,565)
Accounts payable and accrued liabilities (42,703) 30,931 11,272
Income taxes payable 6,136 (78,611) 91,580
Other, net (3,213) (12,007) (5,858)
- ---------------------------------------------------------------------------------------------------------------
Net cash from operating activities 195,656 336,207 607,681
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash invested in fixed assets, timber and timberlands (99,576) (106,960) (95,972)
Disposition of fixed assets, timber and timberlands 3,701 126,714 4,256
Disposition of Star Forms - 53,946 -
Cash from maturity of (invested in) marketable securities 168,564 (345,398) -
- ---------------------------------------------------------------------------------------------------------------
Net cash from (used for) investing activities 72,689 (271,698) (91,716)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends, including minority interests (57,560) (70,528) (41,783)
Purchase of common stock (66,845) (98,762) -
Purchases/payments of long-term debt (1,806) (63,521) (317,282)
Redemption of preferred stock of subsidiary - - (15,000)
Stock options exercised 24,507 12,275 57,730
Redemption of LIBORand Series C preferred stock (25,000) (25,000) (91,309)
Other 1,788 1,715 1,482
- ---------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (124,916) (243,821) (406,162)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 143,429 (179,312) 109,803
Cash and cash equivalents:
Beginning of year 85,259 264,571 154,768
- ---------------------------------------------------------------------------------------------------------------
End of year $ 228,688 $ 85,259 $ 264,571
- ---------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest $ (66,499) $ (72,623) $ (82,428)
Income taxes $ (30,328) $(166,025) $ (16,388)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
Notes to Consolidated Financial Statements
Bowater Incorporated and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements include the accounts of Bowater
Incorporated and Subsidiaries (the company). All subsidiaries are wholly owned
except Calhoun Newsprint Company (CNC) and Bowater Mersey Paper Company, Ltd.
(Mersey), which are approximately 51 percent owned. All material intercompany
items are eliminated.
Cash Equivalents
Cash equivalents generally consist of direct obligations of the United States
Government and its agencies, investment-grade commercial paper, auction-rate
preferred stock, tax-exempt municipal bonds and other short-term
investment-grade securities with original maturities of three months or less.
These investments are stated at cost, which approximates fair value.
Marketable Securities
Marketable securities generally consist of direct obligations of the United
States Government and its agencies, investment-grade commercial paper,
tax-exempt municipal bonds and other short-term investment-grade securities with
original maturities of greater than three months but less than one year. These
investments are considered to be held-to-maturity securities and are therefore
stated at cost which approximates market value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
using the average cost and last-in, first-out (LIFO) methods.
Timber and Timberlands
The acquisition cost of land and timber as well as real estate taxes, lease
payments, site preparation and other costs related to the planting and growing
of timber are capitalized. Such costs, excluding land, are charged against
revenue at the time the timber is harvested.
Fixed Assets and Depreciation
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
computed generally on the straight-line basis. Repairs and maintenance are
charged to operations as incurred.
Income Taxes
Income taxes are recorded under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred
taxes are provided for significant temporary differences. The company has not
provided income taxes on the undistributed earnings of its Canadian subsidiary
and, prior to 1993, on CNC's undistributed earnings, as it has specific plans
for reinvestment of such earnings.
Foreign Operations
Assets and liabilities of the company's Canadian operations are translated
using the exchange rate in effect at the balance sheet date. Results of
operations are translated using the average exchange rates throughout each year.
The effects of exchange rate fluctuations are accumulated as a separate
component of shareholders' equity, entitled "Equity adjustments." Gains or
losses on currency transactions are included in the Consolidated Statement of
Operations.
Revenues and assets of foreign operations do not qualify for separate
disclosure under SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise."
Stock Options
The company records stock option compensation on an intrinsic value basis in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees". The company also provides pro forma disclosures
of stock option compensation recorded on a fair value basis in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation."
Pension Plans
The company has contributory and noncontributory pension plans that cover
substantially all employees. The company's cash contributions to the plans are
sufficient to provide pension benefits to participants and meet the funding
requirements of ERISA. All pension related expenses and liabilities are recorded
under the provisions of SFAS No. 87, "Employers' Accounting for Pensions."
Revenue Recognition
The company recognizes revenue from product sales upon shipment to its customers
or when customers assume risk of ownership.
Basic and Diluted Earnings Per Share
The company calculates earnings per share in accordance with SFAS No. 128,
"Earnings per Share." This statement requires the presentation of basic and
diluted earnings per common share. Basic earnings per common share is calculated
assuming no dilution. Diluted earnings per common share is computed using the
weighted average number of outstanding common shares adjusted for the
incremental shares attributed to common share equivalents (stock options and,
prior to December 1996, Series B Convertible Preferred Stock). All prior period
earnings per share amounts presented have been restated to conform with the
provisions of the statement.
30
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements. In addition, they affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates and assumptions.
2. Subsequent Event-Acquisition of Avenor Inc.
On March 9, 1998, the company signed a definitive agreement by which it will
acquire all of the outstanding shares of Avenor Inc. common stock for C$35 per
share (U.S.$24.67 per share as of March 9). The purchase price, including
assumed debt, is approximately C$3.5 billion (U.S.$2.5 billion as of March 9).
The combination has been approved by the Boards of Directors of both companies
and is expected to be completed by the end of June 1998, subject to the approval
of the shareholders of both companies and appropriate regulatory authorities.
The transaction will be financed through a combination of cash, additional debt
and common stock. The transaction will be accounted for using the purchase
method as outlined in Accounting Principles Board Opinion No. 16, "Business
Combinations."
Avenor Inc. is an international forest products company that manufactures
newsprint, pulp, uncoated freesheet paper and wood products. Its 1997 net sales
were C$2.0 billion, and at December 31, 1997, its total assets were C$2.7
billion.
3. Cost Reductions
In recent years, the company designed and implemented programs to reduce
operating and administrative costs to globally competitive levels. In 1997 and
1996, the company focused on improving business processes in addition to cost
reductions. In 1995, approximately 350 salaried employee positions were
eliminated, and the company recorded a pre-tax charge of $24,000,000, or $.33
per diluted share after tax, for employee termination costs, which included
severance and pension related costs. Approximately $18,000,000 of the charge was
included on the line item "Cost of sales" in the 1995 Consolidated Statement of
Operations while the remaining $6,000,000 was included on the line item "Selling
and administrative expense."
4. Sales of Real Property
During 1997, the company sold 1,000 acres of timberlands, primarily in North and
South Carolina. The proceeds from these sales were $1,272,000, resulting in a
pre-tax gain of $768,000, or $.01 per diluted share, after tax and minority
interest. During 1996, the company sold 121,000 acres of timberlands, primarily
in Alabama, South Carolina and Maine. The proceeds from these sales were
$121,755,000, resulting in a pre-tax gain of $81,065,000, or $.94 per diluted
share, after tax and minority interest. In 1995, the company sold 2,300 acres of
timberlands, primarily in North and South Carolina. The proceeds were
$2,603,000, resulting in a pre-tax gain of $2,152,000, or $.03 per diluted
share, after tax and minority interest.
In January 1998, the company sold 19,000 acres of timberlands with gross
proceeds of approximately $30,000,000.
5. Sale of Subsidiaries
In November 1996, the company completed the sale of Star Forms to CST Office
Products, Inc., for $80,000,000, including $60,000,000 in cash and a $20,000,000
13% Junior Subordinated Note. The company recognized a gain on the sale of
$17,019,000, or $.40 per diluted share. Net cash proceeds totaled $53,946,000
after working capital adjustments and fees and expenses relating to the sale.
The $20,000,000 13% Junior Subordinated Note requires semi-annual interest
payments and four $5,000,000 annual principal payments beginning in 2002. The
company recorded the note at its fair market value on the line entitled "Other
assets" in the Consolidated Balance Sheet.
In the second quarter of 1995, the company announced its intention to sell
Star Forms. In the third quarter of 1995, based on the offers received, the
company recorded an estimated loss on the planned sale of Star Forms of
$30,000,000.
In January 1998, the company announced its intention to seek a buyer for its
Millinocket, Maine, paper mill which includes four paper machines and related
assets. The facility no longer meets the company's long-term objectives.
31
<PAGE>
6. Earnings Per Share
The company adopted SFAS No. 128, "Earnings per Share," in December 1997 which
replaces the presentation of primary earnings per common share with basic
earnings per common share. Basic earnings per common share is calculated
assuming no dilution.
The reconciliation between basic and diluted earnings per common share for
"Income before extraordinary charges" is as follows:
- ----------------------------------------------------------------
(In thousands, except
per-share amounts) 1997 1996 1995
- ----------------------------------------------------------------
Basic computation:
Income before
extraordinary charges $53,691 $204,076 $258,245
Less:
LIBOR dividends (393) (2,420) (4,005)
Series B dividends - (8,050) (8,050)
Series C dividends (2,220) (2,220) (5,910)
LIBOR accretion (254) (127) (127)
Series C redemption costs - - (9,883)
- ----------------------------------------------------------------
Basic income available
to common shareholders $50,824 $191,259 $230,270
- ----------------------------------------------------------------
Basic weighted average
shares outstanding 40,287 37,690 37,992
- ----------------------------------------------------------------
Basic earnings
per common share $ 1.26 $ 5.07 $ 6.06
- ----------------------------------------------------------------
Diluted computation:
Basic income available to
common shareholders $50,824 $191,259 $230,270
Effect of dilutive
securities: Series B
dividends - 8,050 8,050
- ----------------------------------------------------------------
Diluted income available
to common shareholders $50,824 $199,309 $238,320
- ----------------------------------------------------------------
Basic weighted shares
outstanding 40,287 37,690 37,992
Effect of dilutive
securities: Series B
convertible preferred stock - 4,662(1) 4,894(1)
Options (2) 525 570 562
- ----------------------------------------------------------------
Diluted weighted average
shares outstanding 40,812 42,922 43,448
- ----------------------------------------------------------------
Diluted earnings
per common share $ 1.25 $ 4.64 $ 5.48
- ----------------------------------------------------------------
1. In the interim periods of 1996 and during 1995, a one for one conversion
factor was assumed in computing the common stock equivalents related to the
Series B convertible preferred stock. The shares were actually converted at a
factor of .82 to 1 in December 1996.
2. The dilutive effect of options outstanding is computed using the treasury
stock method.
Options to purchase 69,800 shares at approximately $38 per share were
outstanding during the fourth quarter of 1996, but were not included in the
computation of diluted earnings per common share because the options' exercise
price was greater than the average market price of the common shares.
7. Inventories
- ---------------------------------------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------
At lower of cost or market:
Raw materials $ 15,205 $ 17,990
Work in process 3,126 3,077
Finished goods 33,215 47,577
Mill stores and other supplies 64,031 66,925
- ---------------------------------------------------------------
115,577 135,569
- ---------------------------------------------------------------
Excess of current cost over LIFO
inventory value (10,063) (11,824)
- ---------------------------------------------------------------
$105,514 $123,745
- ---------------------------------------------------------------
Inventories valued using the LIFO method comprised 33.8 percent and 34.4
percent, respectively, of total inventories at December 31, 1997, and December
31, 1996.
8. Fixed Assets
- ------------------------------------------------------------------
Range of
Estimated
Useful Lives
(In thousands) 1997 1996 in Years
- ------------------------------------------------------------------
Land and land
improvements $ 32,987 $ 33,105 10-20
Buildings 286,437 290,613 20-40
Machinery
and equipment 2,713,496 2,672,937 5-20
Leasehold
improvements 2,618 2,741 10-20
Construction
in progress 24,058 22,405 -
- ------------------------------------------------------------------
3,059,596 3,021,801
- ------------------------------------------------------------------
Less accumulated
depreciation and
amortization 1,505,067 1,385,096
- ------------------------------------------------------------------
$1,554,529 $1,636,705
- ------------------------------------------------------------------
32
<PAGE>
9. Accounts Payable and Accrued Liabilities
- ------------------------------------------------------------------
(In thousands) 1997 1996
- ------------------------------------------------------------------
Trade accounts payable $ 78,574 $ 95,300
Accrued interest 16,650 16,139
Property and franchise taxes payable 12,378 12,650
Payroll and bonuses 29,310 50,402
Employee benefits 23,818 29,482
Other 7,597 12,355
- ------------------------------------------------------------------
$168,327 $216,328
- ------------------------------------------------------------------
The decrease in trade accounts payable from 1996 to 1997 was due to normal
fluctuations in operating accruals. The decrease in payroll and bonuses was due
to the payment in 1997 of $25,411,000 pursuant to a long-term incentive
compensation plan accrued as of December 31, 1996.
10. Long-term Debt, Net of Current Installments
- ---------------------------------------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------
Unsecured:
9% Debentures due 2009 $250,017 $250,017
9-3/8% Debentures due 2021, net
of unamortized discount of $1,200
in 1997 and $1,250 in 1996 198,800 198,750
9-1/2% Debentures due in 2012,
net of unamortized discount of
$336 in 1997 and $359 in 1996 124,664 124,641
7-3/4% recycling facilities revenue
bonds due 2022 62,000 62,000
7.40% recycling facilities revenue
bonds due 2022 39,500 39,500
7-5/8% recycling facilities revenue
bonds due 2016, net of
unamortized discount of $131
in 1997 and $135 in 1996 29,869 29,865
Pollution control revenue bonds
due at various dates from 2001
to 2010 with interest at varying
rates from 6.85% to 7-5/8% 23,300 23,300
8-1/2% Notes due 2001 18,140 18,140
8-1/4% Notes due 1999, net of
unamortized discount of $3 in
1997 and $4 in 1996 8,025 8,024
ESOT note due 2000 2,740 4,724
Other 45 68
- ---------------------------------------------------------------
$757,100 $759,029
- ---------------------------------------------------------------
Long-term debt maturities for the next five years are as follows:
- ---------------------------------------------------------------
(In thousands)
- ---------------------------------------------------------------
1998 $ 1,800
1999 $ 9,828
2000 $ 936
2001 $ 28,040
2002 $ -
- ---------------------------------------------------------------
Based on the borrowing rates currently available to the company for debt with
similar terms and maturities as those issues included in the accompanying
Consolidated Balance Sheet, the fair value of the company's long-term debt, net
of current installments, was approximately $916,000,000 and $881,000,000 at
December 31, 1997 and 1996, respectively.
During 1996, the company repurchased approximately $50,000,000 of its
$300,000,000 9% Debentures due 2009. This resulted in an extraordinary charge of
$3,531,000 after tax, or $.08 per diluted share, for premium and expenses
related to the repurchase. In addition, the company repurchased $1,000,000 of
other long-term obligations in the first quarter of 1996 and extinguished
$5,000,000 in the fourth quarter. The second transaction resulted in an
extraordinary charge for fees and expenses of $391,000 after tax, or $.01 per
diluted share.
In 1995, the company signed a $150,000,000 Credit Agreement, which expires
September 2000. At December 31, 1997 and 1996, there were no amounts outstanding
under this agreement.
11. Minority Interests in Subsidiaries
In 1997, the Board of Directors of CNC declared dividends of $3,184,000. As a
result, $1,560,000 was paid to the minority shareholder during the year.
In January 1996, the Board of Directors of CNC declared a $60,000,000
dividend resulting in a payment of $29,400,000 to the minority shareholder. In
December 1996, a $40,000,000 dividend was declared. The amount due to the
minority shareholder, $19,600,000, was included in the Consolidated Balance
Sheet at December 31, 1996, on the line entitled "Dividends payable". The
dividend was paid in January 1997.
In January 1998, the Board of Directors of CNC declared a $31,400,000
dividend. As a result, $15,386,000 was paid to the minority shareholder of CNC
in February 1998.
12. Commitments and Contingencies
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.
33
<PAGE>
13. Redeemable Preferred Stock
In 1985, the company sold $75,000,000 principal amount of redeemable preferred
stock with cumulative quarterly dividends equal to 85 percent of the arithmetic
mean of three-month LIBOR for United States dollar deposits.
The company was required to redeem 500,000 shares per year from 1996 through
1998 at a redemption price of $50.00 per share plus any accrued and unpaid
dividends. In 1995 and 1996, the company redeemed 1,000,000 shares for
$50,625,000, including accrued dividends. In May 1997, the company redeemed the
remaining 500,000 shares for $25,092,000, including accrued dividends.
The company is authorized to issue 10,000,000 shares of Serial Preferred
Stock, $1 par value, of which the LIBOR Preferred Stock constituted Series A.
See Note 14 for a discussion of Series B and C preferred stock.
14. Convertible and Cumulative Preferred Stock
In 1994, the company completed two public offerings of preferred stock. The
company sold 4,893,616 depositary shares, priced at $23.50 per share, each
representing one-fourth of a share of 7% Series B Convertible Preferred Stock
referred to as Preferred Redeemable Increased Dividend Equity Securities
(PRIDES). The company also sold 3,400,000 depositary shares, priced at $25.00
per share, each representing one-fourth of a share of 8.40% Series C Cumulative
Preferred Stock. The Series C Cumulative Preferred Stock has a liquidation value
of $25.00 per depositary share.
In December 1996, pursuant to an optional redemption provision, the company
called for redemption on January 9, 1997, all of its outstanding depositary
shares relating to the PRIDES. The PRIDES were redeemed using Bowater common
stock at a conversion rate of .82 of a common share for each depositary share,
resulting in the issuance of 4,012,765 common shares. The company reflected this
transaction in the Consolidated Balance Sheet at December 31, 1996.
In 1995, the company repurchased 585,682 shares of the Series C Cumulative
Preferred Stock leaving a balance of 264,318 preferred shares.
15. Treasury Stock
In November 1997, the Board of Directors authorized the repurchase of up to 10
percent of the company's outstanding common stock in the open market, subject
to normal trading restrictions. Under this program, the company purchased
220,000 shares of stock at a cost of $9,601,000.
In February 1997, the company completed a previously announced stock
repurchase program, purchasing 1,408,300 shares of common stock at a cost of
$57,244,000 in 1997 and 2,591,700 shares of common stock at a cost of
$98,762,000 in 1996. The company purchased a total of 4,000,000 shares of common
stock, or 10 percent of the outstanding shares under this program, at a cost of
$156,006,000.
The company uses shares of such stock to pay employee and director benefits
and to fund the company's Dividend Reinvestment Plan.
16. Stock Option Plans
The company has three stock option plans--1988, 1992 and 1997. These plans
authorized the grant of up to 6,000,000 shares of the company's common stock in
the form of incentive stock options, non-qualified stock options, stock
appreciation rights, performance stock and restricted stock awards. The option
price for options granted under the 1988 and 1992 plans was based on the fair
market value of the company's common stock on the date of grant, or the average
fair market value of the company's common stock for the 20 business days
immediately preceding the date of grant. The option price for options granted
under the 1997 plan was based on the fair market value of the company's common
stock on the date of grant.
All options granted through December 31,1995, were exercisable at December
31, 1997. Options granted in 1997 and 1996 generally become exercisable over a
period of two years. Unless terminated earlier in accordance with their terms,
all options expire 10 years from the date of grant. The plans provide that any
outstanding options will become immediately exercisable upon a change in control
of the company. In such event, grantees of options have the right to require the
company to purchase such options for cash in lieu of the issuance of common
stock. The company received $24,507,000, $12,275,000 and $57,730,000 from the
exercise of stock options in 1997, 1996 and 1995, respectively. The exercise of
stock options also generated $7,919,000, $2,431,000 and $17,602,000 of tax
benefits for the company in 1997, 1996 and 1995, respectively.
The company records compensation expense resulting from stock option grants
based on intrinsic value in accordance with APB Opinion No. 25. In accordance
with SFAS No. 123, the following pro forma disclosures present the effects on
income had the fair value based method been chosen. These disclosures are shown
below for 1997, 1996 and 1995, and have no impact on the company's reported
financial position or results of operations.
- -----------------------------------------------------------------
(In thousands,
except per-share amounts) 1997 1996 1995
- -----------------------------------------------------------------
Net income: As reported $53,691 $200,154 $246,928
Pro forma 50,788 196,256 244,157
Earnings per share-basic:
As reported 1.26 4.97 5.76
Pro forma 1.19 4.87 5.69
Earnings per share-diluted:
As reported 1.25 4.55 5.22
Pro forma $ 1.17 $ 4.46 $ 5.16
- -----------------------------------------------------------------
34
<PAGE>
The pro forma net income effects of SFAS No. 123 in 1997, 1996 and 1995 may
not be representative of the pro forma net income effects in future years due to
changes in assumptions and the number of options granted in future years.
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for 1997, 1996 and 1995, respectively: dividend yield of 1.9
percent, 2.3 percent and 2.8 percent; expected volatility of 29.5 percent, 30.9
percent and 28.4 percent; risk-free interest rate of 6.4 percent, 5.4 percent
and 7.8 percent; and expected option lives of 5.5 years, 5.6 years and 5.6
years. The weighted-average fair value of each option granted during 1997, 1996
and 1995 was $13.65, $10.67 and $9.46, respectively.
Information with respect to options granted under the stock option plans is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Weighted Average Number of Weighted Average Number of Weighted Average
Shares (000) Exercise Price Shares (000) Exercise Price Shares (000) Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,477 $27 2,576 $26 4,273 $24
Granted during the year 404 $42 398 $35 769 $28
Exercised during the year (934) $26 (480) $25 (2,380) $24
Canceled during the year (40) $35 (17) $28 (86) $27
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,907 $31 2,477 $27 2,576 $26
- ---------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,371 $26 1,805 $25 1,486 $25
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding at December 31, 1997 Options Exercisable at December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Range of Number of Weighted Average Weighted Average Remaining Number of Weighted Average
Exercise Prices Shares (000) Exercise Price Contractual Life (years) Shares (000) Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21 to $26 515 $23 4.5 515 $23
$26 to $31 607 $28 6.2 607 $28
$31 to $36 379 $35 7.9 217 $35
$36 to $41 13 $38 7.1 12 $38
$41 to $43 393 $42 9.0 20 $42
- -----------------------------------------------------------------------------------------------------------------------------------
1,907 $31 6.1 1,371 $26
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17. Employee Stock Ownership Plan
The company has an Employee Stock Ownership Plan (ESOP) as a component of the
company's Salaried Employees' Savings Plan. The ESOP was funded by a
$17,500,000 loan, the proceeds of which were then lent to an Employee Stock
Ownership Trust (ESOT). The ESOT purchased 574,160 shares of the company's
common stock at an average purchase price of $30.59. As of December 31, 1997,
approximately 452,000 shares have been distributed to participants' accounts.
The remaining shares serve as security for the balance of the loan.
18. Income Taxes
The components of "Income before income taxes, minority interests and
extraordinary charges" consist of U.S. income of $95,759,000, $331,211,000 and
$427,768,000, and Canadian income (loss) of $(6,276,000), $21,977,000 and
$36,802,000 in 1997, 1996 and 1995, respectively.
The provision for income tax expense consists of:
- ---------------------------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------
Federal:
Current $30,423 $ 73,679 $ 96,853
Deferred 2,209 30,701 52,628
- ---------------------------------------------------------------
32,632 104,380 149,481
- ---------------------------------------------------------------
State:
Current 5,262 13,058 8,590
Deferred (1,920) (945) 14,860
- ---------------------------------------------------------------
3,342 12,113 23,450
- ---------------------------------------------------------------
Canadian:
Current 779 677 2,525
Deferred (3,644) 7,223 7,634
- ---------------------------------------------------------------
(2,865) 7,900 10,159
- ---------------------------------------------------------------
Total:
Current 36,464 87,414 107,968
Deferred (3,355) 36,979 75,122
- ---------------------------------------------------------------
$33,109 $124,393 $183,090
- ---------------------------------------------------------------
35
<PAGE>
The components of deferred income taxes at December 31, 1997 and 1996, in the
accompanying Consolidated Balance Sheet are as follows:
- ---------------------------------------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------
Timber and timberlands (1) $ (38,714) $ (38,228)
Fixed assets (390,078) (406,065)
Other assets (21,109) (20,659)
- ---------------------------------------------------------------
Deferred tax liabilities (449,901) (464,952)
- ---------------------------------------------------------------
Accounts receivable (2) 117 18
Inventories (2) 1,864 1,043
Other current assets (2) 1,254 1,151
Current liabilities (2) 7,070 6,361
Other long-term liabilities 46,226 37,823
U.S. tax credit carryforwards,
primarily alternative minimum
tax credit carryforwards 35,402 42,555
Canadian investment tax
credit carryforwards 26,827 29,437
Valuation allowance (3,720) (3,720)
- ---------------------------------------------------------------
Deferred tax assets 115,040 114,668
- ---------------------------------------------------------------
Net deferred tax liability $(334,861) $(350,284)
- ---------------------------------------------------------------
1. Includes the deferred tax impact of the capitalization of lease payments,
management fees and property taxes of approximately $123,562,000 and
$121,680,000 at December 31, 1997 and 1996, respectively.
2. Included in "Other current assets" in the accompanying Consolidated Balance
Sheet.
The following is a reconciliation of the U.S. federal statutory and effective
tax rates as a percentage of income before income taxes, minority interests and
extraordinary charges:
- ----------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------
U.S. federal statutory
income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
income tax benefit 2.4 2.2 3.3
Canadian taxes (0.7) 0.1 (0.6)
Other, net 0.3 (2.1) 1.7
- ----------------------------------------------------------------
Effective income tax rate 37.0% 35.2% 39.4%
- ----------------------------------------------------------------
At December 31, 1997, $26,827,000 of Canadian investment credit carryforwards
and $35,402,000 of U.S. tax credit carryforwards were available to reduce future
income taxes. The company believes that such deferred tax assets will be
ultimately realized, net of the existing valuation allowance of $3,720,000 at
December 31, 1997. There was no net increase in the valuation allowance for the
year ended December 31, 1997. The Canadian investment credit carryforwards
expire at various dates between 1998 and 2007. The majority of the U.S. tax
credit carryforwards have no expiration.
The cumulative amount of CNC's undistributed earnings through 1992, on which
the company has not provided income taxes, was $68,406,000 as of December 31,
1997. Distribution of these earnings would qualify for the 80 percent dividends
received deduction. The company has also not provided deferred income taxes on
the cumulative amount of undistributed earnings related to its 51 percent
investment in its Canadian subsidiary since that investment is considered
permanent in duration and determination of such liability is not practicable.
19. Pension Plans
The company has defined benefit pension plans (the Plans) covering substantially
all employees. Benefits are based upon years of service and, depending on the
plan, average compensation earned by employees either during their last years of
employment or over their career. Pension expense for 1997, 1996 and 1995
included the following components:
- ---------------------------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------
Service cost $ 12,545 $ 12,908 $ 11,425
Interest cost 34,964 32,525 31,423
Actual return
on plan assets (114,758) (39,822) (81,371)
Net amortization
and deferral 73,126 4,990 42,975
- ---------------------------------------------------------------
Net pension expense $ 5,877 $ 10,601 $ 4,452
- ---------------------------------------------------------------
The following table sets forth the funded status of the Plans at December 31,
1997:
- --------------------------------------------------------------------
Plan Assets Plan Liabilities
Exceed Plan Exceed Plan
(In thousands) Liabilities Assets
- --------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
Vested $337,820 $ 77,891
Non-vested 15,631 14,446
- --------------------------------------------------------------------
353,451 92,337
Benefits attributable to
future salaries 51,826 3,741
- --------------------------------------------------------------------
Projected benefit obligation 405,277 96,078
Plan assets at fair value 506,007 63,383
- --------------------------------------------------------------------
Excess (deficit) of plan assets over
projected benefit obligation 100,730 (32,695)
Unrecognized prior service cost 774 5,066
Unrecognized net loss (gain) (43,100) 19,426
Unrecognized transition
liability (asset) (12,293) 486
Additional minimum liability
recognized as an intangible other asset - (4,307)
Additional minimum liability
recognized as a reduction of
shareholders' equity - (16,964)
- --------------------------------------------------------------------
Prepaid pension cost
(pension liability) $ 46,111 $(28,988)
- --------------------------------------------------------------------
36
<PAGE>
The following table sets forth the funded status of the Plans at December 31,
1996:
- --------------------------------------------------------------------
Plan Assets Plan Liabilities
Exceed Plan Exceed Plan
(In thousands) Liabilities Assets
- --------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
Vested $297,246 $ 82,595
Non-vested 10,693 16,262
- --------------------------------------------------------------------
307,939 98,857
Benefits attributable to
future salaries 50,082 4,065
- --------------------------------------------------------------------
Projected benefit obligation 358,021 102,922
Plan assets at fair value 411,208 60,068
- --------------------------------------------------------------------
Excess (deficit) of plan assets over
projected benefit obligation 53,187 (42,854)
Unrecognized prior service cost 902 5,522
Unrecognized net loss 9,344 16,690
Unrecognized transition
liability (asset) (16,012) 648
Additional minimum liability
recognized as an intangible other asset - (4,290)
Additional minimum liability
recognized as a reduction of
shareholders' equity - (16,013)
- --------------------------------------------------------------------
Prepaid pension cost
(pension liability) $ 47,421 $(40,297)
- --------------------------------------------------------------------
As of December 31, 1997, the company decreased the Plans' discount rate
assumption used to determine the Plans' projected benefit obligation from 7.75
percent to 7.0 percent, which approximates more closely current interest rates
on high-quality long-term obligations. The assumed rate of compensation increase
was also decreased from 4.75 percent to 4.0 percent. The long-term rate of
return on Plan assets assumption remained at 9.5 percent. Plan assets consist
principally of common stocks and fixed income securities.
The provisions of SFAS No. 87, "Employers' Accounting for Pensions,"
required the company to record an additional minimum liability of $21,271,000
and $20,303,000 at December 31, 1997 and 1996, respectively. This liability
represents the amount by which the accumulated benefit obligation exceeds the
sum of the fair market value of plan assets and accrued amounts previously
recorded. The additional liability may be offset by an intangible asset to the
extent of previously unrecognized prior service cost. The intangible asset is
included on the line item entitled "Other assets" in the Consolidated Balance
Sheet at December 31, 1997 and 1996. The remaining amount is recorded as a
reduction to a separate component of shareholders' equity on the Consolidated
Balance Sheet entitled "Equity adjustments," net of related tax benefits.
20. Retiree Health Care Plans
The company provides certain health care and life insurance benefits to retired
employees. Substantially all of the company's employees may become eligible for
these benefits upon reaching retirement age while working for the company.
Retirees are required to contribute a portion of the cost of such benefits.
The accumulated postretirement benefit obligation at December 31, 1997 and
1996, was comprised of the following:
- ---------------------------------------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------
Retirees $ 53,770 $ 46,947
Fully eligible active plan participants 22,082 19,524
Other active plan participants 58,790 52,258
Unrecognized net loss (15,304) (6,052)
Unrecognized prior service cost (5,247) (5,599)
- ---------------------------------------------------------------
$114,091 $107,078
- ---------------------------------------------------------------
Unlike the company's retirement plans, there are no assets dedicated to fund
retiree benefits. Net periodic cost for 1997, 1996 and 1995 included the
following:
- ----------------------------------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------
Service cost $ 2,928 $ 2,841 $2,434
Interest cost on
accumulated obligation 9,043 8,220 7,617
Net amortization 256 814 (203)
- ----------------------------------------------------------------
$12,227 $11,875 $9,848
- ----------------------------------------------------------------
As of December 31, 1997, the company decreased the Plans' discount rate
assumption used to determine the Plans' accumulated postretirement benefit
obligation from 7.75 percent to 7.0 percent, which approximates more closely
current interest rates on high-quality long-term obligations. During the next
five years, the Plans assume that the annual cost of postretirement benefits
will increase at an annual rate starting at 8.0 percent and decreasing to 5.5
percent. Variations in this health care cost trend rate can have a significant
effect on the amounts reported. An increase of 1 percent in this assumption
would increase the accumulated postretirement benefit obligation by
approximately 22 percent and would increase the annual cost by approximately 20
percent.
37
<PAGE>
21. Timberland Leases and Operating Leases
The company controls timberlands under long-term leases expiring 2002 to 2058,
for which aggregate lease payments were $716,000, $594,000 and $943,000 for
1997, 1996 and 1995, respectively. In addition, the company leases certain
office premises, office equipment and transportation equipment under operating
leases. Total rental expense for these operating leases was $5,531,000,
$8,024,000 and $9,036,000 in 1997, 1996 and 1995, respectively.
At December 31, 1997, the future minimum rental payments under timberland
leases and operating leases are:
- ---------------------------------------------------------------
Timberland Operating
Lease Leases,
(In thousands) Payments net
- ---------------------------------------------------------------
1998 $ 695 $ 4,569
1999 695 3,770
2000 695 2,706
2001 695 1,999
2002 695 2,022
Thereafter 20,134 7,839
- ---------------------------------------------------------------
$23,609 $22,905
- ---------------------------------------------------------------
22. Net Export Sales
The breakdown of total net export sales by geographic area was:
- ---------------------------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------
Europe $ 72,167 $ 66,935 $ 67,393
Latin America 77,184 72,324 91,591
Asia 88,674 143,578 138,378
Canada 20,205 20,190 24,345
Other 9,364 10,147 -
- ---------------------------------------------------------------
Sub-total 267,594 313,174 321,707
Less: distribution costs (44,136) (53,847) (37,203)
- ---------------------------------------------------------------
Net export sales $223,458 $259,327 $284,504
- ---------------------------------------------------------------
23. Quarterly Information (unaudited)
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $348,507 $356,342 $378,631 $401,023 $1,484,503
Gross profit 25,344 43,014 59,234 80,276 207,868
Operating income 10,123 23,190 40,452 61,903 135,668
Income (loss) before extraordinary charge (314) 7,096 16,785 30,124 53,691
Net income (loss) (314) 7,096 16,785 30,124 53,691
Basic earnings (loss) per common share (.03) .16 .40 .73 1.26
Diluted earnings (loss) per common share $ (.03) $ .16 $ .40 $ .72 $ 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 468,883 $ 453,951 $ 423,188 $ 372,247 $ 1,718,269
Gross profit 163,672 114,042 83,516 33,042 394,272
Operating income 142,721 90,339 59,887 8,235 301,182
Income before extraordinary charge 112,905 44,343 28,267 18,561 204,076
Net income 112,905 42,412 26,667 18,170 200,154
Basic earnings per common share 2.84 1.04 .63 .41 4.97
Diluted earnings per common share $ 2.53 $ .96 $ .60 $ .41 $ 4.55
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 449,478 $ 486,836 $ 520,907 $ 543,920 $ 2,001,141
Gross profit 120,063 146,267 178,278 198,380 642,988
Operating income 97,253 117,680 154,636 179,682 549,251
Income before extraordinary charge 45,053 59,831 58,103 95,258 258,245
Net income 38,969 59,831 52,870 95,258 246,928
Basic earnings per common share .93 1.47 1.24 2.09 5.76
Diluted earnings per common share $ .85 $ 1.31 $ 1.13 $ 1.88 $ 5.22
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
Management's Statement of Responsibility
Bowater Incorporated and Subsidiaries
The management of the company is responsible for the information contained in
the financial statements and in the other parts of this report. The accompanying
consolidated financial statements of Bowater Incorporated and Subsidiaries have
been prepared in accordance with generally accepted accounting principles. In
preparing these statements, management has made judgments based upon available
information. To ensure that this information will be as accurate and factual as
possible, management has communicated to all appropriate employees requirements
for accurate recordkeeping and accounting.
The company maintains a system of internal accounting controls designed to
provide reasonable assurances for the safeguarding of assets and the reliability
of financial records. The system is subject to continuous review through a
corporatewide internal audit program with appropriate management follow-up
action. Management believes that through the careful selection of employees, the
division of responsibilities and the application of formal policies and
procedures, the company has an effective and responsive system of internal
accounting controls.
The company's independent auditors, KPMG Peat Marwick LLP, are responsible
for conducting an audit of the company's consolidated financial statements in
accordance with generally accepted auditing standards and for expressing their
opinion as to whether these consolidated financial statements present fairly, in
all material respects, the financial position, results of operations and cash
flows of the company and its subsidiaries in conformity with generally accepted
accounting principles. Their report appears below.
There is an Audit Committee of the Board of Directors composed of three
nonemployee directors who meet regularly with management, the internal auditors
and KPMG Peat Marwick LLP to discuss specific accounting, reporting and internal
control matters. Both the independent auditors and internal auditors have full
and free access to the Audit Committee.
Independent Auditors' Report
The Board of Directors and Shareholders
Bowater Incorporated:
We have audited the accompanying consolidated balance sheet of Bowater
Incorporated and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, capital accounts and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bowater
Incorporated and Subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
February 6, 1998, except as to Note 2,
which is as of March 9, 1998
39
<PAGE>
<TABLE>
<CAPTION>
Financial and Operating Record*
Dollars in millions, except per-share amounts 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data
Net sales $1,484.5 $1,718.3 $2,001.1
Operating income (loss) 135.7 301.2 549.3
Income (loss) from continuing operations before cumulative effect
of changes in accounting principles and extraordinary charge(1) 53.7 204.1 258.2
Net income (loss) 53.7 200.2 246.9
Diluted earnings (loss) per common share 1.25 4.55 5.22
Dividends declared per common share(2) .80 .80 .60
- --------------------------------------------------------------------------------------------------------------------
Product Sales Information
Newsprint $ 730.8 $ 845.3 $ 841.6
Coated groundwood 337.7 356.3 463.8
Directory paper(3) 178.9 183.9 162.4
Market pulp 172.7 154.3 233.3
Uncoated groundwood specialties(3) 44.0 38.0 41.2
Lumber and other wood products 134.8 108.0 116.8
Communication papers(3) - 153.3 248.9
Distribution costs (114.4) (120.8) (106.9)
- --------------------------------------------------------------------------------------------------------------------
$1,484.5 $1,718.3 $2,001.1
- --------------------------------------------------------------------------------------------------------------------
Financial Position(3)
Timber and timberlands $ 394.0 $ 395.7 $ 430.4
Fixed assets, net 1,554.5 1,636.7 1,711.0
Total assets 2,745.8 2,865.5 2,908.2
Total debt 758.9 760.6 818.1
Total debt and redeemable preferred stock 758.9 785.4 867.8
Total capitalization(4) 2,038.3 2,082.8 2,113.9
- --------------------------------------------------------------------------------------------------------------------
Additional Information
Percent return on average common equity 4.5% 18.6% 27.5%
Income from continuing operations as a percentage of net sales 3.6% 11.9% 12.9%
Total debt as a percentage of total capitalization 37.2% 36.5% 38.7%
Total debt and redeemable preferred stock as
a percentage of shareholders'equity 65.8% 67.1% 79.2%
Effective tax rate 37.0% 35.2% 39.4%
Cash flow from (used for) operations $ 195.7 $ 336.2 $ 607.7
Cash invested in fixed assets, timber and timberlands $ 99.6 $ 107.0 $ 96.0
Book value-common shareholders'equity per common share $ 27.99 $ 27.97 $ 24.52
Common stock price range $ 37 - 55-5/8 $31-3/4 - 41-1/4 $26-1/2 - 53-1/2
Sales (thousands of short tons)
Newsprint 1,482 1,446 1,402
Coated groundwood 479 432 476
Directory paper(3) 228 211 229
Market pulp 407 393 325
Uncoated groundwood specialties(3) 83 64 60
Registered shareholders 5,200 5,600 5,900
Employees(3) 5,000 5,000 5,500
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* This table should be used in conjunction with the financial statements and
notes to the financial statements.
1. Extraordinary charges relate to debt retirements in 1996, 1995 and 1990. The
change in accounting principle relates to the adoption of SFAS #106 and SFAS
#109 in 1992.
2. Dividends are declared quarterly.
3. In 1996, the company sold Star Forms. Amounts at and subsequent to December
31, 1991, include GNP, acquired December 31, 1991.
4. Total capitalization includes total debt, minority interests in subsidiaries,
redeemable preferred stock and shareholders' equity.
40
<PAGE>
Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,359.0 $ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0 $ 1,330.8 $ 1,154.5
42.1 (63.3) (74.1) 103.7 174.9 280.5 334.1 218.5
(4.8) (64.5) (92.9) 45.6 87.4 144.6 164.3 81.1
(4.8) (64.5) (82.0) 45.6 78.4 144.6 164.3 81.1
(.59) (1.84) (2.34) 1.15 2.05 3.86 4.37 2.12
.60 .60 1.20 1.20 1.20 1.14 .97 .83
- ---------------------------------------------------------------------------------------------------------------
$ 604.0 $ 607.6 $ 649.6 $ 601.4 $ 617.2 $ 645.3 $ 671.3 $ 607.1
307.0 316.2 296.1 259.9 279.0 279.2 269.7 203.7
128.6 138.6 90.2 -- -- -- -- --
130.6 98.9 136.4 138.0 170.7 182.6 153.2 125.1
37.3 39.9 34.5 -- -- -- -- --
87.9 103.1 79.5 34.3 32.6 32.7 37.2 37.7
190.7 191.8 207.5 254.9 280.9 310.2 279.0 257.4
(127.1) (142.4) (133.0) (98.1) (91.3) (89.0) (79.6) (76.5)
- ---------------------------------------------------------------------------------------------------------------
$ 1,359.0 $ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0 $ 1,330.8 $ 1,154.5
- ---------------------------------------------------------------------------------------------------------------
$ 426.4 $ 422.5 $ 432.6 $ 414.1 $ 297.9 $ 285.7 $ 273.5 $ 256.6
1,785.0 1,750.7 1,821.7 1,858.8 1,604.7 1,529.5 1,223.8 1,079.8
2,851.4 2,726.2 2,881.6 2,780.0 2,297.9 2,284.2 1,880.5 1,699.8
1,118.5 1,120.2 1,134.3 864.5 498.2 532.4 293.2 367.6
1,193.0 1,194.6 1,208.5 938.6 572.2 606.4 367.1 441.4
2,222.5 2,071.8 2,186.4 2,061.7 1,694.5 1,700.5 1,368.0 1,301.7
---------------------------------------------------------------------------------------------------------------
(3.0)% (8.6)% (9.6)% 4.4% 7.9% 16.0% 20.7% 13.1%
(0.4)% (4.8)% (6.8)% 3.8% 6.8% 10.6% 12.4% 7.0%
50.3% 54.1% 51.9% 41.9% 29.4% 31.3% 21.4% 28.2%
134.4% 163.1% 147.7% 99.6% 61.2% 66.9% 44.4% 61.9%
70.0% 32.0% 37.0% 37.0% 37.0% 36.0% 36.5% 43.0%
$ 80.9 $ (30.6) $ 109.5 $ 156.6 $ 238.4 $ 327.3 $324.3 $247.3
$ 216.1 $ 121.8 $ 139.5 $ 159.7 $ 214.1 $ 423.4 $214.3 $ 88.1
$ 18.92 $ 20.10 $ 22.55 $ 26.21 $ 26.24 $ 25.37 $ 23.07 $ 19.60
$20-1/2-29-3/8 $ 18-24-5/8 $ 17-5/8-27-1/4 $18-5/8-30-3/8 $16-1/8-28-1/2 $25-3/4-34-1/8 $25-1/4-36-7/8 $ 22-44-1/2
1,460 1,437 1,604 1,244 1,266 1,278 1,233 1,246
453 454 447 346 352 343 337 316
189 202 126 -- -- -- -- --
300 312 318 317 300 261 250 253
76 76 65 -- -- -- -- --
6,600 7,300 8,200 9,500 14,000 15,600 17,000 18,000
6,000 6,600 6,900 7,200 5,100 5,100 5,000 5,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Nominal Annual Capacity and Production
by Product Line and Mill
- --------------------------------------------------------------------------------
Annual 1997
(In short tons) Capacity Production
- --------------------------------------------------------------------------------
Newsprint, directory and uncoated groundwood specialties
Calhoun, Tennessee 853,500 832,739
Catawba, South Carolina 260,500 247,811
Liverpool, Nova Scotia 265,500 262,907
Millinocket, Maine (1) 128,000 127,567
East Millinocket, Maine 299,000 296,487
Coated groundwood paper
Catawba, South Carolina 356,000 349,283
Millinocket, Maine (1) 138,000 124,277
Market pulp
Catawba, South Carolina 268,500 259,663
Calhoun, Tennessee 162,500 152,806
Lumber (2) 203,000 200,432
- --------------------------------------------------------------------------------
1. Capacity at Millinocket, Maine, based on current production mix.
2. Figures are in MBF (thousands of board feet).
42
<PAGE>
Directors
Arnold M. Nemirow
Chairman, President and
Chief Executive Officer
of the Company
Director since 1994
Mr. Nemirow became Chief Executive Officer of Bowater in 1995 and became
Chairman of the Board in 1996. He has served as President of the company since
September 1994 and served as Chief Operating Officer from September 1994 through
February 1995. Mr. Nemirow was President, Chief Executive Officer and a
director of Wausau Paper Mills Company, a pulp and paper company, from 1990
through July 1994; Chairman, President and Chief Executive Officer and a
director of Nekoosa Papers, Inc., the business papers division of Great Northern
Nekoosa Corporation, from 1988 to 1990; and Vice President of Great Northern
Nekoosa Corporation from 1984 to 1990. He is also a director of WPL Holdings,
Inc.
Francis J. Aguilar
Professor Emeritus
Harvard University Graduate School of Business
Director since 1984
Dr. Aguilar was a faculty member from 1965 to 1995. Since 1994, he has served as
Executive Director of the Management Education Alliance, a non-profit
educational corporation. Dr. Aguilar is a director of Dynamics Research
Corporation and Burr-Brown Corporation and also acts as an independent business
consultant.
H. David Aycock
Retired President and
Chief Operating Officer
Nucor Corporation
Director since 1987
Mr. Aycock served as President and Chief Operating Officer of Nucor Corporation,
a steel and steel products company, from 1984 to 1991. He previously held
various management positions, including that of General Manager at various Nucor
operating units. Mr. Aycock is a director of Nucor Corporation. Since retiring,
he has managed family investments in various entrepreneurial activities.
Richard Barth
Retired Chairman, President and Chief Executive Officer
Ciba-Geigy Corporation
Director since 1991
Mr. Barth became Chairman of Ciba-Geigy Corporation, a diversified chemical
products company, in July 1990 and served in that capacity until its merger into
Novartis Corporation in December 1996. He was President and Chief Executive
Officer of Ciba-Geigy Corporation from 1986 to April 1996; Chief Financial
Officer from 1979 to 1986; Secretary from 1974 to 1986; and General Counsel from
1970 to 1986. Mr. Barth is also a director of The Bank of New York, Novartis
Corporation (USA) and Imclone Systems, Inc.
Kenneth M. Curtis
Attorney At Law and
Senior Member
Curtis, Thaxter, Stevens, Broder & Micoleau Limited Liability Company, P.A.
Director since 1993
Mr. Curtis was a partner in the Portland, Maine, law firm from 1975 to 1979 and
from 1981 to January 1995, when the firm became a limited liability company, of
which he currently is a member. Mr. Curtis also served as President of the Maine
Maritime Academy from 1986 to 1994. He was Secretary of State of Maine from 1965
to 1966, Governor of Maine from 1967 to 1975 and U. S. Ambassador to Canada from
1979 to 1981. He also is a director of Key Corp.
Charles J. Howard
Chairman
Howard, Barclay & Associates Ltd.
Director since 1997
Mr. Howard has been Chairman of Howard, Barclay & Associates Ltd., an investment
counseling firm, since 1994. He also has been President, Chief Executive
Officer, a director and the largest shareholder of Ausnoram Holdings Limited, an
investment holding company with mining, oil and gas interests, since 1989. Mr.
Howard is also a director of Anderson Exploration Limited, Petromet Resources
Limited, Southern Africa Minerals Corporation and Unicorp Energy Corporation.
Donald R. Melville
Retired Chairman and
Chief Executive Officer
Norton Company
Director since 1984
Mr. Melville was Chief Executive Officer of Norton Company, a diversified
manufacturing company, from 1980 until his retirement at the end of 1987. He was
Chairman from 1985 to 1987, President from 1979 to 1986, and Executive Vice
President from 1971 to 1979.
James L. Pate
Chairman and
Chief Executive Officer
Pennzoil Company
Director since 1996
Mr. Pate is Chairman and Chief Executive Officer of Pennzoil Company. He was
named Chairman in 1994 and Chief Executive Officer in 1990. He held the
additional office of President from 1990 to 1997. Pennzoil Company is a
producer, refiner and marketer of petroleum and petroleum products.
John A. Rolls
President and
Chief Executive Officer
Thermion Systems International
Director since 1990
Mr. Rolls has served as President and Chief Executive Officer of Thermion
Systems International, an aerospace and industrial heating systems company,
since March 1996. He was President and Chief Executive Officer of Deutsche Bank,
North America, an international banking company, from 1992 to March 1996. Mr.
Rolls was Executive Vice President and Chief Financial Officer of United
Technologies Corporation, a diversified aerospace and industrial products
company, from 1986 to 1992. Prior to that he was Senior Vice President and Chief
Financial Officer of RCA Corporation. Mr. Rolls is also a director of MBIA,
Inc., Thermion Systems International and Arguss Holdings, Inc., formerly
Conceptronic, Inc.
43
<PAGE>
Board Committees
Executive Committee
Arnold M. Nemirow, Chairman
Francis J. Aguilar
H. David Aycock
Audit Committee
Kenneth M. Curtis, Chairman
Charles J. Howard
James L. Pate
Finance Committee
John A. Rolls, Chairman
Richard Barth
James L. Pate
Human Resources and Compensation Committee
H. David Aycock, Chairman
Francis J. Aguilar
Donald R. Melville
Nominating and Governance Committee
Richard Barth, Chairman
Francis J. Aguilar
Kenneth M. Curtis
John A. Rolls
Officers
Corporate Officers
Arnold M. Nemirow
Chairman, President and Chief Executive Officer
Arthur D. Fuller
Executive Vice President and President, Newsprint and Directory Division
Anthony H. Barash
Senior Vice President-Corporate Affairs and
General Counsel
E. Patrick Duffy
Senior Vice President and President, Coated Paper and Pulp Division
David G. Maffucci
Senior Vice President and Chief Financial Officer
Donald G. McNeil
Senior Vice President and President, Great Northern
Paper, Inc.
James H. Dorton
Vice President and Treasurer
Richard F. Frisch
Vice President-Human Resources
Richard K. Hamilton
Vice President and President, Forest Products Division
Steven G. Lanzl
Vice President-Information Technology
Robert A. Moran
Vice President-Manufacturing Services
Michael F. Nocito
Vice President and Controller
Wendy C. Shiba
Vice President, Secretary and Assistant General Counsel
Division Officers
Newsprint and
Directory Division
Randy C. Ellington
Vice President, Newsprint and Directory Sales
Richard G. Gilbert
Vice President and Resident Manager-Mersey Operations
Jerry R. Gilmore
Vice President, Administration and Planning
William C. Morris
Vice President, International Newsprint and Directory Sales
R. Donald Newman
Vice President, Operations
and Resident Manager-Calhoun Operations
Coated Paper and
Pulp Division
D. Alvin Humphrey
Vice President, Manufacturing and Mill Manager-Catawba Operations
Stephen L. Naman
Vice President, Coated
Paper Sales
Ben L. Pelton
Vice President, Pulp Sales
Craig B. Stevens
Vice President, Administration and Planning
Forest Products Division
George W. Flanders
Vice President-Catawba Operations
Marcia A. McKeague
Vice President-Great Northern Operations
J. Frank Pickle
Vice President-Calhoun Operations
Jon M. Porter
Vice President-Mersey Operations
Colin R. Wolfe
Vice President, Administration
44
<PAGE>
Shareholder Information
Annual Meeting
The company's annual meeting of shareholders will be held on Wednesday, May 20,
1998, at 11 a.m. at The Gunter Theatre of the Peace Center for the Performing
Arts, Greenville, S.C.
Stock Listings
Bowater Incorporated common stock is listed on the New York Stock Exchange
(stock symbol BOW), U.S. regional exchanges, the London Stock Exchange and the
Swiss Stock Exchanges.
Depositary shares, each representing a one-fourth interest in a share of the
company's 8.40% Series C Cumulative Preferred Stock, are listed on the New York
Stock Exchange (stock symbol BOW Pr C).
Common Stock Registrars and Transfer Agents
The Bank of New York
Shareholder Relations Department-11E
P. O. Box 11258
Church Street Station
New York, NY 10286
800-524-4458
E-Mail: [email protected]
Website: http://stock.bankofny.com
CIBC Mellon Trust Company
Balfour House
390 High Road
Ilford, Essex, 1G1 1NQ England
081-478-1888
Series C Cumulative Preferred Stock Depositary,
Registrar and Transfer Agent
SunTrust Bank, Atlanta
P. O. Box 4625
Atlanta, GA 30302
800-568-3476
Investor Information
Investor inquiries about Bowater should be directed to the Investor Relations
Department at Bowater's headquarters.
10-K Report
Bowater files an annual report on Form 10-K with the Securities and Exchange
Commission. A free copy (without exhibits) may be obtained by writing to the
Investor Relations Department at Bowater's headquarters.
Dividend Reinvestment and Stock Purchase Plan
The company has a Dividend Reinvestment and Stock Purchase Plan. Information is
available from the Investor Relations Department at Bowater's headquarters.
Auditors
KPMG Peat Marwick LLP
One Insignia Financial Plaza, Suite 600
P. O. Box 10529
Greenville, SC 29603
Common Stock Prices
Price ranges of the company's common stock during 1997 and 1996 as reported on
the New York Stock Exchange were:
- -------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------
High Low High Low
First quarter $43-3/8 $37 $41-1/4 $33-1/2
Second quarter 50-1/2 37-3/4 41-1/8 35-1/2
Third quarter 55-5/8 46-5/8 38-5/8 31-3/4
Fourth quarter 51-5/8 41-11/16 39-3/8 33-1/8
- -------------------------------------------------------------------
45
<PAGE>
(logo) BOWATER
Corporate Headquarters
Bowater Incorporated
55 East Camperdown Way
P. O. Box 1028
Greenville, SC 29602
864-271-7733
864-282-9482 (Fax)
www.bowater.com
Newsprint and
Directory Division
Operations
Calhoun Operations
5020 Highway 11 South
Calhoun, TN 37309
423-336-2211
Great Northern Paper, Inc.
East Operations
50 Main Street
East Millinocket, ME 04430
207-746-9912
Great Northern Paper, Inc.
Millinocket Operations
One Katahdin Avenue
Millinocket, ME 04462
207-723-5131
Bowater Mersey
Paper Company Limited
3691 Highway #3
P. O. Box 1150
Liverpool, NS
B0T 1K0 Canada
902-354-3411
Sales Offices
15310 Amberly Drive
Suite 250-50
Tampa, FL 33647
813-977-4945
2000 Regency Parkway
Suite 380
Cary, NC 27511
919-467-6422
100 Merchant Street
Suite 195
Cincinnati, OH 45246
513-772-2744
55 East Camperdown Way
P. O. Box 1028
Greenville, SC 29602
864-271-7733
Bowater Asia Pte Ltd
260 Orchard Road, #08-09
The Heeren
Singapore 238855
65-835-0488
Coated Paper and
Pulp Division
Operations
Catawba Operations
5300 Cureton Ferry Road
P. O. Box 7
Catawba, SC 29704
803-981-8000
Sales Offices
650 Warrenville Road
Suite 410
Lisle, IL 60532
630-960-9797
Park 80 West, Plaza 1
3rd Floor
Saddle Brook, NJ 07663
201-368-3611
5300 Cureton Ferry Road
P. O. Box 7
Catawba, SC 29704
803-981-8000
Forest Products Division
Operations
Bowater Lumber Co.
660 Industrial Boulevard
Albertville, AL 35950
205-878-7987
Pinkham Lumber Co.
P. O. Box 0
Ashland, ME 04732
207-435-3281
Great Northern Paper, Inc.
Woodlands Operations
1024 Central Street
Millinocket, ME 04462
207-723-6161
Catawba Woodlands Operations
5300 Cureton Ferry Road
P. O. Box 7
Catawba, SC 29704
803-981-8653
Calhoun Woodlands Operations
5020 Highway 11 South
Calhoun, TN 37309
423-336-2211
Bowater Mersey Paper
Company Limited
Oakhill Sawmill
P. O. Box 499
Bridgewater, NS
B4V 2X6 Canada
902-543-4637
Bowater Mersey Paper
Company Limited
Mersey Woodlands Operations
3691 Highway #3
P. O. Box 1150
Liverpool, NS
B0T 1K0 Canada
902-354-3411
Produced By
Corporate Communications,
Bowater Incorporated
(C) Bowater Incorporated,
Printed in U.S.A.
Bowater Incorporated is an
Equal Opportunity Employer
Exhibit 21.1
Bowater Incorporated
Subsidiaries
As of March 23, 1998
Jurisdiction of
Name Incorporation
- ---- --------------
Bowater Canadian Limited Canada
Bowater Foreign Sales Corporation Barbados
Bowater Foreign Sales Corporation U.S. Virgin Islands
Bowater Mersey Paper Co., Ltd. Nova Scotia
Calhoun Newsprint Company Delaware
Calhoun Energy, Inc. Delaware
Carolina Export Corporation Delaware
Great Northern Paper, Inc. Delaware
Bowater Asia Pte Ltd Singapore
NOTE: Each of the above entities is a wholly-owned direct subsidiary of Bowater
Incorporated (the "Company"), except for Calhoun Newsprint Company, which is
approximately 51% owned by the Company, and Bowater Mersey Paper Co., Ltd.,
which is 51% owned by Bowater Canadian Limited.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Bowater Incorporated:
We consent to incorporation by reference in the following Registration
Statements, of our report dated February 6, 1998, relating to the consolidated
balance sheet of Bowater Incorporated and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, capital
accounts, and cash flows for each of the years in the three-year period ended
December 31, 1997, which report is incorporated by reference in the December 31,
1997, annual report on Form 10-K of Bowater Incorporated:
<TABLE>
<CAPTION>
Filing
Form S-1 Date
- -------- ------
<S> <C> <C>
No. 33-2444 - Dividend Reinvestment and Stock Purchase Plan
of Bowater Incorporated 12/27/85
Form S-8
- --------
No. 2-92899 - Bowater Incorporated 1984 Stock Option Plan 8/23/84
No. 33-16277 - Bowater Southern Hourly Employees' Profit-
Sharing Plan 8/25/87
No. 33-25166 - Bowater Incorporated 1988 Stock Incentive Plan 10/27/88
No. 33-50152 - Bowater Incorporated 1992 Stock Incentive Plan 7/28/92
No. 33-61219 - The Deferred Compensation Plan for Outside
Directors of Bowater Incorporated 7/21/95
No. 33-64371 - Great Northern Paper, Inc. Hourly 401(k) Savings
Plan 11/17/95
No. 33-64373 - Bowater Communication Papers Inc. Employees'
Savings Plan 11/17/95
No. 333-00555 - Bowater Incorporated Salaried Employees'
Savings Plan 1/30/96
No. 333-00587 - Great Northern Paper, Inc. Savings and Capital
Growth Plan for Salaried Employees 1/31/96
<PAGE>
Page 2
No. 333-02989 - Bowater Incorporated/Carolina Division Hourly
Employees' Savings Plan 4/30/96
No. 333-16941 - Great Northern Paper, Inc. Savings and Capital
Growth Plan for Salaried Employees 11/27/96
No. 333-16943 - Great Northern Paper, Inc. Hourly 401(k) Savings
Plan 11/27/96
No. 333-41471 - Bowater Incorporated Salaried Employees'
Savings Plan 12/4/97
No. 333-41473 - Bowater Incorporated 1997 Stock Option Plan 12/4/97
No. 333-41475 - Bowater Incorporated/Coated Paper and Pulp Division
Hourly Employees' Savings Plan 12/4/97
</TABLE>
Greenville, South Carolina
March 20, 1998
/s/ KPMG Peat Marwick LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 228,688
<SECURITIES> 176,834
<RECEIVABLES> 190,594
<ALLOWANCES> 0
<INVENTORY> 105,514
<CURRENT-ASSETS> 718,375
<PP&E> 3,059,596
<DEPRECIATION> 1,505,067
<TOTAL-ASSETS> 2,745,798
<CURRENT-LIABILITIES> 194,651
<BONDS> 757,100
0
25,465
<COMMON> 44,928
<OTHER-SE> 1,083,772
<TOTAL-LIABILITY-AND-EQUITY> 2,745,798
<SALES> 1,484,503
<TOTAL-REVENUES> 1,484,503
<CGS> 1,106,811
<TOTAL-COSTS> 1,276,635
<OTHER-EXPENSES> (21,303)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,488
<INCOME-PRETAX> 89,483
<INCOME-TAX> 33,109
<INCOME-CONTINUING> 53,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,691
<EPS-PRIMARY> $1.26<F1>
<EPS-DILUTED> $1.25
<FN>
<F1> EPS-BASIC
</FN>
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 264,571
<SECURITIES> 0
<RECEIVABLES> 241,847
<ALLOWANCES> 0
<INVENTORY> 154,662
<CURRENT-ASSETS> 674,023
<PP&E> 3,013,467
<DEPRECIATION> 1,302,464
<TOTAL-ASSETS> 2,908,165
<CURRENT-LIABILITIES> 285,322
<BONDS> 816,532
49,619
136,798
<COMMON> 39,501
<OTHER-SE> 919,113
<TOTAL-LIABILITY-AND-EQUITY> 2,908,165
<SALES> 2,001,141
<TOTAL-REVENUES> 2,001,141
<CGS> 1,183,977
<TOTAL-COSTS> 1,451,890
<OTHER-EXPENSES> 4,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,513
<INCOME-PRETAX> 464,570
<INCOME-TAX> 183,090
<INCOME-CONTINUING> 258,245
<DISCONTINUED> 0
<EXTRAORDINARY> (11,317)
<CHANGES> 0
<NET-INCOME> 246,928
<EPS-PRIMARY> $6.06<F1>
<EPS-DILUTED> $5.48
<FN>
<F1> EPS-BASIC
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This is where the Legend will appear.
</LEGEND>
<RESTATED>
<CIK> 0000743368
<NAME> BOWATER INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 85,259
<SECURITIES> 345,398
<RECEIVABLES> 185,724
<ALLOWANCES> 0
<INVENTORY> 123,745
<CURRENT-ASSETS> 753,755
<PP&E> 2,994,206
<DEPRECIATION> 1,357,501
<TOTAL-ASSETS> 2,865,544
<CURRENT-LIABILITIES> 253,881
<BONDS> 759,029
<COMMON> 43,994
24,746
25,465
<OTHER-SE> 1,101,674
<TOTAL-LIABILITY-AND-EQUITY> 2,865,544
<SALES> 1,718,269
<TOTAL-REVENUES> 1,718,269
<CGS> 1,149,593
<TOTAL-COSTS> 1,323,997
<OTHER-EXPENSES> (123,353)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,347
<INCOME-PRETAX> 353,188
<INCOME-TAX> 124,393
<INCOME-CONTINUING> 204,076
<DISCONTINUED> 0
<EXTRAORDINARY> (3,922)
<CHANGES> 0
<NET-INCOME> 200,154
<EPS-PRIMARY> $ 5.07<F1>
<EPS-DILUTED> $ 4.64
<FN>
<F1> EPS-BASIC
</FN>
</TABLE>
