EXHIBIT 99.2
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ABITIBI-CONSOLIDATED INC.
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 June 30 JUNE 30 June 30
(unaudited) 2007 2006 2007 2006
(in millions of Canadian dollars, unless otherwise noted) $ $ $ $
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Sales 1,064 1,253 2,132 2,490
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Cost of products sold, excluding amortization 859 919 1,701 1,825
Distribution costs 122 129 238 258
Countervailing, anti-dumping and other duties 4 10 6 19
Selling, general and administrative expenses 37 26 71 66
Mill closure and other elements (note 3 and note 4) (44) 10 (32) 12
Amortization of plant and equipment 101 107 206 213
Amortization of intangible assets 5 4 9 8
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Operating profit (loss) (20) 48 (67) 89
Financial expenses (note 5) 87 84 172 167
Gain on translation of foreign currencies (235) (156) (268) (141)
Other expenses 7 7 13 14
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Earnings before the following items 121 113 16 49
Income tax recovery (note 6) (31) (53) (80) (93)
Share of earnings from investments subject to significant influence - 1 1 1
Non-controlling interests (4) (10) (19) (19)
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Net earnings 148 157 78 124
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Per common share (in dollars, basic and diluted)
Net earnings 0.34 0.36 0.18 0.28
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Weighted average number of common shares outstanding (in millions) 440 440 440 440
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 June 30 JUNE 30 June 30
(unaudited) 2007 2006 2007 2006
(in millions of Canadian dollars) $ $ $ $
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Net earnings 148 157 78 124
Other comprehensive income (loss), net of income taxes
Foreign currency translation adjustment (99) (48) (111) (46)
Reclassification to earnings of losses on derivatives designated
as cash flow hedges(a) - - (1) -
Change in unrealized gains on derivatives designated
as cash flow hedges(b) 23 - 28 -
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Comprehensive income (loss) 72 109 (6) 78
===================================================================================================================================
(a) Nil in the three months ended June 30, 2007, and net of $1 million of
income taxes in the six months ended June 30, 2007 (2006 - nil)
(b) Net of income taxes of $10 million in the three months ended June 30,
2007, and of $12 million in the six months ended June 30, 2007 (2006
- nil)
See accompanying Notes to consolidated financial statements
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 June 30 JUNE 30 June 30
(unaudited) 2007 2006 2007 2006
(in millions of Canadian dollars) $ $ $ $
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OPERATING ACTIVITIES
Net earnings 148 157 78 124
Amortization 106 111 215 221
Future income taxes (32) (51) (84) (89)
Gain on translation of foreign currency long-term debt (285) (169) (325) (156)
Employee future benefits, excess of funding over expense (12) (8) (37) (18)
Non-cash mill closure and other elements (note 3) - - (9) -
Gain on disposal of assets (note 2) (31) - (31) -
Net gain on dilution resulting from units issued by a subsidiary (note 4) (33) - (33) -
Non-controlling interests 4 10 19 19
Other non-cash items 6 4 1 (3)
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(129) 54 (206) 98
Changes in non-cash operating working capital components 84 (8) (9) (153)
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Cash flows generated by (used in) operating activities (45) 46 (215) (55)
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FINANCING ACTIVITIES
Increase in long-term debt 413 121 613 288
Repayment of long-term debt (265) (114) (335) (186)
Dividends paid to shareholders - (11) - (22)
Dividends and cash distributions paid to non-controlling interests (6) (10) (12) (18)
Net proceeds on issuance of units by a subsidiary (note 4) 37 - 37 -
Other - (1) - -
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Cash flows generated by (used in) financing activities 179 (15) 303 62
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INVESTING ACTIVITIES
Additions to property, plant and equipment (15) (31) (41) (68)
Additions to intangible assets - - - (3)
Cash distributions from entities subject to significant influence 2 - 2 -
Receipt of note receivable - 10 - 10
Net proceeds on disposal of assets (note 2) 42 - 42 1
Cash subject to restriction (note 4) (22) - (22) -
Other (2) 2 (1) 2
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Cash flows generated by (used in) investing activities 5 (19) (20) (58)
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Increase (decrease) in cash and cash equivalents during the period 139 12 68 (51)
Foreign currency translation adjustment (3) - (3) -
Cash and cash equivalents, beginning of period 132 4 203 67
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Cash and cash equivalents, end of period 268 16 268 16
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See accompanying Notes to consolidated financial statements
Components of the changes in non-cash operating working capital
Accounts receivable 12 (7) 59 2
Inventories 106 69 5 (4)
Prepaid expenses (16) (18) (18) (22)
Accounts payable and accrued liabilities (18) (52) (55) (129)
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84 (8) (9) (153)
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Cash outflows during the period related to
Interest on long-term debt 89 89 166 159
Income taxes 4 4 7 2
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93 93 173 161
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ABITIBI-CONSOLIDATED INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30 December 31
(unaudited) 2007 2006
(in millions of Canadian dollars) $ $
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ASSETS
CURRENT ASSETS
Cash and cash equivalents 268 203
Accounts receivable 330 362
Inventories 670 683
Prepaid expenses 71 53
Future income taxes 49 70
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1,388 1,371
Timberlands held for sale (note 2) 26 -
Property, plant and equipment 3,704 3,984
Intangible assets 451 460
Employee future benefits 370 328
Future income taxes 296 322
Other assets (note 4) 181 200
Goodwill 1,294 1,297
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7,710 7,962
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 7) 739 785
Long-term debt due within one year 356 72
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1,095 857
Long-term debt 3,433 3,792
Employee future benefits 160 162
Future income taxes 538 629
Non-controlling interests 78 71
SHAREHOLDERS' EQUITY
Capital stock 3,518 3,518
Contributed surplus 42 40
Deficit (799) (843)
Accumulated other comprehensive loss (note 9) (355) (264)
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2,406 2,451
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7,710 7,962
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See accompanying Notes to consolidated financial statements
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 June 30 JUNE 30 June 30
(unaudited) 2007 2006 2007 2006
(in millions of Canadian dollars) $ $ $ $
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CAPITAL STOCK
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Common shares, beginning and end of period 3,518 3,518 3,518 3,518
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CONTRIBUTED SURPLUS
Contributed surplus, beginning of period 41 35 40 34
Stock options 1 2 2 3
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Contributed surplus, end of period 42 37 42 37
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DEFICIT
Deficit, beginning of period (947) (919) (843) (875)
Transition adjustment on adoption of Financial Instruments
standards, net of taxes (note 1) - - (34) -
Net earnings 148 157 78 124
Dividends declared - (11) - (22)
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Deficit, end of period (799) (773) (799) (773)
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ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAXES
Accumulated other comprehensive loss, beginning of period (279) (274) (264) (276)
Transition adjustment on adoption of Financial Instruments
standards (note 1) - - (7) -
Other comprehensive loss for the period (76) (48) (84) (46)
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Accumulated other comprehensive loss, end of period (355) (322) (355) (322)
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Total shareholders' equity, end of period 2,406 2,460 2,406 2,460
===================================================================================================================================
Total of deficit and accumulated other comprehensive loss amounts to $1,154
million as of June 30, 2007 ($1,095 million as of June 30, 2006).
See accompanying Notes to consolidated financial statements
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED BUSINESS SEGMENTS
(unaudited)
(in millions of Canadian dollars, unless otherwise noted)
Operating Additions to Sales
THREE MONTHS ENDED JUNE 30, 2007 Sales Amortization profit(loss)(1) capital assets(2) volume
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$ $ $ $
Newsprint 570 58 23 14 827 THOUSANDS OF TONNES
Commercial printing papers 343 37 (24) - 413 THOUSANDS OF TONNES
Wood products (3) 151 11 (19) 1 432 MILLIONS OF BOARD FEET
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1,064 106 (20) 15
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Three months ended June 30, 2006
Newsprint 637 58 63 16 853 thousands of tonnes
Commercial printing papers 396 41 (13) 8 462 thousands of tonnes
Wood products (3) 220 12 (2) 7 541 millions of board feet
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1,253 111 48 31
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Operating Additions to Sales
SIX MONTHS ENDED JUNE 30, 2007 Sales Amortization profit(loss)(1) capital assets(2) volume
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$ $ $ $
Newsprint 1,146 117 31 31 1,606 THOUSANDS OF TONNES
Commercial printing papers 695 76 (44) 9 814 THOUSANDS OF TONNES
Wood products (3) 291 22 (54) 1 831 MILLIONS OF BOARD FEET
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2,132 215 (67) 41
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Six months ended June 30, 2006
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Newsprint 1,299 119 105 34 1,733 thousands of tonnes
Commercial printing papers 756 79 (19) 25 881 thousands of tonnes
Wood products (3) 435 23 3 12 1,040 millions of board feet
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2,490 221 89 71
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(1) Specific items affecting:
Mill closure and other elements
-------------------------------
THREE MONTHS ENDED JUNE 30, 2007 Mill closure Other CVD, AD and SG&A Total specific
costs elements(4) other duties(5) expenses(6) items
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$ $ $ $ $
Newsprint 1 (49) - - (48)
Commercial printing papers 11 (8) - - 3
Wood products - 1 - - 1
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12 (56) - - (44)
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Three months ended June 30, 2006
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Newsprint - 4 - (6) (2)
Commercial printing papers - 5 - (3) 2
Wood products - 1 10 (2) 9
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- 10 10 (11) 9
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Mill closure and other elements
-------------------------------
SIX MONTHS ENDED JUNE 30, 2007 Mill closure Other CVD, AD and SG&A Total specific
costs elements(4) other duties(5) expenses(6) items
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$ $ $ $ $
Newsprint 1 (51) - (1) (51)
Commercial printing papers 19 (4) - (1) 14
Wood products - 3 (2) - 1
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20 (52) (2) (2) (36)
===================================================================================================================================
Six months ended June 30, 2006
Newsprint 1 6 - (6) 1
Commercial printing papers - 5 - (3) 2
Wood products - - 19 (2) 17
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1 11 19 (11) 20
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(2) Capital assets include property, plant and equipment and intangible assets.
(3) Wood products sales exclude inter-segment sales of $38 million for the
three months ended June 30, 2007 ($45 million for the three months ended
June 30, 2006) and $78 million for the six months ended June 30, 2007 ($88
million for the six months ended June 30, 2006).
(4) Other elements include early retirement program, labour force reductions,
gain on sale of timberlands, net gain on dilution resulting from units
issued by a subsidiary and expenses related to the Abitibi-Consolidated and
Bowater announced merger.
(5) Credit related to adjustment to the settlement of the lumber dispute.
(6) Related to prior years capital tax adjustment included in selling, general
and administrative expenses.
JUNE 30 December 31
2007 2006
TOTAL ASSETS $ $
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Newsprint 4,268 4,358
Commercial printing papers 2,682 2,742
Wood products 760 862
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7,710 7,962
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ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(unaudited)
(in millions of Canadian dollars, unless otherwise noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements of Abitibi-Consolidated
Inc. (the "Company"), expressed in Canadian dollars, are prepared in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP"),
with the exception that their disclosures do not conform in all material
respects to the requirements of GAAP for annual financial statements. They
should be read in conjunction with the latest annual financial statements.
These consolidated financial statements are prepared using the same
accounting principles and application thereof as the consolidated financial
statements for the year ended December 31, 2006, except for the following:
ACCOUNTING CHANGES
On January 1, 2007, the Company adopted the Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 1506, ACCOUNTING CHANGES. This
standard establishes criteria for changing accounting policies, together
with the accounting treatment and disclosure of changes in accounting
policies and estimates, and correction of errors.
FINANCIAL INSTRUMENTS
On January 1, 2007, the Company adopted CICA Handbook Section 1530,
COMPREHENSIVE INCOME; Section 3855, FINANCIAL INSTRUMENTS - RECOGNITION AND
MEASUREMENT and Section 3865, HEDGES. These standards provide accounting
guidelines for recognition and measurement of financial assets, financial
liabilities and non-financial derivatives, and describe when and how hedge
accounting may be applied.
The Company's adoption of these new Financial Instruments standards
resulted in changes in the accounting for financial instruments and hedges,
as well as the recognition of certain transition adjustments that have been
recorded in opening deficit or opening accumulated other comprehensive loss
as described below. The comparative interim consolidated financial
statements have not been restated other than for the foreign currency
translation adjustment, which is now disclosed within accumulated other
comprehensive loss. The principal changes in the accounting for financial
instruments and hedges due to the adoption of these accounting standards
are described below.
(a) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), established under CICA Section 1530, is
defined as the change in equity, from transactions and other events and
circumstances from non-owner sources, and is composed of the Company's net
earnings (loss) and other comprehensive income (loss). Other comprehensive
income (loss) refers to revenues, expenses, gains and losses that are
recognized in comprehensive income (loss), but excluded from net earnings
(loss), and include foreign currency translation gains and losses on the
net investment in self-sustaining operations and changes in the fair market
value of derivative instruments designated as cash flow hedges, all net of
income taxes. The components of comprehensive income (loss) are disclosed
in the interim consolidated statements of comprehensive income (loss).
(b) FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Under the new standards, financial assets and financial liabilities are
initially recognized at fair value and are classified into one of these
five categories: held-for-trading, held-to-maturity investments, loans and
receivables, available-for-sale financial assets or other financial
liabilities. They are subsequently accounted for based on their
classification as described below. The classification depends on the
purpose for which the financial instruments were acquired and their
characteristics. Except in very limited circumstances, the classification
is not changed subsequent to initial recognition.
HELD-FOR-TRADING
Financial instruments classified as held-for-trading are carried at fair
value at each balance sheet date with the changes in fair value recorded in
net earnings (loss) in the period in which these changes arise.
HELD-TO-MATURITY INVESTMENTS, LOANS AND RECEIVABLES AND OTHER FINANCIAL
LIABILITIES
Financial instruments classified as loans and receivables, held-to-maturity
investments and other financial liabilities are carried at amortized cost
using the effective interest method. The interest income or expense is
included in net earnings (loss) over the expected life of the instrument.
AVAILABLE-FOR-SALE
Financial instruments classified as available-for-sale are carried at fair
value at each balance sheet date with the changes in fair value recorded in
other comprehensive income (loss) in the period in which the changes arise.
Securities that are classified as available-for-sale and do not have a
readily available market value are recorded at cost. Available-for-sale
securities are written down to fair value through earnings (loss) whenever
it is necessary to reflect other-than-temporary impairment. Upon
derecognition, all cumulative gain or loss is then recognized in net
earnings (loss).
As a result of the adoption of these new standards, the Company has
classified its cash and cash equivalents as held-for-trading. Accounts
receivable are classified as loans and receivables. The Company's
investments consist of equity accounted for investments which are excluded
from the scope of this standard. Accounts payable and accrued liabilities
and long-term debt, including interest payable are classified as other
liabilities, all of which are measured at amortized cost.
(c) DERIVATIVES AND HEDGE ACCOUNTING
EMBEDDED DERIVATIVES
All derivative instruments are recorded in the consolidated balance sheets
at fair value at each balance sheet date. Derivatives may be imbedded in
other financial instruments (the "host instrument"). Prior to the adoption
of the new standards, such embedded derivatives were not accounted for
separately from the host instrument. Under the new standards, embedded
derivatives are treated as separate derivatives if their economic
characteristics and risks are not clearly and closely related to those of
the host instrument, the terms of the embedded derivative are the same as
those of a stand-alone derivative, and the combined contract is not held
for trading or designated at fair value. These embedded derivatives are
measured at fair value at each balance sheet date with subsequent changes
recognized in net earnings (loss) in the period in which the changes arise.
The Company selected January 1, 2003 as its transition date for embedded
derivatives, which is the latest date that could be selected according to
the accounting standard.
HEDGE ACCOUNTING
At the inception of a hedging relationship, the Company documents the
relationship between the hedging instrument and the hedged item, its risk
management objective and its strategy for undertaking the hedge. The
Company also requires a documented assessment, both at hedge inception and
on an ongoing basis, of whether or not the derivatives that are used in
hedging transactions are effective in offsetting the changes attributable
to the hedged risks in the fair values or cash flows of the hedged items.
Under the new standards, all derivatives are recorded at fair value. These
derivatives are recorded in accounts receivable or accounts payable. The
method of recognizing fair value gains and losses depends on whether
derivatives are held for trading or are designated as hedging instruments,
and, if the latter, the nature of the risks being hedged. All gains and
losses from changes in the fair value of derivatives not designated as
hedges are recognized in the consolidated statements of earnings (loss).
When derivatives are designated as hedges, the Company classifies them
either as: (i) hedges of the change in fair value of recognized assets or
liabilities or firm commitments (fair value hedges); or (ii) hedges of the
variability in highly probable future cash flows attributable to a
recognized asset or liability, or a forecasted transaction (cash flow
hedges).
FAIR VALUE HEDGE
The Company has outstanding interest rate swap contracts, which it
designates as a fair value hedge related to variations of the fair value of
its long-term debt due to change in LIBOR interest rates. Changes in the
fair value of derivatives that are designated and qualify as fair value
hedging instruments are recorded in the consolidated statements of earnings
(loss). A corresponding adjustment amounting to changes in the fair value
of the assets, liabilities or group thereof that are attributable to the
hedged risk is recorded as an adjustment of the hedged item and to
earnings. Any gain or loss in fair value relating to the ineffective
portion of the hedging relationship is recognized immediately in "Financial
expenses" in the consolidated statements of earnings (loss). If a hedging
relationship no longer meets the criteria for hedge accounting, the
cumulative adjustment to the carrying amount of the hedged item is
amortized to the consolidated statements of earnings (loss) based on a
recalculated effective interest rate over the residual period to maturity,
unless the hedged item has been derecognized in which case it is released
to the statements of earnings (loss) immediately. Upon adoption of the new
standards, the Company recorded a net increase in accounts payable of $37
million, and a decrease of $37 million in long-term debt.
CASH FLOW HEDGE
The Company has outstanding options and forward exchange contracts, which
it designates as cash flow hedges of anticipated future revenue for a
maximum period of two years. The amounts and timing of future cash flows
are projected on the basis of their contractual terms and other relevant
factors, including estimates of prepayments and defaults. The aggregate
cash flows over time form the basis for identifying the effective portion
of gains and losses on the derivatives designated as cash flow hedges of
forecasted transactions. The effective portion of changes in the fair value
of derivatives that are designated and qualify as cash flow hedges is
recognized in comprehensive income (loss). Any gain or loss in fair value
relating to the ineffective portion is recognized immediately in "Sales" in
the consolidated statements of earnings (loss). Amounts accumulated in
other comprehensive income (loss) are reclassified to the consolidated
statement of earnings (loss) in the period in which the hedged item affects
earnings. When a hedging instrument expires or is sold, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in other comprehensive income (loss) at that time remains in other
comprehensive income (loss) until the forecasted transaction is eventually
recognized in the consolidated statements of earnings (loss). When it is
probable that a forecasted transaction will not occur, the cumulative gain
or loss that was reported in other comprehensive income (loss) is
immediately transferred to the statements of earnings (loss). Upon adoption
of the new standards, the Company recorded an increase in accounts payable
of $10 million, an increase of $3 million of future income tax assets, and
an increase of $7 million net of taxes in accumulated other comprehensive
loss.
(d) DEFERRED FINANCING FEES
Under the new standards, transaction costs related to the issuance or
acquisition of financial assets and liabilities (other than those
classified as held-for-trading) may be either all recognized into earnings
(loss) as incurred, or are recorded with the asset or liability to which
they are associated and amortized using the effective-interest rate method.
Previously, the Company had deferred these costs and amortized them over
the life of the related financial asset or liability.
The Company elected to recognize all such costs into earnings (loss). As a
result, the Company wrote-off deferred financing costs of $39 million and
income taxes of $5 million, resulting in a $34 million adjustment to
deficit on January 1, 2007.
The following table summarizes the transition adjustments required to adopt
the new standards:
ACCUMULATED OTHER
DEFICIT COMPREHENSIVE LOSS
-------------- ------------------
Before After Before After
tax tax tax tax
$ $ $ $
Adoption of new accounting policies for:
Deferred financing costs (39) (34) - -
Cash flow hedges - - (10) (7)
(39) (34) (10) (7)
The fair value of financial instruments is determined using price quoted on
active markets, when available, and recognized valuation models using
observable market-based inputs.
ACCOUNTING PRINCIPLES ISSUED BUT NOT YET IMPLEMENTED
FINANCIAL INSTRUMENTS - DISCLOSURE AND PRESENTATION
In December 2006, the CICA published the following two sections of the CICA
Handbook: Section 3862, FINANCIAL INSTRUMENTS - DISCLOSURES and Section
3863, FINANCIAL INSTRUMENTS - PRESENTATION. These standards introduce
disclosure and presentation requirements that will enable financial
statements' users to evaluate, and enhance their understanding of, the
significance of financial instruments for the entity's financial position,
performance and cash flows, and the nature and extent of risks arising from
financial instruments to which the entity is exposed, and how those risks
are managed.
CAPITAL DISCLOSURES
In December 2006, the CICA published section 1535 of the Handbook, CAPITAL
DISCLOSURES, which requires disclosure of both qualitative and quantitative
information that enables financial statements' users to evaluate the
entity's objectives, policies and processes for managing capital.
INVENTORIES
In January 2007, the CICA published section 3031 of the Handbook,
INVENTORIES, which prescribes the accounting treatment for inventories.
Section 3031 provides guidance on the determination of costs and its
subsequent recognition as an expense, and provides guidance on the cost
formulas used to assign costs to inventories.
Those standards must be adopted by the Company for the fiscal year
beginning on January 1, 2008. While the Company is currently assessing the
impact of these new recommendations on its financial statements, it does
not expect the recommendations to have a significant impact on its
financial position, earnings or cash flows.
2. TIMBERLANDS HELD FOR SALE
On February 23, 2007, the Company acquired all of the timberlands from its
52.5%-owned subsidiary located in Augusta, Georgia. This related-party
transaction was concluded at fair market value, and the partner's $9
million share of the gain recorded by the subsidiary is presented in "Mill
closure and other elements" in the "Newsprint" segment, in the interim
consolidated statements of earnings. This gain, which is to be recognized
by the Company's minority shareholders in the subsidiary, has been recorded
in "Non-controlling interests" and, thus, the transaction has no impact on
the "Net earnings" in the consolidated statements of earnings.
In the three months ended June 30, 2007, the Company sold 17,723 acres of
timberlands for net proceeds of $44 million (US$41.3 million). The Company
expects to sell the majority of the remaining timberlands before the end of
the third quarter, and to complete the sale before the end of the year. As
the "held for sale" classification criteria were met as at June 30, 2007,
the timberlands, with a book value of $26 million, are classified as such
in the consolidated balance sheets.
3. MILL CLOSURE AND OTHER ELEMENTS
THREE MONTHS ENDED JUNE 30, 2007
On February 25, 2007, the Company idled its Fort William, Ontario, paper
mill for an indefinite period of time, due to current market conditions and
high production costs. In the three months ended June 30, 2007, a charge of
$10 million of mill closure and other elements was recorded related to this
idling, mainly for severance and other labour-related costs. During the
quarter, the Company also recorded a gain of $31 million on the disposal of
timberlands, a net gain on dilution of $33 million resulting from units
issued by a subsidiary (see note 4), $9 million of costs related to the
announced merger of Abitibi-Consolidated and Bowater, a credit of $1
million of other elements and a charge of $2 million of mill closure
elements. The mill closure and other elements included in the "Newsprint",
"Commercial printing papers" and "Wood products" segments were a credit of
$48 million, a charge of $3 million and a charge of $1 million,
respectively.
THREE MONTHS ENDED JUNE 30, 2006
In the three months ended June 30, 2006, the Company recorded a charge of
$10 million of labour force reductions, of which $4 million was included in
the "Newsprint" segment, $5 million in the "Commercial printing papers"
segment and $1 million in the "Wood products" segment.
SIX MONTHS ENDED JUNE 30, 2007
The idling of the Fort William, Ontario, paper mill resulted in a charge of
$18 million of mill closure and other elements, mainly for severance and
other labour-related costs. In the six months ended June 30, 2007, the
Company also recorded a gain of $31 million on the disposal of timberlands,
a net gain on dilution of $33 million resulting from units issued by a
subsidiary (see note 4), $20 million of costs related to the announced
merger of Abitibi-Consolidated and Bowater, a $1 million charge of early
retirement program and labour force reductions, the partner's $9 million
share of the gain recorded by the subsidiary upon the sale of all its
timberlands to the Company, and a charge of $2 million of mill closure
elements. The mill closure and other elements included in the "Newsprint",
"Commercial printing papers" and "Wood products" segments were a credit of
$50 million, a charge of $15 million and a charge of $3 million,
respectively.
SIX MONTHS ENDED JUNE 30, 2006
In the six months ended June 30, 2006, the Company recorded a charge of $12
million of early retirement program and labour force reductions, $1 million
of mill closure and other elements, as well as a $1 million compensation
for reduction of cutting rights in British Columbia. The "Newsprint" and
"Commercial printing papers" segments include $7 million and $5 million of
mill closure and other elements, respectively. There are no mill closure
and other elements in the "Wood products" segment in the six months ended
June 30, 2006.
4. PARTNERSHIP IN ENERGY GENERATION
On April 1, 2007, the Company completed the transfer of its Ontario
hydroelectric assets and related water rights (the "Facilities") to its
wholly owned subsidiary called ACH Limited Partnership ("ACH LP"). On April
2, ACH LP issued new units equivalent to a 25% interest of the partnership
to the Caisse de depot et placement du Quebec (the "Caisse"), for gross
proceeds of $48 million. This transaction resulted in a net gain on
dilution resulting from units issued by a subsidiary of $33 million, after
$11 million of transaction costs ($31 million net of income taxes) recorded
in "Mill closure and other elements", of which $23 million is included in
the "Newsprint" segment and $10 million in the "Commercial printing papers"
segment.
The Caisse has also provided ACH LP with a 10-year unsecured 7.132% term
loan of $250 million, non recourse to the Company, to partially fund the
acquisition of the Facilities.
ACH LP has also entered into an unsecured bank credit facility of $15
million, for general business purposes. The facility matures on March 31,
2010 and is non recourse to the Company.
The unsecured term loan and unsecured bank credit facility require ACH LP
to meet a specific financial ratio, which is met as at June 30, 2007.
As of June 30, 2007, ACH LP had $22 million of restricted cash recorded in
"Other assets". Of this amount, $18 million will be used over the next 3
years to realize a capital project related to the Facilities and $4 million
is required as a reserve under the term loan credit agreement. As per the
same credit agreement, another $2 million will have to be reserved by ACH
LP prior to September 30, 2007.
5. FINANCIAL EXPENSES
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
2007 2006 2007 2006
$ $ $ $
- --------------------------------------------------------------------------------
Interest on long-term debt 84 78 168 156
Amortization of deferred financing fees - 4 - 6
Interest income (4) (1) (7) (2)
Other 7 3 11 7
- --------------------------------------------------------------------------------
87 84 172 167
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6. INCOME TAX RECOVERY
In the second quarter of 2007, favourable tax adjustments of $22 million
are included in income tax recovery, due to realized losses and to
prospective reductions in income tax rates ($63 million in the three months
ended June 30, 2006, which is related to the prospective reduction in the
Canadian federal income tax rate).
In the six months ended June 30, 2007, favourable income tax adjustments of
$30 million are included in income tax recovery, due to the revision of
prior-period tax provisions, to realized losses and to prospective
reductions in income tax rates ($85 million in the six months ended June
30, 2006, which is related to the settlement of prior-year income tax
issues and to the prospective reduction in the Canadian federal income tax
rate).
7. MILL CLOSURE ELEMENTS PROVISION
The following table provides a reconciliation of the mill closure elements
provision, which comprises, in most part, severance and other
labour-related costs and contractual obligations, for the periods:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
2007 2006 2007 2006
$ $ $ $
- -------------------------------------------------------------------------------
Mill closure elements provision,
beginning of period 13 22 7 38
Mill closure elements incurred
during the period 12 - 20 -
Payments (13) (2) (15) (18)
- -------------------------------------------------------------------------------
Mill closure elements provision,
end of period 12 20 12 20
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The Company expects to pay most of the balance of the provision for mill
closure elements within the next twelve months.
8. EMPLOYEE FUTURE BENEFITS
The following table provides total employee future benefit costs for the
periods:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
2007 2006 2007 2006
$ $ $ $
- --------------------------------------------------------------------------------
Defined contribution pension plans 3 3 7 7
Defined benefit pension plans
and other benefits 40 36 77 73
- --------------------------------------------------------------------------------
43 39 84 80
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9. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table provides the components of "Accumulated other
comprehensive loss" in the consolidated balance sheets as at:
JUNE 30 DECEMBER 31
2007 2006
$ $
- --------------------------------------------------------------------------------
Foreign currency translation adjustment (375) (264)
Unrealized gains on derivative instruments
designated as cash flow hedges, net of taxes 20 -
- --------------------------------------------------------------------------------
(355) (264)
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10. COMPARATIVE FIGURES
Certain comparative figures presented in the consolidated financial
statements have been reclassified to conform to the current period
presentation.