Media Contact:
Gordon R. Manuel
864-282-9448
Analyst Contact:
Duane A. Owens
864-282-9488
FOR IMMEDIATE RELEASE
THURSDAY, APRIL 27, 2006
BOWATER ANNOUNCES FIRST QUARTER 2006
FINANCIAL RESULTS
GREENVILLE, SC - Bowater Incorporated (NYSE: BOW) reported 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. These results compare with net income of $0.9 million, or $0.02
per diluted share, on sales of $837.0 million in the first quarter of 2005.
First quarter 2006 special items, net of tax, consisted of a $17.9 million gain
related to asset sales, a $13.5 million charge related to tax adjustments, and
other net charges of $4.1 million. Before these special items, the net loss for
the first quarter of 2006 was $19.1 million, or $0.33 per diluted share,
compared with the 2005 first quarter net loss before special items of $12.6
million, or $0.22 per diluted share.
"A stronger Canadian dollar, seasonally weak coated pricing, and higher
labor related expenses affected first quarter results," said Arnold M. Nemirow,
Chairman, President and Chief Executive Officer. "We look forward to both
steadily improving markets and a better cost structure throughout the year.
Also, our timberland sale program is ahead of schedule and is expected to
significantly exceed our target of $300 million."
FINANCIAL HIGHLIGHTS
(In millions, except per-share amounts)
Three Months Ended
March 31,
--------------------------------
2006 2005
--------------------------------
Sales $ 893.2 $ 837.0
Net income (loss) $ (18.8) $ 0.9
Earnings (loss) per diluted share (in accordance with GAAP) $ (0.33) $ 0.02
Special items, net of tax (per diluted share):
Sale of assets (gain) loss $ (0.31) $ (0.13)
Tax adjustments 0.24 -
Foreign exchange (gain) loss (0.03) (0.11)
Severance charge 0.05 -
Adoption of accounting standard 0.05 -
--------------------------------
Loss per share excluding special items $ (0.33) $ (0.22)
--------------------------------
(more)
The company's average transaction price for coated papers decreased $25 per
short ton in the first quarter compared with the fourth quarter of 2005 due to
seasonally slow markets and product mix shifts. The company's average operating
cost increased $36 per short ton. In the first quarter, a scheduled pulp
maintenance outage at the Catawba, SC facility increased the production costs of
coated paper by approximately $4 million.
Compared to the fourth quarter, the cost per ton of specialty papers
increased by 5%. The conversion of one of the newsprint machines at Calhoun, TN
to a lightly coated product is expected to be completed during the second
quarter. The company expects the 18 day outage and startup to reduce operating
income by approximately $5 million.
The company's average transaction price for newsprint increased $18 per
metric ton in the first quarter. During the quarter, the company's average
operating costs increased by $21 per metric ton primarily due to a stronger
Canadian dollar and higher labor related costs.
The company's average transaction price for market pulp increased $6 per
metric ton compared to the fourth quarter of 2005. Average operating costs
decreased $26 per metric ton compared to the fourth quarter due to lower repair
costs and increased production. As previously announced, the company will
permanently close its high cost Thunder Bay pulp line 'A' in the second quarter.
Earnings are expected to improve by $20 million annually, beginning in 2007, due
to this closure.
The company's average transaction price for lumber increased $12 per
thousand board feet and shipments increased 7% compared to the fourth quarter of
2005. During the quarter, the company paid countervailing and antidumping duties
of approximately $4 million, bringing the total paid to-date to approximately
$105 million.
The company recorded a net after-tax gain on asset sales of $17.9 million.
Proceeds were $36.8 million. The gain reflects the sale of a small sawmill and
approximately 24,300 acres of timberlands. Since the asset sale program was
announced last October, the company has received proceeds of $78.8 million. In
the second quarter, the company expects to sell assets, primarily timberlands,
totaling approximately $150 million. The company expects to significantly exceed
its $300 million asset sale target by year end.
"In January, I announced my intent to retire upon the appointment of a
successor as Chief Executive Officer and President," said Arnold M. Nemirow,
Chairman, President and Chief Executive Officer. "I am very pleased that David
Paterson, who spent almost 20 years at Georgia-Pacific, most recently as
Executive Vice President, Building Products, will join Bowater as President and
Chief Executive Officer, effective May 1. He brings excellent credentials and a
strong record of accomplishments. Over the last few years, in the face of a very
difficult operating environment, Bowater has made considerable progress shifting
its product mix and improving its financial performance. David's leadership will
be a major factor in Bowater's future success. To help with the management
transition, I will remain as non-executive Chairman until the end of the year."
(more)
Bowater management will hold a conference call to discuss these financial
results at 10:00 a.m. Eastern time, today, April 27, 2006. The conference call
number is 888-550-2358 or 703-546-4242 (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 our website and through Thursday, May 4, by dialing 800-475-6701 or
320-365-3844 (international) and using the access code 825658.
Bowater Incorporated, headquartered in Greenville, SC, is a leading
producer of newsprint, coated mechanical and specialty papers. In addition, the
company makes bleached kraft pulp and lumber products. The company has 12 pulp
and paper mills in the United States, Canada and South Korea and 10 North
American sawmills that produce softwood lumber. Bowater also operates two
facilities that convert a base sheet to coated products. Bowater's operations
are supported by approximately 1.1 million acres of timberlands owned or leased
in the United States and Canada and 28 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 and
the Pacific 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, 2005, 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
March 31,
--------------------------------------------------
2006 2005
---------------------- ---------------------
Sales $ 893.2 $ 837.0
Cost of sales, excluding depreciation, amortization
and cost of timber harvested 680.2 607.6
Depreciation, amortization and cost of timber harvested 81.1 81.8
Distribution costs 82.9 82.9
Selling and administrative expense 38.0 38.9
Net gain on fixed assets and land sales 28.8 11.0
---------------------- ---------------------
Operating income 39.8 36.8
Other expense (income):
Interest income (1.1) (1.1)
Interest expense, net of capitalized interest 49.4 50.2
Foreign exchange gain (1.8) (1.5)
Other, net (3.6) (2.7)
---------------------- ---------------------
42.9 44.9
---------------------- ---------------------
Loss before income taxes, minority interests
and cumulative effect of accounting changes (3.1) (8.1)
Provision for income tax expense (benefit) (1) 13.1 (7.8)
Minority interests in the net loss of subsidiaries - (1.2)
---------------------- ---------------------
Income(loss) before cumulative effect of accounting changes (16.2) 0.9
Cumulative effect of accounting changes, net of taxes (2) (2.6) -
---------------------- ---------------------
Net income (loss) $ (18.8) $ 0.9
====================== =====================
Basic income (loss) per common share: (3)
Income (loss) before cumulative effect of accounting changes (0.28) 0.02
Cumulative effect of accounting changes, net of taxes (0.05) -
---------------------- ---------------------
Net income (loss) per share (0.33) 0.02
====================== =====================
Average common shares outstanding (3) 57.4 57.4
====================== =====================
Diluted income (loss) per potential common share: (3)
Income (loss) before cumulative effect of accounting changes (0.28) 0.02
Cumulative effect of accounting changes, net of taxes (0.05) -
---------------------- ---------------------
Net income (loss) per share (0.33) 0.02
====================== =====================
Average diluted common shares outstanding (3) 57.4 57.4
====================== =====================
BOWATER INCORPORATED AND SUBSIDIARIES
(Unaudited, in millions of US dollars)
Consolidated Balance Sheet March 31, December 31,
2006 2005
-------------------- ---------------------
Current assets:
Cash and cash equivalents $ 22.6 $ 30.1
Accounts receivable, net 436.1 410.1
Inventories 376.0 365.8
Unrealized gain on hedged transactions 13.2 30.0
Timberlands held for sale (4) 149.1 135.8
Other current assets 22.7 31.2
-------------------- ---------------------
Total current assets 1,019.7 1,003.0
-------------------- ---------------------
Timber and timberlands 76.9 85.4
Fixed assets, net 3,004.2 3,049.1
Goodwill 781.4 781.4
Other assets 228.1 233.5
-------------------- ---------------------
$5,110.3 $ 5,152.4
==================== =====================
Current liabilities:
Accounts payable and accrued liabilities $ 504.0 $ 487.3
Short-term bank debt 48.0 55.0
Current installments of long-term debt 15.2 22.2
Dividends payable 11.2 11.2
-------------------- ---------------------
Total current liabilities 578.4 575.7
-------------------- ---------------------
Long-term debt, net of current installments 2,394.8 2,400.0
Pension, other postretirement benefits and other long-term liabilities 577.4 572.9
Deferred income taxes 326.1 329.4
Minority interests in subsidiaries 58.9 58.9
Shareholders' equity 1,174.7 1,215.5
-------------------- ---------------------
$5,110.3 $ 5,152.4
==================== =====================
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions of US Dollars)
Three Months Ended
March 31,
-----------------------------
2006 2005
------------- ------------
Cash flows from operating activities:
Net income (loss) $ (18.8) $ 0.9
Cumulative effect of accounting changes, net of tax 2.6 -
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation, amortization and cost of timber harvested 81.1 81.8
Deferred income taxes 4.6 (10.5)
Amortization of unearned compensation - 0.1
Minority interests in net loss of subsidiaries - (1.2)
Net gain on sale of assets (28.8) (11.0)
Changes in working capital:
Accounts receivable, net (26.0) (24.4)
Inventories (11.6) (25.6)
Income taxes receivable - 7.3
Accounts payable and accrued liabilities 6.9 7.8
Income taxes payable 7.3 -
Other, net 4.7 (5.3)
------------- ------------
Net cash from operating activities 22.0 19.9
Cash flows from investing activities:
Cash invested in fixed assets, timber and timberlands (37.5) (25.1)
Disposition of assets, including timber and timberlands 36.8 12.4
------------- ------------
Net cash used for investing activities (0.7) (12.7)
Cash flows from financing activities:
Cash dividends, including minority interests (11.5) (11.4)
Short-term financing 201.7 225.0
Short-term financing repayments (209.0) (202.0)
Payments of long-term debt (10.0) (3.1)
Stock options exercised - 1.9
------------- ------------
Net cash (used for) provided by financing activities (28.8) 10.4
------------- ------------
Net increase (decrease) in cash and cash equivalents (7.5) 17.6
Cash and cash equivalents at beginning of year 30.1 29.7
------------- ------------
Cash and cash equivalents at end of year $ 22.6 $ 47.3
============= ============
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to the Press Release and Unaudited Consolidated Financial Statements
(1) During 2005, based on continued operating losses for our Canadian
operations and current evaluation of available tax planning strategies, it
was determined in accordance with Statement of Financial Accounting
Standard No. 109 that we would record a tax charge to establish a valuation
allowance against our remaining net Canadian deferred tax assets, which
were primarily for loss carryforwards and tax credits in Canada. Due to
operating losses generated at our Canadian operations during the first
quarter of 2006, income tax benefits of $13.5 million, or $0.24 per diluted
share, were entirely offset by tax charges to increase the tax valuation
allowance. During the first quarter of 2005, no valuation allowances were
recorded related to income tax benefits generated during this period.
Additionally, any income tax benefit recorded on operating losses generated
at our Canadian operations for the balance of 2006 will likely be offset by
establishing a 100% valuation allowance (tax charge) during 2006. To the
extent we establish valuation allowances in future periods this would
negatively impact our overall effective income tax rate in those periods.
To the extent that these Canadian operations losses lessen or become
profitable, the impact of this valuation allowance would also lessen or
reverse and positively impact our effective tax rate in those periods.
(2) Effective January 1, 2006, Bowater adopted Financial Accounting Standards
Board's Statement on Financial Accounting Standard (SFAS) 123R, "Share
Based Payment". SFAS 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 123R
resulted in a cumulative effect adjustment of $2.6 million, or $0.05 per
diluted share.
(3) For the calculation of basic and diluted income (loss) per share for the
three months ended March 31, 2006 and 2005, no adjustments to net income
(loss) are necessary. The effect of dilutive securities is not included in
the computation for the three months ended March 31, 2006 to
prevent antidilution.
(4) Consists mainly of North American timberlands that are currently being
marketed for sale.
(5) 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 March 31, 2006
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP as
Adoption of adjusted
Land sales new for
GAAP as & fixed Foreign accounting Tax Special
reported assets exchange standard Severance Adjustments items
------------ ------------ ---------- -------------- ------------ ------------- --------
Operating income (loss) $ 39.8 $ (28.8) $ - $ - $ 4.4 $ - $ 15.4
Other expense (income)
Interest income (1.1) - - - - - (1.1)
Interest expense, net of capitalized
interest 49.4 - - - - - 49.4
Foreign exchange loss (gain) (1.8) - 1.8 - - - -
Other, net (3.6) - - - - - (3.6)
------------ ------------ ---------- -------------- ------------ ------------- -------
42.9 - 1.8 - - - 44.7
------------ ------------ ---------- -------------- ------------ ------------- -------
Income (loss) before income taxes and
minority interests (3.1) (28.8) (1.8) - 4.4 (29.3)
Provision for income tax expense (benefit) 13.1 (10.9) - 1.5 (13.5) (9.8)
Minority interests in the net income
(loss)of subsidiaries - - (0.4) - - (0.4)
------------ ------------ ---------- -------------- ------------ ------------- -------
Loss before cumulative effect of
accounting changes (16.2) (17.9) (1.4) - 2.9 13.5 (19.1)
Cumulative effect of accounting changes (2.6) - - 2.6 - - -
------------ ------------ ---------- -------------- ------------ ------------- -------
Net loss $ (18.8) $ (17.9) $ (1.4) $ 2.6 $ 2.9 $ 13.5 $(19.1)
------------ ------------ ---------- -------------- ------------ ------------- -------
Diluted shares 57.4 57.4 57.4 57.4 57.4 57.4 57.4
------------ ------------ ---------- -------------- ------------ ------------- -------
EPS $ (0.33) $ (0.31) $ (0.03) $ 0.05 $ 0.05 $ 0.24 (0.33)
------------ ------------ ---------- -------------- ------------ ------------- -------
Effective tax rate -422.6% 33.4%
------------ ------------ ---------- -------------- ------------ ------------- -------
Three Months Ended March 31, 2005
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP as
Land Adoption of adjusted
sales & new for
GAAP as fixed Foreign accounting Tax Special
reported assets exchange standard Severance Adjustments items
------------- ----------- ---------- -------------- ------------ ------------- -------
Operating income (loss) $ 36.8 $ (11.0) $ - $ - $ - $ - $ 25.8
Other expense (income)
Interest income (1.1) - - - - - (1.1)
Interest expense, net of capitalized
interest 50.2 - - - - - 50.2
Foreign exchange loss (gain) (1.5) - 1.5 - - - -
Other, net (2.7) - - - - - (2.7)
------------- ----------- ---------- -------------- ------------ ------------- -------
44.9 - 1.5 - - - 46.4
------------- ----------- ---------- -------------- ------------ ------------- -------
Income (loss) before income taxes and
minority interests (8.1) (11.0) (1.5) - - - (20.6)
Provision for income tax expense (benefit) (7.8) (3.8) 4.9 - - - (6.7)
Minority interests in the net income
(loss)of subsidiaries (1.2) (0.1) - - - (1.3)
------------- ----------- ---------- -------------- ------------ ------------- --------
Net income (loss) $ 0.9 $ (7.2) $ (6.3) $ - $ - $ - (12.6)
------------- ----------- ---------- -------------- ------------ ------------- --------
Diluted Shares 57.4 57.4 57.4 - - - 57.4
------------- ----------- ---------- -------------- ------------ ------------- --------
EPS $ 0.02 $ (0.13) $(0.11) $ - $ - $ - (0.22)
------------- ----------- ---------- -------------- ------------ ------------- --------
Effective tax rate 96.3% 32.5%
------------- ----------- ---------- -------------- ------------ ------------- --------
A schedule of historical financial and operating statistics is available upon
request and on Bowater's web site (www.bowater.com).