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ABH (TSX, NYSE)
US$
AbitibiBowater Announces Phase 1 of Action Plan
to Address Company Challenges
|| Reduces Paper Production Capacity by Approximately 1 Million Metric Tons
|| Increases Synergy Target to $375 Million |X| Targets $500 Million from
Asset Sales
|| Suspends Dividend
|| Requests Reopening of Canadian Union Contracts
|| Initiates Phase 2 Comprehensive Review
MONTREAL, November 29, 2007 - Following the initial phase of a comprehensive
strategic review, the Board of Directors of AbitibiBowater Inc. has reviewed
Management's recommendations and approved the following actions.
Phase 1
The Company will reduce its newsprint and commercial printing papers production
capacity by approximately 1 million metric tons per year during the first
quarter of 2008. The reductions include the permanent closure of the Belgo
(Shawinigan, Quebec) and Dalhousie (New Brunswick) mills, as well as the
indefinite idling of the Donnacona (Quebec) and Mackenzie (British Columbia)
paper mills. The Company will also indefinitely idle two Mackenzie sawmills
directly supporting the Mackenzie paper operation. These facilities are not
generating positive cash flows and are not expected to do so in the foreseeable
future. They represent approximately 600,000 metric tons of newsprint, 400,000
metric tons of commercial printing papers, and 500 million board feet of lumber
capacities. In spite of these capacity reductions, AbitibiBowater expects to
continue growing its international newsprint sales in line with offshore market
expansions.
Additionally, the Company will permanently close the previously idled Fort
William (Thunder Bay, Ontario) and Lufkin (Texas) paper mills, as well as the #3
Paper Machine at the Gatineau (Quebec) facility. The previously idled operations
had a total capacity of approximately 650,000 metric tons.
The Company also announced that it has raised its targeted synergies stemming
from the merger to $375 million. "We are confident that we can achieve the
original $250-million run rate by the end of the first quarter of 2009, and
realize an additional $125 million within our originally announced two-year time
frame, which extends through the end of 2009," said Executive Chairman John W.
Weaver.
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As part of the action plan unveiled today, AbitibiBowater is reaching out to
both unionized and salaried employees to contribute to cost-reduction
initiatives. The Company is asking its Canadian union partners to reopen current
labor agreements and explore ways to reduce overall labor costs and provide
enhanced flexibility in the workplace. The salaried workforce will be impacted
by on-going benefits harmonization.
With regard to the capacity reductions, the Company evaluated a range of
options. "These were difficult decisions that were made after careful
deliberation and represent the best course of action given the current economic
conditions and significant challenge that lies before us. We are mindful of the
impact these decisions will have on the employees and communities affected, and
will be working with them to help mitigate the effects," said President and
Chief Executive Officer David J. Paterson. "We are confident, however, that, as
a result of the actions, AbitibiBowater will become a stronger, more globally
competitive organization. I believe the initiatives unveiled today underscore
our determination to adapt to today's rapidly changing market realities."
Overall, the Company is targeting $500 million from asset sales, including
non-core facilities, U.S. timberlands and the newsprint mill at Snowflake
(Arizona), which must be divested under the terms of the agreement reached with
the United States Department of Justice for approval of the
Abitibi-Consolidated/Bowater combination. Proceeds will be used to support the
three-year, $1-billion debt-reduction target.
Given the Company's focus on debt reduction, after careful deliberation, the
Board of Directors has decided to suspend the dividend to shareholders. The
Company will revisit this decision once clear progress has been made to achieve
its financial targets.
The Company estimates it will incur cash closure costs of approximately $100
million related to severance and other closure charges as a result of these
actions. Approximately $30 million of these closure costs will not impact
AbitibiBowater earnings and will be recorded as liabilities in the purchase
price allocation of its subsidiary, Abitibi-Consolidated Inc., as they relate to
facilities owned by Abitibi-Consolidated. In addition, the Company estimates it
will incur an after-tax asset impairment charge of approximately $110-$130
million in the fourth quarter related to Bowater Incorporated assets. An
additional estimated $230-$270 million after-tax impairment charge related to
assets owned by Abitibi-Consolidated is not expected to impact consolidated
fourth quarter AbitibiBowater earnings as it will be eliminated by the fair
value adjustments recorded in the purchase price allocation.
Phase 2
Over the next four months, the Company will undertake a comprehensive review of
all aspects of the business in an effort to further reduce costs, improve its
manufacturing platform and better position the Company in the global
marketplace. The Company will be reaching out to various stakeholders in an
effort to address challenges, which are exacerbated by the rapid rise of the
Canadian dollar.
Given the specific pressures in Eastern Canada relative to wood availability,
energy and labor, a second phase of closures could take place by mid-2008. Final
decisions regarding the actions to be taken and the locations impacted will be
confirmed in the second quarter of 2008.
Furthermore, over the next four months, AbitibiBowater will also be conducting
an in-depth review of its wood products business with the objective of selling
non-core assets, consolidating facilities where appropriate and curtailing or
closing non-contributing operations.
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Immediate challenges notwithstanding, AbitibiBowater remains intent on
conducting its business with an unsurpassed commitment to sustainability,
reflecting its ongoing commitment to environmental responsibility, social
desirability and economic viability.
The difficult steps announced today are part of a comprehensive road map
designed to better position the Company for the future, an objective that is
clearly in the long-term best interests of all AbitibiBowater stakeholders -
employees, shareholders, suppliers, customers and communities alike.
Investor Call
A conference call hosted by management to discuss this announcement will be held
today at 4:30 PM (Eastern). Interested parties should dial 514-868-1042 or
866-898-9626 10 minutes before the beginning of the call, which will be webcast
at www.abitibibowater.com, under the "Investors" section.
Participants not able to listen to the live conference call can access a replay,
which also will be available on the "Investors" section of Company's website
beginning an hour after the conclusion of the call and continuing until December
6, 2007, by dialing 514-861-2272 (passcode 3244150).
AbitibiBowater produces a wide range of newsprint and commercial printing
papers, market pulp and wood products. It is the eighth largest publicly traded
pulp and paper manufacturer in the world. Following the required divestiture
agreed to with the U.S. Department of Justice, AbitibiBowater will own or
operate 29 pulp and paper facilities and 35 wood products facilities located in
the United States, Canada, the United Kingdom and South Korea. Marketing its
products in more than 80 countries, the Company is also among the world's
largest recyclers of newspapers and magazines, and has more third-party
certified sustainable forest land than any other company in the world. The
Company's shares trade under the stock symbol ABH on both the New York Stock
Exchange and the Toronto Stock Exchange.
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Contacts
Investors Media and Others
Duane Owens Seth Kursman
864 282-9488 514 394-2398
seth.kursman@abitibibowater.com
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 planned reduction of newsprint and commercial printing
papers capacity, the closures of certain of our paper and sawmills, our ability
to realize synergies from the combination of Abitibi-Consolidated Inc. and
Bowater Incorporated, the anticipated timing of and the progress of integration
efforts related to the combination, our ability to meet our $1 billion debt
reduction target (including the success of our program to sell non-core assets,
consolidate operations and the success of other actions aimed at reducing our
debt), our plan to suspend our dividend until business conditions improve, the
continued growth of our international newsprint position, our competitive
position, our ability to maintain and improve customer service levels, our
financial performance, and our business outlook, strategies and assessment of
market conditions. Forward-looking statements may be identified by the use of
forward-looking terminology such as the words "will", "could", "expect",
"believe", "anticipate", and other terms with similar meaning indicating
possible future events or actions or potential impact on the business or
stockholders of AbitibiBowater.
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These forward-looking statements are not guarantees of future performance. They
are based on management's assumptions, beliefs and expectations, all of which
involve a number of business risks and uncertainties that could cause actual
results to differ materially. These risks and uncertainties include, but are not
limited to, an inability to reduce newsprint and commercial printing capacity as
quickly as anticipated, an inability to obtain timely contributions to our
cost-reduction initiatives from our unionized and salaried employees, the
continued strength of the Canadian dollar against the U.S. dollar, worsening
industry conditions and further growth in alternative media, actions of
competitors, the demand for higher margin coated and uncoated mechanical paper,
our ability to realize announced price increases, and the costs of raw materials
such as energy, chemicals and fiber. In addition, with respect to
forward-looking statements relating to the combination of Abitibi-Consolidated
and Bowater, the following factors, among others, could cause actual results to
differ materially from those set forth in the forward-looking statements: 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 are listed from time to time in AbitibiBowater's filings with the
Securities and Exchange Commission and the Canadian securities regulatory
authorities, including those factors contained in the company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2007 and the company's
registration statement on Form S-3 filed on October 29, 2007, under the caption
"Risk Factors." All forward-looking statements in this news release are
expressly qualified by information contained in the company's filings with the
Securities and Exchange Commission and the Canadian securities regulatory
authorities. AbitibiBowater disclaims any obligation to update or revise these
forward-looking statements.
Any information about industry or general economic conditions contained in this
news 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.
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