Resolute Forest Products Inc (RFP) 2005 Q2 法說會逐字稿

Ladies and gentlemen, good day, and we thank you for standing by. Welcome to the Bowater second quarter 2005 earnings conference call. At this time, all lines are in a listen-only mode. (OPERATOR INSTRUCTIONS). I will now turn the conference over to your host, Mr. Duane Owens. Please go ahead, sir.

Thank you, Barb, and good morning, everyone. With me on the call today are Arnold Nemirow, our Chairman, President, and CEO, and Bill Harvey, our CFO. Before we begin, I'll cover a few preliminary items. Following our prepared remarks, we will take questions following our remarks. The call is scheduled for about 45 minutes. 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 will be discussing such forward-looking matters on the call today, and you should be aware, due the uncertainties inherent in such statements, actual results could differ and any such statements are not guarantees of future performance. Additional financial and statistical information, as well as reconciliations 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 www.bowater.com. The call is 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 on the call should not be quoted without their permission. I will turn now the call over to Arnold Nemirow.

Good morning, and thank you for joining us. Our second quarter reported net loss was $3.6 million or $0.06 per share, a $0.05 loss excluding special items. Price increases in our products are offsetting cost pressures and sequentially improving our bottom line. Operating income from our major paper products almost doubled in the second quarter compared to the first. We expect improving results to continue through the balance of this year. In the second quarter, our Catawba Mill, making lightweight coated and pulp, generated both record production and significant cost improvements. North American newsprint continues to have a high operating rate, 96% year-to-date according to the Pulp and Paper Products Council.

On a global basis, the operating rate in May improved to 92%. This represents the highest rate since the year 2000. This is a tight market. With improving demand and higher prices in the export markets, we increased our shipments by 67,000 tons in the first six months of this year compared to the same period last year. This represents about a 22% increase. We implemented on March 1, $35-per--ton domestic news print increase, and announced an additional $35 per ton price increase for June. Our order book is in good shape, and we expect it to remain so for the balance of the year. Turning to Coated and Specialties, consumption for coated mechanical papers remain strong. Printers report that their consumption is up 3% year-to-date.

Strength also continues to be evident in magazine advertising, catalogs and direct mail. Total magazine ad spending is up 10% year-to-date. Our March coated mechanical price increase was fully realized, and we are implementing a July increase of $35 to $45 per ton, depending on basis weight. Our Coated Papers order book remains strong, with backlogs of about 45 days. Effective July 1, in response to improved prices and demand, we increased the production of our two new coaters at the Nuway operations from three days to four days per week. This increase will result in an incremental 26,000 tons per year of coated output. Nuway's progress and quality and cost has been excellent and its coated sheet has gained good market acceptance. In this context, with very little probability of running the original Nuway coater line, which we purchased for $15 million in 1999, we took a second quarter $7 million after-tax writeoff -- that's the Benton Harbor, line number one.

The two coated lines we built since then have excellent prospects. Supercalendered and other unloaded chemical paper demand continues to be strong. The high gloss SC demand has increased over 10% this year through June. Other uncoated mechanical demand increased over 7% year-to-date. In the pulp area, demand in North America for our market pulp was solid in the second quarter; however, weakness and global demand, particularly in soft woods, resulted in some pricing erosion in the quarter. June pulp shipment data was positive. Inventories declined in soft woods from 36 days to 32 days of supply. This inventory decline sets the stage, we think, for a rebound in the pulp markets.

Lumber markets continue to benefit from solid U.S. housing starts, which continue to be about 2 million on an annualized bases. Long-term interest rates remain at low levels and continue to support the healthy housing demand. As announced in May, we will convert a newsprint machine in our Calhoun, Tennessee Mill. This capital project will convert 200,000 tons of newsprint capacity to 50,000 tons of uncoated mechanical and 150,000 tons to a lightly coated mechanical paper used in direct mail applications. The project is expected to be completed during the second quarter of 2006. Also, we're developing a major capital conversion project at our Thunder Bay, Ontario, newsprint mill to convert approximately 250,000 tons to ultra lightweight coated grades.

This is an excellent project, a high-return investment in a product with good demand growth characteristics. Also, this would be an additional step toward bringing our newsprint fundamentals into even better balance, given our anticipated demand. This project hopefully will come to fruition, depending on our Company's pace of financial recovery and the outlook for the improved cost competitiveness of this site. I am pleased to report that we reached a five-year labor agreement on July 8, covering approximately 2200 Bowater employees at five of our Canadian paper mills.

I am optimistic about the balance of this year. Market fundamentals should drive better results for Bowater, and I look forward to a return to profitability in the second half of this year. Now, I will ask Bill Harvey, Chief Financial Officer, to provide further detail.

Thank you, Arnie, and good morning, everyone. Our reported loss for the quarter, as Arnie mentioned, was 3.6 million or $0.06 per share; before special items, our net loss was 3.1 million or $0.05 per share. There were three special items in the quarter: First, we sold 4,000 acres of southern timberland for an after-tax gain of $0.11 per share; second, we had a $0.01 after-tax gain relating to foreign exchange; and third, we incurred an acid impairment charge of $0.13. As Arnie mentioned, that impairment charge is related to the original Nuway line at Benton Harbor, Michigan, that we purchased in 1999. Note 2 of our press release provides a reconciliation between the reported loss and the loss net of special items. Our EBITDA, defined as operating income plus depreciation in the impairment charge, was 134 million in the quarter.

We were free cash flow negative by 5 million, and I am defining free cash flow as cash from operation, including working capital requirements, less capital expenditures and dividends. This was offset by 11 million of land sale proceeds. We had a large investment of working capital in the quarter; most of this was due to an increase in account receivables of almost 50 million. Account receivables grew because of higher selling prices and higher shipments. Inventories dropped by 20 million, primarily due to the increased shipments. As a result, our net debt, which is total debt less cash, declined by 9 million during the quarter. In the second quarter, we had two scheduled pulp mill maintenance outages -- one at Calhoun and one at Thunder Bay. These outages resulted in increased repair costs of $5 million and reduced production of market pulp.

In the third quarter, we will have scheduled recovery boiler outages at Catawba and Thunder Bay, and expect about 7 million of repair costs. In July, due to high electricity and wood fiber costs in Ontario, we shut our Thunder Bay newsprint mill for 19 days. This reduced our newsprint production by about 20,000 metric tons. We expect this outage to have no significant impact on our third quarter financial results. We paid 8.6 million in lumber duties, bringing our total amount deposited to date to 86 million. Our selling and admin costs for the quarter were higher than last year, primarily due to some one-time credits received in 2004 and some specific one-time costs in the second quarter. Our effective tax rate for normal earnings in the quarter was about 9%, due to some quarter-specific adjustments.

Note 2 of our earnings release shows a reconciliation of the effective tax rate, excluding special items, to the tax rate on reported earnings. We expect the rate to be in the range of 25 to 30% for the third and fourth quarters. Capital spending was 25 million in the second quarter. I expect our capital spending will be around 170 million for the year, which is close to our original January estimate. At the end of the quarter, our revolving credit line was undrawn; and including cash, we had liquidity of about 475 million. As Arnie mentioned, we signed new labor agreements in July. The agreements call for annual wage increases averaging 2.5% for each of the first two years and 2% annually thereafter.

In the third quarter, we expect to realize better average pricing in newsprint coated and specialty papers compared to the second. In the second quarter, we have experienced some weakness in market pulp price, and that will also impact the third quarter. In summary, we expect and achieved an improvement in our financial in the second quarter compared to the first, and we expect continued improvement in the latter half of this year. And with that, I'll turn the call back over to the operator for questions.

Very good. (OPERATOR INSTRUCTIONS) Our first question is from the line of Mark Connelly from CSFB. Please go ahead.

Thanks, just a couple of quick things. First, can you comment on to what extent Finland may have helped the demand picture in the quarter, and whether you're expecting that there might be any, you know, reversal as Finland tries to right itself over the next quarter.

Hi, Mark. It's Bill Harvey. On the demand side, it certainly didn't necessarily impact direct, of course. It would be more on the supply -- taking the supply out, impacting the operating rate and the tightness and overall market. We don't ship -- we don't ship a significant amount of coated painter to Europe. At the same point, we've entered the second half of the year, which is the high print season, and we expect the operating rates to be good for the balance of the year; and there will be a period when, of course -- the transition through the summer, but we feel good.

Mark, just to add to that, I think there has been a delayed benefit, if you will, from the strike, as we didn't see the -- on the demand side, an immediate increase of a flurry of activity in the order book until kind of towards the end of the strike, and I think we're still seeing the benefit as a competitor, if you will, that's still lingering from the lack of production from Finland. So, I think it's still a lingering benefit, if you will, that's not over yet. So it's hard to attribute why we have such a strong order book to various causes, but that's certainly been one element that's still there.

Okay. That helps. You mentioned in the release higher repair costs. If you commented on them, I apologize, but I didn't hear it -- in newsprint?

There were higher repair casts in newsprint, just associated with a [cold] outage, but that were not -- they were not -- they were more in the 2 to $3 million range, Mark.

Oh, okay. Okay, fair enough.

Not huge.

Okay. Thanks very much.

Your next question is from the line of Mark Wilde from Deutsche Banc. Please go ahead.

Good morning, Arnie, morning, Bill.

Good morning.

I wonder, Arnie, if you can just kind of walk us through beyond the improvement in the -- in Bowater's kind of financial position, as to what you will need to see to move ahead up at Thunder Bay. I mean, it sounds like, you know, you've got wood issues up there, you've got high Ontario hydroelectric -- electric costs. Can you just walk us through that?

In terms of looking at the project?

Yes, exactly.

Yes, the project, as I said, is an excellent one in terms of focusing on the ultra lightweight coated, which we think is -- has strong growth characteristics. We have a strong fiber basket up there. We have a good solid infrastructure at Thunder Bay. We have been in discussions, and I've had some very positive support from the Ontario Provencial government in many respects here to give us a more positive outlook on the infrastructure there, and particularly wood and energy costs. We're still in discussions, but the government has been extremely supportive and helpful and productive in helping us take the longer view, and we think that it is a positive view of the infrastructure for that bill. We're still in those discussions, but we've come a long way. Part of the name of the game, of courses, is to have cheaper wood fiber available than we've had the last few years and more volume of fiber available than we've had for various reasons, which we don't have to go back into. But that picture looks more positive as we speak to wood the mill at a incrementally less expensive rate, or a cheaper rate.

Energy is more challenging, of course, as they deregulated and removed certain preferred rates for industrial users in Ontario. That's a complicated question and the answer is not clear as to how we're going to go forward with a more competitive energy rate. But we're in discussions, again, on that subject. So we're optimistic that we can get there. It's not a straight line, particularly on energy. Wood, we think, is -- feels a lot better for us going forward, and we think we've got an excellent project. Our -- from a Company point of view, we'd feel more comfortable with some positive earnings, which we expect in the near-term, before we would commit to that size of a project.

Okay, and then if I could, on that land sale in the quarter, I mean, you got a -- it's like on a per-acre basis -- you got a very, very good price for that. Can you comment on that and can you maybe give us an update on kind of where you're at in the assessing the rest of the southern lands for sale?

Sure, Mark, it's Bill Harvey. That land was -- was, of course, on the higher and better use land. And we did get a very good per--acre price. And the combination of both the land -- the specific land as well as the hot land market -- it's a very, as you know, a lot of interest in all land, and you should expect to hear some more significant sales going forward from Bowater.

So is there much of that HBU left in your portfolio, or is what we're going to see going forward more just kind of traditional timberland sales?

There is HBU left, but the majority is more traditional timberland sales.

Okay, thanks, Bill.

Next question is from the line of Richard Schneider from UBS. Please go ahead.

Arnie, on the Thunder Bay potential project, how would you sort of define, you know, getting to a financial point where you feel comfortable? What kind of, you know, quarters would you have to see to put you over the top from a financial perspective?

Better than the second quarter. A solid quarter of earnings. That's, you know, without getting it too big -- predictive here, Rich. I just -- I'll know it when I see it, and I think we'll see it soon.

Okay, and then just following up on the newsprint cost situation, you said two to three million for higher repair costs, but your costs look like they were up more like 6 million in the quarter and up $10 a ton. What else went on with the newsprint cost?

Sure, Rich, it's Bill Harvey. There was reduced hedging benefit in the second quarter, as well as some -- some additional costs that were smaller than what we -- the repair costs.

Okay. And the -- you talked about Catawba running at record levels; is the numbers that we saw out of the coated and specialty area in terms of shipments, is that a sustainable-type number? I guess at -- not including Nuway in there?

That would include Nuway.

Right, but I mean the additional Nuway.

It is sustainable. We're -- we're at the far end of the learning curve in terms of run rate at Catawba? Is that what you're asking?

Right.

Yes. It is sustainable.

Okay.

And it's sustainable -- at the Calhoun site, for instance, we're making more specialties, and that is sustainable, too. So this is a new level of shipments in that area from Bowater.

And going forward, we should be looking at 26,000 on an annual bases coming out of newsprint and going into specialties from the Nuway start up?

Four days. Yes. Yes. It's -- .

26,000. At the four-day run rate.

Yes.

Okay.

Yes.

Obviously we're looking at higher and higher run rates as things continue to improve.

Okay, and just the last question. Financial impact of down time, et cetera, you said was 5 million in the quarter and that was primarily all in pulp. And you mentioned seven million in the third quarter. That's all in pulp and there is nothing else? So incrementally, there's only a 2 million additional hit from outages?

Yes, that's -- in the repair costs. And the actual loss production is both the same, too. So yes, you're correct.

Okay. Terrific. Thank you.

Okay.

Next question is from Chip Dillon from Smith Barney. Please go ahead.

Yes. Could you give us -- good morning -- give us a view of what Cap Ex next year might look like? And I know there's a range, because it obviously is hedging on the timing of Thunder Bay, but could you sort of give us a range of -- let's say you have whatever you view to be a very strong second -- strong enough second half where you would move forward and maybe a scenario where that doesn't happen, what would the ranges be for next mere next year?

Hi, Chip. I think we haven't got a specific capital budget for next year. I think that as a starting point, that our 170 million we're spending this year would be a good starting point. We have not built in Thunder Bay. And as you look at this year, we started the year at 170 million as our target, announced Calhoun, and we ended up at 170 million even after that announcement. So there's a lot of room for movement in a capital budget, but I think at pre-ThunderBay, if you look in the 170 as a starting point, that's probably a pretty good indicator.

Again, the total do was cost of that was around 200, is that correct?

That's right. 200 million over a couple of years.

Okay. So -- .

Two-plus here.

Tell me, the earliest we'd really see paper off of that conversion would be sometime in, I don't know, early '08 or late '07?

No -- that's right.

That's right. That timeframe.

Okay, the next question is, you know, if you really sit down and you think about what's out there in terms of what one of your competitors are saying, you know, one can make the case at the drop of a hat that there could be a 5 or 600,000 tons of newsprint that's just not going to be there starting, say in the fourth quarter. And obviously, the customers out there see this happening, and have you, as a result of this, seen any sort of stepped-up interest among your customers for Bowater newsprint, given what this competitor is doing in terms of the timing of its removal of capacity?

You know, all I can say is that it's a tight market. We have taken out a million tons announced -- or already taken out a million tons of newsprint capacity since 2001. We're trying to keep pace, as our own company looks at it, with the projected consumption trends of newsprint, and we're just going to keep on making good quality newsprint, and trying to look where our demand curve's going and look at better opportunities elsewhere. So, you know, that's -- it is what it is. We're -- we're comfortable that we're doing the right things in terms of managing our order book and looking at our asset base and seeing where excess capacity can be better utilized.

And then lastly -- okay. And then lastly on the Calhoun conversion, you mentioned the -- that roughly 50,000 tons would, I think, go into, like, uncoated groundwood specialties, and then 150 would go into heavier weight -- I think, coated. So is the way to think about that is the 150 -- I think you mentioned would go into direct mill advertising-type applications -- but the first 50, is that going to compete with offset grades?

They both would be competing with offset grade. The 150,000-ton project is a lightly-coated sheet with a significant component of it being craft that would compete in the offset -- in the offset type of grades. The actual 50,000-tons is more uncoated groundwood mechanical specialties.

And so, if you think about it from an application standpoint, the 150 would actually compete with uncoated free sheet.

Yes.

As we would see in our, you know, in junk mail. For lack of a better phrase.

We don't call it junk. But, yes.

Right, just solicitations. Okay. And then, the 50,000, the mechanical, where does that -- where would we see that? Would that be in inserts or where?

Exactly. Inserts there. There's a lot. There's many different applications but that's one of the primary ones.

Okay. Well, you'll be happy to know my wife complains every time I open up all the mail, so I'm reading the stuff. Thank you.

Okay. Thanks, Chip.

The next question is from Peter Ruschmeier from Lehman Brothers. Please go ahead.

Thanks, good morning. Wanted to ask, Arnie, if I could, the newsprint commentary on exports I think you said was up 22% year-to-date. I'm curious if maybe you can provide some more commentary from -- on things like mill nets offshore, maybe an update on the Korean business -- longer-term, where do you see the growth in Asia demand being satisfied? Is it going to continue to come from North America? So maybe a broader -- a broader context for your outlook for the offshore markets.

Good morning, Pete. Export markets are continuing to improve for Bowater. We enjoyed the price improvements sequentially Q1 to Q2. Southeast Asia was up about $15 in the second quarter over the first. Latin America, South America over $20, $21 per ton improvement. Even Korea had a modest improvement, although we have -- we described in the past some softness in that area, but we did improve pricing in Korea in the second quarter versus the first. So overall in our major markets, we see a continuing tightening and continuing price improvement. We're expecting that trend to continue in those regions into the third quarter. Europe is somewhat of a different picture, but not a negative picture. There was annual pricing with the Euro weakening a bit. Net pricing to us in U.S. terms was about flat to slightly negative quarter-over-quarter.

But overall, a significant improvement and more expected in the pricing as, you know, conditions are reasonably healthy in our major markets offshore. We -- we're shipping about 30% of our newsprint capacity offshore on a current annualized basis. We are continuing to ship more product into India, for example, where we have about a hundred thousand ton position, which is significantly up from recent times, with heavy demand growth projections for newsprint consumption in that country. All in all, we are very bullish about our offshore newsprint markets.

And just as a follow-up, would it be your expectation that this 20% jump is an anomaly and that, you know, it's just that pricing is better and so you're seeing this surge in volume as kind of one-time nature, or do you see from your experience in India and markets that you really think that you can just continue year after year to grow these export positions, export volumes?

We're looking at year-over-year increase in our export position. I couldn't give you any numbers or metrics on that. But it's certainly a tilt that makes sense for us going forward.

Okay. And just lastly, if I could, the 26,000 tons of additional annualized coated newsprint, can you help us to think about the economic impact of that? Is that something that reduces newsprint volume and increases coated volume for some marginal profit benefit, or is this something where you're simply going to continue to produce that newsprint and now you're also going to continue, you know -- now you're going to have to ramp-up your utilization rates and you're going to have an additional 26,000 tons of output?

You should think of it as -- it reduces newsprint and we make an incremental margin on selling it as coated paper, so it's -- there actually will be a reduction in newsprint -- increase in coated paper with some additional profits.

Okay, fair enough. Thanks, guys.

The next question is from Karen Gilsenan from Merrill Lynch. Please go ahead.

Thanks and good morning.

Morning.

I have a question here on the pricing in newsprint, first just wondering if you could comment on the success so far you've had with your June price increase. And then with the very tight market that's developing here in the second half with all the capacity closures announced, is there any thought that there might be a third price increase this year in the works? And this competitor of yours is talking about wanting to see less volatility in newsprint prices and making -- maybe working with customers to get some contracts that would allow for that. So you kind of lop off the top and the bottom in pricing. Is that something that you've been talking with your customers about as well?

Well, back up, Karen. We certainly had a solid second quarter of price improvement in newsprint. I believe we're up on average $20. It is a tight newsprint market from our particular company's perspective. We don't see any fundamental reason why that condition for our order books should change for the balance of the year. Obviously, I'm not going to comment on future price thoughts. We have many thoughts every day, but that's something I can't talk about publicly. And we've had discussions, to your third point, with customers from time to time on different a format for pricing. Those have been challenging discussions. I cannot tell you that we have anything actively going on in the way of those kinds of discussions right now. It is something, as you know, that has been an objective of ours for quite awhile. We would certainly favor more stable pricing arrangements as between Bowater and its customers; but unfortunately, we're not in any active long-term type of pricing arrangements that I'm aware of as we speak. Not to say we wouldn't, but --

And you're holding firm on the June price increase at this point, Arnie?

We are.

Okay. And then just -- just a question on the Thunder Bay outage earlier this month, if you could give us a little more color on what drove the closure? I gather it was't profitable, and you know, is it -- what allowed to you bring that capacity back on? What changed, basically?

We were down for about 2 1/2 weeks in July at the newsprint machines at Thunder Bay. We ran the pulp mill and the power, of course. We did a projection on incremental energy costs going through July, and it made very little sense -- or it was economically indifferent, almost -- to run or not run the machines, and we were of the view that we would take them down and not suffer the incremental energy costs, and we're expecting as we start up this week -- or a few days ago -- that those energy costs will modify or plateau and we'll be in a little better shape running that incremental tonnage.

Thank you.

Next question is from George Staphos from Banc of America Securities. Please go ahead.

Thanks, hi, guys. Good morning. On the cash from operations, if we look versus year-ago, you were down a touch, is that just the export impact, guys, in terms of now your receivables [INAUDIBLE] TO your inventories?

George, it's a few things, but it's -- on a sequential basis, it's primarily due to the buildup in accounts receivable. It was pricey and et cetera. I don't remember specifically last year. But it's a receivable buildup as -- and the second component, of course, is that in the second quarter is our heavy interest payment quarter. We pay about 50 million more in interest in the second quarter than the first.

Okay.

I don't remember quite last year at all.

Right. But we shouldn't expect a structural now pushing out of receivables with the increased export business, or should we?

There will be some, but it's not -- but it's not a significant impact in the receivables.

Got you. Now on Thunder Bay, obviously, there are still things in flux and you want to be thoughtful about how and when you bring on that capacity. Would your plans change at all if some of the capacity that's been down the last six, seven months finally came back on screen, or do you think the market's tight enough and profits will get to a good enough level where that's really not a factor?

Not a factor.

Okay. And why wouldn't that be the case, then?

We think the growth projects in those products that we're looking at is strong enough that it really is not a factor as to that particular mill production.

Okay. Fair enough. And then, as we think about '06, I realize it's early. You know, what consumption should we be thinking about in terms of newsprint within North America? What do you think would be a reasonable rate of expectations? And I had a follow-on in that.

I don't think we want to venture out and project that kind of a number, frankly.

Why would that be the case, guys?

Well, George, you probably know as much about that as us and in reality, we read about what our customers are saying, but we don't really have perspective any closer than you do on that.

Okay, but either way, maybe the takeaway is you feel you have at least for the next couple of years, enough flexibility within your newsprint capacity to match demand with your own capacity changes. Would is that be fair to say?

Yes, yes, that's our plan, that's our strategy.

Okay, guys, that's what I was getting at. Thanks.

Thanks, George.

The next question is from Mark Weintraub from Buckingham Research. Please go ahead.

Thank you. I just wanted to get a sense as to how you think about your Canadian [forest land] strategically? You've indicated that you're contemplating potentially monetizing some of your southeast lands. How about the Canadian properties? How should we be thinking about them longer-term?

I think the Canadian properties are in Eastern Canada in Nova Scotia, New Brunswick. We look long and hard at the need for fiber security there. So it's the balancing act of the requirement for fiber security balanced with the ability to extract a good price for timberland. So, we haven't come to any conclusion we want to talk about now, but it's something we are looking at.

Okay.

I think it's fair to say ownership, per say, is not necessarily paramount in any corner of our asset base; but there are a lot of factors that, as Bill implied, before we would sell an asset such as 600,000-acres in Nova Scotia. It's not to say it couldn't be owned by a third party and still protect our Mersey Mill, but there are complexities, so -- but it's fair to say we are not, again, selling or monetizing any of our timberland, but it's not necessarily straight line and it becomes complicated; and under the right circumstances, all of our timberland could be monetized, but that's not the game plan in the near-term

Okay, and understanding that you're not going to want to get into the details, but is it more than just getting us a buyer who is willing to sign a supply agreement? Is it more complicated than that?

Yes.

Okay. Thank you.

Next question is from Steven Chercover from D.A. Davidson. Please go ahead.

Thank you, good morning. I just wanted some clarity please, on the potential impact of your two conversions. So is it right that Thunder Bay is currently 250,000 tons of newsprint and it would be converted to a similar amount of ultralight?

Yes.

So no net paper capacity. And how about the other facility, please?

The Calhoun conversion -- converts, will convert a 150,000-ton machine to a lightly coated paper that competes with the -- in the uncoated freesheet market, about 150,000 tons. We also will, in that project, produce an additional 50,000 tons of uncoated groundwood specialties on some other machines at that site, which will remove 50,000 tons of newsprint. Operator, we have time for one more question.

Okay, great. That question will come from the line of Edings Thibault from Morgan Stanley. Please go ahead.

[INAUDIBLE]. Good morning, gentlemen. Question for you. I was hoping you could talk about sort of the mechanics of the Calhoun conversion, you know, how you begin to perhaps deploy some capital in that, and then, you know, the timing of -- rough timing of when the machines go down and when we can expect them to come back up overall as they roll through the coming quarters? And then, Bill, it's a question for, sort of the projected currency impact as these hedges roll off to the balance -- to the back half of the year?

Briefly on Calhoun, at the back end of this year, we expect to be spending approximately $20 million on the Calhoun, the front end of the Calhoun's spending curve. It's about a one-year completion project from, let's say, June-to-June, meaning we'll start up that converter machine at the end of the second quarter of '06. Approximately, give or take a little bit.

Uh-huh.

There's very little downtime in the overall project. It's sort of at the back end -- at the back end, it's about 20 days or so of that down time projected to be April of next year.

But newsprint will be running all the way through the first quarter and then you'll shut it down for those 20 days?

Yes.

Okay. Great.

And on hedging, Edings, they are -- our hedging contracts are winding down. Again, we would have contracts through the first quarter of next year of significant size, and it just winds down quarter-by-quarter. You can take a look when we publish the 10-Q when you -- and you'll have, I think, enough information to do -- take a look at that.

Great, thanks very much.

Thank you, Edings, and I'd like to end the call by thanking each of you for your interest in Bowater.

Thank you very much.

Ladies and gentlemen, this conference is available for replay that begins today at 1:30 p.m. eastern time through August 31 at midnight. You can access the AT&T Executive Replay Services by dialing 1-800-475-6701. The access code is 788750. International parties may call 320-365-3844. Again, the access code 788750. That concludes your conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.