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Bowater first quarter loss widens on weak demand

April 26, 2007 - Bowater Inc. today reported a net loss for the first quarter of 2007 of $35.4 million, or $0.62 per diluted share, on sales of $771.6 million. These results compare with a net loss of $18.8 million, or $0.33 per diluted share, on sales of $893.2 million for the first quarter of 2006.

"The continued decline in newsprint consumption and seasonally slow coated paper demand, along with weak lumber markets, led to price declines during the quarter," said David J. Paterson, Chairman, President and Chief Executive Officer. "We also experienced considerable cost pressures as a result of the rapid increase in the cost of recycled fiber and the impact of production curtailments. We have seen some improvement in the second quarter with better demand for several of our paper grades and softening in the cost of recycled fiber."

First quarter 2007 special items, net of tax, consisted of the following items: a $35.9 million gain related to asset sales, a $12.3 million charge related to tax adjustments, a $3.4 million loss relating to foreign currency changes, and a $7.0 million charge for severance and merger-related costs. Excluding these special items, the net loss for the quarter would have been $48.6 million, or $0.85 per diluted share, compared with first quarter 2006 net loss before special items of $19.1 million, or $0.33 per diluted share. A reconciliation of these items is contained in note 5 to this release.

During the first quarter, given weak demand for paper grades partially due to seasonal reasons, the company curtailed significant newsprint and specialty paper production. The manufacturing cost impact of these curtailments for the quarter is approximately $15 million and reduced production overall by approximately 68,000 metric tons.

"The deterioration in domestic newsprint demand underscores the strategic rationale for our proposed merger with Abitibi-Consolidated, which is to significantly improve efficiencies by reducing costs and increasing productivity," continued Paterson. "I am pleased with the progress we have made thus far and look forward to closing this transaction in the third quarter."

SEGMENT DETAIL

Newsprint

For the first quarter, newsprint had an operating loss of $4.1 million, a decrease of $15.4 million from the fourth quarter. The company's average transaction price decreased $22 per metric ton, compared to the fourth quarter. Average operating costs increased by $8 per metric ton primarily due to lower production volumes and higher recycled fiber costs. The lower production volumes were largely driven by the curtailment of approximately 63,000 metric tons of newsprint, including 10,000 tons as a result of a major machine rebuild at one of the company's sites. Total newsprint shipments were 9% lower in the first quarter of 2007 compared to the fourth quarter of 2006 and 18% lower than the previous year. Newsprint inventories increased, primarily as a result of strong export sales, which now represent over 35% of total shipments.

Coated Papers

Operating earnings for the quarter were $8.6 million, a decrease of $7.2 million from the fourth quarter. The company's average transaction price for coated papers decreased $35 per short ton in the quarter compared to the fourth quarter of 2006. Average operating costs continued to improve, declining $3 per short ton from the fourth quarter. Coated paper inventories increased in the quarter as a result of seasonally weak demand.

Specialty Papers

For the first quarter, specialty papers had an operating loss of $8.7 million. The company's average transaction price decreased $21 per short ton during the quarter, while average operating costs improved by $24 per short ton mainly due to higher production volumes and greater efficiencies. During the quarter, the company continued to shift machine capacity from newsprint to specialty papers. Compared to the fourth quarter of 2006, production of specialties increased 12%.

Bowater is also announcing today that paper machine no. 4 at its Thunder Bay, Ontario facility will resume operation during May 2007. The company believes that this facility, with its quality assets and multiple fiber furnishes, combined with a dramatically improved cost structure, is well positioned to produce lightweight specialty grades.

Market Pulp

Compared to the fourth quarter of 2006, operating earnings for market pulp decreased slightly to $18.7 million in the first quarter. The average market pulp transaction price for the company increased $14 per metric ton. Average operating costs increased $9 per metric ton compared to the fourth quarter, as a result of an annual kraft mill outage at one of the company's sites. Shipments also declined as a result of the outage. The company has informed its North American customers of a $20 per metric ton price increase in softwood and a $30 per metric ton fluff pulp price increase effective April 1, 2007.

Lumber

For the first quarter, lumber had an operating loss of $13.6 million. The average lumber transaction price for the company decreased $7 per thousand board feet. The company also experienced a lumber inventory charge of approximately $4 million due to lower prices.

Bowater Incorporated, headquartered in Greenville, SC, is a leading producer of coated and specialty papers and newsprint. In addition, the company sells bleached market pulp and lumber products. Bowater employs approximately 7,000 people and has 12 pulp and paper mills in the United States, Canada and South Korea. In North America, it also operates a converting facility and owns 10 sawmills. Bowater's operations are supported by approximately 763,000 acres of timberlands owned or leased in the United States and Canada and 28 million acres of timber cutting rights in Canada. Bowater operates six recycling plants and is one of the world's largest consumers of recycled newspapers and magazines.

SOURCE: Bowater Inc.




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