Abitibi-Consolidated Announces an In-Depth Operations Review -
Reports Q4 & 2004 Results A (TSX) ABY (NYSE) MONTREAL, Jan. 26
/PRNewswire-FirstCall/ -- Abitibi Consolidated Inc. reported a
fourth quarter loss today of $108 million, or 24 cents a share,
after recording a write down of $235 million after-tax, for the
permanent closure of both its Sheldon, Texas and Port-Alfred,
Quebec newsprint mills as an initial step of its in-depth
operations review. This compares to a loss of $81 million, or 18
cents a share, in the fourth quarter of 2003. Also included in the
quarter's results were the following after-tax items: A gain of
$169 million on the translation of foreign currencies, namely the
Company's US dollar-denominated debt, a lumber duty credit of $39
million, a negative income tax adjustment of $4 million and mill
closure elements of $21 million. Although not a GAAP-measure, the
loss would have been $56 million, or 13 cents per share, before the
impact of foreign currency translation and other specific items in
the fourth quarter. This compares to a loss of $91 million, or 21
cents a share, in the fourth quarter of 2003, also before specific
items. (see Table 2 of MD&A) The operating loss in the fourth
quarter was $335 million compared with an operating loss of $211
million in the same quarter of 2003. The major difference
year-over-year is higher mill-related closure costs, a stronger
Canadian dollar and higher distribution costs. Offsetting these are
higher prices for all of the Company's paper and wood products,
lower costs in both paper segments as well as a $57 million credit
related to the revised U.S. lumber duty rates handed down in the
fourth quarter. (see Table 1 of MD&A)
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Q4 2004 and year-end highlights
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- Sales of $1.5 billion ($5.8 billion in 2004) - Our US newsprint
price up US$26/ tonne from Q3 average (up US$59 in 2004 over 2003)
- Overall, North American newsprint costs down $17/ mt (down $19
for 2004) - ABIoffset(TM) sales up 18% (up 13% in 2004) - EBITDA of
$184 million ($763 million in 2004)
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For all of 2004, the Company lost $36 million, or 8 cents a share,
compared with net earnings of $175 million, or 40 cents a share for
2003. On an operating basis, the Company reported a loss of $219
million in 2004, compared with a loss of $326 million in 2003.
Although not a GAAP-measure, the loss would have been $153 million,
or 35 cents per share in 2004, before the impact of foreign
currency translation and other specific items. This compares to a
loss of $373 million, or 85 cents a share, in 2003, also before
specific items. (see Table 2 of MD&A) "We will be making
strategic moves over the coming months to return our Company to
appropriate levels of profitability," added Weaver. "It won't be
easy, but we are dealing with a new reality in the North American
newsprint market". Currency Compared to both the fourth quarter of
2003 and for all of 2004, the Canadian dollar has appreciated by 8%
against the US dollar. The Company estimates the unfavourable
impact of this appreciation on its operating results to be
approximately $67 million in the fourth quarter and $188 million
for the whole of 2004. Capex Capital expenditures during the
quarter came in at $140 million, with PanAsia's Hebei project to
construct a 330,000 tonnes newsprint mill outside of Beijing, China
representing $61 million of that amount. This US$300 million
project, which is being fully funded by the joint venture, is on
budget and on schedule. The Hebei project, combined with the
completion of the Alma project in the third quarter, the hydro
modernization project at Iroquois Falls, Ontario as well as asset
maintenance account for most of the 2004 total spend of $385
million ($106 million related to Hebei). Banking covenants At the
end of the fourth quarter, and following the asset write down, the
Company's net funded debt to capitalization ratio was 65.8%
compared to its 70% covenant and its EBITDA-to-interest coverage
was 2.1x compared to the 1.25x threshold. These covenants only
apply to the Company's revolving credit facility, which was
un-drawn at year-end. In-Depth Operations Review "We are forging
ahead in 2005 with a strategic plan designed to make
Abitibi-Consolidated a more nimble competitor in the global
marketplace," said President and Chief Executive Officer, John
Weaver. "This plan will be implemented over the next several
quarters and see investment at our strongest mills, while other
facilities will be reviewed to maximize value. Improvements in cash
flow as well as the cash generated from the execution of this plan
are intended for debt reduction." Measurable steps will be
implemented to improve annualized EBITDA by $250 million by the end
of 2006, including: - Achieving $175 million in cost, productivity
and sales mix improvements. The Company's goal is to have newsprint
mills only in the first or second cost quartiles, and to reduce
North American newsprint cash costs by $25 per tonne. - As part of
the plan, the Company will focus its review on its higher cost
mills in Newfoundland (Grand Falls and Stephenville) as well as on
two Ontario mills (Kenora and Fort William). - The remaining $75
million in profit improvements to come from other initiatives,
among which will be: - The next AO/EO conversion; - The re-launch
of the Lufkin, Texas mill into a new product or the sale of the
mill A conference call hosted by management to discuss quarterly
results will be held today at 11 a.m. (EST). The call will be
webcast at http://www.abitibiconsolidated.com/ , under the
"Investor Relations" section. A slide presentation to be referenced
on the call will also be made available in the same section prior
to the call. Participants not able to listen to the live call can
access a replay along with the slide presentation, both of which
will be archived online. Abitibi-Consolidated is a global leader in
newsprint and uncoated groundwood (value-added groundwood) papers
as well as a major producer of wood products, generating sales of
$5.8 billion in 2004. The Company owns or is a partner in 26 paper
mills, 22 sawmills, 4 remanufacturing facilities and 1 engineered
wood facility in Canada, the U.S., the UK, South Korea, China and
Thailand. With approximately 14,000 employees, excluding its
PanAsia joint venture, Abitibi-Consolidated does business in
approximately 70 countries. Responsible for the forest management
of approximately 18 million hectares of woodlands, the Company is
committed to the sustainability of the natural resources in its
care. Abitibi-Consolidated is also the world's largest recycler of
newspapers and magazines, serving 16 metropolitan areas in Canada
and the United States and 130 local authorities in the United
Kingdom, with 14 recycling centres and approaching 20,000 Paper
Retriever(R) and paper bank containers. FORWARD-LOOKING STATEMENTS
This disclosure contains certain forward-looking statements that
involve substantial known and unknown risks and uncertainties.
These forward- looking statements are subject to numerous risks and
uncertainties, certain of which are beyond the Company's control,
including: the impact of general economic conditions in the U.S.
and Canada and in countries in which the Company and its
subsidiaries currently do business; industry conditions, the
adoption of new environmental laws and regulations and changes in
how they are interpreted and enforced; fluctuations in the
availability or costs of raw materials or electrical power; changes
in existing forestry regulations or changes in how they are
administered which could result in the loss of certain contractual
or other rights or permits which are material to the Company's
business; increased competition; the lack of availability of
qualified personnel or management; the outcome of certain
litigation; labour unrest; and fluctuation in foreign exchange or
interest rates. The Company's actual results, performance or
achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no
assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of
them do so, what benefits, including the amount of proceeds, that
the Company will derive therefrom. Abitibi-Consolidated Inc.
Management's Discussion and Analysis (MD&A) Fourth Quarter
Report to Shareholders January 26, 2005 $108 Million Loss in Fourth
Quarter of 2004 In the fourth quarter of 2004, the Company recorded
a provision for mill closure elements of $33 million and an asset
write down of $364 million with respect to the permanent closure of
two previously idled paper mills located in Port-Alfred, Quebec and
in Sheldon, Texas. As a result, Abitibi-Consolidated reported a
loss of $108 million, or 24 cents a share, in the fourth quarter
ended December 31, 2004 compared to a loss $81 million, or 18 cents
a share, in the same quarter of 2003. The weighted average number
of shares outstanding has remained constant at 440 million since
the beginning of 2003. > Sales were $1,479 million in the fourth
quarter of 2004 compared to $1,372 million in the fourth quarter of
2003. The increase in sales was mainly due to higher prices in the
Company's three business segments, higher sales volume in the
value-added groundwood papers and the wood products segments partly
offset by the strength of the Canadian dollar. Cost of products
sold were $1,085 million in the fourth quarter of 2004 compared to
$1,060 million in the fourth quarter of 2003. The increase was
mainly due to higher sales volume in the value-added groundwood
papers and the wood products segments partly offset by the strength
of the Canadian dollar. Distribution costs were $171 million in the
fourth quarter of 2004 compared to $146 million in the fourth
quarter of 2003. The increase was mainly due to additional fuel
charges, the new U.S. regulation restricting the trucking hours and
higher sales volume in the value-added groundwood papers and the
wood products segments partly offset by the strength of the
Canadian dollar. In the fourth quarter of 2004, the Company
recorded a credit of $57 million in relation to the lumber
countervailing duty (CVD) and anti- dumping duty (AD) estimated
revised rates published in December of 2004. More details are
provided in the wood products section. Mill closure elements
totalled $33 million in the fourth quarter of 2004, as a result of
the permanent closure of the two previously idled Port-Alfred and
Sheldon paper mills. In the fourth quarter of 2003, the Company
announced the indefinite idling of the Lufkin, Texas and
Port-Alfred paper mills, resulting in a provision for mill closure
elements of $67 million. Total amortization increased to $519
million, mainly due to an asset write down of $364 million taken in
December of 2004, with respect to the permanent closure of the
Port-Alfred and Sheldon paper mills. In the fourth quarter of 2003,
the Company recorded asset write-offs of $67 million following the
permanent closure of two previously idled paper machines, one in
Port-Alfred and one in Sheldon. Comparing the fourth quarter of
2004 to the same period of 2003, the Canadian dollar was an average
of 8% stronger against the U.S. dollar. The Company estimates that
this had an unfavourable impact of approximately $67 million on its
operating results compared to the same period last year. The
Company recorded an operating loss from continuing operations of
$335 million during the quarter compared to $211 million for the
fourth quarter of 2003. Lower operating results from continuing
operations in the fourth quarter of 2004 resulted mainly from an
increase in machine or mill closure-related costs of $263 million,
the stronger Canadian dollar and higher distribution costs. These
factors were partially offset by higher prices in the Company's
three business segments and a credit related to the lumber CVD and
AD revised rates. Also, in the fourth quarter of 2003, the Company
had recorded a charge of $21 million for goodwill impairment in the
wood products segment. The Company recorded in the quarter an
after-tax gain of $169 million on the translation of foreign
currencies, derived primarily from its U.S. dollar debt, compared
to $130 million in the same quarter of 2003. In the fourth quarter
of 2004, the Company performed the required annual goodwill
impairment test and found that no impairment exists in its two
paper segments. In the fourth quarter of 2003, the Company
performed the required annual goodwill impairment test and found
that impairment did exist in its wood products segment, mainly due
to market conditions and a stronger Canadian dollar. Consequently,
an impairment charge of $21 million was recorded, representing the
total goodwill for the wood products segment. For the twelve-month
period ended December 31, 2004, the Company recorded a loss of $36
million or 8 cents a share, compared to net earnings of $175
million or 40 cents a share, in the same period last year. In 2004,
the Company recorded an after-tax gain of $260 million on the
translation of foreign currencies, derived primarily from its U.S.
dollar debt, compared to $622 million in 2003. Sales were $5,801
million in the twelve-month period ended December 31, 2004 compared
to $5,450 million in the same period last year. For 2004, the
operating loss from continuing operations was $219 million compared
to $326 million in the total year of 2003. This $107 million
improvement is mainly due to higher U.S. dollar selling prices and
lower manufacturing costs in the Company's three business segments,
partly offset by closure-related charges and a stronger Canadian
dollar. For all of 2004, the Canadian dollar was an average of 8%
stronger against the U.S. dollar compared to 2003. The Company
estimates that the Canadian dollar appreciation had an unfavourable
impact on its operating results of approximately $188 million
compared to the previous year. Table 2 shows how certain specific
items have affected the Company's results in the reporting periods.
The Company believes that it is useful supplemental information as
it provides an indication of the results excluding these specific
items. Readers should be cautioned however that this information
should not be confused with or used as an alternative for net
earnings (loss) determined in accordance with the Canadian
Generally Accepted Accounting Principles (GAAP). > As the above
table indicates, during the fourth quarter of 2004, the Company
recorded an aftertax gain on the translation of foreign currencies
of $169 million mainly from the stronger Canadian currency at the
end of the quarter compared to the U.S. dollar, in which most of
its long-term debt is denominated. Also in this reporting period,
the Company recorded an after-tax credit of $39 million in relation
to the revised lumber CVD and AD rates published in the fourth
quarter of 2004. On the other hand, the Company recorded a
provision for mill closure elements of $21 million after-tax and an
asset write down of $235 million after-tax following the permanent
closure of the two previously idled Port-Alfred and Sheldon paper
mills. As well, consistent with its normal practice, the Company
reviewed its income tax provision resulting in a $4 million
unfavourable adjustment. During the fourth quarter of 2003, the
Company recorded an after-tax gain on translation of foreign
currencies of $130 million. The Company recorded an after-tax
adjustment of $3 million related to the sale of the Saint-Felicien,
Quebec pulp mill. In the same quarter, the Company reassessed its
on-going effective average income tax rate resulting in a future
income tax charge of $10 million. Also in the quarter, the Company
announced the indefinite idling of the Lufkin and Port-Alfred paper
mills, resulting in a provision for mill closure elements of $44
million after-tax, and the permanent closure of two previously
idled paper machines, one in Port-Alfred and one in Sheldon,
representing asset write-offs of $42 million after-tax. Finally,
the Company recognized an amount of $21 million related to goodwill
impairment in its wood products segment. Overview of Results
Operating profit (loss) from continuing operations per business
segment for the periods ended December 31 was as follows: > In
the fourth quarter of 2004, newsprint operating results were
negatively impacted by $30 million in mill closure elements and
$364 million for the asset write down. Also in the fourth quarter
of 2004, the operating results of value-added groundwood papers
were negatively impacted by $3 million of mill closure elements.
The wood products operating results were positively impacted, in
the fourth quarter of 2004, by a credit of $57 million related to
the partial reversal of the CVD/AD deposited since May of 2002 up
to September of 2004. In the fourth quarter of 2003, newsprint's
operating results were negatively impacted by mill closure elements
of $50 million and by $67 million for asset write-offs. Also in the
fourth quarter, operating results in value- added groundwood papers
were negatively impacted by $17 million for mill closure elements.
The wood products operating results were negatively affected by an
amount of $21 million related to goodwill impairment. Newsprint
> In the newsprint segment, the $248 million reduction in
operating results from continuing operations in the fourth quarter
of 2004 is mainly due to mill closure-related charges of $277
million and a stronger Canadian dollar partly offset by higher U.S.
dollar selling prices and lower manufacturing cost per tonne. On
July 1, 2004, the Company acquired an additional 2.5% interest in
Augusta Newsprint Company (ANC) for US$10.5 million, which operates
a newsprint mill in Augusta, Georgia, thereby increasing its
interest to 52.5%. Starting July 1, 2004, the Company's
consolidated financial statements include ANC's complete financial
results, assets and liabilities in its consolidated financial
statements, and show as non-controlling interests the partner's
47.5% share in the subsidiary. According to the Pulp and Paper
Products Council (PPPC), consumption by U.S. daily newspapers
declined 2.6% in the fourth quarter of 2004 and is down 1.5% for
the year compared to 2003. Advertising linage declined by 0.8% in
the fourth quarter of 2004. North American demand for newsprint
fell by 3.2% in the fourth quarter of 2004 over the same period
last year, while declining 1.6% over the year. According to the
PPPC, at the end of December 2004, total producer and customer
newsprint inventories were lower by 98,000 tonnes, or 7%, compared
to the end of September 2004 and higher by 20,000 tonnes, or 1.6%,
compared to the end of December 2003. North American newsprint
production declined 1.6% in the fourth quarter of 2004 and is down
2.4% for the year compared to 2003. At the end of the fourth
quarter of 2004, the Company's overall inventories decreased by
approximately 66,000 tonnes compared to the end of the third
quarter of 2004. The Company's newsprint shipments in the fourth
quarter of 2004 were 1,200,000 tonnes compared to 1,201,000 tonnes
in the fourth quarter of 2003. Shipments would have been slightly
lower without the inclusion of ANC's second 50% of volume that was
not reported in the Company's information before its acquisition of
an additional 2.5% interest in ANC in the third quarter of 2004.
During the fourth quarter, the Company partly implemented the
previous quarter price increases announcement. The Company also
announced a newsprint price increase of US$35 per tonne in the
United States, effective March 1, 2005. During the quarter,
newsprint prices in international markets, with the exception of
European countries, have continued to increase. In the quarter,
PanAsia partly implemented previously announced price increases for
its Asian export markets. The Company expects North American
newsprint consumption to be flat over the coming few months.
Aggressive management of circulation metrics on the part of
newspaper publishers, as well as few signs of sustained ad linage
growth despite rising revenues could negatively impact consumption
in the first part of the year. Management expects demand in Europe
to grow by approximately 2% in 2005 compared to the previous year,
led by southern countries and some Eastern Block economies. Buoyed
by the emergence of new publications and dynamic advertising
environments, Asia and Latin America are expected to record demand
growth of 5% and 4% respectively. On a per tonne basis, the
Company's cost of goods sold in the fourth quarter of 2004 was $11
lower than in the same quarter of 2003. This was mainly due to the
impact of the focused downtime announced at the end of 2003 and a
stronger Canadian dollar reflected in the costs of the Company's
U.S. mills partly offset by increased costs in pension and other
employee future benefits, energy and recycled fibre. Value-Added
Groundwood Papers > In the value-added groundwood papers
segment, the $11 million improvement in operating results from
continuing operations in the fourth quarter of 2004 is mainly due
to higher U.S. dollar selling prices and sales volume, lower
manufacturing costs per tonne and lower mill closure elements
partly offset by a stronger Canadian dollar. According to the PPPC,
North American demand for uncoated groundwood papers increased 4%
in October and November of 2004 compared to the same period of
2003. Demand increased 5.6% for the first eleven months of the
year, compared to the same period of 2003. This increase wasdue to
growth in the standard and lightweight grades while glossy grades
demand slightly declined. The Company's shipments of value-added
paper grades totalled 484,000 tonnes in the fourth quarter of 2004,
compared to 463,000 tonnes in the fourth quarter of 2003. Despite
the indefinite idling of the Lufkin mill, the shipments were 21,000
tonnes higher than the corresponding quarter of 2003. The Company's
uncoated freesheet substitute grades, Alternative Offset(R) and
Equal Offset(R), part of the ABIoffset(TM) product line, continue
to be successful with sales increasing 18.3% in the fourth quarter
of 2004 compared to the fourth quarter of 2003. During the quarter,
the Company partly implemented price increases announced in the
third quarter, on its ABIbrite(R), ABIoffset(TM) and some of its
ABIcal(R) grades. During the fourth quarter of 2004, the Company
continued ramping up its Alma paper machine production toward
manufacturing ABIoffset(TM) grades. This ramp-up is proceeding
ahead of schedule, with the machine producing Equal Offset(R) on a
consistent basis since December of 2004. The Company expects
uncoated groundwood demand to continue to grow in 2005 along with
an improved economy. Uncoated groundwood grades are expected to
benefit from improvements in all end use categories, increased
advertising spending and continued grade substitution. Industry
forecasters are predicting demand growth for 2005 to be
approximately 4% to 5%. On a per tonne basis, the Company's cost of
goods sold in the fourth quarter of 2004 was $12 lower than in the
fourth quarter of 2003. This was mainly due to the impact of the
focused downtime announced at the end of 2003, partly offset by the
increased costs mainly in pension and other employee future
benefits. Wood Products > In the wood products segment, the $113
million improvement in operating results from continuing operations
in the fourth quarter of 2004 is mainly due to a $57 million credit
in relation to the lumber CVD and AD revised rates, higher U.S.
dollar selling prices as well as sales volume and a $21 million
charge for goodwill impairment in the fourth quarter of 2003,
partly offset by a stronger Canadian dollar. U.S. housing starts
decreased by 3% from an annual rate of 2.067 million units during
December of 2003 to 2.004 million units during December of 2004.
During the fourth quarter of 2004, average U.S. dollar lumber
prices (f.o.b. Great Lakes) increased by 26% for 2x4 Stud and 11%
for 2x4 Random Length compared to the same period last year. Sales
volume in the fourth quarter of 2004 totalled 549 million boardfeet
(MBf), compared to 476 MBf for the same period in 2003. Average
selling prices in Canadian dollars for the fourth quarter of 2004
were 18% higher than in the same quarter in 2003 as a result of
higher U.S. dollar lumber prices, partly offset by a stronger
Canadian dollar. On a per thousand boardfeet basis, the Company's
cost of goods sold in the fourth quarter of 2004 was $13 higher
than in the fourth quarter of 2003. This was mainly due to
increased sales of higher cost value-added products, partly offset
by lower lumber manufacturing cost mostly attributable to higher
productivity. With respect to the ongoing softwood lumber dispute,
on August 13, 2004, the North American Free Trade Agreement (NAFTA)
panel reviewing the U.S. International Trade Commission (USITC)
injury determination ruled for the third time that the
determination that United States lumber producers were threatened
by Canadian imports is not supported by substantial evidence. As a
result of this decision, on September 10, 2004, the USITC issued a
revised determination, concluding that there was no present injury
or threat of future injury to a U.S. industry by reason of Canadian
softwood lumber imports. However, on November 26, 2004, the United
States challenged the NAFTA Panel's decision before a NAFTA
Extraordinary Challenge Committee. This is not a normal appeal
procedure, but rather is intended as a safeguard in the case of
egregious conduct by a panel that threatens the integrity of the
NAFTA process. To date, no extraordinary challenge to a NAFTA panel
decision has been successful. Ordinarily, if the extraordinary
challenge were to fail, future deposits of estimated duties on
softwood lumber imports would cease, both for CVD and AD duties.
However, on December 20, 2004, the United States published notice
of a USITC determination, issued in a separate proceeding intended
to implement a World Trade Organization panel ruling against the
United States, in which the USITC determined that softwood lumber
imports threatened future injury to a U.S. industry. The notice
also indicated that the United States was implementing this new
determination, and amending the CVD and AD duty orders.
Accordingly, the Company believes that if the U.S. extraordinary
challenge fails, it would be entitled to a full refund of all
deposits paid to date and would not be obligated to pay duty
deposits on future imports into the United States. However, it
appears that the U.S. Department of Commerce (USDOC) will dispute
this position. As a consequence, further litigation may be
necessary to resolve these issues. On December 20, 2004, following
the completion of its first administrative reviews, the USDOC
lowered the industry based CVD and Abitibi- Consolidated specific
AD deposit rates from 18.79% to 17.18% and from 12.44% to 3.12%
respectively. Both the Company and various other parties have
indicated that they intend to appeal both USDOC first review
determinations. The duty assessment rates may change as a result of
these appeals. Once the results of the first administrative review
become final, assuming the case is not ended and all cash deposits
returned on the basis of the USITC failure to find injury or threat
of injury, the Company will be entitled to a refund with interest
of the difference between the amounts of estimated duties deposited
from May 22, 2002 through April 30, 2003 for the AD case and May
22, 2002 through March 31, 2003 for the CVD case, and the final
assessment rates determined in the first review provided the
deposits made exceed the final assessed amount. If, on the other
hand, the amounts deposited turned out to be insufficient to cover
the duties assessed, the Company will owe the difference, with
interest. As a result of these rate changes, the Company recognized
in the fourth quarter of 2004, a credit of $57 million of which $18
million covers the first review period, $23 million covers the
second review period and $16 million covers part of the third
review period up to September 2004. The portion of this credit
relating to CVD was $9 million in total and by period $3 million,
$4 million and $2 million respectively. Also, in the fourth quarter
of 2004, Abitibi-Consolidated expensed $17 million for CVD and AD
based on the new rates determined in the first administrative
reviews. The Company believes that the AD and CVD rates determined
in the first reviews reflect the best current estimates of its
ultimate duty liability, assuming the case is not ended and all
cash deposits returned on the basis of the USITC failure to find
injury or threat of injury. For exports occurring during the first
administrative review periods, the rates mentioned in the previous
paragraph are those determined by the USDOC. The first review
results are consistent with the Company's preliminary calculations
of its potential AD liability for the second and third periods
based on the methodologies the USDOC applied in the first review.
The Company does not believe the AD rate for this first period is
likely to increase as a result of appeals. The Company's assessment
of the ultimate CVD liability is more uncertain, because it is
unclear what methodology for measuring a subsidy will result from
the appeals process. At this time, the Company has no basis for
estimating its ultimate CVD liability for periods two and three
other than to use the rate the USDOC has recently determined. The
Company believes that the rate determined by the USDOC in its first
period review better reflects its likely maximum duty liability
rather than the deposit rates in effect on the date of export and
as originally expensed. The USDOC applied different methodologies
for measuring the amount of subsidy benefit in the first period
review than it applied in the original investigation, and thus the
amended first period rate more accurately reflects the USDOC's
current approach. The Company notes, however, that the USDOC has
not yet made preliminary or final determinations in the second
period review, and has not yet initiated a third period review, and
thus the Company's ultimate duty liability for these periods, if
any, remains uncertain. Other Noteworthy Events Today, the Company
announced an in-depth operations' review, whose goals are to
achieve cost and productivity improvements as well as other
initiatives over the next several quarters. On December 14, 2004,
the Commission for the study of public forest management in Quebec
tabled its final report. The mandate of this commission was to
examine the Quebec forest regime and the state of the forest on
public land. The report of the Commission includes several
recommendations dealing with practically all aspects of the Quebec
forest regime. The report may result in temporary reductions in the
volumes harvested on public land. In the coming weeks, the minister
for Forests, Wildlife and Parks should give indications regarding
what actions the government intends to take following this report.
On December 13, 2004, Abitibi-LP Engineered Wood Inc. (Abitibi-LP),
the joint venture involving the Company and Louisiana-Pacific
Corporation, announced the construction of its second engineered
wood facility to produce I-joists. The new facility will be an
expansion of Abitibi-Consolidated's Saint-Prime, Quebec mill, and
constitutes an investment of approximately $13 million in the
existing mill. Annual production capacity will be 75 million linear
feet, with operations set to begin in the fall of 2005. The project
will create approximately 40 new jobs, in addition to the existing
125 in the mill. With this new facility, Abitibi-LP will become the
largest manufacturer of solid sawn I-joists in North America.
Dividends On October 20, 2004, the Company's Board of Directors
declared a dividend of $0.025 per share paid on December 2, 2004 to
shareholders of record as at November 1, 2004. On January 25, 2005,
the Company's Board of Directors declared a dividend of $0.025 per
share payable on March 1, 2005 to shareholders of record as at
February 7, 2005. Financial Position and Liquidity Cash generated
from continuing operating activities totalled $60 million for the
fourth quarter ended December 31, 2004, compared to cash used from
continuing operation of $1 million in the corresponding period of
2003. The increase in cash flows generated from operating
activities is mainly due to an improvement in operating results
from continuing operations. Capital expenditures were $140 million
for the three-month period ended December 31, 2004 compared to $100
million in the corresponding period last year. This increase is
mainly attributable to the Company's $61 million portion spent by
PanAsia on the Hebei project. The project remains on schedule being
90% complete at the end of December 2004. The project cost is also
on budget. The modernization of the Iroquois Falls hydro-electric
facilities, to produce an additional 13 megawatts, was completed in
the quarter, as scheduled and on budget. Total long-term debt
amounted to $4,934 million for a ratio of net debt to total
capitalization of 0.628, as at December 31, 2004, compared to
$4,958 million or a net debt to total capitalization ratio of 0.618
at December 31, 2003. The reduction in the Company's long-term debt
is attributable to the stronger Canadian currency at the end of the
year compared to the U.S. dollar, in which most of its long-term
debt is denominated, almost totally offset by the reduction of $63
million in the use of the securitization program, the increase in
PanAsia's long-term debt related to the Hebei project and the
consolidation of 100% of ANC as explained earlier. The current
portion of the long-term debt increased from $317 million at the
end of 2003 to $594 million as at December 31, 2004, mainly
attributable to the 8.30% notes coming due on August 1, 2005. Also,
as at December 31, 2004, cash and cash equivalents increased by $82
million, compared to December 31, 2003. Going forward, the Company
remains committed to applying free cash flow to the reduction of
long- term debt. On October 1, 2004, DBRS confirmed its rating of
the Company's debt instrument at BB (high) with the trend changed
to negative from stable. On October 19, 2004, Moody's lowered its
rating of the Company's debt instruments from Ba2 with a negative
outlook to Ba3 with a negative outlook. On December 20, 2004,
Standard & Poor's lowered its rating of the Company's debt
instruments from BB with a negative outlook to BB- with a negative
outlook. The Company does not expect in the near term a significant
increase in its interest expense as a result of these rating
changes. Regarding the covenants on the Company's revolving credit
facility, the net funded debt to capitalization ratio amounted to
65.8% at the end of December 2004 and the interest coverage ratio
was 2.1x for the twelve-month period ended December 31, 2004. Table
7: Covenants Debt to Equity Ratio: Net Funded Debt to Total
Capitalization 70% or lower Interest Coverage Ratio (on a trailing
twelve-month basis): 1.25x or more For the fourth quarter of 2004
1.50x or more For the year of 2005 1.75x or more Until June 30,
2006 (Maturity) The Company has an ongoing program to sell accounts
receivable, with minimal recourse. Under this program, the
outstanding balance in Canadian dollars, as at December 31, 2004
was $441 million compared to $504 million as at December 31, 2003.
Changes in Accounting Policies adopted during the first quarter of
2004 Effective January 1, 2004, the Company adopted two new
recommendations that have a significant impact on the presentation
of its consolidated financial statements. These recommendations
were adopted retroactively with restatement. The new CICA Handbook
section 1100, Generally Accepted Accounting Principles, has been
issued, effective for fiscal years beginning on or after October 1,
2003. The new section establishes standards for financial reporting
in accordance with GAAP. It clarifies the relative authority of
various accounting pronouncements and other sources of guidance
within GAAP, complementing section 1000, Financial Statement
Concepts. The application of the new standard eliminates the notion
of "net sales" and requires the presentation of sales separate from
distribution costs and CVD/AD expenses, resulting in higher sales
amount with no impact on net earnings and on cash flows. The CICA
has issued new recommendations relative to Handbook section 3870,
"Stock-based compensation and other stock-based payments", which is
effective for fiscal years beginning on or after January 1, 2004.
The recommendation states that the fair value-based method must be
used, with the intrinsic value method being no longer acceptable.
The impact on the Company's Selling, General and Administrative
expenses is $1 million in the fourth quarter of 2004 and $1 million
in the fourth quarter of 2003. Disclosure Controls and Procedures
and Internal Controls In the quarter ended December 31, 2004, the
Company did not make any significant changes in, nor take any
significant corrective actions regarding, its internal controls, or
other factors that could significantly affect such internal
controls. The Company's CEO and CFO periodically review the
Company's disclosure controls and procedures for effectiveness and
conduct an evaluation each quarter. As of the end of the fourth
quarter, the Company's CEO and CFO were satisfied with the
effectiveness of the Company's disclosure controls and procedures.
Oversight role of Audit Committee The Audit Committee reviews, with
Management and the external auditor, the Company's quarterly
MD&A and related consolidated financial statements and approves
the release to shareholders. Management and the internal auditor of
the Company also periodically present to the Committee a report of
their assessment of the Company's internal controls and procedures
for financial reporting. The external auditor periodically prepares
a report for Management on internal control weaknesses, if any,
identified during the course of the auditor's annual audit, which
is reviewed by the Audit Committee. Forward-Looking Statements
Certain statements contained in this MD&A and in particular the
statements contained in various outlook sections, constitute
forward- looking statements. These forward-looking statements
relate to the future financial condition, results of operations or
business of the Company. These statements may be current
expectations and estimates about the markets in which
Abitibi-Consolidated operates and management's beliefs and
assumptions regarding these markets. These statements are subject
to important risks and uncertainties which are difficult to predict
and assumptions which may prove to be inaccurate. The results or
events predicted in the forward-looking statements contained in
this MD&A may differ materially from actual results or events.
The Company disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. In particular,
forward-looking statements do not reflect the potential impact of
any merger, acquisitions or other business combinations or
divestitures that may be announced or completed after such
statements are made. All these acquisitions were accounted for
using the purchase method of accounting, whereby the total cost of
the acquisitions has been allocated to the assets acquired and to
the liabilities assumed based upon their respective fair values at
the effective date of acquisition. 6. Financial expenses > On
February 27, 2004, the Company sold its remaining 25% interest in
SFK GP for gross proceeds of $118 million. The Company recorded a
gain of $85 million, before income taxes, after considering the
original cost of the investment, the reversal of the deferred gain
related to this investment and $6 million of transaction costs.
This gain is included in earnings from discontinued operations in
the consolidated statements of earnings. On May 19, 2004, the
Company sold its 21% interest in Voyageur Panel Limited for gross
proceeds of $57 million. The gain of $25 million, before income
taxes, related to this transaction is included in other expenses
(income) in the consolidated statements of earnings. On June 2,
2004, following the acquisition of the non-controlling interest in
Alabama River Newsprint Company and Alabama River Recycling
Company, the Company renounced its US$66 million loan receivable
from the partner. 9. Long-term debt On June 15, 2004, the Company
issued, through a private placement, US$200 million of 7.75% notes
due 2011 and US$200 million of floating- rate notes due 2011. These
notes have subsequently been exchanged for public notes pursuant to
an exchange offer. The net proceeds of these issues were used to
repay the US$118 million floating-rate term loan maturing on June
30, 2004 of Alabama River Newsprint Company, to repay bank
indebtedness and for general corporate purposes. 10. Stock-based
compensation plans a) Performance share units plan The Company
decided to discontinue the performance share units ("PSUs") plan.
All previously awarded PSUs will continue to become earned based on
original PSU plan rules. As at December 31, 2004, 317,083 PSUs were
outstanding, and there was no significant amount payable under this
plan. b) Restricted share units plan Effective January 1, 2004, the
Company implemented a new restricted share unit ("RSUs") plan. This
plan provides for the granting of RSUs to executives and senior
managers and, on an exceptionnal basis, other selected high
potential and/or high performing key employees. The vesting of RSUs
will be entirely subject to the Company's relative average
financial performance versus other companies that comprise the
comparator group during a set period (usually over 3 years). The
Human Resources and Compensation Committee will approve on an
annual basis the RSU grants, the financial benchmarks, the
composition of the comparator group, the period during which the
Company's performance will be evaluated, as well as the vesting
conditions. During the year ended December 31, 2004, the Company
granted 693,320 RSUs. As at December 31, 2004, 685,511 RSUs were
outstanding. During the year, under this plan, the Company has not
incurred any significant expense, and there was no significant
amount payable. 11. Employee future benefits Total employee future
benefits costs for the three months and the year ended December 31
are as follows: > In July 2004, the Company came to a five-year
labour agreement with the employees of some of its newsprint and
value-added groundwood paper mills. This labour agreement included
improvements related to the defined benefit pension plans over the
next 10 years and increased accrued benefits obligations by
approximately $95 million. 12. Comparative figures Certain
comparative figures presented in the consolidated financial
statements have been reclassified to conform to the current period
presentation. DATASOURCE: ABITIBI-CONSOLIDATED INC. CONTACT:
Contacts: Investors & Financial Media: Lorne Gorber, Investor
Relations & Financial Communications, (514) 394-2360, ; General
Media: Denis Leclerc, Public Affairs, (514) 394-3601,
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