Bowater Announces First Quarter 2007 Financial Results



    GREENVILLE, S.C., April 26 /CNW/ - Bowater Incorporated (NYSE:   BOW) 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.

    Earnings Conference Call

    Bowater management will hold a conference call to discuss these financial
results today at 10:00 a.m. Eastern time, April 26, 2007. The conference call
number is 866-269-9608 or 612-332-0342 (international). A webcast of the call
will be available on Bowater's website at www.bowater.com. Interested parties
may follow the on-screen instructions for access to the webcast and related
information. A replay of the call will be available after 1:30 p.m. Eastern
time today on the company's website and through Thursday, May 3, by dialing
800-475-6701 or 320-365-3844 (international) and using the access code 870020.

    About Bowater

    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. Bowater common stock is listed
on the New York Stock Exchange. A special class of stock exchangeable into
Bowater common stock is listed on the Toronto Stock Exchange (TSX: BWX). To
learn more, visit www.bowater.com.

    All amounts are in U.S. dollars.

    Forward-Looking Statements

    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 (including anticipated execution of our export strategy
and our debt and cost reduction strategies and opportunities related thereto),
the sale of timberlands, and the continuation of operational improvements
generally. In addition, statements relating to our planned combination with
Abitibi-Consolidated are forward-looking, such as statements about the
strategic rationale for the merger, future financial and operating results,
plans, objectives, expectations and intentions of the combined company, the
markets for the combined company's products, the future development of the
combined company's business, the ability of the parties to secure necessary
regulatory and shareholder approvals for the combination, the contingencies
and uncertainties to which Abitibi and Bowater may be subject, statements
regarding the combined company's ability to: generate efficiencies and improve
its financial profile; achieve significant synergies, in particular an
estimated $250 million of synergies within two years; become more competitive;
improve product quality and breadth; develop new products and better serve its
customers; as well as other statements that are not historical fact.
Forward-looking statements may be identified by the use of forward-looking
terminology such as the words "expects", "projects", "intends", "believes",
"anticipates", and other terms with similar meaning indicating possible future
events or actions or potential impact on the business or shareholders of
Bowater.

    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, which could cause actual results to
differ materially. These risks and uncertainties include, but are not limited
to, negative industry conditions and further growth in alternative media,
actions of competitors, Canadian dollar exchange rates, the actual realization
of debt and cost reduction strategies, the demand for higher margin coated and
uncoated mechanical paper, the continued strength in the market for
timberlands, and the costs of raw materials such as energy, chemicals and
fiber. In addition, with respect to forward-looking statements relating to the
proposed combination with Abitibi-Consolidated, the following factors, among
others could cause actual results to differ materially from those set forth in
the forward-looking statements: the ability to obtain required governmental or
third party approvals of the combination on the proposed terms and schedule
and without material concessions; the failure of Abitibi or Bowater
shareholders to approve the combination; the exercise by a material percentage
of Abitibi shareholders of their dissent rights; the risk that the businesses
will not be integrated successfully or that the anticipated improved financial
performance, product quality and, product development will not be achieved;
the risk that other combinations within the industry or other factors may
limit our ability to improve our competitive position; the risk that the cost
savings and other expected synergies from the transaction may not be fully
realized or may take longer to realize than expected; and disruption from the
transaction making it more difficult to maintain relationships with customers,
employees or suppliers. Additional factors listed from time to time in
Bowater's Securities and Exchange Commission filings, including those
described in the company's report on Form 10-K for the year ended December 31,
2006 under the caption "Cautionary Statement Regarding Forward-Looking
Information and Use of Third Party Data." Bowater disclaims any obligation to
update these forward-looking statements.

    Any 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.

    Additional Information and Where to Find It

    In connection with the proposed combination of Abitibi-Consolidated and
Bowater Incorporated, AbitibiBowater Inc. (the proposed new parent
corporation) has filed with the SEC a registration statement on Form S-4,
which includes a preliminary proxy statement of Bowater, a preliminary
prospectus of AbitibiBowater and a preliminary management information circular
of Abitibi. Shareholders are urged to read the preliminary joint proxy
statement/prospectus/management information circular regarding the proposed
transaction and the definitive proxy statement/prospectus/management
information circular when it becomes available, because it contains or will
contain important information. Shareholders will be able to obtain a free copy
of the definitive joint proxy statement/prospectus/management information
circular, as well as other filings containing information about Abitibi and
Bowater, without charge, at the SEC's internet site (http://www.sec.gov).
Copies of the definitive joint proxy statement/prospectus/management
information circular and the filings with the SEC that will be incorporated by
reference in the joint proxy statement/prospectus/management information
circular can also be obtained, without charge, by directing a request to
Abitibi, 1155 Metcalfe Street, Suite 800, Montreal, Quebec Canada H3B 5H2,
Attention: Investor Relations (514) 394-2341, or to Bowater, 55 East
Camperdown Way, Greenville, South Carolina USA 29601, Attention: Investor
Relations (864) 271-7733.

    Participants in the Solicitation

    Abitibi, Bowater and their respective directors and executive officers
and other persons may be deemed to be participants in the solicitation of
proxies in respect of the proposed combination. Information regarding
Abitibi's directors and executive officers is available in the 2006 Annual
Report on Form-40F filed with the SEC by Abitibi on March 15, 2007, and the
management information circular with respect to Abitibi's 2007 Annual Meeting
of Shareholders filed by Abitibi on SEDAR on April 5, 2007. Information
regarding Bowater's directors and executive officers is available in the
Annual Report on Form 10-K filed with the SEC by Bowater on March 1, 2007 and
the Proxy Statement with respect to Bowater's 2006 Annual Meeting of
Stockholders filed by Bowater with the SEC on April 12, 2006. Other
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, is contained in the preliminary proxy
statement/prospectus/management information circular and will be contained in
other relevant materials to be filed with the SEC.

    
                             BOWATER INCORPORATED
                    CONSOLIDATED STATEMENTS OF OPERATIONS
              (Unaudited, in millions except per share amounts)


                                                            Three Months
                                                                Ended
                                                              March 31,
                                                           ---------------
                                                             2007    2006
                                                           ------- -------
    Sales                                                  $771.6  $893.2
    Costs and expenses:
    Cost of sales, excluding depreciation, amortization
     and cost of timber harvested                           600.5   680.2
    Depreciation, amortization and cost of timber
     harvested                                               79.9    81.1
    Distribution costs                                       75.3    82.9
    Selling and administrative expenses                      48.7    38.0
    Net gain on disposition of assets (1)                   (57.9)  (28.8)
                                                           ------- -------

    Operating income                                         25.1    39.8
                                                           ------- -------

    Other income (expense):
    Interest income                                           1.9     1.1
    Interest expense                                        (47.3)  (49.4)
    Foreign exchange (loss) gain                             (3.1)    1.8
    Other, net                                               (3.2)    3.6
                                                           ------- -------
                                                            (51.7)  (42.9)
                                                           ------- -------
    Loss before income taxes, minority interests and
     cumulative effect of accounting change                 (26.6)   (3.1)

    Income tax provision (2)                                 (1.7)  (13.1)
    Minority interests, net of tax (1)                       (7.1)      -
                                                           ------- -------

    Loss before cumulative effect of accounting change      (35.4)  (16.2)
    Cumulative effect of accounting change, net of tax (3)      -    (2.6)
                                                           ------- -------

    Net loss                                               $(35.4) $(18.8)
                                                           ------- -------


    Basic loss per common share: (4)

       Loss before cumulative effect of accounting change  $(0.62) $(0.28)
       Cumulative effect of accounting change, net of tax       -   (0.05)
                                                           ------- -------

        Net loss per share                                 $(0.62) $(0.33)
                                                           ------- -------

       Average common shares outstanding (4)                 57.4    57.4
                                                           ------- -------


    Diluted loss per common share: (4)

       Loss before cumulative effect of accounting change  $(0.62) $(0.28)
       Cumulative effect of accounting change, net of tax       -   (0.05)
                                                           ------- -------

        Net loss per share                                 $(0.62) $(0.33)
                                                           ------- -------

       Average diluted common shares outstanding (4)         57.4    57.4
                                                           ------- -------


    

    
                            BOWATER INCORPORATED
                         CONSOLIDATED BALANCE SHEETS
                     (Unaudited, in millions of dollars)


                                                      March 31, Dec. 31,
                                                        2007      2006
                                                      --------- ---------
    Current assets:
        Cash and cash equivalents                     $   98.3  $   98.9
        Accounts receivable, net                         414.5     444.5
        Inventories                                      376.9     349.8
        Timberlands held for sale (1)                     15.6      18.7
        Other current assets                              54.8      47.1
                                                      --------- ---------
            Total current assets                         960.1     959.0
                                                      --------- ---------
    Timber and timberlands                                57.2      60.8
    Fixed assets, net                                  2,827.1   2,877.9
    Goodwill                                             590.7     590.2
    Other assets                                         153.8     158.0
                                                      --------- ---------
        Total assets                                  $4,588.9  $4,645.9
                                                      --------- ---------

    Current liabilities:
        Current installments of long-term debt        $   15.8  $   14.9
        Accounts payable and accrued liabilities         428.5     431.2
                                                      --------- ---------
            Total current liabilities                    444.3     446.1
                                                      --------- ---------
    Long-term debt, net of current installments        2,246.0   2,251.6
    Pension and other postretirement benefit
     obligations                                         634.0     651.1
    Other long-term liabilities                           90.5      92.5
    Deferred income taxes                                308.4     313.0
    Minority interests in subsidiaries                    69.7      59.0
    Shareholders' equity                                 796.0     832.6
                                                      --------- ---------
        Total liabilities and shareholders' equity    $4,588.9  $4,645.9
                                                      --------- ---------

    

    
                             BOWATER INCORPORATED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (Unaudited, in millions of dollars)

                                                          Three Months
                                                               Ended
                                                            March 31,
                                                         ----------------
                                                          2007    2006
                                                         ------- --------
    Cash flows from operating activities:
    Net loss                                             $(35.4) $ (18.8)
    Adjustments to reconcile net loss to net cash from
     operating activities:
    Cumulative effect of accounting change, net of tax
     (3)                                                      -      2.6
    Share-based compensation                                4.6     (0.9)
    Depreciation, amortization and cost of timber
     harvested                                             79.9     81.1
    Deferred income taxes                                  (3.4)     4.6
    Minority interests, net of tax (1)                      7.1        -
    Pension contributions, net of pension benefit costs   (10.5)     4.8
    Net gain on disposition of assets (1)                 (57.9)   (28.8)
    Changes in working capital:
      Accounts receivable                                  29.9    (26.0)
      Inventories                                         (27.1)   (11.6)
      Income tax receivables and payables                   4.7      7.3
      Accounts payable and accrued liabilities            (12.1)     6.9
    Other, net                                             (4.7)     0.8
                                                         ------- --------
              Net cash (used in) provided by operating
               activities                                 (24.9)    22.0

    Cash flows from investing activities:
    Cash invested in fixed assets, timber and timberlands (25.9)   (37.5)
    Disposition of assets, including timber and
     timberlands                                           64.6     36.8
                                                         ------- --------
              Net cash provided by (used for) investing
               activities                                  38.7     (0.7)

    Cash flows from financing activities:
    Cash dividends                                        (11.3)   (11.5)
    Short-term financing                                    8.0    201.7
    Short-term financing repayments                        (8.0)  (209.0)
    Payments of long-term debt                             (3.1)   (10.0)
                                                         ------- --------
              Net cash used for financing activities      (14.4)   (28.8)
                                                         ------- --------

    Net decrease in cash and cash equivalents              (0.6)    (7.5)

    Cash and cash equivalents at beginning of year         98.9     30.1
                                                         ------- --------
    Cash and cash equivalents at end of year             $ 98.3  $  22.6
                                                         ------- --------


    

    
    BOWATER INCORPORATED
    Notes to the Press Release and Unaudited Consolidated Financial
     Statements

    (1)During the first three months of 2007 and 2006, Bowater sold
     approximately 52,200 acres and 24,300 acres, respectively, of
     timberlands primarily located in Tennessee and Canada. One of our
     consolidated subsidiaries, which is owned 49% by a minority interest,
     sold 24,958 acres of the 52,200 acres and recorded a pre-tax gain on
     the sale of land of $22.3 million during the first quarter of 2007.
     As of March 31, 2007, we have approximately 67,600 acres of
     timberlands classified as held for sale.

    (2)During the first three months of 2007 and 2006, income tax benefits
     and tax credits of $12.3 million and $13.5 million, respectively,
     arising primarily from operating losses at certain Canadian
     operations were entirely offset by tax charges to increase our tax
     valuation allowance, which was initially established in December
     2005. On January 1, 2007, we adopted FASB Interpretation No. 48,
     "Accounting for Uncertainty in Income Taxes -- An Interpretation of
     FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting
     for the uncertainty in income taxes recognized by prescribing the
     threshold a tax position is required to meet before being recognized
     in the financial statements. As a result of the implementation of FIN
     48, we decreased our liability for unrecognized tax benefits by $2.3
     million, which was accounted for as a decrease to our January 1, 2007
     retained deficit balance. The reduction represents the cumulative
     effect of adoption on prior periods.

    (3)Effective January 1, 2006, Bowater adopted FASB Statement No. 123R,
     "Share Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires the
     measurement of all employee share-based payments to employees,
     including grants of employee stock options, using a fair-value-based
     method and the recording of such expense in our consolidated
     statements of income. The adoption of SFAS No. 123R resulted in a
     cumulative effect adjustment, net of tax, of $2.6 million, or $0.05
     per diluted share, in 2006.

    (4)For the calculation of basic and diluted loss per share for the
     three months ended March 31, 2007 and 2006, no adjustments to net
     loss are necessary. The effect of dilutive securities is not included
     in the computation for the three months ended March 31, 2007 and 2006
     as the effect would be anti-dilutive.

    (5)A reconciliation of certain financial statement line items reported
     under generally accepted accounting principles ("GAAP") to our use of
     non-GAAP measures of operating income (loss), net loss and loss per
     share reported before special items is presented in the tables below.
     We believe that these measures allow investors to more easily compare
     our ongoing operations and financial performance from period to
     period. These non-GAAP measures should be considered in addition to
     and not as a substitute for measures of financial performance
     prepared in accordance with GAAP. Consequently, investors should rely
     on GAAP operating income, net loss and loss per share. Non-GAAP
     measures included in our press release include:

    Operating income (loss) before special items - is defined as operating
     income from our consolidated statement of operations adjusted for
     special items. Internally, the Company uses a non-GAAP operating
     income (loss) measure as an indicator of a segment's performance and
     excludes impairment charges, severance charges, gains on dispositions
     of assets and other discretionary charges or credits from GAAP
     operating income. Therefore, this non-GAAP presentation is consistent
     with our internal presentation. This non-GAAP measure should be used
     in addition to and not as a substitute for operating income provided
     in our consolidated statement of operations. We believe that this
     non-GAAP measure is useful because it is consistent with our internal
     presentation and performance analysis and allows investors to more
     easily compare our ongoing operations and financial performance from
     period to period.

    Net loss before special items - is defined as net loss from our
     consolidated statement of operations adjusted for the special items
     discussed above plus foreign exchange gains (losses) and the impact
     of the adoption of new accounting standards, net of tax, and the
     adjustment for tax charges that have been taken against the income
     tax benefits arising primarily from operating losses at certain of
     our Canadian operations (refer to Note 2 above). The adjustment for
     these items is consistent with our internal presentation, and the tax
     adjustment is provided for our investors to reflect a more
     appropriate effective tax rate. This non-GAAP measure should be used
     in addition to and not as a substitute for net loss provided in our
     consolidated statement of operations. We believe that this non-GAAP
     measure is useful because it is consistent with our internal
     presentation and allows investors to more easily compare our ongoing
     operations and financial performance from period to period.

    Loss per share (EPS) before special items - is defined as diluted EPS
     calculated based on the net loss before special items. This non- GAAP
     measure should be used in addition to and not as a substitute for our
     loss per share calculated in accordance with GAAP as provided in the
     consolidated statement of operations. We believe that this non-GAAP
     measure is useful because it is consistent with our internal
     presentation and allows investors to more easily compare our EPS from
     ongoing operations and financial performance from period to period.


     --------------------------------------------------- -------- --------
     Three Months Ended March 31, 2007
     (unaudited, in millions except per
      share amounts)
                                             Operating     Net
                                               income     (loss)
                                               (loss)     income    EPS
     ---------------------------------------------------------------------
     GAAP as reported                        $    25.1    $(35.4)  $(0.62)

     Adjustments for special items:
     Sale of assets                              (57.9)    (35.9)   (0.63)
     Severance and merger-related costs            9.5       7.0     0.13
     Foreign exchange                                -       3.4     0.06
     Tax adjustments                                 -      12.3     0.21

     GAAP as adjusted for special items      $   (23.3)   $(48.6)  $(0.85)

     --------------------------------------------------- -------- --------

     --------------------------------------------------- -------- --------

     Three Months Ended March 31, 2006
     (unaudited, in millions except per share
      amounts)
                                              Operating    Net
                                                income    (loss)
                                                (loss)    income    EPS
     ---------------------------------------------------------------------
     GAAP as reported                          $  39.8    $(18.8)  $(0.33)

     Adjustments for special items:
     Sale of assets                              (28.8)    (17.9)   (0.31)
     Severance                                     4.4       2.9     0.05
     Adoption of new accounting standard             -       2.6     0.05
     Foreign exchange                                -      (1.4)   (0.03)
     Tax adjustments                                 -      13.5     0.24

     GAAP as adjusted for special items        $  15.4    $(19.1)  $(0.33)
    




For further information:

For further information: Bowater Incorporated Media Contact: Kathleen M.
Bennett, 864-282-9452 Analyst Contact: Duane A. Owens, 864-282-9488

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BOWATER INCORPORATED

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