Resolute Forest Products Inc (RFP) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Bowater third quarter 2004 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press the star key followed by the 0. As a reminder, this conference is being recorded today, Wednesday, October 27, 2004.

I would now like to turn the conference over to our host, Mr. Duane Owens. Please go ahead.

Thank you, Chad, and good morning everyone.

Welcome to Bowater's third quarter 2004 earnings conference call. I'm Duane Owens, Director of Finance and Investor Relations. With me on the call today are Arnie Nemirow, Chairman, President, and Chief Executive Officer; Dave Maffucci, Executive Vice President and Chief Financial Officer; and Bill Harvey, Vice President and Treasurer.

I will cover a few preliminary items and then turn the call over to Arnie and Dave who will briefly discuss the third quarter and the outlook for the fourth quarter. Following their remarks, we'll 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 website. If you haven't read it, please do so. We'll 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. Additional financial and statistical information, as well as reconciliation of non-GAAP financial measures used on the call, can be found on our website. The call is available to all shareholders via live webcast and replay on our website at 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 speakers, other participants in the call should not be quoted without their permission.

I'll now turn the call over to Arnie Nemirow.

Good morning, and thanks for joining us today.

Our third quarter loss was $18.1 million, 32 cents per share. Net of special items, our loss was 3 cents per share. All of our segments were profitable. In the quarter, we paid about $50 million of debt, 31 million from free cash flow and the balance from cash on hand.

Our product mix continues to improve. In the third quarter we had record sales of coated and specialties. Shipments of these grades increased 15% compared to the third quarter of last year. Coated and specialties have now climbed to almost 30% of our sales compared to about 40% for newsprint. The balance is about even between pulp and lumber. In the newsprint business, our order book is solid. Excluding one newsprint machine at our Thunder Bay facility, we are operating at full capacity, and our domestic price increase of $50 is currently being implemented. Newspaper ad revenue growth has been strong while ad lineage is up 1.7% year-to-date.

Inventories are in good shape at 40 days of supplies for the U.S. dailies. According to EMGE, a London-based forecasting service, worldwide demand for newsprint is up sharply at about 4%. Offshore pricing is moving in line with North American pricing.

Regarding coated and specialties, North American coated mechanical demand is up 8.6% this year according to Pulp and Paper Products Council. If the current pace continues, 2004 demand will be a record. The improvement has been primarily driven by catalogs. Catalog pieces are up 8.7% year-to-date, magazine ad pages continue their rebound, 8.5% improvement in September.

Our backlog in coated mechanical is 54 days. This is the longest backlog we've experienced in years. We expect to see our coated business become even stronger in the fourth quarter. And our modernized Catawba site continues to break production records. Shipments of Bowater super calendar to specialty grades are up 12% year-to-date. We have implemented a Fall price increase for most of these grades.

In market pulp, although there is a current weakness in price, our shipments for the year remain strong. To date we have shipped 34,000 more metric tons this year than last year. In the third quarter, pulp industry inventories rose reaching about 41 days of supply in August. This caused prices to drop in North America in September and October. But we've already begun to see a turnaround due to improved demand, particularly in China. Pulp inventories are still high, but we expect global inventories to return to more normal levels. And our market pulp pricing is improving in Europe for November.

Lumber markets experienced a very strong rally during the third quarter. We've begun to see seasonal weakness for the fourth quarter for lumber, however. Overall, it is gratifying to see our main businesses, newsprint and coated, continuing to improve. But we certainly have a ways to go to return to acceptable levels of profitability for the company.

And I will now ask our CFO, Dave Maffucci, to provide details on our third quarter results.

Thank you, Arnie, and good morning, everyone.

As Arnie said, under special items, primarily foreign currency charges of about $17 million, our net loss was $1.8 million in the quarter. The foreign currency charges were a result of the appreciation of the Canadian dollar from 74 cents at the end of the second quarter to 79 cents at the end of the third quarter. The charges are for balance sheet translation of foreign denominated accounts. A number of these are intercompany where the gains and the related tax expense are recorded at the local currency level. The free tax gain is eliminated on consolidation, but not the local tax liability. Note 4 of our press release provides a breakdown of the foreign exchange adjustment.

We were free cash flow positive by $31 million during the quarter and about break even on a year-to-date basis. I'm defining free cash flow as cash from operations, including working capital changes, less capital spending and dividends. Our EBITDA, which is defined as operating income plus depreciation, amortization, and cost of timber harvested was $124 million in the quarter, and that was $19 million better than the second quarter.

In the third quarter, we had 2 small pulp mill outages for maintenance. One at Coosa Pines and one at Catawba. In the fourth quarter, we will have a major scheduled craft mill outage at Thunder Bay facility which will reduce pulp production by about 15,000 metric tons and have repair costs associated with it of about $7 million. In addition to the maintenance-related downtime, we continue to have a newsprint machine down at Thunder Bay. It is 36 metric tons a quarter. And we don't expect to restart this newsprint capacity until we really see a measurable improvement in consumption.

The strong Canadian dollar negatively impacted our operating costs. It is currently trading, I think today around 81 cents. I want to remind you that for every one cent change in the Canadian dollar, our annualized costs change by approximately 6 million net of currency hedges.

Our distribution costs rose in the third quarter due to the lumber duties. That's where those costs gets classified. Also we had some fuel surcharges and some transportation rate increases. During the quarter we deposited about 12 million lumber duties, bringing our total amount to positive to date to somewhere around $60 million.

Our tax rate was up somewhat during the quarter versus the last quarter. However, we expect to be closer to 45% effective tax rate in the fourth quarter. Capital spending was 21 million in the third quarter. We now expect to finish the year slightly under $100 million. We expect next year's spending to approximate 150 million. At the end of the quarter we had 3 million drawn against our revolve bank revolver and 60 million drawn against our accounts receivable securitization. Including cash on hand, we had liquidity available to us of about 475 million at the end of the quarter.

In the fourth quarter, we expect stronger prices in newsprint, coated, and specialty papers. However, there has been significant price -- significant weakness in pulp and lumber pricing. Our cost in the fourth quarter will be negatively impacted by the major annual outage at the Thunder Bay mill that I just mentioned to you. But also the strong Canadian dollar and energy and chemical costs will also be higher. In addition, in the fourth quarter we'll be taking a severance charge of approximately $4 to $5 million, primarily as a result of the closure of the groundwood pulp mill at our Thunder Bay facility. The benefit of this closure is about $7 million annually.

Our outlook for the quarter has changed. We previously expected to be profitable in Q4. But because of the rise in the Canadian dollar and the fallen pulp prices and these severance charges, we probably will not return to profitability.

With that, we'll turn the call back over to the operator and open up the line for questions. Chad.

Thank you, sir.

[OPERATOR INSTRUCTION]

Our first question comes from the line of Chip Dillon with Smith Barney. Please go ahead with your question.

Could you just give us an idea where prices -- you either expect them to be or where they are now versus the third quarter on a -- for example, you had a very nice increase in the coated and specialties. But I think the trade publishers are showing an even greater increase starting in October. So, where would that be versus the 626 we saw -- or 628 we saw in the third quarter?

Hi, Chip. It is Bill Harvey. We -- well, the pricing is higher now than the average of the third quarter. And we expect, again, in coated and specialties a significant increase in the fourth quarter. I don't really want to give a specific number, but certainly the trend has moved the right way, and we expect an increase in the fourth quarter.

Probably in double digits, right?

Yes.

Okay. And then as you look at -- if you could help us on the other side with pulp. You indicate that the average realization was down 7. And we know that the good news is it looks like pulp is stabilizing. But let's say if it sort of stabilized where it is here, or even went up slightly, would you expect to see that number stay above the 500 range in the fourth quarter?

Chip, again, there was, as you remember, a price reduction, really. And we're, again, mainly a North America producer of market pulp. Most of our sales are there, and there was a $30 reduction on October 1. So as a rule of thumb, that should give you an order of magnitude of how big the climb would be in the fourth quarter. Offset, of course, with some movement upwards that's just beginning to occur right now.

Okay. Now, as we look at the downtime, you mentioned the Thunder Bay downtime which one would guess might cost you, you know, in the low double digits of millions when you count the lost tons. What was the downtime cost for the Coosa and the Catawba outages in the third quarter?

Chip, it was about 2 to 3 million. It was not very meaningful from a spending and from an outage point. They were 2 small outages.

Okay. And then, you know, again, looking broadly at your capital. You know, if you look back over the last 2 or 3 years, it seems like you've done a lot of pretty major, again, maintenance-type projects. But the big ones, the boiler-type projects, not the day-to-day stuff. And as we look out, would you say that -- by the way, I would contrast that with most of the group which might surprise us in coming, as we've heard some surprises on the calls this quarter. But as we look at Bowater, is it fair to say that your mills are in good shape, and that we probably don't have any of those types of projects ahead of us, or if we do, what would they be?

You are right, Chip. After the shut in the fourth quarter for Thunder Bay, which is a major one, as Dave announced, that pretty much is behind us. We are back to very routine minor maintenance shuts in the next few years.

Okay. And then the last question is, on the coated groundwood side, there is, of course, a seasonal element here. I guess you wouldn't really see what the seasonal fall off would be for another month or so. But as you look at the first quarter, are there any signs that you see that give you hope that the current strength we are seeing is maintained and that the momentum is maintained?

As I said in my prepared remarks, we see a very, very strong set of numbers of catalog consumption, catalog production, magazine ad lineage . And this is continuing even though this quarter is typically weaker. And we see that as a very positive sign that this is going to continue into next year in a very robust way for our coated mechanical marketplace.

And then the last thing is, we would certainly expect your free cash flow to really move up as we go through time. Is there a level or goal you have in mind as to where you want to get your debt down to, you know, before you might think about -- and I know this is something you haven't probably been thinking about -- but things like a dividend increase or share buy back?

I think, Chip, publicly we stated before that we would like to get down to 1.7 billion to 1.8 billion in debt by the end of 2006. That should get us in the low 40s as far as debt to cap goes and to give us investment grade metrics along debt to EBITDA, et cetera.

Great. Okay. Thank you, guys.

Our next question comes from the line of Karen Gillsinen (ph) with Merrill Lynch.

Thanks, and good morning. I was wondering if you could flush out a little bit more detail on the cost side, these higher costs that you are facing in chemicals, fiber, and energy prices are rising and transportation? What kind of impact that had in the third quarter, and what you see going forward into the fourth quarter?

Hi, Karen. It's Bill Harvey. On the energy side, the third quarter actually was a very modest increase. It is the fourth quarter, and where we get impacted is primarily on -- it's sort of 50/50 on usage and price. We're at higher prices, and of course, northern mills use more energy in the fourth quarter. We could expect that to be anywhere between $4 and $6 million across our Company. And, again, about half of it usage and half of it you could attribute it to pricing compared to last year.

The chemical cost is basically cost in the coated paper side of the business where you have chemicals that are petroleum-based. And that would, again, impact us in the fourth quarter, and you could be thinking 1 to 2 million type of impact on us on that. Distribution, Dave mentioned already, is partially, if you look at our distribution cost we have compared to last year, duty has increased, which is not strictly an increased cost, it is more linked to the revenue side. As well, we have fuel tax and some surcharges. And I think you should also think of distribution. When you look at distribution, remember that our volumes have increased since last year; we are up about 7%. So some of the distribution side is volume too, and it's just strictly related to more tons (Inaudible - background noise).

And if you look at the chemicals, you said that -- would expect a 1 to 2 million sequential hit in fourth quarter. What did that look Q3 versus Q2?

A little bit less than that, but in the same order of magnitude.

Okay. And then on --

Finally, Karen. One thing Dave pointed out on the call -- I forgot to mention, it's the Canadian dollar.

Oh, right.

How that does impact our cost, as you're aware, and there's -- and with the dollar, now is stronger than it was in the third quarter.

Okay. And then was there any hurricane impact to speak of in the quarter?

No.

No. Okay. Great. Thank you very much.

Our next question comes from the line of Mark Connelly with Credit Suisse First Boston.

Thank you. Just 2 questions. The first, with respect to your overall coated capacity, you talked about Catawba running well and having this backlog. Can you give us a sense of what your overall coated capacity, including Nuway operating rates, look like?

Mark, we are running full load at Catawba and Nuway is running at 50%.

Okay, so there's no change there.

No change.

Are you seeing an increase in import competition in the last quarter?

Yes, from the point of view of higher imports into North America. Of course, we are running full load in our backlogs at 55 days, and we expect -- and the industry numbers show a very high operating rate, so part of that is just due to the strong demand in North America.

Okay. And last question, is there anything significantly new in the CapEx number for '05? It's a little higher than I had in there. I might just be slow and have missed it last time.

No, we've been pretty consistent, Mark. It's $150 million, a $50 rise from this year, and we've been saying that in the last couple calls.

Okay. Thank you.

Our next question comes from the line of Peter Ruschmeier with Lehman Brothers.

Thanks. Good morning. Just had a couple questions. I wanted to clarify the guidance for the fourth quarter not to return to profitability. Is that before or after your -- the assumption of the FX charge?

That would be before.

Before. Okay. And then coming back to Thunder Bay, you mention the $7 million impact in the fourth quarter. And just to clarify, I think that's the cost of the maintenance, but that excludes the cost of the lost tons , the 15,000 tons, is that correct?

That's correct.

And then coming back to Chip's question earlier in terms of the maintenance you've had, which has been pretty dramatic, just for the last two years. I was curious if you could quantity, above and beyond normal, what that number has been? Is it, you know, ballpark $30 million or more that you've been incurring in accelerated expense, or big project expense, and outage cost related to that? Just to get an understanding as to if '05 and '06 is going to be a lot different. Can you quantify that number?

We don't -- I can't right at -- on this call right now. We just don't have that kind of detail in front of us.

Okay. And then just lastly. I don't know if, Arnie, perhaps you could comment. I mean, if you are seeing this very, very strong demand, and, you know, coated and specialties backlog's very strong. There's been a lot of talk in the industry about whether or not newsprint producers would contemplate using their platforms to convert to, more aggressively, to other grades. I'm just curious if you could give us an update on your thought processes as it relates to that topic?

Well, of course, I am not going to comment on the others, but Bowater itself is looking at possible -- and we've said this from time to time earlier this year, possible conversions. We do have other craft mills besides Catawba which is now fully converted to value-added coated. We certainly, as a strategic direction, are looking at Thunder Bay and Calhoun, the 2 other major craft sites for us, craft mill, to look at those. Of course it would require capital. We are not ready to spend capital in any major way on these projects. But it certainly looks attractive down the road at the right time.

Is it possible to quantify a dollar figure per ton of conversion to think of it that way, just a --

No, it is too early to get into that.

Okay. Alright. Thanks very much.

Our next question comes from the line of George Staphos of Banc of America.

Thanks. Hey guys, good morning. Just a couple of short questions. In coated specialty, you mentioned cost per ton went up, I guess, 13 bucks per ton. And yet, Bill or Dave, when I heard you going through some of the issues in the quarter and looking out to the fourth quarter, it seemed like more of the energy and chemical costs and variances could come in 4Q. So what else is going on in 3Q in coated specialty in terms of cost per ton? And then I have a follow up.

George, again, it was basically a little -- some chemical and some fiber costs in the U.S. South. Of course those fiber costs have relaxed somewhat going into the fourth quarter.

Okay. But there was no other operating issue other than just the raw materials?

We did mention that we had a recovery -- a small recovery boiler outage at Catawba which had a minor impact.

Right. But nothing other than that?

Nothing other than that.

Okay. And on cash flow, you showed real good progress on cash from operations. What were the key drivers there in terms of the working capital, and how are you become more efficient there? Thanks.

Having said that, I think from a working capital standpoint, one thing you should think about is you've got 2 quarters in the year where our interest payments are heavier than they are in the other 2 quarters, and it has been the second and fourth quarter. About $75 million in each of those 2 quarters, and it backs up to around 25 to 30 in the first and third quarter. So some of that improvement was just lower interest payments, third quarter.

Are you finding ways to take inventory out of the system on an ongoing basis, on a going forward basis? How are you doing that?

Our inventories really aren't that high to begin with. When we look at them, their phase of production that we have on hand in terms of inventory is pretty reasonable and pretty low. Some cases we can't go much lower, it disrupts how we service our customers.

If you look at our inventories and take out exports from newsprint, which is a different game, we try to keep them pretty tight on inventories. And we, again, you mentioned some exactly the things we look at, days payable, days sales outstanding, those there. So you don't really see it in the global working capital number, but that's how it is managed.

Okay, guys, . Good luck in the quarter.

Thank you.

Next question comes from the line of Rich Schneider with Union Bank of Switzerland.

I just wanted to clarify the maintenance costs you said were 2 million in the third quarter and they're expected to be 7in the fourth quarter, but the 7doesn't include the lost tonnage, is that correct?

That's correct.

Okay. And the Canadian dollar impact on operations in the quarter, could you give us an idea of what your estimate was as to the impact versus the second quarter?

Rich, it's -- net of hedging it would be about three to $4 million versus the second quarter. We'll just check that. I don't have it in front of me.

Okay. Do you know what exchange rate you used in the calculation for the third quarter?

Our -- the exchange rate for the third quarter would be 76.4.

Okay. Okay. So we're 5 cents above that right now, I guess, is a way to look at it, right?

Yes.

Okay. Just on the question on Nuway, if you are operating full in coated paper right now, with the exception of the Nuway-type product, and prices for coated groundwood are moving up fairly rapidly, which I think has been an issue with Nuway, making sure you get, you know, an adequate price, obviously, to get a descent return, are you contemplating soon starting to increase and restart the Nuway production that's down?

Well, the trend, as you point out, is certainly going the right direction for us to look at increased production. We are not quite there. But we are looking at it, and we would not expect to do anything in the fourth quarter other than what we are doing. But early next year it looks like better environment to be running full.

And would you have to -- would that require any capital spending just to restart these?

No.

Okay. And could you remind us how much of Nuway, you know, what is the tonnage involved now that's down?

We could have our production up by another 70,000 tons or so.

Okay. All right. So 70,000 in essence diverted out of news prints?

That's right.

Okay. Thank you.

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

Thank you. On the Canadian dollar -- and you mentioned -- I think Bill you had answered the question, how roughly 3 to 4 million perhaps if you exclude hedging. You also do have forward exchange rate contracts which I believe roll off. What type of impact, if any, would that have had in the quarter? And can you help us a little bit to understand next year, given that we've had another big move in the Canadian dollar, do those foreign exchange rate contracts roll off rateably or do they tend to come in chunks?

I might not understand the question, but basically they come through on their specific contracts that come through every month so they are layered on, and they just sort of flow through. There is no big contracts but a lot of little contracts. And right through 2005, we would be hedged above, approximately, 55 to 60%, and it hasn't changed much from the fourth quarter or the third quarter.

Okay. I guess I just meant -- so do those small contracts there, are they fairly evenly spaced through the year?

Yes.

Okay. Great. And -- just come back to Nuway for a second. Who -- if you were to increase production again there, who would be the buyers? Would this -- would these be people who you would otherwise be selling your coated groundwood product to or are these folks who maybe would be swinging from newsprint to that product? What has been your experience to date?

It is really a combination, Mark. We find it could be the same corporate buyers who are provided a more economic alternative to a super calendar to a lightweight coated. It is a variety of buyers, and we're comfortable that we are not cannabilizing our own production at Catawba or our other mills.

Okay. Thank you.

Our next question comes from the line of Steve Chercover, please go ahead with your question.

Thanks. Good morning. Just a quick question on newsprint pricing. The $8.00 increase transaction realization in the quarter, does that include the full 50 for September?

Steve, I might not have heard. The $8, you are talking the average-to-average increase third quarter from second quarter. And that includes our implementation of the $50. I think you should just look for the last few implementations and make your own judgment about how much that is in there.

Okay. Just on that topic, though, if the -- if your clients refuse to pay it, I am sure you invoice the full 50. But if there is a rollback to October 1st, how would that flow through? Or is that even a possibility?

We're not expecting roll backs. We don't intend to be doing any of that. We're just working through the $50 increase this month -- next month. As in the past it will take a few months to implement.

Okay. And what is your operating rate on the newsprint side, please?

It is about 95, 96%.

Yeah. And that basically reflects the Thunder Bay machine being down.

Great. Thanks very much.

Our next question comes from the line of Mark Wilde with Deutsche Bank.

Good morning, guys. I had a couple questions. One, I wondered if you could just talk about what went on sequentially in terms of costs in newsprint and market pulp? Both of those dropped pretty significantly despite the fact that the Canadian dollar went up. And then you also had quite a bit of market downtime in the newsprint business.

Mark, in newsprint, it was just -- we had a pretty good quarter from the point of view of things. There were no big issues. It's -- probably you are seeing the third quarter drop just reflect -- refected that. The Canadian dollar did impact us, but it was offset by that. As well as -- if you remember in the second quarter, we did have some downtime, some modest downtime in newsprint associated with the Calhoun mill. In market pulp it was, again, just a question of better operations from the point of you have more production because of less downtime. And as well, a little bit better fiber costs.

Okay. Will you get -- will you be helped at all by any quarter-to-quarter change in downtime, particularly in newsprint in Q4? It says in the release here you took 36,000 tons of market downtime and 7,000 tons of maintenance in Q3.

And it will be about the same in Q4 with respect to maintenance. We typically run above maintenance about that level. A little bit less, but probably not meaningful enough for anybody looking.

Not meaninful. Any read on sort of, you know, market downtime in any of your businesses at this point?

No.

Okay. All right. Also, on the newsprint price, is it possible to break that out for us in terms of, you know, offshore pricing, domestic pricing? How it contributed to that $8.00 overall number?

We really don't break it down be between offshore and domestic. They're both moved up in the similar amounts.

Can you talk at all about what is going on in offshore pricing? I mean, I noticed that the Europeans are out talking about 10 or 12% increases next year. And maybe also update us on what you see in Latin America and what you see in south Korea.

Well, we feel pretty good about the export markets in newsprint. We are hearing those same kind of bullish numbers for next year. We'll have to wait and see how that plays out in Europe. We did get some good increases across the board in the 3 or 4 major markets we're in. We're pretty optimistic about Q4 in Asia and Europe. Latin America, in particular, we think will have probably the strongest pricing improvement in the fourth quarter.

India is doing well for us. We're seeing new circulations in India. Herald Tribune is beginning a product in May in India. Lots of other publishing initiatives in India. It is a huge market, over 1 million tons of newsprint demand. We are shipping quite a bit to India. Good pricing. Overall, it is a pretty good tone going through the fourth quarter into next year. And the newspapers themselves seem to be doing quite well, particularly in U.K. and Asia, very profitable publishing customers we see. So we're pretty bullish on world newsprint pricing as we close this year.

Okay. Finally, Arnie, any thoughts on any further potential asset sales?

No, nothing to report at this time, Mark.

All right. Thanks.

Our next question comes from the line of Edings Thibault (ph) with Morgan Stanley.

Thanks, and good morning, gentlemen. Question for you on some of the increase in the coated and specialty papers. I was wondering if you could intentionally talk about -- break out some of the changes you've seen on year-over-year? How much of that is improved coated mechanical production and how much of that may be other specialty papers?

Edings, were you talking about the price or the shipments?

The shipments.

Okay. Sorry. I think mo -- we did ramp up the Catawba machine last year. So year-to-year, a lot of that was due to the Catawba machine. But quarter-to-quarter, we are probably pretty equally split between specialty's increases and coated increases, if you look at the third quarter of last year and third quarter of this year. We're just checking that, but that's -- I think you'll see that -- I think that's about right.

Okay. Okay. And as you look forward onto the newsprint side, you mentioned the downtime at Thunder Bay. Any particular reason why we would see, you know, a change? There is generally a seasonal uptick, I believe, in the fourth quarter on shipments. Anything that we could expect that might be different in this fourth quarter? Seasonal uptick and demand on newsprint side?

Yeah. No, I understand. No, no, there should be -- you are right. Should -- typically the fourth quarter is a strong shipment quarter.

Great. Thanks very much.

Our next question comes from the line of Paul Quinn with Salman Partners.

I had a couple questions. One, I just sort of missed some of the stuff on liquidity. Could you just slowly go through that for -- ?

Sure, at the end of the quarter, I said we had about 3 million borrowed on our revolver which was 435 million. We had about 60 million drawn on an AR securitization, which has a facility size of about $180 million. If you net out LC usage, which is about 90 million, and add back cash in the system, you get back to about 475 million in liquidity available to us.

Great. Thanks very much. And just on the lumber side. (indiscernible) I heard 12 million in the quarter, what is it since May 2002?

It's $60 million.

Okay. And just trying to get an idea on what is happening with news. I am looking at how (indiscernible) sort of shipment's year-to-date down 1.4%, you guys flat. The 36,000 tons taken in Q3, this is just the Thunder Bay facility, right?

That's our downtime, right, Thunder Bay.

Okay. And relating back to the question, just so I understand it. The -- Bowater is booking the full $50 for September 1st on the price increase?

Yes.

Great. Thanks very much.

And Paul, one thing I should have mentioned -- we should mention is that our export shipments are actually up. Domestically we're flat, too, in newsprint.

Okay.

Operator we have time for one more question.

Our last question comes from the line of Joe Savaletti with Goldman Sachs. Please go ahead.

Hi. I was just wondering if you could talk a little bit about -- a little more in detail about pulp and lumber prices going into the fourth quarter, just in terms of -- particularly in lumber. Sort of, how far out you've sold at the higher prices? Maybe give us a little bit more guidance, given the sort of significant movement we've seen in market prices?

Well it is difficult to project on lumber pricing. It is a volume market, as you know, and we don't have long-term contracts or even quarterly contracts in lumber. It is pretty much an auction market at it's -- although it was up 30 bucks as we saw the third quarter close. It is back off in the -- in October, and it is just going to be a volatile situation. We're just being overly cautious, perhaps, in saying we are not expecting any bullish improvement in lumber pricing in the fourth quarter. It's just too hard to predict right now.

In terms of pulp, as we mentioned earlier, the price on October 1dropped about $30 on an overall average and reflecting some higher inventories on a global basis in late summer. And we're reflecting that, again, being cautious here in saying we are not planning for any improvement. But in truth, we see some improvement in Europe in November for pulp pricing already in terms of negotiations and shipments pending for November in Europe. December we hope we'll continue that trend in the right direction and perhaps even North American pulp would improve by the time we close the fourth quarter market pulp. But, again, we're not were predicting anything beyond that.

Okay. And then just two points of clarification. The 7 million of pulp maintenance costs in the fourth quarter , that will be expensed, right? That's not a capital spending type?

That's correct.

Okay. And then, when you mentioned 4 to 6 million of higher energy costs in the fourth quarter, is that versus the third or is that a year-over-year.

That is versus the third, Joe.

Okay. Great. Thanks.

I would like to end the call by thanking each of you for your interest in Bowater. We are available following this call to answer any follow-up questions. Thank you very much.

Ladies and gentlemen, that does conclude our conference for today. This conference will be available for replay after 12:30 p.m. Eastern time today through November 3, 2004 at midnight Eastern. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 750463. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844 with the access code 750463.

Thank you for your participation, for using AT&T Executive Teleconference. You may now disconnect.