Exhibit 99.1
Abitibi-Consolidated Inc.
Management's Discussion and Analysis (MD&A)
Third Quarter Report to Shareholders
November 6, 2007
KEY EVENT
ABITIBI-CONSOLIDATED INC. AND BOWATER INCORPORATED TO COMBINE
On January 29, 2007, Abitibi-Consolidated Inc. (the Company) and Bowater
Incorporated (Bowater) announced a definitive agreement to combine in an
all-stock merger of equals. The combined company will be called AbitibiBowater
Inc. (AbitibiBowater). The combination has been approved unanimously by the
Board of Directors of both companies, which received fairness opinions from
their respective financial advisors.
On July 17, 2007, the two companies announced the executive team to lead the new
company, pending approval of the combination and appointment by the Board of
AbitibiBowater.
On October 23, 2007, the Company and Bowater announced that they reached an
agreement with the United States Department of Justice allowing the completion
of the combination of the two companies. Under the terms of the agreement, which
was signed and filed the same day in the U.S. Federal District Court in
Washington, D.C., the companies agreed to divest one newsprint mill,
Abitibi-Consolidated's mill in Snowflake, Arizona. The Snowflake mill has an
annual capacity of approximately 375,000 tonnes. Scotia Capital Inc. has been
retained as exclusive financial advisor for the sale of the Snowflake mill and
related assets. The combination has now received all necessary regulatory
approvals, including those from the Canadian Competition Bureau, the Federal
Minister of Industry under the Investment Canada Act, the Quebec Superior Court,
the U.S. Department of Justice, as well as the necessary approvals from
shareholders of both Abitibi-Consolidated and Bowater.
On October 23, 2007, the two companies announced the expected composition of the
new Board of Directors for AbitibiBowater, following the combination of
Abitibi-Consolidated and Bowater subject to the appointment of directors
following the completion of the combination.
On October 29, 2007, the two companies announced the completion of the
combination. The combination creates a new leader in publication papers.
AbitibiBowater would have realized, on a pro forma basis, revenues of
approximately US$8 billion in 2006, making it the 3rd largest publicly traded
paper and forest products company in North America and the 8th largest in the
world.
HIGHLIGHTS
$54 MILLION NET EARNINGS IN THE THIRD QUARTER OF 2007
Abitibi-Consolidated reported net earnings of $54 million, or 12 cents a share,
in the third quarter ended September 30, 2007, compared to a loss of $48
million, or 11 cents a share, in the same quarter of 2006. For the nine-month
period ended September 30, 2007, the Company recorded net earnings of $132
million, or 30 cents a share, compared to net earnings of $76 million, or 17
cents a share, in the same period last year.
[GRAPHIC OMITTED]
Table 1: Summary of financial information (in millions of dollars, except per
share amounts)
As per financial statements Before specific items (1)
---------------------------------- -----------------------------------------------------
Third Quarter Nine-month period Third Quarter Nine-month period
-------------- ------------------- -------------------- --------------------------------
2007 2006 2007 2006 2007 2006 2007 2006
-------------- ------------------- -------------------- --------------------------------
Sales 999 1181 3131 3671 999 1181 3131 3671
EBITDA N/A N/A N/A N/A 21 120 133 450
Operating profit (loss) -57 2 -124 91 -85 10 -188 119
Net earnings (loss) 54 -48 132 76 -126 -54 -332 -119
$ per share 0.12 -0.11 0.3 0.17 -0.28 -0.12 -0.75 -0.27
Note (1) Non-GAAP measures
Sales were $999 million in the three-month period ending September 30, 2007,
compared to $1,181 million in the same period last year. The Company recorded an
operating loss of $57 million during the quarter, compared to an operating
profit of $2 million for the third quarter of 2006. Sales were $3,131 million
for the nine-month period ending September 30, 2007, compared to $3,671 million
in the same period last year. The operating loss was $124 million, compared to
an operating profit of $91 million in the first nine months of 2006.
SPECIFIC ITEMS IMPACTING RESULTS AND NON-GAAP MEASURES
The Company's operating results include specific items that are not related to
normal operating activities and make the comparison of results difficult from
period to period. Abitibi-Consolidated compares its performance as well as those
of its business segments before specific items, based on EBITDA, operating
profit (loss), net earnings (loss), net earnings (loss) per share and other such
measures. Specific items include gain or loss on translation of foreign
currencies, mill closure and other elements, asset write offs or write downs,
income tax adjustments related to the finalization of prior-year audits, impact
of changes in income tax legislation and other items that do not relate to
normal operating activities. Operating profit (loss) before specific items, net
earnings (loss) before specific items, net earnings (loss) per share before
specific items and other such measures before specific items, such as EBITDA,
are not measures prescribed by the Canadian Generally Accepted Accounting
Principles (GAAP). The Company believes this is useful supplemental information,
as it provides an indication of performance and comparative trends, excluding
these specific items. However, readers should be cautioned that this information
should not be confused with or used as an alternative to measures prescribed by
Canadian GAAP.
SPECIFIC ITEMS IMPACTING OPERATING PROFIT (LOSS)
In the third quarter of 2007, operating profit (loss) was positively impacted by
specific items for a total of $28 million, compared to a negative impact of $8
million in the same quarter last year.
THIRD QUARTER 2007
Mill closure and other elements include $9 million of expenses related to the
combination with Bowater, announced during the first quarter. The merger
expenses were allocated to the Company's Newsprint, Commercial Printing Papers
and Wood Products segments for $5 million, $3 million and $1 million,
respectively. Newsprint operating results were positively impacted by a $40
million gain on disposal of a portion of the Company's timberlands located in
the states of Georgia and South Carolina, and negatively impacted by $1 million
of mill closure elements related to a previously closed mill. Commercial
Printing Papers operating results were negatively impacted by $2 million of mill
closure and other elements mainly due to the indefinite idling of the Company's
Fort William paper mill located in Thunder Bay, Ontario.
THIRD QUARTER 2006
Specific items for the third quarter of 2006 have been adjusted to take into
consideration a $7 million countervailing duty (CVD) and anti-dumping duty (AD)
credit related to the lumber dispute settlement reached in April of 2006 and
finalized in the fourth quarter of 2006. In the third quarter of 2006, the
Company accounted for a provision of $1 million for mill closure and other
elements related to the Selling, General and Administrative expenses (SG&A)
restructuring announced in the first quarter of 2006. The restructuring charges
impacted the Commercial Printing Papers segment.
Table 2 highlights the impact of the above specific items on operating results
by segment.
As per financial statements Before specific items (1)
---------------------------------- -----------------------------------------------------
Third Quarter Nine-month period Third Quarter Nine-month period
-------------- ------------------- -------------------- --------------------------------
2007 2006 2007 2006 2007 2006 2007 2006
-------------- ------------------- -------------------- --------------------------------
Newsprint $15 $40 $46 $145 ($19) $40 ($ 39) $146
Commercial Printing Papers (43) (5) (87) (24) (38) (4) (68) (21)
Wood Products (29) (33) (83) (30) (28) (26) (81) (6)
----- ----- ------ ----- ----- ----- ------ -----
($57) $2 ($124) $ 91 ($85) $10 ($188) $119
Note (1) Non-GAAP measures
OTHER SPECIFIC ITEMS IMPACTING NET EARNINGS (LOSS)
Other than specific items covered in the previous section, in the third quarter
of 2007, Abitibi-Consolidated recorded an after-tax gain on translation of
foreign currencies of $168 million, mainly from the stronger Canadian currency
at the end of the quarter, compared to the U.S. dollar, in which most of the
Company's long-term debt is denominated, and negative income tax adjustments of
$3 million.
In the third quarter of 2006, Abitibi-Consolidated recorded a positive income
tax adjustment of $12 million, relating to the conclusion of prior years'
federal audits.
Table 3: Impact of specific items (in millions of dollars, except per share
amounts)
Third Quarter Nine-month period
-------------------------------------------- ---------------------------------------------
2007 2006 2007 2006
--------------------- ---------------------- ----------------------- ---------------------
Before Tax After Tax Before Tax After Tax Before Tax After Tax Before Tax After Tax
---------- --------- ---------- --------- ---------- --------- ---------- ---------
Net earnings (loss) as reported in the $54 ($48) $132 $ 76
financial statements
$ per share $0.12 (0.11) 0.30 0.17
Specific items:
Impacting operating profit (loss)
(as per Table 2) (28) (15) 8 6 (64) (47) 28 20
Loss (gain) on translation of foreign
currencies (200) (168) - - (468) (401) (141) (118)
Transferor Augusta timberlands (Minority
interest) - - - - - 9 - -
Financial expenses - - - - 3 2 - -
Income tax expense (recovery) 3 (12) (27) (97)
----- ------- ------- ------
Net earnings (loss) excluding specific
items(1) ($126) ($54) ($332) ($119)
$ per share(l) (0.28) (0.12) (0.75) (0.27)
Note (1) Non-GAAP measures
RESULTS BEFORE SPECIFIC ITEMS
As specific items have been covered in the previous section, the following
comparisons and analyses will only focus on the Company's performance related to
normal operating activities and, as compared to the same quarter of the previous
year.
CONSOLIDATED RESULTS BEFORE SPECIFIC ITEMS
Before specific items, the $95 million reduction in operating results in the
third quarter of 2007 is mainly attributable to lower prices in the Company's
three business segments, as well as the unfavourable impact of a stronger
Canadian dollar, partly offset by lower cost of products sold in the Newsprint
segment. The results in the third quarter of 2007 were also negatively impacted
by $13 million of finished products inventory devaluation to its realizable
value. Newsprint, Commercial Printing Papers and Wood Products segments were
impacted by $2 million, $5 million and $6 million, respectively.
Table 4: Consolidated results before specific items (1) (in millions of dollars,
except per share amounts)
Fav/(unfav) variance due to
Third --------------------------------------------- Third
Quarter Foreign Quarter
2007 Volume Exchange Prices Costs 2006
------- ------- ----------- ---------- -------- -------
Sales 999 ($61) ($41) ($80) $- $1,181
Cost of products sold 828 51 9 - 9 897
Distribution costs 115 6 6 - 3 130
CVD, AD and other duties 3 - - - (3) -
SG&A 32 - - - 2 34
------- ------- ----------- ---------- -------- -------
EBITDA (1) $ 21 ($4) ($26) ($80) $11 $120
Amortization 106 - 1 - 3 110
------- ------- ----------- ---------- -------- -------
Operating profit (loss) ($85) ($4) ($25) ($80) $14 $10
Financial expenses 81 86
Other expenses 6 8
Income tax expense (recovery) (48) (38)
Non-controlling interests (2) (8)
======= =======
Net earnings (loss) ($126) $54)
$ per share (0.28) (0.12)
Note (1) Non-GAAP measures
When comparing the average exchange rate in the third quarter of 2007 to the
same period in 2006, the Canadian dollar was 7.3% (2.5% for nine months)
stronger compared to the U.S. dollar. The Company estimates that this had an
unfavourable impact of approximately $35 million ($38 million year-to-date) on
its operating results, compared to the same period last year. The Company's
hedging program was favourable by $10 million ($20 million unfavourable
year-to-date) mainly due to a positive contribution of $17 million ($26 million
year-to-date) in the third quarter of 2007, compared to $7 million ($46 million
year-to-date) in the third quarter of 2006. Other currency exchange rates had a
positive impact of $1 million ($7 million year-to-date). Sequentially, the
Canadian dollar was 5.1% stronger than the U.S. dollar, negatively impacting the
Company's operating results by $20 million in the third quarter compared to the
second quarter of 2007.
SEGMENTED RESULTS BEFORE SPECIFIC ITEMS
NEWSPRINT
In the Newsprint segment, the $59 million reduction in operating results before
specific items is mainly due to lower North American selling prices and the
unfavourable impact of a stronger Canadian dollar, partly offset by lower cost
of products sold.
Table 5: Newsprint operating results before specific items(1) (in millions of
dollars)
Fav/(unfav) variance due to
Third --------------------------------------------- Third
Quarter Foreign Quarter
2007 Volume Exchange Prices Costs 2006
------- ------- ----------- ---------- -------- -------
Sales $536 ($12) ($20) ($62) $- $630
EBITDA (1) 38 (2) (8) (62) 11 99
Amortization 57 - 1 - 1 59
Operating profit (loss) (19) (2) (7) (62) 12 40
Note (1) Non-GAAP measures
The Company's newsprint shipments in the third quarter of 2007 were 830,000
tonnes, compared to 848,000 tonnes in the third quarter of 2006. The reduction
in shipments was attributable to lower average basis weight and sales volume in
North America.
At the end of the third quarter of 2007, the Company's newsprint inventories
were approximately 30,000 tonnes higher than at the end of the third quarter
2006 and approximately 70,000 tonnes higher than at the end of December 2006.
The increase is mainly due to inventory build-up required for higher
international sales, with inventory destined to North America remaining at low
levels.
Year-over-year, the average newsprint price in the U.S. for the third quarter of
2007 was US$91 per tonne lower. In Europe, newsprint prices have increased,
compared to the same quarter last year. During the third quarter of 2007, the
average newsprint price in the U.S. decreased by approximately US$23 per tonne,
compared to the previous quarter as a result of the continued market weakness in
North America. In July of 2007, the Company announced a price increase of US$25
per tonne in the United States, effective September 1, 2007. The increase is
expected to be fully implemented in November.
On a per tonne basis, cost of products sold for newsprint in the third quarter
of 2007 was $20 lower than in the same quarter of 2006. The decrease in costs
was mainly due to lower employee benefit costs and the stronger Canadian dollar,
reducing costs in Canadian dollars of the Company's U.S. mills. This was partly
offset by higher recycled fibre prices and the devaluation of finished goods
inventory to realizable value for $2 million.
According to the Pulp and Paper Products Council (PPPC), total U.S. newsprint
consumption was down by 9.6% in the third quarter of 2007, compared to the third
quarter of 2006, as daily publishers' advertising volume and circulation
continued on a downward trend. In the third quarter of 2007, total industry
inventory decreased by 44,000 tonnes, compared to an increase of 37,000 tonnes
in the third quarter of 2006. North American newsprint production declined by
6.7% in the third quarter of 2007 compared to the same period in 2006. In the
third quarter of 2007, the operating rate of the North American industry was
92%, compared to 94% in the same period of 2006.
The Company expects 2007 worldwide newsprint demand to decline slightly. Regions
such as Eastern Europe, Latin America and Non-Japan Asia are expected to deliver
positive growth, offset by declining demand in North America, Japan and Western
Europe.
COMMERCIAL PRINTING PAPERS
In the Commercial Printing Papers segment, the $34 million increase in operating
loss before specific items is mainly due to a stronger Canadian dollar and lower
selling prices.
Table 6: Commercial Printing Papers operating results before specific items(1)
(in millions of dollars)
Fav/(unfav) variance due to
Third --------------------------------------------- Third
Quarter Foreign Quarter
2007 Volume Exchange Prices Costs 2006
------- ------- ----------- ---------- -------- -------
Sales $335 ($20) ($17) ($14) $- $386
EBITDA (1) - (3) (15) (14) (2) 34
Amortization 38 - - - - 38
Operating profit (loss) (38) (3) (15) (14) (2) (4)
Note (1) Non-GAAP measures
The Company's shipments of commercial printing papers totalled 424,000 tonnes in
the third quarter of 2007, compared to 446,000 tonnes in the third quarter of
2006. On February 25, 2007, Abitibi-Consolidated indefinitely idled its
145,000-tonne Fort William paper mill, which remained idled for the whole
quarter. In addition, the Company took market-related downtime at two of its
commercial printing paper mills, equivalent to 14,000 tonnes of production in
the third quarter of 2007.
The previously announced US$60 per short ton price increase for ABICAL(R) grades
did not materialize but during the third quarter of 2007, Abitibi-Consolidated
announced price increases of US$60 per short ton for each of its ABIOFFSET(TM)
and ABICAL(R) grades, all effective October 1. Compared to the third quarter of
2006, the Company's average prices in U.S. dollars for all Commercial Printing
Paper grades was 4.5% lower.
On a per tonne basis, cost of products sold for commercial printing papers in
the third quarter of 2007 was $10 higher than in the same quarter of 2006. The
cost increase was due to the devaluation of finished goods inventory to
realizable value for $5 million. Lower production volume as a result of
market-related downtime and an unfavourable product mix was offset by lower
employee benefit costs and lower input usage.
According to the PPPC, North American demand for uncoated groundwood papers
increased by 2.6% in the third quarter of 2007, compared to the same period of
2006. The increase in demand was driven by a higher demand for glossy and
directory grades.
The outlook for uncoated groundwood papers demand remains positive. Demand
growth in hi-gloss and directory grades is expected to be offset by a decline in
demand for standard grades. Hi-gloss demand is recovering from the previous
year's decline.
WOOD PRODUCTS
In the Wood Products segment, the $2 million increase in operating loss before
specific items is mainly due to lower selling prices.
Table 7: Wood products operating results before specific items(1) (in millions
of dollars)
Fav/(unfav) variance due to
Third --------------------------------------------- Third
Quarter Foreign Quarter
2007 Volume Exchange Prices Costs 2006
------- ------- ----------- ---------- -------- -------
Sales $128 ($29) ($4) ($4) $- $165
EBITDA (1) (17) 1 (3) (4) 2 (13)
Amortization 11 - - - 2 13
Operating profit (loss) (28) 1 (3) (4) 4 (26)
Note (1) Non-GAAP measures
Sales volume in the third quarter of 2007 totalled 362 million board feet (MBf),
compared to 439 MBf for the same period in 2006. Average selling prices in
Canadian dollars for the third quarter of 2007 were 6% lower than in the same
quarter of 2006, as a result of lower U.S. dollar lumber prices.
During the third quarter of 2007, the Company idled its two sawmills in
British-Columbia for one week, two sawmills in Quebec for the entire quarter and
reduced production shifts in certain other sawmills, resulting in a total
removal of 41 MBf of production. The temporary closures were mainly attributable
to deteriorated wood products' market conditions as well as high production
costs. In addition, most of the Quebec sawmills were shut down for two weeks due
to the normal summer vacation period.
On a per thousand board feet basis, cost of products sold for wood products in
the third quarter of 2007 was $15 lower than in the third quarter of 2006. This
was primarily due to lower wood costs, mainly related to the idling of the
higher cost sawmills, partly offset by lower production related to downtime and
the devaluation of finished goods inventory to realizable value for $6 million.
In the United States, housing starts decreased by 30.8% from an annual rate of
1.721 million units during September of 2006 to 1.191 million units in September
of 2007. During the third quarter of 2007, average U.S. dollar lumber prices
(f.o.b. Great Lakes) increased by 7% for 2x4 Stud and decreased by 2% for 2x4
Random Length, compared to the same period of 2006. Sequentially, average U.S.
dollar lumber prices (f.o.b. Great Lakes) decreased by 1% for 2x4 Stud and
increased by 3% for 2x4 Random Length, compared to the second quarter of 2007.
BALANCE SHEET
As at September 30, 2007, total long-term debt amounted to $3,615 million for a
ratio of net debt to total capitalization of 0.587, compared to $3,864 million
for a net debt to total capitalization ratio of 0.592 as at December 31, 2006.
The reduction in the Company's long-term debt is attributable to the
strengthening of the Canadian dollar.
During the third quarter of 2007, the Company finalized ancillary legal
documentation related to an amendment to its bank credit agreement. The
amendment allows the necessary steps for the integration of Abitibi-Consolidated
with Bowater. With the amendment, Facility A was revised to $510 million from
$550 million and Facility B remained at $200 million.
On July 27, 2007, DBRS changed its rating on the Company from BB (low) Under
Review with Positive Implications to BB (low) Under Review with Negative
Implications. On August 1, 2007, Fitch Rating downgraded the ratings of the
Company from B+ to B-. The outlook remained negative.
Net funded debt to capitalization ratio, calculated as per the requirements of
the Company's revolving credit facilities, amounted to 57.3% at the end of
September 2007 and is in compliance with the covenants of the said facilities.
The interest coverage ratio covenant has been waived until the end of the second
quarter of 2008. AbitibiBowater, on behalf of the Company, is currently in
negotiation with financial institutions to refinance those revolving credit
facilities and the related covenants are part of the negotiations.
As at September 30, 2007, the outstanding balance of the Company's
securitization programs, in Canadian dollars, was $339 million, compared to $433
million as at December 31, 2006.
VALUATION OF ASSETS AND LIABILITIES, AND THE COMBINATION WITH BOWATER
As at September 30, 2007, the Company reviewed its impairment test on the
indefinitely idled Lufkin, Texas paper mill. The test was performed, in the
fourth quarter of 2006, under the assumption that the mill would restart
producing lightweight coated paper under a partnership structure. Given that
alternative scenarios could not be discussed with the new management of
AbitibiBowater due to competition restrictions, this scenario is considered by
the Company's management as being the most likely in the context of
Abitibi-Consolidated as a stand alone company. Therefore, the Company concluded
that the recognition of an impairment charge was not required, as the estimated
undiscounted cash flows exceeded the $212 million book value. Given the inherent
imprecision and corresponding importance of the key assumptions used in the
impairment test, it is possible that changes in future conditions, including the
merger of Abitibi-Consolidated and Bowater, may lead management to use different
key assumptions, which could result in a material change in the book value of
these assets.
Goodwill is subject to an annual test performed during the fourth quarter of
each year. The Company has initiated its annual goodwill impairment test based
on consistent assumptions compared to the previous year. Different preliminary
scenarios have been prepared to evaluate the risk and sensitivities of
impairment. The calculations have not been finalized but based on current
assumptions the excess of the fair value over book value is significantly lower
compared to the test made the previous year, particularly in the Commercial
Printing Papers segment. As at September 30, 2007, goodwill for the Commercial
Printing Papers segment amounted to $439 million and goodwill for the Newsprint
segment amounted to $854 million. In the event that the final evaluation of the
Commercial Printing Papers segment results in a valuation that is lower than its
carrying value, this segment would have to record an impairment charge related
to its goodwill. With the completion of the combination between the Company and
Bowater in the fourth quarter of 2007, all assets and liabilities of the
Company, including goodwill, will be reassessed and evaluated at their fair
market value.
Other consolidated balance sheet elements such as future income taxes have also
been tested in the context of Abitibi-Consolidated as stand alone and the
Company concluded that no devaluation was required.
LIQUIDITY AND CAPITAL RESOURCES
Cash used for operating activities totalled $206 million for the third quarter
ended September 30, 2007, compared to $61 million in the corresponding period of
2006. The increase in cash used is mainly due to the lower operating results.
The increase of $104 million in operating working capital is mainly due to the
reduction in trade and tax payables.
Capital expenditures were $30 million ($71 million year-to-date) for the
three-month period ended September 30, 2007, compared to $39 million ($107
million year-to-date) in the corresponding period last year. On March 8, 2007,
Abitibi-Consolidated announced an investment of $84.3 million in a new biomass
energy generator to be located at its Fort Frances, Ontario, pulp and paper
mill. The Company's net contribution to this project is expected to be $61.8
million. Construction began in early June of 2007, and the generator is
anticipated to be in operation during the fall of 2008. The equipment will use
renewable, cost-effective fuel from wood waste to generate steam and 45.5
Megawatts (MW) of electricity for the mill which should eliminate approximately
90% of its current greenhouse gas emissions. The new biomass boiler will burn
mill-generated wood waste and primary sludge, as well as harvest slash from
woodland operations and wood waste from area sawmills. This project is expected
to positively impact the mill's manufacturing costs by approximately $26 million
annually.
The Company intends to limit its capital expenditure program in 2007 to
approximately $125 million of which approximately $15 million is estimated to be
for the biomass energy generator at Fort Frances.
At the end of September 2007, the Company had drawn $295 million on the $710
million credit facilities. As at September 30, 2007, cash and cash equivalents
amounted to $96 million, a reduction of $107 million compared to December 31,
2006. Excluding any amount drawn on the credit facilities, the Company has $336
million of debt maturing in 2008. AbitibiBowater is currently in negotiation
with financial institutions to refinance those debts before their maturities.
SHARES OUTSTANDING
As at September 30, 2007, the number of shares outstanding remained constant at
440 million, compared to the end of the same period in 2006. There were 14.7
million options outstanding at the end of September 2007, compared to 14.5
million as at the end of December 2006.
OTHER NOTEWORTHY EVENT
With respect to the disposal of Abitibi-Consolidated's 55,000 acres of
timberlands located in Georgia and South Carolina, as at the end of the third
quarter of 2007, the Company had closed the sale of 101 tracts totalling 38,054
acres for net proceeds of US$91.8 million. The Company expects to complete the
sale before the end of the first quarter of 2008. Total net proceeds are now
expected to be in excess of US$125 million.
SELECTED QUARTERLY INFORMATION
Table 8: Summary of quarterly results (in millions of dollars, except otherwise
noted)
2007 2006 2005
---------------- ------------------------------- ----------------------
Q-3 Q-2 Q-1 Q-4 Q-3 Q-2 Q-1 Q-4 Q-3
------ ------ ------ ------ ------ ------ ------ ------ ------
Sales $999 $1,064 $1,068 $1,180 $1,181 $1,253 $1,237 $1,310 $1,355
Operating profit (loss) from
continuing operations (57) (20) (47) 236 2 48 41 (352) 8
Operating profit (loss) from
continuing operations
before specific items(1) (85) (64) (39) 17 10 57 52 15 49
Earnings (loss) from continuing
operations 54 148 (70) (22) (48) 157 (33) (345) 95
Earnings (loss) from continuing
operations per share 0.12 0.34 (0.16) (0.05) (0.11) 0.36 (0.08) (0.79) 0.22
Net earnings (loss) 54 148 (70) (22) (48) 157 (33) (355) 99
Net earnings (loss) per share 0.12 0.34 (0.16) (0.05) (0.11) 0.36 (0.08) (0.81) 0.23
Exchange rates (CDN$1= USS):
Average noon rate 0.957 0.911 0.854 0.878 0.892 0.891 0.866 0.852 0.832
Note (1) Non-GAAP measures
CHANGES IN ACCOUNTING POLICIES
FINANCIAL INSTRUMENTS, HEDGES AND COMPREHENSIVE INCOME
In January 2005, the CICA published the following three new sections of the CICA
Handbook: Section 3855, Financial Instruments - Recognition and Measurement,
Section 3865, Hedges, and Section 1530, Comprehensive Income. Together, these
standards introduced new requirements for the recognition and measurement of
financial instruments, hedge accounting and comprehensive income that are, for
the most part, harmonized with standards issued by the U.S. Financial Accounting
Standards Board. These new recommendations have been adopted by the Company for
the fiscal year beginning on January 1, 2007.
These new recommendations did not have a significant impact on the Company's
financial position, earnings or cash flows, but require presenting two new
statements entitled "Comprehensive Income (Loss)" and "Changes in Shareholders'
Equity". More information on the above changes is presented in Note 1 of the
Company's interim consolidated financial statements.
ACCOUNTING CHANGES
In 2006, the CICA issued Section 1506, Accounting Changes, of the Handbook. 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. The Company applied this standard as of
January 1, 2007.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS
In the quarter ended September 30, 2007, the Company did not make any
significant changes in, nor take any significant corrective actions regarding
its internal controls or other factors that could significantly affect such
internal controls. The Company's CEO and CFO periodically review the Company's
disclosure controls and procedures for effectiveness and conduct an evaluation
each quarter. As of the end of the third quarter, the Company's CEO and CFO were
satisfied with the effectiveness of the Company's disclosure controls and
procedures.
OVERSIGHT ROLE OF AUDIT COMMITTEE
The Audit Committee reviews, with Management and the external auditor, the
Company's quarterly MD&A, and related consolidated financial statements and
approves the release to shareholders. Management and the internal auditor of the
Company also periodically present to the Committee a report of their assessment
of the Company's internal controls and procedures for financial reporting. The
external auditor periodically prepares a report for Management on internal
control weaknesses noted, if any, identified during the course of the auditor's
annual audit, which is reviewed by the Audit Committee.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A and in particular the statements
contained in various outlook sections, constitute forward-looking statements.
These forward-looking statements relate to the future financial condition,
results of operations or business of the Company. These statements may be
current expectations and estimates about the markets in which
Abitibi-Consolidated operates and management's beliefs and assumptions regarding
these markets. These statements are subject to important risks and
uncertainties, which are difficult to predict and assumptions, which may prove
to be inaccurate. The results or events predicted in the forward-looking
statements contained in this MD&A may differ materially from actual results or
events. In particular, forward-looking statements do not reflect the potential
impact of any merger, acquisitions or other business combinations or
divestitures that may be announced or completed after such statements are made.
In addition, the following factors relating to the business combination of
Abitibi-Consolidated and Bowater under AbitibiBowater, 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;
the risk that the cost savings and other expected synergies from the combination
may not be fully realized or may take longer to realize than expected; and
disruption from the combination making it more difficult to maintain
relationships with customers, employees or suppliers. Additional factors that
could cause Abitibi-Consolidated's results, or those of AbitibiBowater, to
differ materially from those described in the forward-looking statements can be
found in the periodic reports filed by AbitibiBowater, Abitibi-Consolidated and
Bowater with the SEC and the Canadian securities regulatory authorities and
available at the SEC's internet site (http://www.sec.gov) and on SEDAR
(http://www.sedar.com). The Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.