AbitibiBowater Swings to 2nd Quarter Profit on Improved Pricing

Aug. 10, 2011 - AbitibiBowater Inc. today reported net income for the second quarter of 2011 of $61 million, or $0.63 per diluted share, on sales of $1.2 billion. These results compare with a net loss of $297 million, or $5.15 per diluted share, on sales of $1.2 billion for the second quarter of 2010.

The net income for the second quarter, before certain special items, was $69 million, or $0.71 per diluted share, compared with a second quarter 2010 net loss before special items of $197 million, or $3.31 per diluted share. Second quarter 2011 special items, net of tax, consisted of the following: a $4 million gain related to foreign currency transactions, a $3 million charge related to closure costs, a $2 million gain related to asset sales, an $8 million charge for post-emergence expenses and a $3 million severance charge. The Company also benefited from a $44 million tax reserve adjustment in the quarter or $0.45 per diluted share.

"Our pricing for our pulp and paper products improved in the second quarter, and we completed our major annual maintenance at all our kraft pulp facilities," said Richard Garneau, President and Chief Executive Officer. "Although overall economic indicators are weak, I believe our focus on cost and debt reduction should yield improved financial results in the second half of the year."

SEGMENT DETAIL

The implementation of the plans of reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in the Company's consolidated financial statements. The Company also began allocating all of its selling, general and administrative (SG&A) expenses back to each product line, with the exception of special items, during the first quarter of 2011. Accordingly, the Company's operating results, including depreciation, for periods before December 31, 2010, are not comparable to the operating results after December 31, 2010.

Newsprint

For the second quarter of 2011, the newsprint segment had operating income of $26 million, an increase of $7 million from the first quarter operating income of $19 million. The Company's average transaction price increased $9 per metric ton compared to the first quarter of 2011. Average operating costs were equivalent to the first quarter, primarily as a result of a $9 million energy benefit that was booked in the quarter relating to prior quarters for the implementation of an Ontario power program, offset by a stronger Canadian dollar and higher recycle fiber costs. Total newsprint shipments were 41,000 metric tons higher in the second quarter compared to the first quarter. The downtime and roof damage that occurred in February at the Clermont, Quebec facility reduced production by approximately 31,000 metric tons during the quarter. The machine restarted in June and is performing well.

Coated Papers

Operating income for coated papers for the second quarter was $23 million compared to operating income of $3 million in the first quarter. The Company's average transaction price for coated papers increased $28 per short ton in the quarter with the implementation of the April price increase reported by third parties. Average operating costs decreased $93 per short ton from the first quarter as a result of particularly high maintenance in the first quarter at the Catawba, South Carolina facility.

Specialty Papers

For the second quarter, the specialty papers segment had operating income of $11 million compared to breakeven in the first quarter. The Company's average transaction price increased $26 per short ton with the implementation of the second quarter price increase reported by third parties. Average operating costs were equivalent to the first quarter, including a $3 million energy benefit that was booked in the quarter relating to prior quarters for the implementation of an Ontario power program. During the second quarter, the Company curtailed 26,000 tons of production due to weak demand.

Market Pulp

Operating income for market pulp was $14 million in the second quarter of 2011 compared to operating income of $23 million in the first quarter. The average market pulp transaction price increased $32 from the first quarter. Average operating costs increased $64 per metric ton compared to the first quarter as a result of kraft mill maintenance outages at the Thunder Bay, Calhoun and Coosa Pines facilities and the stronger Canadian dollar, partially offset by a $2 million energy benefit that was booked in the quarter relating to prior quarters for the implementation of an Ontario power program.

Wood Products

For the second quarter of 2011, wood products had an operating loss of $14 million compared to an operating loss of $3 million in the first quarter. The average lumber transaction price for the Company decreased $20 per thousand board feet while costs increased by $6 per thousand board feet. Our operating rate is still very low with about 150 million board feet of our capacity idled.

ACH Limited Partnership and Debt Reduction

As previously disclosed, in the second quarter, the Company sold its 75% equity interest in ACH Limited Partnership (ACH). The Company received cash proceeds of approximately $300 million. The Company used the proceeds to repay approximately $270 million of its debt during the quarter.

Outlook

"We remain cautious about the economy and the impact it could have on advertising and, in turn, paper demand," said Garneau. "We expect pulp pricing to be weaker but still expect pricing to stabilize later in the year. In addition, the end of the 10% lumber export tax on shipments of lumber from Canada to the U.S. should provide additional relief in the weak lumber segment."

AbitibiBowater is a global leader in the forest products industry, producing a diverse range of products, including newsprint, commercial printing papers, market pulp and wood products. The company owns or operates 18 pulp and paper mills and 24 wood products facilities located in the United States, Canada and South Korea. Marketing its products in close to 90 countries, AbitibiBowater also has third-party certified 100% of its managed woodlands to sustainable forest management standards.

SOURCE: AbitibiBowater Inc.