BOWATER INCORPORATED
NYSE : BOW
TSX : BWX
LSE : BOW

BOWATER INCORPORATED

October 26, 2005 07:00 ET

Bowater Announces Third Quarter 2005 Financial Results

GREENVILLE, S.C.--(CCNMatthews - Oct 26, 2005) -

Bowater Incorporated (NYSE: BOW) reported a net loss of $16.0 million, or $0.28 per diluted share, on sales of $872.9 million for the third quarter of 2005. These results compare with a net loss of $18.1 million, or $0.32 per diluted share, on sales of $834.0 million in the third quarter of 2004. Before special items, the net loss for the third quarter of 2005 was $9.5 million, or $0.17 per diluted share, compared with the 2004 third quarter net loss before special items of $1.8 million, or $0.03 per diluted share. Third quarter 2005 special items, net of tax, consisted of a $6.1 million gain related to asset sales and a $12.6 million loss resulting from currency changes primarily related to the appreciation of the Canadian dollar. In addition to those special items, the company had a $3.7 million (or $0.06 per share) charge related to a tax adjustment. Before the gain on asset sales, operating income was $35.1 million, which is within the range indicated in the company's announcement dated October 4. Operating income was $45.0 million, including the gain on asset sales.



FINANCIAL HIGHLIGHTS
(In millions, except per-share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2005 2004 2005 2004
------------------- ------------------
Sales $ 872.9 $ 834.0 $2,607.4 $2,367.3
Net loss $ (16.0)$ (18.1) $ (18.7)$ (51.9)

Loss per diluted share (in
accordance with GAAP) $ (0.28)$ (0.32) $ (0.33)$ (0.91)
Special items, net of tax (per
diluted share):
Sale of assets (gain) loss (0.11) (0.01) (0.34) (0.07)
Foreign exchange (gain) loss 0.22 0.30 0.10 0.13
Asset impairment - - 0.13 -
------------------- ------------------
Loss per share excluding
special items $ (0.17)$ (0.03) $ (0.44)$ (0.85)
------------------- ------------------



"Bowater's product pricing has improved throughout the year," said Arnold M. Nemirow, Chairman, President and Chief Executive Officer. "However, we have experienced significant cost pressures, especially third quarter energy, chemicals and distribution costs, which were partially related to Hurricane Katrina, and the strong Canadian dollar. We do expect market fundamentals to continue to support Bowater's improved fourth quarter pricing."

As previously announced, the company has initiated an $80 million cost reduction program, which will be fully implemented by the end of 2006. In addition to this program, the company intends to sell certain assets that are expected to generate net proceeds in excess of $300 million over the same time period. The assets consist mostly of North American timberlands.

Bowater's average transaction price for newsprint rose $13 per metric ton in the third quarter compared to the second quarter. Inventory increased by 13,400 metric tons, primarily as a result of disruptions in export shipments due to the recent hurricanes. The company curtailed 56,000 metric tons of newsprint production in the third quarter. Of the curtailment, approximately 20,000 tons was related to a 19 day outage at the Thunder Bay, Ontario newsprint mill as a result of high wood fiber and energy costs. In the fourth quarter, the company expects to curtail approximately 53,000 metric tons representing maintenance outages and the continued idling of a machine at Thunder Bay. The company informed its North American customers of a $35 per metric ton price increase effective October 1.

Consumption of coated mechanical papers in North America continues to be strong. Bowater's average transaction price for coated and specialty papers increased $30 per short ton compared to the second quarter, while the company's average operating costs increased $19 per ton, primarily as a result of rising energy related costs and the strong Canadian dollar. Due to escalating energy costs, the company announced in the fourth quarter various freight and energy surcharges for its coated and specialty grades.

Bowater's average transaction price for market pulp decreased $28 per metric ton compared to the second quarter of 2005, while operating costs increased $6 per ton. The company curtailed 19,000 metric tons of market pulp due to maintenance outages in the third quarter and expects a similar amount in the fourth quarter. The company informed its North American customers of a $20 per metric ton price increase on softwood grades effective October 1.

The company's average transaction price for lumber decreased $24 per thousand board feet compared to the second quarter of 2005. During the quarter, the company paid countervailing and antidumping duties of approximately $7.8 million.

Bowater will release third quarter financial results before the market opens on Wednesday, October 26, 2005. A management conference call will be held to discuss these financial results at 10:00 a.m. EDT, October 26, 2005. The conference call number is 800-288-8967 or 612-234-9960 (international). The call will also be broadcast via the Internet. Interested parties may connect to the Bowater website 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. EDT on Wednesday, October 26, through Wednesday, November 2, on the website or by dialing 800-475-6701 or 320-365-3844 (international) and using the access code 798866.

Bowater Incorporated, headquartered in Greenville, SC, is a leading producer of newsprint and coated mechanical papers. In addition, the company makes uncoated mechanical papers, bleached kraft pulp and lumber products. The company has 12 pulp and paper mills in the United States, Canada and South Korea and 12 North American sawmills that produce softwood lumber. Bowater also operates two facilities that convert a mechanical 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 30 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 (TSX: 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 annual report on Form 10-K for the year ended December 31, 2004, 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 Ended Nine Months Ended
September 30, September 30,
----------------- -------------------
2005 2004 2005 2004
-------- -------- --------- ---------
Sales $ 872.9 $ 834.0 $2,607.4 $2,367.3
Cost of sales, excluding
depreciation, amortization and
cost of timber harvested 630.5 586.9 1,880.6 1,731.7
Depreciation, amortization and
cost of timber harvested 82.5 83.0 245.9 254.1
Distribution costs 83.8 85.2 256.1 241.6
Selling and administrative
expense 41.0 39.9 121.0 108.7
Asset impairment (2) - - 11.9 -
Net gain on fixed assets and
land sales 9.9 1.7 30.7 5.9
--------- ------- ---------- --------
Operating income 45.0 40.7 122.6 37.1

Other expense (income):
Interest income (1.0) (1.1) (3.2) (3.2)
Interest expense, net of
capitalized interest 50.0 48.4 149.5 146.5
Foreign exchange loss (gain) 1.8 1.2 3.6 (0.1)
Other, net (2.7) (2.5) (7.4) (6.3)
--------- ------- ----------- -------
48.1 46.0 142.5 136.9
--------- ------- ----------- -------
Loss before income taxes and
minority interests (3.1) (5.3) (19.9) (99.8)

Provision for income tax expense
(benefit) 14.5 12.0 1.1 (44.7)
Minority interests in the net
income (loss) of subsidiaries (1.6) 0.8 (2.3) (3.2)
---------- ------ ----------- -------


Net loss $ (16.0) $(18.1) $ (18.7) $ (51.9)
========= ======= ========== ========

Basic loss per common share: (1)

Net loss per share $ (0.28) $(0.32) $ (0.33) $ (0.91)
========= ======= ========== ========

Average common shares
outstanding (1) 57.4 57.2 57.4 57.2
========= ======= ========== ========

Diluted loss per common share:(1)

Net loss per share $ (0.28) $(0.32) $ (0.33) $(0.91)
========= ======= ========== ========

Average common and common
equivalent shares
outstanding (1) 57.4 57.2 57.4 57.2

========= ======= ========== ========


BOWATER INCORPORATED AND SUBSIDIARIES
(Unaudited, in millions of US dollars)


Consolidated Balance Sheet September 30, December 31,
2005 2004
------------- ------------
Current assets:
Cash and cash equivalents $ 23.3 $ 29.7
Accounts receivable, net 432.9 377.0
Inventories 353.3 327.9
Other current assets 104.1 168.1
------------- ------------
Total current assets 913.6 902.7
------------- ------------
Timber and timberlands 186.2 186.2
Fixed assets, net 3,125.3 3,301.1
Goodwill 828.2 828.2
Other assets 233.5 240.7
------------- ------------
$5,286.8 $5,458.9
============= ============
Current liabilities:
Current installments of long-term debt $ 20.6 $ 14.0
Short-term bank debt 27.0 73.0
Accounts payable and accrued liabilities 496.7 458.4
Dividends payable 11.2 11.2
------------ -----------
Total current liabilities 555.5 556.6
------------ -----------
Long-term debt, net of current
installments 2,403.0 2,427.9
Pension, other postretirement benefits
and other long-term liabilities 494.9 495.2
Deferred income taxes 354.8 403.4
Minority interests in subsidiaries 68.3 68.5
Shareholders' equity 1,410.3 1,507.3
------------ -----------
$5,286.8 $5,458.9
============ ===========

Nine Months Ended
Consolidated Cash Flow September 30,
--------------------------
2005 2004
------------ ------------
Cash flows from operating activities $ 143.3 $ 85.7
------------- ------------
Cash flows from (used for) investing
activities:
Cash invested in fixed assets, timber and
timberlands (89.6) (60.3)
Disposition of fixed assets, including
timber and timberlands 33.7 10.3
------------- -----------
(55.9) (50.0)
------------ -----------
Cash flows from (used for) financing
activities:
Cash dividends, including minority interests (34.4) (34.6)
Financing activities, net (61.3) (10.5)
Stock options exercised 1.9 5.1
------------ -----------
(93.8) (40.0)
------------ -----------
Net decrease in cash and cash equivalents $(6.4) $(4.3)
============ ===========

BOWATER INCORPORATED AND SUBSIDIARIES

Notes to the Press Release and Unaudited Consolidated Financial
Statements

(1) For the calculation of basic and diluted loss per share for
the three and nine months ended September 30, 2005 and 2004, no
adjustments to net loss are necessary. The effect of dilutive
securities is not included in the computation for the three and nine
months ended September 30, 2005 and 2004 to prevent antidilution.

(2) During the three months ended June 30, 2005, Bowater decided
to permanently shut the older, higher cost No. 1 line at Benton
Harbor. This shut resulted in a one-time non-cash asset impairment of
$11.9 million.

(3) 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, 2005
(unaudited, in millions except per share amounts)

Adjustment for Special Items

Land GAAP as
sales adjusted
& for
GAAP as fixed Foreign Asset Special
reported assets exchange Impairment items
---------------------------------------------

Operating income (loss) $ 45.0 $ (9.9) $ - $ - $ 35.1
Other expense (income):
Interest income (1.0) - - - (1.0)
Interest expense, net of
capitalized interest 50.0 - - - 50.0
Foreign exchange loss
(gain) 1.8 - (1.8) - -
Other, net (2.7) - - - (2.7)
-------------------------------------------
48.1 - (1.8) - 46.3
-------------------------------------------
Income (loss) before
income taxes and
minority interests (3.1) (9.9) 1.8 - (11.2)
Provision for income tax
expense (benefit) (a) 14.5 (3.8) (11.2) - (0.5)
Minority interests in the
net income (loss) of
subsidiaries (1.6) - 0.4 - (1.2)
-------------------------------------------
Net income (loss) $ (16.0)$ (6.1) $ 12.6 $ - $ (9.5)
-------------------------------------------

Diluted shares 57.4 57.4 57.4 - 57.4
-------------------------------------------

EPS $ (0.28)$(0.11) $ 0.22 $ - $(0.17)
-------------------------------------------

Effective tax rate (a) -467.7% 38.4% -622.2% - 4.5%
-------------------------------------------

(a) The provision for income tax expense for the three months
ended September 30, 2005 includes a net tax expense adjustment of $3.7
million (or $0.06 per share) for tax rate adjustments and settlements.
After considering this adjustment, our effective tax rate, as adjusted
for special items, would be 37.5%.

Three Months Ended September 30, 2004
(unaudited, in millions except per share amounts)

Adjustment for Special Items

Land GAAP as
sales adjusted
& for
GAAP as fixed Foreign Asset Special
reported assets exchange Impairment items
---------------------------------------------

Operating income (loss) $40.7 $(1.7) $ - $ - $ 39.0
Other expense (income):
Interest income (1.1) - - - (1.1)
Interest expense, net
of capitalized interest 48.4 - - - 48.4
Foreign exchange loss
(gain) 1.2 - (1.2) - -
Other, net (2.5) - - - (2.5)
---------------------------------------------
46.0 - (1.2) - 44.8
---------------------------------------------
Income (loss) before
income taxes and
minority interests (5.3) (1.7) 1.2 - (5.8)
Provision for income tax
expense (benefit) 12.0 (0.8) (15.8) - (4.6)
Minority interests in the
net income (loss) of
subsidiaries 0.8 (0.2) 0.6
---------------------------------------------
Net income (loss) $(18.1) $(0.9) $17.2 $ - $ (1.8)
---------------------------------------------

Diluted Shares 57.2 57.2 57.2 - 57.2
---------------------------------------------

EPS $(0.32) $(0.01) $0.30 $ - $(0.03)
---------------------------------------------

Effective tax rate -226.4% 47.1% -1316.7% 79.3%
---------------------------------------------


Nine Months Ended September 30, 2005
(unaudited, in millions except per share amounts)

Adjustment for Special Items

Land GAAP as
sales adjusted
& for
GAAP as fixed Foreign Asset Special
reported assets exchange Impairment items
---------------------------------------------

Operating income (loss) $122.6 $(30.7) $ - $ 11.9 $103.8
Other expense (income):
Interest income (3.2) - - - (3.2)
Interest expense, net
of capitalized
interest 149.5 - - - 149.5
Foreign exchange loss
(gain) 3.6 - (3.6) - -
Other, net (7.4) - - - (7.4)
---------------------------------------------
142.5 - (3.6) - 138.9
---------------------------------------------
Income (loss) before
income taxes and
minority interests (19.9) (30.7) 3.6 11.9 (35.1)
Provision for income tax
expense (benefit) 1.1 (11.3) (1.8) 4.5 (7.5)
Minority interests in the
net income (loss) of
subsidiaries (2.3) - (0.1) - (2.4)
---------------------------------------------
Net income (loss) $(18.7) $(19.4) $ 5.5 $ 7.4 $(25.2)
---------------------------------------------

Diluted shares 57.4 57.4 57.4 57.4 57.4
---------------------------------------------

EPS $(0.33) $(0.34) $ 0.10 $ 0.13 $(0.44)
---------------------------------------------

Effective tax rate -5.5% 36.8% -50.0% 37.8% 21.4%
---------------------------------------------

Nine Months Ended September 30, 2004
(unaudited, in millions except per share amounts)

Adjustment for Special Items

Land GAAP as
sales adjusted
& for
GAAP as fixed Foreign Asset Special
reported assets exchange Impairment items
---------------------------------------------

Operating income (loss) $ 37.1 $ (5.9) $ - $ - $ 31.2
Other expense (income):
Interest income (3.2) - - - (3.2)
Interest expense, net
of capitalized
interest 146.5 - - - 146.5
Foreign exchange loss
(gain) (0.1) - 0.1 - -
Other, net (6.3) - - - (6.3)
--------------------------------------------
136.9 - 0.1 - 137.0
--------------------------------------------

Income (loss) before
income taxes and
minority interests (99.8) (5.9) (0.1) - (105.8)
Provision for income tax
expense (benefit) (44.7) (2.1) (7.4) - (54.2)
Minority interests in the
net income (loss) of
subsidiaries (3.2) 0.1 (3.1)
--------------------------------------------
Net loss $(51.9) $ (3.8) $ 7.2 $ - $ (48.5)
--------------------------------------------

Diluted Shares 57.2 57.2 57.2 - 57.2
--------------------------------------------

EPS $(0.91) $(0.07) $ 0.13 $ - $ (0.85)
--------------------------------------------

Effective tax rate 44.8% 35.6% 7400.0% 51.2%
--------------------------------------------

A schedule of historical financial and operating statistics is
available upon request and on Bowater's web site (www.bowater.com).



Contact Information

  • Bowater Incorporated
    Media Contact:
    Gordon R. Manuel, 864-282-9448
    or
    Analyst Contact:
    Duane A. Owens, 864-282-9488