Bowater Announces First Quarter 2006 Financial Results

Bowater Incorporated (NYSE: BOW) reported a netloss of $18.8 million, or $0.33 per diluted share, on sales of $893.2million for the first quarter of 2006. These results compare with netincome of $0.9 million, or $0.02 per diluted share, on sales of $837.0million in the first quarter of 2005. First quarter 2006 specialitems, net of tax, consisted of a $17.9 million gain related to assetsales, a $13.5 million charge related to tax adjustments, and othernet charges of $4.1 million. Before these special items, the net lossfor the first quarter of 2006 was $19.1 million, or $0.33 per dilutedshare, compared with the 2005 first quarter net loss before specialitems of $12.6 million, or $0.22 per diluted share.

"A stronger Canadian dollar, seasonally weak coated pricing, andhigher labor related expenses affected first quarter results," saidArnold M. Nemirow, Chairman, President and Chief Executive Officer."We look forward to both steadily improving markets and a better coststructure throughout the year. Also, our timberland sale program isahead of schedule and is expected to significantly exceed our targetof $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)
--------------

The company's average transaction price for coated papersdecreased $25 per short ton in the first quarter compared with thefourth quarter of 2005 due to seasonally slow markets and product mixshifts. The company's average operating cost increased $36 per shortton. In the first quarter, a scheduled pulp maintenance outage at theCatawba, SC facility increased the production costs of coated paper byapproximately $4 million.

Compared to the fourth quarter, the cost per ton of specialtypapers increased by 5%. The conversion of one of the newsprintmachines at Calhoun, TN to a lightly coated product is expected to becompleted during the second quarter. The company expects the 18 dayoutage and startup to reduce operating income by approximately $5million.

The company's average transaction price for newsprint increased$18 per metric ton in the first quarter. During the quarter, thecompany's average operating costs increased by $21 per metric tonprimarily due to a stronger Canadian Dollar and higher labor relatedcosts.

The company's average transaction price for market pulp increased$6 per metric ton compared to the fourth quarter of 2005. Averageoperating costs decreased $26 per metric ton compared to the fourthquarter due to lower repair costs and increased production. Aspreviously announced, the company will permanently close its high costThunder Bay pulp line 'A' in the second quarter. Earnings are expectedto improve by $20 million annually, beginning in 2007, due to thisclosure.

The company's average transaction price for lumber increased $12per thousand board feet and shipments increased 7% compared to thefourth quarter of 2005. During the quarter, the company paidcountervailing 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 $17.9million. Proceeds were $36.8 million. The gain reflects the sale of asmall sawmill and approximately 24,300 acres of timberlands. Since theasset sale program was announced last October, the company hasreceived proceeds of $78.8 million. In the second quarter, the companyexpects to sell assets, primarily timberlands, totaling approximately$150 million. The company expects to significantly exceed its $300million asset sale target by year end.

"In January, I announced my intent to retire upon the appointmentof a successor as Chief Executive Officer and President," said ArnoldM. Nemirow, Chairman, President and Chief Executive Officer. "I amvery pleased that David Paterson, who spent almost 20 years atGeorgia-Pacific, most recently as Executive Vice President, BuildingProducts, will join Bowater as President and Chief Executive Officer,effective May 1. He brings excellent credentials and a strong recordof accomplishments. Over the last few years, in the face of a verydifficult operating environment, Bowater has made considerableprogress shifting its product mix and improving its financialperformance. David's leadership will be a major factor in Bowater'sfuture success. To help with the management transition, I will remainas non-executive Chairman until the end of the year."

Bowater management will hold a conference call to discuss thesefinancial 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'swebsite at www.bowater.com. Interested parties may follow theon-screen instructions for access to the webcast and relatedinformation. A replay of the call will be available after 1:30 p.m.Eastern time today on our website and through Thursday, May 4, bydialing 800-475-6701 or 320-365-3844 (international) and using theaccess code 825658.

Bowater Incorporated, headquartered in Greenville, SC, is aleading producer of newsprint, coated mechanical and specialty papers.In addition, the company makes bleached kraft pulp and lumberproducts. The company has 12 pulp and paper mills in the UnitedStates, Canada and South Korea and 10 North American sawmills thatproduce softwood lumber. Bowater also operates two facilities thatconvert a base sheet to coated products. Bowater's operations aresupported by approximately 1.1 million acres of timberlands owned orleased in the United States and Canada and 28 million acres of timbercutting rights in Canada. Bowater is one of the world's largestconsumers of recycled newspapers and magazines. Bowater common stockis listed on the New York Stock Exchange and the Pacific Exchange. Aspecial class of stock exchangeable into Bowater common stock islisted on the Toronto Stock Exchange (TSX: BWX).

All amounts are in U.S. dollars.

Statements in this news release that are not reported financialresults or other historical information are "forward-lookingstatements" within the meaning of the Private Securities LitigationReform Act of 1995. They include, for example, statements about ourbusiness outlook, assessment of market conditions, strategies, futureplans, future sales, prices for our major products, inventory levels,capital spending and tax rates. These forward-looking statements arenot guarantees of future performance. They are based on management'sexpectations that involve a number of business risks anduncertainties, any of which could cause actual results to differmaterially from those expressed in or implied by the forward-lookingstatements. The risks and uncertainties relating to theforward-looking statements in this news release include thosedescribed under the caption "Cautionary Statement RegardingForward-Looking Information" in Bowater's annual report on Form 10-Kfor the year ended December 31, 2005, and from time to time, inBowater's other filings with the Securities and Exchange Commission.Information about industry or general economic conditions contained inthis press release is derived from third party sources that thecompany believes are widely accepted and accurate; however, thecompany has not independently verified this information and cannotassure 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 December
31, 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 Land sales Foreign Adoption of Severance
reported & fixed exchange new
assets accounting
standard
--------------------------------------------------------

Operating
income (loss) $ 39.8 $(28.8) $ - $ - $ 4.4
Other expense
(income)
Interest
income (1.1) - - - -
Interest
expense, net
of
capitalized
interest 49.4 - - - -
Foreign
exchange
loss (gain) (1.8) - 1.8 - -
Other, net (3.6) - - - -
--------------------------------------------------------
42.9 - 1.8 - -
--------------------------------------------------------
Income (loss)
before income
taxes and
minority
interests (3.1) (28.8) (1.8) - 4.4
Provision for
income tax
expense
(benefit) 13.1 (10.9) - 1.5
Minority
interests in
the net
income
(loss) of
subsidiaries - - (0.4) - -
--------------------------------------------------------
Loss before
cumulative
effect of
accounting
changes (16.2) (17.9) (1.4) - 2.9
Cumulative
effect of
accounting
changes (2.6) - - 2.6 -
--------------------------------------------------------
Net loss $(18.8) $(17.9) $(1.4) $2.6 $2.9
--------------------------------------------------------

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

EPS $(0.33) $(0.31) $(0.03) $0.05 $0.05
--------------------------------------------------------

Effective tax
rate -422.6%
--------------------------------------------------------


Three Months Ended March 31, 2006
(unaudited, in millions except per share amounts)

Adjustment for Special Items

Tax Adjustments GAAP as adjusted for
Special items
------------------------------------------

Operating
income (loss) $ - $ 15.4
Other expense
(income)
Interest
income - (1.1)
Interest
expense, net
of
capitalized
interest - 49.4
Foreign
exchange
loss (gain) - -
Other, net - (3.6)
------------------------------------------
- 44.7
------------------------------------------
Income (loss)
before income
taxes and
minority
interests (29.3)
Provision for
income tax
expense
(benefit) (13.5) (9.8)
Minority
interests in
the net income
(loss) of
subsidiaries (0.4)
------------------------------------------
Loss before
cumulative
effect of
accounting
changes 13.5 (19.1)
Cumulative
effect of
accounting
changes - -
------------------------------------------
Net loss $13.5 $(19.1)
------------------------------------------

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

EPS $0.24 $(0.33)
------------------------------------------

Effective tax
rate (a) 33.4%
------------------------------------------


Three Months Ended March 31, 2005
(unaudited, in millions except per share amounts)

Adjustment for Special Items


GAAP as Land Foreign Adoption of Severance
reported sales & exchange new
fixed accounting
assets standard
--------------------------------------------------------

Operating
income
(loss) $36.8 $(11.0) $ - $ - $ -
Other expense
(income)
Interest
income (1.1) - - - -
Interest
expense, net
of
capitalized
interest 50.2 - - - -
Foreign
exchange
loss (gain) (1.5) - 1.5 - -
Other, net (2.7) - - - -
--------------------------------------------------------
44.9 - 1.5 - -
--------------------------------------------------------
Income (loss)
before
income taxes
and minority
interests (8.1) (11.0) (1.5) - -
Provision for
income tax
expense
(benefit) (7.8) (3.8) 4.9 - -
Minority
interests in
the net
income
(loss) of
subsidiaries (1.2) (0.1) - -
--------------------------------------------------------
Net income
(loss) $0.9 $(7.2) $(6.3) $ - $ -
--------------------------------------------------------

Diluted
Shares 57.4 57.4 57.4 - -
--------------------------------------------------------

EPS $ 0.02 $(0.13) $(0.11) $ - $ -
--------------------------------------------------------

Effective tax
rate 96.3%
--------------------------------------------------------


Three Months Ended March 31, 2005
(unaudited, in millions except per share amounts)

Adjustment for Special Items

Tax GAAP as adjusted for
Adjustments Special items
------------------------------------

Operating income
(loss) $ - $ 25.8
Other expense
(income)
Interest income - (1.1)
Interest expense,
net of
capitalized
interest - 50.2
Foreign exchange
loss (gain) - -
Other, net - (2.7)
-------------- ------------
- 46.4
-------------- ------------
Income (loss)
before income
taxes and
minority
interests - (20.6)
Provision for
income tax
expense (benefit) - (6.7)
Minority interests
in the net income
(loss) of
subsidiaries - (1.3)
-------------- ------------
Net income (loss) $ - $(12.6)
-------------- ------------

Diluted Shares - 57.4
-------------- ------------

EPS $ - $ (0.22)
-------------- ------------

Effective tax rate 32.5%
-------------- ------------


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