Bowater Posts Loss For Third Quarter

Oct. 26, 2006 (Press Release) - Bowater Inc. today reported a net loss of $16.1 million, or $0.28 per diluted share, on sales of $875.9 million for the third quarter of 2006. These results compare with a net loss of $16.0 million, or $0.28 per diluted share, on sales of $872.9 million in the third quarter of 2005.

"Our third quarter operations were significantly better than the second quarter, primarily driven by improved manufacturing performance," said David J. Paterson, President and Chief Executive Officer. "In addition to our continued progress on debt reduction, I am encouraged that recent initiatives, including our management realignment, have already identified further tangible opportunities to reduce costs across our manufacturing platform in the coming quarters."

Third quarter 2006 special items, net of tax, consisted of a $33.2 million gain related to asset sales, a $5.7 million gain related to tax adjustments consisting of a loss of $13.3 million associated with the Canadian tax valuation allowance and a benefit of $19.0 million from the reversal of tax reserves, a $1.5 million loss relating to foreign currency changes, a $4.5 million severance charge, and a $36.7 million charge associated with the indefinite closure of the company's Nuway facility in Benton Harbor, Mich. and the write down of paper machine number three at the company's Thunder Bay, Ontario facility. Excluding these special items, the net loss for the quarter was $12.3 million, or $0.21 per diluted share, compared with the 2005 third quarter net loss before special items of $5.8 million, or $0.11 per diluted share.

In 2003, Bowater idled newsprint production on paper machine number three at its Thunder Bay facility. This machine has the capacity to produce approximately 140,000 metric tons per year. Based on the continued decline of North American consumption of newsprint, the company now has no plans to restart the machine. Accordingly, the company recorded a non-cash impairment charge of $18.9 million to write down the value of the machine in the third quarter.

As a result of the company's organizational realignment, our reporting segments have changed from a division-based to a product-line based structure. The company is currently performing an interim goodwill impairment evaluation on its previous reporting structure. This evaluation, which is expected to result in a material non-cash charge, is reasonably likely to impact the filed third quarter financial statements materially. In the fourth quarter, the company will perform its required annual goodwill impairment exercise on its new reporting structure.

During the third quarter, the company received proceeds of $58.4 million on the sale of 23,400 acres of timberlands. Over the past twelve months, the company has received proceeds of approximately $340 million from asset sales, exceeding the $300 million targeted from the program. The company expects to receive $200 million of additional proceeds by the end of 2007.

The company's average transaction price for newsprint increased $3 per metric ton, compared to the second quarter. Average operating costs decreased by $21 per metric ton due to lower manufacturing costs. The company idled production of paper at its Thunder Bay, Ontario facility on September 16. In October, one of the three paper machines at the site was restarted. Shipments declined by 31,500 metric tons in the quarter primarily resulting from the temporary curtailment at this facility. Newsprint inventories increased slightly as a result of the timing of export shipments. Although higher than the second quarter, newsprint inventories are almost 25% lower than the third quarter of 2005.

The company's average transaction price for coated papers decreased $12 per short ton in the quarter compared with the second quarter of 2006, while average operating cost increased $25 per short ton due to lower production volumes and increased chemical costs. Coated paper inventories declined by 10,000 short tons due to strong customer demand. In August, the company announced the indefinite idling of its Benton Harbor Nuway facility. The company recorded a pre-tax charge of $27.9 million due to this closure.

In specialty papers, the company's average transaction price increased $13 per short ton largely due to the introduction of a new value-added product at its Calhoun, Tenn. mill. Average operating cost decreased $62 per short ton. The improvement in costs was primarily the result of the Calhoun machine conversion startup, which occurred in July. This machine and its new product are meeting the company's expectations in terms of cost and quality.

The average market pulp transaction price for the company increased $37 per metric ton. Average operating costs decreased $42 per metric ton compared to the second quarter primarily due to reduced maintenance costs. Inventories declined by 11,400 tons to their lowest levels in over a year.

The average lumber transaction price for the company decreased $37 per thousand board feet. During the quarter, the company paid countervailing and antidumping duties of approximately $3.5 million, bringing the total paid to date to approximately $113 million. The softwood lumber agreement between the United States and Canada was implemented in October and the company expects a refund of approximately $100 million.

Total debt, less cash on the balance sheet, declined by $26.8 million during the third quarter and has declined by $186.5 million since December 31, 2005.

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 7,600 people and has 12 pulp and paper mills in the United States, Canada and South Korea. In North America, it also owns two converting facilities and 10 sawmills. Bowater's operations are supported by approximately 835,000 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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