Abitibi-Consolidated 2nd Quarter Net Earnings Dip
July 24, 2007 - Abitibi-Consolidated Inc. today reported second quarter net earnings of $148 million, or 34 cents a share, compared to net earnings of $157 million, or 36 cents a share in the second quarter of 2006. For the six-month period ending June 30, 2007, the Company recorded net earnings of $78 million, or 18 cents a share, compared to net earnings of $124 million, or 28 cents a share, for the same six-month period last year.
Although not a GAAP measure, the second quarter results before the impact of specific items would have been a loss of $111 million, or 25 cents per share, compared to a loss of $29 million, or 7 cents a share, in the second quarter of 2006 (see Table 3 of MD&A).
The quarter's results include the following after-tax specific items: a gain of $204 million on translation of foreign currencies, a net gain on dilution of $31 million as a result of the issuance of new units equivalent to a 25% interest in ACH Limited Partnership, a $22 million favourable income tax adjustment, a positive impact of $18 million due to a gain from the disposal of certain timberlands in the United States, a $7 million negative impact of mill closure and other elements, and a charge of $7 million for merger and integration-related costs.
In the second quarter of 2007, the Company posted an operating loss of $64 million before specific items, compared to an operating profit of $57 million in the second quarter of 2006. The Newsprint segment had operating losses of $25 million, while the Commercial Printing Papers and Wood Products segments had operating losses of $21 million and $18 million respectively.
Before specific items, the $121 million reduction in operating results in the second quarter of 2007 was mainly attributable to lower prices in the Company's Newsprint and Wood Products business segments, higher cost of products sold in the Newsprint segment and lower sales volume for all segments.
Q2 vs. Q1 2007 Summary:
- Sales of $1.06 billion vs. $1.07 billion ($1.25 billion in Q2 2006)
- EBITDA of $42 million vs. $70 million ($168 million in Q2 2006)
- US newsprint prices lower by approximately US$28 per tonne (lower by
US$73 per tonne vs. Q2 2006)
- Continued positive demand outlook for uncoated groundwood papers
- Higher wood products prices but volume still impacted by low U.S.
"The forest products industry continues to be challenging for us and for our customers," said John Weaver, Abitibi-Consolidated President and Chief Executive Officer. "We believe the combination with Bowater, which is expected to generate annualized synergies of at least US$250 million, will enhance financial flexibility, increase cash flow, and create a better opportunity to unlock future value. We have spent the past months planning for the integration with Bowater and once final approvals have been achieved, the plan will quickly be put into action."
Proposed Combination with Bowater
On January 29, 2007, Abitibi-Consolidated Inc. and Bowater Incorporated announced the execution of a definitive agreement to combine in an all-stock merger of equals. The combination is expected to create a new leader in publication papers, the third largest publicly traded paper and forest products company in North America and the eighth largest in the world.
On June 22, the two companies announced that the United States Securities and Exchange Commission (SEC) had completed its review of the joint proxy statement/prospectus/management information circular, which was subsequently mailed to shareholders of both companies.
In July, Institutional Shareholder Services Inc. (ISS), Glass Lewis & Co. and PROXY Governance, Inc., three independent proxy advisory firms, recommended that Abitibi-Consolidated shareholders vote in favour of the proposed combination with Bowater. In separate reports, the three firms also recommended that Bowater stockholders vote in favour of the proposed combination. Shareholders of Abitibi-Consolidated and stockholders of Bowater will vote on the proposed combination on July 26.
Transaction Closes on ACH Limited Partnership
On April 2, 2007, the Company closed the transaction with the Caisse de depot et placement du Quebec (Caisse) to create a partnership for Abitibi-Consolidated's hydroelectric assets located in Ontario, which represent approximately 137 megawatts of installed capacity. The Company has retained a 75% interest in the partnership, known as ACH Limited Partnership (ACH LP), while the Caisse has acquired a 25% interest. On a consolidated basis, the transaction has yielded gross proceeds of $297.5 million to the Company. ACH LP is intended to be Abitibi-Consolidated's growth vehicle in energy generation.
Abitibi-Consolidated is a global leader in newsprint and commercial printing papers as well as a major producer of wood products, serving clients in some 70 countries from its 45 operating facilities. Abitibi-Consolidated is among the largest recyclers of newspapers and magazines in North America, diverting annually approximately 1.7 million tonnes of waste paper from landfills.
SOURCE: Abitibi-Consolidated Inc.