AbitibiBowater reduces paper production to cut cost

AbitibiBowater Inc.’s board of directors has agreed to reduce its newsprint and commercial printing papers production capacity by approximately 1 million metric tons per year during the first quarter of 2008.

The reductions include the permanent closure of the Belgo (Shawinigan, Quebec) and Dalhousie (New Brunswick) mills, as well as indefinitely idling the Donnacona (Quebec) and Mackenzie (British Columbia) mills.

The Company will also indefinitely idle two Mackenzie sawmills directly supporting the Mackenzie paper operation. These facilities are not generating positive cash flows and are not expected to do so in the foreseeable future. They represent approximately 600,000 metric tons of newsprint, 400,000 metric tons of commercial printing papers, and 500 million board feet of lumber capacities. In spite of these capacity reductions, AbitibiBowater expects to continue growing its international newsprint sales in line with offshore market expansions.

Additionally, the Company will permanently close the previously idled Fort William (Thunder Bay, Ontario) and Lufkin (Texas) paper mills, as well as the #3 Paper Machine at the Gatineau (Quebec) facility. The previously idled operations had a total capacity of approximately 650,000 metric tons.

Overall, the Company is targeting $500 million from asset sales, including non-core facilities, U.S. timberlands and the newsprint mill at Snowflake, Arizona, which must be divested under the terms of the agreement reached with the United States Department of Justice for approval of the Abitibi-Consolidated Bowater combination. Proceeds will be used to support the three-year, $1-billion debt-reduction target.

Given the Company’s focus on debt reduction, after careful deliberation, the board of directors also decided to suspend the dividend to shareholders. The Company will revisit this decision once clear progress has been made to achieve its financial targets.

The Company estimates it will incur cash closure costs of approximately $100 million related to severance and other closure charges as a result of these actions. Approximately $30 million of these closure costs will not impact AbitibiBowater earnings and will be recorded as liabilities in the purchase price allocation of its subsidiary, Abitibi-Consolidated Inc., as they relate to facilities owned by Abitibi-Consolidated.

A second phase of closures could take place by mid-2008. Final decisions regarding the actions to be taken and the locations impacted will be confirmed in the second quarter of 2008.