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Bowater Second Quarter Loss Widens

July 24, 2007 - Bowater Inc. today reported a net loss for the second quarter of 2007 of $62.6 million, or $1.09 per diluted share, on sales of $798.6 million. These results compare with a net loss of $10.6 million, or $0.18 per diluted share, on sales of $899.4 million for the second quarter of 2006.

"During the quarter, we faced difficult market conditions as well as significant cost pressures as a result of the very strong Canadian dollar," said David J. Paterson, Chairman, President and Chief Executive Officer. "We mitigated these cost pressures through our focus on operational excellence and I expect these improvements to provide further benefits going forward. I am optimistic that these initiatives, combined with recently announced price increases for many of our products, will improve our financial performance."

Second quarter 2007 special items, net of tax, consisted of the following items: a $42.0 million gain related to asset sales, a $17.6 million charge related to tax adjustments, a $16.7 million charge for severance and merger-related costs and a $28.8 million loss relating to foreign currency changes. Excluding these special items, the net loss for the quarter would have been $41.5 million, or $0.72 per diluted share, compared with second quarter 2006 net loss before special items of $17.6 million, or $0.31 per diluted share. A reconciliation of these items is contained in note 5 to this release.

"We are making excellent progress on our merger integration plans with Abitibi," continued Paterson. "I am excited about the new management team we just unveiled and look forward to closing this transaction during the third quarter. I am more confident than ever that this transaction will generate significant value for all of our stakeholders."

SEGMENT DETAIL

Newsprint
For the second quarter, newsprint had an operating loss of $10.7 million compared to an operating loss of $4.1 million for the first quarter. The company's average transaction price decreased $13 per metric ton. Average operating costs decreased slightly compared to the first quarter. Total newsprint shipments were 6% higher in the second quarter of 2007 compared to the first quarter of 2007. Shipments for the first half of 2007 were 14% lower than the same period of 2006. Newsprint inventories increased during the quarter due to higher export shipments. During the second quarter, export markets represented over 38% of total newsprint sales. The company has informed its North American customers of a $25 per metric ton price increase effective September 1, 2007.

Coated Papers
Operating earnings for the second quarter decreased by $4.0 million from the first quarter to $4.6 million. The company's average transaction price for coated papers decreased $20 per short ton during the quarter while average operating costs increased slightly. Coated paper inventories decreased in the quarter. The company has informed its North American customers of a $60 per short ton price increase effective July 1, 2007.

Specialty Papers
Specialty papers had an operating loss of $9.8 million compared to an operating loss of $8.7 million for the first quarter. The company's average transaction price remained unchanged during the quarter, while average operating costs increased slightly. The company continues to increase its production of specialty papers, up 4% from the first quarter of 2007 and almost 17% from the fourth quarter of 2006.

Market Pulp
Compared to the first quarter of 2007, operating earnings for market pulp decreased slightly to $17.3 million in the second quarter. The average market pulp transaction price for the company increased $19 per metric ton. Average operating costs increased $27 per metric ton compared to the first quarter, as a result of planned annual kraft mill outages at two facilities. The company has informed its North American customers of a $20 per metric ton price increase in softwood pulp and a $30 per metric ton price increase in fluff pulp, both effective July 1, 2007.

Lumber
For the second quarter, lumber had an operating loss of $7.0 million compared to a loss of $13.6 million for the first quarter. The average lumber transaction price for the company increased $10 per thousand board feet while average operating costs decreased $19 per thousand board feet compared to the first quarter. The company continues to curtail lumber production as a result of soft demand.

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 6,900 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 708,000 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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