EXHIBIT 99.1
Media and Investor Contact:
Duane Owens
864-282-9488
FOR IMMEDIATE RELEASE
Thursday, July 27, 2006
BOWATER ANNOUNCES SECOND QUARTER 2006
FINANCIAL RESULTS
GREENVILLE, SC - Bowater Incorporated (NYSE: BOW) today reported 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. These results compare with a net loss of $3.6 million,
or $0.06 per diluted share, on sales of $897.5 million in the second quarter of
2005.
"Our second quarter financial results were impacted by additional costs
related to scheduled operational maintenance, conversion of a newsprint machine
to specialty papers at our Calhoun, Tennessee facility and permanent closure of
a market pulp line at our Thunder Bay site," said David J. Paterson, President
and Chief Executive Officer. "However, with these events largely behind us, I
look forward to improved operational and financial performance which, when
combined with our asset sale program, should lower our debt levels in the second
half of the year."
FINANCIAL HIGHLIGHTS
(In millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
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2006 2005 2006 2005
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Sales $ 899.4 $ 897.5 $ 1,792.6 $ 1,734.5
Net loss $ (10.6) $ (3.6) $ (29.4) $ (2.7)
Loss per diluted share (in accordance with GAAP) $ (0.18) $ (0.06) $ (0.51) $ (0.05)
Special items, net of tax (per diluted share):
Sale of assets (gain) loss (0.80) (0.11) (1.11) (0.23)
Tax adjustments 0.32 - 0.56 -
Foreign exchange (gain) loss 0.35 (0.01) 0.32 (0.12)
Adoption of new accounting standard - - 0.05 -
Severance - - 0.05 -
Asset impairment - 0.13 - 0.13
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Loss per share excluding special items $ (0.31) $ (0.05) $ (0.64) $ (0.27)
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(more)
Second quarter 2006 special items, net of tax, consisted of a $45.7 million
gain related to asset sales, an $18.5 million charge related to tax adjustments,
and a $20.2 million loss relating to foreign currency changes. Excluding these
special items, the net loss for the quarter was $17.6 million, or $0.31 per
diluted share, compared with the 2005 second quarter net loss before special
items of $3.1 million, or $0.05 per diluted share.
The asset sale program announced last October is well ahead of schedule.
During the second quarter,proceeds were $201.3 million providing an after-tax
gain of $45.7 million. As a result, total debt, less cash on the balance sheet,
declined by $148.0 million. The company currently owns 165,000 acres of
timberlands and leases 72,000 acres in the United States and owns 620,000 acres
in Canada. Additional sales are expected in the second half of the year.
During the quarter, the company's manufacturing costs were negatively
impacted by the strong Canadian dollar, which reached the highest quarterly
average in almost 30 years. Due to scheduled maintenance, the company curtailed
13,000 metric tons of newsprint and 15,000 metric tons of market pulp.
Maintenance spending was approximately $14 million higher than the first quarter
of 2006. It is anticipated that maintenance costs will be lower in the third
quarter.
The coated papers average transaction price for the company decreased $21
per short ton in the quarter compared with the first quarter of 2006, while the
average operating cost decreased $22 per short ton due to lower energy and
repair costs. The company expects normal seasonal improvements in demand in the
latter half of the year.
In specialty papers, the company's average transaction price increased $11
per short ton. Operating income was reduced by approximately $10 million due to
the conversion of the Calhoun, Tenn., machine and average operating costs
increased $51 per short ton. The machine conversion was completed at the end of
the second quarter and the new freesheet hybrid product was introduced in July.
The company's average transaction price for newsprint increased $18 per
metric ton. During the quarter, average operating costs increased by $16 per
metric ton primarily due to a stronger Canadian dollar and higher maintenance
related costs. Shipments declined by 26,000 metric tons in the quarter due to
increased maintenance and elimination of newsprint capacity as a result of the
Calhoun machine conversion. The company's newsprint inventory level declined to
the lowest level in almost five years.
The average market pulp transaction price for the company increased $41 per
metric ton. Average operating costs increased $49 per metric ton compared to the
first quarter primarily due to scheduled maintenance costs. The permanent
closure of the Thunder Bay pulp line 'A' in the second quarter reduced operating
income by approximately $10 million. As a result of this closure, annual
operating income is expected to improve by $20 million by the beginning of 2007.
The average lumber transaction price for the company decreased $17 per
thousand board feet. During the quarter, the company paid countervailing and
antidumping duties of approximately $4 million, bringing the total paid to date
to approximately $110 million. The company is addressing lower lumber prices by
reducing production volume.
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The effective tax rate, as adjusted for special items, was a benefit of 64
percent in the second quarter. The rate was impacted by approximately $10
million related to recent state and Canadian tax law changes. The company's
statutory rate remains approximately 35 percent.
During the quarter, the company refinanced its existing credit agreement
and accounts receivable securitization program. The new facility includes a $415
million, five-year, revolving credit facility in the United States and a $165
million, 364-day, renewable revolving credit facility in Canada. As of the end
of the quarter, there was no outstanding debt under either agreement.
Bowater management will hold a conference call to discuss these financial
results at 10:00 a.m. Eastern time, today, July 27, 2006. The conference call
number is 800-762-4717 or 480-629-9025 (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, August 3, by dialing
800-475-6701 or 320-365-3844 (international) and using the access code 836240.
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
7,800 people and has 12 pulp and paper mills in the United States, Canada and
South Korea. In North America, it also operates two converting facilities and 10
sawmills. Bowater's operations are supported by approximately 857,000 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 and the Pacific
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.
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 debt and cost reduction
strategies), future plans, future sales, future earnings or operating income,
future debt levels, prices for our major products, future inventory levels,
planned capital spending, scheduled maintenance costs, and projected 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, 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
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papers, the effects of planned and unplanned maintenance expenditures, the
continued strength in the market for timberlands, the costs of raw materials
such as energy, chemicals and fiber, and other factors listed from time to time
in Bowater's Securities and Exchange Commission filings, including those
described in the company's annual report on Form 10-K for the year ended
December 31, 2005 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. 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 Six Months Ended
June 30, June 30,
-------------------------------- ------------------------------------
2006 2005 2006 2005
-------------- -------------- ---------------- ----------------
Sales $ 899.4 $ 897.5 $ 1,792.6 $ 1,734.5
Cost of sales, excluding depreciation, amortization
and cost of timber harvested 697.7 642.5 1,377.9 1,250.1
Depreciation, amortization and cost of timber harvested 81.2 81.6 162.3 163.4
Distribution costs 83.5 89.4 166.4 172.3
Selling and administrative expenses 41.3 41.1 79.3 80.0
Impairment of assets - 11.9 - 11.9
Net gain on fixed assets and land sales (1) 71.7 9.8 100.5 20.8
-------------- -------------- ---------------- ----------------
Operating income 67.4 40.8 107.2 77.6
Other expense (income):
Interest income (1.0) (1.1) (2.1) (2.2)
Interest expense, net of capitalized interest 49.3 49.3 98.7 99.5
Foreign exchange loss 4.8 3.3 3.0 1.8
Other, net (2.1) (2.0) (5.7) (4.7)
-------------- -------------- ---------------- ----------------
51.0 49.5 93.9 94.4
-------------- -------------- ---------------- ----------------
Income (loss) before income taxes, minority interests
and cumulative effect of accounting change 16.4 (8.7) 13.3 (16.8)
Income tax provision (benefit) (2) 26.3 (5.6) 39.4 (13.4)
Minority interests, net of tax 0.7 0.5 0.7 (0.7)
-------------- -------------- ---------------- ----------------
Loss before cumulative effect of accounting change (10.6) (3.6) (26.8) (2.7)
Cumulative effect of accounting change, net of tax (3) - - (2.6) -
-------------- -------------- ---------------- ----------------
$ (10.6) $ (3.6) $ (29.4) $ (2.7)
Net loss ============== ============== ================ ================
Basic loss per common share: (4)
Loss before cumulative effect of accounting change $ (0.18) $ (0.06) $ (0.46) $ (0.05)
Cumulative effect of accounting change, net of tax - - (0.05) -
-------------- -------------- ---------------- ----------------
Net loss per share $ (0.18) $ (0.06) $ (0.51) $ (0.05)
============== ============== ================ ================
Average common shares outstanding (4) 57.4 57.4 57.4 57.3
============== ============== ================ ================
Diluted loss per common share: (4)
Loss before cumulative effect of accounting change $ (0.18) $ (0.06) $ (0.46) $ (0.05)
Cumulative effect of accounting change, net of tax - - (0.05) -
-------------- -------------- ---------------- ----------------
Net loss per share $ (0.18) $ (0.06) $ (0.51) $ (0.05)
============== ============== ================ ================
Average diluted common shares outstanding (4) 57.4 57.4 57.4 57.3
============== ============== ================ ================
BOWATER INCORPORATED AND SUBSIDIARIES
(Unaudited, in millions of US dollars)
Consolidated Balance Sheet June 30, December 31,
2006 2005
----------------------- -------------------
Current assets:
Cash and cash equivalents $ 113.6 $ 30.1
Accounts receivable, net 427.2 410.1
Inventories 354.1 365.8
Unrealized gain on hedged transactions 5.2 30.0
Timberlands held for sale (1) 9.1 123.1
Other current assets 33.3 31.2
----------------------- -------------------
Total current assets 942.5 990.3
----------------------- -------------------
Timber and timberlands 79.1 85.4
Fixed assets, net 2,995.0 3,049.1
Goodwill 794.1 794.1
Other assets 236.7 233.5
----------------------- -------------------
$ 5,047.4 $ 5,152.4
======================= ===================
Current liabilities:
Accounts payable and accrued liabilities $ 487.3 $ 487.3
Short-term bank debt - 55.0
Current installments of long-term debt 15.2 22.2
Dividends payable 11.2 11.2
----------------------- -------------------
Total current liabilities 513.7 575.7
----------------------- -------------------
Long-term debt, net of current installments 2,385.8 2,400.0
Pension, other postretirement benefits and other long-term liabilities 569.4 572.9
Deferred income taxes 368.1 329.4
Minority interests in subsidiaries 61.5 58.9
Shareholders' equity 1,148.9 1,215.5
----------------------- -------------------
$ 5,047.4 $ 5,152.4
======================= ===================
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions of US Dollars)
Six Months Ended
June 30,
-----------------------------------
2006 2005
--------------- ----------------
Cash flows from operating activities:
Net loss $ (29.4) $ (2.7)
Adjustments to reconcile net loss to net cash from operating activities:
Cumulative effect of accounting change, net of tax (3) 2.6 -
Stock-based compensation (5) (0.8) 0.1
Asset impairment - 11.9
Depreciation, amortization and cost of timber harvested 162.3 163.4
Deferred income tax provision (benefit) 28.5 (18.8)
Minority interests, net of tax 0.7 (0.7)
Net gain on sale of assets (100.5) (20.8)
Changes in working capital:
Accounts receivable (17.0) (69.4)
Inventories 8.7 (5.9)
Accounts payable and accrued liabilities (11.1) (6.9)
Income tax receivables and payables (2.0) 3.1
Other, net 0.5 (1.9)
--------------- ----------------
Net cash provided by operating activities 42.5 51.4
Cash flows from investing activities:
Cash invested in fixed assets, timber and timberlands (90.6) (50.1)
Disposition of assets, including timber and timberlands 238.1 23.0
--------------- ----------------
Net cash provided by (used for) investing activities 147.5 (27.1)
Cash flows from financing activities:
Cash dividends, including minority interests (22.9) (22.9)
Short-term financing 289.9 340.0
Short-term financing repayments (351.5) (308.0)
Payments of long-term debt (22.0) (14.0)
Stock options exercised - 1.9
--------------- ----------------
Net cash used for financing activities (106.5) (3.0)
--------------- ----------------
Net increase in cash and cash equivalents 83.5 21.3
Cash and cash equivalents at beginning of year 30.1 29.7
--------------- ----------------
Cash and cash equivalents at end of year $ 113.6 $ 51.0
=============== ================
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to the Press Release and Unaudited Consolidated Financial Statements
(1) During the first quarter of 2006, the Company sold its Degelis sawmill and
approximately 24,000 acres of timberlands primarily located in Tennessee.
During the second quarter of 2006, the Company sold its Baker Brook sawmill
and approximately 472,000 acres of timberlands primarily located in
Tennessee and the Canadian province of New Brunswick. As of June 30, 2006,
Bowater has approximately 42,000 acres classified as timberlands held for
sale.
(2) 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 Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) 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 certain of our Canadian operations during the first and second quarters
of 2006, income tax benefits and tax credits were entirely offset by tax
charges to increase the tax valuation allowance. During the first and
second quarters of 2005, no valuation allowances were recorded related to
income tax benefits during this period. Additionally, any income tax
benefit recorded on operating losses generated at certain of 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.
(3) Effective January 1, 2006, Bowater adopted FASB's SFAS No. 123R, "Share
Based Payment." 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.
(4) For the calculation of basic and diluted income (loss) per share for the
three and six months ended June 30, 2006 and 2005, no adjustments to net
loss are necessary. The effect of dilutive securities is not included in
the computation for the three and six months ended June 30, 2006 and 2005
as the effect would be anti-dilutive.
(5) In the first quarter of 2006, the Company recognized $0.9 million of income
resulting from the reduction in the fair value of outstanding equity
participation rights ("EPRs"). In the second quarter of 2006, the Company
recognized another $2.0 million of income resulting from the further
reduction in the fair value of outstanding EPRs. This income was more than
offset by $1.9 million of expense related to restricted stock unit grants
and $0.2 million of expense related to stock option grants approved by the
Board in May.
(6) A reconciliation of certain financial statement line items reported under
generally accepted accounting principles ("GAAP") to earnings reported
before special items is presented in the pages that follow. 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 June 30, 2006
(unaudited, in millions except per share amounts)
Adjustment for Special Items
Land GAAP as
& fixed adjusted
GAAP as assets Foreign Severance/ Tax for Special
reported sales exchange Curtailment Adjustments items
---------- ---------- --------- ----------- ----------- ---------------
Operating income (loss) $ 67.4 $ (71.7) $ - $ - $ - $ (4.3)
Other expense (income)
Interest income (1.0) - - - - (1.0)
Interest expense, net of capitalized interest 49.3 - - - - 49.3
Foreign exchange loss (gain) 4.8 - (4.8) - - -
Other, net (2.1) - - - - (2.1)
----------- --------- --------- ----------- ------------ ---------------
51.0 - (4.8) - - 46.2
----------- --------- --------- ----------- ------------ ---------------
Income (loss) before income taxes, minority interests and
cumulative effect of accounting change 16.4 (71.7) 4.8 - - (50.5)
Provision for income tax expense (benefit) 26.3 (23.9) (16.0) - (18.5) (32.1)
Minority interests, net of tax 0.7 (2.1) 0.6 - - (0.8)
----------- --------- ----------- ------------ --------- ---------------
Income (loss) before cumulative effect of accounting change (10.6) (45.7) 20.2 - 18.5 (17.6)
Cumulative effect of accounting change, net of tax - - - - - -
----------- --------- ----------- ------------ --------- ---------------
Net (loss) income $ (10.6) $ (45.7) $ 20.2 $ - $18.5 $ (17.6)
----------- --------- ----------- ------------ --------- ---------------
Diluted shares 57.4 57.4 57.4 57.4 57.4 57.4
----------- --------- ----------- ------------ --------- ---------------
EPS $ (0.18) $ (0.80) $ 0.35 $ - $ 0.32 $ (0.31)
----------- --------- ----------- ------------ --------- ---------------
Effective tax rate 160.4% - - - - 63.6%
----------- --------- ----------- ------------ --------- ---------------
Three Months Ended June 30, 2005
(unaudited, in millions except per share amounts)
Adjustment for Special Items
Land
& fixed GAAP as
assets Foreign Asset adjusted for
GAAP as reported sales exchange Impairment Special items
------------------- ----------- ------------- -------------- --------------
Operating income (loss) $ 40.8 $ (9.8) $ - $ 11.9 $ 42.9
Other expense (income)
Interest income (1.1) - - - (1.1)
Interest expense, net of capitalized interest 49.3 - - - 49.3
Foreign exchange loss (gain) 3.3 - (3.3) - -
Other, net (2.0) - - - (2.0)
------------------ ----------- ------------- -------------- --------------
49.5 - (3.3) - 46.2
------------------ ----------- ------------- -------------- --------------
Income (loss) before income taxes and minority interests (8.7) (9.8) 3.3 11.9 (3.3)
Provision for income tax expense (benefit) (5.6) (3.7) 4.5 4.5 (0.3)
Minority interests, net of tax 0.5 - (0.4) - 0.1
------------------ ----------- ------------- -------------- --------------
Net (loss) income $ (3.6) $ (6.1) $ (0.8) $ 7.4 $ (3.1)
------------------ ----------- ------------- -------------- --------------
Diluted Shares 57.4 57.4 57.4 57.4 57.4
------------------ ----------- ------------- -------------- --------------
EPS $ (0.06) $ (0.11) $(0.01) $ 0.13 $ (0.05)
------------------ ----------- ------------- -------------- --------------
Effective tax rate 64.4% - - - 9.1%
------------------ ----------- ------------- -------------- --------------
A schedule of historical financial and operating statistics is available upon
request and on Bowater's web site (www.bowater.com).
Six Months Ended June 30, 2006
(unaudited, in millions except per share amounts)
Adjustment for Special Items
GAAP as
Land Adoption adjusted
& fixed of New for
GAAP as assets Foreign Accounting Severance/ Tax Special
reported sales exchange Standard Curtailment Adjustments items
--------- --------- -------- ---------- ----------- ----------- -----------
Operating income (loss) $107.2 $ (100.5) $ - $ - $ 4.4 $ - $ 11.1
Other expense (income)
Interest income (2.1) - - - - - (2.1)
Interest expense, net of capitalized interest 98.7 - - - - - 98.7
Foreign exchange loss (gain) 3.0 - (3.0) - - - -
Other, net (5.7) - - - - - (5.7)
--------- --------- -------- ----------- ---------- ----------- -----------
93.9 - (3.0) - - - 90.9
--------- --------- --------- ---------- ---------- ----------- -----------
Income (loss) before income taxes, minority interests
and cumulative effect of accounting change 13.3 (100.5) 3.0 - 4.4 - (79.8)
Provision for income tax expense (benefit) 39.4 (34.8) (16.0) - 1.5 (32.0) (41.9)
Minority interests, net of tax 0.7 (2.1) 0.2 - - - (1.2)
--------- --------- --------- ---------- ---------- ----------- -----------
Income (loss) before cumulative effect of accounting
change (26.8) (63.6) 18.8 - 2.9 32.0 (36.7)
Cumulative effect of accounting change, net of tax (2.6) - - 2.6 - - -
--------- --------- --------- ---------- ---------- ----------- -----------
Net (loss) income $(29.4) $ (63.6) $ 18.8 $ 2.6 $ 2.9 $ 32.0 $ (36.7)
--------- --------- --------- ---------- ---------- ----------- -----------
Diluted shares 57.4 57.4 57.4 57.4 57.4 57.4 57.4
--------- --------- --------- ---------- ---------- ----------- -----------
EPS $(0.51) $ (1.11) $ 0.32 $ 0.05 $ 0.05 $ 0.56 $ (0.64)
--------- --------- --------- ---------- ---------- ----------- -----------
Effective tax rate 296.2% - - - - - 52.5%
--------- --------- --------- ---------- ---------- ----------- -----------
Six Months Ended June 30, 2005
(unaudited, in millions except per share amounts)
Adjustment for Special Items
Land
& fixed GAAP as
GAAP as assets Foreign Asset adjusted for
reported sales exchange Impairment Special items
------------- ------------ ------------ -------------- ---------------
Operating income (loss) $ 77.6 $ (20.8) $ - $ 11.9 $ 68.7
Other expense (income)
Interest income (2.2) - - - (2.2)
Interest expense, net of capitalized interest 99.5 - - - 99.5
Foreign exchange loss (gain) 1.8 - (1.8) - -
Other, net (4.7) - - - (4.7)
------------- ------------ ------------ -------------- ---------------
94.4 - (1.8) - 92.6
------------- ------------ ------------ -------------- ---------------
Income (loss) before income taxes and minority interests (16.8) (20.8) 1.8 11.9 (23.9)
Provision for income tax expense (benefit) (13.4) (7.5) 9.4 4.5 (7.0)
Minority interests, net of tax (0.7) - (0.5) - (1.2)
------------- ------------ ------------ -------------- ---------------
Net (loss) income $ (2.7) $ (13.3) $ (7.1) $ 7.4 $ (15.7)
------------- ------------ ------------ -------------- ---------------
Diluted Shares 57.3 57.3 57.3 57.3 57.3
------------- ------------ ------------ -------------- ---------------
EPS $ (0.05) $ (0.23) $ (0.12) $ 0.13 $ (0.27)
------------- ------------ ------------ -------------- ---------------
Effective tax rate 79.8% - - - 29.3%
------------- ------------ ------------ -------------- ---------------
A schedule of historical financial and operating statistics is available upon
request and on Bowater's web site (www.bowater.com).