Resolute Forest Products Inc (RFP) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Bowater fourth quarter 2003 earnings release conference call. [OPERATOR INSTRUCTIONS]. I would now like to turn the conference over to our host, Mr. Bill Harvey. Please go ahead, sir.

Thank you. Welcome to Bowater's fourth quarter conference call. I'm Bill Harvey, Vice President and Treasurer and on the call today are Arnie Nemirow, Chairman and Chief Executive Officer, David Maffucci, our Executive Vice President and Chief Financial Officer, and Julie Hofemann, our Investor Relations Manager.

I'll cover a few preliminary items and then Arnie and David Maffucci will briefly discuss the fourth quarter and the first quarter outlook. Following that, we will take questions. The call is scheduled for about 45 minutes. Before we begin, I need to call your attention to the cautionary forward-looking statement language that is contained in the press release and on our Web site. If you haven't read it, please do so.

We will be discussing such forward-looking matters on the call today and you should be aware that due to the uncertainties inherent in such statements, actual results will differ and any such statements are not guarantees of future performance. Financial and statistical information as well as reconciliations of non-GAAP financial measures used on the call be found on our Web site.

The call is available to all shareholders via live Web cast and replay on Bowater's Web site, www.bowater.com. The conference is also open to the press. Please note that while any member of the press who attends our call is free to quote the company's speakers, other participants in the call should not be quoted without their permission. Now, I will turn the call over to Arnie Nemirow.

Good morning and thanks for joining us. Our fourth quarter loss was $51 million, or 89 cents per share, net of special items, the loss was 39.5 million, or 69 cents per share. In the fourth quarter we continued to achieve price improvements in our core products, but some of this has been offset by a stronger Canadian dollar. We did, however, restore profitability in the fourth quarter in our newsprint product lines.

2003 overall was a very difficult year. We had a net loss of $205 million as product pricing improved modestly but we were hurt by cost increases. However, we undertook many important initiatives at the company.

First, we completed a new coated paper machine and fiber line at our Catawba, South Carolina site. We sold approximately $150 million of timberland. We permanently eliminated 340,000 tons of newsprint production, we exceeded our annualized $75 million cost reduction program, and given the current Canadian-US dollar exchange rate, and we transitioned newsprint market downtime from the US to a higher-cost Canadian paper machine.

Our shift in newsprint production from Thunder Bay, Ontario to Calhoun, Tennessee is complete and we're now realizing the benefits of lower production costs. The start-up at the Catawba facility is well ahead of schedule; both the fiber line and our recently converted lightweight coated machine are running exceptionally well. We are very pleased with the higher production, lower cost and better quality.

During the fourth quarter, we incurred the final one-time charge of $4 million of costs relating to the machine closure at our Donnacona, Quebec mill. In the first quarter, unrelated to the machine closure, we will take a 12-day outage at the same site, Quebec, to improve our SCA grade quality.

Shifting to the markets, newsprint consumption in North America was slightly down in '03, demand recovery should follow the economic recovery and our customers are looking for improvement in advertising this year. newsprint prices rows in 2003 and we have informed our customers of a $50 per ton price increase for newsprint in North America for February 1. The reduction in supply over the last few years of about 2 million tons has tightened the newsprint market. And we took approximately 40,000 tons of newsprint downtime in the fourth quarter. We have no plans to change that level of downtime this year.

Shifting to coat and specialties, our average transaction price improved slightly in 2003, our outlook for the first quarter is cautious. We expect further improvements midyear. Our operations improved in the fourth quarter, due to the start-ups at Catawba. The market in the fourth quarter continued to be influenced by imports from Europe, but we expect that the strength of the euro will reduce imports this year.

The North American catalogue demand in 2003 was up 4.6% through September, although the recovery in catalogues is strong; the magazine ad page numbers have lagged. This is not a major part of our coated business at Bowater but it does impact the overall demand.

In market pulp, we implemented $215 price increases for softwood paper grade pulps in North American customers on October 1 and November 1. We took approximately 14,000 metric tons of planned maintenance downtime in the fourth quarter. We incurred $9 million of repair costs with major recovery boiler outages at two sites. Year-end north scan inventories are higher than we would like at 30 days of supply but we are encouraged by the strength of world demand.

We have informed our North American customers of a $20 increase in soft wood grades, effective February 1. Although hardwood markets have been under pressure due to new offshore eucalyptus capacity, weaker US dollar, good fundamental demand and an improving economy lead us to believe that the pulp market will steadily improve this year.

On the operating cost front, we have attacked controllable costs aggressively and believe we have positioned Bowater to perform well in the future. Looking forward this year, our top priority is to improve the financial health of the company and our cash flow generation will be directed to debt reduction. We look forward to a gradually improving marketplace, assuming in economy continues to improve.

We do have ample liquidity but if necessary, will be pro active in implementing contingency plans. We will maintain the usual discipline regarding operating costs and capital expenditures at the company. Now I will ask Dave Maffucci, our CFO, to provide a few more details, 2003 and an outlook for the first quarter.

Thanks, Arnie. And good morning everyone. Although overall 2003 was a very difficult year, we did begin to see some modest improvements in the fourth quarter and this was primarily due to a continuing increase in product pricing, coupled with increasing benefits of the new projects at our Catawba site. Our reported loss of 89 cents included three special items. There was about 5 cents due to some land sales that we made during the quarter and another 19 cents after tax per share for foreign currency charges and I will explain that in just a minute. And then the wrap-up of our severance costs of about 6 cents per share. Net of these items our loss for the quarter was 69 cents.

Let me go back to the foreign currency charges of 19 cents. This was a result of, this is basically arises out of balance sheet translation of foreign denominated accounts. A number of these accounts are really inter company accounts where gains and related tax expense are recorded at the local currency entity level, however on consolidation the pre-tax gain is eliminated, but the tax remains. So as a result, we had very little exchange above the line, above the tax line, there is still significant tax expense that's recognized on the reevaluation of some of those account balances.

The operating loss in the fourth quarter excluding special items was 24 million; this was significantly better than our third quarter operating loss of $51 million. The positive change from the third quarter results is primarily due to improved transaction prices, a significant improvement in Catawba operations, and stronger shipments in newsprint and pulp. Our shipments in newsprint increased to 672 thousand tons in this the seasonally strong fourth quarter. You might note that this is almost 5% less than last year and this primarily reflects the permanent closure of newsprint capacity that we made during the year.

Production discipline and market downtime continue with curtailment of about 43 thousand metric tons of newsprint in the quarter. We also took two planned recovery boiler outages in the quarter, one each at Thunder Bay and Coosa Pines; this eliminated 14 thousand tons of pulp production, resulted in about $9 million in repair costs. We completed our cost reduction program in the quarter, exceeding our $75 million annualized target by more than 20%.

As a result, our operating costs per ton declined in newsprint by 2% and in coated on a per ton basis 2% and newsprint and coated and specialty papers about 4%, when you compare it to the third quarter. However, because of those two planned recovery boiler outages I mentioned, the unit costs on pulp were slightly higher. Selling general administrative expenses increased $4 million during the quarter, and this is nearly all due to a rise in our stock price as you know, we do have equity participation rates that we mark to market each quarter and the rise in our stock price caused us to recognize nearly a $4 million charge.

In the quarter, net interest expense was $46 million. This was about a million dollars higher than the third quarter and this stems mainly from less capitalized interest as we closed out those large capital jobs and marginally higher debt levels. We look at our tax rate excluding special items our tax rate in the fourth quarter was 40%, right around the estimate that we provided you on the third quarter call. You may notice that the benefit from minority interest was smaller than in the third quarter, and this is because the losses at our partnerships were lower basically due to higher newsprint prices and improved operations at those partnerships.

In the fourth quarter our capital spending was $30 million. We expect the whole capital spending at around $25 million a quarter, or about $100 million annually. And this is against an estimate of depreciation for 2004 of $330 million.

Our debt increased 40 million in the quarter; cash from operations was slightly negative. And we were impacted by approximately 10 million of increased working capital. At year end our debt to capitalization as calculated in accordance with our credit facilities was 56.8%, compared to the covenant of 60%. And we also had 145 million of room under the tangible net worth test, which is 1.625 billion of net worth.

At year end we only had 38 million drawn under our $600 million are revolving credit agreement, but I'll remind you there, we were also using a additional 74 million of that 600 to support various letters of credit we have outstanding. If we take into account our bank covenants, we had approximately 350 million of liquidity available to us.

Looking forward to the (inaudible) for the first quarter, I want to remind you that this is typically our seasonally slow period for our business. I believe increases will be realized slowly, with lion's share of the benefits beginning in the second quarter. I think we'll see seasonal energy costs rise and repair costs will also be influenced by the cold weather again this winter. Also the Canadian dollar may continue to put pressure on our costs. With this in mind, we expect the first quarter results to be similar to the fourth quarter. This concludes our prepared remarks and we will now open the floor to questions.

Thank you. (Operator Instructions) One moment, please, for the first question. And that question comes from the line of Chip Dillon from Smith Barney. Please go ahead

Yes Sir Good morning. And it's good to hear the Catawba Mill, I'm sure you're glad to have that behind you. I just wanted to touch on that topic. Do you think you have pretty much realized or shown us in the fourth quarter what that mill is capable of, you know, from an operating cost perspective? Or do you think that there is some bleed-over in to the first quarter? I certainly understand that you would always want to try to improve it, but do you think we have seen the lion's share of the one-time benefit, if you will, from the conversion?

Chip, this is Dave Maffucci. I think from the conversion we have probably seen a large portion of that benefit, although obviously we're still coming up the curve on that that. When we look at the fiber line and the benefits we're getting from, that we have only been running that about four months. So I think you'll see some more benefits realized on pt rating costs on that site from the fiber line in 2004.

OK. And then looking at the wood cost side, could you touch a little bit on where that, how that has progressed third to fourth quarter and where you think that will be going forward? Particularly in the U.S. south.

I think with the weather, the lack of bad weather that we had this year compared to next year, I think we'll see wood costs trend down a little bit. That being said, I think we'll see, you could see ONPMG (ph) start to trend up a little bit.

OK. And then kind of shifting back to the same concept with Catawba, when you look at Donnacona, it seems like in the first quarter with the downtime we still not going to see the potential there, again, looking at the cost side, probably till the second quarter, but would you expect to see a pretty, I mean first of all, I would imagine you're going to, you mentioned there will be a 12 days of downtime I believe there in the quarter.

But would you expect beyond that -- and can you quantify that, first of all? And would you expect beyond that to see an even bigger sort of pop relative to whatever the cost is in the first quarter, you know, in the second and third quarter as you run that thing more fully?

I think the work we're doing, Chip, is to address both efficiencies on the machine as well as quality and that's the project that's going in, taking the 12 days for us. So we think that the fix, that we have got planned and working with the vendor, that that machine's efficiencies is ought to rise and the quality really should be very good solid SCA paper.

OK. You mentioned you took 50,000, what, which basically means you'll have demonstrably better second quarter there, from a cost perspective than you did in the first.

We would think so.

OK. Then looking at the pulp side, I think you mentioned 50,000 tons of maintenance downtime in the fourth quarter, is that right?

14.

Oh, 14, OK.

14,000.

OK, my mistake. How does the downtime schedule look going forward in the second quarter? I mean obviously Donnacona will be up and running. Do you see downtime you? Mentioned newsprint probably similar throughout the year. But what about the other grades? Do you think there will be, I mean how does that flow through the year?

Hi Chip, it's Bill (ph), our downtime will be very small in pulp in the first quarter, just normal, very small. In the second and third quarter of course we will have recovery boiler outages, probably be spread second, third and fourth. So we have three, you know, three big pulp mills and it will be spread out more than it was in 2003.

OK, got you. Thank you very much.

Our next question comes from the line of Rich Schneider of UBS, please go ahead.

I Just, back on Catawba, I was wondering if you could talk about where are your operating that machine right now, what kind of operating rate? Also, if I look at your shipment numbers for the fourth quarter, they are actually down, you know, something like 4,000 tons from the third quarter level in that whole segment. I'm just wondering how is this increased shipment and production is working its way through at Catawba.

Hi Rich, it's Bill Harvey. We do exceed, we're still on the ramp up curve of course. The number you're looking at is coated and specialties as a whole, which includes both our new way product line, were running at 50% or a little less than 50% and the Donnacona special production. Catawba ramping up very well, more left there, but we're not an order of magnitude more. You might see it creep up quarter to quarter after you get past the seasonally slow first quarter.

Would you be willing to give us an idea of where the operating rate is on Catawba?

You mean relative to theoretical capacity?

Yes.

It's in the 90s now, the low 90s.

OK, great. Your comments on not much improvement in the first quarter results versus fourth quarter as you see it, could you go through a couple of the positives and negatives? I guess the absence of the maintenance outage will improve you by about $9 million in the quarter; this is on the pulp side.

That's correct.

Will that be primarily offset with the outage at Donnacona? Is that the way we should be looking at that?

No, That outage at Donnacona is a smaller component. Really what David mentioned in the script is energy costs through usage and stronger Canadian dollar, remember, we're talking about the average going up 3 cents quarter to quarter but ended the Q4 higher than it began Q4 as well as some of the other things that they discussed.

We probably had some cold weather related slow-backs, we had the ice storm here for a couple days, it's been difficult to get wood in to a couple of our mills so we did slow back the machines. So I think you're going to see from a maintenance or expense standpoint you'll see that same $9 million roll over to the first quarter, they will just be in different buckets.

OK. It was impressive that you're back to profitability, go back a couple years, this is the first quarter in a couple years that you're back to profitability in newsprint side. Do you feel like you're going to be able to maintain, being in the black in the first half of the year in newsprint? Particularly, you know, -- are we going to dip back down? Do you feel there's a risk or do you feel we'll be able to sustain being in the black in newsprint going forward?

There's always a risk, Rich, but I think that the trend is positive. You know we have announcements out and we're working through that. It will take the usual more than one month to implement price increases, but I think we're headed in the right direction here with newsprint.

I guess the only issue is seasonally weaker demand in the first quarter, right?

Right.

Right.

Rich Schneider OK. Great. And lastly, do you, are you picking up any signs of any indications that you may starting to see any recovery in the newsprint demand situation?

Well, at this point it's more or less anecdotal from customers, publishers about their body language and their outlook for '04 in terms of advertising activity in (inaudible) but it's consistent.

To give you look, Knight Ridder, Dow Jones, New York Times, some of other customers look at their transcripts from their calls, you'll see they were quite bullish on December and I think they're quite optimistic for their businesses in 2004.

But cautious, I read those. But you haven't seen it in your order files yet?

We have a solid order book. We're in balance, we're full and it's a good order book.

OK. Great. Thank you.

Our next question comes from the line of Mark Connelly of Credit Suisse first Boston. Please go ahead.

Thank you. Just a couple of things. Coming back to Nuway, can you give us a sense of how that product is developing and what, you know, customer acceptance looks like? Substitution issue is a little funny when the market is weak. But can you give us a sense of whether you're seeing any improvement there?

Continuous improvement is what we're seeing both in terms of quality and productivity at the two plants that we're running. And we are moving to some different bases way, product mix improvement in terms of margin and return on our investment. So gradually getting better and customer acceptance is clearly better, significantly better than it was a year ago.

And are we still seeing Nuway going to the same, you know, insert market? Has it shifted around?

Pretty much in the same general category. There are some lighter basis weight that's might shift that a little bit but we're still targeting that overall market.

Just a couple of housekeeping things. Working capital, there wasn't anything too surprising. Is there going to be anything to throw us off in Q1 or Q2?

No, just some price increases of course do require working capital investment but that's the only thing that comes to mind.

And very lastly, pension assumptions for '04?

We of course reduced our interest rate because we're a September 30 date mark so we of course have reduced our interest rate to reflect that. And our ROA assumption has come down marginally.

Nothing new.

Nothing new, but of course that does mean that your pension expense does go up for 2004 versus 2003. Not an order of magnitude, though.

OK, thanks very much.

Our next question comes from the line of Mark Wilde of Deutsche Bank. Please go ahead.

Good morning. Just to start some pricing questions, I was a little surprised that the pulp realizations were only up about $3. Can you help us understand that?

Good morning, Mark We had a couple of things going on in market pulp. First of all, we exported more in the fourth quarter than we normally do. We were shipping offshore almost half of our mix, normally it's probably a third. And we did that at somewhat lower realizations than the domestic pulp price.

So when you put it all in the mix, even though our domestic price in the fourth quarter was up substantially, the export situation weighted it down and we were exporting more as there was some, somewhat relative softer demand domestically in that quarter and so we tilted more offshore. But it did cost us some on pricing. We also had a recovery boiler outage, which took away some production, of course.

OK.

Mark, that production was MBSK, the recovery boiler outage whereas of course we produce hardwood too. The hardwood price offshore as you're aware was under pressure in the fourth quarter.

OK. The other price question I had been on newsprint; you were up about $15. I assume that the domestic price was up a little more than that and maybe that the offshore sales in Hala pulled the average down is that correct?

To a degree. Remember, we also did get some price increase in the third quarter.

OK.

So you did see our transaction price go up in the third quarter by about $7. But you're right, there was, that is a mixed number you're seeing in the Hala price of course, it was down slightly in Korea, down in Korea and offshore markets, although moving up some of the markets were stable.

Bill, is there any, even if you exclude this effort to do something late in the first quarter, if you just exclude that, would there be any carry-through in the first quarter yet in terms of quarter to quarter newsprint pricing?

No, not to any meaningful degree.

OK. So does that mean we got, what, $25 of the autumn price hike?

More or less, Mark.

OK. Just switching gears, I wanted to ask a couple questions related to Canadian dollar and I just wondered as the Canadian dollar appreciates whether there is any more rationalization moves that you might make in the newsprint business up in Canada. I keep looking at these kinds of smaller mills you have up in the maritime with fairly small machines and I just wonder, is the Canadian dollar continues to appreciate whether you have to look at those.

We certainly are looking at them. It does raise a legitimate issue. But at this point we're not ready to tell you anything in terms of actual implementation.

It's an issue, it's a problem and of course it's very painful.

And Mark, those smaller machines are at partnerships so we don't incur the full downside if the Canadian dollar strengthens. We share that with the partners.

OK. The other Canadian dollar-related question I had, David, was just any impairment to good will. I don't know how much of that 800 million and change is tied to Canadian assets, but it is striking to me both (inaudible) had adjustments in the fourth quarter I wonder where you stand on your different Canadian businesses.

I don't want to comment too much on (inaudible) activity, but I think I don't think they took necessarily good will impairments but they actually took asset impairments where they had underperforming assets. So that would differentiate their types of charges from a good will charge. We have completed the lion's share of our work on good will and we don't see any change in the book value of those looming.

OK. Great. Thanks, David.

We now have a question from the line of Peter Ruschmeier from Lehman Brothers. Please go ahead.

Thanks. And good morning. I was curious if maybe Arnie, if there's any evidence of customers pre-buying before the newsprint price hike and prior to negotiations, labor negotiations I guess for (inaudible) in the spring and later, any labor negotiations coming up?

We don't see much evidence of pre buying of always some pressure on the order book but at that point it's not anything significant and we'll watch that, of course, and make sure we're disciplined in how we manage our order book. But so far it's not anything is that significant or note worthy.

Our situation in terms of labor is that we have five mills in Canada who have labor agreements, which expire on April 30th of this year. And we haven't begun to get in to those discussions or negotiations at this point, as you know, ebbtib (ph) is a named target company by the unions and we're watching that.

OK. Maybe David, if you could help us with your expected tax rate for 2004, both on a book and cash tax basis. And maybe elaborate on capital spending, 100 million in '04, is that something you think is sustainable longer term? You know, in other words, is that below maintenance levels or at the maintenance level?

I think it's slightly to answer your last question first, I think $100 million is probably slightly below maintenance level and we're forecasting to move that up probably another $50 million in 2005 to $150 million. So again, it's just responding to the difficult situation that we faced in 2003 and our desire to funnel as much free cash flow to pay down debt. That being said, the 100 million is really twice what we spent on the 11 other pulp and paper mills we have once you exclude what we did at Catawba, so we feel pretty good about that level.

I think as far as cash taxes go for next year, there aren't any cash taxes for next year unless there's something like a franchise tax or a capital tax or something like that. But we are not paying any cash taxes. I think our tax rate should be around 40%, is what we're still looking at right now; I think that should be a good number. There may be a hiccup in a quarter or two where that might move around.

Just to clarify, the fiber line for Catawba, I assume that the P&L for is that captured within the coated segment, that's integrated tonnage?

Yes, it's in the division results at the coated division, specialties division, that's correct.

And you mentioned that the Catawba machine is running utilization rate in the low 90s. Can you comment on where the fiber line is and its learning curve?

It's probably a little early to tell, but certainly, I don't think it's gotten to quite the 90s yet but it's in the high 80s, I would say. Of course the benefits we expected on cost savings from chemicals and other things is really coming through.

OK. Just lastly, if I could, you mentioned that offshore newsprint prices were, you know, fairly flattish, (ph) maybe down a little bit in Korea. What do you see as the recent trends for offshore demand and pricing for newsprint?

We see some upside in the first quarter pricing, we are looking at price increases in Latin America, 15 to $30 per ton in the first quarter. Similarly in Southeast Asia we should be getting 20 to $30 a ton in most areas there, except perhaps India. So positive movement in our major markets. Europe is probably going to be flat. U.K. and Europe look like it's on a currency-adjusted basis probably flat with '03.

OK, great. Thanks very much.

We now have a question from the line of Christopher Miller of JP Morgan, please go ahead.

My questions have been answered already. Thank you.

Our next question comes from the line of Mark Weintraub of Buckingham Research.

Please go ahead.

Thank you. Dave, I was hoping to get a little more color on your currency hedging programs and get a sense if exchange rates, if we assume exchange rates remain pretty stable from here, what would be happening on the cost side when the currency hedges roll off?

Well, currency hedges that we have at place for all of 2004 are at very attractive rates, they're in the very low 60-cent range, 62, and 63. And I think as you look forward, because we go out 24 months, we have a rolling 24-month program as you extend to 2005 they will start to rise a little bit there. But certainly for the foreseeable future, 2004, we're in very good stead there and you won't see any impact on costs if the Canadian dollar stays where it is because of the roll-off in hedges.

OK. So that would start happening in '05 if currencies stay where it is?

Yes, '05 you'll see the hedging at those averages will go up from the low 60s to the higher 60s and low 70s. It's a gradual thing in '05, Mark, it doesn't, first quarter is not much change from the first quarter of this year.

OK, great. And what percentage or however you think of it are you hedged on at this point?

If you took a look at our total cash expenses, Canadian dollar expenses, we're hedged somewhere between 60% and 65%. So we moderate our costs, our costs go up but not as much when the Canadian dollar rises and conversely, when they go down, they don't go down as quickly because of the hedging program we have.

OK, great. And these shifting gears, on pulp, obviously we have had this interesting environment where there has been pressure on hardwood on the downside, yet soft wood seems to be moving up. Any thoughts on how sustainable that are?

Mark, it's Bill Harvey. I think differentials are getting to historically to the wider end of the range, I think from our point of view, the hardwood side of course related to new supply, demand has been pretty good and we would think that the demand especially from Asia, if it continues, you'll start to see the hardwood price stabilize and hopefully you'll see some upward movement.

OK, thank you.

And we now have a question from the line of Steve Chercover of D.A. Davidson. Please go ahead.

Thanks. And good morning. I just have a question on the newsprint side first of all. You referred to the body language of your consumers. Can you tell us whether you believe you'll face some stiff resistance on the upcoming price increase?

Well, we have always incurred interesting negotiations in newsprint pricing. We expect it should be not too much different than in the past. It's not a slam-dunk. You know, obviously the newsprint consumption numbers are flat to slightly negative. Negative. But the fact remains that there's over two million tons less newsprint supply in the market compared with a few years ago and another almost 900,000 tons that are idle capacity. So we have a much, much tighter market.

There has been, I would say more public announcements by more producers for the February increase than we normally have seen. So there are a lot of conditions that are ripe for successful increase here. But there will be negotiations and some give and take, I would suppose. But I think we're pretty optimistic.

OK. And If we assume this price increase enjoys the same sort of acceptance as the last few, which means kind of 25, 30 bucks, that's going to help erase the deficits that you folks are generating, but it occurs to me you'll need another price increase to really get back in black. Have you contemplated such an increase later in the year? Is it just too early?

Well, it's too early to really think seriously about it. We'll get this one behind us this spring and if conditions continue to improve in the overall economy, we'll contemplate it more frequently than we do right now. But we're looking forward to better price realizations throughout the year.

OK. One other question, just switching gears a little bit, I know you don't want to discuss other companies, but Domtar said they will go through their entire Canadian portfolio, and any mill that can't generate a profit with current pricing in the 75-cent Canadian dollar I guess is in big trouble. Have you considered doing any sort of examination of your Canadian assets in that same sort of light?

I wouldn't put any metrics on our examination, but we are continually looking at those situations in Canada, given of course the currency situation and the size and scope and cost position of our machines. So it's an ongoing process, but I wouldn't want to put any metrics or any litmus test on it.

Do you think there are any machines within your current portfolio that would fail the test if you said current prices in a 75-cent Canadian dollar?

Hi. Steve. It's Bill Harvey. I don't think so. I think that Quality of assets in Bowater is relatively good across, compared to any measure you look at.

OK, thanks very much.

You're welcome.

Tony, I think we'll take one more question.

OK, thank you. That question comes from the line of Math Burler from Austin Weis. Please go ahead.

Hi. Thank you. If I heard you guys' right, the $9 billion fiber line charge was in the coated and specialty paper segment line.

No, Matt that 9 million related to two recoveries boiler outages it's in the pulp area of the business.

OK. So, the $11 million loss in coat and specialty paper did not include any one-time specific items that you elaborated on?

That is correct.

Well, there's some severance on Donnacona for those numbers.

I'm confused man. Are you looking at the divisional results, or -- ?

Well, it's by-product actually.

There will be some severance and some closure costs associated with the Donnacona machine, the last bit of them in those coated and specialty numbers.

So I guess I'm looking out over the next couple of years, can you update us on what the capacity is, do you think, of your entire coated and specialty paper product line? You had sort of flat, flattish shipments, down a little bit, 4q versus 3q, which surprised me a little bit given what I was hearing in the strength of the markets, particularly I guess LWC. Maybe you can update us on what your expectations are as you get your Catawba machines fully ramped up and Donnacona squared away in '04, '05, the capacity of the whole system might be.

I will give it to you in metric tons; it's 1.425 million metric tons on an annual basis, running full out.

OK. And on the pricing front, looks like you did get some pricing in that coated specialty paper mix. Did you, I had trouble getting on the call early. Did you split out LWC versus specialties?

No, we did not.

Can you give us a sense of where the price movement came from?

There was movement in all grades, there was also mixed changes, so it's because of the coated and specialties, we saw some movement up in pricing in LWC, but again, not to the $15 level, less than that.

Looking forward with the troubles that the free-sheet side is having, how realistic is it for us to expect some improvement in LWC pricing looking out over the next 12 months, recognizing that I guess the European imports are really struggling at this point with the Euro where it is? Is it possible given, that we will see price improvement in LWC? Given the Euro issue?

We're cautious about it, particularly in the front half the year and imports should wane a bit with stronger Euro. So we're reasonably optimistic but cautious on the front end.

OK. Is the ship to lighter basis weights, however, still occurring within your markets so that demand for your products should still continue to improve?

Yes, that's still occurring and the demand numbers as you're aware in the coated ground wood side have been reasonable, demand increase of almost 6% in the year, but you're right, coated pre-sheet market had not had the same bounce back.

And I would expect that to continue. I guess lastly on the cost side, if I look, compare your costs per ton in that coated and specialty paper complex today or better yet, in '04 some time after you've really squared away production issues and ramped the Catawba machine, how should that -- and after of course your cost reduction program that you just finished, how should we think about the costs per ton of your coated and specialty paper complex on the 1.4 million tons versus where it was in the last cycle, say going back to 2000, 2001?

We think it's the lowest cost site in North America, making the same grade, because it's a mixed change that occurred, now that it's making a lot more LWC, but it would be an order of magnitude lower on a per ton basis. It's right now that machine is again the lowest cost machine we believe in North America using data from some consulting data that's been published and it's not just a little bit lower than everybody else, it's significantly lower.

Right so for the whole complex, however, the 1.4 million tons.

It's not in one complex. The 1.4 million tons includes --.

I understand. I was asking you to given all changes you've made including the Catawba machine.

It will trend down probably 5% lower than it is now, across everything, would be pretty reasonable. I can tell you compared to the last time because there have been so many changes.

Yes. Exactly. OK.

Thank you very much.

Thank you.

Thanks, Matt.

I would like to conclude the call by thanking you for your interest in Bowater and again, we are available after the call to discuss any follow-up questions and we'll take them in order we receive them.

And again, thank you for your interest in Bowater.