MONTREAL, Nov. 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.
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.
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.