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Executives

Rémi Lalonde – Vice President-Investor Relations

Richard Garneau – President and Chief Executive Officer

Jo-Ann Longworth – Senior Vice President and Chief Financial Officer

Analysts

Stephen Atkinson – BMO Capital Markets

Sean Steuart – TD Securities

Richard Ashcroft – Wells Fargo

Paul Quinn – RBC Capital Markets

Resolute Forest Products, Inc. (RFP) Q1 2013 Earnings Call April 30, 2013 9:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products’ First Quarter 2013 Earnings Call. I would now like to turn the meeting over to Mr. Rémi Lalonde, Vice President for Investor Relations. Please go ahead, Mr. Lalonde.

Rémi Lalonde

Thank you, [Derby]. Good morning everyone. Welcome to Resolute’s first quarter earnings call. I am joined by Richard Garneau, President and Chief Executive Officer; and Jo-Ann Longworth, Senior Vice President and Chief Financial Officer. You can follow along with the slides we’ll be using for today’s presentation by logging onto the webcast, using the link in the Presentations and Webcasts page under the Investor Relations section of our website. Slides are also available for download.

Before we begin, I direct your attention to the note on forward-looking statements in this morning’s press release and the slides accompanying this presentation. We will discuss forward-looking matters today. Due to the uncertainties inherent in these statements, actual results may differ. Our statements are not guarantees of future performance.

You can find additional, financial, and statistical information, including a reconciliation of non-GAAP financial measures in the press release and the slides. We will take questions from analysts and investors following our prepared remarks. We ask that media and others please direct their questions to our communications department following today’s call. Richard?

Richard Garneau

Good morning, and thank you for joining us today [for the all new] Resolute Forest Products Industries’ call. 2012 was a difficult year for pulp with pricing at the low point in the cycle for most of the year. But newsprint pricing remained stable, and we finally started to see the lumber wood’s recovery in the wood products.

In the first quarter of 2013, pricing for food products gained strength and we noted encouraging signs of demand and pricing improvement in pulp. But newsprint prices began to slip in North America, following a late year capacity restart, which overshadowed the effects of a gradually improving condition overseas.

We made a number of key decisions in 2012. We grew the pulp segment and launched new projects to grow our lumber business. We invested in power cogeneration assets to lower costs and generate EBITDA from external sales of power and we also made difficult decisions to close some machines and mills, and restart lower cost facilities to achieve a leaner and more efficient mill network.

We believe that our efforts in the last few years strengthened our competitive position to better mitigate the challenges facing the North American forest product industry, but Resolute will not stand still. We will always be looking for ways to improve our network to reduce cost.

So we are sticking to our principles and 2 to 3 elements that define Resolute, a stringent focus on continuing to reduce cost and improving competitiveness, an ability to leverage a synergistic and diversified asset base, and our financial strength and commitment through disciplined cash flow management.

We continue to work to reduce costs during the first quarter. We generated external sales from our power – from our cogeneration facilities at Dolbeau and Saint-Felicien, which ran for the whole quarter, and Dolbeau which began operations on March 21 with power production in April 7% higher than we expected. We benefited from more cost efficient operations on the restarted Dolbeau machine, which replaced permanently closed machines at Kenogami and Laurentide.

We closed a higher cost newsprint machine at Calhoun late in the quarter, which will be replaced by a lower cost machine at Gatineau, a facility where we will have extremely competitive power costs, and we also improved our operational efficiency at certain mills by improving maintenance and further usage. But these positive items were more than offset by unfavorable cost pressures.

We generated adjusted EBITDA in the first quarter of 60 million in newsprint, down 20 million compared to the fourth quarter of 2012, $6 million in Coated, down 6 million; $19 million in Specialty, unchanged compared to the fourth quarter; $25 million in Wood Products, it's up $3 million and $9 million in pulp, down $4 million.

In total, adjusted EBITDA was $72 million, $32 million less than the fourth quarter. The decline reflects a reduction in sales due to lower shipments of newsprint and specialty papers, including seasonal FX and our capacity reduction and asset optimization initiatives in specialty papers.

Following the expensive catch-up maintenance and environmental work that was required at the Saint-Felicien mill after we acquired Fibrek, I am pleased to note that the former Fibrek mills generated $11 million of EBITDA in the first quarter, including a $5 million EBITDA contribution from the US Recycled Bleached Kraft mill.

I will make a few observations now on market conditions in our segments. Total North American Newsprint demand declined 10% in the first quarter of 2013. We believe that the 2012 [turned down the great] spectrum has run its course as we noted that demand from newspaper publishers was down 11% and down also 8% for commercial printers. It is possible that these declines are steeper than consumption would suggest as publishers normally try to maximize their benefits by destocking in a falling price environment.

At 92%, however, the average operating rate in the industry remains elevated on shipment to capacity basis. As the strong US dollars made for a difficult 2012, world markets for North American producers were encouraged to see export up over 8% in the first quarter, diverting almost 40,000 tons from the North American market in the quarter alone.

Benefiting from our strategically located mill network, our international sales rose from 37% of total shipments in the fourth quarter to 46% in the first. Global demand for newsprint was down 3% through February, the last month for which data is available. In the same period, demand in Asia, Latin America and Western Europe was basically flat, China was up 4%, and India was down 1%.

North American demand for coated mechanical paper was down 5% in the first quarter with shipments from North American producers down 10%, or about 80,000 tons, and imports up 12%, or about 10,000 tons mostly from Western Europe. Accordingly the industry shipment to capacity ratio fell to 87% for the quarter compared to an average of 94% for 2012.

Following the typical adjustment period following the idling of Catawba number one machine, the mill’s operation in the first quarter met our performance expectations, until it was temporarily idled for the annual outage. Following a 16% decline in North American demand for uncoated mechanical paper in 2012, the first quarter decline was a modest 2%, reflecting an increase of 8% in high gloss grades, but a drop of 8% in higher brightness grades, and a 16% drop in lightweight grades, where we have only limited exposure.

The shipment to capacity ratio stood at 89% at the end of March, compared to an average of 92% in 2012, in part the result of a significant capacity addition with the restart of a large machine in (inaudible) late in the year. Overall chemical market pulp demand slipped 1.4% in the first quarter. Demand from China was down 8%, but it was up 2% in Western Europe and 8% in North America on US tissue paper capacity increases. Global demand for softwood pulp, which represents about 80% of our virgin fiber capacity, was down 1% in the quarter, including a 6% increase in demand for southern bleached softwood kraft, and a 2% decrease in demand for northern bleached softwood kraft.

Seasonally adjusted housing starts broke 1 million in March, up 47% from the year ago level. Where we started to see the signs of recovery we experienced to date. We continue to move forward with our growth projects, the restart of our Ignace saw mill and the construction of the new Atikokan saw mill. This will further improve our position in the lumber segment for the future.

As we continue with our strategy of profitable retreat from certain paper grades our philosophy remains the same, run for profit not for tons. We do that by managing production and inventory levels, resulting in only profitable returns and maintaining world class operational standards. We made significant progress in the past few years. Our assets are more competitive, our costs are lower, and our financial position is stronger.

We have focused our paper production in our most productive sites, and drove better efficiency by restructuring mills and reducing labor costs. With our competitive position, we don’t currently expect to further reduce our paper capacity in the near term. Let me finish with an update on our financial situation.

On April 26, we reached an agreement in principle with company's stakeholders in Quebec, the provincial government and its pension regulator to replace the significant uncertainty associated with potentially material corrective measures in favor of a more stable, predictable and balanced funding we need to run our business.

Under this agreement, we would make reasonable incremental contributions in order to secure longer-term funding stability. With this significant progress in Quebec, we look forward to meeting the provincial government of Ontario and its regulator, and our Ontario stakeholders very soon. Jo-Ann?

Jo-Ann Longworth

Thank you Richard and good morning everyone. Today, we reported a net loss of $5 million or $0.05 per share in the first quarter on sales of $1.1 billion. Excluding $33 million of special items, we generated net income of $28 million or $0.30 per share. The special items are described in this morning’s press release, but the most significant ones are a $25 million charge related to asset impairment and closure costs mainly relating to the idling of the Calhoun newsprint mill; $11 million of start-up costs at our Gatineau newsprint mill; a $7 million non-cash charge on translation of Canadian dollar net monetary assets; and $10 million gain net from other items. Of the $33 million of special items in the first quarter $13 million are cash disbursements.

Total sales in the first quarter were $1.074 billion, down 5% from the fourth quarter of 2012. We shipped 39,000 fewer tons of newsprint and 37,000 fewer tons of specialty paper during the first quarter for declines of 6% and 10% respectively. This reduction is due to seasonal downturns, changes in market dynamics, and our leaner operating footprint, where we eliminated two higher cost machines in favor of our refurbished state of the art Dolbeau mill and cogeneration facility.

Shipments were down slightly in market pulp mostly because of annual maintenance at our Catawba facility, and in wood products due to the limited availability of railcars. Shipments rose 6% in the coated paper segment compared to the fourth quarter, where we experienced equipment failures. Average transaction prices rose 10% in wood products on the strength of the US housing market, and prices increased a modest 1% in market pulp, but dropped the second consecutive quarter in newsprint, down 3% or $17 per metric ton.

Prices were slightly lower in the specialty segment by 1% or $8 per short ton, while in the coated paper segment prices remained unchanged from the previous quarter. Cost of sales was down $19 million or 2% from the fourth quarter mainly on lower volumes. We achieved considerable efficiency improvements with our Dolbeau facility, which restarted in Q4, and we implemented lower cost furnace changes on the remaining machines in Laurentide.

But these costs were outweighed in the quarter by an increase in manufacturing costs, including higher mill start-up costs as we get Gatineau through the final start-up stages, annual maintenance outage at Catawba, higher steam costs because of an increase in natural gas prices and winter conditions in Canada, timing of payroll benefits, and higher wood cost in the US Southeast due to heavy rain.

Distribution costs were down 5% in the quarter due to the lower volume. When compared to the first quarter of 2012, unit operating costs in the newsprint segment increased by $11 per ton or 2%. They rose 4% in the coated paper segment mainly due to the lower volume. Operating costs per unit were unchanged in specialty, but they fell $89 or 12% in the pulp segment mainly because of annual maintenance timing.

Unit costs increased by $40 per 1000 board feet or 13% in wood products largely due to higher stumpage fees because of higher selling prices for lumber, and lower [chip] revenue. Our Saint-Felicien and Dolbeau power generation facilities operated for the full quarter and together with the start-up of the Thunder Bay cogen on March 21, they generated $8 million of EBITDA from external sales of power, $4 million more than in the fourth quarter.

We expected EBITDA contribution to increase with the Thunder Bay unit, our largest, now fully operational and with the smaller Gatineau unit coming online at the end of the second quarter.

First quarter selling, general and administrative expenses were $9 million higher than the previous quarter mainly due to fourth-quarter items, mainly the collection of previously written-off receivables and the reversal of capital and franchise tax reserves.

Closure costs and related charges were $40 million in the quarter, down from $82 million in the previous quarter, almost all of it related to accelerated depreciation and severance charges in connection with the closure of the newsprint machine at our Calhoun mill. Only $5 million of these closure costs are expected to be cash related.

We closed the Calhoun machine following the buyout of our joint-venture partner in Calhoun Newsprint Company, or CNC. In the transaction our partner paid $8 million in cash for a gain a 12 million note payable, after which we acquired its share for $1. The $23 million of other income in the profit and loss statement results from the $12 million CNC note forgiveness, as well as a $9 million distribution from the liquidation of a former UK subsidiary that we deconsolidated in 2010.

We recorded a $41 million income tax benefit in the quarter, which reflects primarily the release of valuation allowances on capital loss carry forwards that we will now be able to use as a result of the CNC transaction. Our effective accounting tax rate should remain at 30% on a normalized basis, excluding currency translation impact and other adjustments. We do not expect to pay meaningful cash taxes in the medium term.

We took our major maintenance outage in Catawba during the first quarter and the annual outages at Calhoun and Coosa Pines during the current quarter. Thunder Bay and Saint-Felicien are scheduled for September and October.

Turning to the balance sheet and cash flow items; cash and cash equivalents decreased by $48 million in the quarter closing at $215 million. Although we collected $8 million in cash in the CNC transaction, our working capital increased by $50 million in the quarter to $825 million. This was due in part to a $10 million increase in trade accounts receivables despite lower sales, a $39 million net increase in inventories, specifically the seasonal increase in loss before the spring breakup, higher wood product finished goods due to limited railcar availability, and higher finished goods inventory in newsprint and specialty paper.

Net cash used in operating activities was $20 million in the first quarter, down $94 million from the prior quarter primarily because of the working capital increase. We will work to reduce our inventory to more normal levels in the second quarter. Capital expenditures were $40 million, down from $67 million in the fourth quarter. For 2013, we expect to make capital expenditure for compliance and maintenance of business activities of between 55% and 65% of depreciation and amortization. We also expect to spend between $50 million and $100 million for value creating projects.

Disciplined capital management is important to us and if necessary we will adjust our spending accordingly. ABL availability remains high and our liquidity stood at $752 million as of March 31, 2013. Pension contributions were $26 million in the first quarter, and the associated expense was $10 million. For 2013, we expect to make $150 million of funding contributions to our pension plan, while expensing $40 million of that.

I will close by noting that on Friday we priced $600 million of unsecured notes at 5.875%, and will issue them at 99.062%. We will use the net proceeds to repay up to all of the 501 million of our outstanding senior secured notes due 2018, for which we are conducting a tender offer. With our strong balance sheet we were able to take advantage of a very attractive financial market.

We are refinancing our high coupon secured debt with unsecured debt at an interest rate that is more than 40% lower, and which adds five additional years to maturity. Consistent with our strategy of acting opportunistically to enhance our competitive position, we believe it was the right time to lock in these attractive terms, which reduce our annual interest burden by $15 million per year, and improve our financial flexibility. I know that in connection with the offering both S&P and Moody’s affirmed their current corporate rating BB minus stable, and Ba3 and assigned the same rating to the issuance of the unsecured bonds. Moody’s also upgraded its corporate outlook from stable to positive.

Richard Garneau

Right. Thank you Jo-Ann. [Derby] we like to open the call for questions please.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from Stephen Atkinson from BMO Capital Markets. Please go ahead.

Stephen Atkinson – BMO Capital Markets

Thank you. Good morning. Congratulations on all those achievements. In terms of the pension, can you tell me the breakdown between Quebec and Ontario in terms of the pension?

Jo-Ann Longworth

Hi, Stephen, good morning. I don’t really have that number in front of me, Stephen, essentially though in broad terms Quebec is probably about two thirds with Ontario being about one third.

Stephen Atkinson – BMO Capital Markets

So, the $160 million this year, what – are you able to tell us what it would be going forward with the Quebec agreement?

Jo-Ann Longworth

It would be – unless there is any change in pension requirements in the US, okay, it would be about exactly the same and for at least the next two years.

Stephen Atkinson – BMO Capital Markets

Okay, and so that includes the Quebec agreement, the $160 million?

Jo-Ann Longworth

Yes.

Stephen Atkinson – BMO Capital Markets

Okay. But not Ontario?

Jo-Ann Longworth

Yes. It includes Ontario as well.

Stephen Atkinson – BMO Capital Markets

Okay. So you have assumed…

Jo-Ann Longworth

It includes everything based on our best estimates as of today.

Stephen Atkinson – BMO Capital Markets

Okay. That is fair, thanks. And so what is the status of Gatineau?

Richard Garneau

Gatineau, the plant is to restore the machine and buy two more, and we expect to have the mill up and running within a week maximum. So, I think that all the repairs have been completed, and the employees have been trained and obviously we are going to benefit from the extremely low power cost long-term agreement that we have at that mill, plus the restart of the small cogen unit is going to be probably in early June. At the end of the second quarter, we are expecting to get a low cost mill, including the cogeneration up and running, and that we expect to reap the benefit of this restart. Obviously we did it with – in cogeneration with the closure of Calhoun that had the higher costs, higher manufacturing costs.

Stephen Atkinson – BMO Capital Markets

Are you able to tell me what the revenues from the cogen will be at Gatineau?

Richard Garneau

I don’t have it handy, but it is not a big cogen. I think it is going to be, the production is going to be around 6 MW or 7 MW. So it is not a big one, but again it is what the green power rate is going to benefit this mill.

Stephen Atkinson – BMO Capital Markets

Okay, and the big one, of course, is Thunder Bay, which I guess is just starting up, what is the plan for annual savings out of Thunder Bay on the cogen?

Richard Garneau

Well, the only thing that I am going to share with you is the capacity we had – the plan was to produce net 43 MW, and in April after we mentioned during the call that the cogen, or the turbine was started on March 21, and our production in April as of yesterday, the average was 47. So we were 6% or 7% higher than our expectation. So we are very happy with the way that the turbine runs, and we believe that there is probably opportunities even to optimize a little bit more.

Jo-Ann Longworth

And may I add Stephen that there is 4 cogeneration facilities that started up either in late 2012, or are starting up this year. You have got the second generator at Saint-Felicien, which started in mid-November; Dolbeau, which started in mid-December; you have got Thunder Bay now started up; and Gatineau towards the end of June.

On those 4 generators, we expect to generate $55 million to $70 million of additional EBITDA from power sales.

Stephen Atkinson – BMO Capital Markets

Great. So, just a thing on the agreement with the – I mean, closing of the mill, of the machine, I should say, at the Calhoun, did I understand it correctly that your partner paid you basically to – for them to no longer be a partner?

Jo-Ann Longworth

Very perceptive and absolutely correct.

Stephen Atkinson – BMO Capital Markets

Thank you. So finally the interest expense going forward, what would be a good number?

Jo-Ann Longworth

Well, we are looking – we said it will be about $15 million less, so you are talking about $600 million at 6% – including the discount amortization, the discount, it will be about 6% of the $600 million.

Richard Garneau

It is a saving of about…

Jo-Ann Longworth

It is saving of $15 million cash per year.

Richard Garneau

$15 million a year, per year. So, it is significant, and it is unsecured. It is a very attractive rate. So it will provide more flexibility. So we are very pleased with this new financing.

Stephen Atkinson – BMO Capital Markets

Are you able to tell me how much it cost to close the other one?

Jo-Ann Longworth

Yes, it will cost us approximately $83 million in [April], and another $7 million or so in cost.

Stephen Atkinson – BMO Capital Markets

Okay, and finally on your tax deferrals, are you – I understand with the [champion] closing then, I mean, your tax deferrals in the US may go up?

Jo-Ann Longworth

Sorry, I didn’t understand that one.

Stephen Atkinson – BMO Capital Markets

Well, in looking at your deferred taxes, it’s about 3.5 billion, you know, and the way I have been looking at is $1 billion US, $2.5 in Canada, has that number changed with the agreement with [champion], not [champion], I am sorry, at Calhoun?

Jo-Ann Longworth

Yes, we will add another $36 million to our deferred tax asset on that. Calhoun does have a deferred gain that was payable on timberland sales from many years ago that was going to be payable in 2014. Because we now own 100% and can combine our tax returns, we will now be able to use capital loss carry forwards that would have expired in 2014. I guess that is cash tax payable, in other words eliminating that cash tax. So that benefit has now been set up as a deferred tax asset on our balance sheet.

Stephen Atkinson – BMO Capital Markets

Thank you so much. Great.

Jo-Ann Longworth

Thank you Stephen.

Operator

Thank you. Our next question is from Sean Steuart from TD Securities. Please go ahead.

Sean Steuart – TD Securities

Good morning, thanks. A few questions, Jo-Ann the incremental funding on the pension of I guess $120 million over the next couple of years on top of expense, can you speak to what funding release you expect in Ontario in that number, or I just want to clarify is – you assume a standstill there and subject to negotiations in Ontario, you might get incremental release?

Jo-Ann Longworth

No, the number we have given you is our best estimate of where we stand on funding as of today globally, Ontario, Quebec, US.

Sean Steuart – TD Securities

Okay and can you give any sort of indication on how long you think negotiations in Ontario will take, I guess with all various stakeholders and regulatory authorities?

Jo-Ann Longworth

Not very long. And I just want to clarify, we have already incorporated what we think are contributions resulting from our discussions with Ontario are. They are not final. They are not guaranteed, but our best estimate and that estimate has already been included in the $150 million.

Sean Steuart – TD Securities

Richard, just interested in your comments on offshore newsprint markets, you know, obviously focused for you going forward. The March data suggests a little bit of a pull-back in volumes, and I guess some of it was the tough comp, but was can you speak to what you are seeing in terms of the offshore dynamic given capacity closures in Europe and exchange rate movements?

Richard Garneau

Well, I think it is very encouraging to see what is happening on the export market. So, I think we have mentioned that the export volume in the first quarter went from 37% to 46% of our shipments, and what we see it now in Asia is a strengthening of the market. I think China demand, or consumption was up 8% in the first quarter, and we have indication that India is also the market demand is getting stronger, and that in America we had this small decline. But we are certainly very encouraged and (inaudible) that we presently have for our customer offshore obviously is very encouraging.

Regarding the [stronger] currency in Europe, it is still a market whereby we want to be a player. But obviously with the difficult economic condition and the potential also to see the euro weaken against the US, we have only a small position that we want to maintain and because of the location of our mills on the St. Lawrence Railroad, we have a mill that is dedicated to this market, which is only going to be – would continue to be an important player in Europe.

The other fact Sean that is certainly worth mentioning is on the announcement of in fact, the closure of it in Europe. So, I think that and the mill also in Russia, the big investment mill that I think it is also more and more indication that capacity could certainly be closed permanently, and when we look at ONP and it is a indication, now I look at the fourth quarter of 2012, we had ONP costs at the mill in North America was 138. In the first quarter we were up to 146. So we’re starting to see is certainly the impact on ONP of the lower demand of lower consumption. So it is going to certainly put pressure on – more pressure – on the ONP the cut is going to go up, and that is going to provide also some opportunities to complement with virgin fiber, and I think that this situation that we see in North America, it is not only going also – and we see it also in Korea, with our South Korea mill.

So, I think that India and the countries that rely for significant volume of ONP or recycled pulp are going to see more pressure, and it is going to – we see it as an opportunity to be able to serve this market. And obviously with the increase in ONP it is going also to have a beneficial impact on selling price, on transaction price in the export market.

Sean Steuart – TD Securities

Thanks for the comprehensive answer there, and just finally an easy one, the pulp downtime you are taking at Calhoun, and Coosa Pines in Q2, can you quantify the tons that will be taken out of production from that or a monetary figure if possible?

Richard Garneau

Well, I don’t have the monetary figures, but it is an annual outage and normally it is anywhere between 6 to 9 days, depending on the extent of the work that we have to do on the recovery board. So, I don’t think we have seen anything more significant. So it is going to be the normal timeframe to make a repair.

Sean Steuart – TD Securities

Great. Okay, thanks. That is all I had.

Richard Garneau

Thank you.

Operator

Thank you. Our next question is from (inaudible). Please go ahead.

Unidentified Participant

I have a question about the Thunder Bay mill complex; recently you announced the idling of one of the machines there, amidst some renegotiations that you are attempting with the City of Thunder Bay in terms of taxes going forward and also taxes after 2009? I’m wondering if this is kind of the first sign that you are looking further at cost savings at Thunder Bay, and perhaps closing some of the other machines out there at quite high cost, and obviously quite a distance from some of the key growth markets that you just indicated like in India.

Richard Garneau

First, let us start with the tax. So I think that the assessment was based on the mill, like it existed back in 2008. So obviously the assessment includes the two pulp mills. One has been closed. It includes also big machines, one has been closed. And also includes the ONP, the plan to recycle the ONP, and it is also closed. So obviously we are expecting an adjustment to the tax, because we have, as you are aware of it, the machinery and equipment that is basically included into the taxable value. So, we expect to see a reduction, well, significant reduction because half the mill basically that has been closed permanently.

So we’re looking for the adjustment on this site. So, regarding the machines, I think it is just a question of supply and demand, and if you look at the newsprint demand for North America, it was down 10%. This mill was inline, and obviously it serves only the North American market, contrary to the mills that are on the St. Lawrence Railroad or close to a port.

So, obviously we decided to – we made the decision to take downtime, because of the location of the mills, and the state of the market in North America. So, it is the only reason and obviously we’re going to watch the market and see how demand is going to evolve in the next few quarters. But overall it is still – with the large network that we have, we optimize the mills, and we have talked to our employees, and made the case for some adjustment of how to bring the cost down.

So, it is part of basically the approach – and it is part of our strategy to always look for opportunities to be more cost competitive, and I think it is just another step in that direction.

Unidentified Participant

Thank you.

Operator

Our next question is from Richard Ashcroft from Wells Fargo. Please go ahead.

Richard Ashcroft – Wells Fargo

Good morning. I had this communication (inaudible) you are making a lot of noise about pension, you just discussed, as well as some of the work slow down at some of the sites, for example, at the Thunder Bay mill, it is the purchase of expensive assets like the Fibrek mill for hundreds of millions of dollars at the expense of financial stability in other areas of your operation, particularly your labor relation, salary overhead, (inaudible)?

Richard Garneau

Well, I’m not sure that I get your question. So, you were feeling at some point we have some issues probably with communication. Could you just rephrase more specifically the question that you want me to answer?

Richard Ashcroft – Wells Fargo

Regarding the agreements with the company (inaudible) you have slowed down with a number of mill complexes, (inaudible) but given the huge expenditures you purchased assets like the Fibrek mill, there is absolutely not going to be a pension paid to (inaudible)?

Richard Garneau

Well, I am not sure that is related. So, I will just explain the strategy of the operation at Thunder Bay, and I think that is where – I thought I was clear on our strategy to bring the cost down, and where the mill is located. I also touched base on the strategy with the employees, talked to our employees. I think that it is part of any relation between the companies and its employees.

And on the pension, we already explained what it is. So, I’m a bit confused by the questions, and I think that I covered it really well. So, thank you for the question.

Operator

Thank you. Our next question is from (inaudible). Please go ahead.

Unidentified Participant

Hi, Richard. My question has already been answered. It was on the pension funding requirements?

Richard Garneau

Okay, thank you.

Jo-Ann Longworth

Thank you.

Operator

Thank you. Our next question is from Paul Quinn from RBC Capital Markets. Please go ahead.

Paul Quinn – RBC Capital Markets

Yes, thanks very much. Just maybe you could outline the power saving device segment just because that is the way I have modeled it, so it will be helpful to try to sort of see that $65 million to $70 million annually broken down in each of the buckets?

Jo-Ann Longworth

Hi, Paul, how are you?

Paul Quinn – RBC Capital Markets

Good.

Jo-Ann Longworth

I don’t have the buckets in front of me, but if you take a look at the size of the megawatts that each of these cogens have, and then you can see that Thunder Bay is obviously newsprint, Gatineau is obviously newsprint, Dolbeau is specialty paper, and Saint-Felicien is pulp.

Paul Quinn – RBC Capital Markets

And Dolbeau is newsprint and pulp.

Jo-Ann Longworth

And pulp, sorry yes, newsprint and pulp.

Paul Quinn – RBC Capital Markets

Okay, maybe I could follow up offline. Congratulations on the pension deal. Thanks.

Richard Garneau

Thank you.

Jo-Ann Longworth

Thank you very much, Paul.

Operator

Thank you. There are no more questions registered at this time. I would now like to turn the meeting back over to you, Mr. Lalonde.

Rémi Lalonde

Great. Thank you everyone for joining us today.

Operator

Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.

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