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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
62-0721803
(I.R.S. Employer
Identification No.)
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
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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 common equity held by
nonaffiliates of the registrant as of March 17, 2000, was $2,366,043,775.
As of March 17, 2000, there were 51,409,055 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, 1999 Parts I, II and IV
Proxy Statement with respect to the Annual Meeting of
Shareholders to be held on May 10, 2000 Part III
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PART I
ITEM 1. BUSINESS
GENERAL
Bowater Incorporated is engaged in the manufacture, sale and distribution
of newsprint, uncoated groundwood specialties, coated groundwood paper, market
pulp, lumber and timber. We operate facilities in the United States, Canada and
South Korea and, as of December 31, 1999, managed or possessed cutting rights
for approximately 16.0 million acres of timberlands to support these facilities.
We market and distribute our various products in North America, South America
and overseas.
In 1999, Bowater sold approximately 2.0 million acres of timberlands in the
state of Maine, including the Pinkham Lumber Company. Calhoun Newsprint Company,
a majority-owned subsidiary of Bowater, sold approximately 140,000 acres of
timberlands in North Carolina and South Carolina. Also in 1999, we sold our
wholly owned subsidiary in Maine, Great Northern Paper, Inc. ("GNP").
Information regarding sales of real property and the sale of the subsidiary is
incorporated by reference to pages 16 and 30-31 of the Annual Report. In July
1999, we acquired the assets of Nuway Paper, LLC, a paper coating facility
located in Benton Harbor, Michigan.
Bowater was incorporated in Delaware in 1964. Our principal executive
offices are located at 55 East Camperdown Way, Greenville, South Carolina 29602,
and our telephone number at that address is (864) 271-7733.
Information regarding Bowater's segments, which includes net sales by
product line and geographic information about net sales and long-lived assets,
is incorporated by reference to pages 14, 19-20 and 42-44 of the Annual Report.
Information regarding our fixed assets is incorporated by reference to page 32
of the Annual Report. Information regarding our principal products and
distribution methods is provided below.
Information regarding Bowater's liquidity and capital resources is
incorporated by reference to pages 15-17 and 20-21 of the Annual Report.
OPERATING DIVISIONS
Bowater operates through four divisions: the Newsprint Division (formerly
the Newsprint and Directory Division), the Coated Paper Division, the Pulp
Division and the Forest Products Division. Due to the sale of GNP in 1999, we no
longer produce or market directory paper.
The Newsprint Division, headquartered in Greenville, South Carolina,
consists of the following manufacturing facilities: the Calhoun Operations and
Calhoun Newsprint Company ("CNC") (which is owned approximately 51% by Bowater
and approximately 49% by Herald Company, Inc.) located in Calhoun, Tennessee;
Bowater Mersey Paper Company Limited ("Mersey Operations") (which is owned 51%
by Bowater and 49% by The Washington Post Company) located in Liverpool, Nova
Scotia; Bowater Maritimes Inc. ("Dalhousie Operations") (which is owned 67% by
Bowater, 25% by Oji Paper Co., Ltd. and 8% by Mitsui & Co., Ltd.) located in
Dalhousie, New Brunswick; the Gatineau Operations located in Gatineau, Quebec;
the Thunder Bay Operations located in Thunder Bay, Ontario; Ponderay Newsprint
Company ("Ponderay Operations") (a partnership in which Bowater has a 40%
interest and, through its wholly owned subsidiary, is the managing partner; the
balance of the partnership is held by subsidiaries of five newspaper publishers)
located in Usk, Washington; and the Mokpo Operations, located in Mokpo, South
Korea. This division is also supported by nine North American sales offices,
which are responsible for marketing all of Bowater's North American newsprint
and some uncoated groundwood specialties. International marketing of newsprint
and some uncoated groundwood specialties is supported by offices in Singapore,
England, Brazil, South Korea and Japan.
The Coated Paper Division, headquartered in Charlotte, North Carolina,
consists of the Catawba Operations located in Catawba, South Carolina, a paper
coating facility in Benton Harbor, Michigan, and three sales offices. This
division is responsible for selling all of Bowater's coated groundwood paper and
some uncoated groundwood specialties.
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The Pulp Division, headquartered in Burlington, Ontario, consists of two
sales offices. This division is responsible for marketing all of Bowater's
market pulp, which is produced at the Thunder Bay, Catawba and Calhoun
Operations. Previously, this division included the Gold River pulp mill in
British Columbia, which was permanently closed in February 1999.
The Forest Products Division, headquartered in Calhoun, Tennessee, consists
of three manufacturing facilities: Bowater Lumber Company located in
Albertville, Alabama; Bowater Mersey Paper Company Limited Oakhill Sawmill
(which is owned 51% by Bowater and 49% by The Washington Post located in
Bridgewater, Nova Scotia; and Maniwaki Sawmill (formerly Manifor Inc.) located
in Maniwaki, Quebec. In March 1999, Bowater sold the Pinkham Lumber Company
located in Ashland, Maine. The Forest Products Division is supported by 10
business offices and is responsible for managing Bowater's timberlands and
selling timber (to third parties and to our paper mills), softwood lumber and
non-strategic timberlands.
Additional information regarding Bowater's divisions is incorporated by
reference to pages 6-9 of the Annual Report.
NEWSPRINT AND UNCOATED GROUNDWOOD SPECIALTIES
Bowater is the largest manufacturer of newsprint in the United States. Our
market share in the United States is approximately 16%. Including Bowater's
Mersey, Dalhousie and Ponderay Operations, our annual production capacity of
newsprint and uncoated groundwood specialties is approximately 2.7 million
metric tons, or approximately 12% of the North American capacity total.
Including the South Korean newsprint mill, our annual production capacity of
these products is approximately 3.0 million metric tons, or approximately 6% of
the worldwide capacity total.
The Calhoun Operations, one of the largest and most productive newsprint
mills in North America, are located on the Hiwassee River in Tennessee. This
facility operates four paper machines, which produced 515,000 metric tons of
newsprint and uncoated groundwood specialties in 1999. Also located at this
facility is CNC's paper machine, which produced 216,000 metric tons of newsprint
in 1999. Although Bowater manages and operates the entire facility, CNC also
owns 68.4% of the thermomechanical pulp ("TMP") mill and 100% of the recycled
fiber plant at the facility. Bowater owns the remaining 31.6% of the TMP mill
and all of the other assets at this location, which include a kraft pulp mill
and other support equipment necessary to produce the finished product. In 1999,
Bowater completed the expansion of the TMP mill at this location.
The Mokpo Operations, located in the Daebul Industrial Complex on the
southwest coast of South Korea, have one paper machine that produces recycled
content newsprint. This facility began production in late 1996 and is one of the
lowest-cost newsprint mills in Asia. The mill produced approximately 244,000
metric tons of recycled newsprint in 1999. The facility also includes a
recycling plant and has year-round deep-sea docking facilities.
The Dalhousie Operations, located in the Canadian Province of New
Brunswick, have two newsprint machines. These machines were rebuilt in 1982 and
produced 205,000 metric tons of newsprint in 1999. A modernization program was
completed in 1996 with the construction of a secondary effluent treatment plant
and a TMP mill. These operations also have year-round deep-sea docking
facilities that can accommodate large ocean freighters, providing economical
access to ports along the eastern seaboard of the United States and throughout
the world.
The Gatineau Operations, located on the north bank of the Ottawa River in
the Canadian Province of Quebec, consist of three paper machines, which produced
413,000 metric tons of high-quality recycled-content newsprint in 1999. This
facility also includes a recycling plant with an annual capacity of 220,000
metric tons of deinked pulp, a refuse boiler, a TMP mill and a secondary
effluent treatment facility.
The Mersey Operations, located in the Canadian Province of Nova Scotia on
an ice-free port providing economical access to ports along the eastern seaboard
of the United States and throughout the world, have two paper machines. Built in
1929, they were rebuilt between 1983 and 1985 and produced
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218,000 metric tons of newsprint in 1999. This facility also operates a TMP
mill, a wastewater treatment facility and other support equipment required to
produce the finished product.
The Ponderay Operations, located on the Pend Oreille River in the State of
Washington, consist of one newsprint machine, which began production in 1989 and
produced 248,000 metric tons of recycled-content newsprint in 1999. This
facility also operates a TMP mill, a recycling plant, a wastewater treatment
facility and other support equipment required to produce the finished product.
The Thunder Bay Operations, located beside the Kaministiquia River in the
Canadian Province of Ontario, include three newsprint machines and two kraft
pulp mills. This facility produced 529,000 metric tons of newsprint in 1999.
This facility also includes a TMP mill with an annual capacity of 316,000 metric
tons and a recycling plant with an annual capacity of 147,000 metric tons of
deinked pulp. A chip handling system and secondary effluent treatment plant were
installed in 1995.
Newsprint and uncoated groundwood specialties are also produced at
Bowater's Catawba Operations, located on the Catawba River in South Carolina.
The newsprint machine at this site produced 224,000 metric tons in 1999.
The Newsprint Division has 49% of its newsprint and uncoated groundwood
specialties capacity located in Canada and a significant newsprint facility
located in South Korea. Bowater's international operations are subject to risks
of doing business abroad such as currency fluctuations, changes in international
trade regimes such as GATT or NAFTA, dependence on local markets for supply,
export duties, quotas, restrictions on the transfer of funds and foreign
ownership of property, and political and economic instability. To date, our
results of operations have not been materially affected by any of these risks,
but we cannot predict the likelihood of any of these risks having a material
effect on our results of operations in the future.
North American newsprint and uncoated groundwood specialty paper are sold
directly by Bowater through its regional sales offices located near major
metropolitan areas. Sales to Southeast Asia and Pacific Rim countries are made
through Bowater Asia Pte Ltd; sales to Europe and the Middle East are made
through Bowater Europe Limited; sales to South America are supported by Bowater
S. America Ltda.; and sales to Japan and South Korea are supported by Bowater
Japan Limited and Bowater-Halla Paper Co., Ltd., respectively. We distribute
newsprint and uncoated groundwood specialties by rail, truck, ship and barge.
In 1999, Bowater sold newsprint to various related parties. During 1999,
CNC's minority shareholder and its affiliates purchased in excess of CNC's
annual output. In addition, Bowater's other joint venture partners purchased an
aggregate of approximately 484,000 metric tons during 1999. No single customer,
related or otherwise, accounted for 10% or more of Bowater's 1999 consolidated
net sales.
COATED GROUNDWOOD PAPER
Bowater is one of the largest producers of coated groundwood paper in the
United States and North America, with an annual capacity of 416,000 short tons,
or approximately 9% and 7.4% of the United States and North American capacity,
respectively. Our coated groundwood paper is primarily light weight coated paper
and is used in magazines, catalogs, advertising pieces, textbooks, direct mail
pieces and coupons.
Bowater manufactures a variety of coated paper grades on two paper machines
at the Catawba Operations. Both machines utilize off-machine blade coaters and,
in 1999, produced 352,000 short tons of coated groundwood paper. The Catawba
Operations also include a kraft pulp mill, a TMP mill and other support
equipment required to produce the finished product.
Bowater also operates a coating facility in Benton Harbor, Michigan. This
site is a start-up operation with a single line coater that converted 7,000
short tons of newsprint and other papers into coated paper during 1999.
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Coated groundwood paper is sold domestically by Bowater through its
regional sales offices and through paper brokers to major printers, publishers
and catalogers. It is distributed by truck and rail. Export markets are serviced
primarily through international agents.
MARKET PULP
The Pulp Division markets the output from Bowater's pulp mills. In addition
to furnishing substantially all of our internal pulp requirements, these pulp
mills produce softwood and hardwood market pulp. We are the sixth largest
producer of paper grade market pulp in North America and have a North American
market share of approximately 10%. Market pulp is used by manufacturers of fine
paper, tissues and other paper products.
In 1999, the Catawba Operations produced 244,000 metric tons of softwood
market pulp; the Calhoun Operations produced 133,000 metric tons of hardwood
market pulp; and the Thunder Bay Operations produced 216,000 metric tons of
hardwood market pulp and 282,000 metric tons of softwood market pulp.
North American sales are made directly by Bowater, while export sales are
made through international sales agents local to their markets. We distribute
market pulp primarily by truck, rail and ship.
FOREST PRODUCTS
In addition to market pulp and paper, Bowater sells pulpwood, sawtimber,
lumber and wood chips to a variety of customers located in the eastern United
States and Canada. We also sell non-strategic timberland tracts and provide our
manufacturing facilities with a portion of the wood needed for pulp, paper and
lumber production.
At December 31, 1999, we owned, leased or possessed cutting rights on
approximately 16.0 million acres of timberlands throughout the United States and
Canada. Approximately 800,000 of these timberlands are located in the
southeastern United States, 8.4 million acres in Ontario, 4.9 million acres in
Quebec, 1.3 million acres in New Brunswick and 600,000 acres in Nova Scotia.
Although the primary focus is on scientific timber management, considerable
attention is given to maintaining or enhancing other uses of the forests.
Bowater, independently or in cooperation with other stakeholders, restricts
timber harvesting on about 10% of its timberlands.
Our timberland base supplies a portion of the needs of our paper mills and
sawmills, as well as many independently owned forest products businesses. We
maintain two nurseries and contract with numerous other nurseries in order to
replace trees harvested from our timberlands and from the timberlands of small
private landowners. We also use harvest practices designed to promote natural
regeneration.
In 1999, we consumed approximately 12.0 million tons of wood for pulp,
paper and lumber production. Of this amount, 2.5 million tons of wood were
harvested from owned or leased properties, 2.8 million tons were generated from
cutting rights on land owned by the Canadian government, and 6.7 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, we harvested 3.0 million tons of wood from owned or leased properties
to sell to other sawmills and paper companies.
Bowater operates three sawmills that produce construction grade lumber.
Bowater Lumber Company produced 94.0 million board feet of lumber in 1999. It
sells its lumber in the southeastern and mid-western United States. The Bowater
Mersey Paper Company Limited Oakhill Sawmill, which produced 51.9 million board
feet of lumber in 1999, sells to customers in eastern Canada and the
northeastern United States. The Maniwaki sawmill (formerly the Manifor Inc.
sawmill), which produced 74.0 million board feet of lumber in 1999, sells mainly
to customers in eastern Canada. We distribute lumber by truck and rail.
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RECYCLING CAPABILITY
Bowater has focused its efforts in recent years on meeting the demand for
recycled-content paper products, providing an environmental benefit in reducing
solid waste landfill deposits. In addition, this effort allows publishers and
other customers to meet recycled-content standards.
Bowater operates recycling plants at its Calhoun, Mokpo, Gatineau, Ponderay
and Thunder Bay 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. The recycled fiber pulp is combined
with virgin fiber pulp. The resulting products, which include recycled-content
newsprint and uncoated groundwood specialties, are comparable in quality to
paper produced with 100% virgin fiber pulp. In 1999, we processed 1.1 million
short tons of recovered paper.
Bowater purchases recovered paper from suppliers in the regions of its
recycling plants. These suppliers collect, sort and bale the material before
selling it to us, primarily under long-term contracts, with prices and
quantities fluctuating according to market conditions. We are one of the largest
purchasers of recovered paper in North America.
COMPETITION
In general, Bowater's products are globally-traded commodities, and the
markets in which we compete are highly competitive. Our operating results
reflect the general cyclical pattern of the pulp and paper industry. Pricing and
the level of shipments of our 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 currency exchange rates. Any material decline in prices for our
products or other adverse developments in the market for our products could have
a material adverse effect on our financial results, financial condition and cash
flow.
Newsprint, one of Bowater's principal products, is produced by numerous
worldwide manufacturers. Aside from quality specifications to meet customer
needs, the production of newsprint does not depend upon a proprietary process or
formula. We compete with approximately 20 major worldwide producers of
newsprint. In addition, we face actual and potential competition from numerous
smaller producers located around the world. Price, quality, service (close
customer relationships), and the ability to produce paper with recycled content
are important competitive determinants.
Bowater competes with approximately five market pulp companies of similar
size in North America. Like newsprint, market pulp is one of our principal
products and is a globally-traded commodity in which competition exists in all
major markets. Market pulp prices historically have been volatile. Aside from
quality specifications to meet customer needs, the production of market pulp
does not depend on a proprietary process or formula. We produce four out of the
six major grades of market pulp (northern and southern hardwood and softwood
pulp) and compete with other producers from South America (eucalyptus hardwood
pulp and radiata pine softwood pulp), Europe (northern softwood and hardwood
pulp), and Asia (mixed tropical hardwood pulp). Price, quality and service are
considered the main competitive determinants.
Bowater competes with approximately 14 coated groundwood producers located
in North America. In addition, approximately six major offshore suppliers of
coated groundwood paper sell into the North American market. As a major supplier
to printers in North America, we also compete 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.
Bowater produces uncoated groundwood specialties and lumber, but is not a
major producer of these products.
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As with other globally manufactured and sold commodities, the competitive
position of Bowater's products is significantly affected by the volatility of
currency exchange rates. See "Quantitative and Qualitative Disclosures About
Market Risk" on pages 11-12 of this Form 10-K. We have significant operations in
the United States, Canada and South Korea, with several of our primary
competitors located in Canada, Sweden and Finland. Accordingly, the relative
rates of exchange between those countries' currencies and the United States
dollar can have a substantial effect on our ability to compete. In addition, the
degree to which we compete 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 and the Internet could
adversely affect traditional print media, including products of our customers;
however, neither the timing nor the extent of those trends can be predicted with
certainty. Industry reports indicate that our 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 our products), television and the Internet. Our
magazine and catalog publishing customers are also aware of the potential
effects from competing electronic media. They have, in the near term, benefited
from an increase in magazine and catalog publications whose content is driven by
electronic media, especially computer hardware and software.
Part of Bowater's competitive strategy is to be a lower-cost producer of
its products while maintaining strict quality standards and responding to
environmental concerns. Currently, some of our competitors are lower-cost
producers of some of the products that we manufacture, including newsprint. Our
five recycling facilities have enhanced our competitive position by enabling us
to respond to customer demand for recycled-content newsprint and uncoated
groundwood specialties.
RAW MATERIALS AND ENERGY
The manufacture of pulp and paper requires significant amounts of wood and
energy. The wood Bowater needs for pulp, paper and lumber production is obtained
from property we own or lease or on which we possess cutting rights and
purchased from local producers. We also use recovered paper as raw material when
producing recycled-content paper grades. See "Forest Products" and "Recycling
Capability" on pages 4-5 of this Form 10-K for information regarding our
procurement and use of raw materials.
Steam and electrical power are the primary forms of energy used in pulp and
paper production. Process steam is produced in boilers using a variety of fuel
sources. All of Bowater's mills produce all of their steam requirements with the
exception of the Mersey Operations, which purchase all of their steam from a
third-party supplier. The Gatineau, Mersey and Mokpo Operations purchase all of
their electrical power requirements. The Thunder Bay, Calhoun and Catawba
Operations produce approximately one-fourth of their electrical requirements and
the balance is purchased.
EMPLOYEES
As of December 31, 1999, Bowater employed 6,400 people, of whom 4,300 were
represented by bargaining units. The labor contract at the 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 contracts covering most of the
unionized employees at the Dalhousie, Gatineau, and Thunder Bay Operations and
all of the unionized employees at the Mersey Operations were successfully
renegotiated without any work interruptions in 1999. The new contracts expire in
2004. All plant facilities are situated in areas where adequate labor pools
exist. Relations with employees are considered good.
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TRADEMARKS AND LICENSES
Bowater owns the trademarked "Bowater" logo exclusively throughout the
world. In 1997, we obtained from the former Bowater plc, now Rexam plc,
ownership of the name "Bowater" in connection with the sale of all of our
products exclusively throughout the world, with a limited exception for a few
non-conflicting uses by Rexam plc. We consider our interest in the logo and name
to be valuable and necessary to the conduct of our business.
ENVIRONMENTAL MATTERS
Information regarding environmental matters is incorporated by reference to
pages 10 and 16-17 of the Annual Report.
Bowater believes that its United States, Canadian and South Korean
operations are in substantial compliance with all applicable federal, state,
provincial and local 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, we believe that we will not
be at a competitive disadvantage with regard to meeting future United States,
Canadian or South Korean standards.
Bowater has taken positive action to address concerns about municipal solid
waste by constructing a recycled fiber plant at its Calhoun Operations. Through
acquisitions in 1998, we have four additional recycling plants located at the
Mokpo, Gatineau, Ponderay, and Thunder Bay Operations. See "Recycling
Capability" on page 5 of this Form 10-K.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Statements that are not reported financial results or other historical
information are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. This Form 10-K, each of Bowater's
annual reports to shareholders, Forms 10-K, 10-Q and 8-K, proxy statements,
prospectuses and any other written or oral statement made by or on behalf of
Bowater after the filing of this Form 10-K may include forward-looking
statements including, for example, statements about our business outlook,
assessment of market conditions, strategies, future plans, future sales, prices
for our major products, inventory levels, capital spending and tax rates. These
forward-looking statements are not guarantees of future performance. They are
based on management's expectations that involve a number of business risks and
uncertainties, any of which could cause actual results to differ materially from
those expressed in or implied by the forward-looking statements. In addition to
specific factors that may be described in connection with any particular
forward-looking statement, factors that could cause actual results to differ
materially include (but are not limited to):
- INDUSTRY CYCLICALITY. Industry cyclicality resulting from increases or
decreases in production capacity, increases or decreases in operating
rates and changes in customer consumption patterns will affect changes in
product prices, which will impact our profitability and cash flow.
- COST OF RAW MATERIALS AND ENERGY SUPPLY. The prices we pay for energy,
chemicals, wood fiber, recycled paper and other raw materials are
volatile and may change rapidly, directly affecting our profitability.
- CHANGES IN THE ECONOMIES OF THE UNITED STATES AND OTHER COUNTRIES IN
WHICH OUR PRODUCTS ARE SOLD. We sell our products in North, Central and
South America, Asia and Europe. The economic climate of each region has a
significant impact on the demand for our products. Changes in regional
economies can result in changes in prices and sales volume, thereby
directly affecting our profitability.
- COMPETITIVE ACTIONS BY OTHER FOREST PRODUCTS COMPANIES. The markets for
our products are all highly competitive. Actions by competitors can
directly impact our ability to sell our products and can impact the
prices at which our products are sold.
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- CHANGES IN LAWS OR REGULATIONS INCLUDING THOSE ON ENVIRONMENTAL
COMPLIANCE. Each of our operations is subject to a variety of national
and local laws and regulations, many of which deal with the environment.
Changes in these laws or regulations have in the past, and could in the
future, result in substantial expenditures for compliance.
- CHANGES IN ECONOMIC FACTORS INCLUDING INTEREST RATES AND CURRENCY
EXCHANGE RATES. We are exposed to changes in interest rates on some of
our existing debt and all new debt issues. Changes in interest rates can
increase or decrease the cost of our financing. Also, we sell a portion
of our products in currencies other than the United States dollar and
have manufacturing costs denominated in Canadian dollars and Korean won.
Therefore, changes in currency exchange rates can impact our revenues and
costs.
ITEM 2. PROPERTIES
Information regarding Bowater's properties is incorporated by reference to
the material included in Item 1, "Business" of this Form 10-K, and on page 50
and the back cover page of the Annual Report.
In addition to the properties that we own, we also lease under long-term
leases certain timberlands, office premises, and office and transportation
equipment and have cutting rights with respect to certain timberlands.
Information regarding timberland leases, operating leases and cutting rights is
incorporated by reference to page 42 of the Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Bowater is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims and other matters. We believe that the ultimate disposition
of these matters will not have a material adverse effect on our operations or
our financial condition taken as a whole.
The Antitrust Division of the United States Department of Justice has
informed Bowater that it is conducting a review of possible anti-competitive
practices in the North American newsprint industry. Bowater is aware that the
Division has served grand jury subpoenas on employees of various newsprint
manufacturers. Bowater understands that certain former employees of Avenor Inc.,
which was acquired by Bowater in 1998, have appeared or will appear before the
grand jury. Bowater is not aware of the identity of any targets or subjects of
the review, or whether Bowater will itself be a subject of the review.
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 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 17, 2000
Bowater'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.................... 56 Chairman, President and Chief Executive 1994
Officer
Arthur D. Fuller..................... 55 Executive Vice President and President -- 1995
Newsprint Division
E. Patrick Duffy..................... 58 Senior Vice President and President -- Coated 1995
Paper Division
Richard K. Hamilton.................. 51 Vice President and President -- Forest 1997
Products Division
David J. Steuart..................... 53 Vice President and President -- Pulp Division 1998
Anthony H. Barash.................... 56 Senior Vice President -- Corporate Affairs and 1996
General Counsel
James H. Dorton...................... 43 Vice President -- Corporate Development and 1996
Strategy
Jerry R. Gilmore..................... 51 Vice President -- United States and Korean 1999
Newsprint Operations
William G. Harvey.................... 42 Vice President and Treasurer 1998
Steven G. Lanzl...................... 51 Vice President -- Information Technology 1996
David G. Maffucci.................... 49 Senior Vice President and Chief Financial 1992
Officer
Robert A. Moran...................... 55 Vice President -- Manufacturing Services 1992
R. Donald Newman..................... 53 Vice President -- Canadian Newsprint 1999
Operations
Michael F. Nocito.................... 44 Vice President and Controller 1993
Wendy C. Shiba....................... 49 Vice President, Secretary and Assistant 1993
General Counsel
James T. Wright...................... 53 Vice President -- Human Resources 1999
</TABLE>
Arnold M. Nemirow became Chairman in 1996, and Chief Executive Officer in
1995. He has been President and a director of Bowater 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 1990 through 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
1990 and Vice President of Great Northern Nekoosa Corporation from 1984 to 1990.
Arthur D. Fuller became Executive Vice President and President -- Newsprint
Division (formerly the Newsprint and Directory Division) in 1997. From 1995 to
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.
E. Patrick Duffy became Senior Vice President and President -- Coated Paper
Division in 1995. He was President of the Telecommunications Business Unit of
R.R. Donnelly and Sons, a printing company, 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.
9
<PAGE> 11
Richard K. Hamilton became Vice President and President -- Forest Products
Division in 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 forest products 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.
David J. Steuart became Vice President of Bowater in January 1999. He has
been President of the Pulp Division since July 1998. He was President, Pulp
Group of Avenor Inc., a pulp and paper company, from 1994 until its acquisition
by Bowater in July 1998. In this position, he had profit/loss responsibility for
the Pulp Group and performed related manufacturing and marketing functions.
Anthony H. Barash became Senior Vice President -- Corporate Affairs and
General Counsel in 1996. From 1993 through 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. 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.
James H. Dorton became Vice President -- Corporate Development and Strategy
in 1998. He served as Vice President and Treasurer from 1996 to 1998. 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.
Jerry R. Gilmore became Vice President of Bowater in January 1999. He has
been Vice President -- United States and Korean Operations of the Newsprint
Division (formerly the Newsprint and Directory Division) since October 1998.
Previously, he held other positions in the Newsprint and Directory Division, as
Vice President -- Administration and Planning from 1995 to April 1998 and as
Vice President with responsibility for the integration of recent acquisitions
from April to October 1998. Prior to joining Bowater in 1994, he held financial
and management positions with Georgia-Pacific Corporation and Great Northern
Nekoosa Corporation, both forest products companies.
William G. Harvey became Vice President and Treasurer in 1998. Previously,
he was employed by Avenor Inc., a pulp and paper company, as Vice President and
Treasurer from 1995 to 1998, Director of Finance from 1994 to 1995 and Manager
of Finance during 1994. These were positions of increasing responsibility
performing cash management, corporate finance, investor relations and various
other treasury functions.
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.
David G. Maffucci became Senior Vice President and Chief Financial Officer
in 1995. He had served as Vice President and Treasurer since 1993 and Treasurer
from 1992 to 1993, and relinquished the title of Treasurer in 1996. From 1977 to
1992, he held various positions of increasing responsibility in Bowater's
Finance Department.
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.
R. Donald Newman became Vice President of Bowater in January 1999. He has
been Vice President -- Canadian Newsprint Operations of the Newsprint Division
(formerly the Newsprint and Directory Division) since July 1998. Previously, he
held other positions in the Newsprint and Directory
10
<PAGE> 12
Division, as Vice President -- Operations and Resident Manager of the Calhoun
Operations from 1995 to 1998, and as Vice President and Operations Manager of
the Calhoun Operations from 1994 to 1995.
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 Bowater's Finance Department.
Wendy C. Shiba became Vice President in 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. 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. Earlier,
she practiced corporate law in the private sector.
James T. Wright became Vice President -- Human Resources in March 1999. He
was Vice President -- Human Resources for Georgia-Pacific Corporation from 1993
to 1999. Prior to 1993, he held human resource and labor relations positions
with Georgia-Pacific Corporation and Weyerhaeuser Company, both forest products
companies.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
(a) Bowater's common stock, $1 par value ("Common Stock"), is listed on the
New York Stock Exchange, Inc. (stock symbol BOW), the Pacific Exchange, Inc.,
and the London Stock Exchange. Price information with respect to Bowater's
Common Stock on the inside back cover of the Annual Report is incorporated by
reference.
(b) As of March 17, 2000, there were 4,580 holders of record of Bowater's
Common Stock.
(c) Bowater has paid consecutive quarterly dividends of $.20 per share of
Common Stock during 1999 and 1998. Future declarations of dividends on our
Common Stock are discretionary with the Board of Directors, and the declaration
of any dividends will depend upon, among other things, our earnings, capital
requirements and financial condition. In addition, our ability to pay dividends
on our Common Stock depends on our maintaining adequate net worth and compliance
with the required ratio of total debt to total capital as defined in and
required by our current credit agreement. This agreement requires us to maintain
a minimum consolidated net worth (generally defined in the agreement as common
shareholders' equity plus any outstanding preferred stock) of $1.6 billion as of
December 31, 1999. In addition, the agreement imposes a maximum 60% ratio of
total debt to total capital (defined in the agreement as total debt plus net
worth). At December 31, 1999, our consolidated net worth was $1.8 billion and
our ratio of total debt to total capital was 46%.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding Bowater's financial position and operating record is
incorporated by reference to pages 48-49 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding Bowater's business and financial results is
incorporated by reference to pages 11-21 of the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of Bowater's 1998 acquisition of Avenor, approximately 46% of
our pulp and paper production capacity is in Canada, with costs primarily
denominated in Canadian dollars. As a result, our earnings are affected by
increases or decreases in the value of the Canadian dollar. Increases in the
value of the Canadian dollar versus the United States dollar will tend to reduce
reported earnings, and decreases
11
<PAGE> 13
in the value of the Canadian dollar will tend to increase reported earnings.
Using Canadian dollar range forward contracts, Bowater has hedged against the
risk of a rising Canadian dollar. At December 31, 1999, we had $640.8 million of
Canadian dollar contracts outstanding. Information regarding the carrying value
and fair market value of the contracts is incorporated by reference to Note 13
on pages 35-36 of the Annual Report.
Also in 1998, Bowater purchased a South Korean newsprint mill, subjecting
it to fluctuations in the Korean won/United States dollar exchange rate since
certain expenses and some purchases by the mill are denominated in won. However,
many of the cash flows for purchases and sales are in United States dollars,
thereby mitigating much of the currency risk.
Bowater purchases significant amounts of old newsprint ("ONP") and old
magazines ("OMG") to supply its facilities that use recycled paper. ONP and OMG
are market-priced commodities and, as such, are subject to fluctuations in
market prices. Increases in the prices of these commodities will reduce our
reported earnings and decreases will tend to increase our reported earnings.
Bowater's debt is primarily fixed rate debt. We do not have significant
exposure to interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated by reference to pages
22-47 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 Bowater's directors is incorporated by reference to
the material under the heading "Election of Directors -- Information on Nominees
and Directors" in our Proxy Statement with respect to the Annual Meeting of
Shareholders scheduled to be held May 10, 2000, filed under Regulation 14A under
the Securities Exchange Act of 1934, as amended.
Information regarding Bowater's executive officers is provided under the
caption "Executive Officers of the Registrant as of March 17, 2000" on pages
9-11 of this Form 10-K.
Information regarding Section 16(a) beneficial ownership reporting
compliance is incorporated by reference to the material under the heading
"Executive Compensation -- Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated 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 Bowater to be the
beneficial owner of more than 5% of its voting stock, and (2) ownership of its
equity securities by management is incorporated by reference to the material
under the heading "Certain Information Concerning Stock Ownership" in the Proxy
Statement.
12
<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference to the material under the heading "Related Party
Transactions" in the Proxy Statement.
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:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Consolidated Statement of Operations for Each of the Years
in the Three-Year Period Ended December 31, 1999.......... 22
Consolidated Balance Sheet at December 31, 1999 and 1998.... 23
Consolidated Statement of Capital Accounts for Each of the
Years in the Three-Year Period Ended December 31, 1999.... 24-25
Consolidated Statement of Cash Flows for Each of the Years
in the Three-Year Period Ended December 31, 1999.......... 26
Notes to Consolidated Financial Statements.................. 27-45
Management's Statement of Responsibility and Independent
Auditors' Report.......................................... 46-47
</TABLE>
(2) The following financial statement schedule for the year ended
December 31, 1999 is submitted:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ F-1
Independent Auditors' Report on Schedule II................. F-2
</TABLE>
All other financial statement schedules are omitted because they are not
applicable or because the required information is included in the financial
statements or notes.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
2.1 Stock Purchase Agreement, dated as of May 18, 1999, by and
between Inexcon Maine, Inc. and Bowater Incorporated
(incorporated by reference to Exhibit 2.1 to Bowater
Incorporated's Current Report on Form 8-K filed on September
1, 1999, File No. 1-8712 (the "September 1999 8-K")).
2.1.1 Amendment No. 1, dated August 17, 1999, to the Stock
Purchase Agreement, dated May 18, 1999, between Inexcon
Maine, Inc. and Bowater Incorporated (incorporated by
reference to Exhibit 2.1.1 to the September 1999 8-K).
3.1 Restated Certificate of Incorporation of Bowater
Incorporated, as amended (incorporated by reference to
Exhibit 4.2 to Bowater Incorporated's Registration Statement
No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B
Convertible Preferred Stock of Bowater Incorporated
(incorporated by reference to Exhibit 4.1 to Bowater
Incorporated'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 Bowater Incorporated (incorporated by
reference to Exhibit 4.2 to the February 1994 8-K).
3.4 Certificate of Designation of the special voting stock of
Bowater Incorporated (incorporated by reference to Exhibit
4.11 to Amendment No. 1 to Bowater Incorporated's
Registration Statement No. 333-57839 (the "Amendment No. 1
to the Registration Statement")).
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
3.5 Bylaws of Bowater Incorporated amended and restated as of
May 20, 1998 (incorporated by reference to Exhibit 4.12 to
Amendment No. 1 to the Registration Statement).
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 Bowater
Incorporated's Registration Statement No. 2-93455).
4.2 See Exhibits 3.1, 3.4 and 3.5.
+10.1 Employment Agreement, dated as of July 20, 1994, by and
between Bowater Incorporated and Arnold M. Nemirow
(incorporated by reference to Exhibit 10.3 to Bowater
Incorporated'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 Bowater Incorporated and Steven G. Lanzl
(incorporated by reference to Exhibit 10.2 to Bowater
Incorporated'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 Bowater Incorporated and E. Patrick Duffy
(incorporated by reference to Exhibit 10.4 to Bowater
Incorporated'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 Bowater
Incorporated and each of Robert A. Moran and Michael F.
Nocito (incorporated by reference to Exhibit 10.4 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1993, File No. 1-8712).
+10.5 Form of Change in Control Agreement, by and between Bowater
Incorporated and each of Edward Patrick Duffy, David G.
Maffucci, Robert A. Moran, Arnold M. Nemirow, and Michael F.
Nocito (incorporated by reference to Exhibit 10.5 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1995, File No. 1-8712 (the "1995
10-K")).
+10.5.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and each of E. Patrick Duffy, David G.
Maffucci, Robert A. Moran, Arnold M. Nemirow and Michael F.
Nocito (incorporated by reference to Exhibit 10.3 to Bowater
Incorporated's Quarterly Report on Form 10-Q for the period
ending June 30, 1999, File No. 1-8712 (the "June 1999
10-Q")).
+10.6 Form of Change in Control Agreement by and between Bowater
Incorporated and each of Anthony H. Barash and Steven G.
Lanzl (incorporated by reference to Exhibit 10.6 to the 1996
10-K).
+10.6.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and each of Anthony H. Barash and Steven G.
Lanzl (incorporated by reference to Exhibit 10.4 of the June
1999 10-Q).
+10.7 Employment Agreement, dated as of May 21, 1997, by and
between Bowater Incorporated and Wendy C. Shiba
(incorporated by reference to Exhibit 10.1 to Bowater
Incorporated'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 Bowater Incorporated and Wendy C. Shiba
(incorporated by reference to Exhibit 10.2 to the June 1997
10-Q).
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.8.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Wendy C. Shiba (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.9 Employment Agreement, dated as of August 1, 1998, by and
between Bowater Incorporated and James H. Dorton
(incorporated by reference to Exhibit 10.1 to Bowater
Incorporated's Quarterly Report on Form 10-Q for the period
ending September 30, 1998, File No. 1-8712 (the "September
1998 10-Q")).
+10.10 Change in Control Agreement, dated as of August 1, 1998, by
and between Bowater Incorporated and James H. Dorton
(incorporated by reference to Exhibit 10.2 to the September
1998 10-Q).
+10.10.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and James H. Dorton (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.11 Employment Agreement, dated as of August 1, 1997, by and
between Bowater Incorporated and Arthur D. Fuller
(incorporated by reference to Exhibit 10.1 to Bowater
Incorporated'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 Bowater Incorporated and Arthur D. Fuller
(incorporated by reference to Exhibit 10.2 to the September
1997 10-Q).
+10.12.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Arthur D. Fuller (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.13 Employment Agreement, dated as of November 1, 1995, by and
between Bowater Incorporated and David G. Maffucci
(incorporated by reference to Exhibit 10.12 to the 1995
10-K).
+10.14 Employment Agreement, dated as of April 1, 1996, by and
between Bowater Incorporated and Anthony H. Barash
(incorporated by reference to Exhibit 10.14 to the 1995
10-K).
+10.15 Employment Agreement, dated as of August 1, 1997, by and
between Bowater Incorporated and Richard K. Hamilton
(incorporated by reference to Exhibit 10.16 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1997, File No. 1-8712 (the "1997
10-K")).
+10.16 Change in Control Agreement, dated as of August 1, 1997, by
and between Bowater Incorporated and Richard K. Hamilton
(incorporated by reference to Exhibit 10.17 to the 1997
10-K).
+10.16.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Richard K. Hamilton (incorporated by
reference to Exhibit 10.4 to the June 1999 10-Q).
+10.17 Employment Agreement, dated as of August 1, 1998, by and
between Bowater Incorporated and William G. Harvey
(incorporated by reference to Exhibit 10.3 to the September
1998 10-Q).
+10.18 Change in Control Agreement, dated as of August 1, 1998, by
and between Bowater Incorporated and William G. Harvey
(incorporated by reference to Exhibit 10.4 to the September
1998 10-Q).
+10.18.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and William G. Harvey (incorporated by
reference to Exhibit 10.5 to the June 1999 10-Q).
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.19 Employment Agreement, dated as of July 24, 1998, by and
between Bowater Incorporated and David J. Steuart
(incorporated by reference to Exhibit 10.5 to the September
1998 10-Q).
+10.20 Change in Control Agreement, dated as of July 24, 1998, by
and between Bowater Incorporated and David J. Steuart
(incorporated by reference to Exhibit 10.6 to the September
1998 10-Q).
+10.20.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and David J. Steuart (incorporated by reference
to Exhibit 10.5 to the June 1999 10-Q).
+10.21 Employment Agreement, dated as of July 24, 1998, by and
between Bowater Incorporated and R. Donald Newman
(incorporated by reference to Exhibit 10.4 to Bowater
Incorporated's Quarterly Report on Form 10-Q for the period
ending March 31, 1999, File No. 1-8712 (the "March 1999
10-Q")).
+10.22 Change in Control Agreement, dated as of November 1, 1995,
by and between the Company and Robert D. Newman
(incorporated by reference to Exhibit 10.23 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1998, File No. 1-8712 (the "1998
10-K")).
+10.22.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and R. Donald Newman (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.23 Employment Agreement, dated as of November 1, 1998, by and
between Bowater Incorporated and Jerry R. Gilmore
(incorporated by reference to Exhibit 10.3 to the March 1999
10-Q).
+10.24 Change in Control Agreement, dated as of August 1, 1997, by
and between Bowater Incorporated and Jerry R. Gilmore
(incorporated by reference to Exhibit 10.25 to the 1998
10-K).
+10.24.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Jerry R. Gilmore (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.25 Employment Agreement, dated as of March 15, 1999, by and
between Bowater Incorporated and James T. Wright
(incorporated by reference to Exhibit 10.1 to the March 1999
10-Q).
+10.26 Change in Control Agreement, dated as of March 15, 1999, by
and between Bowater Incorporated and James T. Wright
(incorporated by reference to Exhibit 10.2 to the March 1999
10-Q).
+10.27 Compensatory Benefits Plan of Bowater Incorporated, as
amended and restated effective February 26, 1999
(incorporated by reference to Exhibit 10.6 to the June 1999
10-Q).
+10.28 Annual Bonus Plan of Bowater Incorporated (incorporated by
reference to Exhibit 10.16 to the 1994 10-K).
+10.29 Deferred Compensation Plan for Outside Directors of Bowater
Incorporated, as amended and restated effective January 1,
1997 (incorporated by reference to Exhibit 10.18.1 to the
1996 10-K).
+10.30 Retirement Plan for Outside Directors of Bowater
Incorporated, amended and restated as of February 26, 1999
(incorporated by reference to Exhibit 10.7 to the June 1999
10-Q).
+10.31 Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies, as amended
and restated effective February 26, 1999 (incorporated by
reference to Exhibit 10.8 to the June 1999 10-Q).
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.32 Equity Participation Rights Plan of Bowater Incorporated,
amended and restated as of February 26, 1999 (incorporated
by reference to Exhibit 10.9 to the June 1999 10-Q).
+10.32.1* First Amendment to Equity Participation Rights Plan of
Bowater Incorporated, dated as of November 22, 1999.
+10.33 1988 Stock Incentive Plan of Bowater Incorporated
(incorporated by reference to Bowater Incorporated's Proxy
Statement for 1988, File No. 1-8712).
+10.33.1 Amendment to 1988 Stock Incentive Plan of Bowater
Incorporated, dated as of August 23, 1989 (incorporated by
reference to Exhibit 10.16A to Bowater Incorporated's Annual
Report on Form 10-K for the period ending December 31, 1989,
File No. 1-8712).
+10.33.2 Second Amendment, effective April 15, 1998, to the 1988
Stock Incentive Plan of Bowater Incorporated (incorporated
by reference to Exhibit 10.32.2 to the 1998 10- K).
+10.33.3 Third Amendment, effective February 26, 1999, to the 1988
Stock Incentive Plan of Bowater Incorporated (incorporated
by reference to Exhibit 10.10 to the June 1999 10-Q).
+10.34 Amended and Restated Benefit Plan Grantor Trust of Bowater
Incorporated, effective as of April 15, 1998 (incorporated
by reference to Exhibit 10.1 to Bowater Incorporated's
Quarterly Report on Form 10-Q for the period ending June 30,
1998, File No. 1-8712 (the "June 1998 10-Q")).
+10.34.1 First Amendment, effective February 26, 1999, to the Amended
and Restated Benefit Plan Grantor Trust of Bowater
Incorporated (incorporated by reference to Exhibit 10.11 to
the June 1999 10-Q).
+10.35 Amended and Restated Executive Severance Grantor Trust of
Bowater Incorporated, effective as of April 15, 1998
(incorporated by reference to Exhibit 10.3 to the June 1998
10-Q).
+10.35.1 First Amendment, effective February 26, 1999, to the Amended
and Restated Executive Severance Grantor Trust of Bowater
Incorporated (incorporated by reference to Exhibit 10.12 to
the June 1999 10-Q).
+10.36 Amended and Restated Outside Directors Benefit Plan Grantor
Trust of Bowater Incorporated, effective as of April 15,
1998 (incorporated by reference to Exhibit 10.2 to the June
1998 10-Q).
+10.36.1 First Amendment, effective February 26, 1999, to the Amended
and Restated Outside Directors Benefit Plan Grantor Trust of
Bowater Incorporated (incorporated by reference to Exhibit
10.13 to the June 1999 10-Q).
+10.37 Benefits Equalization Plan of Bowater Incorporated, amended
and restated as of February 26, 1999 (incorporated by
reference to Exhibit 10.14 to the June 1999 10-Q).
+10.38 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.23 to Bowater Incorporated's Annual Report on
Form 10-K for the period ending December 31, 1991, File No.
1-8712).
+10.38.1 First Amendment, effective April 15, 1998, to the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.37.1
to the 1998 10-K).
+10.38.2 Second Amendment, effective February 26, 1999, to the 1992
Stock Incentive Plan (incorporated by reference to Exhibit
10.15 to the June 1999 10-Q).
+10.39 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).
+10.39.1 First Amendment, effective April 15, 1998, to the Bowater
Incorporated 1997 Stock Option Plan, effective as of January
1, 1997, as amended and restated (incorporated by reference
to Exhibit 10.38.1 to the 1998 10-K).
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.39.2 Second Amendment, effective February 26, 1999, to the
Bowater Incorporated 1997 Stock Option Plan, as amended and
restated January 1, 1997 (incorporated by reference to
Exhibit 10.16 to the June 1999 10-Q).
+10.40* Bowater Incorporated 2000 Stock Option Plan, effective as of
January 1, 2000.
+10.41* Amended and Restated Bowater Incorporated 1997-1999
Long-Term Incentive Plan, effective as of February 26, 1999.
+10.42 Senior Executive Retirement Plan of Bowater Incorporated's
subsidiary, Bowater Pulp and Paper Canada Inc. (formerly
Avenor Inc.), effective as of November 28, 1997
(incorporated by reference to Exhibit 10.40 to the 1998
10-K).
10.43 Licensing Agreement, dated as of December 30, 1976, as
amended, between Bowater Incorporated and Bowater Industries
plc (incorporated by reference to Exhibit 10.13 to Bowater
Incorporated's Registration Statement No. 2-90172).
10.44 Trademark Agreement, dated May 8, 1984, between Bowater
Incorporated and Bowater Corporation plc (incorporated by
reference to Exhibit 10.17 to Bowater Incorporated's
Registration Statement No. 2-90172).
10.45 World-Wide Trademark Ownership, Use and Assignment
Agreement, effective as of June 30, 1997, by and between
Bowater Incorporated and Rexam plc (formerly Bowater plc)
(incorporated by reference to Exhibit 10.40 to the 1997
10-K).
10.46 Amended and Restated 364-Day Credit Agreement, dated as of
June 23, 1999, amending and restating the 364-Day Credit
Agreement, dated as of June 24, 1998, between Bowater
Incorporated, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 10.1 to the June 1999 10-Q).
10.47 Five Year Credit Agreement, dated as of June 24, 1998, among
Bowater Incorporated, The Chase Manhattan Bank, as
Administrative Agent, and the lenders signatory thereto
(incorporated by reference to Exhibit 1.2 to the Schedule
13D filed on August 3, 1998, by Bowater Incorporated,
Bowater Canadian Holdings Incorporated and Bowater Canada
Inc. with respect to the common shares of Avenor Inc.).
10.47.1 Amendment No. 1, dated as of June 23, 1999, to the Five-Year
Credit Agreement, dated as of June 24, 1998, between Bowater
Incorporated, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 10.2 to the June 1999 10-Q).
10.48 Support Agreement, dated as of July 24, 1998, between
Bowater Incorporated, Bowater Canadian Holdings Incorporated
and Bowater Canada Inc. (incorporated by reference to Annex
G of the Joint Management Information Circular and Proxy
Statement filed on June 18, 1998, on Schedule 14A for
Bowater Incorporated, File No. 1-8712 (the "Schedule 14A")).
10.49 Voting and Exchange Trust Agreement, dated as of July 24,
1998, between Bowater Incorporated, Bowater Canadian
Holdings Incorporated, Bowater Canada Inc. and Montreal
Trust Company of Canada (incorporated by reference to Annex
F of the Schedule 14A).
10.50 Amended and Restated Arrangement Agreement, dated as of
March 9, 1998, by and between Bowater Incorporated and
Avenor Inc. (incorporated by reference to Exhibit 2.1 to
Annex D of the Schedule 14A).
10.51 Asset Purchase Agreement, dated August 4, 1998, by and
between Bowater Pulp and Paper Canada Inc., Bowater
Incorporated, Weyerhaeuser Canada Ltd. and Weyerhaeuser
Company (incorporated by reference to Exhibit 2.1 to Bowater
Incorporated's Current Report on Form 8-K dated October 15,
1998, File No. 1- 8712 (the "October 1998 8-K")).
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
10.51.1 Amending Agreement, dated September 30, 1998, by and between
Bowater Pulp and Paper Canada Inc., Bowater Incorporated,
Weyerhaeuser Canada Ltd. and Weyerhaeuser Company
(incorporated by reference to Exhibit 2.1.1 to the October
1998 8-K).
13.1* Copy of Bowater Incorporated's 1999 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.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Bowater 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, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Bowater and
in the capacities indicated, as of March 23, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ARNOLD M. NEMIROW Director, Chairman, President and Chief
- ----------------------------------------------------- Executive Officer
Arnold M. Nemirow
/s/ DAVID G. MAFFUCCI Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
David G. Maffucci
/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/ JAMES L. PATE Director
- -----------------------------------------------------
James L. Pate
/s/ JOHN A. ROLLS Director
- -----------------------------------------------------
John A. Rolls
/s/ ARTHUR R. SAWCHUK Director
- -----------------------------------------------------
Arthur R. Sawchuk
</TABLE>
20
<PAGE> 22
BOWATER INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO
BEGINNING COST AND BALANCE AT
(IN MILLIONS) OF YEAR EXPENSES ADDITIONS DEDUCTIONS END OF YEAR
- ------------- --------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts......... $3.8 $(1.3)* $ -- $ -- $2.5
==== ===== ==== ===== ====
Year ended December 31, 1998
Allowance for doubtful accounts......... $3.7 $ 0.6 $ -- $(0.5) $3.8
==== ===== ==== ===== ====
Year ended December 31, 1997
Allowance for doubtful accounts......... $1.8 $ 1.9 $ -- $ -- $3.7
==== ===== ==== ===== ====
</TABLE>
- ---------------
* Due primarily to the sale of GNP.
F-1
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bowater Incorporated
Under date of February 11, 2000, we reported on the consolidated balance
sheets of Bowater Incorporated and Subsidiaries as of December 31, 1999 and
1998, 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,
1999, as incorporated by reference in the Annual Report on Form 10-K for the
year 1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Greenville, South Carolina
February 11, 2000
F-2
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
2.1 Stock Purchase Agreement, dated as of May 18, 1999, by and
between Inexcon Maine, Inc. and Bowater Incorporated
(incorporated by reference to Exhibit 2.1 to Bowater
Incorporated's Current Report on Form 8-K filed on September
1, 1999, File No. 1-8712 (the "September 1999 8-K")).
2.1.1 Amendment No. 1, dated August 17, 1999, to the Stock
Purchase Agreement, dated May 18, 1999, between Inexcon
Maine, Inc. and Bowater Incorporated (incorporated by
reference to Exhibit 2.1.1 to the September 1999 8-K).
3.1 Restated Certificate of Incorporation of Bowater
Incorporated, as amended (incorporated by reference to
Exhibit 4.2 to Bowater Incorporated's Registration Statement
No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B
Convertible Preferred Stock of Bowater Incorporated
(incorporated by reference to Exhibit 4.1 to Bowater
Incorporated'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 Bowater Incorporated (incorporated by
reference to Exhibit 4.2 to the February 1994 8-K).
3.4 Certificate of Designation of the special voting stock of
Bowater Incorporated (incorporated by reference to Exhibit
4.11 to Amendment No. 1 to Bowater Incorporated's
Registration Statement No. 333-57839 (the "Amendment No. 1
to the Registration Statement")).
3.5 Bylaws of Bowater Incorporated amended and restated as of
May 20, 1998 (incorporated by reference to Exhibit 4.12 to
Amendment No. 1 to the Registration Statement).
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 Bowater
Incorporated's Registration Statement No. 2-93455).
4.2 See Exhibits 3.1, 3.4 and 3.5.
+10.1 Employment Agreement, dated as of July 20, 1994, by and
between Bowater Incorporated and Arnold M. Nemirow
(incorporated by reference to Exhibit 10.3 to Bowater
Incorporated'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 Bowater Incorporated and Steven G. Lanzl
(incorporated by reference to Exhibit 10.2 to Bowater
Incorporated'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 Bowater Incorporated and E. Patrick Duffy
(incorporated by reference to Exhibit 10.4 to Bowater
Incorporated'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 Bowater
Incorporated and each of Robert A. Moran and Michael F.
Nocito (incorporated by reference to Exhibit 10.4 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1993, File No. 1-8712).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.5 Form of Change in Control Agreement, by and between Bowater
Incorporated and each of Edward Patrick Duffy, David G.
Maffucci, Robert A. Moran, Arnold M. Nemirow, and Michael F.
Nocito (incorporated by reference to Exhibit 10.5 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1995, File No. 1-8712 (the "1995
10-K")).
+10.5.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and each of E. Patrick Duffy, David G.
Maffucci, Robert A. Moran, Arnold M. Nemirow and Michael F.
Nocito (incorporated by reference to Exhibit 10.3 to Bowater
Incorporated's Quarterly Report on Form 10-Q for the period
ending June 30, 1999, File No. 1-8712 (the "June 1999
10-Q")).
+10.6 Form of Change in Control Agreement by and between Bowater
Incorporated and each of Anthony H. Barash and Steven G.
Lanzl (incorporated by reference to Exhibit 10.6 to the 1996
10-K).
+10.6.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and each of Anthony H. Barash and Steven G.
Lanzl (incorporated by reference to Exhibit 10.4 of the June
1999 10-Q).
+10.7 Employment Agreement, dated as of May 21, 1997, by and
between Bowater Incorporated and Wendy C. Shiba
(incorporated by reference to Exhibit 10.1 to Bowater
Incorporated'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 Bowater Incorporated and Wendy C. Shiba
(incorporated by reference to Exhibit 10.2 to the June 1997
10-Q).
+10.8.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Wendy C. Shiba (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.9 Employment Agreement, dated as of August 1, 1998, by and
between Bowater Incorporated and James H. Dorton
(incorporated by reference to Exhibit 10.1 to Bowater
Incorporated's Quarterly Report on Form 10-Q for the period
ending September 30, 1998, File No. 1-8712 (the "September
1998 10-Q")).
+10.10 Change in Control Agreement, dated as of August 1, 1998, by
and between Bowater Incorporated and James H. Dorton
(incorporated by reference to Exhibit 10.2 to the September
1998 10-Q).
+10.10.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and James H. Dorton (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.11 Employment Agreement, dated as of August 1, 1997, by and
between Bowater Incorporated and Arthur D. Fuller
(incorporated by reference to Exhibit 10.1 to Bowater
Incorporated'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 Bowater Incorporated and Arthur D. Fuller
(incorporated by reference to Exhibit 10.2 to the September
1997 10-Q).
+10.12.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Arthur D. Fuller (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.13 Employment Agreement, dated as of November 1, 1995, by and
between Bowater Incorporated and David G. Maffucci
(incorporated by reference to Exhibit 10.12 to the 1995
10-K).
+10.14 Employment Agreement, dated as of April 1, 1996, by and
between Bowater Incorporated and Anthony H. Barash
(incorporated by reference to Exhibit 10.14 to the 1995
10-K).
+10.15 Employment Agreement, dated as of August 1, 1997, by and
between Bowater Incorporated and Richard K. Hamilton
(incorporated by reference to Exhibit 10.16 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1997, File No. 1-8712 (the "1997
10-K")).
+10.16 Change in Control Agreement, dated as of August 1, 1997, by
and between Bowater Incorporated and Richard K. Hamilton
(incorporated by reference to Exhibit 10.17 to the 1997
10-K).
+10.16.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Richard K. Hamilton (incorporated by
reference to Exhibit 10.4 to the June 1999 10-Q).
+10.17 Employment Agreement, dated as of August 1, 1998, by and
between Bowater Incorporated and William G. Harvey
(incorporated by reference to Exhibit 10.3 to the September
1998 10-Q).
+10.18 Change in Control Agreement, dated as of August 1, 1998, by
and between Bowater Incorporated and William G. Harvey
(incorporated by reference to Exhibit 10.4 to the September
1998 10-Q).
+10.18.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and William G. Harvey (incorporated by
reference to Exhibit 10.5 to the June 1999 10-Q).
+10.19 Employment Agreement, dated as of July 24, 1998, by and
between Bowater Incorporated and David J. Steuart
(incorporated by reference to Exhibit 10.5 to the September
1998 10-Q).
+10.20 Change in Control Agreement, dated as of July 24, 1998, by
and between Bowater Incorporated and David J. Steuart
(incorporated by reference to Exhibit 10.6 to the September
1998 10-Q).
+10.20.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and David J. Steuart (incorporated by reference
to Exhibit 10.5 to the June 1999 10-Q).
+10.21 Employment Agreement, dated as of July 24, 1998, by and
between Bowater Incorporated and R. Donald Newman
(incorporated by reference to Exhibit 10.4 to Bowater
Incorporated's Quarterly Report on Form 10-Q for the period
ending March 31, 1999, File No. 1-8712 (the "March 1999
10-Q")).
+10.22 Change in Control Agreement, dated as of November 1, 1995,
by and between the Company and Robert D. Newman
(incorporated by reference to Exhibit 10.23 to Bowater
Incorporated's Annual Report on Form 10-K for the period
ending December 31, 1998, File No. 1-8712 (the "1998
10-K")).
+10.22.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and R. Donald Newman (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.23 Employment Agreement, dated as of November 1, 1998, by and
between Bowater Incorporated and Jerry R. Gilmore
(incorporated by reference to Exhibit 10.3 to the March 1999
10-Q).
+10.24 Change in Control Agreement, dated as of August 1, 1997, by
and between Bowater Incorporated and Jerry R. Gilmore
(incorporated by reference to Exhibit 10.25 to the 1998
10-K).
+10.24.1 Form of First Amendment to Change in Control Agreement,
dated as of February 26, 1999, by and between Bowater
Incorporated and Jerry R. Gilmore (incorporated by reference
to Exhibit 10.4 to the June 1999 10-Q).
+10.25 Employment Agreement, dated as of March 15, 1999, by and
between Bowater Incorporated and James T. Wright
(incorporated by reference to Exhibit 10.1 to the March 1999
10-Q).
+10.26 Change in Control Agreement, dated as of March 15, 1999, by
and between Bowater Incorporated and James T. Wright
(incorporated by reference to Exhibit 10.2 to the March 1999
10-Q).
+10.27 Compensatory Benefits Plan of Bowater Incorporated, as
amended and restated effective February 26, 1999
(incorporated by reference to Exhibit 10.6 to the June 1999
10-Q).
+10.28 Annual Bonus Plan of Bowater Incorporated (incorporated by
reference to Exhibit 10.16 to the 1994 10-K).
+10.29 Deferred Compensation Plan for Outside Directors of Bowater
Incorporated, as amended and restated effective January 1,
1997 (incorporated by reference to Exhibit 10.18.1 to the
1996 10-K).
+10.30 Retirement Plan for Outside Directors of Bowater
Incorporated, amended and restated as of February 26, 1999
(incorporated by reference to Exhibit 10.7 to the June 1999
10-Q).
+10.31 Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies, as amended
and restated effective February 26, 1999 (incorporated by
reference to Exhibit 10.8 to the June 1999 10-Q).
+10.32 Equity Participation Rights Plan of Bowater Incorporated,
amended and restated as of February 26, 1999 (incorporated
by reference to Exhibit 10.9 to the June 1999 10-Q).
+10.32.1* First Amendment to Equity Participation Rights Plan of
Bowater Incorporated, dated as of November 22, 1999.
+10.33 1988 Stock Incentive Plan of Bowater Incorporated
(incorporated by reference to Bowater Incorporated's Proxy
Statement for 1988, File No. 1-8712).
+10.33.1 Amendment to 1988 Stock Incentive Plan of Bowater
Incorporated, dated as of August 23, 1989 (incorporated by
reference to Exhibit 10.16A to Bowater Incorporated's Annual
Report on Form 10-K for the period ending December 31, 1989,
File No. 1-8712).
+10.33.2 Second Amendment, effective April 15, 1998, to the 1988
Stock Incentive Plan of Bowater Incorporated (incorporated
by reference to Exhibit 10.32.2 to the 1998 10- K).
+10.33.3 Third Amendment, effective February 26, 1999, to the 1988
Stock Incentive Plan of Bowater Incorporated (incorporated
by reference to Exhibit 10.10 to the June 1999 10-Q).
+10.34 Amended and Restated Benefit Plan Grantor Trust of Bowater
Incorporated, effective as of April 15, 1998 (incorporated
by reference to Exhibit 10.1 to Bowater Incorporated's
Quarterly Report on Form 10-Q for the period ending June 30,
1998, File No. 1-8712 (the "June 1998 10-Q")).
+10.34.1 First Amendment, effective February 26, 1999, to the Amended
and Restated Benefit Plan Grantor Trust of Bowater
Incorporated (incorporated by reference to Exhibit 10.11 to
the June 1999 10-Q).
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
+10.35 Amended and Restated Executive Severance Grantor Trust of
Bowater Incorporated, effective as of April 15, 1998
(incorporated by reference to Exhibit 10.3 to the June 1998
10-Q).
+10.35.1 First Amendment, effective February 26, 1999, to the Amended
and Restated Executive Severance Grantor Trust of Bowater
Incorporated (incorporated by reference to Exhibit 10.12 to
the June 1999 10-Q).
+10.36 Amended and Restated Outside Directors Benefit Plan Grantor
Trust of Bowater Incorporated, effective as of April 15,
1998 (incorporated by reference to Exhibit 10.2 to the June
1998 10-Q).
+10.36.1 First Amendment, effective February 26, 1999, to the Amended
and Restated Outside Directors Benefit Plan Grantor Trust of
Bowater Incorporated (incorporated by reference to Exhibit
10.13 to the June 1999 10-Q).
+10.37 Benefits Equalization Plan of Bowater Incorporated, amended
and restated as of February 26, 1999 (incorporated by
reference to Exhibit 10.14 to the June 1999 10-Q).
+10.38 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.23 to Bowater Incorporated's Annual Report on
Form 10-K for the period ending December 31, 1991, File No.
1-8712).
+10.38.1 First Amendment, effective April 15, 1998, to the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.37.1
to the 1998 10-K).
+10.38.2 Second Amendment, effective February 26, 1999, to the 1992
Stock Incentive Plan (incorporated by reference to Exhibit
10.15 to the June 1999 10-Q).
+10.39 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).
+10.39.1 First Amendment, effective April 15, 1998, to the Bowater
Incorporated 1997 Stock Option Plan, effective as of January
1, 1997, as amended and restated (incorporated by reference
to Exhibit 10.38.1 to the 1998 10-K).
+10.39.2 Second Amendment, effective February 26, 1999, to the
Bowater Incorporated 1997 Stock Option Plan, as amended and
restated January 1, 1997 (incorporated by reference to
Exhibit 10.16 to the June 1999 10-Q).
+10.40* Bowater Incorporated 2000 Stock Option Plan, effective as of
January 1, 2000.
+10.41* Amended and Restated Bowater Incorporated 1997-1999
Long-Term Incentive Plan, effective as of February 26, 1999.
+10.42 Senior Executive Retirement Plan of Bowater Incorporated's
subsidiary, Bowater Pulp and Paper Canada Inc. (formerly
Avenor Inc.), effective as of November 28, 1997
(incorporated by reference to Exhibit 10.40 to the 1998
10-K).
10.43 Licensing Agreement, dated as of December 30, 1976, as
amended, between Bowater Incorporated and Bowater Industries
plc (incorporated by reference to Exhibit 10.13 to Bowater
Incorporated's Registration Statement No. 2-90172).
10.44 Trademark Agreement, dated May 8, 1984, between Bowater
Incorporated and Bowater Corporation plc (incorporated by
reference to Exhibit 10.17 to Bowater Incorporated's
Registration Statement No. 2-90172).
10.45 World-Wide Trademark Ownership, Use and Assignment
Agreement, effective as of June 30, 1997, by and between
Bowater Incorporated and Rexam plc (formerly Bowater plc)
(incorporated by reference to Exhibit 10.40 to the 1997
10-K).
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <S>
10.46 Amended and Restated 364-Day Credit Agreement, dated as of
June 23, 1999, amending and restating the 364-Day Credit
Agreement, dated as of June 24, 1998, between Bowater
Incorporated, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 10.1 to the June 1999 10-Q).
10.47 Five Year Credit Agreement, dated as of June 24, 1998, among
Bowater Incorporated, The Chase Manhattan Bank, as
Administrative Agent, and the lenders signatory thereto
(incorporated by reference to Exhibit 1.2 to the Schedule
13D filed on August 3, 1998, by Bowater Incorporated,
Bowater Canadian Holdings Incorporated and Bowater Canada
Inc. with respect to the common shares of Avenor Inc.).
10.47.1 Amendment No. 1, dated as of June 23, 1999, to the Five-Year
Credit Agreement, dated as of June 24, 1998, between Bowater
Incorporated, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 10.2 to the June 1999 10-Q).
10.48 Support Agreement, dated as of July 24, 1998, between
Bowater Incorporated, Bowater Canadian Holdings Incorporated
and Bowater Canada Inc. (incorporated by reference to Annex
G of the Joint Management Information Circular and Proxy
Statement filed on June 18, 1998, on Schedule 14A for
Bowater Incorporated, File No. 1-8712 (the "Schedule 14A")).
10.49 Voting and Exchange Trust Agreement, dated as of July 24,
1998, between Bowater Incorporated, Bowater Canadian
Holdings Incorporated, Bowater Canada Inc. and Montreal
Trust Company of Canada (incorporated by reference to Annex
F of the Schedule 14A).
10.50 Amended and Restated Arrangement Agreement, dated as of
March 9, 1998, by and between Bowater Incorporated and
Avenor Inc. (incorporated by reference to Exhibit 2.1 to
Annex D of the Schedule 14A).
10.51 Asset Purchase Agreement, dated August 4, 1998, by and
between Bowater Pulp and Paper Canada Inc., Bowater
Incorporated, Weyerhaeuser Canada Ltd. and Weyerhaeuser
Company (incorporated by reference to Exhibit 2.1 to Bowater
Incorporated's Current Report on Form 8-K dated October 15,
1998, File No. 1- 8712 (the "October 1998 8-K")).
10.51.1 Amending Agreement, dated September 30, 1998, by and between
Bowater Pulp and Paper Canada Inc., Bowater Incorporated,
Weyerhaeuser Canada Ltd. and Weyerhaeuser Company
(incorporated by reference to Exhibit 2.1.1 to the October
1998 8-K).
13.1* Copy of Bowater Incorporated's 1999 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.
<PAGE> 1
EXHIBIT 10.32.1
FIRST AMENDMENT
to the Bowater Incorporated
Equity Participation Rights Plan
Amended and Restated as of
February 26, 1999
WHEREAS, Bowater Incorporated, a Delaware corporation (the "Company")
established the Bowater Incorporated Equity Participation Rights Plan (the
"Plan") on January 17, 1996, and subsequently amended and restated the Plan as
of January 1, 1999, and again on February 26, 1999; and
WHEREAS, the Company desires to amend the Plan to correct an
inadvertent misstatement in the Plan.
NOW THEREFORE, the Plan is hereby amended effective November 1, 1999,
by replacing Section 10 with the following:
"10. CHANGE IN CONTROL
Upon the occurrence of a Change in Control all Equity Participation
Rights shall become immediately exercisable and shall be deemed exercised in
full for cash at the Acceleration Price, which amount shall be paid by the
Corporation within a period of thirty days following a Change in Control."
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by its duly authorized officer this 22nd day of November, 1999.
BOWATER INCORPORATED
By: /s/ James T. Wright
------------------------------------
James T. Wright
Title: Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.40
BOWATER INCORPORATED
2000 STOCK OPTION PLAN
EFFECTIVE AS OF JANUARY 1, 2000
<PAGE> 2
TABLE OF CONTENTS
Page No.
--------
1. Definitions..........................................................1
2. Purpose..............................................................5
3. Administration.......................................................6
4. Participation........................................................6
5. Shares Subject to the Plan...........................................7
6. Restricted or Nonrestricted Stock Awards.............................7
7. Stock Options........................................................8
8. Stock Appreciation Rights............................................8
9. Special Provisions Under Code Section 162(m).........................9
10. Exercise of Options and SARs........................................10
11. Death, Retirement, and Termination of Employment....................10
12. Compliance with Applicable Laws.....................................11
13. Transferability.....................................................11
14. Employment, Stockholder and Board Status............................12
15. Adjustments to Number of Shares and Terms...........................12
16. Change in Control ..................................................12
17. Withholding.........................................................12
18. Term of Plan........................................................13
19. Amendment and Termination of Plan...................................13
20. Applicable Law......................................................13
<PAGE> 3
BOWATER INCORPORATED
2000 STOCK OPTION PLAN
1. DEFINITIONS.
For purposes of this Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise:
(a) "Acceleration Price" means (i) in the case of a Restricted
Stock Award, the highest of (A) through (D); and (ii) in the case of an Option
or SAR, the excess over the exercise or base price thereof of the highest of (A)
through (D), on the date of a Change in Control:
(A) The highest reported sales price of the
Common Stock within the sixty (60) days
preceding the date of the Change in Control,
as reported on any securities exchange upon
which the Common Stock is listed,
(B) The highest price of the Common Stock as
reported in a Schedule 13D or an amendment
thereto that is paid within the sixty (60)
days preceding the date of the Change in
Control,
(C) The highest tender offer price paid for the
Common Stock, and
(D) Any cash merger or similar price.
(b) "Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Acquiring Person" means the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the combined voting
power of the Company's then outstanding securities, not including (except as
provided in clause (i) of the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of up to and
including 50% of such voting power approved by two-thirds of the members of the
Board who are Board members before the Person becomes Beneficial Owner, directly
or indirectly, of Common Stock representing 5% or more of the combined voting
power of the Company's then outstanding securities. Notwithstanding the
foregoing, (i) securities acquired pursuant to an agreement described in the
preceding sentence will be included in determining whether a Beneficial Owner is
an Acquiring Person if, subsequent to the approved acquisition, the Beneficial
Owner acquires 5% or more of such voting power other than pursuant to such an
agreement so approved and (ii) a Person shall not be an Acquiring Person if such
Person is eligible to and files a Schedule 13G with respect to such Person's
status as a Beneficial Owner of all Common Stock of the Company of which the
Person is a Beneficial Owner.
1
<PAGE> 4
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Act, as in effect on the date hereof.
(e) "Award" means a Restricted or Non-Restricted Stock Award,
Option or SAR granted to a Grantee pursuant to the Plan.
(f) "Beneficial Owner" of Common Stock means (i) a Person who
beneficially owns such Common Stock, directly or indirectly, or (ii) a Person
who has the right to acquire such Common Stock (whether such right is
exercisable immediately or only with the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, warrants, options or otherwise.
(g) "Board" means the Board of Directors of the Company.
(h) "Change in Control" shall be deemed to occur upon:
(i) the date that any Person is or becomes an
Acquiring Person;
(ii) the date that the Company's shareholders
approve a merger, consolidation or
reorganization of the Company with another
corporation or other Person, unless,
immediately following such merger,
consolidation or reorganization, (A) at
least 50% of the combined voting power of
the outstanding securities of the resulting
entity would be held in the aggregate by the
shareholders of the Company as of such
record date for such approval (provided that
securities held by any individual or entity
that is an Acquiring Person, or who would be
an Acquiring Person if 5% were substituted
for 20% in the definition of such term,
shall not be counted as securities held by
the shareholders of the Corporation, but
shall be counted as outstanding securities
for purposes of this determination), or (B)
at least 50% of the board of directors or
similar body of the resulting entity are
Continuing Directors;
(iii) the date the Company sells or otherwise
transfers all or substantially all of its
assets to another corporation or other
Person, unless, immediately after such sale
or transfer, (A) at least 50% of the
combined voting power of the
then-outstanding securities of the resulting
entity immediately following such
transaction is held in the aggregate by the
Company's shareholders as determined
2
<PAGE> 5
immediately prior to such transaction
(provided that securities held by any
individual or entity that is an Acquiring
Person, or who would be an Acquiring Person
if 5% were substituted for 20% in the
definition of such term, shall not be
counted as securities held by the
shareholders of the Corporation, but shall
be counted as outstanding securities for
purposes of this determination), or (B) at
least 50% of the board of directors or
similar body of the resulting entity are
Continuing Directors; or
(iv) the date on which less than fifty percent
(50%) of the total membership of the Board
consists of Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a section of the Code shall also include a reference to
any Temporary or Final Regulation promulgated under such Section, and to any
successor to such Section or Regulation.
(j) "Committee" means a committee consisting of two (2) or
more members of the Board; provided that, (i) with respect to any Grantee of an
Award that constitutes an "equity security" under the Act who is subject to
Section 16 of the Act, (A) the members of the Committee shall all be
"non-employees" as defined in Section 240.16b-3 of the General Rules and
Regulations promulgated under the Act, or (B) the full Board shall act in lieu
of the Committee hereunder and (ii) with respect to any Grantee of an Award that
is intended by the Committee to constitute "qualified performance-based
compensation," within the contemplation of Treasury Regulation Section
1.162-27(e)(2), who is a "covered employee," within the contemplation of
Treasury Regulation Section 1.162-27(c)(2), the members of the Committee shall
all be "outside directors" as defined in Treasury Regulation Section
1.162-27(e)(3) to the extent required by Section 162 of the Code.
Notwithstanding the foregoing, in the case of an Award granted to a member of
the Board who is not also a key employee or officer of the Company or a
Subsidiary, "Committee" means the Board.
(k) "Common Stock" means the common stock of the Company, par
value $1.00 per share.
(l) "Company" means Bowater Incorporated, a Delaware
corporation, and any successor thereto by merger or other acquisition.
(m) "Continuing Director" means any member of the Board who
(i) was a member of the Board prior to the date of the event that would
constitute a Change in Control, and any successor of a Continuing Director while
such successor is a member of the Board, (ii) is not an Acquiring Person or
Affiliate or Associate of an Acquiring Person, and (iii) is recommended or
elected to succeed the Continuing Director by a majority of the Continuing
Directors.
3
<PAGE> 6
(n) "Date of Grant" means the date an Award is granted to a
Grantee under the Plan.
(o) "Disability" shall have the meaning contained in the
Company?s long-term disability plan, except that, in the case of an ISO, it
shall mean total and permanent disability within the contemplation of Section
22(e)(3) of the Code.
(p) "Effective Date" means January 1, 2000.
(q) "Fair Market Value" for a particular date means the simple
arithmetic mean between the highest and lowest prices per share at which the
Common Stock is traded as reported for the New York Stock Exchange Composite
Transactions as reported in the Eastern Edition of the Wall Street Journal for
that date, or if not so traded, the simple arithmetic mean between the closing
bid-and-asked prices thereof as reported for such Exchange on that date, rounded
to the nearest number within two decimal places.
(r) "Grantee" means a key employee or officer of the Company
or a Subsidiary, or a member of the Board, to whom an Award has been granted;
provided that a member of the Board who is not also such a key employee or
officer may not become a Grantee of an ISO.
(s) "ISO" means an incentive stock option within the
contemplation of Section 422 of the Code.
(t) "Non-Tandem SAR" means an SAR granted to a Grantee that is
not a Tandem SAR.
(u) "Nonrestricted Stock Award" means a Stock Award granted
without any risk of forfeiture.
(v) "NQO" means an Option that is not an ISO.
(w) "Option" means an option to purchase Shares granted to a
Grantee pursuant to Section 7 of the Plan, which may be an ISO or an NQO.
(x) "Person" means any individual, firm, corporation,
partnership, trust or other entity.
(y) "Plan" means the Bowater Incorporated 2000 Stock Option
Plan as provided herein and as it may be amended from time to time.
4
<PAGE> 7
(z) "Restricted Stock Award" means a Stock Award granted
subject to a risk or risks of forfeiture.
(aa) "Retirement" means (i) with respect to a key employee or
officer of the Company or a Subsidiary, the status of having terminated
employment and being immediately eligible for the payment of normal or early
retirement benefits under the qualified pension plan of the Company or
Subsidiary applicable to the Grantee or (ii) with respect to a member of the
Board not described in clause (i), the status of having terminated service on
the Board and being immediately eligible for the payment of retirement benefits
under the Company?s retirement plan for the Directors.
(bb) "SAR" means a Stock Appreciation Right granted to a
Grantee pursuant to Section 8 of the Plan, which may be a Tandem SAR or a
Non-Tandem SAR.
(cc) "Share" means a share of Common Stock.
(dd) "Stock Award" means a Share awarded to a Grantee pursuant
to Section 6 of the Plan, which may be a Restricted or Nonrestricted Stock
Award.
(ee) "Subsidiary" means each entity with respect to which the
Company owns directly or indirectly interests embodying more than 50% of the
voting power, provided that for purposes of an ISO, such term shall have the
meaning given in Section 424 of the Code.
(ff) "Tandem SAR" means an SAR granted in connection with an
Option either at the Date of Grant of the Option or at a later date.
Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
2. PURPOSE. The Plan has been established by the Company to secure for
the Company and its stockholders the benefits arising from (i) providing
long-term incentive compensation opportunities to those key employees and
officers of the Company and its Subsidiaries who are and will be responsible for
its future growth and continued success and (ii) aligning the interests of
Company stockholders and members of the Board. The Plan provides a means whereby
such individuals: (a) may be awarded Restricted or Nonrestricted Stock Awards;
(b) may acquire Shares pursuant to Options; or (c) may be awarded SARs; provided
that a member of the Board who is not also a key employee or officer of the
Company or a Subsidiary may not be awarded an ISO.
5
<PAGE> 8
3. ADMINISTRATION. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee. The Committee
shall have full power and authority to administer and interpret the Plan and to
adopt such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Committee
deems necessary or advisable. The Committee's interpretation of the Plan and all
actions taken and determinations made by the Committee pursuant to the powers
vested in it hereunder shall be conclusive and binding on all parties concerned,
including the Company, its stockholders, any Grantees and any other employee of
the Company or any of its subsidiaries (including their beneficiaries,
transferees and other successors in interest). No member of the Committee shall
be liable for any action or determination made with respect to the Plan.
4. PARTICIPATION.
(a) Subject to the terms and conditions of the Plan, the
Committee shall determine and designate from time to time the Grantees to whom
Awards are to be granted and the type, size and terms, conditions, restrictions
and limitations applicable to each Award; provided, however that the Committee
shall not have the power to reduce the exercise price of an outstanding Option
or the base price of an outstanding SAR, other than as provided in Section 15.
Such terms, conditions, restrictions and limitations may include, but are not
limited to terms, conditions, restrictions and limitations related to: (i) the
exercisability of an Award (subject to Sections 7(c), 8(b) and 11, and provided
that the Committee shall at all times have the authority to accelerate such
exercisability), (ii) the forfeiture of an Award (and/or the Shares subject
thereto) and the lapse of the forfeiture condition (subject to Sections 6(b) and
11, and provided that the Committee shall at all times have the authority to
declare such forfeiture condition to be lapsed), (iii) the transferability of an
Award and/or such Shares, (iv) the form of payments (if any) in respect of an
Award, (v) the consequences of a Grantee's termination of employment with the
Company and its Subsidiaries or termination of service on the Board (as provided
in Section 11(b)), (vi) restrictions on the sale, resale or other disposition of
the Award and/or such Shares, (vii) restrictions related to the payment of
dividends with respect to such Shares, (viii) restrictions with respect to the
right to vote such Shares, (ix) put or call rights with respect to such Shares,
(x) provisions to comply with federal and/or state securities laws, and (xi)
such other matters not inconsistent with the specific provisions of the Plan as
deemed appropriate by the Committee. Notwithstanding the foregoing, (I) the
maximum number of Shares with respect to which Awards may be granted during any
calendar year to any Grantee is 200,000 Shares; and (II) no Grantee may be
granted an ISO Award if immediately after such grant, were it made, he would be
the owner or would be deemed in accordance with Section 424 of the Code to be
the owner of more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries.
6
<PAGE> 9
(b) The terms, conditions, restrictions and limitations
related to each Award shall be reflected in an Agreement between the Company and
the Grantee. Each Award under the Plan shall be made subject to the condition
that the Grantee execute and return such Agreement within sixty (60) days of the
date he receives the Agreement from the Company. An Agreement may only be
modified by a writing signed by both the Company and the Grantee. Each Agreement
shall be subject to all of the terms of the Plan.
5. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 15,
the aggregate number of Shares for which Stock Awards, Options and SARs may be
granted under the Plan shall not exceed 1,800,000 Shares, and no more than 5% of
such Shares may be used for Restricted and Nonrestricted Stock Awards. If any
Option or SAR granted pursuant to the Plan shall expire or terminate for any
reason (including without limitation its settlement in cash in lieu of exercise
of the Option) or any Restricted Stock Award shall be forfeited pursuant to
conditions or restrictions applicable thereto, the number of Shares then subject
to the Option, SAR or Restricted Stock Award shall again be available for grant
under the Plan unless the Plan shall have terminated.
6. RESTRICTED OR NONRESTRICTED STOCK AWARDS.
(a) The Committee may grant Restricted or Nonrestricted Stock
Awards under the Plan. Shares awarded under this Section 6 shall be transferred
in consideration of the services of the Grantee with or without other payment
therefor as determined by the Committee and shall be issued in the Grantee's
name. The Grantee will have all of the rights of ownership of such shares,
subject to the terms, conditions, restrictions and limitations established
pursuant to Section 4(a). Notwithstanding any provision of Section 4(a), if a
Restricted Stock Award is granted subject to a risk of forfeiture that will
lapse solely based on whether the Grantee remains in employment with the Company
or a Subsidiary, or as a member of the Board, for a minimum period, the period
selected by the Committee may not be less than one year.
(b) Any condition providing for the forfeiture of a Restricted
Stock Award upon the occurrence or non-occurrence of a specified event or events
shall immediately lapse in the event of a Change in Control of the Company.
(c) Certificates for a Nonrestricted Stock Award shall be
issued to the Grantee as soon as practicable after the Grantee satisfies any
applicable tax withholding requirements. Certificates for a Restricted Stock
Award shall be issued in the Grantee's name and shall be held in escrow by the
Company (along with stock powers executed by the Grantee) until all conditions
that may cause a forfeiture of the Shares lapse or such Shares are forfeited as
provided therein. A certificate or certificates representing a Restricted Stock
Award as to which such conditions have lapsed shall be delivered to the Grantee
upon such lapse as soon as practicable after the Grantee has satisfied any
applicable tax withholding requirements.
7
<PAGE> 10
7. STOCK OPTIONS.
(a) The Committee may grant Options under the Plan with an
exercise price at or above the Fair Market Value of the Shares as of the Date of
Grant. Any Option that satisfies all of the requirements of Section 422 of the
Code may be designated by the Committee as an ISO. An Option (or portion
thereof) that is not so designated, or that does not satisfy the requirements of
Section 422 of the Code, and any Option that is granted to a member of the Board
who is not also a key employee or officer of the Company or a Subsidiary, shall
not constitute an ISO and shall be an NQO.
(b) An ISO must expire no later than ten years after the Date
of Grant. The aggregate fair market value, determined on the Date of Grant, of
the Shares with respect to which ISOs granted to a Grantee under all plans of
the Company and its Subsidiaries may become exercisable during a calendar year
may not exceed $100,000. To the extent the foregoing limitation is exceeded, the
excess Shares shall be deemed to be subject to NQOs.
(c) An Option shall become immediately exercisable in full in
the event of a Change in Control of the Company.
(d) A Grantee may exercise an Option to the extent it has
become exercisable by complying with the notification procedures provided by the
Company's Human Resources Department at its corporate headquarters.
Contemporaneously with the delivery of notice with respect to exercise of an
Option, the full purchase price of the Shares purchased pursuant to the exercise
of the Option shall be paid in cash, or by tender of Share certificates in
proper form for transfer to the Company valued at the Fair Market Value of the
Shares on the preceding day, or by any combination of the foregoing or with any
other consideration acceptable to the Committee. Payment upon the exercise of
such Option may also be made by means of a properly executed exercise notice
together with irrevocable instructions to a broker (designated by the Company)
to deliver promptly to the Company the portion of the sale or loan proceeds
sufficient to pay such purchase price.
8. STOCK APPRECIATION RIGHTS.
(a) The Committee may grant Tandem SARs or Non-Tandem SARs
under the Plan. The base price of a Non-Tandem SAR must be set by the Committee
at or above the Fair Market Value of a Share as of the Date of Grant. The base
price of a Tandem SAR must equal the exercise price of the related Option. A
Grantee who is awarded an SAR shall be entitled to receive from the Company, at
the time the SAR is exercised, that number of Shares having an aggregate Fair
Market Value as of the date of exercise equal to the product of (i) the number
of Shares as to which the Grantee is exercising the SAR, and (ii) the excess of
the Fair Market Value (at the date of exercise) of a Share over the base price
of the SAR. The Committee, in its sole discretion, may elect to settle all or a
portion of the Company's obligation arising out of the
8
<PAGE> 11
exercise of an SAR by the payment of cash in an amount equal to the Fair Market
Value as of the date of exercise of the Shares it would otherwise be obligated
to deliver. Tandem SARs shall be exercisable only to the extent that the related
Option is exercisable. Non-Tandem SARs shall be exercisable as determined by the
Committee at the Date of Grant. A Tandem SAR shall be canceled to the extent
that the related Option is exercised and the Option shall be canceled to the
extent that the related Tandem SAR is exercised.
(b) An SAR shall become immediately exercisable in full in the
event of a Change in Control of the Company.
(c) A Grantee may exercise an SAR to the extent it has become
exercisable by complying with the notification procedures provided by the
Company?s Human Resources Department at its corporate headquarters.
9. SPECIAL PROVISIONS UNDER CODE SECTION 162(m).
(a) The provisions of this Section 9 shall apply only to
persons designated by the Committee as individuals who are or who are likely to
become "covered employees," within the contemplation of Section 162(m) of the
Code; provided that, if an individual is so designated and the Committee
determines that such individual is not a covered employee for the year in which
the Company is entitled to a deduction with respect to income he recognizes for
Federal income tax purposes in connection with an Award, the provisions of this
Section 9 shall not apply to such Award. The provisions of this Section 9 shall
only apply to conditions, restrictions and limitations applicable to Awards that
are related to the performance of the Company and if the provisions of this
Section 9 are necessary so that the Award qualifies as "qualified
performance-based compensation" as defined in Treasury Regulation Section
1.162-27(e)(2). Except as provided in Section 16, in the event of any
inconsistencies between this Section 9 and the other Plan provisions within the
scope of the foregoing, the provisions of this Section 9 shall control with
respect to covered employees.
(b) With respect to each Award described in paragraph (a), as
soon as practicable following the grant of an Award subject to this Section 9
(but in no event more than ninety (90) days after the Date of Grant), the
Committee shall establish the performance-related goals to be used in connection
with conditions, restrictions and limitations applicable to such Award. The
performance-related goals shall be chosen from among the following factors, or
any combination of the following, as the Committee deems appropriate: total
stockholder return; growth in revenues, sales, net income, stock price, and/or
earnings per share; return on assets, net assets, and/or capital; return on
stockholders' equity; debt/equity ratio; working capital; safety; quality; the
Company?s financial performance versus peers; cost reduction; productivity;
market mix; or economic value added. The Committee may select among the goals
specified from Award to Award which need not be the same for each Grantee.
9
<PAGE> 12
(c) With respect to each Award described in paragraph (a), the
Committee shall (at the same time it is making the determinations under
paragraph (b)) determine the relationship between the performance-related goals
and the conditions, restrictions and limitations applicable to the Award.
(d) In connection with the Awards described in paragraph (a),
no performance-related goal will be considered to be satisfied until the
Committee has certified the extent to which the performance-related goals and
any other material terms were satisfied.
(e) Once established, performance-related goals shall not be
changed, except to the extent that the Committee has specified adjustments as
part of the determinations made under paragraphs (b) and (c). Except as provided
in the preceding sentence, no performance-related goal applicable to a
condition, restriction or limitation shall be considered to be satisfied if the
minimum performance-related goals applicable thereto are not achieved.
(f) Individual performance shall not be reflected in a
performance-related goal under this Section 9. However, the Committee may retain
the discretion to treat a performance-related goal as not having been satisfied
due to the failure of a Participant to meet individual performance goals.
(g) If, on advice of the Company?s tax counsel, the Committee
determines that Code Section 162(m) and the regulations thereunder will not
adversely affect the deductibility for federal income tax purposes of any amount
paid under the Plan by applying provisions of this Plan (including this Section
9(g)) that conflict with this Section 9 to a covered employee, then the
Committee may, in its sole discretion, apply such Section or Sections to the
covered employee without regard to the exceptions to such Section or Sections
that are contained in this Section 9.
10. EXERCISE OF OPTIONS AND SARS. No Option or SAR may at any time be
exercised with respect to a fractional share or exercised in part with respect
to fewer than 100 shares (unless it is being exercised in full). In the event
that Shares are issued pursuant to the exercise of an SAR, no fractional shares
shall be issued; payment shall be made in cash for any such fractional shares.
Certificates for whole shares shall be delivered as soon as practicable after
the Grantee satisfies any applicable tax withholding requirements.
11. DEATH, RETIREMENT, AND TERMINATION OF EMPLOYMENT. (a) If a
Grantee's employment with the Company and all of its Subsidiaries terminates:
(i) If such employment terminates involuntarily and for good
cause (as determined by the Company), all Options and SARs held by the Grantee
will expire and the Grantee's Restricted Stock Awards as to which any condition
providing for the forfeiture thereof exists ("Unvested Restricted Stock Awards")
will be forfeited immediately.
10
<PAGE> 13
(ii) If such employment terminates involuntarily without cause
or voluntarily for any reason, except in the case of the Grantee's Disability,
Retirement or death, (A) all unexercisable Options and SARs held by the Grantee
will expire immediately; (B) all exercisable options and SARs held by the
Grantee will expire three months after termination (unless their expiration date
is earlier); and (C) Unvested Restricted Stock Awards held by the Grantee will
be forfeited.
(iii) If such employment terminates because of Disability or
Retirement, the Grantee will be treated under all Awards as if employment with
the Company or Subsidiary continued for five years.
(iv) If a Grantee dies while employed or during the five-year
period described in paragraph (iii), all Options and SARs held by the Grantee
will become exercisable (and remain exercisable for two years unless their
expiration date is earlier) and all conditions providing for forfeiture of the
Grantee's Unvested Restricted Stock Awards will lapse.
(b) The Committee may provide (i) that an Award will not terminate or
be forfeited as a result of the termination of the Grantee's employment; and
(ii) for additional opportunities for the exercise of an Option or SAR after a
Grantee's termination of employment, in addition to (a), above.
(c) For all purposes of the Plan, the employment of a Grantee will not
be considered to be terminated if the Grantee is receiving periodic severance
payments from the Company or a Subsidiary. Leaves of absence for periods and
purposes conforming to the policy of the Company shall not be deemed
terminations or interruptions of employment.
(d) In the case of a Grantee who is a member of the Board and not an
employee of the Company or a Subsidiary, the provisions of this Section 11 shall
be applied by treating the Grantee's service on the Board as if it were
employment with the Company.
12. COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other
provision in the Plan, the Company shall have no liability to issue any Shares
under the Plan unless such issuance would comply with all applicable laws and
applicable requirements of any securities exchange or similar entity. Prior to
the issuance of any Shares under the Plan, the Company may require a written
statement that the recipient is acquiring the Shares for investment and not for
the purpose or with the intention of distributing the Shares.
13. TRANSFERABILITY.
(a) Except to the extent specifically provided by the
Committee, an Award (including the Shares subject to a Restricted Stock Award
until all conditions providing for
11
<PAGE> 14
forfeiture have lapsed) shall not be sold, assigned, pledged or otherwise
transferred, voluntarily or involuntarily, by the Grantee.
(b) Incentive Stock Options granted under the Plan are not
transferable except by will or by the laws of descent and distribution or, to
the extent not inconsistent with the applicable provisions of the Code, pursuant
to a qualified domestic relations order (as that term is defined in the Code).
Incentive Stock Options may be exercised during the lifetime of the Grantee only
by the Grantee, and after the death of the Grantee, only as provided in Section
11.
14. EMPLOYMENT, BOARD SERVICE AND STOCKHOLDER STATUS. The Plan does not
constitute a contract of employment or for continued service, and selection as a
Grantee will not give any employee or Grantee the right to be retained in the
employ of the Company or any Subsidiary or as a member of the Board. No person
entitled to exercise any Option or SAR granted under the Plan shall have any of
the rights or privileges of a stockholder of record with respect to any Shares
issuable upon exercise of such Option or SAR until certificates representing
such Shares have been issued and delivered. Certificates representing Shares
issued under the Plan may bear a legend referring to any conditions,
restrictions and limitations deemed appropriate by the Committee.
15. ADJUSTMENTS TO NUMBER OF SHARES AND TERMS. Subject to the following
provisions of this Section 15, in the event of any change in the outstanding
Shares by reason of any share dividend, split, recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, the aggregate number and kind of Shares reserved for issuance under the
Plan or subject to Awards outstanding or to be granted under the Plan shall be
proportionately adjusted so that the value of each Award shall not be changed,
and the terms of any outstanding Award may be adjusted by the Committee in such
manner as it deems equitable, provided that, in no event shall the Option price
for a Share be adjusted below the par value of such Share, nor shall any
fraction of a Share be issued upon the exercise of an Option or SAR. Shares
subject to a Restricted Stock Award shall be treated in the same manner as other
outstanding Shares; provided that any conditions and restrictions applicable to
a Restricted Stock Award shall continue to apply to any Shares, other security
or other consideration received in connection with the foregoing.
16. CHANGE IN CONTROL. Upon the occurrence of a Change in Control, all
outstanding Options and SARs, and all outstanding Restricted Stock Awards as to
which any conditions providing for forfeiture have not lapsed, shall be
automatically purchased by the Company at the Acceleration Price with payment to
be made within thirty days of such Change in Control, irrespective of whether
the stockholders of the Company have approved the Plan as contemplated by
Section 18.
17. WITHHOLDING. Whenever a Grantee recognizes income with respect to
an Award (and as a condition to the exercise of any Option or SAR or the receipt
of a Stock Award), the
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<PAGE> 15
Grantee will have the obligation to pay all federal, state, and local income or
other taxes due and the Company shall have the right to withhold from amounts
payable to the Grantee in any manner as necessary to satisfy all federal, state
and local payroll tax withholding requirements. Alternatively, the Grantee may
elect to have Shares withheld by the Company from the Shares otherwise to be
delivered to the Grantee or may tender to the Company Shares previously acquired
by the Grantee. The number of Shares so withheld or tendered for payment of tax
withholding shall have an aggregate Fair Market Value as of the date as of which
income is recognized by the Grantee with respect to such Shares sufficient to
satisfy the applicable withholding taxes.
18. TERM OF PLAN. The Plan is effective January 1, 2000, and will be
submitted to the stockholders of the Company for approval on or before the first
anniversary of its adoption by the Committee. Awards may be granted prior to
stockholder approval, with all rights thereunder (other than the right to
receive payment of the Acceleration Price under Section 16) conditioned upon
such approval; provided that, if stockholder approval is not secured by such
anniversary, all such Awards shall expire and the Plan shall terminate. No ISO
may be granted under the Plan after December 31, 2010. No Award may be granted
under the Plan after the date on which the Plan is terminated pursuant to
Section 19.
19. AMENDMENT AND TERMINATION OF PLAN. Subject to any approval of the
stockholders of the Company that may be required (or, in the opinion of the
Committee, appropriate) under law or the rules of any securities exchange on
which the Shares are listed or similar entity, the Committee may at any time
amend, suspend or terminate the Plan. No amendment, suspension or termination of
the Plan shall materially and adversely alter or impair any Award previously
granted under the Plan without the consent of the holder thereof. No amendment
requiring stockholder approval under Treasury Regulation Section 1.162-27 or
Section 422 of the Code shall be valid unless such stockholder approval is
secured as provided therein.
20. APPLICABLE LAW. All questions under the Plan shall be governed by
the internal laws of the State of Delaware, without giving effect to the choice
of law provisions thereof.
Executed on behalf of the Company as of January 1, 2000, on this 21st
day of March, 2000.
BOWATER INCORPORATED
By: /s/ James T. Wright
-----------------------------------------
James T. Wright
Vice President - Human Resources
As adopted by the Board of Directors at its January 19, 2000, meeting.
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<PAGE> 1
EXHIBIT 10.41
AMENDED AND RESTATED
BOWATER INCORPORATED
1997-1999 LONG-TERM INCENTIVE PLAN
(Effective As Of February 26, 1999)
<PAGE> 2
TABLE OF CONTENTS
Page No.
--------
Section 1. Establishment of Plan.............................................1
Section 2. Definitions.......................................................1
Section 3. Administration....................................................7
Section 4. Eligibility and Participation.....................................7
Section 5. Award Determination...............................................8
Section 6. Payment of Final Awards...........................................9
Section 7. Termination of Employment........................................10
Section 8. Covered Officers.................................................10
Section 9. Change in Control................................................11
Section 10. Amendment and Modification......................................11
Section 11. Miscellaneous...................................................11
<PAGE> 3
SECTION 1. ESTABLISHMENT OF PLAN
Effective January 1, 1997, Bowater Incorporated, a Delaware corporation
(the "Company"), established an incentive compensation plan to be known as the
"Bowater Incorporated 1997-1999 Long-Term Incentive Plan" (the "Plan"), as set
forth in this document. Effective January 1, 1997, the Plan was amended and
restated on March 17, 1999. The Plan is now being restated in its entirety as of
February 26, 1999, in order to incorporate amendments that have been previously
adopted. This amended and restated Plan document shall supersede the Plan
document as originally adopted.
SECTION 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
indicated:
"Acquiring Person" shall mean the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the combined voting
power of the Corporation's then outstanding securities, not including (except as
provided in clause (i) of the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of up to and
including 50% of such voting power approved by two-thirds of the members of the
Board who are Board members before the Person becomes Beneficial Owner, directly
or indirectly, of Common Stock representing 5% or more of the combined voting
power of the Corporation's then outstanding securities. Notwithstanding the
foregoing, (i) securities acquired pursuant to an agreement described in the
preceding sentence will be included in determining whether a Beneficial Owner is
an Acquiring Person if, subsequent to the approved acquisition, the Beneficial
Owner acquires 5% or more of such voting power other than pursuant to such an
agreement so approved; and (ii) a Person shall not be an Acquiring Person if
such Person is eligible to and files a Schedule 13G with respect to such
Person's status as a Beneficial Owner of all Common Stock of the Corporation of
which the Person is a Beneficial Owner.
"Acceleration Price" means the highest of:
(A) The highest reported sales price of the Common Stock
within the sixty (60) days preceding the date of the
Change in Control, as reported on any securities
exchange upon which the Common Stock is listed,
(B) The highest price of the Common Stock as reported in
a Schedule 13D or an amendment thereto that is paid
within the sixty (60) days preceding the date of the
Change in Control,
(C) The highest tender offer price paid for the Common
Stock, and
(D) Any cash merger or similar price.
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<PAGE> 4
"Active Employee" means an Employee who is providing services to the
Company or a subsidiary and does not include an individual who is receiving
periodic severance payments.
"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 Effective Date.
"Aggregate Unit Value" means the sum of the Unit Values for the Fiscal
Years in the Plan Cycle. For a Participant described in Section 4.2 or 7,
Aggregate Unit Value will only include the Unit Values for the portion of the
Plan Cycle during which the Participant participated hereunder (with the Unit
Value for any partial Fiscal Years of participation calculated only on the basis
of the portion during which participation occurred).
"Average RONA" means the quotient of (i) the sum of Operating Earnings
for Fiscal Years 1997-1999, divided by (ii) the quotient of (A) the sum of Net
Assets as of the end of Fiscal Years 1996, 1997, 1998 and 1999 divided by (B)
four (4).
"Beneficial Owner" of Common Stock means (i) a Person who beneficially
owns such Common Stock, directly or indirectly, or (ii) a Person who has the
right to acquire such Common Stock (whether such right is exercisable
immediately or only with the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, warrants, options or otherwise.
"Board" means the Board of Directors of the Company.
"Cause" means the Participant's gross negligence, willful misconduct or
conviction of a felony, which negligence, misconduct or conviction has a
demonstrable and material adverse effect upon the Company, provided that the
Company shall have given the Participant written notice of the alleged
negligence or misconduct and the Participant shall have failed to cure such
negligence or misconduct within thirty (30) days after his receipt of such
notice. The Participant 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 Company to the Participant 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 Participant and an opportunity for the Participant, with his
counsel present, to be heard before the Board) finding that, in the good faith
opinion of the Board, the Participant was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and circumstances
claimed to provide the basis for the Participant's termination, provided that
the effective date shall not be less than thirty (30) days from the date such
notice is given.
2
<PAGE> 5
"Change in Control" shall be deemed to have occurred upon:
(i) the date that any Person is or becomes an Acquiring
Person;
(ii) the date that the Corporation's shareholders approve
a merger, consolidation or reorganization of the
Company with another corporation or other Person,
unless, immediately following such merger,
consolidation or reorganization, (A) at least 50% of
the combined voting power of the outstanding
securities of the resulting entity would be held in
the aggregate by the shareholders of the Company as
of such record date for such approval (provided that
securities held by any individual or entity that is
an Acquiring Person, or who would be an Acquiring
Person if 5% were substituted for 20% in the
definition of such term, shall not be counted as
securities held by the shareholders of the
Corporation, but shall be counted as outstanding
securities for purposes of this determination), or
(B) at least 50% of the board of directors or similar
body of the resulting entity are Continuing
Directors;
(iii) the date the Company sells or otherwise transfers all
or substantially all of its assets to another
corporation or other Person, unless, immediately
after such sale or transfer, (A) at least 50% of the
combined voting power of the then-outstanding
securities of the resulting entity immediately
following such transaction is held in the aggregate
by the Company's shareholders as determined
immediately prior to such transaction (provided that
securities held by any individual or entity that is
an Acquiring Person, or who would be an Acquiring
Person if 5% were substituted for 20% in the
definition of such term, shall not be counted as
securities held by the shareholders of the
Corporation, but shall be counted as outstanding
securities for purposes of this determination), or
(B) at least 50% of the board of directors or similar
body of the resulting entity are Continuing
Directors; or
(iv) the date on which less than 50% of the total
membership of the Board consists of Continuing
Directors.
"Code" means the Internal Revenue Code of 1986, as amended. References
to a Section of the Code shall include references to any Temporary or Final
Regulations related to such Section, and to any successor to such Section or
Regulations.
"Committee" means the Human Resources and Compensation Committee of the
Board, or such other committee of two (2) or more "outside directors" within the
meaning of section 162(m) of the Code, who are appointed by the Board to
administer the Plan.
"Common Stock" means the common stock of the Company, par value $1.00
per share.
3
<PAGE> 6
"Company" means Bowater Incorporated, a Delaware corporation, and any
successor thereto.
"Continuing Director" means any member of the Board who (i) was a
member of the Board prior to the date of the event that would constitute a
Change in Control, and any successor of a Continuing Director while such
successor is a member of the Board, (ii) is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person, and (iii) is recommended or
elected to succeed the Continuing Director by a majority of the Continuing
Directors.
"Covered Officer" means any individual designated by the Committee as
such, because, in the Committee's judgment, he is or may become a "covered
employee" within the meaning of section 162(m) of the Code. Notwithstanding the
foregoing, if at the time of payment of a Final Award to a Participant, the
Committee has concluded that such Participant is not a covered employee for the
year in which the Final Award would be deductible by the Company for tax
purposes, then such Participant shall not be a Covered Officer.
"Disability" shall have the meaning contained in the Company's
long-term disability plan.
"Effective Date" means January 1, 1997.
"Employee" means a full-time, salaried employee of the Company or a
subsidiary that, directly or indirectly, is at least 50% owned by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing price per share of the Common
Stock as reported for the New York Stock Exchange Composite Transactions in the
Wall Street Journal for that date.
"Final Award" means the amount for each Participant calculated pursuant
to Section 5.3.
"Fiscal Year" means (i) for the Company, the referenced year ended
December 31; and (ii) for any Peer Company, its fiscal year ending with or
within such Fiscal Year of the Company.
"Good Reason" means:
(i) an adverse change in the Participant's status, duties
or responsibilities as an executive of the Company as
in effect immediately prior to the Change in Control;
(ii) failure of the Company to pay or provide the
Participant in a timely fashion the salary or
benefits to which he is entitled under any
4
<PAGE> 7
Employment Agreement between the Company and the
Participant in effect on the date of the Change in
Control, or under any benefit plans or policies in
which the Participant 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 Participant's salary as in
effect on the date of the Change in Control;
(iv) the taking of any action by the Company (including
the elimination of a plan without providing
substitutes therefor, the reduction of the
Participant's awards thereunder or failure to
continue the Participant's participation therein)
that would substantially diminish the aggregate
projected value of the Participant's awards or
benefits under the Company's benefit plans or
policies in which the Participant was participating
at the time of the Change in Control;
(v) a failure by the Company to obtain from any successor
the assent to the Participant's Change in Control
Agreement contemplated by Section 5 thereof; or
(vi) the relocation of the principal office at which the
Participant is to perform his services on behalf of
the Company 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
Participant's business travel obligations subsequent
to the Change in Control.
Any circumstance described above shall constitute Good Reason even if
such circumstance would not constitute a breach by the Company of the terms of
the Employment Agreement between the Company and the Participant in effect on
the date of the Change in Control. The Participant 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 Company
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 Participant's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
"Net Assets" means total assets less nonfinancial current liabilities
as recorded on the Company's or a Peer Company's balance sheet.
5
<PAGE> 8
"Normal Retirement Date" shall have the meaning given to such term in
the Company's basic qualified pension plan in which the Participant is a
participant as in effect on the Effective Date or any successor or substitute
plan adopted prior to a Change in Control.
"Operating Earnings" means operating income, after depreciation, but
before interest and taxes, as recorded on the Company's or on a Peer Company's
statement of operations for the applicable Fiscal Year.
"Participant" means an Active Employee who is eligible to participate
in the Plan.
"Peer Companies" mean the following companies in the paper and wood
products industry designated by the Committee:
Abitibi-Price Inc. Avenor Inc.
Champion International Corporation Donohue Inc.
Fletcher Challenge Canada Limited International Paper Company
The Mead Corporation Stone-Consolidated Corporation
Westvaco Corporation Weyerhaeuser Company
"Peer Group Average" means the arithmetic mean of the Average RONAs of
the Peer Companies for the Plan Cycle. If one or more of the Peer Companies is
eliminated during the Plan Cycle either through acquisition or dissolution, or
because of any other reason, then the Peer Group Average shall be based on the
Average RONAs of the remaining Peer Companies. If one or more Peer Companies are
combined during the Plan Cycle, either through merger, consolidation, purchase
and sale of assets, or because of any other reason, then (i) for periods before
they are combined, "Peer Group Average" shall be based on the Average RONAs of
all such Peer Companies; and (ii) for periods after they are combined, "Peer
Group Average" shall include the Average RONA of the combined entity.
"Performance Goal Formula" means the formula established by the
Committee and described in Section 5.3 to be used to determine the percentage,
if any, of a Participant's Aggregate Unit Value that becomes a Final Award.
"Person" means any individual, firm, corporation, partnership, trust or
other entity.
"Plan" means the Bowater Incorporated 1997-1999 Long-Term Incentive
Plan.
"Plan Cycle" means the period over which performance will be measured
for purposes of determining the amount, if any, of a Participant's Aggregate
Unit Values that will be paid as a Final Award. The Plan Cycle will commence on
January 1, 1997, and will end December 31, 1999.
6
<PAGE> 9
"Retirement" means a Participant's termination of employment in a
retirement status under the qualified pension plan of the Participant's employer
in which he is participating.
"Section" means the indicated provision of the Plan.
"Unit" refers to units granted to Participants pursuant to the Plan,
each of which corresponds to one share of the Company's common stock.
"Unit Value" refers to the dollar value of a Participant's Units as
determined for each Fiscal Year of the Plan Cycle pursuant to Section 5.2.
Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee has
delegated to the Vice President -- Human Resources of the Company, and other
appropriate officers and employees of the Company, responsibility for
administering the Plan, other than the Committee's powers with respect to
Covered Officers under Section 8.
Subject to the limitations of the Plan, the Committee shall: (i)
correct any defect or omission or reconcile any inconsistency in this Plan or in
any award granted hereunder, and (ii) make all other necessary determinations
and take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within its
authority shall be conclusive and binding upon all parties; provided that the
Committee may not exercise discretion with respect to a Covered Officer in a
manner that is inconsistent with Treasury Regulation Section
1.162-27(e)(2)(iii).
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 General. Active Employees who are in salary grades 31 and above
shall be Participants in the Plan for the Plan Cycle, subject to the limitations
of Section 7 herein. An Employee who is eligible to participate in the Plan
shall be so notified in writing, and shall be apprised of his Units, the manner
of determining Unit Values and the Performance Goal Formula for the Plan Cycle
within the first 90 days of the Plan Cycle.
4.2 Partial Plan Cycle Participation. In the event that an Employee
becomes eligible to participate in the Plan subsequent to the commencement of
the Plan Cycle, such Employee shall be granted the number of Units he would have
received if he had entered the Plan at the beginning of the Plan Cycle based on
his salary grade and shall be notified of his Units, the manner of determining
Unit Values and the Performance Goal Formula for the Plan Cycle as soon as
7
<PAGE> 10
practicable and in any event before the earlier of (i) the ninetieth day after
the Employee becomes eligible to participate or (ii) the day as of which 25% of
the portion of the Plan Cycle during which such Employee participates has
lapsed. The Participant's Aggregate Unit Values will include only Unit Values
for the portion of the Plan Cycle during which the Participant participates.
4.3 Change in Salary Grade. Subject to the last sentence of Section
8.3, if a Participant is promoted to a higher salary grade during the Plan
Cycle, his Units shall be increased to a number of Units applicable to the new
salary grade for the Fiscal Year. The Unit Value for the Fiscal Year the change
occurs will equal (i) the sum of the Units he was first granted under Section
5.1 times the number of days he was in that salary grade for that Fiscal Year,
plus the number of Units he received under the new salary grade times the number
of days he was in the new salary grade for that Fiscal Year, divided by (ii) the
total number of days he participated in the Plan for that year. Any subsequent
promotions will be factored in by making additional computations in the same
manner to take account of the new salary grade for the remainder of any Fiscal
Year. If a Participant is demoted during the Plan Cycle, such demotion will have
no effect on the Participant's participation hereunder; provided that the
Committee may elect to reduce or eliminate his Final Award in any fashion it
deems appropriate on account of such demotion.
4.4 No Right to Participate. Except as specifically provided in
Sections 4.1 and 4.2, no Participant or other Employee shall at any time have a
right to be selected for participation in the Plan, despite having previously
participated in an incentive plan of the Company.
SECTION 5. AWARD DETERMINATION
5.1 Initial Units. As of the beginning of the Plan Cycle, each
Participant shall receive the number of Units assigned to his salary grade. The
Units assigned to each salary grade are equal to (i) the product of (A) the
bonus percentage assigned for the 1997 Fiscal Year of the Company to that salary
grade, times (B) the midpoint of that salary grade for the 1997 Fiscal Year,
divided by (ii) the average daily closing price of the Company's Common Stock
for the 1996 calendar year.
1997 1997
Salary Grade Salary Grade
Units for each Bonus Percentage X Midpoint
Salary Grade = ---------------------------------------------
Company's 1996 Average Common Stock Price
5.2 Unit Values. Except as may be provided in Sections 4.2 and 4.3 or
Section 7, for each Fiscal Year of the Company during the Plan Cycle, the
Committee will determine a Unit Value for each Participant by multiplying each
Participant's Units by the average daily closing price of the Common Stock for
such Year. If a Participant is only entitled to a prorated Award
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<PAGE> 11
for a Fiscal Year pursuant to Sections 4.2 or 7, then the Unit Value for such
Participant shall be multiplied by a fraction equal to the number of days the
Participant participated in the Plan divided by 365.
5.3 Performance Goal Formula and Final Awards. At the end of the Plan
Cycle, the Committee will determine the Final Award for each Participant by
multiplying the Aggregate Unit Value for such Participant by a percentage
determined based on the Company's Average RONA as a multiple of the Peer Group
Average. Such percentage shall equal zero if the Company's Average RONA is not
more than one (1) times the Peer Group Average. If the Company's Average RONA is
more than one (1) times the Peer Group Average, such percentage shall equal the
product of (i) 250% times (ii) a fraction, the numerator of which is the lesser
of (A) the Company's Average RONA divided by the Peer Group Average, minus 1, or
(B) .5, and the denominator of which is .5.
5.4 Adjustments. In the event of any change in the outstanding shares
of Common Stock by reason of any share dividend, split recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, each Participant's Units shall be proportionately adjusted so that the
value of the Units shall not thereby be changed.
SECTION 6. PAYMENT OF FINAL AWARDS
6.1 Form and Timing of Payment. (a) Except as may be otherwise provided
in Section 6.2 or Section 9, the Company shall pay to each Participant (i) a
number of shares of Common Stock equal to one-half of the Participant's Final
Award divided by the Stock Price, and (ii) cash equal to one-half of the Final
Award. The Stock Price shall be the Fair Market Value of one share of Common
Stock as of the date on which the Committee approves the Final Award. Except in
the case of a Participant who is a Covered Officer, the Board may change the
allocation between stock and cash in its discretion.
(b) Shares and cash described in paragraph (a) shall be
distributed as soon as practicable after the amounts thereof have been
determined. Notwithstanding the foregoing, except in the case of a Covered
Officer, the Committee may authorize the payment of part or all of an estimated
Final Award for a Participant prior to the determination thereof pursuant to
Section 5.3, subject to such conditions and limitations deemed appropriate by
the Committee.
6.2 Limitations. Notwithstanding the provisions of Section 6.1, if the
form of payment described therein would cause the number of shares of Common
Stock issued hereunder to exceed five percent (5%) of the outstanding shares of
Common Stock on the record date of the 1997 Annual Meeting of Stockholders of
the Company, less 1,000,000 (the number of shares reserved for issuance under
the Bowater Incorporated 1997 Stock Option Plan as of such record date), then
the number of shares distributable to each Participant hereunder shall be
proportionately reduced so that such limit is not exceeded and cash shall be
paid in lieu thereof to each Participant.
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<PAGE> 12
SECTION 7. TERMINATION OF EMPLOYMENT
7.1 Termination of Employment Due to Death, Disability, Retirement or
Sale of Business Unit. In the event a Participant's employment is terminated by
reason of death, Disability, Retirement, or sale by the Company of the
subsidiary or unit employing the Participant, the Final Award determined in
accordance with Section 5.3 herein shall be prorated based solely upon the
Aggregate Unit Values computed for the portion of the Plan Cycle occurring prior
to termination during which the Participant was an Active Employee. In the case
of a Participant's Disability, the employment termination shall be deemed to
have occurred on the date the disability commences as determined by the
Committee.
Payments under this Section 7.1 shall be made after the end of the Plan
Cycle in accordance with the provisions of Section 6.
7.2 Termination of Employment for Other Reasons. In the event a
Participant's employment is terminated prior to the payment of the Final Award
for any reason other than death, Disability, or Retirement, or sale by the
Company of the subsidiary or unit employing the Participant, all of the
Participant's rights to a Final Award for the Plan Cycle shall be forfeited.
However, except as provided under Section 8, the Committee, in its sole
discretion, may pay an award (or a portion of an award) for the portion of the
Plan Cycle that the Participant was a Participant, computed as determined by the
Committee and payable after the end of this Plan Cycle in accordance with the
provisions of Section 6.
SECTION 8. COVERED OFFICERS
8.1 Applicability of Section 8. The provisions of this Section 8 shall
apply only to Covered Officers. In the event of any inconsistencies between this
Section 8 and the other Plan provisions (other than Section 9), the provisions
of this Section 8 shall control.
8.2 Committee Certification. At the end of the Plan Cycle and prior to
payment, the Committee shall certify (i) the extent to which the performance
goals reflected in the Performance Goal Formula were satisfied, and (ii) the
Final Awards for each Covered Officer as computed in accordance with Sections 5
and 6.
8.3 Non-adjustment of Performance Goals and Maximum Award. Subject to
Sections 4.3, 5.3 and 5.4, once established for a Participant, the number of
Units received by the Participant, the method of computing Aggregate Unit Value
and the Performance Goal Formula shall not be changed during the Plan Cycle.
Notwithstanding any provision herein, the maximum Final Award for each Covered
Officer is $6,000,000.
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<PAGE> 13
SECTION 9. CHANGE IN CONTROL
Notwithstanding any other provision of the Plan, if a Change in Control
of the Company shall have occurred and, prior to payment of Final Awards, if
any, under the Plan, a Participant's employment by the Company is terminated for
any reason other than his death, his Disability, his retirement on his Normal
Retirement Date, by the Company for Cause, or by the Participant without Good
Reason, the Company shall pay the Participant a Final Award equal to three times
the Participant's Units multiplied by 250%, times the Acceleration Price. All
Final Awards paid pursuant to this Section 9 shall be paid entirely in cash
within thirty (30) days of termination of employment.
SECTION 10. AMENDMENT AND MODIFICATION
Subject to Section 8.3, the Committee, in its sole discretion, with
notice to all Participants, at any time and from time to time, may modify or
amend, in whole or in part, any or all of the provisions of the Plan, or suspend
or terminate it entirely; provided, however, that no such modification,
amendment, suspension, or termination may affect Participants' rights under
Section 9, and in the event of any such modification, amendment, suspension or
termination, any Participant (or his beneficiary, as the case may be) who is an
Active Employee on the effective date thereof shall be entitled to no less of a
payment or distribution hereunder than the amount he would have otherwise
received, based upon the Participant's Units, the Aggregate Unit Value and the
percentage determined under the Performance Goal Formula, all computed as of the
end of the Fiscal Year prior to or following the date of the change or
termination, whichever is greater.
SECTION 11. MISCELLANEOUS
11.1 Governing Law. The Plan, and all agreements hereunder, shall be
governed by and construed in accordance with the laws of the State of Delaware.
11.2 Withholding Taxes. The Company shall have the right to deduct from
all payments under the Plan any Federal, state, or local taxes required by law
to be withheld with respect to such payments.
11.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
11.4 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
11.5 Successors. All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
11
<PAGE> 14
11.6 Stockholder Approval. This Plan was adopted and all Awards made
subject to the condition that the Plan be approved by the stockholders of the
Company at the 1997 Annual Meeting of the Stockholders of the Company. The Plan
was approved at the 1997 Annual Meeting of the Stockholders of the Company.
11.7 Employment Status. The Plan does not constitute a contract of
employment or continued service, and selection as a Participant will not give
any Employee the right to be retained in the employ of the Company or any
subsidiary.
11.8 Unsecured General Creditor. Participants and their heirs,
successors and assigns shall have no legal or equitable rights, interest or
claims in any property or assets of the Company by virtue of participation in
the Plan. The Company's obligation under the Plan shall be that of an unfunded
and unsecured promise of the Company to pay money in the future.
11.9 Nonassignability. No Participant or any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of actual receipt
of the amounts, if any, payable hereunder, or any part thereof, which are, and
all rights to which are, expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure or sequestration for the payment of any debts, judgment,
alimony or separate maintenance owed by a Participant or any other person, nor
be transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
EXECUTED on behalf of the Company as of February 26, 1999.
BOWATER INCORPORATED
By: /s/ James T. Wright
---------------------------------
James T. Wright
Vice President - Human Resources
Date signed: 5/11/99
--------------------
As adopted by the Human Resources and Compensation Committee and the Board of
Directors at their January 22, 1997, meetings, as subsequently amended and
restated by the Human Resources and Compensation Committee at its February 28,
1997, meeting, and as further amended by the Board of Directors at its April 15,
1998, and February 26, 1999 meetings.
12
<PAGE> 1
BOWATER
Incorporated
[LOGO]
1999 ANNUAL REPORT
<PAGE> 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In millions, except per-share amounts) 1999 1998(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 2,134.7 $ 1,995.0
Operating income(2) 244.0 162.1
Net income (loss) 78.7 (18.5)
Diluted earnings (loss) per common share $ 1.41 $ ( 0.44)
Average common and common equivalent
shares outstanding(3) 55.0 47.6
Dividends declared per common share $ 0.80 $ 0.80
Total assets 4,552.2 5,092.0
Total shareholders' equity 1,770.8 1,777.0
Percent return on average common equity 4.5% (1.4)%
Total debt $ 1,505.1 $ 1,830.8
Total debt as a percentage of total capitalization (4) 42.1% 46.3%
Current ratio 1.34x 0.90x
Capital expenditures, including timberlands 198.5 223.2
Registered shareholders 5,200 5,600
Common stock price range $ 37.13-59.94 $ 32.81-59.56
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts include Avenor Inc. and the South Korean newsprint mill from the
dates of acquisition in July 1998.
(2) Operating income includes net gain on sale of assets of $225.4 million and
$21.1 million and impairment charges of $92.0 million and $119.6 million for
1999 and 1998, respectively.
(3) The average shares include 16.1 million of Bowater common and exchangeable
shares issued in conjunction with the Avenor acquisition, net of 2.4 million
shares repurchased.
(4) This ratio excludes the revaluation of Avenor's debt totaling $128.6 million
and $190.6 million for 1999 and 1998, respectively.
<TABLE>
<CAPTION>
NET SALES in millions
<S> <C>
99 $2,134.7
98 $1,995.0
97 $1,484.5
96 $1,718.3
95 $2,001.1
</TABLE>
<TABLE>
RETURN ON AVERAGE
COMMON EQUITY
<S> <C>
99 4.5%
98 (1.4)%
97 4.5%
96 18.6%
95 27.5%
</TABLE>
<TABLE>
NET INCOME in millions
<S> <C>
99 $ 78.7
98 $ (18.5)
97 $ 53.7
96 $ 200.2
95 $ 246.9
</TABLE>
<TABLE>
TOTAL DEBT AS A % OF
TOTAL CAPITALIZATION
<S> <C>
99 42.1%
98 46.3%
97 37.2%
96 36.5%
95 38.7%
</TABLE>
<PAGE> 3
ABOUT BOWATER
BOWATER INCORPORATED, headquartered in Greenville, South Carolina, is a global
leader in newsprint. In addition, we make virgin and recycled-content coated
and uncoated groundwood papers, bleached kraft pulp and lumber products.
Bowater has eight pulp and paper facilities in the United States, Canada and
South Korea. The company also owns and operates a coating facility in Michigan
and three sawmills that produce softwood dimension lumber. These operations are
supported by 1.8 million acres of timberlands owned or leased in the United
States and Canada and 14.2 million acres of timber cutting rights in Canada.
The company is one of the world's largest consumers of recycled newspapers and
magazines. We have sales offices located throughout North America and in
Brazil, England, Japan, Singapore and South Korea. Bowater employs
approximately 6,400 people.
NEWSPRINT DIVISION
This Division operates seven manufacturing facilities in the United States,
Canada and South Korea. The principal product at these mills is newsprint, but
market pulp and uncoated groundwood specialties are also produced. The Division
is responsible for the worldwide marketing and sales of newsprint and uncoated
groundwood specialties and the operation of its manufacturing facilities.
PULP DIVISION
This Division sells approximately 1 million metric tons of market pulp produced
at the Calhoun, Tennessee; Catawba, South Carolina; and Thunder Bay, Ontario,
mills. Bowater's market pulp product line includes northern and southern
softwood and hardwood pulp, giving it one of the broadest pulp product lines in
North America.
COATED PAPER DIVISION
This Division operates two manufacturing facilities in the United States. The
largest is a mill at Catawba, South Carolina, which produces coated groundwood
paper, newsprint, market pulp and uncoated groundwood specialties. The Division
also operates a coating facility in Benton Harbor, Michigan. The Division is
responsible for the marketing and sales of coated groundwood paper and the
operation of the Catawba and Benton Harbor sites.
FOREST PRODUCTS DIVISION
This Division manages 1.8 million acres of timberland owned or leased in the
United States and Canada and 14.2 million acres of timber cutting rights in
Canada. The Division markets and sells timber and lumber in North America,
operates three softwood sawmills and is a supplier of wood fiber to Bowater's
pulp and paper production facilities.
[PHOTOGRAPH OF ROLLED SHEET OF NEWSPRINT.]
[PHOTOGRAPH OF ROLLS OF COATED PAPER.]
[PHOTOGRAPH OF SHEETS OF MARKET PULP.]
[PHOTOGRAPH OF LUMBER AND WOOD CHIPS.]
TABLE OF CONTENTS
<TABLE>
<S> <C>
About Bowater ................................................... 1
Letter to Shareholders .......................................... 2
Newsprint Division .............................................. 6
Coated Paper Division ........................................... 7
Pulp Division ................................................... 8
Forest Products Division ........................................ 9
The Environment ................................................. 10
Business and Financial Review ................................... 11
Consolidated Financial Statements ............................... 22
Notes to Consolidated Financial Statements ...................... 27
Management's Statement of Responsibility ........................ 46
Independent Auditors' Report .................................... 47
Financial and Operating Record .................................. 48
Board of Directors .............................................. 51
Officers ........................................................ 52
Shareholder Information .............................INSIDE BACK COVER
</TABLE>
1
BOWATER 1999 ANNUAL REPORT
<PAGE> 4
FELLOW SHAREHOLDERS
[PHOTOGRAPH OF ARNOLD M. NEMIROW.]
Arnold M. Nemirow
Chairman, President and
Chief Executive Officer
Fellow Shareholders:
The markets for most of Bowater's major products presented difficult challenges
in 1999. Despite those challenges, we maintained our strong financial condition
through prudent capital investments and divestitures, disciplined spending and
a relentless emphasis on cost reduction. We also completed the integration of
our 1998 acquisitions of Avenor Inc. and a recycled newsprint mill in South
Korea. Your company has been significantly restructured since 1995, the result
of which is that Bowater's productive capacity has increased by approximately
70%, the number of shares of common stock has increased only 21% and debt
ratios are at a healthy 42%. With cash operating costs down over 20%, I believe
that our new earnings per share potential is very powerful over the cycle.
FINANCIAL AND OPERATING PERFORMANCE
Net income for the full year of 1999 was $78.7 million, or $1.41 per diluted
share, which includes gains on the sale of assets, net of impairment charges,
of $72.8 million, or $1.32 per diluted share, primarily attributable to the
completed sale of Bowater's wholly owned subsidiary in Maine, Great Northern
Paper, Inc. (GNP). For 1998, the company had a net loss of $18.5 million, or
$.44 per diluted share, which included a charge for the impairment of GNP
assets of $73.0 million, or $1.53 per diluted share. Netting out the gains and
charges related to the sale of GNP, our 1999 results, compared with 1998, were
dampened by lower product prices and approximately 200,000 metric tons of
market downtime.
2
BOWATER 1999 ANNUAL REPORT
<PAGE> 5
Over the past year, Bowater made significant progress in building a more
competitive company. In addition to integrating our acquisitions, several other
major events in '99 are worth noting:
- - Our total return to shareholders was 33%, compared with 21% for the S&P 500
and 5% for the S&P Mid-Cap Paper Index.
- - We achieved annualized synergies of $120 million from the Avenor acquisition,
well in excess of our initial $75 million target.
- - We sold GNP and its timberlands in Maine during the year for approximately
$620 million. This sale not only relieved us of our highest cost operations but
avoided a permanent mill closure and a $220 to $250 million capital investment.
As a key part of the GNP sale, the purchaser has committed to converting
170,000 metric tons of newsprint capacity to other grades of paper, improving
the fundamentals of the North American newsprint market.
- - We purchased a unique off-site coating operation in Benton Harbor, Michigan,
which converts newsprint to higher value grades of paper, while further
improving the newsprint fundamentals.
- - We upgraded our asset base by completing high-return projects such as the
modernization of the thermomechanical pulp mill, recovery boiler and woodyard
at our mill in Calhoun, Tennessee.
- - We sold 140,000 acres of timberland in the Southern United States for $173
million.
- - We permanently closed the unprofitable pulp mill in Gold River, British
Columbia, which was part of the Avenor acquisition.
- - We used proceeds from the sale of non-strategic assets and operating cash
flow to help reduce debt by $326 million during the year, restoring strength to
our balance sheet.
- - We continued to repurchase our common shares during the year. In 1999, we
repurchased 2.4 million shares. Over the past four years, we have repurchased
9.1 million shares, or approximately 15% of the out-standing stock of the
company.
- - We were named the "1999 Company of the Year" by the Paper Industry Management
Association's North American Papermaker magazine, and one of "The World's 100
Best-Managed Companies" by IndustryWeek magazine for the second time, the only
company in he forest products industry to be so honored.
3
BOWATER 1999 ANNUAL REPORT
<PAGE> 6
MARKET CONDITIONS
The pricing environment for most of our major products was weak in the first
half of 1999, but began to improve in the second half. Bowater implemented
price increases for newsprint, uncoated specialties, coated paper and pulp
during the latter part of 1999. We also announced a $50 per metric ton price
increase for newsprint effective April 1, 2000, and market pulp price increases
of $30 and $40 per metric ton effective January 1, 2000 and April 1, 2000,
respectively.
The supply and demand outlook is positive for the longer term as well. The
Asian economic crisis significantly reduced new supply by forcing the
cancellation of planned newsprint projects. Based on information from the
Canadian Pulp and Paper Association and other estimates, we expect modest
worldwide capacity growth in the near term. In addition, market downtime and
permanent closures have removed additional excess supply. At the same time, the
demand picture is encouraging. World demand for newsprint is expected to exceed
capacity increases primarily due to growth in Asia, Latin America and Europe.
Newspaper advertising linage has increased steadily as the economy continues to
show sustained strength. Sales of newsprint and coated paper have been
bolstered by an increase in newspaper and magazine advertising for dot.com
businesses. Contrary to predictions about the impact of the Internet on print
communications, the demand for news and information is expanding, enabling
newsprint and coated paper markets to continue to grow along with this new
medium. Our focus on global, low-cost operations enables us to adapt to this
rapidly evolving business environment.
The coated paper market gained considerable strength late in 1999, fueled by
strong demand from the magazine and catalog industry, reduced European imports
during the first half of 1999 and limited capacity growth. Magazine ad pages
grew by over 3%, and catalog mailings were also up during the year.
The fundamentals for market pulp staged a significant recovery in 1999. A
decrease in over 3 million metric tons of capacity through closures and
conversions, combined with improving worldwide demand, generated favorable
market conditions for pulp.
4
BOWATER 1999 ANNUAL REPORT
<PAGE> 7
Overall, the market for timber sales held steady in 1999, despite pockets of
weakness. Lumber prices rose sharply through the first half of the year. By
year-end, prices stabilized after declining from the highs of July. The forecast
for United States housing starts in year 2000 is below the 1999 pace, but is
still at a very robust level.
STRATEGIC DIRECTION
The accomplishments of the past few years have set the stage for Bowater's
further growth. Our strategy for improving long-term profitability over the
cycle is:
- - continuous cost reduction
- - disciplined capital and balance sheet management
- - pursuit of growth opportunities in core markets
Growth in our earnings over the cycle comes from the expansion of our underlying
businesses as well as improvement in our operations. Therefore, we have
positioned our company to capitalize on appropriate acquisitions in our major
product lines. However, whether or not growth through acquisition is achieved,
we will continue to improve operating costs, manage production rates
effectively and convert capacity, where feasible, to more profitable grades.
We believe that our strategies can provide superior returns to shareholders.
Our management structure remains lean and ready to act as we continue to focus
on increasing the value of our company in partnership with our customers and
employees.
Sincerely,
/s/Arnold M. Nemirow
- -----------------------------------------------
Arnold M. Nemirow
Chairman, President and Chief Executive Officer
March 15, 2000
5
BOWATER 1999 ANNUAL REPORT
<PAGE> 8
NEWSPRINT DIVISION
[PHOTOGRAPH OF ROLLED SHEET OF NEWSPRINT.]
The Newsprint Division operates seven mills in the United States, Canada and
South Korea. The principal product at the mills is newsprint, but market pulp
and uncoated groundwood specialties are also produced. We are the largest
manufacturer of newsprint in the United States and the second largest in North
America, and we are strategically located to sell to newspaper publishers
throughout the world.
[PHOTOGRAPH OF WOMAN READING A NEWSPAPER.]
We continually look for opportunities to improve our manufacturing facilities.
Our Calhoun, Tennessee, mill modernization was completed in 1999. This $180
million project added a new thermomechanical pulping mill, waste fired boiler
and two new woodyards, which replaced obsolete facilities. These high-return
projects substantially reduced wood usage, labor and maintenance costs while
improving product quality. The consolidation of five newsprint mills acquired
in 1998 is complete, and in all respects their performance has exceeded our
expectations.
Bowater is the preferred supplier in most of our customers' pressrooms. Our
customers maintain a steadfast loyalty to the Bowater brand year after year
and, in some cases, decade after decade, because we deliver the best
combination of product quality and service.
1999 Shipments by Mill in metric tons
<TABLE>
<S> <C>
Calhoun (Tennessee) 660,000
Thunder Bay (Ontario) 520,000
Gatineau (Quebec) 420,000
Ponderay (Washington) 247,000
Mokpo (South Korea) 246,000
Catawba (South Carolina) 224,000
Mersey (Nova Scotia) 223,000
GNP (Maine) 203,000(*)
Dalhousie (New Brunswick) 200,000
</TABLE>
(*) Reflects newsprint and directory shipments from January to August 1999.
Shipments by Destination
in metric tons
<TABLE>
<CAPTION>
International North American
<S> <C> <C>
99 636,000(*) 2,307,000(*)
98 727,000 2,454,000
97 251,000 1,301,000
96 243,000 1,261,000
95 204,000 1,276,000
</TABLE>
(*) Reflects newsprint and directory shipments from January to August 1999
for GNP.
Operating Income (loss)(*)
in millions
<TABLE>
<S> <C>
99 $ (98.0)
98 $ 32.4
97 $ 30.0
</TABLE>
(*) Includes financial results for the production and sale of market pulp.
Includes gains and losses on the sale of assets and impairment charges.
World Market Share
<TABLE>
<S> <C>
99 7.5%(*)
98 8.4%
97 4.1%
96 4.2%
95 4.0%
</TABLE>
(*) Reflects newsprint and directory shipments from January to August 1999
for GNP.
Net Sales(*)
in millions
<TABLE>
<S> <C>
99 $1,524.0
98 $1,356.6
97 $ 886.8
</TABLE>
(*) Includes financial results for the sale of market pulp.
6
BOWATER 1999 ANNUAL REPORT
<PAGE> 9
COATED PAPER DIVISION
[PHOTOGRAPH OF ROLLS OF COATED PAPER.]
Bowater's Coated Paper Division occupies a unique position in the North
American coated paper market by using southern fiber to produce high-quality
coated groundwood paper products on which a vast array of magazines, catalogs,
coupons, inserts and other promotional materials are printed. Our largest
coated paper facility is a mill located at Catawba, South Carolina, where
Bowater also produces newsprint and market pulp. A coating operation is located
in Benton Harbor, Michigan.
[PHOTOGRAPH OF WOMAN READING A MAGAZINE.]
Throughout 1999, Catawba's mill optimization program improved both
manufacturing efficiencies and product quality. The two coated machines set
production and speed records. The pulp dryer also set a production record. We
are recognized by our customers for consistently exceeding their quality and
service expectations. The Catawba mill is extremely competitive and a first
quartile, low-cost mill.
In 1999, we pursued strategically significant opportunities to broaden our
product line and to offer more products targeted at growth markets. The
acquisition of the Benton Harbor coating operation provides Bowater with two
competitive advantages. We will now be able to redeploy newsprint to a more
profitable, value-added coated product. In addition, this acquisition moves
coated paper production closer to our publisher and printing customers.
1999 Shipments by Mill(*) in short tons
<TABLE>
<S> <C>
Catawba (South Carolina) 365,000
Millinocket (Maine) 81,000
Benton Harbor (Michigan) 11,000
</TABLE>
(*) Reflects a partial year for Maine (January to August) and Michigan
(July to December). Also includes uncoated groundwood specialties from
South Carolina and Maine.
Shipments by Destination in short tons
<TABLE>
<CAPTION>
International North American
<S> <C> <C>
99 6,000(*) 451,000(*)
98 6,000 481,000
97 11,000 468,000
96 24,000 409,000
95 6,000 470,000
</TABLE>
(*) Reflects a partial year for Maine (January to August) and Michigan
(July to December). Also includes uncoated groundwood specialties from
South Carolina and Maine.
Operating Income(*)
in millions
<TABLE>
<S> <C>
99 $ 72.2
98 $ 107.4
97 $ 91.2
</TABLE>
(*) Includes financial results for the production and sale of market pulp.
North American Market Share
<TABLE>
<S> <C>
99 8.5%(*)
98 8.8%
97 9.1%
96 8.8%
95 9.4%
</TABLE>
(*) Reflects a partial year for Maine (January to August) and Michigan
(July to December).
Net Sales(*)
in millions
<TABLE>
<S> <C>
99 $ 467.0
98 $ 474.1
97 $ 458.4
</TABLE>
(*)Includes financial results for the sale of market pulp.
7
BOWATER 1999 ANNUAL REPORT
<PAGE> 10
PULP DIVISION
[Photograph of sheets of market pulp.]
Bowater is the market pulp producer with the leading North American market
share. The Pulp Division sells pulp produced at our three fully integrated
mills in Tennessee, South Carolina and Ontario. The economies of scale from
this integrated mill structure give us a competitive edge in purchasing,
management and maintenance compared to stand-alone market pulp mills. We are
the only North American producer who can supply our customers with all four
major grades of pulp - northern and southern softwood and hardwood pulp.
[Photograph of products containing pulp.]
In 1999, Bowater strengthened its competitive position and reduced its costs.
New capital appropriations in 1999 will allow significant gains in pulp quality
as well as cost reductions. Through management discipline, Bowater has
optimized its customer portfolio to take advantage of its geographic and
product diversity to improve margins.
The pulp market staged a recovery in 1999 as a result of improving supply and
demand fundamentals. Permanent closures and forward integration removed almost
3 million tons of capacity. Worldwide demand improved. Strong exports, in
combination with increased demand in North America, generated very favorable
market conditions.
1999 Shipments by Mill in metric tons
<TABLE>
<S> <C>
Thunder Bay (Ontario) 521,000
Catawba (South Carolina) 261,000
Calhoun (Tennessee) 139,000
</TABLE>
Shipments by Destination
in metric tons
<TABLE>
<CAPTION>
International North American
<S> <C> <C>
99 213,000 708,000
98 337,000 690,000
97 209,000 160,000
96 253,000 102,000
95 154,000 140,000
</TABLE>
North American Market Share
<TABLE>
<S> <C>
99 9.6%
98 9.5%
97 2.0%
96 1.5%
95 1.9%
</TABLE>
8
BOWATER 1999 ANNUAL REPORT
<PAGE> 11
FOREST PRODUCTS DIVISION
[Photograph of lumber and wood chips.]
The Forest Products Division manages 1.8 million acres of timberland owned or
leased in the United States and Canada and 14.2 million acres of timber cutting
rights in Canada. The Division markets and sells timber and lumber in North
America, operates three softwood sawmills that produce lumber and is a supplier
of wood fiber to Bowater's pulp and paper production facilities.
[Photograph of building being framed with lumber.]
Bowater has made significant progress in improving the profitability of its
timberlands and sawmills. We have implemented more intensive forest management
practices that will enhance growth rates and lead to better realization of
value from our timberlands. More aggressive marketing of low-value species in
combination with plantation thinning resulted in a more than 32% year-to-year
increase in timber harvest volumes per acre. At the same time, we remained
focused on sustainable management of our forests and on the use of these
forests for multiple purposes.
The Oakhill Sawmill in Bridgewater, Nova Scotia, achieved a major increase in
productivity without a significant infusion of capital. At the Maniwaki,
Quebec, sawmill, we integrated our timberlands and sawmill management teams to
achieve substantial improvements in wood costs and productivity. In addition to
gains from this more highly focused management team, several high-return
investments have allowed us to increase lumber recovery and access a larger
market with a higher-value product at the Maniwaki sawmill. These and other
similar changes have contributed to an almost 10% reduction in manufacturing
costs at the three sawmills.
1999 Lumber Shipments by Mill
in thousands of board feet
<TABLE>
<S> <C>
Bowater Lumber (Alabama) 97,000
Pinkham Lumber (Maine) 15,000(*)
Manifor Inc. (Quebec) 69,000
Oakhill Sawmill (Nova Scotia) 52,000
</TABLE>
(*)Reflects shipments from January to March 1999.
Operating Income(*)
in millions
<TABLE>
<S> <C>
99 $ 320.9
98 $ 67.0
97 $ 58.2
</TABLE>
(*) Includes gains and losses on the sale of assets.
1999 Timber Sales Volume
in thousands of short tons
<TABLE>
<S> <C>
Calhoun Woodlands (Tennessee) 2,139
Catawba Woodlands (S.C.) 1,989
GNP Woodlands (Maine) 634(*)
Dalhousie Woodlands (N.B.) 387
Mersey Woodlands (Nova Scotia) 364
</TABLE>
(*) Reflects shipments from January to August 1999.
Net Sales
in millions
<TABLE>
<S> <C>
99 $ 141.4
98 $ 147.1
97 $ 139.8
</TABLE>
9
BOWATER 1999 ANNUAL REPORT
<PAGE> 12
THE ENVIRONMENT
[PHOTOGRAPH OF TREES BORDERING LAKE.]
Bowater values its natural resources and continually fosters environmental
stewardship. We are implementing environmental management systems at all of our
mills to improve our environmental performance and to make more efficient use of
natural resources, chemicals and energy. For example, at our Catawba, South
Carolina, mill, we conserved river water by reducing our average daily water
consumption by 34% in 1999. Bowater also annually recycles 1 million tons of old
newspapers and magazines and converts more than 2.1 million tons of tires, bark,
wood waste and sludge into energy, which significantly reduces landfill
disposal.
In the United States, we support the American Forest & Paper Association
Sustainable Forestry Initiative(SM). We are also committed to achieving
third-party verification of sustainable forest management practices at all of
our Canadian sites. We expect to achieve ISO 14001 certification of the
environmental management systems employed at our Upsalquitch Forest License in
New Brunswick before the end of 2000. We plan to pursue certification on all of
the land we manage in Canada.
[PHOTOGRAPH OF PEOPLE WALKING ON TRAIL IN FOREST.]
At Bowater, environmental leadership is a business imperative. Our corporate
policy of environmental protection and sustainability is an integral part of our
decision-making process, and we continually monitor our performance.
Environmental best practices and process technologies are rapidly and
continually identified and shared across the company.
10
BOWATER 1999 ANNUAL REPORT
<PAGE> 13
BUSINESS AND FINANCIAL REVIEW
OVERVIEW
Bowater is organized into four divisions: the Newsprint Division, the Coated
Paper Division, the Pulp Division and the Forest Products Division. Except for
the Pulp Division, each division is responsible for the sales and marketing of
distinct product lines and the operation of certain manufacturing sites. The
Pulp Division is primarily a marketing and distribution division. Therefore,
Bowater's financial results are collected, analyzed and reported through the
Newsprint, Coated Paper and Forest Products Divisions.
NEWSPRINT DIVISION (FORMERLY NEWSPRINT & DIRECTORY DIVISION):
This Division operates seven manufacturing sites in the United States, Canada
and South Korea. The principal product line at these sites is newsprint, but the
sites also produce market pulp and uncoated groundwood specialties. The Division
is responsible for the worldwide marketing and sales of newsprint and uncoated
groundwood specialties.
COATED PAPER DIVISION:
This Division operates a manufacturing site in Catawba, South Carolina, which
produces coated groundwood paper, newsprint, market pulp and uncoated groundwood
specialties and operates a coating facility in Benton Harbor, Michigan. This
Division is responsible for the marketing and sales of coated groundwood paper.
PULP DIVISION:
This Division markets and distributes market pulp produced at the Calhoun,
Tennessee; Catawba, South Carolina; and Thunder Bay, Ontario, sites. Financial
results for the production and sale of market pulp are included in the Newsprint
Division and the Coated Paper Division. Previously, the Division operated a
market pulp manufacturing site in British Columbia. This site was permanently
closed in February 1999.
FOREST PRODUCTS DIVISION:
This Division manages 1.8 million acres of timberland owned or leased in the
United States and Canada and 14.2 million acres of Crown-owned land in Canada on
which Bowater has cutting rights. The Division also operates three softwood
sawmills, supplies wood fiber to Bowater's pulp and paper production sites and
markets timber and lumber in North America.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Statements in this report that are not reported financial results or other
historical information are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. They include, for example,
statements about our business outlook, assessment of market conditions,
strategies, future plans, future sales, prices for our major products, inventory
levels, capital spending and tax rates. These forward-looking statements are not
guarantees of future performance. They are based on management's expectations
that involve a number of business risks and uncertainties, any of which could
cause actual results to differ materially from those expressed in or implied by
the forward-looking statements. The risks and uncertainties relating to the
forward-looking statements in this report include those described under the
caption "Cautionary Statement Regarding Forward-Looking Information" in
Bowater's annual report on Form 10-K for the year ended December 31, 1999, and
from time to time, in Bowater's other filings with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
OPERATING INCOME IN MILLIONS
<S> <C>
99 $244
98 $162
97 $137
96 $399
95 $521
</TABLE>
NEWSPRINT
<TABLE>
<CAPTION>
Average
Transaction Shipments
Price (thousands
(per metric ton) of metric tons)
<S> <C> <C>
99 $496 2583
98 $566 1960
97 $543 1345
96 $644 1312
95 $662 1272
</TABLE>
COATED GROUNDWOOD
<TABLE>
<CAPTION>
Average
Transaction Shipments
Price (thousands
(per short ton) of short tons)
<S> <C> <C>
99 $721 433
98 $804 486
97 $705 479
96 $824 432
95 $975 476
</TABLE>
11
BOWATER 1999 ANNUAL REPORT
<PAGE> 14
BUSINESS AND FINANCIAL REVIEW
RESULTS OF OPERATIONS:
1999 COMPARED WITH 1998
Bowater's net income for 1999 was $78.7 million, or $1.41 per diluted share,
compared with a net loss of $18.5 million, or $0.44 per diluted share, in 1998.
Included in net income for 1999 and 1998 were the following items:
<TABLE>
<CAPTION>
(In millions, except per-share amounts) 1999 1998
- -------------------------------------------------------------------------------
After-tax Per After-tax Per
Income/ Diluted Income/ Diluted
Description (Expense) Share (Expense) Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gain on sale of timberlands $ 160.9 $ 2.92 $ 6.7 $ 0.14
Impairment charge -
Great Northern Paper (56.1) (1.02) (73.0) (1.53)
Loss on sale of Great
Northern Paper (32.0) (.58) -- --
- -------------------------------------------------------------------------------
Total $ 72.8 $ 1.32 $ (66.3) $ (1.39)
===============================================================================
</TABLE>
MARKET PULP
<TABLE>
<CAPTION>
Average
Transaction Shipments
Price (thousands
(per metric ton) of metric tons)
<S> <C> <C>
99 $471 921
98 $445 612
97 $467 370
96 $433 356
95 $791 295
</TABLE>
CAPITAL EXPENDITURES in millions
<TABLE>
<CAPTION>
<S> <C>
99 $199
98 $223
97 $100
96 $107
95 $ 96
</TABLE>
In 1999, Bowater began reporting "Net gain on sale of assets" and capital tax
expense as components of operating income. Operating income in 1998 was adjusted
to conform to the 1999 presentation. Operating income in 1999 was $244.0 million
on net sales of $2.1 billion, compared with $162.1 million on net sales of $2.0
billion in 1998. The increase in 1999 operating income compared to 1998 was due
to higher net gains on the sale of timberlands in 1999, partially offset by
lower transaction prices for newsprint and coated groundwood paper products and
lower coated groundwood paper shipments. Our operating costs were also lower in
1999 compared with 1998, due to the benefit of having the higher cost GNP mills
out of our mix for a portion of the year and realizing certain
acquisition-related synergies, partially offset by higher costs due to the
impact of market-related downtime.
Presented below is a discussion of each significant product line followed by a
discussion of the results of each of the reported Divisions.
PRODUCT LINE INFORMATION:
Newsprint For most of 1999 and 1998, the newsprint market was affected by an
imbalance in supply and demand, caused in part by the financial and economic
problems in Asia, which lowered demand from this region. North American
shipments to this region decreased while, at the same time, Asian imports
increased, creating an over-supply of newsprint in North America. As a result,
Bowater's newsprint prices declined precipitously through the third quarter of
1999. We also reduced newsprint production by approximately 200,000 metric tons
to correct an order book imbalance and to lower inventories. Later in the year,
Asian demand increased and North American exports of newsprint for 1999 improved
8% above 1998 levels. In addition to this, total United States demand and
consumption of newsprint improved in 1999 compared with 1998. As a result of
more favorable market
12
BOWATER 1999 ANNUAL REPORT
<PAGE> 15
conditions, effective October 1999, Bowater implemented a United States price
increase and announced an additional increase of $50 per metric ton, effective
April 1, 2000. We also increased export prices for newsprint in certain regions,
effective January 1, 2000. Our shipments were 32% higher in 1999 versus 1998 as
a result of the acquisitions in July 1998 of Avenor Inc. and a newsprint mill in
South Korea. Our inventory of newsprint at the end of 1999 was lower than at the
end of 1998.
Coated Groundwood During the first half of 1999, the market for coated ground-
wood paper was negatively impacted by an increased supply of competing printing
and writing papers. Bowater's 1999 average transaction price for coated
groundwood paper was 10% lower than in 1998. United States coated groundwood
shipments increased during the second half of 1999 and were up strongly in the
fourth quarter when compared with the fourth quarter of 1998. End-use markets
continued to show strength with magazine advertising pages and catalog mailings
(measured by standard A mail weight) increasing over 1998 levels. Inventories of
the United States coated groundwood producers declined significantly in the
second half of 1999. With improving market conditions, Bowater implemented price
increases in the third quarter and an additional price increase of $60 per short
ton effective October 1, 1999. Our shipments for 1999 were 11% lower compared
with 1998 shipments, primarily as a result of the sale of GNP in August 1999.
Our inventory of coated groundwood paper was slightly lower than 1998 levels.
Directory Paper Directory paper prices generally change similarly to newsprint
pricing, but with a lag due to the contract nature of the directory business.
Bowater's average transaction price for directory paper decreased 7% in 1999
compared with 1998. Shipments of our directory paper decreased 45% as a result
of the sale of GNP in August 1999. Subsequent to the sale of GNP, we no longer
produce or market directory paper.
Market Pulp World pulp markets continued to improve throughout the year,
reflecting tight supply conditions and improved demand. NORSCAN (United States,
Canada, Finland, Norway and Sweden) shipments of market pulp for 1999 increased
7% compared with 1998, and inventories declined to 1.1 million metric tons, or a
17-day supply. As a result of these strong market conditions, Bowater
implemented several market pulp price increases throughout 1999 and announced
additional price increases of $30 per metric ton effective January 1, 2000 and
$40 per metric ton effective April 1, 2000. The average transaction price for
our market pulp increased 6% compared with 1998. Our shipments increased 51% in
1999 compared with last year, primarily due to the acquisition of Avenor in July
1998. Our market pulp inventories declined significantly at the end of 1999
compared with the end of 1998.
Lumber United States demand for lumber was robust in 1999. Lumber pricing peaked
at midyear, supported by 1999 housing starts of approximately 1.7 million units,
the highest level since 1986. Prices stabilized in the fourth quarter, returning
to beginning of year levels by the end of 1999. Bowater's average transaction
price for lumber in 1999 was 4% higher than in 1998. Our shipments of lumber
declined slightly, due primarily to the sale of the Pinkham Lumber Company in
March 1999. This decrease was partially offset by higher production rates at our
sawmills and the inclusion of production from the Avenor sawmill acquired in
July 1998.
Timber Demand was mixed across Bowater's timber operations. Despite an increase
in higher-value sawtimber, average transaction prices declined 8% compared with
1998 prices due to lower demand in the southeast United States timber markets
and our sale of timberlands in the state of Maine. Shipments of our timber
products increased 10% in 1999 compared with 1998, due to benefits from an
increased focus on external sales and productivity gains through more intensive
forest management practices.
13
BOWATER 1999 ANNUAL REPORT
<PAGE> 16
BUSINESS AND FINANCIAL REVIEW
Divisional Performance:
Net Sales by Division(1):
<TABLE>
<CAPTION>
(In millions) 1999 1998
- ------------------------------------------------
<S> <C> <C>
Newsprint $1,524.0 $1,356.6
Coated Paper 467.0 474.1
Forest Products 141.4 147.1
Corporate/
other eliminations 2.3 17.2
- ------------------------------------------------
Total net sales $2,134.7 $1,995.0
================================================
</TABLE>
Operating Income (Loss) by Division(1):
<TABLE>
<CAPTION>
(In millions) 1999 1998
- -----------------------------------------------
<S> <C> <C>
Newsprint $ (98.0) $ 32.4
Coated Paper 72.2 107.4
Forest Products 320.9 67.0
Corporate/
other eliminations (51.1) (44.7)
- -----------------------------------------------
Total operating
income $ 244.0 $ 162.1
===============================================
</TABLE>
(1) Financial results for the production and sale of market pulp are included
in the Newsprint Division and the Coated Paper Division. The Pulp Division
is responsible for the marketing and distribution of the product and its
administrative expenses are included in "Corporate/other eliminations."
Newsprint Division Net sales for the Division increased during the year, from
$1.4 billion to $1.5 billion, primarily as a result of the acquisition of
Avenor and a South Korean newsprint mill in July 1998. This increase was mostly
offset by lower transaction prices for newsprint and the sale of GNP in August
1999. See the previous discussions of the newsprint, directory paper and market
pulp product line results. Operating income in 1999 decreased $130.4 million
from $32.4 million in 1998 to a loss of $98.0 million. During 1999, the
Division recorded a pre-tax impairment charge of $92.0 million and a pre-tax
loss of $47.1 million on the sale of GNP. Included in the 1998 results was a
pre-tax impairment charge of $119.6 million. Without these charges, operating
income decreased $110.9 million. This decrease was due to lower transaction
prices for newsprint and directory paper and higher operating costs as a result
of market-related downtime, which were partially offset by higher transaction
prices for market pulp and the realization of acquisition synergies.
Coated Paper Division Net sales decreased $7.1 million in 1999 compared with
1998, from $474.1 million to $467.0 million, primarily the result of lower
transaction prices for newsprint and coated groundwood paper. This decrease was
partially offset by higher average prices for market pulp and increased sales
volume. See the previous discussions of the newsprint, coated groundwood and
market pulp product line results. Operating income for the Division decreased
$35.2 million, from $107.4 million to $72.2 million, primarily the result of
lower transaction prices for newsprint and coated groundwood, partially offset
by higher average transaction prices for market pulp and increased sales
volume.
Forest Products Division Net sales for the Division in 1999 decreased $5.7
million compared with 1998, from $147.1 million to $141.4 million. This
decrease was due primarily to the sale of Pinkham Lumber and timberlands in the
states of Maine, North Carolina and South Carolina. See the previous
discussions of the lumber and timber product line results. Comparing the same
periods, operating income increased $253.9 million. Operating income for 1999
includes pre-tax gains on land sales of $272.5 million compared with a pre-tax
gain of $21.1 million for 1998. Excluding the land sale gains, operating income
increased $2.4 million. This increase was due primarily to higher transaction
prices for lumber, offset partially by lower transaction prices for timber.
Corporate/Other Eliminations Included in this category are general and
administrative expenses, as well as limited market pulp sales from the Gold
River pulp mill, which was permanently closed in February 1999. General and
administrative expenses for 1999 increased $6.4 million compared with 1998,
primarily due to the inclusion of the Pulp Division and other administration
expenses resulting from the purchase of Avenor in July 1998.
Interest and Other Income and Expenses:
Interest expense increased 29% in 1999, from $98.4 million to $126.7 million,
due to the increase in debt related to the Avenor acquisition. Interest income
decreased from $17.5 million in 1998 to $7.7 million in 1999, due to lower
average investment balances in 1999.
During 1999, Bowater incurred pre-tax foreign exchange gains of $33.4 million
compared with $29.7 million of foreign exchange losses in 1998. These gains
primarily relate to marking to market foreign exchange contracts in our Canadian
dollar hedging program during 1999 as the Canadian dollar strengthened against
the United States dollar. In 1998, we recorded a net pre-tax charge of $20.1
million related to currency options and forward contracts on the Canadian
dollar and Korean won and recorded a charge of $15.0 million for a reserve
against a long-term note receivable. All of these amounts are included on the
line titled "Other, net" in the Consolidated Statement of Operations.
14
BOWATER 1999 ANNUAL REPORT
<PAGE> 17
Provision for Income Taxes:
The effective tax rate in 1999 was 46%. This rate is lower compared with 1998
due to the lower level of profits in 1998. In 1999 and 1998, the effective tax
rates were higher compared with prior years due to adjustments made to the tax
provisions to reflect the non-deductibility of certain charges and allowances
for tax benefits not expected to be realized.
Fourth Quarter of 1999:
Net income in the fourth quarter of 1999 was $20.4 million, or $0.38 per diluted
share, on net sales of $525.0 million. This compares with net income in the
fourth quarter of 1998 of $25.9 million, or $0.45 per diluted share, on net
sales of $639.2 million.
In 1999, Bowater began reporting "Net gain on sale of assets" and capital tax
expense as components of operating income. Operating income in 1998 was
adjusted to conform to the 1999 presentation. Operating income for the fourth
quarter of 1999 was $73.5 million, which included net gains on the sale of
assets of $27.0 million. In the fourth quarter of 1999, Calhoun Newsprint
Company (CNC), a majority-owned subsidiary of Bowater, sold approximately
140,000 acres of timberlands in North Carolina and South Carolina for $173.2
million (before expenses of $1.1 million). Bowater received $26.2 million in
cash and $145.9 million in notes. We recorded the transaction as an installment
sale and as of December 31, 1999, recorded a pre-tax gain of $17.4 million.
Other timberland sales during the quarter resulted in an additional pre-tax
gain of $1.4 million. Also in the fourth quarter, we recorded closing
adjustments on the sale of GNP, resulting in a reduction of $8.1 million to the
pre-tax loss previously recorded. Excluding these gains, operating income for
the fourth quarter of 1999 was $46.5 million compared with $76.1 million in the
fourth quarter of 1998. The decrease in operating income was due to a 10%
decrease in the average transaction price of newsprint and lower shipments of
newsprint, market pulp and coated groundwood paper in the fourth quarter of
1999. Our cost of sales was lower in the fourth quarter of 1999, reflecting
the lower shipments.
Liquidity and Capital Resources: 1999 Compared with 1998
Bowater's cash, cash equivalents and marketable securities balance at year-end
1999 was $26.8 million, a decrease of $32.7 million from $59.5 million at
year-end 1998.
Cash and cash equivalents decreased $33.6 million, from $58.3 million at
year-end 1998 to $24.7 million at year-end 1999. Bowater generated $147.0
million of cash from operations and $258.7 million of cash from investing
activities, while it used $439.3 million for financing activities. Aside from
cash flow from operations, capital expenditures and changes in investments and
borrowings, Bowater had several other significant cash transactions during 1999.
Cash proceeds include $382.2 million from the sale of 1.8 million acres of
timberlands in Maine, North Carolina and South Carolina and $108.0 million from
the sale of GNP. Cash payments were made for the following purposes: (1) $37.4
million on the maturity of Canadian currency hedging contracts; (2) $15.9
million for quarterly dividends to the minority shareholder of CNC; (3) $65.9
million for the redemption of the 7.50% Convertible Unsecured Subordinated
Debentures; (4) $26.4 million for the redemption of the remaining shares of
8.40% Series C Preferred Stock; and (5) $109.2 million for common stock
purchases.
Cash from Operating Activities:
Bowater generated cash of $147.0 million from operating activities in 1999,
compared with $274.1 million in 1998. The decrease of $127.1 million in 1999
reflects lower operating income (excluding the gains from the sale of
timberlands) in 1999 due to lower transaction prices for our newsprint and
coated groundwood paper products. Working capital needs were also higher in 1999
by $46.9 million.
Cash from Investing Activities:
Cash from investing activities in 1999 was $258.7 million versus a cash outflow
of $408.0 million in 1998. Bowater had significantly different investing
activities in 1999 versus 1998. In 1998, we acquired Avenor and a South Korean
newsprint mill for a total cash outflow of $876.0 million and sold the Dryden
white paper mill for proceeds of $532.5 million shortly after the Avenor
acquisition. In 1999, we sold GNP, resulting in cash proceeds of $108.0
million, and 1.6 million acres of timberlands in the state of Maine for net
proceeds of $356.0 million. An additional 140,000 acres of timberlands were
sold in North Carolina and South Carolina for $173.2 million (before expenses
of $1.1 million). We received cash of $26.2 million and recorded notes
receivable of $145.9 million. In 1998, we sold 26,000 acres of timberlands
resulting in proceeds of $30.9 million. Capital expenditures in 1999 totaled
$198.5 million, $24.7 million lower than 1998 capital expenditures of $223.2
million. Capital expenditures were higher in 1998 due to the modernization of
the Calhoun, Tennessee, newsprint facility. We anticipate capital spending of
approximately $250.0 million in 2000. Cash paid on the maturity of hedging
contracts in our Canadian dollar hedging program totaled $37.4 million in 1999
versus $27.9 million in 1998. Also in 1998, we purchased Canadian dollar option
contracts for the
15
BOWATER 1999 ANNUAL REPORT
<PAGE> 18
Business and Financial Review
pending acquisition of Avenor for $22.7 million. Cash invested in marketable
securities in 1999 was $10.6 million compared with $41.9 million in 1998, while
cash from the maturity of marketable securities in 1999 was $9.7 million
compared with $217.4 million in 1998.
Several years ago, Bowater undertook an initiative to eliminate non-strategic
assets, including non-strategic timberland tracts. Since 1996, we have sold
approximately 2.2 million acres of timberlands throughout the United States and
Canada, with cash proceeds totaling approximately $415.0 million. Currently, we
own or lease 1.8 million acres of timberlands in the United States and Canada
and have timber cutting rights on an additional 14.2 million acres in Canada.
Our Forest Products Division periodically reviews timberland holdings and sells
timberlands considered to be non-strategic tracts.
Cash from Financing Activities:
Cash flow used for financing activities was $439.3 million in 1999, $402.8
million higher than the amount spent in 1998. During 1999, Bowater made net
payments of $195.0 million on its short-term credit facility while, in 1998, we
had net borrowings of $206.3 million, which were used to partially fund the
Avenor and South Korean newsprint mill acquisitions. In 1999, we also reduced
our long-term borrowings by $27.6 million, which included a payment of $8.0
million on our 8.25% Notes and a repurchase of $13.9 million (including premium
and accrued interest) of our 9.25% Debentures. In January 2000, we repurchased
an additional $19.8 million of our 9.25% Debentures. In 1998, we repaid $91.1
million of our long-term borrowings, which included $75.9 million on our 10.25%
Debentures. During 1999, we received cash proceeds of $32.8 million from
revenue bonds issued by the Industrial Development Board of the County of
McMinn, Tennessee, in conjunction with the modernization of our Calhoun,
Tennessee, newsprint facility. Cash dividends in 1999 of $60.6 million were
slightly lower than 1998.
In April 1999, Bowater completed its 1997 stock repurchase program, purchasing
a total of 4.1 million shares at a cost of $165.1 million. Of this total, 1.4
million shares were purchased during 1999 at a cost of $57.4 million. In May
1999, the Board of Directors authorized a new stock repurchase program,
allowing us to repurchase up to an additional 5.5 million shares. As of
December 31, 1999, we purchased 1.0 million shares at a total cost of $51.8
million. In 1998, we purchased 2.4 million shares of our common stock at a
total cost of $98.1 million under the previous stock repurchase program.
In February 1999, Bowater redeemed for $26.4 million in cash all of the
remaining outstanding shares (and related 1.06 million depositary shares) of its
8.40% Series C Cumulative Preferred Stock, par value $1 per share. The Series C
Stock was redeemed for cash of $100.56 per share of Series C Stock ($25.14 per
depositary share), which is equal to $100 per share of Series C Stock ($25.00
per depositary share) plus accrued and unpaid dividends to, but not including,
the redemption date.
Also in February 1999, Bowater Pulp and Paper Canada Inc. (BPPCI) redeemed for
cash all of its outstanding 7.50% Convertible Unsecured Subordinated
Debentures, due February 8, 2004. Prior to redemption and at the option of each
holder, each C$100 principal amount of the Debentures was convertible into
either (1) 2.191 exchangeable shares of Bowater Canada Inc. (BCI, an indirect
wholly owned subsidiary of Bowater) or (2) C$79.54 together with 1.0955 of the
exchangeable shares. As a result of the redemption and conversions immediately
prior to the redemption, BPPCI paid $65.9 million in cash, and BCI issued 1.4
million exchangeable shares.
We continually consider various options for the use of our cash, including
internal capital investments, share repurchases, investments to grow our
primary product lines and additional debt reductions.
Dispositions
In March 1999, Bowater completed the sale of 981,000 acres of timberlands in
the state of Maine and Pinkham Lumber for $216.5 million. In April 1999, we
completed the sale of 650,000 acres of timberland in the state of Maine for
$150.0 million. We recorded a pre-tax gain on these transactions of $253.7
million, or $2.81 per diluted share after tax.
In August 1999, we completed the sale of GNP for $250.0 million, consisting of
cash ($108.0 million, net of expenses), a note ($10.0 million) and the
assumption of certain liabilities ($130.0 million). We recorded a pre-tax loss
of $47.1 million, or $0.58 per diluted share after tax on the sale.
In November 1999, CNC sold 140,000 acres of timberlands in North Carolina and
South Carolina for $173.2 million (before expenses of $1.1 million). We
received $26.2 million in cash and $145.9 million in notes. We recorded the
transaction as an installment sale and as of December 31, 1999, recorded a
pre-tax gain of $17.4 million, or $.09 per diluted share after tax and minority
interest.
Environmental Items
Bowater is subject to a variety of federal, state and provincial environmental
laws and regulations in the jurisdictions in which it operates. We believe our
operations are in substantial compliance with current applicable environmental
laws and regulations.
16
BOWATER 1999 ANNUAL REPORT
<PAGE> 19
In April 1998, the United States Environmental Protection Agency (EPA)
promulgated new air and water quality regulations for the paper industry. These
regulations, known as the "Cluster Rule," are aimed at further reductions of
certain environmental emissions. Programs are underway to bring Bowater's
facilities at Calhoun, Tennessee, and Catawba, South Carolina, into compliance
with these future regulations. We anticipate spending approximately $150 to $200
million over the next five years to comply with the new air quality standards
and the new effluent guidelines, with the majority of this capital expected to
be spent at our Catawba facility. We are considering an expanded project at
Catawba to include additional capital for the modernization of a major portion
of its kraft mill. This expanded project would allow the mill to comply with the
new regulations as well as improve its overall operating efficiencies. Although
cost estimates for the expanded project are not yet final, the amount that will
be spent to comply with environmental regulations for the new air and water
standards at this site is included in the above estimate of approximately $150
to $200 million.
Bowater recently approved an expenditure of approximately $88.0 million to
install a new kraft recovery boiler at our Thunder Bay, Ontario, facility. When
this recovery boiler is operational in mid-2001, it will improve the facility's
rate of discharge for both air and particulate emissions, as well as improve
mill operating efficiencies. This amount is not included in the estimate above.
In addition to the projects mentioned above, we anticipate spending
approximately $15.0 to $20.0 million of capital per year for all of our
facilities for the foreseeable future to maintain compliance with existing
environmental regulations. While it is difficult to predict with certainty the
nature of future environmental regulations, we believe that we will not be at a
competitive disadvantage in meeting future United States, Canadian or Korean
standards.
Bowater 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 future
cash flow, financial condition or results of operations.
Year 2000 Compliance
During the past three years, Bowater concentrated its efforts on defining and
minimizing risks associated with its computerized systems in anticipation of the
year 2000. Comprehensive reviews of our business systems, manufacturing
systems, safety and environmental related systems, business partners, customers
and suppliers were completed during 1999. This included testing and
implementing corrective measures. During 1999, we also developed and tested
contingency plans covering all significant business functions and sites for use
in 2000 and beyond in the event any aspect of our year 2000 compliance program
proves to be ineffective in resolving year 2000 compliance issues. As of March
1, 2000, we have not experienced any year 2000 transition problems. The total
amount spent on year 2000 remediation was approximately $7.9 million, excluding
internal costs such as payroll costs for our information systems group.
Adoption of Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires a public company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
We are required to adopt this standard by the first quarter of 2001. We have not
yet assessed the impact this standard will have on our financial condition or
results of operations at the time of adoption; however, the impact will
ultimately depend on the amount and type of derivative instruments we hold at
the time of adoption.
Historical Reference: Results of Operations 1998 Compared with 1997
Bowater's net loss for 1998 was $18.5 million, or $0.44 per diluted share,
compared with net income of $53.7 million, or $1.25 per diluted share, in 1997.
Included in the net loss for 1998 were after-tax non-operating charges of $88.0
million, or $1.85 per diluted share, to reduce the book value of assets at our
Millinocket, Maine, mill in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long- Lived Assets to Be Disposed Of," and
to record a reserve against a long-term note receivable. Operating income was
$162.1 million in 1998 on net sales of $2.0 billion, compared with $136.5
million on net sales of $1.5 billion in 1997. The increases in operating income
and net sales were primarily due to the inclusion of two newly acquired
operations for a portion of the year. We acquired Avenor on July 24, 1998, and
a South Korean newsprint mill on July 15, 1998.
Presented below is a discussion of each significant product line followed by a
discussion of the results of each of the reported divisions.
Product Line Information:
Newsprint In 1998, conditions in the newsprint market were affected by labor
strikes in Canada and financial and economic difficulties in key Asian markets.
Approximately 1.0 million metric tons of newsprint capacity were impacted in
1998 by labor strikes at two large Canadian newsprint producers. The reduction
in supply caused
17
BOWATER 1999 Annual Report
<PAGE> 20
BUSINESS AND FINANCIAL REVIEW
by these strikes was offset by the economic problems that plagued Asia
throughout the year. This resulted in North American newsprint exports that were
down 22% for the year and newsprint imports to the United States that were more
than double the 1997 level as United States producers for the Asian market
redirected their tonnage to other regions. Total United States demand for
newsprint and United States consumption increased in 1998 compared with 1997.
Despite this, North American newsprint producer inventories at year-end also
increased when compared with the end of 1997, while year-end inventories at
United States daily newspapers decreased slightly. Bowater announced a newsprint
price increase for April 1998 and then postponed it to later in the year.
Although partially implemented by the fourth quarter, we rescinded it after
settlement of the labor strikes at our competitors' mills in Canada. Our average
newsprint transaction price in 1998 was 4% higher than in 1997, reflecting a
full year of the price increases that we implemented in 1997. Our shipments were
46% higher in 1998 versus 1997, and our inventories were also higher due to the
inclusion, beginning in the third quarter, of Avenor and the South Korean
newsprint mill.
Coated Groundwood In the first half of 1998, the coated groundwood paper market
continued to benefit from the improved environment of 1997. During the year,
end-use markets grew with the catalog segment increasing 6% (measured by
standard A mail weight) and magazine publishers increasing advertising pages by
2%. The second half of 1998, however, was marked by declines in coated
groundwood paper pricing as the supply of coated groundwood paper outpaced
demand due to a higher volume of coated groundwood paper imports and increased
capacity among producers of competing printing and writing papers. Comparing
the full year of 1998 with 1997, United States coated groundwood shipments for
the industry decreased 3% while United States coated groundwood producer
inventory levels increased an average of 4%. In January 1998, Bowater
successfully implemented a $60 per ton price increase. Our quarterly average
coated groundwood transaction price for the first three quarters of 1998 was
relatively unchanged following the January price increase, while the fourth
quarter average price declined due to the higher supply versus demand. Compared
with 1997, our average transaction price for 1998 was 14% higher, while
shipments increased slightly. Our coated groundwood inventory at the end of
1998 was at its lowest level since 1992.
Directory Paper Sales of Bowater's directory products in 1998 were at
essentially the same levels as in 1997. Our average directory paper transaction
price decreased 2% compared with 1997, reflecting the relatively stable market
environment for directory papers in 1998. Directory prices generally trend
similarly to newsprint pricing, but with a lag due to the contractual nature of
the directory business.
Market Pulp World pulp markets experienced difficult conditions during 1998 as
the effect of the Asian economic crisis impacted operating rates, shipments and
prices. During the first quarter, demand for market pulp was unchanged compared
to the first quarter of 1997. In the second and third quarters, the full impact
of the Asian crisis reduced demand, as NORSCAN (United States, Canada, Finland,
Norway and Sweden) shipments to the Asian region decreased approximately 30%
compared with the respective quarters in 1997. Despite reduced industry
operating rates of 87% during the second and third quarters of 1998, inventories
at the end of the third quarter increased by 230,000 metric tons compared with
the third quarter of 1997. In the fourth quarter, demand from the Asian region
increased; however, this demand did not make up the shortfall created in the
previous quarters. NORSCAN shipments for 1998 decreased 4% compared with 1997,
with the majority of the decrease coming from the Asian region. NORSCAN
inventories ended the year at 1.6 million metric tons, or a 27-day supply, down
from a 31-day supply in December 1997. As a result of these market conditions,
Bowater's market pulp average transaction price in 1998 decreased 5% compared
with 1997. Our shipments increased 66% in 1998, compared with last year,
primarily due to the Avenor acquisition.
Lumber United States lumber prices declined throughout 1998 as supply outpaced
demand. Indicators for the United States market were positive, with 1998
housing starts increasing to 1.6 million units from 1.4 million units in 1997,
and expenditures for the repair and remodeling markets also increasing in 1998.
These positive indicators were offset by a steep decline in Japanese housing
construction caused by the Asian economic crisis. This decrease in export
demand resulted in a 36% reduction in exports through the first 10 months of
1998 compared to the year ago period and a reduction in export lumber prices as
well. United States consumption in 1998, although strong, was not able to
absorb the excess supply. Bowater's average lumber transaction price declined
throughout the year and was 18% lower in 1998 than in 1997. Our shipments were
17% higher in 1998 versus 1997, primarily due to the inclusion of lumber from
the newly acquired Canadian operations and higher production rates.
18
BOWATER 1999 ANNUAL REPORT
<PAGE> 21
Timber Demand for Bowater's timber products remained strong in 1998. Average
transaction prices for our primary species of southern pine and spruce-fir
increased compared with 1997. This increase was partially offset by a change in
mix that caused 1998 pricing in total to be only slightly higher than 1997. Our
shipments in 1998 also increased compared with 1997, mainly from the inclusion
of timber products from the Avenor acquisition and the application of intensive
forest management practices. Our operating income per acre increased 14% in
1998 compared with 1997.
Divisional Performance:
Net Sales by Division(1):
<TABLE>
<CAPTION>
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Newsprint &
Directory $ 1,356.6 $ 886.8
Coated Paper 474.1 458.4
Forest Products 147.1 139.8
Corporate/
other eliminations 17.2 (0.5)
----------------------------------------------------------------------
Total net sales $ 1,995.0 $ 1,484.5
======================================================================
</TABLE>
Operating Income (Loss) by Division(1):
<TABLE>
<CAPTION>
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Newsprint &
Directory $ 32.4 $ 30.0
Coated Paper 107.4 91.2
Forest Products 67.0 58.2
Corporate/
other eliminations (44.7) (42.9)
- -----------------------------------------------------------------------
Total operating
income $ 162.1 $ 136.5
=======================================================================
</TABLE>
(1) Financial results for the production and sale of market pulp are included
in the Newsprint & Directory Division and the Coated Paper Division. The
Pulp Division is responsible for the marketing and distribution of the
product and its administrative expenses are included in "Corporate/other
eliminations."
Newsprint & Directory Division In July 1998, this Division added five new
manufacturing sites with the acquisitions of Avenor and a South Korean
newsprint mill. Net sales for the Division increased 53% during the year, from
$886.8 million in 1997 to $1.4 billion in 1998, primarily as a result of adding
the new sites, aided by slightly higher average prices for newsprint and coated
groundwood paper and offset by slightly lower average prices for market pulp
and directory paper. See the previous discussion of product line results.
Operating costs in 1998 increased from $856.8 million in 1997 to $1.3 billion,
primarily as a result of adding the new sites. Operating income in 1998
increased 8% from $30.0 million in 1997 to $32.4 million, primarily as a result
of increased shipments of newsprint and market pulp from the acquisitions,
offset by a $119.6 million pre-tax charge to reduce the book value of assets at
the Division's Millinocket, Maine, mill.
Coated Paper Division Net sales increased by 3% in 1998 compared with 1997,
from $458.4 million to $474.1 million, primarily the result of marginally
higher average prices for newsprint and coated groundwood paper and offset by
lower average prices for market pulp. See the previous discussion of product
line results. Comparing the same periods, operating costs decreased slightly,
while operating income increased 18% from $91.2 million to $107.4 million,
primarily as a result of higher average coated groundwood paper prices.
Forest Products Division This Division was formed in mid-1997. Financial results
for 1997 have been restated on a pro forma basis for comparative purposes.
Prior to 1997, the woodlands operations were part of the other Divisions. In
July 1998, the Avenor acquisition added approximately 475,000 acres of freehold
timberland, three sawmills and over 18 million acres of cutting rights in
Canada. In the third quarter of 1998, a white paper mill and two sawmills were
sold along with 4.3 million acres of cutting rights. In the fourth quarter of
1998, the Division entered into contracts to sell approximately 1.6 million
acres of land and a sawmill in Maine for $366.5 million. These sales were
completed in the first quarter of 1999. Net sales for the Division in 1998
increased 5% compared with 1997, from $139.8 million to $147.1 million. See the
previous discussion of product line results. Comparing the same periods,
operating costs increased primarily due to the inclusion of the Avenor
operations. Operating income increased 15% in 1998 compared with 1997, from
$58.2 million to $67.0 million, primarily due to a 1998 gain on the sale of
timberlands of $21.1 million, partially offset by lower sawmill profitability.
19
BOWATER 1999 ANNUAL REPORT
<PAGE> 22
BUSINESS AND FINANCIAL REVIEW
Corporate/Other Eliminations Included in this category are general and
administrative expenses as well as market pulp sales from the Gold River pulp
mill, which was permanently closed in February 1999. Losses on the sales of
market pulp were partially offset by lower general and administrative expenses.
Interest and Other Income
and Expenses:
Interest expense increased 46% in 1998, from $67.5 million to $98.4 million,
due to the increase in debt related to the Avenor acquisition. Interest income
decreased from $21.6 million in 1997 to $17.5 million in 1998, due to lower
average investment balances in 1998. The cash from the maturity of marketable
securities was used to partially fund the acquisitions of Avenor and a South
Korean newsprint mill.
During 1998, Bowater incurred pre-tax foreign exchange losses of $29.7 million
compared with $2.1 million in 1997. This loss primarily relates to marking to
market foreign exchange contracts that were acquired upon the acquisition of
Avenor. Also in 1998, we recorded a net pre-tax charge of $20.1 million related
to currency options and forward contracts on the Canadian dollar and Korean won
that were purchased to hedge a substantial portion of the acquisition prices of
Avenor and a South Korean newsprint mill. Both of these charges are included in
"Other, net" in the Consolidated Statement of Operations along with a charge of
$15.0 million for a reserve against a long-term note receivable.
Provision for Income Taxes:
The effective tax rate in 1997 was 37%. In 1998, the effective tax rate was
much higher due to adjustments made to the tax provision to reflect the
non-deductibility of certain charges and allowances for tax benefits not
currently expected to be realized.
Liquidity and Capital Resources: 1998 Compared with 1997
Bowater's cash, cash equivalents and marketable securities balance at year-end
1998 was $59.5 million, a decrease of $346.0 million from $405.5 million at
year-end 1997.
Cash and cash equivalents decreased to $58.3 million at year-end 1998, from
$228.7 million at year-end 1997, a decrease of $170.4 million. Bowater
generated $274.1 million of cash from operations while we used $408.0 million
for investing activities and $36.5 million for financing activities. Aside from
cash flow from operations, capital expenditures and changes in investments and
borrowings, we had several other significant cash transactions since December
31, 1997. These transactions include: cash paid of $675.0 million for the
purchase of Avenor; cash paid of $201.0 million for the purchase of a South
Korean newsprint mill; the sale of a white paper mill and related assets
(formerly owned by Avenor) with cash proceeds of $532.5 million; the sale of
26,000 acres of non-strategic timberlands with cash proceeds of $30.9 million;
the purchase of currency options on the Canadian dollar for $22.7 million to
hedge our acquisition of Avenor; cash of $27.9 million paid on the maturity of
hedging contracts; cash of $24.3 million for quarterly dividend payments to the
minority shareholder of CNC; cash of $75.9 million for the tender offer of the
10.25% Debentures; and common stock purchases requiring cash of $98.1 million.
Cash from Operating Activities:
Bowater generated cash of $274.1 million from operating activities in 1998,
compared with $195.6 million in 1997. The increase of $78.5 million reflects the
additional volumes of product sold as a result of the acquisitions, offset by
$25.5 million of higher working capital needs.
Cash from Investing Activities:
Cash used for investing activities in 1998 was $408.0 million versus a cash
inflow of $72.7 million in 1997. Excluding the acquisition of Avenor and a South
Korean newsprint mill, capital expenditures in 1998 totaled $223.2 million.
This was significantly higher than the year ago spending of $99.6 million,
primarily due to the modernization of the Calhoun, Tennessee, newsprint
facility. In July 1998, we acquired Avenor and a South Korean newsprint mill,
requiring total cash outflows of $876.0 million. During the third quarter, we
sold the white paper mill and related assets formerly owned by Avenor for
$532.5 million. Earlier in the year, we also sold 26,000 acres of non-strategic
timberlands resulting in proceeds of $30.9 million. In 1998, we realized a net
cash flow of $175.5 million from the maturity of marketable securities compared
with $168.6 million in 1997. Offsetting this was a cash outflow of $22.7 million
for the purchase of currency options on the Canadian dollar to hedge our
acquisition of Avenor and $27.9 million of cash paid upon the maturity of
hedging contracts with a nominal value of $359.0 million, which were part of a
$1.6 billion hedging program maintained by Avenor prior to the acquisition.
Several years ago, Bowater undertook an initiative to eliminate non-strategic
assets, including non-strategic timberland tracts. From 1995 through 1998, we
sold 148,000 acres of timberlands throughout the United States and Canada with
gross proceeds totaling approximately $153.9 million. Our Forest Products
Division periodically reviews timberland holdings and sells timberlands
considered to be non-strategic tracts.
Cash from Financing Activities:
Cash flow used for financing activities was $36.5 million in 1998, $88.4 million
lower than the amount spent in 1997. During 1998, Bowater borrowed $766.3
million, net of financing fees, from its $1.0 billion credit
20
BOWATER 1999 ANNUAL REPORT
<PAGE> 23
facility mainly to fund the acquisition of Avenor. During the year, we repaid
$560.0 million of the borrowing. On December 31, 1998, the amount outstanding
on the credit facility totaled $210.0 million. Cash dividends in 1998 of $62.1
million were slightly higher than 1997. In November 1997, we announced the
adoption of a new stock repurchase program, authorizing us to repurchase up to
4.1 million shares of our outstanding common stock in the open market or in
privately negotiated transactions subject to normal trading restrictions. As of
December 31, 1998, we had purchased 2.6 million shares at a total cost of $107.7
million, of which 2.4 million shares were purchased at a cost of $98.1 million
in 1998. As of March 1, 1999, an additional 622,700 shares were purchased at a
cost of $24.8 million. In 1997, we purchased a total of 1.6 million shares at a
cost of $66.8 million. Cash received from the exercise of stock options in 1998
was $17.7 million lower than in 1997. Also in 1997, we redeemed for cash the
remaining 500,000 outstanding shares of LIBOR Preferred Stock at a cost of $25.0
million. Bowater continues to consider the most effective use of its cash to be
for internal capital investments, share repurchases, investments to grow the
company's primary product lines and additional debt reductions.
During 1998, Bowater repaid $91.1 million of its long-term borrowings versus
$1.8 million in 1997. On December 18, 1998, BPPCI completed an offer to
purchase its outstanding 10.25% Debentures due 2003 and accepted for purchase
approximately $65.0 million of the $72.0 million principal amount of Debentures
previously outstanding, for an aggregate purchase price of $75.9 million
($1,169.31 per $1,000 principal amount, plus accrued interest). Additionally,
BPPCI received the required number of consents of holders of the remaining
outstanding Debentures to execute an amendment that eliminates a covenant that
limited BPPCI's ability to pay cash dividends. BPPCI has executed a
supplemental indenture effecting the elimination of this covenant. These
actions will allow for more flexible management of cash across the entire
Bowater organization.
In February 1999, Bowater redeemed for $26.6 million in cash all of the
remaining outstanding shares (and related 1.06 million depositary shares) of
its 8.40% Series C Cumulative Preferred Stock, par value $1 per share. The
Series C Stock was redeemed for cash of $100.56 per share of Series C Stock
($25.14 per depositary share), which is equal to $100 per share of Series C
Stock ($25.00 per depositary share) plus accrued and unpaid dividends to, but
not including, February 8, 1999.
Also in February 1999, BPPCI redeemed for cash all of its outstanding 7.50%
Convertible Unsecured Subordinated Debentures, due February 8, 2004 (originally
issued in the aggregate principal amount of C$125.4 million). BPPCI will benefit
from the reduction of interest expense associated with the Debentures. Prior to
redemption and at the option of each holder, each C$100 principal amount of the
Debentures was convertible into either (1) 2.191 exchangeable shares of BCI or
(2) C$79.54 together with 1.0955 of the exchangeable shares. As a result of the
redemption and conversions immediately prior to the redemption, BPPCI paid
$65.9 million in cash, and BCI issued 1.4 million exchangeable shares.
Acquisitions and Dispositions in 1998
On July 15, 1998, Bowater completed the acquisition of a newsprint mill located
on the southwest coast of South Korea. Using our existing cash reserves, we
purchased the production assets of the mill for $201.0 million and prepaid the
majority of the current accounts payable for $22.0 million as required by the
court in the seller's bankruptcy proceedings. Upon acquisition, the South
Korean newsprint mill was free and clear of all indebtedness.
On July 24, 1998, we completed the acquisition of Avenor. The purchase price,
including assumed debt, totaled $2.37 billion (C$3.54 billion), or $23.46
(C$35.00) per Avenor common share. We utilized approximately $168.0 million of
our existing cash reserves and approximately $625.0 million of our new $1.0
billion credit facility to fund the cash portion of the transaction. In
addition, we issued 12.3 million common shares, and our indirect wholly owned
subsidiary, BCI, issued 3.8 million exchangeable shares to fund the equity
portion of the transaction. Exchangeable shares are exchangeable on a
one-for-one basis for Bowater Incorporated common stock.
On September 30, 1998, Bowater sold the white paper mill and related assets in
Dryden, Ontario, which were acquired as part of the acquisition of Avenor. A
substantial portion of the proceeds of $532.5 million was used to repay our
borrowings under the $1.0 billion credit facility.
In October 1998, Bowater announced that its Gold River pulp mill in British
Columbia, which had been shut down since August 1998 due to market conditions,
would be permanently closed effective February 16, 1999. The costs associated
with closing this facility ($40.0 million after tax), which was acquired as
part of the Avenor acquisition, were recorded as an adjustment to the cost of
the acquisition by increasing goodwill.
21
BOWATER 1999 ANNUAL REPORT
<PAGE> 24
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(In millions, except per-share amounts)
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 2,311.7 $ 2,142.7 $ 1,598.9
Distribution costs 177.0 147.7 114.4
- ----------------------------------------------------------------------------------------------------------
NET SALES 2,134.7 1,995.0 1,484.5
Cost of sales 1,625.2 1,422.2 1,106.8
Depreciation, amortization and cost of timber harvested 300.2 229.6 169.8
Selling and administrative expense 98.7 82.6 72.2
Impairment of assets 92.0 119.6 --
Net gain on sale of assets 225.4 21.1 0.8
- ----------------------------------------------------------------------------------------------------------
OPERATING INCOME 244.0 162.1 136.5
Other expense (income):
Interest income (7.7) (17.5) (21.6)
Interest expense, net of capitalized interest 126.7 98.4 67.5
Other, net (30.8) 65.6 1.1
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 155.8 15.6 89.5
Provision for income tax expense 71.5 25.9 33.1
Minority interests in net income of subsidiaries 5.6 8.2 2.7
- ----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 78.7 (18.5) 53.7
- ----------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 2.8 (4.1) (2.5)
Minimum pension liability adjustments,
net of taxes of $5.0, $6.0 and $0.4, respectively 7.8 (9.3) (0.6)
- ----------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 89.3 $ (31.9) $ 50.6
- ----------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic earnings per common share:
Net income (loss) $ 1.43 $ (0.44) $ 1.26
- ----------------------------------------------------------------------------------------------------------
Average common shares outstanding 54.2 47.6 40.3
- ----------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Net income (loss) $ 1.41 $ (0.44) $ 1.25
- ----------------------------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding 55.0 47.6 40.8
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
BOWATER 1999 ANNUAL REPORT
<PAGE> 25
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In millions, except share amounts)
At December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24.7 $ 58.3
Marketable securities 2.1 1.2
Accounts receivable, net 314.3 372.4
Inventories 145.4 186.3
Other current assets 46.0 77.8
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 532.5 696.0
- -------------------------------------------------------------------------------------------------------------------------
Timber and timberlands 283.2 472.8
Fixed assets, net 2,581.3 2,885.2
Notes receivable 146.0 --
Goodwill 870.6 921.7
Other assets 138.6 116.3
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,552.2 $ 5,092.0
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt $ 35.5 $ 86.2
Short-term bank debt 15.0 210.0
Accounts payable and accrued liabilities 336.4 465.0
Dividends payable 10.9 11.9
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 397.8 773.1
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current installments 1,454.6 1,534.6
Other long-term liabilities 326.1 356.3
Deferred income taxes 481.4 522.2
Minority interests in subsidiaries 121.5 128.8
Commitments and contingencies (See note 17) -- --
SHAREHOLDERS' EQUITY:
Cumulative preferred stock, $1 par value. Issued, 8.40% Series C,
264,318 shares at December 31, 1998 -- 25.5
Common stock, $1 par value. Authorized 100,000,000 shares; issued 60,828,440
and 58,981,998 shares at December 31, 1999 and 1998, respectively 60.8 59.0
Exchangeable shares, no par value. Unlimited shares authorized; outstanding and held by
non-affiliates, 2,164,377 and 2,270,525 at December 31, 1999 and 1998, respectively 105.4 110.8
Additional paid-in capital 1,315.4 1,230.2
Retained earnings 691.8 657.4
Accumulated other comprehensive income (loss) (18.3) (28.9)
Loan to ESOT (0.7) (2.6)
Treasury stock at cost, 9,512,499 and 7,046,397 shares at December 31, 1999
and 1998, respectively (383.6) (274.4)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,770.8 1,777.0
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,552.2 $ 5,092.0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
23
BOWATER 1999 ANNUAL REPORT
<PAGE> 26
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
<TABLE>
<CAPTION>
Series C
LIBOR Cumulative
Preferred Preferred Common
(In millions, except per-share amounts) Stock Stock Stock
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $24.7 $25.5 $44.0
Net income -- -- --
Dividends on:
Common ($0.80 per share) -- -- --
LIBOR ($0.79 per share) -- -- --
Series C ($8.40 per share) -- -- --
Increase in stated value of LIBOR preferred stock 0.3 -- --
Reduction in loan to ESOT -- -- --
Foreign currency translation -- -- --
Stock options exercised -- -- 0.9
Tax benefit on exercise of stock options -- -- --
Redemption of LIBOR preferred stock (25.0) -- --
Pension plan additional minimum liability, net of tax benefit of $0.4 -- -- --
Purchase of common stock -- -- --
- -----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ -- $25.5 $44.9
Net loss -- -- --
New issuance of stock -- -- 12.3
Retraction of exchangeable shares -- -- 1.5
Debt conversions to exchangeable shares -- -- --
Dividends on:
Common ($0.80 per share) -- -- --
Series C ($8.40 per share) -- -- --
Reduction in loan to ESOT -- -- --
Foreign currency translation -- -- --
Stock options exercised -- -- 0.3
Tax benefit on exercise of stock options -- -- --
Pension plan additional minimum liability, net of tax benefit of $6.0 -- -- --
Purchase of common stock -- -- --
- -----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $ -- $25.5 $59.0
Net income -- -- --
New issuance of exchangeable shares -- -- --
Retraction of exchangeable shares -- -- 1.5
Redemption of Series C preferred stock -- (25.5) --
Dividends on:
Common ($0.80 per share) -- -- --
Series C ($0.56 per share) -- -- --
Reduction in loan to ESOT -- -- --
Foreign currency translation -- -- --
Stock options exercised -- -- 0.3
Tax benefit on exercise of stock options -- -- --
Pension plan additional minimum liability, net of taxes of $5.0 -- -- --
Purchase of common stock -- -- --
- -----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ -- $ -- $60.8
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
BOWATER 1999 ANNUAL REPORT
<PAGE> 27
<TABLE>
<CAPTION>
Accumulated
Additional Other
Exchangeable Paid-in Retained Comprehensive Loan to Treasury
Shares Capital Earnings Income (Loss) ESOT Stock
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ -- $ 531.6 $698.4 $(12.4) $(6.3) $(109.5)
-- -- 53.7 -- -- --
-- -- (32.2) -- -- --
-- -- (0.4) -- -- --
-- -- (2.2) -- -- --
-- -- (0.3) -- -- --
-- -- -- -- 1.8 --
-- -- -- (2.5) -- --
-- 23.6 -- -- -- --
-- 7.9 -- -- -- --
- - - - - -
-- -- -- (0.6) -- --
-- -- -- -- -- (66.8)
- ----------------------------------------------------------------------------------------------------------
$ -- $ 563.1 $717.0 $(15.5) $(4.5) $(176.3)
-- -- (18.5) -- -- --
183.6 586.4 -- -- -- --
(73.1) 71.6 -- -- -- --
0.3 -- -- -- -- --
-- -- (38.9) -- -- --
-- -- (2.2) -- -- --
-- -- -- -- 1.9 --
-- -- -- (4.1) -- --
-- 6.5 -- -- -- --
-- 2.6 -- -- -- --
-- -- -- (9.3) -- --
-- -- -- -- -- (98.1)
- ----------------------------------------------------------------------------------------------------------
$110.8 $1,230.2 $657.4 $(28.9) $(2.6) $(274.4)
-- -- 78.7 -- -- --
66.2 -- -- -- -- --
(71.6) 70.1 -- -- -- --
-- -- (0.9) -- -- --
-- -- (43.3) -- -- --
-- -- (0.1) -- -- --
-- -- -- -- 1.9 --
-- -- -- 2.8 -- --
-- 10.4 -- -- -- --
-- 4.7 -- -- -- --
-- -- -- 7.8 -- --
-- -- -- -- -- (109.2)
- ----------------------------------------------------------------------------------------------------------
$105.4 $1,315.4 $691.8 $(18.3) $(0.7) $(383.6)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
25
BOWATER 1999 ANNUAL REPORT
<PAGE> 28
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(In millions)
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 78.7 $ (18.5) $ 53.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and cost of timber harvested 300.2 229.6 169.8
Deferred income taxes 5.5 (33.3) (3.3)
Minority interests in net income of subsidiaries 5.6 8.2 2.7
Net gain on sale of assets (225.4) (21.1) (0.8)
Write-down of assets due to impairment 92.0 119.6 --
Write-down of option contracts -- 22.7 --
Reserve for long-term note receivable -- 15.0 --
Changes in working capital:
Accounts receivable, net 12.8 5.2 (4.9)
Inventories 5.9 13.8 18.2
Accounts payable and accrued liabilities (110.8) (39.3) (42.7)
Income taxes payable (3.0) (27.9) 6.1
Other, net (14.5) 0.1 (3.2)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES 147.0 274.1 195.6
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Avenor, net of cash acquired of $118.0 -- (675.0) --
Acquisition of South Korean newsprint mill -- (201.0) --
Cash invested in fixed assets, timber and timberlands (198.5) (223.2) (99.6)
Disposition of fixed assets, timber and timberlands 387.5 33.8 3.7
Disposition of Dryden white paper mill -- 532.5 --
Disposition of Great Northern Paper 108.0 -- --
Cash invested in option contracts -- (22.7) --
Cash paid on maturity of hedging contracts (37.4) (27.9) --
Cash invested in marketable securities (10.6) (41.9) (291.0)
Cash from maturity of marketable securities 9.7 217.4 459.6
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH FROM (USED FOR) INVESTING ACTIVITIES 258.7 (408.0) 72.7
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends, including minority interests (60.6) (62.1) (57.6)
Purchase of common stock (109.2) (98.1) (66.8)
Short-term financing 284.1 766.3 --
Short-term financing repayments (479.1) (560.0) --
Long-term financing 32.8 -- --
Purchases/payments of long-term debt (27.6) (91.1) (1.8)
Stock options exercised 10.7 6.8 24.5
Redemption of Series C and LIBOR preferred stock (26.4) -- (25.0)
Redemption of 7.50% Convertible Unsecured Subordinated Debentures (65.9) -- --
Other 1.9 1.7 1.8
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (439.3) (36.5) (124.9)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (33.6) (170.4) 143.4
CASH AND CASH EQUIVALENTS:
Beginning of year 58.3 228.7 85.3
- ---------------------------------------------------------------------------------------------------------------------------
End of year $ 24.7 $ 58.3 $ 228.7
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest of $4.9, $4.5 and $0.6 $ (133.6) $ (82.1) $ (66.5)
Income taxes $ (51.8) $ (61.6) $ (30.3)
Noncash investing and financing activity:
Conversion of 7.50% Convertible Unsecured Subordinated Debentures
into exchangeable shares $ 66.2 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
BOWATER 1999 ANNUAL REPORT
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bowater Incorporated and Subsidiaries (Bowater). These financial statements are
expressed in United States dollars except where noted and have been prepared in
accordance with United States generally accepted accounting principles. All
consolidated subsidiaries are wholly owned with the exception of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------
Percent
Ownership
<S> <C>
------------------------------------------------------------
Bowater Maritimes Inc. 67
Calhoun Newsprint Company (CNC) 51
Bowater Mersey Paper Company, Ltd. (Mersey) 51
------------------------------------------------------------
</TABLE>
All significant intercompany transactions and balances have been eliminated.
Bowater also has a 40% interest in an unconsolidated entity, Ponderay Newsprint
Company, which is accounted for using the equity method.
CASH EQUIVALENTS
Cash equivalents generally consist of direct obligations of the United States
and Canadian governments and their agencies, investment-grade commercial paper
and other short-term investment-grade securities with original maturities of
three months or less. These investments are stated at cost, which approximates
market value.
MARKETABLE SECURITIES
Marketable securities generally consist of direct obligations of the United
States and Canadian governments and their agencies, investment-grade commercial
paper 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.
DERIVATIVE FINANCIAL INSTRUMENTS
Bowater manages certain foreign currency risks through the use of derivative
financial instruments that may include forward exchange contracts and currency
options. For derivative instruments designated as hedges and having a high
correlation with the underlying exposures, gains and losses from changes in
derivative fair values are deferred. Gains or losses upon settlement of
derivative positions when the underlying transaction occurs are recognized in
the Consolidated Statement of Operations. For derivative instruments lacking
high correlation characteristics necessary to qualify as hedges, gains and
losses from changes in derivative fair values are recognized in the Consolidated
Statement of Operations upon remeasurement at the close of each reporting
period. Amounts receivable or payable from derivative financial instruments
would be reported as "Other assets," or "Accounts payable and accrued
liabilities" and "Other long-term liabilities" in the Consolidated Balance
Sheet. Bowater's derivatives have various terms, none of which exceeds two
years. We do not use derivatives for trading purposes.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Bowater is required to adopt this standard
by the first quarter of 2001.
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Bowater accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less cost to sell.
27
BOWATER 1999 ANNUAL REPORT
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over 40 years, which is
the expected period to be benefited. Bowater assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future net cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting our average cost of funds.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the Consolidated Statement of Operations in the period that includes the
enactment date. Bowater has not provided income taxes on the undistributed
earnings of certain of its subsidiaries, as it has specific plans for
reinvestment of such earnings.
FOREIGN OPERATIONS
Financial statements of the majority of Bowater's Canadian and Korean operations
are prepared using the United States dollar as their functional currency.
Translation of the Canadian and Korean operations, as well as gains and losses
from non-United States dollar foreign currency transactions, such as those
resulting from the settlement of foreign receivables or payables, are reported
in the Consolidated Statement of Operations.
Translation of other foreign operations to United States dollars occurs using
the current exchange rate for balance sheet accounts and an average exchange
rate for results of operations. Translation gains or losses are recognized as a
component of equity in "Accumulated other comprehensive income (loss)."
STOCK OPTIONS
Bowater 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." We also provide 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, SAVINGS AND OTHER POSTRETIREMENT PLANS
Bowater has contributory and noncontributory pension plans that cover
substantially all employees. Our cash contributions to the plans are sufficient
to provide pension benefits to participants and meet the funding requirements of
ERISA and applicable Pension Benefits Acts in Canada. We also sponsor defined
benefit health care and life insurance plans for retirees at certain locations.
Net periodic costs are recognized as employees render the services necessary to
earn post-retirement benefits.
In addition to the pension plans, Bowater sponsors savings plans for
substantially all employees. Our contributions to these defined contribution
plans are expensed as incurred.
COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. This statement requires additional disclosures in
the consolidated financial statements and does not affect Bowater's financial
position or results of operations. Comprehensive income (loss) consists of net
income (loss), foreign currency translation adjustments and pension plan
additional minimum liability adjustments and is presented in the Consolidated
Statement of Operations. At December 31, 1999, "Accumulated other comprehensive
income (loss)" includes $(19.5) million for pension plan additional minimum
liabilities, $(6.4) million for foreign currency translation and $7.6 million
for taxes.
REVENUE RECOGNITION
Bowater ships all products directly from its manufacturing sites to a customer's
location or to a customer-designated site. We recognize revenue from product
sales upon shipment to our customers and when they assume risk of ownership.
BASIC AND DILUTED EARNINGS PER SHARE
Bowater 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 dilutive common share equivalents (stock
options and convertible debt).
28
BOWATER 1999 ANNUAL REPORT
<PAGE> 31
ENVIRONMENTAL COSTS
Bowater expenses environmental costs related to existing conditions resulting
from past or current operations and from which no current or future benefit is
discernible. Expenditures that extend the life of the related property are
capitalized. We determine our liability on a site-by-site basis and record a
liability at the time it is probable and can be reasonably estimated.
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.
RECLASSIFICATIONS
Certain prior-year amounts in the financial statements and the notes have been
reclassified to conform to the 1999 presentation.
2. ACQUISITIONS
On July 24, 1998, Bowater completed its acquisition of Avenor Inc., a Canadian
pulp and paper company. The total purchase price, including assumed debt of
approximately $800.0 million, totaled $2.37 billion (C$3.54 billion). The
purchase was made using existing cash reserves of $168.0 million and $625.0
million of a $1.0 billion credit facility. We also issued 12.3 million common
shares and 3.8 million exchangeable shares (See Note 20). At the option of the
holder, the exchangeable shares may be exchanged for Bowater common stock on a
one-for-one basis. We accounted for the transaction using the purchase method of
accounting. Accordingly, the assets and liabilities of the acquired business
were included in the Consolidated Balance Sheet and the operating results were
included in the Consolidated Statement of Operations beginning July 1998.
The purchase price to Avenor shareholders of $1,575.2 million was calculated as
follows:
<TABLE>
<S> <C>
-------------------------------------------------------------------------
(In millions)
-------------------------------------------------------------------------
Cash from cash and cash equivalents $ 168.0
Proceeds from $1.0 billion short-term credit facility 625.0
Issuance of 12.3 million Bowater shares at
$48.66 per share 598.6
Issuance of 3.8 million exchangeable shares
exchangeable into Bowater shares
at $48.66 per share 183.6
-------------------------------------------------------------------------
$ 1,575.2
=========================================================================
</TABLE>
The purchase price to Avenor shareholders, plus transaction costs and other
accrued liabilities, the excess of fair value of liabilities assumed over the
historical book value and the deferred tax effect of applying purchase
accounting at July 24, 1998, over the historical net assets of Avenor was
calculated as follows:
<TABLE>
<S> <C>
-------------------------------------------------------------------------
(In millions)
-------------------------------------------------------------------------
Purchase price to Avenor shareholders $ 1,575.2
Transaction costs 27.5
Additional accrued liabilities 119.8
Excess of fair value of long-term debt assumed
over historical value 154.3
Excess of fair value of convertible debt over
historical value 49.7
Deferred tax effect of applying purchase accounting 141.4
Less historical net assets (539.3)
-------------------------------------------------------------------------
$ 1,528.6
=========================================================================
</TABLE>
As of July 24, 1999, the excess purchase price was finalized and allocated as
follows:
<TABLE>
<S> <C>
-------------------------------------------------------------------------
(In millions)
-------------------------------------------------------------------------
Timber and timberlands $ 62.8
Fixed assets 432.4
Other assets 21.4
Assets held for sale, net of taxes of $61.5 100.5
Goodwill 911.5
-------------------------------------------------------------------------
$ 1,528.6
=========================================================================
</TABLE>
29
BOWATER 1999 ANNUAL REPORT
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fixed assets and other assets are being depreciated over 20 years. The
timber and timberlands costs are being amortized as timber is harvested. The
goodwill is being amortized on a straight-line basis over 40 years.
On September 30, 1998, we completed the sale of our Dryden white paper mill and
related assets, which were part of the Avenor acquisition, for $532.5 million.
Upon acquisition, the Dryden assets were accounted for as assets held for sale.
Therefore, no gain or loss was recorded upon the sale of such assets.
In October 1998, we announced that our Gold River pulp mill, which was acquired
as part of the Avenor acquisition and had been shut down due to market
conditions, would be permanently closed in the first quarter of 1999. The costs
associated with closing this facility totaled $65.0 million before tax and were
recorded as an adjustment to the cost of the acquisition by increasing goodwill.
These costs included asset impairment charges, employee termination costs and
environmental obligations.
Also, in July 1998, we completed the purchase of a South Korean newsprint mill
for approximately $201.0 million and prepaid a majority of the current accounts
payable for approximately $22.0 million. We utilized our existing cash reserves
to fund the acquisition. The investment was recorded at cost.
Assuming the acquisitions and divestiture had occurred on January 1, 1998,
unaudited pro forma financial results for the year ended December 31, 1998,
would have been as follows: net sales of $2,509.2 million, a net loss of $109.5
million and a diluted loss per share of $2.00.
3. IMPAIRMENT OF ASSETS
Great Northern Paper, Inc. (GNP) is composed of the East Millinocket mill, the
Millinocket mill, timberlands and hydro facilities. In January 1998, Bowater
decided to put its Millinocket mill up for sale along with certain related
assets, including related timberlands. In October 1998, we announced that we
would separately pursue monetization of timberland holdings in Maine. This
change in strategy prompted a reevaluation of the Millinocket mill assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." We determined fair value
using undiscounted future net cash flows. Accordingly, in the third quarter of
1998, we recorded a pre-tax impairment charge in our newsprint segment totaling
$119.6 million, consisting of a write-down of fixed assets of $108.8 million, a
mill stores inventory reserve of $7.0 million and an increase to other long-term
liabilities of $3.8 million.
During the second quarter of 1999, we signed an agreement with Inexcon Maine,
Inc. for the purchase of all of our assets at GNP. This agreement prompted an
evaluation of all the assets at GNP in accordance with SFAS No. 121. Based on
the proposed sale, the assets were written down to fair value, and we recorded a
pre-tax impairment charge in our newsprint segment of $92.0 million. In August
1999, we completed the sale of GNP.
4. NET GAIN ON SALE OF ASSETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
(In millions) 1999 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sale of timberlands $ 272.5 $ 21.1 $ 0.8
Loss on sale of GNP (47.1) -- --
------------------------------------------------------------------------
$ 225.4 $ 21.1 $ 0.8
========================================================================
</TABLE>
In the first quarter of 1999, Bowater sold approximately 981,000 acres of
timberlands and Pinkham Lumber Company in Maine for gross proceeds of $216.5
million. We recorded a pre-tax gain of $145.4 million.
In the second quarter of 1999, we sold approximately 650,000 acres of
timberlands in Maine for gross proceeds of $150.0 million. We recorded a pre-tax
gain of $108.3 million. As part of the sale, approximately $56.0 million of the
proceeds was received in the form of a long-term note. This note was monetized
through a qualified special purpose entity, and the cash proceeds of
approximately $51.0 million from the monetization are included in "Disposition
of fixed assets, timber and timberlands" in the Consolidated Statement of Cash
Flows. We have guaranteed a portion of the debt of the qualified special purpose
entity totaling approximately $12.7 million.
In the fourth quarter of 1999, CNC, a majority-owned subsidiary of Bowater, sold
approximately 140,000 acres of timberlands in North Carolina and South Carolina
for proceeds of $173.2 million (before expenses of $1.1 million). Bowater
received $26.2 million in cash and $145.9 million in notes. We recorded the
transaction as an installment sale and as of December 31, 1999, recorded a
pre-tax gain of $17.4 million. We have deferred pre-tax gains of approximately
$95.0 million on this transaction that will be realized in future periods. Other
timberland sales during the year resulted in additional pre-tax gains of $1.4
million.
30
BOWATER 1999 ANNUAL REPORT
<PAGE> 33
In August 1999, we sold GNP for $250.0 million. The proceeds consisted of cash
of $108.0 million (net of expenses), a note receivable of $10.0 million and the
assumption of certain employee-related liabilities totaling $130.0 million. We
recorded a pre-tax loss of $47.1 million. The note receivable plus accrued
interest is payable in full one year from the date of sale and is included on
the line titled "Other current assets" in the Consolidated Balance Sheet.
The following table shows GNP's net sales and operating income (loss) included
in the Consolidated Statement of Operations for the 12 months ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
(In millions) 1999 1998
------------- ---- ----
<S> <C> <C>
Net sales $ 199.8 $ 425.0
-------- --------
Operating income (loss)(1) $ (11.4) $ 41.7
======== ========
</TABLE>
- ---------
(1) Operating income (loss) excludes asset impairment charges of $92.0 million
and $119.6 million in 1999 and 1998, respectively, and gains from
timberland sales totaling $253.7 million in 1999.
During 1998, we sold 26,000 acres of timberlands primarily in South Carolina
for gross proceeds of $30.9 million. We recorded a pre-tax gain of $21.1
million. During 1997, we sold 1,000 acres of timberlands, primarily in North
Carolina and South Carolina. The proceeds from these sales were $1.3 million,
resulting in a pre-tax gain of $0.8 million.
5. OTHER EXPENSE (INCOME)
Other expense (income) includes non-operating items. The breakdown of the
components of "Other, net" in the Consolidated Statement of Operations for the
three years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
Foreign exchange loss (gain) $ (33.4) $ 29.7 $ 2.1
Loss on Canadian
dollar option contracts -- 22.7 --
Reserve for a long-term
note receivable financing -- 15.0 --
Other 2.6 (1.8) (1.0)
------- ------- ------
$ (30.8) $ 65.6 $ 1.1
======= ======= ======
</TABLE>
6. EARNINGS PER SHARE
Bowater adopted SFAS No. 128, "Earnings per Share," in December 1997. Basic
earnings per common share is calculated assuming no dilution. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock.
The reconciliation between basic and diluted earnings per common share for "NET
INCOME (LOSS)" is as follows:
<TABLE>
<CAPTION>
(In millions, except
per-share amounts) 1999 1998 1997
- ------------------ ---- ---- ----
<S> <C> <C> <C>
Basic computation:
Net income (loss) $ 78.7 $(18.5) $ 53.7
Less:
LIBOR dividends
and accretion -- -- (0.7)
Series C dividends (0.1) (2.2) (2.2)
Series C deferred
issuance costs (1.0) -- --
------ ------ ------
Basic income (loss) available
to common shareholders $ 77.6 $(20.7) $ 50.8
------ ------ ------
Basic weighted average
shares outstanding 54.2 47.6 40.3
------ ------ ------
Basic earnings (loss) per
common share $ 1.43 $(0.44) $ 1.26
====== ====== ======
Diluted computation:
Basic income (loss) available to
common shareholders $ 77.6 $(20.7) $ 50.8
Effect of dilutive securities: -- -- --
------ ------ ------
Diluted income (loss) available
to common shareholders $ 77.6 $(20.7) $ 50.8
------ ------ ------
Basic weighted average
shares outstanding 54.2 47.6 40.3
Effect of dilutive securities:
Options 0.8 -- 0.5
------ ------ ------
Diluted weighted average
shares outstanding 55.0 47.6 40.8
------ ------ ------
Diluted earnings (loss) per
common share $ 1.41 $(0.44) $ 1.25
====== ====== ======
</TABLE>
The dilutive effect of options outstanding is computed using the treasury stock
method. In 1999 and 1997, all options were included in the calculation of
diluted earnings per share. Due to the net loss incurred for the year ended
December 31, 1998, all common stock equivalents were excluded to prevent
antidilution. Included in the common stock equivalents at December 31, 1998,
were exchangeable shares that Bowater issued in February 1999 due to the
redemption of its 7.50% Convertible Unsecured Subordinated Debentures.
31
BOWATER 1999 ANNUAL REPORT
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INVENTORIES
<TABLE>
<CAPTION>
(In millions) 1999 1998
------------- ---- ----
<S> <C> <C>
At lower of cost or market:
Raw materials $ 30.1 $ 39.5
Work in process 3.6 3.8
Finished goods 31.8 56.8
Mill stores and other supplies 88.4 95.6
------ ------
153.9 195.7
Excess of current cost over LIFO
inventory value (8.5) (9.4)
------ ------
$145.4 $186.3
====== ======
</TABLE>
Inventories valued using the LIFO method comprised 6.5% and 16.4%,
respectively, of total inventories at December 31, 1999 and 1998.
8. FIXED ASSETS
<TABLE>
<CAPTION>
Range of
Estimated
Useful
Lives
(In millions) 1999 1998 In Years
------------- ---- ---- --------
<S> <C> <C> <C>
Land and land improvements $ 34.9 $ 51.4 10-20
Buildings 301.0 359.6 20-40
Machinery and equipment 3,899.3 4,033.3 5-20
Leasehold improvements 2.7 3.8 10-20
Construction in progress 66.6 131.4 --
-------- --------
4,304.5 4,579.5
Less accumulated depreciation
and amortization 1,723.2 1,694.3
-------- --------
$2,581.3 $2,885.2
======== ========
</TABLE>
9. GOODWILL
Goodwill includes the goodwill recorded with the acquisition of Avenor in July
1998. This goodwill is being amortized on a straight-line basis over 40 years.
Bowater recorded amortization of $22.5 million in 1999 and $9.8 million in
1998.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(In millions) 1999 1998
------------- ---- ----
<S> <C> <C>
Trade accounts payable $ 158.2 $ 196.4
Payroll, bonuses and severance 36.6 65.2
Accrued interest 22.1 25.0
Employee benefits 20.4 27.0
Amounts payable under GNP
sales agreement (1) 20.0 -
Avenor acquisition/divestiture-related
liabilities (See Note 11) 19.1 43.4
Unrealized losses on hedging contracts 19.0 54.3
Property and franchise taxes payable 13.2 11.7
Other 27.8 42.0
------- -------
$ 336.4 $ 465.0
======= =======
</TABLE>
- ---------
(1) Relates to tax sharing provisions
11. AVENOR ACQUISITION/DIVESTITURE-RELATED LIABILITIES
In connection with the acquisition of Avenor during the third quarter of 1998,
Bowater recorded merger-related liabilities totaling $17.8 million. These
liabilities consisted primarily of Avenor employee termination costs, Avenor
facility closures and Avenor lease commitments.
Also in the third quarter of 1998, we recorded liabilities of $65.0 million for
the closure of our Gold River pulp mill (acquired as part of the Avenor
acquisition). These accruals included asset impairment charges, employee
termination costs and environmental obligations.
During the fourth quarter of 1998, in conjunction with the sale of our Dryden
white paper mill (acquired as part of the Avenor acquisition), liabilities were
recorded to cover employee termination costs and other costs that we retained
as part of the sales agreement. We recorded liabilities totaling $14.8 million
related to this transaction.
The total amount of Avenor acquisition/divestiture-related liabilities of $97.6
million was recorded as part of the cost of the acquisition.
As of December 31, 1999, the remaining accrual for the above items is $26.0
million. Of this remaining accrual, $19.1 million is included in "Accounts
payable and accrued liabilities" and $6.9 million is included in "Other
long-term liabilities" in the Consolidated Balance Sheet. As of December 31,
1999, the cash requirements related to these liabilities are expected to be
$15.5 million in 2000 and $6.9 million related to environmental matters in 2001
and beyond.
32
BOWATER 1999 ANNUAL REPORT
<PAGE> 35
The following table summarizes the activity for the liabilities described on the
previous page:
<TABLE>
<CAPTION>
Write-offs &
Payments Increase
Balance, Adjust Against (Decrease) Foreign Balance,
(In millions) 12/31/98 Goodwill Reserve Reserve Exchange 12/31/99
- ------------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Employee termination costs $30.5 $(2.7) $(22.6) $(3.7) $ 1.8 $ 3.3
Facility closures 5.2 (1.1) (0.5) -- 0.3 3.9
Asset impairments/disposals 8.1 -- (4.8) -- 0.3 3.6
Environmental 15.7 -- (3.8) 2.5 0.8 15.2
----- ----- ------ ----- ----- -----
Totals $59.5 $(3.8) $(31.7) $(1.2) $ 3.2 $26.0
===== ===== ====== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Write-offs &
Payments Increase
Balance, Establish Against (Decrease) Foreign Balance,
(In millions) 12/31/97 Reserve Reserve Reserve Exchange 12/31/98
- ------------- -------- --------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Employee termination costs $ -- $39.9 $ (9.5) $ -- $ 0.1 $30.5
Facility closures -- 5.1 -- -- 0.1 5.2
Asset impairments/disposals -- 36.9 (29.0) -- 0.2 8.1
Environmental -- 15.7 -- -- -- 15.7
----- ----- ------ ----- ----- -----
Totals $ -- $97.6 $(38.5) $ -- $ 0.4 $59.5
===== ===== ====== ===== ===== =====
</TABLE>
33
BOWATER 1999 ANNUAL REPORT
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. LONG-TERM DEBT, NET OF CURRENT INSTALLMENTS
In connection with the purchase of Avenor in July 1998, Bowater assumed
approximately $800.0 million of debt. As required in the purchase accounting
for this transaction, we recorded the debt at fair value using current interest
rate assumptions as of the acquisition date. The revaluation component of the
outstanding debt balance is being amortized over the remaining life of the
related debt securities. The table below sets forth both the historical and
revalued debt balances as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ -----------------------------------
Revaluation Revaluation
Due to Due to
Avenor Avenor
Acquisition, Acquisition,
Historical Net of Revalued Historical Net of Revalued
(In millions) Value Amortization Balance Value Amortization Balance
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unsecured:
9.00% Debentures due 2009 $250.0 $ -- $ 250.0 $250.0 $ -- $250.0
9.38% Debentures due 2021, net
of unamortized discount of $1.0
in 1999 and $1.1 in 1998 198.9 -- 198.9 198.8 -- 198.8
10.62% Notes due 2010 98.0 30.6 128.6 98.0 32.3 130.3
10.50% Notes due at various dates
from 2001 to 2010 102.0 23.7 125.7 102.0 25.1 127.1
9.50% Debentures due in 2012,
net of unamortized discount of
$0.3 in 1999 and $0.3 in 1998 124.7 -- 124.7 124.7 -- 124.7
10.85% Debentures due 2014 86.0 34.1 120.1 81.5 34.5 116.0
9.25% Debentures due 2002 59.0 5.0 64.0 92.1 9.6 101.7
9.86% Notes due 2001 87.2 5.9 93.1 87.2 8.0 95.2
10.60% Notes due 2011 70.0 22.4 92.4 70.0 23.5 93.5
7.50% Convertible Subordinated Debentures -- -- -- 40.4 28.3 68.7
7.75% recycling facilities revenue bonds
due 2022 62.0 -- 62.0 62.0 -- 62.0
7.40% recycling facilities revenue bonds
due 2022 39.5 -- 39.5 39.5 -- 39.5
7.62% recycling facilities revenue bonds
due 2016 30.0 -- 30.0 30.0 -- 30.0
10.26% Notes due at various dates from
2001 to 2011 22.0 5.2 27.2 22.0 5.5 27.5
Pollution control revenue bonds due at various
dates from 2001 to 2010 with interest at
varying rates from 6.85% to 7.62% 23.3 -- 23.3 23.3 -- 23.3
Industrial revenue bonds due 2029 with interest
at floating rates 33.5 -- 33.5 -- -- --
8.50% Notes due 2001 18.1 -- 18.1 18.1 -- 18.1
Bank term loan at floating rates due 2001 12.0 -- 12.0 15.2 -- 15.2
10.25% Debentures due 2003 7.4 -- 7.4 7.4 -- 7.4
11.00% Subordinated debt due 2003 4.1 -- 4.1 3.9 -- 3.9
ESOT Note due 2000 -- -- -- 0.9 -- 0.9
Other -- -- -- 0.8 -- 0.8
- --------------------------------------------------------------------------------------------------------------------------------
$1327.7 $126.9 $1,454.6 $1,367.8 $166.8 $1534.6
================================================================================================================================
</TABLE>
34
BOWATER 1999 ANNUAL REPORT
<PAGE> 37
Long-term debt maturities for the next five years are as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
2000 $ 35.5
2001 $ 137.4
2002 $ 91.3
2003 $ 23.9
2004 $ 12.4
</TABLE>
During 1999, Bowater received proceeds totaling $32.8 million from revenue
bonds issued by the Industrial Development Board of the County of McMinn,
Tennessee, in conjunction with the modernization of its Calhoun, Tennessee,
newsprint facility. The total amount of debt we are obligated to repay is $33.5
million. At December 31, 1999, the remaining principal amount of $0.7 million
was held by the trustee, to be received in the first quarter of 2000. The bonds
are variable rate (5.6% at December 31, 1999) and mature in June 2029.
In December 1999, we repaid $13.3 million of our 9.25% Debentures due 2002. The
cash price paid was approximately $13.9 million, including premium and accrued
interest. In January 2000, we repaid $19.8 million of our 9.25% Debentures due
2002. The cash price paid was approximately $20.8 million, including premium
and accrued interest. The principal amount was included on the line titled
"Current installments of long-term debt" in the Consolidated Balance Sheet at
December 31, 1999.
In February 1999, we redeemed all of our outstanding 7.50% Convertible Unsecured
Subordinated Debentures due 2004. In connection with the redemption, we paid
cash of approximately $65.9 million, and Bowater Canada Inc. issued 1,359,620
exchangeable shares.
In 1998, we entered into a $1.0 billion syndicated credit facility consisting
of two separate components: i) a $650.0 million, 364-day facility; and ii) a
$350.0 million, five-year facility. Borrowings under the facility incur
interest based, at our option, on specified market interest rates plus a margin
tied to the credit rating of our long-term debt. At December 31, 1998, the
balance outstanding on this facility was $210.0 million (at 6.0%). In 1999, we
entered into a $150.0 million, 364-day credit facility that replaced the $650.0
million facility entered into during 1998. Borrowings under the facility will
incur interest based, at our option, on specified market interest rates plus a
margin tied to the credit rating of our long-term debt. As of December 31,
1999, $15.0 million (at 6.8%) was outstanding under this facility, and there
was no balance outstanding under our $350.0 million facility.
During 1998, we repaid approximately $65.0 million of the $72.0 million
principal amount of our 10.25% Debentures due 2003. The cash price paid was
approximately $75.9 million, including premium and accrued interest.
Bowater guarantees certain payments of debt related to its unconsolidated
entities. The amounts were approximately $62.7 million at December 31, 1999,
and $50.0 million at December 31, 1998.
13. FINANCIAL INSTRUMENTS
At December 31, 1999, Bowater had foreign currency forward and range forward
contracts with a notional value of $640.8 million maturing through 2001. The
notional amount of these contracts represents the amount of foreign currencies
to be purchased or sold at maturity and does not represent our exposure on
these contracts. The majority of these contracts were acquired in July 1998
with the acquisition of Avenor. The contracts serve as economic hedges against
our Canadian operations; however, because the costs hedged are not firm
commitments, these contracts are marked to market, with gains and losses
recognized in the Consolidated Statement of Operations. For contracts that meet
the requirements for hedge accounting, the gains and losses are deferred and
recognized as a part of the hedged transaction.
35
BOWATER 1999 ANNUAL REPORT
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts of our short-term financial assets and liabilities
(excluding derivatives) approximate fair value. We estimate the fair value of
our long-term debt using rates currently available for debt with similar terms
and remaining maturities. The fair value of derivative financial instruments is
based on current termination values or quoted market prices of comparable
contracts. A summary of our derivative financial instruments and long-term debt
at December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ---------------------------------------
Asset (Liability) Asset (Liability)
Notional --------------------- Notional ---------------------
Amount of Carrying Fair Amount of Carrying Fair
(In millions) Derivatives Amount Value Derivatives Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foreign currency exchange agreements:
Buy currency:
Canadian dollar
Due in 1999 $ -- $ -- $ -- $ 647.1 $ (54.3) $ (54.3)
Due in 2000 457.8 (19.0) (19.0) 457.8 (42.1) (42.1)
Due in 2001 183.0 (0.7) (0.7) 183.0 (8.7) (8.7)
Sell currency:
British pound -- -- -- 1.9 -- --
French franc -- -- -- 1.3 -- --
Italian lira -- -- -- 2.7 -- --
Other -- -- -- 0.2 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate swap $ -- $ -- $ -- $ 100.0 $ (4.4) $ (4.4)
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of
current installments $ -- $(1,454.6) $(1,454.6) $ -- $(1,534.6) $(1,603.3)
================================================================================================================================
</TABLE>
The counterparties to our derivative financial instruments are substantial and
creditworthy multi-national financial institutions. Therefore, the risk of
counterparty nonperformance is considered to be remote.
14. PENSION AND OTHER NONPENSION POSTRETIREMENT BENEFITS
Bowater has multiple defined benefit pension plans and other nonpension
postretirement plans (the Plan(s)) covering substantially all employees.
Benefits are based on years of service and, depending on the Plan, average
compensation earned by employees either during their last years of employment
or over their careers.
The following tables include both foreign and domestic plans at December 31,
1999 and 1998. The benefit obligations of the Plans outside the United States
are significant relative to the total benefit obligation; however, the
assumptions used to measure the obligations of those Plans are not
significantly different from those used for the United States Plans.
36
BOWATER 1999 ANNUAL REPORT
<PAGE> 39
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PENSION PLANS OTHER POSTRETIREMENT PLANS
- ------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 1,208.0 $ 501.3 $ 181.6 $ 134.6
Acquisition -- 627.2 -- 33.6
Divestiture 27.8 -- (101.5) --
Service cost 23.8 18.1 2.9 3.5
Interest cost 78.8 51.5 9.5 10.2
Amendments 3.9 -- 1.2 (0.9)
Special termination benefits 1.6 -- -- --
Actuarial (gain) loss (61.7) 48.8 2.9 8.4
Participant contributions 4.7 1.9 0.8 0.9
Benefits paid (90.7) (34.8) (9.1) (8.7)
Effect of foreign currency exchange rate changes 22.7 (6.0) 1.5 --
- ------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 1,218.9 1,208.0 89.8 181.6
========================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of Plan assets at beginning of year 1,073.2 569.4 -- --
Acquisition -- 568.4 -- --
Actual return on Plan assets 174.7 (32.5) -- --
Employer contributions 18.3 8.2 8.3 7.7
Participant contributions 4.7 1.9 0.8 0.9
Benefits paid (90.7) (34.8) (9.1) (8.6)
Effect of foreign currency exchange rate changes 18.7 (7.4) -- --
- ------------------------------------------------------------------------------------------------------------------------
Fair value of Plan assets at end of year 1,198.9 1,073.2 -- --
========================================================================================================================
RECONCILIATION OF FUNDED STATUS:
Funded status (20.0) (134.8) (89.8) (181.6)
Unrecognized actuarial (gain) loss (7.0) 127.4 3.7 22.9
Unrecognized transition amount (5.0) (8.2) -- --
Unrecognized prior service cost 1.7 5.3 1.4 4.0
- ------------------------------------------------------------------------------------------------------------------------
Net amount recognized (30.3) (10.3) (84.7) (154.7)
========================================================================================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET CONSIST OF:
Prepaid benefit cost 68.6 61.9 -- --
Accrued benefit liability (119.5) (109.1) (84.7) (154.7)
Intangible asset 1.1 4.6 -- --
Accumulated other comprehensive loss (income) 19.5 32.3 -- --
- ------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (30.3) $ (10.3) $ (84.7) $ (154.7)
========================================================================================================================
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 7.0% 6.5% 7.0% 6.5%
Expected return on Plan assets 9.2% 9.2% -- --
Rate of compensation increase 4.1% 4.0% 4.1% 4.0%
- ------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost net of employee contributions $ 23.8 $ 18.1 $ 2.9 $ 3.5
Interest cost 78.8 51.5 9.5 10.2
Expected return on Plan assets (80.1) (65.5) -- --
Amortization of transition amount (3.4) (3.4) -- --
Amortization of prior service cost 0.5 0.6 0.2 0.3
Recognized net actuarial (gain) loss (15.2) 2.6 0.6 0.4
Curtailment and special termination benefits 27.3 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 31.7 $ 3.9 $ 13.2 $ 14.4
========================================================================================================================
</TABLE>
37
BOWATER 1999 ANNUAL REPORT
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 1999, Bowater completed the sale of GNP. We recorded a curtailment
loss of $26.1 million as a result of the sale that is included on the line
titled "Net gain on sale of assets" in the Consolidated Statement of
Operations. In addition, liabilities totaling approximately $70.6 million for
nonpension postretirement benefits were assumed by the buyer as part of the
sale of GNP.
As of December 31, 1999, Bowater increased the Plans' weighted average discount
rate from 6.5% to 7.0% to more closely approximate interest rates on
high-quality long-term obligations on the measurement date. In 1999, the
assumed inflationary health care cost trend rate used to determine cost was
8.3% decreasing to 7.8% in 2000 and gradually decreasing to an ultimate rate of
5.8% in 2004. The rate used to determine 1998 cost was 7.5%, gradually
decreasing to an ultimate rate of 5.0% in 2004. Variations in this health care
cost trend rate can have a significant effect on the amounts reported. An
increase of 1% in this assumption would increase the accumulated postretirement
benefit obligation (APBO) by approximately $11.3 million, or 13%, and would
increase the annual service cost and interest cost by approximately $1.2
million, or 9%. A decrease of 1% in this assumption would decrease the APBO by
approximately $8.7 million, or 10%, and would decrease the annual service cost
and interest cost by approximately $1.1 million, or 9%.
The sum of the projected benefit obligations and the sum of the fair value of
Plan assets for pension Plans with projected benefit obligations in excess of
Plan assets were $518.7 million and $392.9 million, respectively, as of
December 31, 1999, and were $858.6 million and $713.0 million, respectively, as
of December 31, 1998. The sum of the accumulated benefit obligations and the
sum of the fair value of Plan assets for pension Plans with accumulated benefit
obligations in excess of Plan assets were $341.0 million and $252.6 million,
respectively, as of December 31, 1999, and were $444.7 million and $351.1
million, respectively, as of December 31, 1998.
The provisions of SFAS No. 87, "Employees' Accounting for Pensions," required
Bowater to record an additional minimum liability of $20.6 million and $36.9
million at December 31, 1999 and 1998, 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 assets of $1.1
million and $4.6 million at December 31, 1999 and 1998, respectively, are
included on the line titled "Other assets" in the Consolidated Balance Sheet.
The remaining amounts of $11.9 million and $19.7 million, net of related tax
benefits, are recorded as a component of shareholders' equity on the line
titled "Accumulated other comprehensive income (loss)" in the Consolidated
Balance Sheet at December 31, 1999 and 1998, respectively.
In addition to the previously described pension and nonpension postretirement
Plans, we also sponsor defined contribution Plans within the United States and
for certain sites outside of the United States. Employees are allowed to
contribute to the Plans, and we make a matching contribution between 3.6% and
7.2% of the employees' compensation. Our expense for the defined contribution
Plans totaled $7.2 million in 1999, $7.0 million in 1998 and $7.3 million in
1997.
15. INCOME TAXES
The components of "Income before income taxes and minority interests" consist
of United States income (loss) of $129.1 million, $(17.1) million and $95.8
million, and foreign income (loss) of $26.7 million, $32.7 million and $(6.3)
million, in 1999, 1998 and 1997, respectively.
The provision for income tax expense consists of:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(In millions) 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 45.4 $ 42.3 $ 30.4
Deferred (.3) (49.6) 2.2
- -----------------------------------------------------------------------
45.1 (7.3) 32.6
- -----------------------------------------------------------------------
State:
Current 9.2 10.5 5.2
Deferred (1.5) (6.4) (1.9)
- -----------------------------------------------------------------------
7.7 4.1 3.3
- -----------------------------------------------------------------------
Foreign:
Current 11.4 6.4 0.8
Deferred 7.3 22.7 (3.6)
- -----------------------------------------------------------------------
18.7 29.1 (2.8)
- -----------------------------------------------------------------------
Total:
Current 66.0 59.2 36.4
Deferred 5.5 (33.3) (3.3)
- -----------------------------------------------------------------------
$ 71.5 $ 25.9 $ 33.1
- -----------------------------------------------------------------------
</TABLE>
38
BOWATER 1999 ANNUAL REPORT
<PAGE> 41
The components of deferred income taxes at December 31, 1999 and 1998, in the
accompanying Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(In millions) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Timber and timberlands (1) $ (88.5) $ (65.1)
Fixed assets, net (583.2) (691.6)
Other assets (2.5) (5.8)
- ------------------------------------------------------------------------------
Deferred tax liabilities $ (674.2) $ (762.5)
- ------------------------------------------------------------------------------
Current assets (2) $ 2.9 $ 3.3
Current liabilities (2) 20.8 59.0
Employee benefits and other
long-term liabilities 110.9 130.0
United States tax credit carryforwards 33.1 24.4
Canadian investment tax credit carryforwards 21.0 20.3
Ordinary loss carryforwards 32.2 77.1
Capital loss carryforwards -- 3.0
Valuation allowance (4.4) (14.5)
- ------------------------------------------------------------------------------
Deferred tax assets 216.5 302.6
- ------------------------------------------------------------------------------
Net deferred tax liability $ (457.7) $ (459.9)
==============================================================================
</TABLE>
(1) Includes the deferred tax impact of the capitalization of lease payments,
management fees and property taxes of approximately $113.1 million and
$120.4 million at December 31, 1999 and 1998, respectively.
(2) Included in "Other current assets" in the accompanying Consolidated Balance
Sheet.
The net change in the valuation allowance during 1999 was a decrease of $10.1
million of which $8.5 million reduced the goodwill recorded upon the
acquisition of Avenor. During 1998, we increased the valuation allowance by
$10.8 million from the balance of $3.7 million at December 31, 1997 and 1996,
due to the acquisition.
The following is a reconciliation of the United States federal statutory and
effective tax rates as a percentage of income before income taxes and minority
interests:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
United States federal statutory
income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.2 17.3 2.4
Foreign taxes 0.9 87.8 (0.7)
Goodwill 5.1 24.4 --
Other, net 1.7 1.5 0.3
- ---------------------------------------------------------------------------------
Effective income tax rate 45.9% 166.0% 37.0%
- ---------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, we had Canadian federal and provincial net operating loss
carryforwards of $62.3 million ($14.5 million, after tax) and $183.5 million
($17.7 million, after tax), respectively. In addition, $21.0 million of
Canadian investment tax credit carryforwards and $33.1 million of United States
tax credit carryforwards were available to reduce future income taxes. The
Canadian noncapital loss and investment tax credit carryforwards expire at
various dates between 2000 and 2007. We have United States alternative minimum
tax credit carryforwards that have no expiration. We believe that deferred tax
assets, net of the existing valuation allowance of $4.4 million at December 31,
1999, will be ultimately realized. A future reduction in the existing valuation
allowance will reduce goodwill.
The cumulative amount of CNC's undistributed earnings through 1992, on which we
have not provided income taxes, was $55.4 million as of December 31, 1999.
Distribution of these earnings would qualify for the 80% dividend exclusion. We
have also not provided deferred income taxes on the cumulative amount of
undistributed earnings related to our foreign subsidiaries since those
investments are considered permanent in duration and determination of such
liability is not practicable.
16. DIVIDENDS TO MINORITY INTEREST SHAREHOLDER
The Board of Directors of CNC declared dividends of $32.4 million in 1999 and
$49.6 million in 1998. As a result, $15.9 million was paid in 1999 and $24.3
million was paid in 1998 to the minority shareholder. In 1997, the Board of
Directors of CNC declared dividends of $3.2 million, resulting in payments of
$1.6 million to the minority shareholder.
In January 2000, the Board of Directors of CNC declared a dividend of $12.5
million, resulting in a payment of $6.1 million to the minority shareholder.
17. COMMITMENTS AND CONTINGENCIES
Bowater is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims and other matters. We periodically review the status of
these proceedings with both inside and outside counsel. Our management believes
that the ultimate disposition of these matters will not have a material adverse
effect on our operations or our financial condition taken as a whole.
39
BOWATER 1999 ANNUAL REPORT
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. CUMULATIVE AND REDEEMABLE PREFERRED STOCK
In 1994, Bowater sold 3.4 million 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 had a liquidation
value of $25.00 per depositary share. In 1995, we repurchased 585,682 shares of
the Series C Cumulative Preferred Stock leaving a balance of 264,318 preferred
shares. In February 1999, we redeemed all of the remaining outstanding shares
for $26.6 million, including accrued dividends.
In 1985, we sold $75.0 million principal amount of redeemable preferred stock
with cumulative quarterly dividends equal to 85% of the arithmetic mean of
three-month LIBOR for United States dollar deposits. We were 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, we redeemed
1.0 million shares for $50.6 million, including accrued dividends. In 1997, we
redeemed the remaining 500,000 shares for $25.1 million, including accrued
dividends. We are authorized to issue 10.0 million shares of Serial Preferred
Stock, $1 par value, of which the LIBOR Preferred Stock constituted Series A.
19. STOCK OPTION PLANS
Bowater has three stock option plans - 1988, 1992 and 1997. These plans
authorized the grant of up to 6.0 million shares of our 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 our common stock on the date of grant, or the average fair
market value of our 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 our common stock on the date of grant.
All options granted through December 31, 1997, were exercisable at December 31,
1999. Options granted in 1999 and 1998 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 Bowater.
In such event, grantees of options have the right to require us to purchase
such options for cash in lieu of the issuance of common stock. We received
$10.7 million in 1999, $6.8 million in 1998 and $24.5 million in 1997 from the
exercise of stock options. The exercise of stock options also generated tax
benefits for us of $4.7 million in 1999, $2.6 million in 1998 and $7.9 million
in 1997.
We record 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
1999, 1998 and 1997 and have no impact on our reported financial position or
results of operations.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(In millions,
except per-share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 78.7 $ (18.5) $ 53.7
Pro forma 75.9 (22.0) 50.8
Earnings (loss) per share - basic:
As reported 1.43 (0.44) 1.26
Pro forma 1.38 (0.51) 1.19
Earnings (loss) per share - diluted:
As reported 1.41 (0.44) 1.25
Pro forma $ 1.36 $ (0.51) $ 1.17
=======================================================================================
</TABLE>
The pro forma net income effects of SFAS No. 123 in 1999, 1998 and 1997 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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumptions:
Dividend yield 2.0% 1.6% 1.9%
Expected volatility 30.0% 29.1% 29.5%
Risk-free interest rate 4.8% 5.6% 6.4%
Expected option lives 5.6 years 5.6 years 5.5 years
- -----------------------------------------------------------------------------------
Weighted average fair value
of each option $ 12.34 $ 15.68 $ 13.65
===================================================================================
</TABLE>
40
BOWATER 1999 ANNUAL REPORT
<PAGE> 43
Information with respect to options granted under the stock option plans is as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares (000s) Price Shares (000s) Price Shares (000s) Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,040 $ 35 1,907 $ 31 2,477 $ 27
Granted during the year 245 $ 41 388 $ 49 404 $ 42
Exercised during the year (387) $ 28 (250) $ 27 (934) $ 26
Canceled during the year (14) $ 24 (5) $ 42 (40) $ 35
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,884 $ 37 2,040 $ 35 1,907 $ 31
- -----------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,455 $ 35 1,470 $ 30 1,371 $ 26
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
at December 31, 1999 at December 31, 1999
- ----------------------------------------------------------------------------------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number of Exercise Contractual Number of Exercise
Range of Exercise Prices Shares (000s) Price Life (years) Shares (000s) Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21 to $30 609 $ 26 4.1 609 $ 26
$30 to $40 329 $ 35 5.9 329 $ 35
$40 to $50 946 $ 44 7.9 517 $ 44
- ----------------------------------------------------------------------------------------------------------
1,884 $ 37 6.3 1,455 $ 35
==========================================================================================================
</TABLE>
20. EXCHANGEABLE SHARES
In conjunction with the 1998 acquisition of Avenor, Bowater's indirect wholly
owned subsidiary, Bowater Canada Inc. (BCI), issued 3,773,547 shares ($183.6
million) of no par value exchangeable shares. Since 1998, BCI has issued an
additional 1,359,620 exchangeable shares ($66.2 million) upon the redemption of
its 7.50% Convertible Unsecured Subordinated Debentures and 5,505 exchangeable
shares ($0.3 million) for conversions prior to the redemption. The exchangeable
shares are exchangeable at any time, at the option of the holder, on a
one-for-one basis for shares of Bowater common stock. As of December 31, 1999,
2,974,295 exchangeable shares ($144.7 million) were exchanged for the same
number of Bowater common shares. Holders of exchangeable shares have voting
rights substantially equivalent to holders of Bowater common stock and are
entitled to receive dividends equivalent, on a per-share basis, to dividends
paid by Bowater on shares of Bowater common stock. On December 31, 1999,
2,164,377 exchangeable shares ($105.4 million) were outstanding and held by
non-affiliates.
21. EMPLOYEE STOCK OWNERSHIP PLAN
Bowater has an Employee Stock Ownership Plan (ESOP) as a component of its
Salaried Employees' Savings Plan. The ESOP was funded by a $17.5 million loan,
the proceeds of which were lent to an Employee Stock Ownership Trust (ESOT).
The ESOT purchased 574,160 shares of our common stock at an average purchase
price of $30.59. As of December 31, 1999, 556,800 shares have been distributed
to participants' accounts. The loan balance of $0.7 million is due April 30,
2000 and is reflected in "Current installments of long-term debt" on the
Consolidated Balance Sheet. The remaining shares serve as security for the loan
balance.
41
BOWATER 1999 ANNUAL REPORT
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. TREASURY STOCK
In May 1999, the Board of Directors authorized the repurchase of up to 5.5
million shares of Bowater's common stock in the open market, subject to normal
trading restrictions. Under the new program, we purchased 1,030,069 shares of
common stock at a cost of $51.8 million during 1999.
In addition, we completed a previously announced repurchase program in 1999.
Under the previous program, we purchased 1,451,900 shares of common stock at a
cost of $57.4 million in 1999, 2,441,100 shares of common stock at a cost of
$98.1 million in 1998 and 220,000 shares of common stock at a cost of $9.6
million in 1997. We purchased a total of 4,113,000 shares of common stock, or
10% of the outstanding shares, at a cost of $165.1 million. In February 1997,
we completed another stock repurchase program, purchasing 1,408,300 shares of
common stock at a cost of $57.2 million.
Currently, we use shares of treasury stock to pay employee/director benefits
and to fund our Dividend Reinvestment Plan.
23. TIMBERLAND LEASES AND OPERATING LEASES
Bowater controls timberlands under long-term leases expiring 2000 to 2058, for
which aggregate lease payments were $0.7 million in 1999, $0.7 million in 1998
and $0.7 million in 1997. In addition, we lease certain office premises, office
equipment and transportation equipment under operating leases. Total rental
expense for these operating leases was $11.0 million in 1999, $8.5 million in
1998 and $5.5 million in 1997.
At December 31, 1999, the future minimum rental payments under timberland
leases and operating leases are:
<TABLE>
<CAPTION>
- --------------------------------------------
Timberland Operating
Lease Leases,
(In millions) Payments Net
- --------------------------------------------
<S> <C> <C>
2000 $ 0.7 $ 10.8
2001 0.7 9.2
2002 0.7 8.7
2003 0.6 7.7
2004 0.6 7.4
Thereafter 18.5 15.5
- --------------------------------------------
$ 21.8 $ 59.3
============================================
</TABLE>
In conjunction with the 1998 Avenor acquisition, we manage 14.2 million acres
of Crown-owned land in Canada on which we have cutting rights. We make payments
to various Canadian provinces based on the amount of timber harvested. There
are no minimum rental payments associated with the cutting rights.
24. SEGMENT INFORMATION
Description of the types of products and services from which each reportable
segment derives its revenues:
Bowater has three reportable segments: the Newsprint Division, the Coated Paper
Division and the Forest Products Division. The Newsprint Division is
responsible for the manufacturing operations of seven sites in the United
States, Canada and South Korea. It is also responsible for the worldwide
marketing of newsprint and uncoated groundwood specialties. The Coated Paper
Division is responsible for one manufacturing site that produces coated
groundwood paper, newsprint, market pulp and uncoated groundwood specialties
and operates a coating facility, both in the United States. This Division is
responsible for the worldwide marketing and sales of coated groundwood paper.
The Forest Products Division operates three sawmills and manages 1.8 million
acres of owned and leased timberlands in the United States and Canada as well
as 14.2 million acres of Crown-owned land in Canada on which we have cutting
rights. This division sells wood fiber to the Newsprint and Coated Paper
Divisions, as well as markets and sells timber and lumber to third parties in
North America. The Pulp Division has marketing and sales responsibility for all
of our market pulp products; however, the financial results from these sales
are included in both the Newsprint Division and the Coated Paper Division.
Their administrative expenses are included in "Corporate/other eliminations."
Accordingly, no results are reported for the Pulp Division.
Factors management used to identify our segments: Bowater's reportable segments
are business units responsible for the marketing and sales of different
products. They are managed separately because of the different products that
they are responsible for manufacturing and distributing.
42
BOWATER 1999 ANNUAL REPORT
<PAGE> 45
The following tables summarize information about segment profit and loss and
segment assets for the three years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Coated Forest Corporate/
Newsprint Paper Products Other
1999 (In millions) Division Division Division Eliminations Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales - including internal sales $ 1,528.2 $ 467.0 $ 489.3 $ 2.3 $ 2,486.8
Eliminations of intersegment sales (4.2) -- (347.9) -- (352.1)
- -------------------------------------------------------------------------------------------------------------------
Net sales - external customers $ 1,524.0 $ 467.0 $ 141.4 $ 2.3(1) $ 2,134.7
- -------------------------------------------------------------------------------------------------------------------
Depreciation, amortization and cost of
timber harvested $ 221.2 $ 55.5 $ 21.2 $ 2.3 $ 300.2
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ (98.0)(2) $ 72.2 $ 320.9(3) $ (51.1)(1) $ 244.0
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 3,243.8 $ 492.1 $ 665.0 $ 151.3(1) $ 4,552.2
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 141.1 $ 42.1 $ 13.9 $ 1.4 $ 198.5
- -------------------------------------------------------------------------------------------------------------------
Newsprint Coated Forest Corporate/
& Directory Paper Products Other
1998 (In millions) Division Division Division Eliminations Total
- -------------------------------------------------------------------------------------------------------------------
Net sales - including internal sales $ 1,356.6 $ 474.1 $ 517.4 $ 17.2 $ 2,365.3
Eliminations of intersegment sales -- -- (370.3) -- (370.3)
- -------------------------------------------------------------------------------------------------------------------
Net sales - external customers $ 1,356.6 $ 474.1 $ 147.1 $ 17.2(1) $ 1,995.0
- -------------------------------------------------------------------------------------------------------------------
Depreciation, amortization and cost of
timber harvested $ 154.9 $ 51.0 $ 21.7 $ 2.0 $ 229.6
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 32.4(2) $ 107.4 $ 67.0(3) $ (44.7)(1) $ 162.1
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 3,869.3 $ 488.3 $ 590.4 $ 144.0(1) $ 5,092.0
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 170.8 $ 29.6 $ 17.0 $ 5.8 $ 223.2
- -------------------------------------------------------------------------------------------------------------------
Newsprint Coated Forest Corporate/
& Directory Paper Products Other
1997 (In millions) Division Division Division(4) Eliminations Total
- -------------------------------------------------------------------------------------------------------------------
Net sales - including internal sales $ 886.8 $ 458.4 $ 428.0 $ (0.5) $ 1,772.7
Eliminations of intersegment sales -- -- (288.2) -- (288.2)
- -------------------------------------------------------------------------------------------------------------------
Net sales - external customers $ 886.8 $ 458.4 $ 139.8 $ (0.5) $ 1,484.5
- -------------------------------------------------------------------------------------------------------------------
Depreciation, amortization and cost of
timber harvested $ 98.6 $ 51.3 $ 18.5 $ 1.4 $ 169.8
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 30.0 $ 91.2 $ 58.2(3) $ (42.9) $ 136.5
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 1,198.7 $ 496.3 $ 572.2 $ 478.6 $ 2,745.8
- -------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 52.4 $ 23.0 $ 22.4 $ 1.8 $ 99.6
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts for 1999 include the Gold River pulp mill, closed in 1998, with net
sales, operating loss and total assets of $2.3 million, $5.1 million and
$5.7 million, respectively. Gold River pulp mill amounts included in 1998
for net sales, operating loss and total assets are $17.0 million, $4.6
million and $28.3 million, respectively. Also included in operating income
(loss) are capital taxes of $3.5 million in 1999 and $0.8 million in 1998.
(2) Operating income (loss) for the Newsprint Division includes impairment
charges and capital taxes of $92.0 million and $0.7 million, respectively,
in 1999 and $119.6 million and $0.4 million, respectively, in 1998.
Operating income (loss) for 1999 also includes a loss on sale of assets of
$47.1 million.
(3) Operating income (loss) for the Forest Products Division includes gain on
sale of assets of $272.5 million in 1999, $21.1 million in 1998 and $0.8
million in 1997.
(4) Segment information for the Forest Products Division, established in
mid-1997, has been restated on a pro forma basis for comparative purposes
only for the full year 1997.
43
BOWATER 1999 ANNUAL REPORT
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Net Sales by Product
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Newsprint $ 1,282.2 $ 1,108.8 $ 730.8
Market pulp 434.2 272.1 172.7
Coated groundwood 311.8 391.0 337.7
Directory paper 89.4 173.5 178.9
Uncoated groundwood specialties 52.1 49.3 44.0
Lumber and other wood products 142.0 148.0 134.8
Less: distribution costs (177.0) (147.7) (114.4)
- ------------------------------------------------------------------------
$ 2,134.7 $ 1,995.0 $ 1,484.5
========================================================================
Net Sales by Country(1)
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------
United States $ 1,649.1 $ 1,750.6 $ 1,331.3
Canada 170.8 28.1 20.2
Korea 102.1 44.1 18.8
Japan 39.6 44.6 21.5
Brazil 39.0 37.0 37.4
Italy 32.5 31.9 26.0
United Kingdom 38.3 22.9 9.1
Mexico 58.7 10.7 5.6
Other countries (2) 181.6 172.8 129.0
Less: distribution costs (177.0) (147.7) (114.4)
- ------------------------------------------------------------------------
$ 2,134.7 $ 1,995.0 $ 1,484.5
========================================================================
Long-Lived Assets by Country
(In millions) 1999 1998 1997
- ------------------------------------------------------------------------
United States $ 1,343.9 $ 1,773.1 $ 1,790.7
Canada 1,379.8 1,412.8 157.7
Korea 182.0 195.3 0.1
- ------------------------------------------------------------------------
$ 2,905.7 $ 3,381.2 $ 1,948.5
========================================================================
</TABLE>
(1) Revenues are attributed to countries based on the location of the customer.
No one customer represented 10% or more of consolidated net sales.
(2) No country in this group exceeded 10% of consolidated net sales.
44
BOWATER 1999 ANNUAL REPORT
<PAGE> 47
25. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(In millions, except per-share amounts)
-----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 First Second Third Fourth Year
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 571.3 $ 527.4 $ 511.0 $ 525.0 $ 2,134.7
Operating income (loss) (1) 194.9 27.8 (52.2) 73.5 244.0
Net income (loss) 106.5 5.2 (53.4) 20.4 78.7
Basic earnings (loss) per common share 1.93 0.10 (0.98) 0.38 1.43
Diluted earnings (loss) per common share $ 1.89 $ 0.10 $ (0.98) $ 0.38 $ 1.41
-----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------------
Net sales $ 383.1 $ 395.8 $ 576.9 $ 639.2 $ 1,995.0
Operating income (loss) (1) 67.3 58.6 (39.9) 76.1 162.1
Net income (loss) 24.8 18.9 (88.1) 25.9 (18.5)
Basic earnings (loss) per common share 0.60 0.45 (1.69) 0.46 (0.44)
Diluted earnings (loss) per common share $ 0.59 $ 0.44 $ (1.69) $ 0.45 $ (0.44)
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating income (loss) includes net gain on sale of assets and capital tax
expense.
45
BOWATER 1999 ANNUAL REPORT
<PAGE> 48
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of Bowater 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 the
requirements for accurate recordkeeping and accounting.
We maintain 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, we have an effective and responsive system of internal accounting
controls.
Our independent auditors, KPMG LLP, are responsible for conducting an audit of
our 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 on this page.
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 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.
46
BOWATER 1999 ANNUAL REPORT
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Bowater Incorporated:
We have audited the accompanying consolidated balance sheet of Bowater
Incorporated and Subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Greenville, South Carolina
February 11, 2000
47
BOWATER 1999 ANNUAL REPORT
<PAGE> 50
FINANCIAL AND OPERATING RECORD(*)
<TABLE>
<CAPTION>
(In millions, except per-share amounts) 1999 (1) 1998 (1) 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $ 2,134.7 $ 1,995.0 $ 1,484.5
Operating income (loss) (2) 244.0 162.1 136.5
Income (loss) from continuing operations before cumulative effect
of changes in accounting principles and extraordinary charge (3) 78.7 (18.5) 53.7
Net income (loss) 78.7 (18.5) 53.7
Diluted earnings (loss) per common share 1.41 (0.44) 1.25
Dividends declared per common share (4) 0.80 0.80 0.80
- ----------------------------------------------------------------------------------------------------------------------
PRODUCT SALES INFORMATION
Newsprint $ 1,282.2 $ 1,108.8 $ 730.8
Coated groundwood 311.8 391.0 337.7
Directory paper 89.4 173.5 178.9
Market pulp 434.2 272.1 172.7
Uncoated groundwood specialties 52.1 49.3 44.0
Lumber and other wood products 142.0 148.0 134.8
Communication papers -- -- --
Distribution costs (177.0) (147.7) (114.4)
- ----------------------------------------------------------------------------------------------------------------------
$ 2,134.7 $ 1,995.0 $ 1,484.5
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Timber and timberlands $ 283.2 $ 472.8 $ 394.0
Fixed assets, net 2,581.3 2,885.2 1,554.5
Total assets 4,552.2 5,092.0 2,745.8
Total debt 1,505.1 1,830.8 758.9
Total debt and redeemable preferred stock 1,505.1 1,830.8 758.9
Total capitalization (5) 3,397.4 3,736.6 2,038.3
- ----------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION
Percent return on average common equity 4.5% (1.4)% 4.5%
Income from continuing operations as a percentage of net sales 3.7% (0.9)% 3.6%
Total debt as a percentage of total capitalization (6) 42.1% 46.3% 37.2%
Total debt and redeemable preferred stock as
a percentage of shareholders' equity 85.0% 92.3% 65.8%
Effective tax rate 45.9% 166.0% 37.0%
Cash flow from (used for) operations $ 147.0 $ 274.1 $ 195.6
Cash invested in fixed assets, timber and timberlands $ 198.5 $ 223.2 $ 99.6
Book value - common shareholders' equity per common share $ 33.10 $ 32.31 $ 27.99
Common stock price range $37.13-59.94 $32.81-59.56 $37.00-55.62
Sales (thousands of short tons)
Newsprint (7) 2,847 2,160 1,482
Coated groundwood 433 486 479
Directory paper 125 226 228
Market pulp 1,015 674 407
Uncoated groundwood specialties 102 90 83
Registered shareholders 5,200 5,600 5,200
Employees 6,400 8,300 5,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) This table should be used in conjunction with the financial statements and
notes to the financial statements.
(1) In 1999, Bowater sold GNP. In 1998, we acquired Avenor Inc. and a South
Korean newsprint mill. In 1996, we sold Star Forms. In 1991, we acquired
GNP.
(2) Net gain (loss) on sale of assets and capital taxes have been classified in
operating income.
48
BOWATER 1999 ANNUAL REPORT
<PAGE> 51
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1996 (1) 1995 1994 1993 1992 1991 (1) 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,718.3 $ 2,001.1 $ 1,359.0 $ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0
399.3 521.4 85.2 (11.1) (86.3) 103.7 174.9 280.5
204.1 258.2 (4.8) (64.5) (92.9) 45.6 87.4 144.6
200.2 246.9 (4.8) (64.5) (82.0) 45.6 78.4 144.6
4.55 5.22 (0.59) (1.84) (2.34) 1.15 2.05 3.86
0.80 0.60 0.60 0.60 1.20 1.20 1.20 1.14
- --------------------------------------------------------------------------------------------------------------------------------
$ 845.3 $ 841.6 $ 604.0 $ 607.6 $ 649.6 $ 601.4 $ 617.2 $ 645.3
356.3 463.8 307.0 316.2 296.1 259.9 279.0 279.2
183.9 162.4 128.6 138.6 90.2 -- -- --
154.3 233.3 130.6 98.9 136.4 138.0 170.7 182.6
38.0 41.2 37.3 39.9 34.5 -- -- --
108.0 116.8 87.9 103.1 79.5 34.3 32.6 32.7
153.4 248.9 190.7 191.8 207.5 254.9 280.9 310.2
(120.9) (106.9) (127.1) (142.4) (133.0) (98.1) (91.3) (89.0)
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,718.3 $ 2,001.1 $ 1,359.0 $ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0
- --------------------------------------------------------------------------------------------------------------------------------
$ 395.7 $ 430.4 $ 426.4 $ 422.5 $ 432.6 $ 414.1 $ 297.9 $ 285.7
1,636.7 1,711.0 1,785.0 1,750.7 1,821.7 1,858.8 1,604.7 1,529.5
2,865.5 2,908.2 2,851.4 2,726.2 2,881.6 2,780.0 2,297.9 2,284.2
760.6 818.1 1,118.5 1,120.2 1,134.3 864.5 498.2 532.4
785.4 867.8 1,193.0 1,194.6 1,208.5 938.6 572.2 606.4
2,082.8 2,113.9 2,222.5 2,071.8 2,186.4 2,061.7 1,694.5 1,700.5
- --------------------------------------------------------------------------------------------------------------------------------
18.6% 27.5% (3.0)% (8.6)% (9.6)% 4.4% 7.9% 16.0%
11.9% 12.9% (0.4)% (4.8)% (6.8)% 3.8% 6.8% 10.6%
36.5% 38.7% 50.3% 54.1% 51.9% 41.9% 29.4% 31.3%
67.1% 79.2% 134.4% 163.1% 147.7% 99.6% 61.2% 66.9%
35.2% 39.4% 70.0% 32.0% 37.0% 37.0% 37.0% 36.0%
$ 336.2 $ 607.7 $ 80.9 $ (30.6) $ 109.5 $ 156.6 $ 238.4 $ 327.3
$ 106.9 $ 96.0 $ 216.1 $ 121.8 $ 139.5 $ 159.7 $ 214.1 $ 423.4
$ 27.97 $ 24.52 $ 18.92 $ 20.10 $ 22.55 $ 26.21 $ 26.24 $ 25.37
$31.75-41.25 $26.50-53.50 $20.50-29.38 $18.00-24.63 $17.63-27.25 $18.63-30.38 $16.13-28.50 $25.75-34.13
1,446 1,402 1,460 1,437 1,604 1,244 1,266 1,278
432 476 453 454 447 346 352 343
211 229 189 202 126 -- -- --
393 325 300 312 318 317 300 261
64 60 76 76 65 -- -- --
5,600 5,900 6,600 7,300 8,200 9,500 14,000 15,600
5,000 5,500 6,000 6,600 6,900 7,200 5,100 5,100
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Extraordinary charge relates to debt retirements in 1996, 1995 and
1990. The changes in accounting principles relate to the adoption of
SFAS No. 106 and SFAS No. 109 in 1992.
(4) Dividends are declared quarterly.
(5) Total capitalization includes total debt, minority interests in
subsidiaries, redeemable preferred stock and shareholders' equity.
(6) In 1999 and 1998, this ratio excludes the revaluation of Avenor's debt
totaling $128.6 million and $190.6 million, respectively.
(7) Newsprint sales do not include shipments from the Ponderay Newsprint
Company, an unconsolidated entity.
49
BOWATER 1999 ANNUAL REPORT
<PAGE> 52
NOMINAL ANNUAL CAPACITY AND PRODUCTION
BY PRODUCT LINE AND MILL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Annual 1999
(In short tons) Capacity PRODUCTION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Newsprint, directory and uncoated groundwood specialties
Calhoun, Tennessee 853,500 806,014
Catawba, South Carolina 260,500 247,251
Liverpool, Nova Scotia 267,800 240,474
Millinocket, Maine (1) 140,000 74,209
East Millinocket, Maine (1) 304,000 167,323
Thunder Bay, Ontario 604,000 583,309
Gatineau, Quebec 500,600 454,713
Dalhousie, New Brunswick 250,200 225,735
Usk, Washington (2) 278,500 273,255
Mokpo, Korea 303,800 268,890
Coated groundwood paper
Catawba, South Carolina 356,000 352,184
Benton Harbor, Michigan (3) 60,000 11,853
Millinocket, Maine (1) 127,700 71,785
Market pulp
Catawba, South Carolina 269,500 269,394
Calhoun, Tennessee 219,000 146,969
Thunder Bay, Ontario 606,300 549,261
Lumber (4) (5) 239,400 233,843
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Millinocket and East Millinocket, Maine, facilities were sold in
August 1999.
(2) Represents the Ponderay Newsprint Company, which is 40% owned. Capacity
and production are shown at 100%.
(3) The Benton Harbor, Michigan, facility was acquired in July 1999.
(4) The Pinkham Lumber Company was sold in March 1999.
(5) Figures are in MBF (thousands of board feet).
50
BOWATER 1999 ANNUAL REPORT
<PAGE> 53
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
Arnold M. Nemirow (1) Richard Barth (2, 3, 5) James L. Pate (3, 4)
Chairman, President and Chief Executive Retired Chairman, President and Chairman and Chief Executive Officer
Officer of the Company Chief Executive Officer Pennzoil-Quaker State Company
Director since 1994 Ciba-Geigy Corporation Consumer Products
Age: 56 Diversified Chemical Products Director since 1996
Director since 1991 Age: 64
Francis J. Aguilar (1, 2, 4) Age: 68
Professor Emeritus John A. Rolls (3, 5)
Harvard University Graduate School of Kenneth M. Curtis (5) President and Chief Executive Officer
Business Attorney At Law and Senior Member Thermion Systems International
Director since 1984 Curtis Thaxter Stevens Broder & Micoleau, Aerospace and Industrial Heating Systems
Age: 67 Limited Liability Company, P.A. Director since 1990
Director since 1993 Age: 58
H. David Aycock (1, 4) Age: 69
Chairman, Chief Executive Officer and Arthur R. Sawchuk (5)
President Charles J. Howard (2) Chairman
Nucor Corporation Chairman The Manufacturers Life Insurance Company
Steel and Steel Products Howard, Barclay & Associates Ltd. Insurance and Financial Services
Director since 1987 Investment Counseling Director since 1998
Age: 69 Director since 1997 Age: 64
Age: 57
</TABLE>
(1) Executive Committee
(2) Audit Committee
(3) Finance Committee
(4) Human Resources and Compensation Committee
(5) Nominating and Governance Committee
51
BOWATER 1999 ANNUAL REPORT
<PAGE> 54
OFFICERS
CORPORATE OFFICERS
Arnold M. Nemirow
Chairman, President and
Chief Executive Officer
Arthur D. Fuller
Executive Vice President and President -
Newsprint Division
E. Patrick Duffy
Senior Vice President and President - Coated
Paper Division
Richard K. Hamilton
Vice President and President - Forest
Products Division
David J. Steuart
Vice President and President - Pulp Division
Anthony H. Barash
Senior Vice President - Corporate
Affairs and General Counsel
James H. Dorton
Vice President - Corporate Development
and Strategy
Jerry R. Gilmore
Vice President - United States and Korean
Newsprint Operations
William G. Harvey
Vice President and Treasurer
Steven G. Lanzl
Vice President - Information Technology
David G. Maffucci
Senior Vice President and Chief Financial Officer
Robert A. Moran
Vice President - Manufacturing Services
R. Donald Newman
Vice President - Canadian Newsprint
Operations
Michael F. Nocito
Vice President and Controller
Wendy C. Shiba
Vice President, Secretary and Assistant
General Counsel
James T. Wright
Vice President - Human Resources
DIVISION OFFICERS
NEWSPRINT DIVISION
Arthur D. Fuller
President - Newsprint Division
Jerry R. Gilmore
Vice President - United States and Korean
Newsprint Operations
S. Y. Han
President - Bowater-Halla
Paper Company Ltd.
Howard G. Johnson
Vice President and Resident Manager -
Calhoun Operations
William G. Meany
Vice President and Resident Manager -
Ponderay Operations
R. Donald Newman
Vice President - Canadian Newsprint
Operations
Edward J. Broadhurst
Vice President - Operations Technology
Don P. Campbell
Vice President and Resident Manager -
Thunder Bay Operations
Patrice Cayouette
Vice President and Resident Manager -
Gatineau Operations
Richard G. Gilbert
Vice President and Resident Manager -
Mersey Operations
Luc Lachapelle
Vice President and Resident Manager -
Dalhousie Operations
Marc Regnier
Vice President and General Counsel -
Canadian Newsprint Operations
C. Randy Ellington
Vice President- North American Newsprint
Sales
Larry G. Green
Vice President - Purchasing and Transportation
William C. Morris
Vice President - International Newsprint Sales
Craig B. Stevens
Vice President - Administration and Planning
Donald L. Wheeler
Vice President - Human Resources
COATED PAPER DIVISION
E. Patrick Duffy
President - Coated Paper Division
Daniel B. Haight
Vice President - Coated Paper Sales
Gaynor L. "Bud" Nash
Vice President and Resident Manager -
Catawba Operations
Denis Tontodonato
Vice President - Administration and Planning
PULP DIVISION
David J. Steuart
President - Pulp Division
John C. Adams
Vice President - North American Sales
FOREST PRODUCTS DIVISION
Richard K. Hamilton
President - Forest Products Division
Roger Barber
Vice President - Ontario and New Brunswick
Woodlands Operations
Jean Beaulieu
Vice President - Lumber and Quebec
Woodlands Operations
J. Frank Pickle
Vice President - Southern Woodlands Operations
Jon M. Porter
Vice President - Mersey Woodlands Operations
Colin R. Wolfe
Vice President - Administration and Planning
52
BOWATER 1999 ANNUAL REPORT
<PAGE> 55
SHAREHOLDER INFORMATION
ANNUAL MEETING
Bowater's annual meeting of shareholders will be held on Wednesday, May 10,
2000, at 11 a.m. at The Gunter Theatre of the Peace Center for the Performing
Arts, Greenville, South Carolina.
STOCK LISTINGS
Bowater Incorporated common stock is listed on the New York Stock Exchange
(stock symbol BOW), U.S. regional exchanges and the London Stock Exchange. A
special class of stock exchange into Bowater common stock is listed on the
Toronto Stock Exchange (stock symbol BWX).
COMMON STOCK REGISTRARS AND TRANSFER AGENTS (BOW)
The Bank of New York
Shareholder Relations Department - 11E
P.O. Box 11258
Church Street Station
New York, NY 10286
888-269-8845
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
EXCHANGEABLE SHARE STOCK REGISTRAR AND TRANSFER AGENT (BWX)
Montreal Trust
1800 McGill College Avenue
Montreal, Quebec H3A 3K9 Canada
800-564-6253
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
Bowater has a Dividend Reinvestment and Stock Purchase Plan. Information is
available from the Bank of New York.
INDEPENDENT AUDITORS
KPMG LLP
55 Beattie Place
Suite 600
Greenville, SC 29601
864-250-2600
COMMON STOCK PRICES
Price ranges of the company's common stock during 1999 and 1998 as reported on
the New York Stock Exchange were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1999 1998
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First quarter $46.00 $37.13 $56.44 $41.56
Second quarter $55.94 $39.00 $59.56 $46.75
Third quarter $59.94 $47.88 $49.75 $35.62
Fourth quarter $56.19 $46.88 $43.50 $32.81
- -------------------------------------------------------------
</TABLE>
<PAGE> 56
[LOGO] BOWATER
Incorporated
<TABLE>
<S> <C> <C> <C>
CORPORATE DIVISION SALES OFFICES Bowater S. America Ltda. COATED PAPER DIVISION
HEADQUARTERS Rua Engenheiro Carlos
NEWSPRINT DIVISION Estevenson, #80 11440 Carmel Commons
Bowater Incorporated Sala #51 Lyon Office Center Boulevard
55 East Camperdown Way 2000 Regency Parkway Nova Campinas, Sao Paulo Suite 201
P.O. Box 1028 Suite 380 Brazil CEP 13092310 Charlotte, NC
Greenville, SC Cary NC 5519-251-9088 28226
29602 27511 704-540-2667
864-271-7733 919-467-6422 300 March Road
864-282-9482 (FAX) Suite 444 650 Warrenville Road
http://www.bowater.com 547 West Jackson Boulevard Kanata, ON K2K 2E2 Suite 410
Suite 1505 Canada Lisle, IL
DIVISION HEADQUARTERS Chicago, Il 888-333-9933 60532
60661 630-960-9797
Newsprint Division 312-588-2301 Bowater Europe Limited
55 East Camperdown Way Carolyn House Park 80 West, Plaza 1
P.O. Box 1028 100 Merchant Street 26 Dingwall Road 3rd Floor
Greenville, SC Suite 195 Croydon, Surrey CRO 9XF Saddle Brook, NJ
29602 Cincinnati, OH England 07663
864-271-7733 45246 44-208-667-0303 201-368-3611
513-772-2744
Coated Paper Division Bowater Japan Limited PULP DIVISION
11440 Carmel Commons 3155 Route 10, Suite 101 Imperial Hotel Main
Boulevard Denville, NJ Building 5F, Room 504 11440 Carmel Commons
Suite 201 07834 1-1-1 Uchisaiwai-cho Boulevard
Charlotte, NC 973-537-1070 Chiyoda-ku, Tokyo Suite 201
28226 100-8558 Charlotte, NC
704-540-2667 55 East Camperdown Way Japan 28226
P.O. Box 1028 81-3-5521-2560 877-236-5837
Pulp Division Greenville, SC
5420 North Service Road 29602 Bowater-Halla Paper CANADIAN NEWSPRINT
Burlington, ON L7L 6C7 864-271-7733 Company Ltd. OPERATIONS
Canada 11F Hong Woo Building
800-205-PULP 5068 West Plano Parkway 945-1 Daechi-Dong 1250 Rene-Levesque
Suite 300 Kangnam-Gu, Seoul Boulevard West
Forest Products Division Plano, TX Korea Montreal, Quebec H3B 4Y3
5020 Highway 11 South 75093 822-567 1576 Canada
Calhoun, TN 972-381-4260 514-846-4811
37309 Bowater Asia Pte Ltd
423-336-7195 2033 Sixth Avenue 260 Orchard Road, #08-09
Suite 320 The Heeren
Seattle, WA Singapore 238855
98121 65-835-0488
206-728-0175
15310 Amberly Drive
Suite 250-50
Tampa, FL
33647
813-977-4945
</TABLE>
(c) Bowater Incorporated
Printed in U.S.A.
Bowater Incorporated is an equal opportunity employer
[LOGO] is a registered trademark of Bowater Incorporated
Ce rapport est disponible en version francaise.
This report is available in English and French at http://www.bowater.com
<PAGE> 1
EXHIBIT 21.1
BOWATER INCORPORATED
SUBSIDIARY LISTING
Jurisdiction of
Name Incorporation
---- ---------------
Avenor America Inc. Delaware
Bowater Maritimes Inc.(1) New Brunswick
Bowater Asia Pte Ltd Singapore
Bowater Canada Inc. Canada
Bowater Canadian Holdings Incorporated Nova Scotia
Bowater Canadian Limited Canada
Bowater Europe Limited United Kingdom
Bowater Foreign Sales Corporation Barbados
Bowater-Halla Paper Co., Ltd. Korea
Bowater Japan Limited Japan
Bowater Mersey Paper Company Limited(2) Nova Scotia
Bowater Pulp and Paper Canada Inc. Canada
Bowater S. America Ltda. Brazil
Bowater South American Holdings Incorporated Delaware
Calhoun Newsprint Company(3) Delaware
Calhoun Energy, Inc. Delaware
Lake Superior Forest Products Inc. Delaware
Lake Superior Holdings Inc. Delaware
NOTE: Except as otherwise indicated, each of the above entities is a wholly
owned direct or indirect subsidiary of the Company. The names of
certain other direct and indirect subsidiaries of the Company have
been omitted from the list above because such unnamed subsidiaries
considered in the aggregate as a single subsidiary would not
constitute a significant subsidiary.
(1) 67 percent owned.
(2) 51 percent owned.
(3) Approximately 51 percent owned.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Bowater Incorporated:
We consent to incorporation by reference in the following Registration
Statements, of our reports dated February 11, 2000, relating to the consolidated
balance sheet of Bowater Incorporated and Subsidiaries as of December 31, 1999
and 1998, 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, 1999, and all related schedules, which reports are incorporated by
reference or included in the December 31, 1999, 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-3
- --------
No. 333-57839 - Bowater Incorporated common stock offered in exchange for
Exchangeable shares of Bowater Canada Inc. 6/26/98
Form S-8
- --------
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. 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
</TABLE>
<PAGE> 2
Page 2
<TABLE>
<S> <C> <C>
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 Papers and Pulp Division Hourly
Employees' Savings Plan 12/4/97
No. 333-84161 Bowater Incorporated Salaried Employees' Savings Plan 7/30/99
No. 333-84163 Bowater Incorporated Savings Plan for Certain Hourly Employees 7/30/99
No. 333-84171 Bowater Incorporated/Coated Papers and Pulp Division Hourly
Employees' Savings Plan 7/30/99
</TABLE>
/s/ KPMG LLP
Greenville, South Carolina
March 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25
<SECURITIES> 2
<RECEIVABLES> 314
<ALLOWANCES> 0
<INVENTORY> 145
<CURRENT-ASSETS> 533
<PP&E> 4,264
<DEPRECIATION> 1,683
<TOTAL-ASSETS> 4,552
<CURRENT-LIABILITIES> 398
<BONDS> 1,455
0
0
<COMMON> 61
<OTHER-SE> 1,710
<TOTAL-LIABILITY-AND-EQUITY> 4,552
<SALES> 2,135
<TOTAL-REVENUES> 2,135
<CGS> 1,625
<TOTAL-COSTS> 1,925
<OTHER-EXPENSES> (31)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 156
<INCOME-TAX> 72
<INCOME-CONTINUING> 79
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-BASIC> 1.43
<EPS-DILUTED> 1.41
</TABLE>
