THUNDER BAY – The outlook is looking better for forest giant AbitibiBowater. In the second quarter of 2011, operating income was up by $20 million, reaching $72 million. “Our operating earnings improved for the third consecutive quarter following emergence at the end of last year,” said Richard Garneau, president and chief executive officer.
“Overall shipments increased and, with the exception of pulp, pricing in each of our segments was stable or better in this quarter. We continue to make progress in spite of an economy that continues to prove challenging.”
Today AbitibiBowater is reporting a net loss of $44 million for the third quarter of 2011, or $(0.46) per share, on sales of $1.2 billion. This compares with a net loss of $829 million, or $(14.35) per share, on sales of $1.2 billion in the third quarter of 2010. Excluding $96 million of special items described below, net income in the quarter was $52 million, or $0.53 per share, compared with a net loss excluding special items of $95 million, or $(1.65) per share, in the third quarter of 2010.
Description of Special Items: Net loss in the third quarter included a $69 million non-cash charge mainly on translation of Canadian dollar net monetary assets as a result of the significantly weaker Canadian dollar relative to the U.S. dollar when compared to the previous quarter.
Other special items in the third quarter of 2011, net of tax, included:
$14 million charge related to asset impairment and closure costs
$9 million charge for post-emergence expenses
$3 million severance charge
$1 million charge related to the sale of assets
Non-GAAP financial measures, such as adjustments for special items, are reconciled below.
Segment Details: 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. Furthermore, the Company began to allocate 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: The newsprint segment generated operating income of $18 million in the third quarter, an $8 million decrease from the second quarter. Quarter over quarter sales increased by 9,100 metric tons and the average transaction price remained the same, but average operating costs increased by $13 per metric ton, primarily as a result of a $9 million energy benefit that was recorded in the second quarter on the implementation of an Ontario power program.
Coated Papers: The coated papers segment generated operating income of $18 million in the third quarter, $5 million lower than the previous quarter. The benefit of a $15 per short ton increase in average transaction price and higher sales volume was more than offset by an increase of average operating costs of $48 per short ton, mainly on higher chemicals and power costs.
Specialty Papers: The specialty papers segment generated operating income of $27 million in the third quarter, $16 million higher than the previous quarter despite lower shipment volume. Quarter over quarter average transaction price increased $23 per short ton, reflecting the continued implementation of previously-reported third quarter price increases, while average operating costs decreased $16 per short ton, as all annual maintenance was completed in the previous quarters.
Market Pulp:The market pulp segment generated operating income of $36 million in the third quarter, an increase of $22 million over the second quarter. The average market pulp transaction price decreased $26 in the quarter, reflecting general pricing pressure in the pulp market. This was more than offset by a 13,000 metric ton increase in shipment volumes and a $116 per metric ton reduction in average operating costs, as all annual plant maintenance was completed in the second quarter.
Wood Products: The wood products segment reported an operating loss of $3 million in the third quarter, an $11 million improvement compared to the second quarter. The average lumber transaction price for the Company increased $8 per thousand board feet, primarily as a result of the lapse of the 10% lumber export tax on shipments from Canada to the U.S. The average costs decreased by $20 per thousand board feet, due primarily to lower manufacturing costs and a 5% increase in shipments.
The Company’s operating rate is still very low, with approximately 22% of capacity idled.
Financing Initiatives: As previously disclosed, in addition to the $67 million of additional and accelerated past service contributions to its Canadian registered pension plans, the Company is moving forward with its $85 million debt redemption on November 4, 2011. The aggregate face amount of its 10.25% senior secured notes due 2018 will be $586 million following the redemption.
The Company is also pleased to announce that it has taken advantage of its strong performance in 2011 and favorable financing market conditions to amend its asset-based revolving credit facility. The amendment to the facility, which remains undrawn, extends its maturity from December 2014 to October 2016 reduces borrowing costs and eases many covenants, including the restriction on dividend payments and share repurchases.
Outlook: “The seasonal pick-up in paper sales came later and was not as strong as last year,” said Garneau.”We expect this trend will produce weaker seasonal demand in the fourth quarter. We also expect to see continued pricing pressure in the pulp segment over the near term and some pressure in export newsprint pricing, as there is excess supply worldwide. With our network of lower-cost manufacturing assets and our strong balance sheet, we are very well positioned to face the challenges ahead.”
Earnings Conference Call
The Company will hold a conference call to discuss those results at 9:00 a.m. (ET) today, The public is invited to join the call at 866 696-5910 (pass code 1038311) at least fifteen minutes before its scheduled start time. A simultaneous webcast will also be available using the link provided under “Presentations and Webcasts” in the “Investors” section of www.abitibibowater.com. A replay of the webcast will be archived on the Company’s website. A phone replay will also be available until November 14, 2011, by dialing (800) 408-3053 with the pass code 7713542.