Bowater Inc.
Media Contact:
Gordon R. Manuel, 864-282-9448
Analyst Contact:
William G. Harvey, 864-282-9413
Bowater Announces Third Quarter 2003 Financial Results
Bowater Incorporated (NYSE: BOW) reported a net loss of $56.7 million
or $1.00 per diluted share, on sales of $690.9 million for the third
quarter of 2003. These results compare with a net loss of $32.3
million, or $0.57 per diluted share, on sales of $643.8 million in the
third quarter of 2002. Before special items, the net loss for the
third quarter of 2003 was $51.7 million, or $0.91 per diluted share,
compared with the 2002 third quarter net loss before special items of
$45.4 million, or $0.80 per diluted share.
Third quarter 2003 special items, net of tax, consisted of a $2.6
million gain related to asset sales, a severance charge of $3.1
million, a $2.1 million charge resulting from foreign currency changes
and a non-cash charge of $2.4 million for a cumulative effect
adjustment for the partial adoption of Financial Accounting Standards
Board, Financial Interpretation No. 46, Consolidation of Variable
Interest Entities. Special items, net of tax, in the third quarter of
2002 consisted of a $3.0 million gain related to asset sales and a
$10.1 million gain resulting from foreign currency changes.
"Improvements in newsprint, coated paper and lumber prices were offset
by lower market pulp pricing and the one-time impact of shutting
high-cost machines and starting up new production facilities at the
Catawba, South Carolina mill," said Arnold M. Nemirow, Chairman,
President and Chief Executive Officer. "These costs have abated and we
expect pricing improvements to continue in our major product lines."
FINANCIAL HIGHLIGHTS
($ in millions, except per-share amounts)
Three months Nine months
ended ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Sales $690.9 $643.8 $1,985.5 $1,914.8
Net loss $(56.7) $(32.3) $ (154.1) $ (75.8)
Loss per diluted share
(In accordance with GAAP) $(1.00) $(0.57) $ (2.71) $ (1.33)
Special Items, net of tax,
(per diluted share):
Sale of assets (gain) loss $(0.04) $(0.05) $ (1.30) $ (0.84)
Foreign exchange (gain) loss $ 0.04 $(0.18) $ 0.89 $ (0.02)
Severance charge $ 0.05 - $ 0.36 -
Adoption of new accounting
standards $ 0.04 - $ 0.08 -
-------- -------- -------- -------
Loss per share excluding
special items $(0.91) $(0.80) $ (2.68) $ (2.19)
-------- -------- -------- -------
General economic indicators continue to improve across many
sectors of the economy but have yet to translate into meaningful
improvements in newsprint consumption. However, the company's average
newsprint price did rise $7 per metric ton while shipments decreased
3% compared to the second quarter of 2003. Compared to the second
quarter, operating costs per ton increased due to one-time charges
associated with the shift of newsprint downtime to the Thunder Bay,
Ontario mill from the Calhoun, Tennessee mill. The company curtailed
approximately 60,000 metric tons of newsprint production in the third
quarter.
Bowater's average transaction price in coated and specialty papers
was unchanged compared to the second quarter of 2003 while shipments
rose slightly. Costs per ton for coated and specialty papers rose by
2% in the third quarter compared to the second quarter of 2003. We
expect modest coated and specialty price improvements as we enter the
seasonally stronger fourth quarter.
The company's average transaction price for market pulp decreased
$30 per metric ton compared to the second quarter of 2003. Market pulp
shipments improved 15% from unusually low levels in the second
quarter. The company implemented a $15 per metric ton price increase
for North American customers on October 1 and expects an additional
$15 per metric ton increase effective November 1. During the third
quarter, the company's production was reduced by approximately 20,000
metric tons due to the start-up of the fiber line at the Catawba mill
and the previously announced shut of the Thunder Bay mill due to a
temporary wood fiber shortage. Bowater's average operating costs per
metric ton for market pulp in the third quarter decreased 5% compared
to the to the second quarter of 2003. Scheduled recovery boiler
maintenance outages at the Coosa Pines and Thunder Bay mills in the
fourth quarter are expected to reduce pulp production by 14,000 metric
tons and increase maintenance expense by approximately $8 million.
Bowater will hold a management conference call to discuss these
financial results at 10:00 a.m. EST, October 30, 2003. The conference
call number is 888-428-4474 or 651-291-0618 (international). The call
will also be broadcast via the Internet. Interested parties may
connect to the Bowater web site at www.bowater.com, then follow the
on-screen instructions for access to the call and related information.
A replay of the call will be available from 1:30 p.m. EST on Thursday,
October 30, through Thursday, November 6, on the web site or by
dialing 800-475-6701 or 320-365-3844 (international) and using the
access code 700148.
Bowater Incorporated, headquartered in Greenville, SC, is a
leading producer of newsprint and coated groundwood papers. In
addition, the company makes uncoated groundwood papers, bleached kraft
pulp and lumber products. The company has 12 pulp and paper mills in
the United States, Canada and South Korea and 13 North American
sawmills that produce softwood lumber. Bowater also operates two
facilities that convert a groundwood base sheet to coated products.
Bowater's operations are supported by approximately 1.4 million acres
of timberlands owned or leased in the United States and Canada and 32
million acres of timber cutting rights in Canada. Bowater is one of
the world's largest consumers of recycled newspapers and magazines.
Bowater common stock is listed on the New York Stock Exchange, the
Pacific Exchange and the London Stock Exchange. A special class of
stock exchangeable into Bowater common stock is listed on the Toronto
Stock Exchange (TSE:BWX).
All amounts are in U.S. dollars.
Statements in this news release 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 news release include those
described under the caption "Cautionary Statement Regarding
Forward-Looking Information" in Bowater's quarterly report on Form
10-Q for the quarter ended June 30, 2003, and from time to time, in
Bowater's other filings with the Securities and Exchange Commission.
Information about industry or general economic conditions contained in
this press release is derived from third party sources that the
company believes are widely accepted and accurate; however, the
company has not independently verified this information and cannot
assure its accuracy.
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, in millions except per share amounts)
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -------------------
2003 2002 2003 2002
--------- ------- --------- ---------
Sales $690.9 $643.8 $1,985.5 $1,914.8
Cost of sales, excluding
depreciation, amortization
and cost of timber harvested 556.3 516.4 1,626.9 1,495.5
Depreciation, amortization
and cost of timber harvested 84.5 84.4 253.0 256.8
Distribution costs 69.2 61.2 193.7 168.4
Selling and administrative expense 36.9 23.3 107.7 99.2
Net gain on sale of assets (1) 4.1 4.8 119.2 79.8
--------- ------- --------- ---------
Operating loss (51.9) (36.7) (76.6) (25.3)
Other expense (income):
Interest income (1.1) (1.0) (3.5) (3.2)
Interest expense, net of
capitalized interest 45.8 39.7 127.9 122.8
Foreign exchange loss (gain) 2.1 (8.9) 15.9 (5.4)
Other, net (2.4) 0.4 (5.4) 2.0
--------- ------- --------- ---------
44.4 30.2 134.9 116.2
--------- ------- --------- ---------
Loss before income taxes,
minority interests
and cumulative effect of
accounting changes (96.3) (66.9) (211.5) (141.5)
Provision for income tax
benefit (39.7) (34.8) (52.4) (60.1)
Minority interests in the
net income (loss) of
subsidiaries (2.3) 0.2 (9.5) (5.6)
--------- ------- --------- ---------
Loss before cumulative effect
of accounting changes (54.3) (32.3) (149.6) (75.8)
Cumulative effect of accounting
changes (2) (2.4) - (4.5) -
--------- ------- --------- ---------
Net loss $(56.7) $(32.3) $(154.1) $(75.8)
========= ======= ========= =========
Basic loss per common share: (3)
Loss before cumulative effect
of accounting changes $(0.96) $(0.57) $(2.63) $(1.33)
Cumulative effect of
accounting changes (0.04) - (0.08) -
--------- ------- --------- ---------
Net loss $(1.00) $(0.57) $(2.71) $(1.33)
========= ======= ========= =========
Average common shares
outstanding (3) 56.9 56.9 56.9 56.9
========= ======= ========= =========
Diluted loss per common
share: (3)
Loss before cumulative effect
of accounting changes $(0.96) $(0.57) $(2.63) $(1.33)
Cumulative effect of
accounting changes (0.04) - (0.08) -
--------- ------- --------- ---------
Net loss $(1.00) $(0.57) $(2.71) $(1.33)
========= ======= ========= =========
Average common and common
equivalent shares
outstanding (3) 56.9 56.9 56.9 56.9
========= ======= ========= =========
BOWATER INCORPORATED AND SUBSIDIARIES
(Unaudited, in millions of US dollars)
Consolidated Balance Sheet September 30, December 31,
2003 2002
---------- -----------
Current assets:
Cash and cash equivalents $18.1 $35.9
Accounts receivable, net 359.6 330.6
Inventories 288.4 257.2
Income tax receivable - 75.6
Other current assets 129.2 35.9
---------- -----------
Total current assets 795.3 735.2
---------- -----------
Timber and timberlands 184.4 212.0
Fixed assets, net 3,603.9 3,645.6
Goodwill 828.2 839.9
Other assets 212.1 157.6
---------- -----------
$5,623.9 $5,590.3
========== ===========
Current liabilities:
Current installments of long-term debt $17.5 $84.3
Short-term bank debt 158.0 249.0
Accounts payable and accrued liabilities 413.5 411.9
Dividends payable 11.6 11.2
---------- -----------
Total current liabilities 600.6 756.4
---------- -----------
Long-term debt, net of current installments 2,290.6 2,037.4
Other long-term liabilities 472.3 450.7
Deferred income taxes 524.7 518.2
Minority interests in subsidiaries 68.8 72.1
Shareholders' equity 1,666.9 1,755.5
---------- -----------
$5,623.9 $5,590.3
========== ===========
Nine Months Ended
Consolidated Cash Flow September 30
------------------------
2003 2002
---------- -----------
Cash flows from operating activities $24.5 $41.7
---------- -----------
Cash flows from (used for)
investing activities:
Cash invested in fixed assets, timber
and timberlands (186.5) (190.2)
Disposition of fixed assets, timber
and timberlands 146.1 24.7
Proceeds from monetization of
note receivable (1) - 88.1
Cash invested (maturity) of
marketable securities, net - 1.7
---------- -----------
(40.4) (75.7)
---------- -----------
Cash flows from (used for)
financing activities:
Cash dividends, including minority
interests (33.8) (38.4)
Financing activities, net 31.2 64.0
Stock options exercised 0.7 6.8
---------- -----------
(1.9) 32.4
---------- -----------
Net decrease in cash and cash
equivalents $(17.8) $(1.6)
========== ===========
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to the Press Release and Unaudited Consolidated
Financial Statements
(1) During the three and nine months ended September 30, 2003, Bowater
sold fixed assets and land resulting in a net pre-tax gain of $4.1
million, or $0.04 per diluted share after tax, and $119.2 million, or
$1.30 per diluted share after tax, respectively. In the second quarter
of 2003, Bowater completed the sale of 81,768 acres of owned and
leased timberlands for aggregate consideration of $121.8 million. This
transaction resulted in a pre-tax gain of approximately $97.5 million.
In January 2002, Bowater completed the sale of approximately 116,000
acres of timberland for aggregate consideration of $104.2 million,
comprised of approximately $5.1 million in cash and $99.1 million in a
note receivable. In March 2002, we monetized the $99.1 million note
receivable for net cash proceeds of $88.1 million. These transactions
resulted in a pre-tax gain of approximately $70.4 million.
(2) Effective July 1, 2003, Bowater early adopted, on a partial basis,
Financial Accounting Standards Board's Financial Interpretation (FIN)
No. 46, Consolidation of Variable Interest Entities. In general, a
variable interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a) does
not have equity investors with voting rights or (b) has equity
investors that do not provide sufficient financial resources for the
entity to support its activities. FIN No. 46 requires a variable
interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns or both. Many variable interest entities have
commonly been referred to as special-purpose entities (SPE) or
off-balance sheet structures. Bowater operated the Covington coating
facility under an operating lease with a special purpose entity. This
special purpose entity was determined to be a VIE and required to be
consolidated by Bowater in accordance with FIN 46. Bowater early
adopted FIN No. 46 for the Covington SPE effective July 1, 2003 and
consolidated assets and debt of approximately $51.8 million and
recorded a non-cash, after tax cumulative effect charge of $2.4
million, or $0.04 per diluted share in the third quarter of 2003. On
August 11, 2003, Bowater terminated the lease agreement with the SPE
and paid approximately $51.8 million to pay off the debt. Bowater will
finalize its adoption of FIN No. 46 in the fourth quarter of 2003 and
is currently evaluating other potential VIEs in accordance with FIN
No. 46. We do not expect the finalization of adoption of FIN No. 46 to
have a material impact on our consolidated financial statements.
Effective January 1, 2003, Bowater adopted Statement of Financial
Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in
which it is incurred. The adoption of SFAS No. 143 resulted in
non-cash, after tax cumulative effect charges of $2.1 million, or
$0.04 per diluted share in the first quarter of 2003.
(3) For the calculation of basic and diluted earnings per share for
the three and nine months ended September 30, 2003 and 2002, no
adjustments to net income are necessary. The effect of dilutive
securities is not included in the computation for the three and nine
months ended September 30, 2003 and 2002 to prevent antidilution.
(4) A reconciliation of certain financial statement line items
reported under generally accepted accounting principles ("GAAP") to
earnings reported before special items is presented below. We believe
that this measure allows investors to more easily compare our on-going
operations and financial performance from period to period. This
measure is not as complete as GAAP earnings; consequently, investors
should rely on GAAP earnings. In addition to GAAP earnings, we use the
other measures that we disclose in order to provide perspective on our
financial performance.
Three Months Ended September 30, 2003
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP
as
Adoption adjusted
GAAP Land & of new for
as asset Foreign accounting Special
reported sales exchange Severance standards items
----------------------------------------------------------------------
Operating income
(loss) $(51.9) $(4.1) $ - $4.7 $ - $(51.3)
Other expense
(income)
Interest income (1.1) (1.1)
Interest expense,
net of capitalized
interest 45.8 45.8
Foreign exchange
loss (gain) 2.1 (2.1) -
Other, net (2.4) (2.4)
-------------------------------------------------
44.4 - (2.1) - - 42.3
-------------------------------------------------
Loss before income
taxes, minority
interests and
cumulative effect of
accounting
changes (96.3) (4.1) 2.1 4.7 - (93.6)
Provision for
income tax
expense (benefit) (39.7) (1.5) 0.1 1.6 - (39.5)
Minority interests
in the net income
(loss) of
subsidiaries (2.3) (0.1) (2.4)
--------------------------------------------------
Income (loss) before
cumulative effect of
accounting
changes (54.3) (2.6) 2.1 3.1 - (51.7)
Cumulative effect
of accounting
changes (2.4) 2.4 -
--------------------------------------------------
Net income
(loss) $(56.7) $(2.6) $2.1 $3.1 $2.4 $(51.7)
==================================================
Shares 56.9 56.9 56.9 56.9 56.9 56.9
==================================================
EPS $(1.00) $(0.04) $0.04 $0.05 $0.04 $(0.91)
==================================================
Effective tax
rate 41.2% 38.0% 4.8% 34.0% - 42.2%
==================================================
Three Months Ended September 30, 2002
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP
as
Adoption adjusted
GAAP Land & of new for
as asset Foreign accounting Special
reported sales exchange Severance standards items
----------------------------------------------------------------------
Operating income
(loss) $(36.7) $(4.8) $ - $ - $ - $(41.5)
Other expense
(income)
Interest income (1.0) (1.0)
Interest expense,
net of capitalized
interest 39.7 39.7
Foreign exchange
loss (gain) (8.9) 8.9 -
Other, net 0.4 0.4
-------------------------------------------------
30.2 - 8.9 - - 39.1
-------------------------------------------------
Loss before income
taxes, minority
interests and
cumulative effect
of accounting
changes (66.9) (4.8) (8.9) - - (80.6)
Provision for
income tax
expense
(benefit) (34.8) (1.8) 2.7 (33.9)
Minority interests
in the net income
(loss) of
subsidiaries 0.2 (1.5) (1.3)
-------------------------------------------------
Income (loss)
before cumulative
effect of accounting
changes (32.3) (3.0) (10.1) - - (45.4)
Cumulative effect
of accounting
changes -
--------------------------------------------------
Net income (loss) $(32.3) $(3.0) $(10.1) $ - $ - $(45.4)
==================================================
Shares 56.9 56.9 56.9 - - 56.9
==================================================
EPS $(0.57) $(0.05) $(0.18) $ - $ - $(0.80)
==================================================
Effective tax
rate 52.0% 38.0% -30.3% - - 42.1%
==================================================
Nine Months Ended September 30, 2003
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP
as
Adoption adjusted
GAAP Land & of new for
as asset Foreign accounting Special
reported sales exchange Severance standards items
----------------------------------------------------------------------
Operating income
(loss) $(76.6) $(119.2) $ - $32.2 $ - $(163.6)
Other expense
(income)
Interest income (3.5) (3.5)
Interest expense,
net of
capitalized
interest 127.9 127.9
Foreign exchange
loss (gain) 15.9 (15.9) -
Other, net (5.4) (5.4)
----------------------------------------------------
134.9 - (15.9) - - 119.0
----------------------------------------------------
Loss before income
taxes, minority
interests and
cumulative effect
of accounting
changes (211.5) (119.2) 15.9 32.2 - (282.6)
Provision for
income tax
expense
(benefit) (52.4) (45.3) (33.4) 11.5 (119.6)
Minority
interests
in the net
income (loss)
of subsidiaries (9.5) (1.4) (10.9)
----------------------------------------------------
Income (loss)
before cumulative
effect of
accounting
changes (149.6) (73.9) 50.7 20.7 - (152.1)
Cumulative effect
of accounting
changes (4.5) 4.5 -
-----------------------------------------------------
Net income
(loss) $(154.1) $(73.9) $50.7 $20.7 $4.5 $(152.1)
=====================================================
Shares 56.9 56.9 56.9 56.9 56.9 56.9
=====================================================
EPS $(2.71) $(1.30) $0.89 $0.36 $0.08 $ (2.68)
=====================================================
Effective tax
rate 24.8% 38.0% -210.1% 35.7% - 42.3%
=====================================================
Nine Months Ended September 30, 2002
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP
as
Adoption adjusted
GAAP Land & of new for
as asset Foreign accounting Special
reported sales exchange Severance standards items
----------------------------------------------------------------------
Operating
income (loss) $(25.3) $(79.8) $ - $ - $ - $(105.1)
Other expense
(income)
Interest
income (3.2) (3.2)
Interest expense,
net of
capitalized
interest 122.8 122.8
Foreign exchange
loss (gain) (5.4) 5.4 -
Other, net 2.0 2.0
---------------------------------------------------
116.2 - 5.4 - - 121.6
---------------------------------------------------
Loss before
income taxes,
minority interests
and cumulative
effect of
accounting
changes (141.5) (79.8) (5.4) - - (226.7)
Provision for
income tax
expense
(benefit) (60.1) (32.1) (5.1) (97.3)
Minority
interests
in the net
income
(loss) of
subsidiaries (5.6) 0.6 (5.0)
--------------------------------------------------
Income (loss)
before cumulative
effect of
accounting
changes (75.8) (47.7) (0.9) - - (124.4)
Cumulative effect
of accounting
changes - -
---------------------------------------------------
Net income
(loss) $(75.8) $(47.7) $ (0.9) $ - $ - $(124.4)
===================================================
Shares 56.9 56.9 56.9 - - 56.9
===================================================
EPS $(1.33) $(0.84) $(0.02) $ - $ - $(2.19)
===================================================
Effective tax
rate 42.5% 40.2% 94.4% - - 42.9%
===================================================
A schedule of historical financial and operating statistics is
available upon request and on Bowater's web site (www.bowater.com).