Business News
AbitibiBowater Announces Action Plan to Address Market Challenges
Tuesday 09. December 2008 - * Curtails Paper Production Capacity by 1 Million Metric Tons * Projects $375 Million in Annualized Synergies in 2008, One Year Ahead of Plan * Initiates a Further 20% Reduction in SG&A Costs in 2009
AbitibiBowater Inc. today announced several actions aimed at creating a more flexible and responsive operating platform, addressing ongoing volatility in exchange rates, energy and fiber pricing, as well as structural challenges in the North American newsprint industry. These efforts are a continuation of the Company’s comprehensive strategic review.
Approximately 830,000 metric tons of newsprint, 110,000 metric tons of specialty grades and 70,000 metric tons of coated grades will be removed from the marketplace. Capacity reductions include:
* The permanent closure by the end of the first quarter of 2009 of the Grand Falls, Newfoundland and Labrador newsprint mill, representing 205,000 metric tons;
* The permanent closure by the end of 2008 of the Covington, Tennessee paper converting facility, representing 70,000 metric tons of coated grades;
* The immediate idling, until further notice, of the Alabama River newsprint mill, in Alabama, representing 265,000 metric tons;
* The immediate idling, until further notice, of two paper machines (# 1 and # 2) in Calhoun, Tennessee, representing 230,000 metric tons of capacity, including 120,000 metric tons of newsprint and 110,000 metric tons of specialty grades; and
* On a revolving basis, approximately 20,000 metric tons of monthly newsprint downtime at other facilities across the organization until market conditions improve.
The Company has achieved $320 million in annualized synergies through September 30, 2008 and believes it will reach its targeted run rate of $375 million of annualized synergies by year-end 2008, one full year ahead of plan. AbitibiBowater also has initiated a further 20% reduction in selling, general and administrative (SG&A) costs in 2009, representing a $60 million reduction compared to its fourth quarter 2008 run rate.
“Today’s announcement is consistent with previous actions and demonstrates our ongoing commitment to be a stronger, more competitive organization,” stated President and Chief Executive Officer David J. Paterson. “The North American newsprint market continues to contract and our customers have told us they anticipate further decline. International customers have also indicated that export growth will not be as strong in the coming year. We have the resolve to adapt to these realities and to set the stage for continued quarter-over-quarter improvements.”
Despite sustained efforts and discussions with government and unions, the permanent closure of the Grand Falls facility is a result of declining newsprint demand and high delivered cost. Idlings of machines at Calhoun and the Alabama River newsprint mill reflect softening markets for the products produced at these facilities and the non-competitive cost structure of southern U.S. electrical suppliers.
AbitibiBowater estimates it will incur cash closure costs of approximately $45 million related to severance and other closure charges as a result of these actions. The majority of these closure costs will be paid during the second quarter of 2009. A fourth quarter 2008 non-cash asset impairment charge of approximately $180 million will be taken to reflect the permanent closure of the Grand Falls mill and Covington paper converting facility.
“We will make every effort to help mitigate the effects of these capacity reductions, as we are mindful of the impact they will have on affected employees and communities,” added Paterson. “Stakeholders made efforts to develop viable solutions to keep these operations running, however, after careful deliberation, these decisions were necessary given current market and economic realities.”
A total of approximately 1,100 employees are affected by these capacity reductions.
The steps announced today are designed to better position the Company for the future, an objective that is in the long-term interest of AbitibiBowater stakeholders. The Company remains committed to customer service and delivery of a high-quality product and will work closely with customers to ensure a smooth transition.
AbitibiBowater will continue to assess its business, taking necessary actions to better position the Company in the global marketplace.