FORM
10-K
ANNUAL REPORT
ON FORM 10-K
2018
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ABOUT RESOLUTE FOREST PRODUCTS
Resolute Forest Products is a global leader in the forest
products industry with a diverse range of products,
including market pulp, tissue, wood products, newsprint and
specialty papers, which are marketed in close to 70 countries.
The company owns or operates some 40 facilities, as well as
power generation assets, in the United States and Canada.
Resolute has third-party certified 100% of its managed
woodlands to internationally recognized sustainable forest
management standards.
The shares of Resolute Forest Products trade under the stock
symbol RFP on both the New York Stock Exchange and the
Toronto Stock Exchange.
Resolute has received regional, North American and global
recognition for its leadership in corporate social responsibility
and sustainable development, as well as for its business
practices. Visit www.resolutefp.com for more information.
EQUAL OFFSET
The inside pages of this report are printed on Equal Offset® 42.5 lb (63 g/m2) paper,
manufactured at Resolute Forest Products’ Alma (Quebec) mill.
Certifi cations at Alma include:
• Sustainable Forestry Initiative® (SFI®), Programme for the Endorsement of Forest
Certifi cation (PEFC) and Forest Stewardship Council® (FSC®) chain of custody
• SFI fi ber sourcing
• ISO 14001 environmental management system
HEAD OFFICE
Resolute Forest Products
111 Robert-Bourassa Blvd., Suite 5000
Montreal, Quebec H3C 2M1, Canada
514-875-2160 or 1-800-361-2888
For a full list of contacts, visit
www.resolutefp.com/contact.
LETTER FROM THE CHAIRMAN AND
THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Our drive to transform Resolute
Forest Products into a more profitable
and sustainable organization gained
momentum in 2018. We took advantage
of a number of opportunities to solidify
our financial position and to optimize our
manufacturing assets – all while returning
excess capital to our shareholders.
We enhanced Resolute’s reputation as
an employer and partner of choice within
our industry, as well as in our operating
communities. And we continued to
pursue organic growth opportunities
to strengthen our competitive position,
including investing in product innovation.
Our more than 7,000 employees from across some
40 facilities in the United States and Canada are
working hard to meet the needs of our customers and
to create shared value for our shareholders, business
and Aboriginal partners, and the communities in which
we live and work. Through our focus on sustainability,
we ensure the stewardship of the natural resources
in our care, maintaining third-party certification of all
our managed woodlands to internationally recognized
forest management standards, as well as fiber-tracking
systems with chain of custody certification.
Financial performance1
Resolute delivered a solid performance during the year,
taking a disciplined approach to asset optimization
while capitalizing on positive market dynamics.
We ended the year with a healthy balance sheet,
which improves our financial flexibility and positions
us well for future growth opportunities. Our financial
strength enabled us to provide a special dividend of
$1.50 per share, aligned with our strategy of returning
excess capital over time to our shareholders.
Our operating income rose to $379 million in 2018,
compared to $42 million in 2017, mostly due to
higher average transaction prices across all business
segments, and adjusted EBITDA was $574 million,
compared to $364 million in 2017. Our wood products
and market pulp segments generated $400 million of
EBITDA, a $71 million improvement over 2017, while
our newsprint segment’s EBITDA rose by $97 million
to $140 million. EBITDA for specialty papers increased
from $36 million in 2017 to $87 million in 2018. Our
tissue business, which as of April 1, 2018, includes the
results of our Calhoun (Tennessee) tissue operations,
reported negative EBITDA of $15 million, mainly due to
operational challenges. We made progress in the fourth
quarter of 2018 to improve quality and productivity, and
are targeting positive earnings generation in 2019.
Our strong overall financial results for 2018 included
$435 million of cash from operations, a year-over-
year increase of more than $275 million, as well
as approximately $360 million from the sale of the
Catawba (South Carolina) paper and pulp mill and
the Fairmont (West Virginia) pulp mill. Total liquidity
stood at a solid $821 million. Subsequent to year-end,
the company reduced its total debt of $645 million by
repurchasing $225 million of senior notes.
In December 2018, we elected to exit the special
funding relief regulations that governed our material
Ontario pension plans. As such, since January 1, 2019,
all of our Ontario plans have been subject to the
Ontario Pension Benefits Act, which provides for
funding pension deficits on a going concern basis,
rather than on a solvency basis. This essentially puts us
in the same position as with our Quebec pension plans,
where we exited from funding relief in December 2016,
and further reduces our annual contributions. Despite
ongoing pension contributions, the favorable impact of
the Canadian dollar and an increase in the applicable
discount rate, the net pension and other postretirement
benefit liability remained unchanged at $1.3 billion at
the end of 2018, largely due to negative equity market
returns late in the year.
Forward-looking information: See section on "Cautionary Statements Regarding Forward-Looking Information and Use of Third-Party Data" on page 1 of the Form 10-K.
1. See section on "Reconciliations" of non-GAAP measures on page 28 of the Form 10-K.
Operational highlights
In 2018, we invested over $155 million at our operations
in order to improve performance and operational
efficiencies, increase competitiveness, improve energy
efficiency and reduce our carbon footprint. Investment
projects include upgrades across our wood products
network. In Quebec, we focused on installing new
equipment and optimizing manufacturing processes,
while in Ontario, modernization initiatives are expected
to increase the annual production capacity of the three
sawmills. At our Thunder Bay (Ontario) pulp and paper
mill, work is ongoing to improve energy efficiency and
reduce greenhouse gas (GHG) emissions by 20%.
We also completed a significant portion of the strategic
investment plan at the Saint-Félicien (Quebec) pulp mill
to increase production capacity, while also reducing
GHG emissions by 20%. In December, we completed
the construction of a tissue distribution center at
Calhoun, which is expected to eliminate $4 million
in off-site warehousing costs annually.
Improving Resolute’s cost structure was a priority
in 2018, particularly the realignment of our Florida
tissue converting operations. We closed two of three
converting lines at the Sanford mill, and upgraded the
converting lines at Hialeah. The sale of the Fairmont
and Catawba mills and Jackson’s Gap (Alabama) chip
production facility allows Resolute to maximize the
value of the assets and to redeploy the capital to
grow our business.
Innovation is an integral part of Resolute’s growth
strategy and long-term competitiveness. For example,
we have joined forces with FPInnovations to build
a bio-refinery pilot plant at our Thunder Bay pulp
and paper mill, focusing on developing new ways
to efficiently produce and commercialize innovative
bio-products derived from wood. Resolute is also
working with CO2 Solutions Inc. to deploy an
enzyme-enabled carbon capture technology at our
Saint-Félicien pulp mill in order to capture up to
30 metric tons of CO2 per day. The majority of the
CO2 will be transported to the neighboring Toundra
Greenhouse to reduce its natural gas usage by
approximately 25%. Resolute has a 49% interest in the
greenhouse, which covers about 1 million square feet
and produces over 45 million cucumbers annually.
Safety performance
Safety is an absolute priority at Resolute. The active
engagement and unwavering focus of our employees,
supported by the company’s stringent safety standards,
resulted in world-class, record performance for 2018.
We achieved our best-ever Occupational Safety and
Health Administration (OSHA) incident rate of 0.46,
as well as our lowest severity rate. We are particularly
proud that over half of our facilities worked the full
year without a single recordable injury, underscoring
our core value that creating an injury-free workplace is
everyone’s business. Resolute recognizes that a truly
safe workplace requires vigilance across our operations
every day.
Sustainability leadership
Our sustainability strategy is based on a balanced
approach to environmental, social and economic
performance. In 2018, we reinforced our credentials
as a global sustainability leader by taking concrete,
verifiable actions to improve our environmental
performance. We also continued to build solid
community relations by maintaining stakeholder
outreach activities, developing strategic partnerships,
engaging employees in our operating communities
and focusing on cultivating relationships with
Aboriginal groups.
We share best practices with industry partners and
coalitions in an effort to reduce our collective carbon
footprint, supported by our commitment of reducing
absolute GHG emissions by 65% by 2015, compared
to 2000 levels. By year-end 2018, we had lowered
our GHG emissions by 81%. We also reduced our
environmental incidents by 10% year over year,
recording 17 incidents.
Small gestures can make a difference. In 2018, the
company launched an initiative to phase out the
purchase and distribution of single-use plastic bottles
of water and rehydration drinks across all operations,
which will eliminate approximately 1.5 million plastic
bottles annually that might otherwise end up in landfills.
The project will be completed over the course of the
year. Our philanthropic contributions take many forms,
including financial and material support, and countless
volunteer hours by our employees. Our 2018 donations
and sponsorships – at both the local and corporate
levels – totaled over $1 million. We also supported
education and academic research with close to
$470,000 for scholarships, research grants, buildings
and other needs.
Resolute continues to take a firm stand against
activist misinformation, working collaboratively with
union officials, mayors and other community leaders,
First Nations and other business partners, customers
and government officials. Resolute will continue to
inform the public, confront misleading claims, and
insist on honesty, transparency and accountability.
Our overall business and sustainability leadership
continues to receive significant recognition by regional,
North American and global organizations. In 2018
alone, the company earned 36 awards and distinctions
for excellence in corporate social responsibility and
sustainable development, as well as for our business
practices.
Trade duties
Our belief in the importance and value of free trade
remains unchanged. We want to especially thank the
crucial support of employees, customers, business
and trade associations, political leaders and other
stakeholders, who acted as ambassadors in helping
to secure a positive trade decision for our industry.
In August, the U.S. International Trade Commission
voted unanimously to terminate duties on uncoated
groundwood paper, including newsprint, ruling that
U.S. producers were not materially harmed by imports
from Canada.
During the summer of 2018, the United States
Department of Commerce also revoked the
countervailing duty order on supercalendered
paper from Canada, retroactive to August 3, 2015.
Substantially all of the $61 million of cash deposits
have now been refunded, with interest, to Resolute.
As the softwood lumber dispute continues between
the U.S. and Canada, $103 million of duty deposits
were recorded on our balance sheet at year-end 2018.
A look ahead
We enter 2019 with cautious optimism. The underlying
fundamentals for our business segments generally
remain strong, and our balance sheet positions us well
to take advantage of growth opportunities to further
our business transformation strategy. We will continue
to increase productivity and enhance product quality
at our tissue operations in order to strengthen the
competitiveness of the business.
We are pleased to welcome Suzanne Blanchet to
our Board of Directors. Suzanne has over 30 years of
industry experience, and 17 years of leadership in the
tissue business; we look forward to benefiting from
her counsel and valuable guidance.
In 2018, we signed new collective agreements with
Unifor, covering 1,100 employees at eight pulp and
paper operations in Canada, and we ratified new
collective agreements covering 1,000 employees at
six Quebec sawmills. Several collective bargaining
agreements are slated for renewal or renegotiation in
2019-2020. Mutually beneficial collective agreements
allow us to continue to provide stability for our
customers, shareholders, communities and business
partners. Not only do they ensure the long-term viability
of our business, they reinforce our ongoing efforts to
create a diverse and inclusive workplace, consistent
with our values. Our targeted workforce attraction
and retention initiatives continue to gain momentum
in establishing Resolute as an employer of choice.
The workforce of the future will be key to our ongoing
transformation into a more profitable and sustainable
organization.
Bradley P. Martin
Chairman of the Board of Directors
Yves Laflamme
President and Chief Executive Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-33776
RESOLUTE FOREST PRODUCTS INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
Delaware
98-0526415
111 Robert-Bourassa Boulevard, Suite 5000; Montréal, Quebec; Canada H3C 2M1
(Address of principal executive offices) (Zip Code)
(514) 875-2160
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
New York Stock Exchange
Toronto Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently
completed second fiscal quarter (June 29, 2018) was $617 million.
As of January 31, 2019, there were 90,730,712 shares of Resolute Forest Products Inc. common stock, $0.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed within 120 days of December 31, 2018, are incorporated by reference in this Annual Report on
Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
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19
19
19
19
20
21
22
71
73
128
128
128
129
129
129
130
130
131
135
136
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF
THIRD-PARTY DATA
Statements in this Annual Report on Form 10-K (or “Form 10-K”) that are not reported financial results or other historical
information of Resolute Forest Products Inc. (with its subsidiaries, either individually or collectively, unless otherwise
indicated, referred to as “Resolute Forest Products,” “Resolute,” “we,” “our,” “us,” or the “Company”) are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements
relating to our: efforts and initiatives to reduce costs and increase revenues and profitability; business and operating outlook;
assessment of market conditions; growth strategies and prospects, and the growth potential of the Company and the industry in
which we operate; liquidity; future cash flows; and strategies for achieving our goals generally, including the strategies
described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Overview – Our Business,” of this Form 10-K. Forward-looking statements may be identified by the use of forward-looking
terminology such as the words “should,” “would,” “could,” “will,” “may,” “expect,” “believe,” “anticipate,” “attempt,”
“project,” and other terms with similar meaning indicating possible future events or potential impact on our business or
Resolute Forest Products’ shareholders.
The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future
performance. These statements are based on management’s current assumptions, beliefs, and expectations, all of which involve
a number of business risks and uncertainties that could cause actual results to differ materially. The potential risks and
uncertainties that could cause our actual future financial condition, results of operations, and performance to differ materially
from those expressed or implied in this Form 10-K include, but are not limited to, the impact of: developments in non-print
media, and the effectiveness of our responses to these developments; intense competition in the forest products industry; any
inability to offer products certified to globally recognized forestry management and chain of custody standards; any inability to
successfully implement our strategies to increase our earnings power; the possible failure to successfully integrate acquired
businesses with ours or to realize the anticipated benefits of acquisitions, such as our entry into tissue production and sales, or
divestitures or other strategic transactions or projects; uncertainty or changes in political or economic conditions in the United
States, Canada or other countries in which we sell our products; global economic conditions; the highly cyclical nature of the
forest products industry; any difficulties in obtaining timber or wood fiber at favorable prices, or at all; changes in the cost of
purchased energy and other raw materials; physical and financial risks associated with global, regional, and local weather
conditions, and climate change; any disruption in operations or increased labor costs due to labor disputes; difficulties in our
employee relations or retention; disruptions to our supply chain, operations, or the delivery of our products; disruptions to our
information technology systems including cybersecurity incidents; risks related to the operation and transition of legacy system
applications; negative publicity, even if unjustified; currency fluctuations; any increase in the level of required contributions to
our pension plans, including as a result of any increase in the amount by which they are underfunded; our ability to maintain
adequate capital resources to provide for all of our substantial capital requirements; the terms of our outstanding indebtedness,
which could restrict our current and future operations; losses that are not covered by insurance; any additional closure costs and
long-lived asset impairment or accelerated depreciation charges; any need to record additional valuation allowances against our
recorded deferred income tax assets; our exports from one country to another country becoming or remaining subject to duties,
cash deposit requirements, border taxes, quotas, or other trade remedies or restrictions; countervailing and anti-dumping duties
on imports to the U.S. of substantially all of our softwood lumber products produced at our Canadian sawmills; any failure to
comply with laws or regulations generally; any additional environmental or health and safety liabilities; any violation of trade
laws, export controls, or other laws relating to our international sales and operations; adverse outcomes of legal proceedings,
claims and governmental inquiries, investigations, and other disputes in which we are involved; the actions of holders of a
significant percentage of our common stock; and the potential risks and uncertainties described in Part I, Item 1A, “Risk
Factors.”
All forward-looking statements in this Form 10-K are expressly qualified by the cautionary statements contained or referred to
in this section and in our other filings with the United States Securities and Exchange Commission (or the “SEC”) and the
Canadian securities regulatory authorities. We disclaim any obligation to publicly update or revise any forward-looking
information, whether as a result of new information, future events or otherwise, except as required by law.
Market and Industry Data
The information on industry and general economic conditions in this Form 10-K was derived from third-party sources and trade
publications we believe to be widely accepted and accurate. We have not independently verified the information and cannot
assure you of its accuracy.
1
ITEM 1. BUSINESS
PART I
We are a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood
products, newsprint and specialty papers. We own or operate some 40 facilities, as well as power generation assets in the
United States and Canada. Marketing our products in close to 70 countries, we have third-party certified 100% of our managed
woodlands to at least one internationally recognized forest management standard.
Resolute Forest Products Inc., a Delaware corporation, was formed on January 25, 2007, from the merger of Abitibi-
Consolidated Inc. (or “Abitibi”) and Bowater Incorporated. Our common stock trades under the stock symbol “RFP” on both
the New York Stock Exchange (or the “NYSE”) and the Toronto Stock Exchange (or the “TSX”).
Executive Officers
The following is information about our executive officers as of March 1, 2019:
Name
Age
Position
Yves Laflamme
62 President and Chief Executive Officer
John Lafave
54 Senior Vice President, Pulp and Paper Sales and Marketing
Remi G. Lalonde
42 Senior Vice President and Chief Financial Officer
Patrice Minguez
55 President, Tissue Group
Daniel Ouellet
48 Senior Vice President, Human Resources
Richard Tremblay
55 Senior Vice President, Pulp and Paper Operations
Jacques P. Vachon
59 Senior Vice President, Corporate Affairs and Chief Legal Officer
Officer
Since
2007
2018
2018
2017
2018
2014
2007
Mr. Laflamme previously served as senior vice president, wood products, global procurement and information technology, from
January 2011 to January 2018, as senior vice president, wood products, from October 2007 to January 2011, as senior vice
president, woodlands and sawmills of Abitibi from 2006 to October 2007, and as vice president, sales, marketing and value-
added wood products operations of Abitibi from 2004 to 2005. He is a 37-year veteran of the industry, as well as of Resolute
and its predecessor companies.
Mr. Lafave previously served at Abitibi as vice president, sales, national accounts – paper sales, vice-president, sales, national
accounts – newsprint, and vice president, sales, commercial printers, from 2004 to 2009. He held progressive positions in sales
with UPM-Kymmene and Repap Enterprises.
Mr. Lalonde previously served as vice president, strategy and corporate development from May 2018 to November 2018. He
was general manager of Resolute’s pulp and paper mill in Thunder Bay (Ontario), from February 2016 to May 2018. Before
taking a leadership role in operations, Mr. Lalonde was treasurer and vice president, investor relations, from November 2014 to
February 2016, and vice president, investor relations, from September 2011 to November 2014. He initially joined Resolute in
2009 as senior counsel, securities, following six years at a Wall Street law firm.
Mr. Minguez previously served as special advisor to the former president and chief executive officer in July 2017. Prior to
joining Resolute in August 2017, he was founder and former president of Cellynne Holdings, Inc. from January 1989 to August
2012. From February 1987 to January 1989, Mr. Minguez headed Société Antillaise de Service SARL, a distribution company
he founded, specializing in janitorial supplies and proprietary systems.
Mr. Ouellet previously served as vice president, human resources, for Resolute’s Canadian and U.S. operations, from January
2016 to May 2018, and as vice president, human resources, for its Canadian operations, from November 2013 to January 2016.
He held a range of other human resources positions since joining Resolute in September 2000, and also acquired operational
experience leading the company’s sawmill operations in the Saguenay – Lac-Saint-Jean region of Quebec. Prior to joining
Resolute, Mr. Ouellet worked with Alliance Forest Products, Alcan, and a regional trade union.
Mr. Tremblay previously served as senior vice president, pulp and paper group, from June 2015 to February 2018, and as senior
vice president, pulp and paper operations, from February 2014 to May 2015. He served as interim senior vice president, pulp
and paper operations, from November 2013 to January 2014, and as vice president, pulp and paper operations from June 2011
to October 2013. Prior to joining Resolute in June 2011, he served as general manager of several mills at Smurfit Stone
Container Corporation between 2002 and 2011.
2
Mr. Vachon previously served as senior vice president and chief legal officer from January 2011 to February 2012, as senior
vice president, corporate affairs and chief legal officer from October 2007 to January 2011, and as senior vice president,
corporate affairs and secretary of Abitibi from 1997 to October 2007.
Products
We manage our business based on the products we manufacture. Our reportable segments correspond to our principal product
lines: market pulp, tissue, wood products, newsprint and specialty papers.
Market pulp
We produce market pulp at five facilities in North America, with total capacity of 1.3 million metric tons, or 8% of total North
American capacity. Our market pulp includes: virgin pulp; and recycled bleached kraft (or “RBK”) pulp, for which we are the
world’s largest producer. Approximately 70% of our virgin pulp capacity is softwood-based: northern bleached softwood kraft
(or “NBSK”) pulp and fluff pulp. The remainder of our virgin pulp capacity consists of northern bleached hardwood kraft (or
“NBHK”) pulp and southern bleached hardwood kraft (or “SBHK”) pulp. Wood pulp is the most commonly used material to
make paper and tissue. Pulp not converted into paper or tissue is sold as market pulp, which is used to make a range of
consumer products including tissue, packaging, specialty paper products, diapers, and other absorbent products. 25% of our
2018 market pulp shipments were exported outside of North America, including significant exports to Europe, Asia, and Latin
America.
Tissue
We produce tissue products at three facilities in North America. With total capacity of 128,000 short tons (116,000 metric tons),
we are a fully integrated manufacturer operating four tissue machines and 12 converting lines. We manufacture a range of
tissue products for the away-from-home and at-home markets, including recycled and virgin paper products, covering premium,
value, and economy grades. We also sell parent rolls not converted into tissue products.
Wood products
We operate 14 sawmills in Canada that produce construction-grade lumber sold in North America. Our sawmills produce
dimension spruce-pine-fir lumber and provide wood chips to our pulp and paper mills in Canada. Our sawmills also supply
wood residue to our other segments, to be used as fuel to produce electricity and steam based on renewable sources. In 2018,
we shipped 1.7 billion board feet of construction-grade lumber. We also operate two remanufactured wood products facilities
that manufacture bed frame components, finger joints, and furring strips, two engineered wood products facilities that
manufacture I-joists for the construction industry, and one wood pellet facility, all of which are located in Quebec and Ontario.
Newsprint
We produce newsprint at eight facilities in North America. With total capacity of 1.8 million metric tons, which represents 8%
of total worldwide capacity and 42% of total North American capacity, we are the largest producer of newsprint in the world.
We sell newsprint to newspaper publishers worldwide and also to commercial printers in North America for uses such as inserts
and flyers. In 2018, North American deliveries represented 61% of our total newsprint shipments.
Specialty papers
We produce specialty papers at four facilities in North America. With total capacity of 0.9 million short tons (0.8 million metric
tons), our specialty papers segment is composed of uncoated mechanical papers, including supercalendered paper and white
paper, as well as uncoated freesheet papers. With 0.7 million short tons (0.6 million metric tons) of capacity, or 21% of total
North American capacity, we are the largest producer of uncoated mechanical papers in North America, and the fourth largest in
the world. Our specialty papers are used in books, retail inserts, direct mail, coupons, magazines, catalogs, bags, and other
commercial printing applications. We sell specialty papers to major commercial printers, direct mailers, publishers, catalogers,
and retailers, mostly in North America.
For additional information on our corporate strategy, see Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Overview – Our Business” of this Form 10-K.
3
Pulp, tissue, and paper manufacturing facilities
The following table lists the pulp, tissue, and paper manufacturing facilities and the number of machines we owned or operated
as of December 31, 2018, and facilities sold in 2018, excluding facilities and machines that have been permanently closed or
indefinitely idled as of December 31, 2018. The table presents our total 2018 production by product line (which represents all
of our reportable segments except wood products), reflecting the impact of any downtime taken in 2018, and our 2019
capacity. Total capacity is based on an operating schedule of approximately 360 days. In certain cases, production can exceed
capacity, due to changes in the manufacturing properties of the product.
(In thousands of metric tons)
Canada
Alma (Quebec)
Amos (Quebec)
Baie-Comeau (Quebec)
Clermont (Quebec)
Dolbeau (Quebec)
Gatineau (Quebec)
Kénogami (Quebec)
Saint-Félicien (Quebec)
Thunder Bay (Ontario)
United States
Augusta (Georgia)
Calhoun (Tennessee)
Coosa Pines (Alabama)
Grenada (Mississippi)
Hialeah (Florida)
Menominee (Michigan)
Sanford (Florida)
Usk (Washington) (1)
Other
Sold facilities (2)
Number of
Machines
2019
Total
Capacity
2018
Total
Production
2018 Production By Product Line
Market
Pulp
Tissue
Newsprint
Specialty
Papers
3
1
2
1
1
1
1
1
2
1
3
1
1
2
1
1
1
360
194
322
225
140
200
133
348
541
214
389
274
230
31
178
25
226
344
188
312
222
140
201
120
303
496
196
310
264
217
30
147
22
226
—
—
—
—
—
—
—
303
302
—
141
264
—
—
147
—
—
24
4,030
642
4,380
348
1,505
—
—
—
—
—
—
—
—
—
—
37
—
—
30
—
22
—
—
89
7
183
312
222
3
201
—
—
191
196
—
—
217
—
—
—
226
337
5
—
—
137
—
120
—
3
—
132
—
—
—
—
—
—
—
1,758
294
1,028
(1)
(2)
Ponderay Newsprint Company is located in Usk and is an unconsolidated partnership in which we have a 40%
interest. The amounts in the above table represent the mill’s total capacity and production.
On November 1, 2018, and December 31, 2018, we sold our RBK pulp mill at Fairmont (West Virginia), and our
Catawba (South Carolina) paper and pulp mill, respectively. For additional information, see Note 4, “Net Gain on
Disposition of Assets,” to our consolidated financial statements and related notes (or “Consolidated Financial
Statements”) appearing in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K.
4
Wood products facilities
The following table lists the sawmills we owned or operated as of December 31, 2018, excluding facilities that have been
permanently closed as of December 31, 2018. The table presents our total 2018 production, reflecting the impact of any
downtime taken in 2018, and our 2019 mechanical capacity. We do not have access to enough timber to operate most of the
sawmills at their total mechanical capacity. Total capacity is based on an operating schedule of approximately 355 days.
(In million board feet)
Atikokan (Ontario)
Comtois (Quebec)
Girardville (Quebec)
Ignace (Ontario)
La Doré (Quebec)
La Tuque (Quebec) (1)
Maniwaki (Quebec)
Mistassini (Quebec)
Obedjiwan (Quebec) (2)
Pointe-aux-Outardes (Quebec)
Saint-Félicien (Quebec)
Saint-Thomas (Quebec)
Senneterre (Quebec)
Thunder Bay (Ontario)
2019
Total Capacity
145
2018
Total Production
102
145
220
115
198
181
204
205
65
175
174
93
167
330
95
214
85
194
98
110
205
51
117
136
60
128
269
2,417
1,864
(1)
(2)
Forest Products Mauricie L.P. is located in La Tuque and is a consolidated subsidiary in which we have a 93.2%
interest. The amounts in the above table represent the mill’s total capacity and production.
Sociéte en Commandite Scierie Opitciwan is located in Obedjiwan and is an unconsolidated entity in which we have a
45% interest. The amounts in the above table represent the mill’s total capacity and production.
The following table lists the remanufactured wood, engineered wood, and wood pellet products facilities we owned or operated
as of December 31, 2018, and their respective 2019 capacity and 2018 production. Total capacity is based on an operating
schedule of approximately 355 days.
(In million board feet, except where otherwise stated)
Remanufactured Wood Products Facilities
Château-Richer (Quebec)
La Doré (Quebec)
Total Remanufactured Wood Products Facilities
Engineered Wood Products Facilities
Larouche and Saint-Prime (Quebec) (in million linear feet) (1)
Wood Pellet Products Facility
Thunder Bay (Ontario) (in thousands of metric tons)
2019
Total Capacity
2018
Total Production
66
16
82
145
45
49
13
62
103
42
(1)
Resolute-LP Engineered Wood Larouche Inc. and Resolute-LP Engineered Wood St-Prime Limited Partnership are
located in Larouche and Saint-Prime, respectively, and are unconsolidated entities in which we have a 50% interest in
each entity. We operate the facilities and our joint venture partner sells the products. The amounts in the above table
represent the mills’ total capacity and production.
Other products
We sell green power produced from renewable sources and wood-related products to customers located in Canada and the
United States. Sales of these other products are considered a recovery of the cost of manufacturing our primary products.
5
We also have a 49% interest in Toundra Greenhouse Inc., a joint venture adjacent to our Saint-Félicien pulp mill, which
produces approximately 45 million cucumbers annually. The greenhouse is expected to source a portion of its heat and CO2
requirements from our Saint-Félicien pulp mill by the end of 2019.
Raw Materials
In the manufacture of our paper, tissue, pulp, and wood products, our operations consume substantial amounts of raw materials
such as wood and chemicals, as well as energy. We purchase raw materials and energy sources (to complement internal
generation) primarily on the open market. These raw materials are market-priced commodities and as such, are subject to
fluctuations in market prices. For additional information about commodity price risk, see Part II, Item 7A, “Quantitative and
Qualitative Disclosures About Market Risk – Commodity Price Risk” of this Form 10 K.
Wood
Our sources of wood include purchases from local producers, including sawmills that supply residual wood chips, wood
harvested from government-owned land on which we hold timber supply guarantees or harvesting rights, and property we own
or lease. In Quebec, under the Sustainable Forest Development Act, volumes are allocated through timber supply guarantees,
which are five years in length and renewable, subject to certain conditions. As of December 31, 2018, we were allocated
4.4 million cubic meters of supply through the timber supply guarantees. In Ontario, we had long-term harvesting rights for
11.5 million acres of government-owned land, as of December 31, 2018. The harvesting rights licenses in Ontario are 20 years
in length and automatically renew every five years, contingent upon our continued compliance with environmental
performance and reforestation requirements.
We depend heavily on harvesting rights and timber supply guarantees over government-owned land in Ontario and Quebec,
respectively. The volume of harvest permitted under these licenses is subject to limits, which are generally referred to as the
annual allowable cut (or the “AAC”). The AAC is reviewed regularly, typically every five years in Quebec and every 10 years
in Ontario. The chief forester of the province of Quebec ordered significant reductions to the allowable harvest between 2006
and 2018, and announced an increase of 5.6% to the AAC for the spruce, pine, fir, and larch species, for the period of 2018 to
2023. This increase did not result in a significant change in the volume allocated to us. About 25% of the total allowable
harvest in Quebec is allocated through an open auction system.
In addition to the forest management regulations that we must abide with, we have sought out independent certification for
100% of the forests that we manage or on which we hold significant harvesting rights in order to demonstrate our strong belief
that it is possible to operate successfully with sustainable harvesting practices while maintaining biodiversity and protecting the
forest, values important to a range of stakeholders. The woodlands that we manage are all independently certified to at least one
internationally recognized forest management standard: Sustainable Forestry Initiative® (or “SFI®”) and Forest Stewardship
Council® (or “FSC®”). In 2018, we successfully maintained SFI forest management certification for all of our managed
woodlands in Quebec and Ontario. One FSC forest management certificate in the Abitibi region of Quebec was not renewed at
the end of its five-year term and expired on January 2, 2018. We continue to maintain the other FSC forest management
certificates that we held in Quebec and Ontario. In addition, we continue to be one of the largest holders of SFI and FSC forest
management certificates in North America.
We have also instituted fiber-tracking systems at all of our North American facilities to ensure that our wood fiber supply
comes from acceptable sources such as certified forests and legal harvesting operations, with the exception of our Calhoun
tissue facility, which is expected to have its fiber-tracking system in place in 2019. These systems are third-party certified
according to one or more of three internationally recognized chain of custody standards, namely SFI, FSC, and Programme for
the Endorsement of Forest Certification (or “PEFC”). 100% of our wood and fiber sources are procured through the FSC
Controlled Wood standard, the FSC chain of custody certification, the PEFC due diligence requirements, or the SFI fiber
sourcing requirements, and in some cases a combination of these standards, with the exception of our Calhoun tissue facility,
which sources 100% of its fiber supply from our U.S. pulp network.
We strive to improve our forest management and wood fiber procurement practices and we encourage our wood and fiber
suppliers to demonstrate continual improvement in forest resource management, wood and fiber procurement, and third-party
certification.
Chemicals
We use various chemicals in our pulp, tissue, and paper manufacturing operations including caustic soda, sodium chlorate,
hydrogen peroxide, liquid sodium hydrosulfite, and sulfuric acid.
6
Energy
Steam and electrical power constitute the primary forms of energy used in pulp, tissue, and paper production. Process steam is
produced in boilers using a variety of fuel sources, as well as heat recovery units in mechanical pulp facilities. All of our
operating sites generate 100% of their own steam requirements. In 2018, the Alma, Calhoun, Catawba, Coosa Pines, Dolbeau,
Gatineau, Kénogami, Saint-Félicien and Thunder Bay operations collectively consumed 58% of their electrical requirements
from internal sources, notably on-site cogeneration and hydroelectric dams. We purchased the balance of our electrical energy
needs from third parties. We have six sites that operate cogeneration facilities and all of these sites generate primarily green
energy from renewable biomass. In addition, we utilize alternative fuels such as used oil and tire-derived fuel to reduce
consumption of fossil fuels.
We also have one hydroelectric generation and transmission network (Hydro-Saguenay in the Saguenay – Lac-Saint-Jean
region of Quebec), which consists of seven generating stations with 170 MW of capacity. The water rights agreements required
to operate some of these facilities typically range from 10 to 25 years and, subject to certain conditions, are generally
renewable for additional terms. In some cases, the agreements are contingent on the continued operation of the related paper
mills and a minimum level of capital spending in the region. For the other facilities, the right to generate hydroelectricity stems
from our ownership of the riverbed on which these facilities are located.
Competition
In general, our products, other than tissue, are globally-traded commodities. The markets in which we compete are highly
competitive and, aside from quality specifications to meet customer needs, including designations to globally recognized forest
management and chain of custody standards, the production of our products, other than tissue, does not depend upon a
proprietary process or formula. Pricing and the level of shipments of our products are influenced by the balance between supply
and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and
producer inventories, and fluctuations in currency exchange rates. Prices for our products have been and are likely to continue
to be highly volatile.
We produce five major grades of market pulp (NBSK, NBHK, SBHK, RBK, and fluff), for which we compete with a number
of major market pulp producers, primarily with operations in North America. Market pulp being a globally-traded commodity,
we also compete with other producers from South America (eucalyptus hardwood and radiata pine softwood), Europe (northern
hardwood and softwood), and Asia (mixed tropical hardwood). Price, quality, service, and fiber sources are considered the main
competitive determinants.
We are an integrated manufacturer of tissue products and compete with several major competitors in the North American tissue
market. The key competitive attributes in this market include price, product quality, service, and customer relationships.
Competition is also significantly affected by geographic location, as freight costs represent a material portion of the costs. We
compete with branded and private-label products within North America.
We compete in North America with both large North American and numerous smaller local lumber producers in a highly
competitive market. We also compete with European producers in the North American market during periods of favorable
currencies and prices. Because there are few distinctions between lumber from different producers, competition is primarily
based on price. Competition is also affected by cost and availability of wood, freight cost, and labor. We have been required to
pay cash deposits for estimated countervailing duties and anti-dumping duties on our U.S. imports of softwood lumber products
produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of December 31, 2018, the rates
for such estimated countervailing and anti-dumping duties were 14.7% and 3.2%, respectively. During any period in which our
U.S. imports of softwood lumber products from our Canadian sawmills are subject to countervailing duty or anti-dumping cash
deposit requirements or duty requirements, our competitive position could be materially affected. For additional information,
see Item 1A, “Risk Factors – Legal and Compliance Risk – We are subject to countervailing and anti-dumping duties on
substantially all of our U.S. imports of softwood lumber products produced at our Canadian sawmills, which could materially
affect our operations and cash flows,” of this Form 10 K.
In 2018, the five largest North American producers represented 88% of North American newsprint capacity, and the five largest
global producers represented 36% of global newsprint capacity. We face competition from both large global producers and
numerous smaller regional producers. Price, quality, and customer relationships are important competitive determinants.
Our specialty papers, comprised of uncoated mechanical and uncoated freesheet papers, compete on the basis of price, quality,
service, and breadth of product line. We compete with numerous uncoated mechanical paper producers, with the five largest
North American producers representing 81% of the North American uncoated mechanical papers capacity, and the five largest
global producers representing 48% of global uncoated mechanical papers capacity in 2018. In addition, imports from overseas
7
accounted for 11% of North American uncoated mechanical paper demand in 2018. There are also numerous worldwide
suppliers of other grades of paper such as coated mechanical papers and coated freesheet.
As with other global commodities, the competitive position of our products is significantly affected by fluctuations in foreign
currency exchange rates. For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About
Market Risk – Foreign Currency Exchange Risk,” of this Form 10-K.
Trends in non-print media are expected to continue to adversely affect demand for traditional print media, including our
newsprint and specialty papers, and those of our customers. For additional information, see Item 1A, “Risk Factors – Strategic
Risk – Developments in non-print media are expected to continue to adversely affect the demand for some of our key products,
and our responses to these developments may not be successful,” of this Form 10-K.
Based on market interest, we offer a number of our products, particularly market pulp and wood products, with specific
designations to one or more globally recognized forest management and chain of custody standards. Our ability to conform to
new or existing guidelines for certification depends on a number of factors, many of which are beyond our control, such as:
changes to the standards or the interpretation or the application of the standards; the adequacy of government-implemented
conservation measures; and the existence of territorial disputes between First Nations and governments. If we are unable to
offer certified products, or to meet commitments to supply certified product, it could adversely affect the marketability of our
products and our ability to compete with other producers.
Employees
As of December 31, 2018, we employed approximately 7,400 people, of whom approximately 4,500 were represented by
various unions, primarily Unifor, and the Confederation of National Trade Unions (or the “CNTU”) in Canada and
predominantly by the United Steelworkers International (or the “USW”) in the U.S. In the past year, we renewed or entered into
a number of agreements with unions, covering approximately 1,500 employees in Canada. Collective agreements covering
approximately 300 employees in Canada have expired, and additional collective agreements covering approximately 1,100
employees in Canada and the U.S. are scheduled to expire in 2019, affecting certain pulp and paper mills, sawmills, and
woodlands operations.
While we intend to renew collective agreements, there can be no assurance that we will be able to renew agreements on
satisfactory terms, or that we will maintain continuously satisfactory agreements with all of our unionized employees. Should
we be unable to do so, it could result in strikes, work stoppages, or disturbances by affected employees, which could cause us to
experience a disruption of operations and affect our business, financial condition, or results of operations.
Trademarks
We have registrations or pending applications for our key trademarks “RESOLUTE” and “resolute Forest Products & Design”
in the countries of our principal markets, as well as “RESOLUTE FOREST PRODUCTS”, “R Design”, and “RESOLUTE
TISSUE” in Canada and the United States, and “RÉSOLU” and “Produits forestiers résolu & Design” in Canada. The current
registrations of these trademarks are effective for various periods of time and may be renewed periodically, provided that we, as
the registered owner, comply with all applicable renewal requirements.
Environmental Matters
We are subject to a variety of federal or national, state, provincial, and local environmental laws and regulations in the
jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental
laws and regulations. While it is impossible to predict future environmental regulations that may be established, we believe that
we will not be at a significant competitive disadvantage with regard to meeting future Canadian or United States standards. For
additional information, see Note 14, “Commitments and Contingencies – Environmental matters,” to our Consolidated
Financial Statements.
Internet Availability of Information
We make our Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and any amendments to
these reports, available free of charge on our website (www.resolutefp.com) as soon as reasonably practicable after we file or
furnish such materials to the SEC. The SEC also maintains a website (www.sec.gov) that contains our reports and other
information filed with the SEC. Our reports are also available on the System for Electronic Document Analysis and Retrieval
website (www.sedar.com).
8
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Form 10-K, you should carefully consider the following factors, which
could materially affect our business, financial condition or future results. In particular, the risks described below could cause
actual events to differ materially from those contemplated in the forward-looking statements in this Form 10-K.
Strategic Risk
Strategic risks relate to our future business plans and strategies, including the risks associated with the global macro-
environment in which we operate, trends in our industry, demand for our products, competitive threats, product innovation,
public policy developments, resource allocation, and strategic initiatives, including mergers and acquisitions, dispositions, and
restructuring activity.
Developments in non-print media are expected to continue to adversely affect the demand for some of our key products, and
our responses to these developments may not be successful.
Trends in non-print media are expected to continue to adversely affect demand for traditional print media, including our
newsprint and specialty papers, and those of our customers. Neither the timing nor the extent of these trends can be predicted
with certainty. Our newspaper, magazine, book and catalog publishing customers could increase their use of, and compete with,
non-print media, including video and audio-based advertising and data transmission, non-print storage technologies, and non-
print communication platforms such as websites and social media, which could further reduce their consumption of newsprint,
commercial printing papers or other products we manufacture. The demand for some of our paper products has weakened
significantly over the past decade. For example, over the 10 years ended December 31, 2018, according to industry statistics,
North American newsprint demand fell by 65%. This trend, which similarly affects our specialty papers, could continue as a
result of developments in non-print media, lower North American newspaper circulation, weaker paper-based advertising,
grade substitution and conservation measures taken by publishers and retailers.
We face intense competition in the forest products industry and the failure to compete effectively could have a material
adverse effect on our business, financial condition and results of operations.
We compete with numerous forest products companies, some of which have greater financial resources than we do. The trend
toward consolidation in the forest products industry has led to the formation of sizable global producers that have greater
flexibility in pricing and financial resources for marketing, investment and expansion than we do. Because the markets for our
products are all highly competitive, actions by competitors can affect our ability to compete and the volatility of prices at which
our products are sold.
The forest products industry is capital intensive, and requires significant investment to remain competitive. Some of our
competitors may be lower-cost producers in some of the businesses in which we operate. In particular, the sizable low-cost
hardwood and softwood grade pulp capacity in South America, which continues to grow as a result of ongoing investment and
whose costs are thought to be very competitive, and the actions those mills take to gain market share, could continue to
adversely affect our competitive position in similar grades. This in turn could affect our sales and cash flows, and push us to
consider significant capital investments to remain competitive. Failure to compete effectively could have a material adverse
effect on our business, financial condition or results of operations.
If we are unable to offer products certified to globally recognized forestry management and chain of custody standards, it
could adversely affect our ability to compete.
Based on market interest, we offer a number of our products, including some paper grades, some grades of market pulp, and
wood products, with specific designations to one or more globally recognized forest management and chain of custody
standards. Our ability to conform to new or existing guidelines for certification depends on a number of factors, many of which
are beyond our control, such as: changes to the standards or the interpretation or the application of the standards; the adequacy
of government-implemented conservation measures; and the existence of territorial disputes between First Nations and
governments. If we are unable to offer certified products, or to meet commitments to supply certified product, it could
adversely affect the marketability of our products and our ability to compete with other producers.
We may not be successful in implementing our strategies to increase earnings power.
Our corporate strategy includes, on the one hand, keeping pace with structurally declining paper demand and, on the other,
using our strong financial position to act on opportunities to diversify and grow. This strategy has three core themes:
9
maximizing value generation from paper, growing in pulp, tissue, and wood products, and integrating our pulp into value-added
quality tissue.
The implementation of our corporate strategy is subject to uncertainty and could require significant capital investments. In
addition, strategic initiatives could have unintended consequences, including, for example, a loss of certain pulp customers if
our tissue segment becomes competitive with tissue products sold by those customers.
As part of our corporate strategy, we pursue acquisitions, divestitures, and other strategic transactions and projects to
complement, expand or optimize our business, such as our entry into tissue production and sales. In connection with any
acquisition, divestiture, strategic transaction or project, we may not successfully integrate an acquired business or assets with
ours or realize some or all of the anticipated benefits of the acquisition, divestiture, strategic transaction or project. In
connection with such transactions, we may face challenges associated with entering into a new market or product category,
such as our entry into tissue production and sales, including competition for market share. In addition, we may not be able to
successfully negotiate potential acquisitions, divestitures, strategic transactions or projects that we identify, or may not be able
to obtain financing that may be needed. Future acquisitions could result in potentially dilutive issuances of equity securities and
the incurrence of debt and contingent liabilities, and substantial goodwill. The negotiation of any transaction and its completion
may be complex and time consuming. To the extent we are unsuccessful in implementing our corporate strategy or our efforts
do not achieve the anticipated outcomes, our results of operations and cash flows may be adversely affected.
Changes in the political or economic conditions in the United States, Canada or other countries in which we sell our
products could adversely affect our results of operations.
We manufacture products in the United States and Canada, and we sell products throughout the world. The economic and
political policies of each country and region have a significant impact on our costs and the prices of, and demand for, our
products. Changes in regional economies and economic policies can affect demand for our products, manufacturing and
distribution costs, pricing, sales volume, and the availability or cost of insurance. These changes, in turn, can affect our results
of operations. Changes to regional economies and economic policies that can bring about such effects include, among others,
changes in the terms of, or countries that are parties to, bilateral and multi-lateral trade agreements and arrangements,
limitations on the ability of potential customers to import products or obtain foreign currency for payment of imported
products, and political instability, including significant civil unrest, acts of war or terrorist activities, or unstable or
unpredictable governments in countries in which we operate or trade.
Our business is subject to global economic conditions and is highly cyclical; soft conditions could cause a number of the
risks we face to increase in likelihood, magnitude and duration.
Our operations and performance depend significantly on worldwide economic conditions. During periods of weak or
weakening global economic conditions, we would expect any increase in unemployment or lower gross domestic product
growth rates to adversely affect demand for our products as our customers delay or reduce their expenditures. For example,
during an economic downturn, end consumers may reduce newspaper and magazine subscriptions as a direct result of their
financial circumstances, contributing to lower demand for our products by our customers. Advertising demand in printed
magazines and newspapers may also decline. Lower demand for print advertisements leads to fewer or smaller pages in, and
may lead to less frequent publication of, printed newspapers, magazines and other advertisement circulars and periodicals,
decreasing the demand for our products. In addition, demand for our market pulp products is generally associated with the
production rates of paper producers, as well as consumption trends for products such as tissue, toweling and absorbent
products.
An economic downturn in the U.S. or Canada could also negatively affect the U.S. or Canadian housing industry, which is a
significant driver of demand for our lumber and other wood-based products. For example, a decline in housing starts could
create a low level of primary demand for our lumber and other wood-based products, which we would expect to result in our
wood products business operating at a lower level until there is a meaningful recovery in new residential construction demand.
In addition, with less lumber demand, sawmills could generate fewer wood chips that we use in our pulp and paper mills, which
could lead those mills to increase their supply from the open market, where prices can fluctuate with market conditions. We
could also have less wood residue to use internally, which would increase our fossil fuel consumption and, as a result, our costs
and environmental impact.
The forest products industry is also highly cyclical. The overall levels of demand for the products we manufacture, and
consequently, our sales and profitability, reflect fluctuations in levels of end user demand. As described above, end user demand
depends at least in part on general economic conditions in North America and the world, and the effect can be significant. In
addition to end user demand, we have experienced cyclical changes in prices, sales volume and margins for our commodity
products as a result of changing market trends and the effect of capacity fluctuations on supply and demand as well as the
10
relative competitiveness of producers. Because our commodity products have few distinguishing qualities from producer to
producer, competition is based mainly on price, which is determined by supply relative to demand, which is in turn affected by
the factors described above.
Operational Risk
Operational risks arise from external events, processes, people and systems that affect the operation of our businesses. These
include risks affecting, among other things, marketing and sales, woodlands management, production, supply chains,
information management, data protection and security, including cybersecurity, human resources, and reputation.
Our manufacturing businesses may have difficulty obtaining timber or wood fiber at favorable prices, or at all.
Wood fiber is the principal raw material we use in our business. We use primarily wood chips and logs for our pulp, tissue, and
paper mills. Our wood products business is also dependent on our timber supply.
We depend heavily on harvesting rights and timber supply guarantees over government-owned land in Ontario and Quebec,
respectively. The volume of harvest permitted under these licenses is subject to limits, which are generally referred to as the
AAC. The AAC is reviewed regularly, typically every five years in Quebec and every 10 years in Ontario. The chief forester of
the province of Quebec ordered significant reductions to the allowable harvest between 2006 and 2018, and announced an
increase of 5.6% to the AAC for the spruce, pine, fir, and larch species, for the period of 2018 to 2023. This increase did not
result in a significant change in the volume allocated to us. About 25% of the total allowable harvest in Quebec is allocated
through an open auction system.
In addition, regulatory developments, activist campaigns and litigation advanced by First Nations groups or other interested
parties have caused, and may cause in the future, significant reductions in the amount of timber available for commercial
harvest in Canada, or that meet standards required for third-party certifications. Future regulation, particularly by Ontario,
Quebec, or the federal Canadian government, as well as litigation, changes in forest management certification standards, and
actions taken by activists to influence the availability of timber for commercial harvest could focus on any one or more of:
•
•
•
•
•
•
•
the use of timberlands;
forest management practices;
forest management and chain of custody certification standards;
consultation with First Nations groups;
the protection of habitats, and endangered or other species, including the woodland caribou;
the promotion of forest biodiversity; and
the response to and prevention of catastrophic wildfires.
Increased pressures on the Canadian provincial and federal governments to increase the protection of the woodland caribou, its
habitat, and the boreal forest, could impact timber supply. For example, regulations relating to habitats, and endangered or other
species in Ontario could significantly reduce timber supply in that province, including to our Ontario mills. Our access to
timber may also be affected by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms,
drought, flooding, and other natural and man-made causes, which could potentially reduce supply and increase prices.
Though timber is our primary source of fiber, wood fiber is a commodity and we also buy a significant portion of our fiber
requirements on the open market. Prices for wood fiber are cyclical and subject to market influences, which could be
concentrated in one or more regions due to market shifts.
If we are unable to obtain adequate supplies of timber or wood fiber at favorable prices for any of the reasons described above,
our business operation could be materially and adversely affected.
A sustained increase in the cost of purchased energy and other raw materials would lead to higher manufacturing costs,
which could reduce our margins.
Our operations consume large amounts of energy, such as electricity, natural gas, fuel oil, and wood residue, a substantial
proportion of which we buy on the open market. The main raw materials we require in our manufacturing processes are wood
fiber, and chemicals. The prices for raw materials and energy are volatile and may change rapidly, which impacts our
manufacturing costs, directly affects our results of operations and may contribute to earnings volatility.
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For our commodity products, the relationship between industry supply and demand, rather than changes in the cost of raw
materials, determines our ability to increase prices. Consequently, we may be unable to pass along increases in our operating
costs to our customers. Any sustained increase in energy, chemical, or raw material prices without any corresponding increase
in product pricing would reduce our operating margins and potentially require us to limit or cease operations of one or more of
our machines.
We also generate electricity for our operations at our hydroelectric facilities. There can be no certainty that we will be able to
maintain our water rights, which are necessary for our hydroelectric power generating facilities, or to renew them on favorable
conditions. The amount of electricity we can generate from our hydroelectric power facilities is also subject to the volume of
rain or snowfall and is therefore variable from one year to the next.
We are subject to physical and financial risks associated with global, regional, and local weather conditions, and climate
change.
Our operations and the operations of our suppliers are subject to climate variations, which impact the productivity of forests,
the frequency and severity of wildfires, the distribution and abundance of species, and the spread of disease or insect
epidemics, which in turn may adversely or positively affect timber production. Over the past several years, changing weather
patterns and climatic conditions due to natural and man-made causes have added to the unpredictability and frequency of
natural disasters such as hurricanes, earthquakes, hailstorms, wildfires, snow, ice storms, the spread of disease, and insect
infestations. Any of these natural disasters could also affect our woodlands or cause variations in the cost of raw materials, such
as virgin fiber. Changes in precipitation resulting in droughts could make wildfires more frequent or more severe, and could
adversely affect timber or our hydroelectric production. The effects of global, regional, and local weather conditions, and
climate change could also adversely impact our results of operations.
We could experience disruptions in operations or increased labor costs due to labor disputes.
As of December 31, 2018, we employed approximately 7,400 people, of whom approximately 4,500 were represented by
various unions, primarily Unifor, and the CNTU in Canada, and predominantly by the USW in the U.S. In the past year, we
renewed or entered into a number of agreements with unions, covering approximately 1,500 employees in Canada. Collective
agreements covering approximately 300 employees in Canada have expired, and additional collective agreements covering
approximately 1,100 employees in Canada and the U.S. are scheduled to expire in 2019, affecting certain pulp and paper mills,
sawmills, and woodlands operations.
While we intend to renew collective agreements, there can be no assurance that we will be able to renew agreements on
satisfactory terms, or that we will maintain continuously satisfactory agreements with all of our unionized employees. Should
we be unable to do so, it could result in strikes, work stoppages, or disturbances by affected employees, which could cause us to
experience a disruption of operations and affect our business, financial condition, or results of operations.
Difficulties in our employee relations or difficulties attracting employees for work, particularly in our remote locations,
could lead to operational delays or increase our costs.
Our ability to achieve our future goals and objectives is dependent, in part, on maintaining good relations with our employees
and minimizing employee turnover at our corporate offices, mills, and woodlands operations. Work stoppages, excessive
employee turnover, or difficulty in attracting and retaining employees, particularly for work in remote locations, could lead to
operational delays or increased costs.
Disruptions to our supply chain, operations, or the delivery of our products, could adversely affect our financial condition
or results of operations.
The success of our businesses is largely contingent on the availability of, and direct access to, raw materials, as well as our
ability to ship products on a timely basis. As a result, any event that disrupts or limits transportation or delivery services could
materially and adversely affect our business. In addition, our operating results depend on the continued operation of our various
production facilities and our ability to complete construction and maintenance projects on schedule. Interruptions of operations
at our facilities, including interruptions caused by the events described below, could materially reduce the productivity and
profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational
difficulties.
Our operations, supply chain, and transportation and delivery services are subject to potential hazards, including explosions,
fires, severe weather and natural disasters, mechanical and power failures, structural failures at any of our dams or
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hydroelectric facilities, supplier disruptions, labor shortages or other difficulties, transportation interruptions, remediation
complications, environmental and workplace risks, and terrorist or other violent acts.
Some of these hazards can cause personal injury and loss of life, severe damage to or destruction of property, equipment, or the
environment, and can result in, among other things: the suspension of operations; the shutdown of affected facilities;
reputational damage; the imposition of civil or criminal penalties; workers’ compensation; and claims against us with respect to
workplace exposure, exposure of contractors on our premises, as well as other persons located nearby.
We are subject to disruptions to the information technology systems that manage our operations and other business
processes, including cybersecurity incidents that could involve sensitive company, customer, employee, and vendor
information.
We use information technologies to securely manage operations and various business functions. We rely on various
technologies to process, store, and report on our business and interact with customers, vendors, and employees. The secure and
reliable processing, maintenance, and transmission of this information is critical to our operations and business strategy.
Despite our security design and controls, and those of our third-party providers, our information technology and infrastructure
may be vulnerable to interruptions, breakdowns, cyberattacks or breaches due to employee error, malfeasance, hackers,
computer viruses, natural disasters, power or telecommunications failures, as well as other disruptions. Any cybersecurity
breach could result in operational disruptions or the misappropriation of sensitive data and could subject us to civil and criminal
penalties, litigation, or have a negative impact on our reputation. We may be required to expend capital and other resources to
protect against such security breaches or cyberattacks, or to remediate problems caused by such breaches, attacks, or other
disruptions. We have been the subject of cyberattacks from time to time, none of which have had a material impact on our
business information systems or operations. There can be no assurance that such disruptions or misappropriations and the
resulting repercussions will not negatively impact our cash flows and materially affect our results of operations or financial
condition. Recent developments in cybersecurity legislation in different jurisdictions are imposing additional obligations on us
and could expand our potential liability in the event of a cybersecurity incident.
We are currently transitioning from certain legacy system applications, and during the transition, such legacy systems may
be more vulnerable to attack or failure and implementation of the transition may cause disruptions to our business
information systems.
We are currently in the process of replacing certain legacy system applications with an integrated business management
software platform. Prior to the completion of this upgrading process, we may not have supplier or third-party support for legacy
systems in the event of failure or required updates, and such legacy systems may be more vulnerable to breakdown, malicious
intrusion, and random attack. Prior to the completion of this upgrading process, we may also experience difficulties maintaining
or replacing the hardware infrastructure required to operate these legacy systems. Such legacy systems, if not properly
functioning prior to their replacement, could adversely affect our business.
During the process of replacing legacy systems, we could experience disruptions to our business information systems and
normal operating processes because of the projects’ complexity. The potential adverse consequences could include delays, loss
of information, decreased management reporting capabilities, damage to our ability to process transactions, harm to our control
environment, diminished employee productivity, and unanticipated increases in costs. Further, our ability to achieve anticipated
operational benefits from new platforms is not assured.
Negative publicity, even if unjustified, could have a negative impact on our brand and the marketability of our products.
We believe that we have established a reputation for transparent communications, responsible forestry practices, and overall
sustainability leadership. We also believe that our commitment to sustainable and responsible forestry practices extends well
beyond strict compliance with applicable forestry regulations, which in Quebec and Ontario are already among the most, if not
the most, rigorous in the world. Negative publicity, whether or not justified, relating to our operations could tarnish our
reputation or reduce the value of our brand and market demand for our products. In addition, the actions of activists, whether or
not justified, could impede or delay our ability to access raw materials or obtain third-party certifications with respect to forest
management and chain of custody standards that we seek in order to supply certified products to our customers. In these cases,
we may have to incur significant expenses and dedicate additional resources to defend ourselves against activist campaigns,
rebuild our reputation, and restore the value of our brand.
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Financial Risk
Financial risks relate to our ability to meet financial obligations and mitigate exposure to broad market risks, including:
volatility in foreign currency exchange rates, interest rates and commodity prices; capital structure; and credit and liquidity risk,
including risk related to cash management, extension of credit, collections, credit ratings, and availability and cost of funding.
Currency fluctuations can adversely affect our competitive position, selling prices, manufacturing costs, and net monetary
items.
We compete with producers from around the world, particularly North America, Europe, and South America, in most of our
product lines, with the exception of wood products and tissue, where we compete primarily with other North American
producers. We sell our products mainly in transactions denominated in U.S. dollars, but we also sell in certain local currencies,
including the Canadian dollar, the euro, and the pound sterling. Changes in the relative strength or weakness of these
currencies, particularly the U.S. dollar, could affect international trade flows in these products. A stronger U.S. dollar might
attract imports, thereby increasing product supply and possibly creating downward pressure on prices. On the other hand, a
weaker U.S. dollar might encourage U.S. exports but also increase manufacturing costs in Canadian dollars.
We are particularly sensitive to changes in the value of the Canadian dollar versus the U.S. dollar. The actual impact of these
changes depends primarily on the proportion of our production and sales that occur in Canada, the proportion of our financial
assets and liabilities denominated in Canadian dollars, and the magnitude, direction and duration of changes in the exchange
rate. We expect exchange rate fluctuations to continue to impact costs and revenues, but we cannot predict the magnitude or
direction of this effect for any period, and there can be no assurance of any future effects. In 2017 and 2018, the Canadian
dollar fluctuated between a low of US$0.73 in May of 2017 and a high of US$0.83 in September of 2017. Based on operating
projections for 2019, if the Canadian dollar strengthens by one cent against the U.S. dollar, we expect that it will decrease our
annual operating income by approximately $18 million, and vice versa.
Furthermore, certain monetary assets and liabilities, including a substantial portion of our net pension and other postretirement
benefit obligations and our net deferred income tax assets, are denominated in Canadian dollars. As a result, our earnings can
be subject to the potentially significant effect of foreign exchange gains or losses in respect of these Canadian dollar net
monetary items. A fluctuation of the Canadian dollar against the U.S. dollar in any given period would generally cause a
foreign exchange gain or loss.
The amount by which our pension plans are underfunded could increase the level of required contributions, which could
have an adverse impact on our financial condition.
As of December 31, 2018, we had net pension obligations of $1,122 million, of which approximately 75% relates to our
registered pension plans in the provinces of Quebec and Ontario, and approximately 25% of which relates to our U.S. qualified
pension plan. See Note 12, “Pension and Other Postretirement Benefit Plans,” to our Consolidated Financial Statements, for a
description of our pension plan funding obligations, including our unfunded pension obligations.
The amount by which our pension plans are funded or underfunded varies depending upon the return on pension fund
investments, the level of interest rates used to determine minimum funding levels, and other actuarial assumptions and
experience. Variations from our assumptions would cause the actual amount of our required contributions to vary from our
current estimates. Any additional contributions to our pension plans to fund potential deficit increases would be required to be
paid over a period of time ranging from seven to 15 years depending upon the laws applicable to the funding of the specific
pension plan. Any change to laws and regulations applicable to the funding of our pension plans could also increase or decrease
our future funding obligations. Similarly, because we make our Quebec and Ontario pension plan contributions in Canadian
dollars, the amount of our contributions as stated in U.S. dollars can be subject to the potentially significant effect of foreign
currency exchange rate variations. Any such variations could materially affect our cash flows and financial condition, in each
case either positively or negatively depending on the direction and magnitude of the variation. In addition, an increase in our
net pension obligations could make it more difficult to obtain financing on favorable terms.
It is also possible that Canadian provincial pension regulators could attempt to compel additional funding of certain of our
Canadian registered pension plans in respect of plan members associated with sites we formerly operated in their respective
provinces. On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the
creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (or the “CCAA Creditor Protection
Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and
Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and
Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial
wind-up is a barred claim under the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period
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in which any deficit within those plans, which could reach up to Cdn $150 million ($110 million, based on the exchange rate in
effect on December 31, 2018), would have to be funded if we do not obtain the relief sought. At this time, we cannot estimate
the additional contributions, if any, that may be required in future years, but they could be material.
Our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for all of
our capital requirements.
Our businesses are capital intensive and require regular capital expenditures in order to maintain our equipment, increase our
operating efficiency, and comply with environmental laws. If our available cash resources and cash generated from operations
are not sufficient to fund our operating needs, make pension contributions, and finance our working capital, capital
expenditures, and duty cash deposits, we would either need to borrow or reduce or delay capital expenditures. If we cannot
maintain or upgrade our equipment as required, we may become unable to manufacture products that compete effectively. An
inability to make required capital expenditures in a timely fashion could also have a material adverse effect on our growth,
business, financial condition, or results of operations.
The terms of our ABL Credit Facility, our Senior Secured Credit Facility, and the indenture governing our 2023 Notes
could restrict our current and future operations.
The credit agreements governing our senior secured asset-based revolving credit facility (or the “ABL Credit Facility”), our
senior secured credit facility (or the “Senior Secured Credit Facility”), and the indenture governing our 5.875% senior notes
due 2023 (or the “2023 Notes”), contain certain restrictive covenants that impose operating and financial restrictions on us and
could limit our ability to engage in activities that might be in our long-term best interests. For a description of our ABL Credit
Facility, Senior Secured Credit Facility, and the indenture governing the 2023 Notes, including the covenants and restrictions
they contain, see Note 11, “Long-Term Debt,” to our Consolidated Financial Statements.
A breach of the covenants under the ABL Credit Facility, the Senior Secured Credit Facility, or under the indenture governing
the 2023 Notes could result in an event of default, which could allow holders and lenders, as the case may be, to accelerate the
repayment of their debt and could result in the acceleration of the repayment of any other debt to which a cross-acceleration or
cross-default provision applies. An event of default under the ABL Credit Facility or the Senior Secured Credit Facility would
also allow the lenders to terminate all commitments to extend further credit to us under those facilities. If we were unable to
repay amounts due and payable under the ABL Credit Facility or the Senior Secured Credit Facility, the lenders would have the
right to proceed against the collateral securing the indebtedness. In any of these events, we may seek to refinance our
indebtedness, but be unable to do so on commercially reasonable terms. As a result, we could be: limited in how we conduct
our business; unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities.
We may be subject to losses that might not be covered in whole or in part by our insurance coverage.
We maintain property, business interruption, credit, product, general liability, casualty, and other types of insurance, including
pollution and legal liability, that we believe are in accordance with customary industry practices, but we are not fully insured
against all potential hazards inherent in our business, including losses resulting from human error, natural disasters, war risks,
or terrorist acts. As is typical in the industry, we also do not maintain insurance for any loss to our access to standing timber
from natural disasters, regulatory changes, or other causes. Changes in insurance market conditions have caused, and may in
the future cause, premiums and deductibles for certain insurance policies to increase substantially and in some instances, for
certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant
liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms
acceptable to us or at all, and might be obligated to divert a significant portion, or all, of our cash flow from normal business
operations.
We could be required to record significant additional closure costs and long-lived asset impairment or accelerated
depreciation charges.
We have responded to the changing market dynamics by optimizing assets and streamlining our production. If demand for any
of our products continues to decline, or if the pace of decline accelerates, it may be necessary to curtail production even further,
or permanently shut down more machines and facilities. In addition to the potential loss of production, curtailments and
shutdowns could result in asset impairments, accelerated depreciation, and cash closure costs for the affected facilities,
including restructuring charges and exit or disposal costs, which could negatively impact our cash flows and materially affect
our results of operations and financial condition. The closure of machines or facilities could also trigger the payment of
additional pension contributions or wind-up deficiencies.
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Losses related to the impairment of long-lived assets to be held and used are recognized when circumstances, such as
continuing losses or demand declines in certain businesses, indicate the carrying value of an asset group may not be
recoverable. When indicators that the carrying value of an asset group may not be recoverable are triggered, we evaluate the
carrying value of the asset group in relation to its expected undiscounted future cash flows. If the carrying value of an asset
group is greater than the expected undiscounted future cash flows to be generated by the asset group, an impairment charge is
recognized based on the excess of the asset group’s carrying value over its fair value. If it is determined that the carrying value
of an asset group is recoverable, we review and adjust, as necessary, the estimated useful lives of the assets in the group. If
there were to be a triggering event, it is possible that we could record significant non-cash long-lived asset impairment or
accelerated depreciation charges in future periods, which would be recorded as operating expenses and would negatively
impact our results of operations.
We also may be disposing of assets or businesses and be required to recognize additional impairment charges based on the
excess of the asset group’s carrying value over the expected net proceeds from the sale, which could materially affect our
results of operations and financial condition.
We could be required to record additional valuation allowances against our recorded deferred income tax assets.
We recorded significant deferred income tax assets relating to our Canadian operations in our Consolidated Balance Sheet as of
December 31, 2018. If, in the future, we determine that we are unable to recognize these deferred income tax assets as a result
of sustained cumulative losses in our Canadian operations, we could be required to record additional valuation allowances for
the portion of the deferred income tax assets that is not more likely than not to be realized. Such valuation allowances, if taken,
would be recorded as a charge to income tax expense and would adversely impact our results of operations.
Legal and Compliance Risk
Legal and compliance risks arise from governmental and regulatory action, governance and business conduct, and
environmental, contractual and other legal liabilities, including risks associated with: international trade regulation; legal
proceedings; our shareholder relationships; commitments to customers; and compliance with governance policies and
procedures, such as those relating to financial reporting, the environment, health and safety, marketing, product safety and
liability, and antitrust. Governmental and regulatory risk includes the risk that government or regulator actions will impose
additional costs on us or cause us to have to change our business models or practices.
Products we produce in one country and export to another may become subject to duties or other international trade
remedies or restrictions.
We produce products in the U.S. and Canada, and we sell those products worldwide. Under international agreements and the
domestic trade laws of many countries, trade remedies are available to domestic industries where imports are alleged to be
“dumped” or “subsidized” and such imports are alleged to cause material injury, or an imminent threat of injury, to a domestic
industry. Under such laws, dumping generally involves selling for export a product at a price lower than that at which the same
or similar product is sold in the home market of the exporter, or where the export prices are lower than a value that typically
must be at or above the full cost of production (including sales and marketing costs) and a reasonable amount for profit.
International trade laws also generally provide that subsidies from governments may be subject to trade remedies under certain
circumstances. A trade remedy investigation or proceeding may involve allegations of either dumping, subsidization, or both.
Where injurious dumping is found, the trade remedy is typically an anti-dumping duty order. Where injurious subsidization is
found, the trade remedy is typically a countervailing duty order. In principle, a duty equal to the amount of dumping or
subsidization, as applicable, is imposed on the importer of the product. However, whether or not consistent with treaty
obligations or other applicable law, authorities have imposed assumed or estimated rates on products that may not be related to
actual dumping by a particular producer or may not be based on subsidies actually received by the producer. Anti-dumping and
countervailing duty orders do not prevent the export or import of the product, but rather require the importer of the product to
pay to the government an anti-dumping duty or countervailing duty, or a deposit on estimated anti-dumping duties or
countervailing duties, as applicable. The imposition of additional anti-dumping duties, countervailing duties, deposit
requirements in respect of estimated duties, or any other trade remedy on one or more of our products could materially affect
our cash flow, and the competitive position of our operations relating to the affected product.
In addition to risks related to the trade remedies discussed above, a country could impose taxes or tariffs on some or all
imported products, whether or not consistent with existing trade treaties or agreements, and trade treaties, agreements and
arrangements may be renegotiated or terminated, or one or more countries that are parties may withdraw. For example, the
United States-Mexico-Canada Agreement (or “USMCA”), which is expected to replace the North American Free Trade
Agreement (or “NAFTA”), and provides for free trade of many products and services among the U.S., Canada, and Mexico, has
yet to be ratified by each of the countries through their own domestic process. The USMCA is not expected to materially
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impact our business or results of operations. However, should the USMCA not be ratified by the parties, there could be
uncertainty as to whether the U.S. may unilaterally withdraw from NAFTA altogether and as to how this would affect the
import of any of our Canadian products to the U.S. As we sell a significant portion of our Canadian produced products in the
U.S., a unilateral withdrawal from NAFTA by the U.S., without the USMCA in place, or similar actions with respect to other
trade treaties, agreements, or arrangements taken by other countries where we sell our products internationally, could materially
affect our cash flow, and the competitive position of our operations relating to the affected products.
We are subject to countervailing and anti-dumping duties on substantially all of our U.S. imports of softwood lumber
products produced at our Canadian sawmills, which could materially affect our operations and cash flows.
Substantially all of our U.S. imports of softwood lumber products produced at our Canadian sawmills are subject to orders
requiring us to pay cash deposits to the U.S. for estimated countervailing and anti-dumping duties. These cash deposit
requirements are the result of petitions filed by U.S. softwood lumber products producers with the U.S. Department of
Commerce (or “Commerce”) and the U.S. International Trade Commission.
No such deposits paid to the U.S. will be converted into actual countervailing duties or anti-dumping duties unless and until a
countervailing duty or anti-dumping rate is later set by Commerce in an administrative review, which is to be based on
Commerce’s determination of countervailable subsidies received during, or anti-dumping rates applicable to, a period
subsequent to the period reviewed in the original investigation. We are eligible to request a first administrative review 12
months after the date of any Commerce order implementing a duty deposit requirement and could remain subject to annual
administrative reviews for five or more years following the initial Commerce order. We may also appeal final determinations
and deposits cannot be converted into actual duties during the pendency of an appeal.
We have been required to pay cash deposits for estimated countervailing duties and anti-dumping duties on our U.S. imports of
softwood lumber products produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of
December 31, 2018, the rates for such estimated countervailing and anti-dumping duties were 14.7% and 3.2%, respectively.
Through December 31, 2018, our aggregate cash deposits paid to the U.S. for all affected products totaled $103 million.
We cannot provide any assurance regarding the estimated or final duty rates that may be determined by Commerce in its
investigations or administrative reviews. During any period in which our U.S. imports of softwood lumber products from our
Canadian sawmills are subject to countervailing duty or anti-dumping cash deposit requirements or duty requirements, our cash
flows and the competitive position of those products and our related Canadian operations could be materially affected.
Any failure to comply with laws and regulations could require us to record additional liabilities and adversely affect our
results of operations.
We are subject to a variety of foreign, federal or national, state, provincial, and local laws and regulations dealing with financial
reporting and disclosure obligations, corporate governance, antitrust, customs and trade, employees, contractors, transportation,
taxes, timber and water rights, pensions, benefit plans, workplace health and safety, the manufacture and sale of consumer
products, including product safety and liability, the environment, and First Nations, among others. Many of these laws and
regulations are complex and subject to differing interpretation, and the requirements of laws and regulations of different
countries and jurisdictions in which we operate, have sales or otherwise do business, or in which our securities trade or in
which our security holders reside, may differ or be inconsistent with one another. Compliance with these laws and regulations,
including changes to them or their interpretations or enforcement, has required in the past, and could require in the future,
substantial expenditures by us and adversely affect our results of operations. In addition, noncompliance with laws and
regulations, especially those related to the environment and First Nations, could significantly damage, and require us to spend
substantial amounts of money to rebuild our reputation.
In addition, our ability to comply with these laws and regulations often depends, at least in part, on compliance by independent
third parties, such as contractors and agents we retain to provide services. For example, our compliance with customs
requirements for international shipments depends in part on compliance by our customs brokers, sureties, transportation
companies, and external advisors, in addition to our own employees and consultants, and we could be liable for noncompliance
by any of them, even if inadvertent. Failure to comply with laws and regulations can also be the result of unintended
consequences, such as unforeseen consequences of information technology modifications, upgrades, or replacements. Although
we strive to comply with laws and regulations applicable to us, no company, including us, can assure that it will successfully
prevent, detect, or remediate all potential instances of non-compliance, and any failure to do so could be material, require
substantial expenditures, and adversely affect our results of operations.
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As an owner of real estate and manufacturing and processing facilities, we could be required to record additional
environmental and related health and safety liabilities.
As an owner and operator of real estate and manufacturing and processing facilities, we are subject, in particular, to a wide
range of general and industry-specific laws and regulations relating to pollution and the protection of the environment,
including those governing air emissions, wastewater discharges, timber harvesting, the storage, management and disposal of
regulated substances and waste, the investigation and clean-up of contaminated sites, landfill and lagoon operation and closure,
forestry operations, endangered species habitat, health and safety, and climate change. Noncompliance with these regulations
can result in significant civil or criminal fines or penalties, or regulatory or judicial orders enjoining or curtailing operations.
This may include liability under environmental laws for cleanup and other costs and damages, including investigation costs,
tort liability and damages to natural resources, resulting from past or present spills, releases or threats of releases of regulated
substances and waste on or from our current or former properties. We may also be liable under health and safety laws for
related exposure of employees, contractors and other persons to substances and waste on or from our current or former
properties. We may incur liability under these laws without regard to whether we knew of, were responsible for, or owned the
property at the time of, any spill, release or threats of releases of any regulated substances or waste on or from any current or
former property, or at properties where we arranged for the disposal of regulated materials. Claims may also arise out of
currently unknown environmental conditions or aggressive enforcement efforts by government regulators, public interest
groups or private parties. As a result, we may be required to record additional environmental or related health and safety
liabilities.
Our international sales and operations are subject to applicable laws relating to trade, export controls, and foreign corrupt
practices, the violation of which could adversely affect our operations.
As a result of our international sales and operations, we are required to comply with trade and economic sanctions and other
restrictions imposed by the United States, Canada, and other governments or organizations. We are also subject to the U.S.
Foreign Corrupt Practices Act, the Corruption of Foreign Public Officials Act (Canada), the United Kingdom Bribery Act 2010
and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign governments or officials and, in some
jurisdictions, to other commercial parties. Changes in trade sanctions laws could restrict our business practices, including
cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to
compliance programs. Violations of these laws or regulations could result in sanctions, including fines, loss of authorizations
needed to conduct our international business, and other penalties, which could adversely impact our business, operating results,
and financial condition.
We are a party to a number of legal proceedings, claims and governmental inquiries, investigations, and other disputes, and
adverse judgments could have a material adverse effect on our financial condition.
We become involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the
normal course of business. These could include, for example, matters related to contracts, commercial and trade disputes, taxes,
environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints,
pension and benefit plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting
and disclosure obligations, corporate governance, First Nations claims, antitrust, governmental regulations, and other matters.
In addition to claims against us and our consolidated subsidiaries, these matters may involve claims asserted by others against
unconsolidated partnerships and joint ventures in which we have an interest. Although the final outcome of these matters is
subject to many variables and cannot be predicted with any degree of certainty, we regularly assess the status of the matters and
establish provisions (including legal costs expected to be incurred) when we believe an adverse outcome is probable, and the
amount can be reasonably estimated. Legal proceedings that we believe could have a material adverse effect if not resolved in
our favor, or that we believe to be significant, are discussed in Item 3 of this Form 10-K and in Note 14, “Commitments and
Contingencies – Legal Matters” to our Consolidated Financial Statements. However, our reports do not disclose or discuss all
matters of which we are aware. If our assessment of the probable outcome or materiality of a matter is not correct, we may not
have made adequate provision for such loss and our financial condition, cash flows, or results of operations could be adversely
impacted.
In addition, if a loss resulting from an adverse outcome in connection with a matter were to affect the solvency of certain of our
subsidiaries or remain unpaid for certain periods, it could result in a default under the ABL Credit Facility, the Senior Secured
Credit Facility and the 2023 Notes. For additional information, see “Financial Risk – The terms of our ABL Credit Facility, our
Senior Secured Credit Facility, and the indenture governing our 2023 Notes could restrict our current and future operations”
above.
Some matters that we may be involved in from time to time result from claims brought by us against third parties, including
customers, suppliers, governments or governmental agencies, activists and others. Even if such a matter does not involve a
18
claim for damages or other penalty or remedial action against us, such a matter could nevertheless adversely affect our
relationships with those and other third parties.
There is a shareholder who owns a substantial percentage of our common stock, and its interests could differ from those of
other stockholders, and its actions could affect the price of our common stock.
There is a shareholder who owns a substantial percentage of the outstanding shares of our common stock, and could increase its
percentage ownership even further. This shareholder could be in a position to influence the outcome of actions requiring
shareholder approval, including, among other things, the election of board members. The concentration of ownership could also
facilitate or hinder a negotiated change of control and consequently, impact the value of our common stock. In addition, the
possibility that this shareholder may sell all or a large portion of our common stock in a short period of time may adversely
affect the trading price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Information regarding our owned properties is included in Item 1, “Business.”
In addition to the properties that we own, we also lease under long-term leases office and manufacturing premises, and office
equipment, have water rights on certain government-owned waters, and have harvesting rights or timber supply guarantees with
respect to certain government-owned land. For additional information, see Note 17, “Operating Leases and Purchase
Obligations,” to our Consolidated Financial Statements.
We hold the properties that we own or lease, and the rights and supply guarantees described above, through various operating
subsidiaries, including our principal U.S. operating subsidiary, Resolute FP US Inc., our principal Canadian operating
subsidiary, Resolute FP Canada Inc., and Resolute Growth Canada Inc., which holds or operates assets related to our growth
and diversification initiatives in Canada, including our Ontario sawmills and wood pellet facility, as well as our Saint-Félicien
pulp mill. For a list of our subsidiaries, see Exhibit 21.1, “Subsidiaries of the registrant,” of this Form 10-K.
The obligations under the Senior Secured Credit Facility are secured by a first priority mortgage on the real property of our
Calhoun facility and a first priority security interest on the fixtures and equipment located therein, and related assets.
ITEM 3. LEGAL PROCEEDINGS
In addition to the proceedings described below, see the description of our material pending legal proceedings in Note 14,
“Commitments and Contingencies – Legal matters,” to our Consolidated Financial Statements, which is incorporated in this
“Item 3 – Legal Proceedings” by reference.
Resolute has been informed that the investigation of Resolute by the Autorité des marchés financiers, the securities regulatory
authority in the Province of Quebec, has been closed. The investigation concerned the possibility of non-compliance with
applicable securities laws and regulations relating to takeover bids and the possibility of illegal insider trading and/or tipping
(not involving any personal trading by individuals) in connection with Resolute’s December 15, 2011 offer to purchase the
shares of Fibrek Inc.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades under the stock symbol “RFP” on both the NYSE and the TSX. As of January 31, 2019, there were
2,987 holders of record of our common stock.
We declared and paid a special dividend of $1.50 per share ($136 million) on our common stock in 2018. We did not declare or
pay any dividends on our common stock in 2017. Any future determination to pay dividends will be at the discretion of the
board of directors and will be dependent on then-existing conditions, including our financial condition, results of operations,
capital requirements, contractual and legal restrictions, business prospects and other factors that the board of directors considers
relevant. Our debt agreements contain restrictions on our ability to pay dividends and repurchase shares, as further described in
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital
Resources – Capital Resources,” of this Form 10-K.
There remains $24 million under our $150 million share repurchase program, which was launched in May of 2012. We did not
repurchase any shares in 2018 or 2017.
See Part III, Item 12 of this Form 10-K, “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters,” for information regarding our equity compensation plan.
The following graph compares the cumulative total return attained by shareholders of our common stock versus the cumulative
total returns of the Standard & Poor’s 500 (or the “S&P 500”) index, the Peer Group (as defined below), and the Prior Peer
Group (as defined below) since December 31, 2013. The graph tracks the performance of a $100 investment in our common
stock, in the S&P 500 index, in the Peer Group, and in the Prior Peer Group on December 31, 2013 (with the reinvestment of
all dividends) to December 31, 2018. The stock price performance included in the graph is not necessarily indicative of future
stock price performance.
(1)
(2)
In 2018, the Human Resources and Compensation/Nominating and Governance Committee of our Board of Directors
established performance metrics related to our performance stock units including total shareholder return relative to a
group of peer companies (or the “Peer Group”), which is comprised of Clearwater Paper Corporation, Domtar
Corporation, Verso Corporation, Mercer International Incorporated, Rayonier Advanced Materials, Orchids Paper
Products Company, Canfor Corporation, Conifex Timber Incorporated, Interfor Corporation, and West Fraser Timber
Company Limited. The Peer Group replaces the index of five companies used previously (or the “Prior Peer Group”).
The Prior Peer Group is comprised of Domtar Corporation, International Paper Company, UPM-Kymmene
Corporation, Verso Corporation and Weyerhaeuser Company.
20
ITEM 6. SELECTED FINANCIAL DATA
The following table presents a summary of historical consolidated financial information for each of the last five years and
should be read in conjunction with Items 7 and 8 of this Form 10-K. The selected financial information for the years ended
December 31, 2018, 2017 and 2016, and as of December 31, 2018 and 2017, under the captions “Statement of Operations
Data,” “Segment Sales Information,” “Statement of Cash Flows Data” and “Financial Position” shown below has been derived
from our audited Consolidated Financial Statements.
As a result of the adoption of Accounting Standards Update 2017-07, “Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost,” issued by the Financial Accounting Standards Board, certain prior period
amounts have been adjusted. See Note 2. Summary of Significant Accounting Policies – New accounting pronouncements
adopted in 2018 – ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost,” to our Consolidated Financial Statements for more information.
(In millions, except per share amounts)
Statement of Operations Data
Sales
Operating income (loss)
Net income (loss) including noncontrolling interests
Net income (loss) attributable to Resolute Forest Products Inc.
Basic net income (loss) per share attributable to Resolute Forest
Products Inc. common shareholders
Diluted net income (loss) per share attributable to Resolute
Forest Products Inc. common shareholders
Dividend declared per common share
Segment Sales Information
Market pulp
Tissue
Wood products
Newsprint
Specialty papers
Years Ended December 31,
2018
2017
2016
2015
2014
$ 3,756
$ 3,513
379
235
235
2.57
2.52
1.50
$ 3,545
(18)
(76)
(81)
$ 3,645
(169)
(255)
(257)
$ 4,258
(193)
(274)
(277)
42
(78)
(84)
(0.93)
(0.90)
(2.78)
(2.93)
(0.93)
—
(0.90)
—
(2.78)
—
(2.93)
—
$ 1,085
$ 911
$ 836
$ 889
$ 974
130
823
907
811
81
797
842
882
89
596
1,009
1,015
11
536
1,105
1,104
—
610
1,402
1,272
$ 3,756
$ 3,513
$ 3,545
$ 3,645
$ 4,258
Statement of Cash Flows Data
Net cash provided by operating activities
$ 435
$ 158
$
Cash invested in fixed assets
Disposition of assets
155
336
164
21
81
249
5
$ 138
$ 186
185
—
193
10
(In millions, except otherwise indicated)
2018
2017
2016
2015
2014
As of December 31,
Financial Position
Fixed assets, net
Total assets
Total debt
Additional Information
Number of employees
$ 1,515
$ 1,716
$ 1,842
$ 1,810
$ 1,985
3,935
645
4,147
789
4,227
762
4,220
591
4,914
590
7,400
7,700
8,300
8,000
7,700
21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management’s discussion and analysis is intended to help the reader understand Resolute Forest Products, our
results of operations, cash flows and financial condition. The discussion is provided as a supplement to, and should be read in
conjunction with, our consolidated financial statements and the accompanying notes (or the “Consolidated Financial
Statements”) contained in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (or
“Form 10-K”).
When we refer to “Resolute Forest Products,” “Resolute,” “we,” “our,” “us,” or the “Company,” we mean Resolute Forest
Products Inc. with its subsidiaries, either individually or collectively, unless otherwise indicated.
OVERVIEW
Resolute Forest Products is a global leader in the forest products industry with a diverse range of products, including market
pulp, tissue, wood products, newsprint and specialty papers, which are marketed in close to 70 countries. The Company owns
or operates some 40 facilities, as well as power generation assets, in the U.S. and Canada. We are the largest Canadian producer
of wood products east of the Canadian Rockies and a competitive pulp producer in North America. By capacity, we are the
number one producer of newsprint in the world and the largest producer of uncoated mechanical papers in North America. We
are also an emerging tissue producer.
We report our activities in five business segments: market pulp, tissue, wood products, newsprint, and specialty papers.
We are guided by our vision and values, focusing on safety, sustainability, profitability, accountability, and teamwork. We
believe we can be distinguished by the following competitive strengths:
Competitive cost structure combined with diversified and integrated asset base
•
•
•
•
•
•
•
•
large-scale, efficient and cost-effective operations;
access to renewable virgin fiber;
significant internal energy production from cogeneration and hydroelectric facilities;
raw materials for our paper, pulp and cogeneration facilities in Canada, our pellet plant at Thunder Bay (Ontario), as
well as our value-added and engineered wood facilities in Quebec provided primarily by our sawmills;
strategically located mills, including economical access to international markets;
competitive selling, general and administrative expenses (or “SG&A”) to sales ratio;
ability to optimize staffing across our various operations; and
significant tax assets that help defer cash taxes and provide synergies in the execution of our growth and
diversification strategy.
Strong balance sheet
Our low debt, which has favorable pricing and flexibility, combined with strong liquidity levels, provide us with the
ability to execute our strategy, particularly the continued transformation to a more profitable and sustainable company
for the long term.
Seasoned management team
Our senior management team has many years of experience in the pulp, tissue, wood products, and paper industries. In
addition, we have an integrated leadership system focused on increasing our organizational capability by optimizing
organizational structure, clarifying each employee’s role and accountabilities, improving the link between
compensation and individual performance, and improving our succession planning process.
Our Business
Products
For additional information on our products, see Part I, Item 1, “Business – Products” of this Form 10-K.
22
Strategy and highlights
Our corporate strategy is focused on continuing to transform the Company into a more profitable and sustainable organization
over the long run, one that we believe can generate consistent value for shareholders through a competitive portfolio of
manufacturing assets and a solid presence in long-term growth markets. This includes, on the one hand, keeping pace with
structurally declining paper demand and, on the other, using our strong financial position to act on opportunities to diversify
and grow. Our strategy is based on maximizing value generation from paper, growing in pulp and wood products, integrating
our pulp into value-added quality tissue, and investing in product innovation, while maintaining a disciplined approach to
capital allocation.
Maximizing value generation from paper
Our paper products (comprised of newsprint and specialty papers) remain an important part of our ongoing business, generating
cash to help finance our strategy to diversify and grow. In order to remain competitive in the demand-challenged markets that
our paper operations face, we strive to consistently:
• maintain a stringent focus on controlling costs and optimizing our diversified asset base;
• manage production and inventory levels; and
•
focus production at our most profitable and lower-cost facilities and machines.
Growing in pulp and wood products
We believe in taking an opportunistic approach to strategic initiatives, pursuing only those that reduce our cost position,
improve our product diversification, provide synergies, or position us to expand into markets that benefit from long-term
growth. We believe that our market pulp and wood products segments are aligned with these criteria, and are the foundation of
our transformation strategy. Opportunities to diversify and grow may arise in a number of ways, including:
•
•
•
spending to improve productivity and/or lower costs;
investing selectively in organic expansions; and
pursuing opportunistic strategic acquisitions.
Integrating our pulp into value-added quality tissue
Consistent with our overall business transformation strategy, we entered the tissue market in 2015 with the announcement of
our plans to build a greenfield tissue facility at our Calhoun (Tennessee) site and to acquire Atlas Paper Holdings Inc. and its
subsidiaries (or “Atlas”). These significant steps supported our belief in adding value through the integration of our market
pulp, particularly as paper demand continues its steady decline. In addition, we believe that the tissue business will provide a
more stable source of revenue and profitability.
Our tissue operations are almost entirely supplied from our pulp mills, creating synergies and minimizing risks associated with
cyclical market pulp pricing. For our Calhoun tissue facility, pulp production is directly transferred as slush pulp into the tissue
operation, reducing process, energy, handling, and logistics costs.
Equipped with three modern converting lines sized specifically for the tissue machine, our Calhoun tissue facility sells
converted products that target the fast growing premium private-label markets of the U.S.
23
Since 2011, we have completed a number of strategic initiatives, leading to a relative shift in our business away from our
structurally-challenged paper operations into markets with long-term growth potential (comprised of market pulp, tissue and
wood products), as illustrated below.
(1)
For a reconciliation of net income including noncontrolling interests to earnings before interest expense, income taxes,
and depreciation and amortization, or “EBITDA,” and adjusted EBITDA, see “Reconciliations” below.
24
Investing in product innovation
Partnering with others, we are investing in research and development to identify new technologies that use wood fiber in
products of the future. For example, in 2018, we announced an investment in a pilot project, which will be hosted at our
Thunder Bay pulp and paper mill, to focus on developing new ways to efficiently produce and commercialize innovative bio-
chemicals derived from wood. Also, in 2014, we announced our participation in Performance BioFilaments Inc., a joint venture
focused on the development of commercial applications for cellulose filaments, a new biomaterial that holds the potential to
make a variety of products stronger, lighter, more flexible and more durable, while leveraging a sustainable and renewable
resource.
Disciplined approach to capital allocation
We make capital management a priority. To maintain our strong financial position and continued financial flexibility, we:
•
•
spend our capital in a disciplined, strategic and focused manner, concentrating on our most competitive sites;
explore value-creating opportunities to divest idled, non-core or sub-optimized operations;
• maintain debt leverage and financial liquidity that over time are sufficient to support the evolution of our
transformation strategy;
•
based on market conditions, seek to retire, repay or refinance our outstanding indebtedness with a view to reducing
costs and enhancing our financial flexibility; and
•
return excess capital over time to our shareholders through dividends and share repurchases.
Our strategic initiatives since 2011, leading to a shift in our business into markets with long-term growth potential, are
summarized below:
(1)
(2)
(3)
(4)
By acquiring Fibrek Inc., our market pulp capacity increased by over 70%.
The installed steam turbine at our Thunder Bay pulp and paper mill maximizes our local woodlands, sawmill, pulp and
paper, and energy operations by fully utilizing forest-based biomass to produce green electricity.
With the acquisition of Atlas, we gained an immediate position in the North American consumer tissue market and
access to a customer base to accelerate the sale and distribution of our Calhoun tissue production.
Incremental pulp capacity from the pulp digester serves in part to supply slush pulp to our Calhoun tissue machine.
25
Sustainable development and performance
Our sustainability strategy is based on a balanced approach to environmental, social and economic performance, designed to
enhance our competitive position. It is supported by public commitments in a number of key performance areas, focusing
primarily on:
•
improving resource efficiency, which helps control wood fiber, chemical, and energy costs, three significant input
costs in our industry;
• moving beyond regulatory compliance and environmental incident management to differentiate ourselves as an
environmental supplier of choice;
•
•
positioning Resolute as a competitive employer; and
building solid relations in our operating communities.
Our recent key sustainability achievements include:
• Beating our safety target by achieving an Occupational Safety and Health Administration incident rate of 0.46 in 2018.
Safety is our first priority, and we strive for zero injuries.
• Achieving an 81% reduction in absolute greenhouse gas (or “GHG”) emissions (scope 1 and 2), below 2000 levels.
•
•
Joining forces with FPInnovations in a $15 million project to establish a biorefinery pilot plant hosted at our Thunder
Bay pulp and paper mill. The initiative is focused on developing new ways to efficiently produce and commercialize
innovative biochemicals derived from wood.
Implementing a $20 million project at our Thunder Bay mill to increase the facility’s energy efficiency and pulp
capacity, as well as lower its GHG emissions. By mid-2019, the project is expected to provide annual natural gas cost
savings of more than 35%, while reducing the mill’s overall annual GHG emissions by over 20%, or approximately
43,000 metric tons of CO2 equivalents per year.
• Completing the first phase of the $45 million strategic investment plan at our Saint-Félicien pulp mill to improve
several areas of the operation, increase average daily production capacity, and reduce GHG emissions from the use of
fossil fuels by 20%, or approximately 35,000 metric tons of CO2 equivalents per year.
•
Partnering with CO2 Solutions Inc. to deploy a carbon capture unit and ancillary equipment to improve growth rates at
Toundra Greenhouse Inc. in Saint-Félicien, in which we hold a 49% interest.
• Maintaining certification of 100% of Resolute-owned or managed woodlands to at least one internationally recognized
forest management standard (Sustainable Forestry Initiative®, or “SFI®”, and/or Forest Stewardship Council®, or
“FSC®”). Accordingly, our commitments extend well beyond strict compliance with applicable forestry regulations,
which in Quebec and Ontario are already among the most, if not the most, rigorous in the world.
• Maintaining internationally recognized chain of custody certifications at 100% of our facilities (SFI, FSC, and the
Programme for the Endorsement of Forest Certification), with the exception of the tissue operation at our Calhoun
facility, which is expected to have its fiber-tracking system in place in 2019.
• Continuing to report climate change, water security, and forests disclosures to CDP. Full disclosures and scores are
available on CDP’s website (https://www.cdp.net/), though this information is not incorporated by reference into this
Form 10-K and should not be considered part of this or any other report that we file with or furnish to the U.S.
Securities and Exchange Commission (or the “SEC”).
• Continuing to implement our proactive approach to preventing environmental incidents, completing the third year of
the second three-year cycle of environmental risk audits at all of our pulp, paper and tissue mills. We recorded 17
environmental incidents (class 1 and 2) in 2018, an 11% improvement compared to 2017.
• Active engagement of union officials, employees, mayors and other community leaders, First Nations partners, small
community business owners, customers, and representatives of governments at various levels.
•
In addition to developing information resources such as BorealForestFacts.com and The Resolute Blog, we expanded
the scope of our social media presence. We also reinforced our engagement on the Forum boréal and Boreal Forum
social media platforms. These Quebec and Ontario sites provide a forum for fact-based discussion concerning
sustainable forestry practices in the boreal forest and they help to ensure that individual and community voices are
heard, particularly when it comes to the importance of forestry to Northern communities in Canada. The information
contained on or connected to BorealForestFacts.com, The Resolute Blog, and the Forum boréal and Boreal Forum
26
social media platforms, is not incorporated by reference into this Form 10-K and should not be considered part of this
or any other report that we file with or furnish to the SEC.
• Other sustainability performance indicators and disclosures prepared in accordance with the Global Reporting
Initiative guidelines are available on our website (www.resolutefp.com).
Our leadership and sustainability accomplishments have been recognized by independent organizations. In 2018, we received
extensive regional, North American and global recognition for our sustainability achievements. Some of the more noteworthy
included:
•
•
•
•
the International Business Awards (known as the “Stevies®”), in the Best Health, Safety and Environment Program of
the Year for the U.S. and Canada category, for the second consecutive year (August 9, 2018);
the Best in Biz Awards, in the Most Environmentally Responsible Company of the Year category, for the second
consecutive year (November 28, 2018);
the Business Intelligence Group Sustainability Leadership Award, in the Organization category (July 17, 2018); and
the American Forest and Paper Association Sustainability Awards, in the Leadership in Sustainability category
(November 8, 2018).
Power generation
We produce electricity at six cogeneration facilities and seven hydroelectric dams. The output is consumed internally or sold
under contract to third parties. This allows us to reduce our costs by generating energy internally at a lower cost compared to
open market purchases, and by producing revenue from external sales.
This table provides a breakdown of the output capacity (based on installed capacity and operating expectations in 2019)
available for internal consumption at our existing production facilities:
INTERNAL CONSUMPTION
Calhoun (Tennessee)
Coosa Pines (Alabama)
Hydro Saguenay (Quebec) (7 dams)
Thunder Bay (Ontario)
Type
Cogeneration
Cogeneration
Hydroelectric
Cogeneration
Energy
Capacity
(MW)
Consumption
(MWh/Year)
64
30
170
25
336,000
164,000
1,010,000
179,000
The approximate annualized cost savings to our operations attributable to internal consumption from our cogeneration assets
and hydroelectric facilities is between $40 million and $45 million.
The table below shows the facilities where we currently produce electricity to sell externally as green power produced from
renewable sources at favorable rates, almost all of which we buy back at lower rates for use in our operations:
EXTERNAL SALES
Dolbeau (Quebec)
Gatineau (Quebec)
Saint-Félicien (Quebec)
Thunder Bay (Ontario)
Type
Cogeneration
Cogeneration
Cogeneration
Cogeneration
Energy
Capacity
(MW)
Annualized Sales
(MWh/Year)
28
15
43
65
192,000
109,000
293,000
432,000
External sales generated from our cogeneration assets reduced cost of sales, excluding depreciation, amortization and
distribution costs (or “COS”), by $37 million, $40 million and $45 million for the years ended December 31, 2018, 2017 and
2016, respectively.
27
Reconciliations
The table below shows the reconciliation of net income (loss) including noncontrolling interests to EBITDA and adjusted
EBITDA, which are not financial measures recognized under U.S. generally accepted accounting principles (or “GAAP”) for
the year ended December 31, 2011. For more information on the calculation and reasons we include these measures, see note 1
under “Results of Operations – Consolidated Results – Selected Annual Financial Information” below.
Wood
Tissue
Products Newsprint
Specialty
Papers
Segment
Total
Corporate
and Other
Total
$ —
$
(25)
$
$
122
$
277
$ (232)
$
Year ended December 31, 2011
(Unaudited, in millions)
Market
Pulp
Net income (loss) including
noncontrolling interests
$
Interest expense
Income tax provision
Depreciation and amortization
91
—
—
30
—
—
—
EBITDA
$
121
$ —
$
Foreign exchange loss
Severance costs
Closure costs, impairment and
other related charges
Inventory write-downs related
to closures
Net gain on disposition of
assets
Non-operating pension and
other postretirement benefit
costs
Acquisition-related costs
Other expense, net
Adjusted EBITDA
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
121
$ —
$
—
—
33
8
—
—
—
—
—
—
—
—
8
89
—
—
73
—
—
84
$
162
$
206
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
220
497
—
—
—
—
—
—
—
—
$
162
$
206
$
497
$
95
19
—
$ (118)
$
21
12
46
3
45
95
19
220
379
21
12
46
3
(3)
(3)
8
5
27
1
8
5
27
$
498
The table below shows the reconciliation of net income (loss) including noncontrolling interests to EBITDA, and adjusted
EBITDA, which are not financial measures recognized under GAAP, for the year ended December 31, 2018. For more
information on the calculation and reasons we include these measures, see note 1 under “Results of Operations – Consolidated
Results – Selected Annual Financial Information” below.
Market
Pulp
Wood
Tissue
Products Newsprint
Specialty
Papers
Segment
Total
Corporate
and Other
Total
Year ended December 31, 2018
(Unaudited, in millions)
Net income (loss) including
noncontrolling interests
Interest expense
Income tax provision
Depreciation and amortization
$
172
$
(30)
$
169
$
—
—
27
—
—
15
—
—
32
$
74
—
—
66
EBITDA
$
199
$
(15)
$
201
$
140
$
Foreign exchange loss
Closure costs, impairment and
other related charges
Reversal of inventory write-
downs related to closures
Start-up costs
Net gain on disposition of
assets
Non-operating pension and
other postretirement benefit
credits
Other income, net
Adjusted EBITDA
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
199
$
(15)
$
201
$
140
$
28
40
—
—
47
87
—
—
—
—
—
—
—
87
$
425
$ (190)
$
235
$
—
—
187
612
—
—
—
—
—
—
—
$
47
152
25
34
2
121
(1)
8
$
47
152
212
646
2
121
(1)
8
(145)
(145)
(50)
(7)
(50)
(7)
$
612
$
(38)
$
574
2018 Overview
In the first quarter of 2018, we changed our presentation of operating income in accordance with Financial Accounting
Standards Board Accounting Standards Update 2017-07, to present only the service cost component of net periodic pension and
other postretirement benefit (or “OPEB”) cost in operating expenses (together with other employee compensation costs arising
during the period). The other components of the net periodic pension and OPEB cost (or “Non-operating pension and OPEB
costs”), recorded under “corporate and other,” are reported separately outside any subtotal of operating income. Prior period
amounts have been reclassified to conform to the 2018 presentation. See Item 8. Financial Statements and Supplementary Data
– Note 2. Summary of Significant Accounting Policies – New accounting pronouncements adopted in 2018 – ASU 2017-07
“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” for more
information.
2018 vs. 2017
Our operating income was $379 million during the year, compared to $42 million in 2017. Excluding special items, we
generated operating income of $362 million in 2018, compared to $160 million in 2017. Special items are described below.
Our net income in 2018 was $235 million, or $2.52 per diluted share, compared to a net loss of $84 million, or $0.93 per share,
in 2017. Our net income for 2018, excluding special items, was $183 million, or $1.96 per diluted share, compared to
$12 million, or $0.13 per diluted share, in 2017.
Year Ended December 31, 2018
(Unaudited, in millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Foreign exchange loss
Closure costs, impairment and other related charges
Reversal of inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit credits
Other income, net
Income tax effect of special items
Adjusted for special items (1)
Year Ended December 31, 2017
(Unaudited, in millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Foreign exchange gain
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit credits
Other expense, net
Income tax effect of special items
Adjusted for special items (1)
Operating
Income
(Loss)
379
$
Net
Income
(Loss)
235
$
EPS
2.52
$
—
121
(1)
8
(145)
—
—
—
2
121
(1)
8
(145)
(50)
(7)
20
0.02
1.30
(0.01)
0.09
(1.55)
(0.54)
(0.08)
0.21
$
362
$
183
$
1.96
Operating
Income
(Loss)
42
$
Net
Income
(Loss)
$
(84)
—
82
24
27
(15)
—
—
—
$
160
$
(9)
82
24
27
(15)
(7)
3
(9)
12
EPS
$ (0.93)
(0.10)
0.91
0.27
0.30
(0.17)
(0.08)
0.03
(0.10)
0.13
$
(1)
Operating income (loss), net income (loss) and net income (loss) per share (or “EPS”), in each case as adjusted for
special items, are not financial measures recognized under GAAP. We calculate operating income (loss), as adjusted
for special items, as operating income (loss) from our Consolidated Statements of Operations, adjusted for items such
29
as closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, gains
and losses on disposition of assets, and other charges or credits that are excluded from our segment’s performance
from GAAP operating income (loss). We calculate net income (loss), as adjusted for special items, as net income (loss)
from our Consolidated Statements of Operations, adjusted for the same special items applied to operating income
(loss), in addition to foreign exchange gains and losses, non-operating pension and OPEB costs and credits, other
income and expense, net, and the income tax effect of the special items. EPS, as adjusted for special items, is
calculated as net income (loss), as adjusted for special items, per diluted share. We believe that using these non-GAAP
measures is useful because they are consistent with the indicators management uses internally to measure the
Company’s performance, and it allows the reader to more easily compare our operations and financial performance
from period to period. Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items,
are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures
should not be viewed as substitutes to financial measures determined under GAAP.
Fourth Quarter Overview
Three months ended December 31, 2018 vs. December 31, 2017
Our operating income was $75 million in the quarter, compared to $53 million in the year-ago period. Excluding special items,
we generated operating income of $54 million in the quarter, compared to $51 million in the year-ago period. Special items are
described below.
Our net income in the quarter was $36 million, or $0.38 per diluted share, compared to $13 million, or $0.14 per diluted share,
in the year-ago period. Our net income in the quarter, excluding special items, was $4 million, or $0.04 per diluted share,
compared to $14 million, or $0.15 per diluted share, in the year-ago period.
Three Months Ended December 31, 2018
(Unaudited, in millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Closure costs, impairment and other related charges
Net gain on disposition of assets
Non-operating pension and other postretirement benefit credits
Other income, net
Income tax effect of special items
Adjusted for special items (1)
Three Months Ended December 31, 2017
(Unaudited, in millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Foreign exchange loss
Closure costs, impairment and other related charges
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit credits
Other expense, net
Income tax effect of special items
Adjusted for special items (1)
Operating
Income
(Loss)
75
$
Net
Income
(Loss)
36
$
EPS
0.38
$
1.27
(1.49)
(0.13)
(0.01)
0.02
120
(141)
(12)
(1)
2
$
4
$
0.04
120
(141)
—
—
—
54
$
Operating
Income
(Loss)
53
$
Net
Income
(Loss)
13
$
—
2
9
(13)
—
—
—
51
$
1
2
9
(13)
(1)
4
(1)
14
$
EPS
0.14
$
0.01
0.02
0.10
(0.14)
(0.01)
0.04
(0.01)
0.15
$
(1)
Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items, are non-GAAP
financial measures. For more information on the calculation and reasons we include these measures, see note 1 under
“Overview – 2018 Overview” above.
30
RESULTS OF OPERATIONS
Consolidated Results
Selected annual financial information
(In millions, except per share amounts)
Sales
Operating income (loss) per segment:
Market pulp
Tissue
Wood products
Newsprint
Specialty papers
Segment total
Corporate and other
Operating income (loss)
Net income (loss) attributable to Resolute Forest Products Inc.
Net income (loss) per share attributable to Resolute Forest Products Inc.
common shareholders:
Basic
Diluted
Adjusted EBITDA (1)
(In millions)
Cash and cash equivalents
Total assets
Years Ended December 31,
2018
2017
2016
$
3,756
$ 3,513
$
3,545
172
(30)
169
74
40
425
(46)
379
235
79
(6)
186
(23)
(9)
227
(185)
42
(84)
37
(10)
69
(16)
19
99
(117)
(18)
(81)
$
$
2.57
2.52
574
$
$
(0.93)
(0.93)
364
$
$
(0.90)
(0.90)
263
As of December 31,
$
2018
304
3,935
$
2017
6
4,147
(1)
EBITDA and adjusted EBITDA are not financial measures recognized under GAAP. EBITDA is calculated as net
income (loss) including noncontrolling interests from the Consolidated Statements of Operations, adjusted for
interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA means EBITDA, excluding
special items, such as foreign exchange gains and losses, severance costs, closure costs, impairment and other
related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets,
non-operating pension and OPEB costs and credits, acquisition-related costs, and other charges or credits. We
believe that using non-GAAP measures such as EBITDA and adjusted EBITDA is useful because they are consistent
with the indicators management uses internally to measure the Company’s performance and it allows the reader to
more easily compare our operations and financial performance from period to period. EBITDA and adjusted
EBITDA are internal measures, and therefore may not be comparable to those of other companies. These non-
GAAP measures should not be viewed as substitutes to financial measures determined under GAAP.
31
(In millions)
Net income (loss) including noncontrolling interests
Interest expense
Income tax provision
Depreciation and amortization
EBITDA
Foreign exchange loss (gain)
Closure costs, impairment and other related charges
(Reversal of) inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit (credits) costs
Other (income) expense, net
Adjusted EBITDA
Years Ended December 31,
2018
235
47
152
212
646
2
121
(1)
8
(145)
(50)
(7)
574
$
$
$
$
$
$
$
2017
(78)
49
84
204
259
(9)
82
24
27
(15)
(7)
3
$
364
$
2016
(76)
38
19
206
187
7
62
7
8
(2)
8
(14)
263
The operating results of our Calhoun tissue operations, previously recorded under “corporate and other,” have been recorded in
our tissue segment since April 1, 2018.
2018 vs. 2017
Operating income variance analysis
Sales
Sales were $243 million, or 7%, higher in 2018, to $3,756 million. Including restructuring initiatives, sales volume had an
unfavorable impact of $266 million, reflecting decreases of 213,000 short tons (193,000 metric tons) in shipments of specialty
papers, and 131,000 metric tons in newsprint, mainly as a result of the 2017 capacity reduction initiatives. Sales volume in
wood products also decreased, down 8%, largely due to lower production volumes and weaker market conditions in the latter
part of 2018, while market pulp shipments were essentially unchanged, despite the extended investment-related downtime at
the Saint-Félicien mill. Pricing had a $465 million favorable impact on sales, as higher average transaction prices were realized
across all business segments. The average transaction price increased 19% for market pulp, 17% for newsprint, 13% for wood
products, and 9% for specialty papers. The inclusion of our Calhoun tissue operations’ results in our tissue segment resulted in
a $44 million increase in sales.
32
Cost of sales, excluding depreciation, amortization and distribution costs
COS improved by $39 million in 2018. Restructuring initiatives reduced COS by $170 million, including the elimination of
$52 million in fixed manufacturing costs. After removing the lower volume, the COS related to Calhoun’s tissue operations,
and the effects of restructuring initiatives and the Canadian dollar fluctuation, COS increased by $112 million, reflecting:
•
•
•
•
an increase in maintenance costs ($41 million), largely due to more scheduled repairs and production disruptions;
higher energy and chemical costs ($31 million), mostly price-related;
higher market-driven wood fiber costs ($28 million);
higher labor expense ($25 million), partly due to higher short-term incentive plan expense related to the Company’s
performance, and an increase in maintenance-related labor costs; and
•
a rise in recycled fiber prices ($22 million);
partially offset by:
• write-downs of mill stores and other supplies incurred in 2017 ($24 million), primarily as a result of the permanent
closure of two paper machines at Calhoun at the end of the third quarter of 2017, a paper machine at Catawba (South
Carolina) at the end of the second quarter of 2017, and the Mokpo (South Korea) paper mill in the first quarter of
2017; and
•
higher start-up costs incurred in 2017 ($15 million), related to the Calhoun tissue manufacturing and converting
facility, as well as the restart of a paper machine in Alma (Quebec).
Distribution costs
After removing the distribution costs related to Calhoun’s tissue operations, the lower volume, and the effect of restructuring
initiatives, distribution costs increased by $59 million in 2018, largely due to higher truck and rail car rates, and an increase in
the average length of haul.
Depreciation and amortization
Depreciation and amortization was $8 million greater in 2018, mainly explained by an increase in the depreciation related to
the Calhoun tissue manufacturing and converting facility, in line with the increase in production, partly offset by a decrease in
the depreciation related to the Catawba facility, whose assets ceased to be depreciated at the end of the third quarter of 2018
when they were classified as held for sale.
Selling, general & administrative expenses
SG&A decreased by $5 million in 2018, largely reflecting:
•
•
•
cost reduction initiatives;
lower share-based compensation, which resulted from a decrease in share price; and
lower project costs;
partly offset by higher short-term incentive plan expense related to the Company’s performance.
Closure costs, impairment and other related charges
See the corresponding variance analysis under “Corporate and Other” below.
Net gain on disposition of assets
See the corresponding variance analysis under “Corporate and Other” below.
Net income (loss) variance analysis
Non-operating pension and other postretirement benefit credits
We recorded non-operating pension and OPEB credits of $50 million in 2018, compared to $7 million in the prior year. The
increase is primarily due to: lower amortization of actuarial losses for our U.S. pension plan, which became predominantly
33
inactive at year-end in 2017, resulting in a longer amortization period; higher expected return on plan assets in the current year;
and lower interest cost, as a result of the lower discount rate.
Income taxes
We recorded an income tax provision of $152 million in 2018, on income before income taxes of $387 million, compared to an
expected income tax provision of $81 million based on the U.S. federal statutory income tax rate of 21%. The difference
reflects mostly: foreign tax rate differences ($89 million), including a $65 million income tax provision attributable to the
global intangible low-taxed income (or “GILTI”) inclusion; foreign exchange items ($29 million); and the effect of a
nondeductible goodwill impairment charge ($13 million); partly offset by a $59 million valuation allowance reversal primarily
related to our U.S. operations where we recognize a valuation allowance against virtually all of our net deferred income tax
assets.
We recorded an income tax provision of $84 million in 2017, on income before income taxes of $6 million, compared to an
expected income tax provision of $1 million based on the U.S. federal statutory income tax rate of 21%. The difference
reflected mostly a $112 million valuation allowance primarily related to our U.S. operations where we recognized a valuation
allowance against virtually all of our net deferred income tax assets, and a $12 million decrease to our deferred income tax
assets due to the enactment of a lower foreign income tax rate, offset in part by state and foreign tax rate differences ($33
million), and foreign exchange items ($6 million).
On December 22, 2017, the Tax Cuts and Jobs Act (or “TCJA”) was enacted into law which, among other changes, reduced the
U.S. federal statutory income tax rate from 35% to 21%, and implemented a new system of taxation for non-U.S. earnings,
including the imposition of a one-time transition tax on deemed repatriation of undistributed earnings of non-U.S. subsidiaries.
Based on available information, we had provisionally estimated the impacts of the TCJA on our 2017 financial results, with the
exception of the effects of the newly enacted GILTI regime as we were unable to determine a reasonable estimate. During the
12-month measurement period, we completed the accounting for the impacts of the TCJA with no material changes to
provisional amounts recorded in the period of enactment. For more information, see Note 13, “Income Taxes,” to our
Consolidated Financial Statements.
Q4 of 2018 vs. Q4 of 2017
Operating income variance analysis
Sales
Sales increased by $34 million, or 4%, compared to the fourth quarter of 2017, to $932 million. Sales volume had an
unfavorable impact of $51 million, mainly reflecting a 46,000 metric ton decrease in market pulp shipments, as a result of
lower production volumes associated with the timing of scheduled outages, operational disruptions, and weather-related wood
shortages. Pricing contributed to a $72 million increase in sales, as the average transaction price increases of 21% for
newsprint, 19% for market pulp, and 15% for specialty papers, more than offset the 21% drop in wood products. The inclusion
of our Calhoun tissue operations’ results in our tissue segment increased sales by $15 million.
34
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $25 million greater in the quarter. After removing the lower volume, the COS related to Calhoun’s tissue operations,
and the effect of the Canadian dollar fluctuation, COS increased by $49 million, reflecting:
•
•
•
•
•
higher energy and chemical costs ($14 million), mainly due to higher prices;
an increase in maintenance costs ($12 million), in part due to the timing of scheduled outages;
a rise in recycled fiber prices ($9 million);
higher wood fiber costs ($8 million), mostly market-driven; and
an increase in labor expense ($7 million);
partly offset by start-up costs incurred in the year-ago period ($8 million), related to the Calhoun tissue manufacturing and
converting facility, as well as the restart of a paper machine in Alma.
Distribution costs
After removing the distribution costs related to Calhoun’s tissue operations, the lower volume, and the effect of the Canadian
dollar fluctuation, distribution costs rose by $11 million in the fourth quarter of 2018, largely due to higher truck and rail car
rates, and an increase in the average length of haul.
Depreciation and amortization
Depreciation and amortization was unchanged in the quarter, reflecting an increase in the depreciation related to the Calhoun
tissue manufacturing and converting facility, in line with the increase in production, partly offset by a decrease in the
depreciation related to the Catawba facility, whose assets ceased to be depreciated at the end of the third quarter of 2018 when
they were classified as held for sale.
Selling, general & administrative expenses
SG&A decreased by $8 million in the quarter, primarily because of lower project costs.
Closure costs, impairment and other related charges
In the fourth quarter of 2018, we recorded impairment charges of $120 million related to the assets from the 2015 acquisition of
Atlas, including: a goodwill impairment charge of $81 million; fixed assets impairment charges of $29 million; and intangible
assets impairment charges of $10 million. This compares to closure costs, impairment and other related charges of $2 million
recorded in the year-ago period.
Net gain on disposition of assets
We recorded a net gain on disposition of assets of $141 million in the fourth quarter of 2018, which included: the sale of the
paper and pulp mill at Catawba for total cash consideration of $280 million (subject to final working capital adjustments),
resulting in a net gain of $101 million; and the sale of the recycled bleached kraft (or “RBK”) pulp mill at Fairmont (West
Virginia) for total cash consideration of $62 million, resulting in a net gain of $40 million. This compares to a net gain on
disposition of assets of $13 million in the year-ago period, reflecting the sale of the assets of the permanently closed Mokpo
paper mill for cash consideration of $18 million.
Net income variance analysis
Non-operating pension and other postretirement benefit credits
We recorded non-operating pension and OPEB credits of $12 million in the quarter, compared to $1 million in the year-ago
period. The increase is due in part to lower amortization of actuarial losses for our U.S. pension plan, which became
predominantly inactive at year-end in 2017, resulting in a longer amortization period.
Income taxes
We recorded an income tax provision of $41 million in the fourth quarter of 2018, on income before income taxes of $77
million, compared to an expected income tax provision of $16 million based on the U.S. federal statutory income tax rate of
35
21%. The difference reflects mainly: foreign tax rate differences ($17 million), including a $12 million income tax provision
attributable to the GILTI inclusion; foreign exchange items ($17 million); and the effect of a nondeductible goodwill
impairment charge ($13 million); partly offset by a $19 million valuation allowance reversal primarily related to our U.S.
operations where we recognize a valuation allowance against virtually all of our net deferred income tax assets.
We recorded an income tax provision of $21 million in the fourth quarter of 2017, on income before income taxes of $36
million, compared to an expected income tax provision of $8 million based on the U.S. federal statutory income tax rate of
21%. The difference reflected an $18 million valuation allowance primarily related to our U.S. operations where we recognized
a valuation allowance against virtually all of our net deferred income tax assets, and foreign exchange items ($3 million), offset
in part by state and foreign tax rate differences ($11 million).
2017 vs. 2016
Operating income (loss) variance analysis
Sales
Sales were $32 million, or 1%, lower in 2017, to $3,513 million. Despite higher shipments in wood products and market pulp,
up 9% and 3%, respectively, sales volumes decreased, reflecting the capacity rationalization initiatives in newsprint and
specialty papers, including the permanent closure of two paper machines at Calhoun, the permanent closure of a paper machine
at Catawba, the indefinite idling of our Thorold (Ontario) paper mill in the first quarter of 2017, the permanent closure of the
Mokpo paper mill, and the permanent closure of a newsprint machine at our Augusta (Georgia) mill in the second quarter of
2016. Overall pricing had a favorable impact of $194 million, including the effect of currency of $3 million, reflecting a 23%
increase in the average transaction price for wood products, and 6% for market pulp.
Cost of sales, excluding depreciation, amortization and distribution costs
COS improved by $122 million in 2017. Restructuring initiatives reduced COS by $237 million, including the elimination of
$79 million in fixed manufacturing costs. After removing the higher volume and the effects of the Canadian dollar fluctuation
and restructuring initiatives, COS increased by $84 million, reflecting:
• write-downs of mill stores and other supplies ($24 million), primarily as a result of the permanent closure of two paper
machines at Calhoun, a paper machine at Catawba, and the Mokpo paper mill, compared to write-downs of mill stores
and other supplies recorded in 2016 ($7 million), primarily as a result of the permanent closure of a newsprint machine
at our Augusta mill;
•
•
start-up costs ($22 million) related to the Calhoun tissue manufacturing and converting facility and the restart of a
paper machine at Alma, compared to start-up costs incurred in 2016 ($6 million) for the continuous pulp digester
project and tissue manufacturing and converting facility in Calhoun;
lower contribution from our cogeneration assets that sell power externally ($8 million) and our hydroelectric facilities
($5 million), mostly due to planned maintenance outages;
•
unfavorable fiber costs ($12 million), mostly due to higher recycled fiber prices and wood costs;
36
•
•
•
•
•
higher natural gas prices ($10 million);
higher maintenance costs ($7 million);
a favorable power cost adjustment in Thunder Bay in 2016 ($6 million);
higher asset preservation costs ($6 million), primarily related to our indefinitely idled Thorold paper mill; and
the recognition of tax credits in connection with infrastructure investments in 2016 ($4 million);
partially offset by favorable chemical costs ($12 million), mainly price-related.
Distribution costs
After removing the unfavorable effect of the Canadian dollar fluctuation and the restructuring initiatives, distribution costs
increased by $23 million in 2017, primarily due to higher freight rates, including the effect of the shortage of truck drivers,
higher fuel surcharges, and an increase in the average length of haul.
Depreciation and amortization
Depreciation and amortization was $2 million lower in 2017, largely reflecting the reduced carrying value of our Coosa Pines
assets after the impairment charge taken in the second quarter of 2017, the indefinite idling of our Thorold paper mill, and the
permanent closure of a newsprint machine at our Augusta mill, partly offset by the amortization of costs associated with the
Calhoun tissue manufacturing and converting facility, and the implementation of our integrated business management software.
Selling, general & administrative expenses
SG&A increased by $23 million in 2017, mainly because of higher compensation expense, including an $8 million increase in
share-based compensation as a result of an increase in share price and the Company’s performance. The latter also caused a
$5 million increase in short-term incentive plan expense. The additional SG&A related to our tissue facility in Calhoun
contributed as well to the overall increase.
Closure costs, impairment and other related charges
See the corresponding variance analysis under “Corporate and Other” below.
Net gain on disposition of assets
See the corresponding variance analysis under “Corporate and Other” below.
Net loss variance analysis
Non-operating pension and other postretirement benefit credits (costs)
We recorded non-operating pension and OPEB credits of $7 million in 2017, compared to non-operating pension and OPEB
costs of $8 million in 2016. The increase compared to 2016 is primarily due to lower interest cost, as a result of the lower
discount rate, and higher expected return on plan assets.
Income taxes
We recorded an income tax provision of $84 million in 2017, on income before income taxes of $6 million. See the 2018 vs.
2017 variance analysis above.
We recorded an income tax provision of $19 million in 2016, on a loss before income taxes of $57 million, compared to an
expected income tax benefit of $12 million based on the U.S. federal statutory income tax rate of 21%. The difference reflected
a $99 million valuation allowance primarily related to our U.S. operations where we recognized a full valuation allowance
against our net deferred income tax assets, and foreign exchange items ($9 million), partially offset by a $55 million adjustment
primarily related to the release of previously unrecognized tax benefits due to the lapse of the statute of limitations of the
applicable jurisdictions, and state and foreign tax rate differences ($17 million).
37
Segment Earnings
We manage our business based on the products we manufacture. Our reportable segments correspond to our principal product
lines: market pulp, tissue, wood products, newsprint and specialty papers.
We do not allocate any of the income or loss items following “operating income (loss)” in our Consolidated Statements of
Operations to our segments because those items are reviewed separately by management. Similarly, we do not allocate to the
segments: closure costs, impairment and other related charges; inventory write-downs related to closures; start-up costs; gains
and losses on disposition of assets; as well as other discretionary charges or credits.
We allocate depreciation and amortization expense to our segments, although the related fixed assets and amortizable intangible
assets are not allocated to segment assets. Additionally, all SG&A are allocated to our segments, with the exception of certain
discretionary charges and credits, which we present under “corporate and other.”
38
Highlights
(In millions, except where otherwise stated)
Sales
Operating income (1)
EBITDA (2)
(In thousands of metric tons)
Shipments
Downtime
(In thousands of metric tons)
Finished goods inventory
MARKET PULP
Years Ended December 31,
2018
$
1,085
$
$
2017
911
79
110
1,425
84
December 31,
2017
89
2016
836
37
74
1,388
65
2016
91
172
199
1,424
93
2018
80
(1)
(2)
Net income including noncontrolling interests is equal to operating income in this segment.
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons
we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial
Information” above.
(In millions)
Net income including noncontrolling interests
Depreciation and amortization
EBITDA
Industry trends
Years Ended December 31,
$
2018
172
27
199
$
2017
79
31
110
$
2016
37
37
74
World demand for chemical pulp fell by 0.9% in 2018, reflecting decreases of 4.6% and 2.5% in North America and China,
respectively, while Western Europe was up 1.4%. World capacity grew by 4.7% over the same period.
39
World demand for softwood pulp fell by 3.2% in 2018. This reflects decreases in shipments to China, North America, and
Western Europe of 7.2%, 2.6%, and 1.9%, respectively. In the same period, demand for hardwood pulp was essentially
unchanged, with shipments to Western Europe up by 3.4%, while North America was down by 7.8%, and China remained
unchanged.
The operating rate for softwood pulp was 88% in 2018, and for hardwood pulp was 86%, largely reflecting industry production
disruptions, as well as softening in Chinese buying activity in the latter part of 2018.
2018 vs. 2017
Operating income variance analysis
Sales
Sales were $174 million higher, or 19%, to $1,085 million in 2018, virtually all attributable to the $123 per metric ton increase
in the average transaction price, reflecting higher market prices across all grades. Shipments were largely unchanged, despite
the extended investment-related downtime at the Saint-Félicien mill in 2018.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $64 million after adjusting for the effect of the Canadian dollar fluctuation, reflecting:
•
•
•
•
an increase in maintenance and labor costs ($23 million), largely associated with scheduled outages and production
disruptions;
higher recycled fiber prices ($22 million);
higher steam costs ($9 million), mostly due to unfavorable steam usage; and
higher chemical costs ($6 million), mostly price-related.
Distribution costs
Distribution costs rose by $16 million in 2018, largely reflecting higher truck and rail car rates, and an increase in the average
length of haul.
40
Depreciation and amortization
Depreciation and amortization was $4 million lower in 2018, largely attributable to the assets of the paper and pulp mill at
Catawba, which ceased to be depreciated at the end of the third quarter of 2018 when they were classified as held for sale.
2017 vs. 2016
Operating income variance analysis
Sales
Sales were $75 million higher, or 9%, to $911 million in 2017. The average transaction price rose by $37 per metric ton, mainly
as a result of higher market prices across all grades. Shipments were also 37,000 metric tons higher, due to improved
productivity, and incremental production following the closure of two paper machines in Calhoun, partly offset by lower
shipments of RBK, given unfavorable market conditions.
We recorded 19,000 more metric tons of downtime in 2017 compared to the prior year, mainly as a result of additional
production slowback at the RBK mills.
Cost of sales, excluding depreciation, amortization and distribution costs
COS increased by $30 million in 2017. After removing the higher volume and the effect of the Canadian dollar fluctuation,
manufacturing costs increased by $14 million, reflecting:
•
•
•
•
higher maintenance and labor costs ($6 million);
higher fiber costs ($5 million), mostly due to higher recycled fiber prices, offset in part by better usage;
higher natural gas prices ($4 million); and
lower contribution from our cogeneration assets in Saint-Félicien that sell power externally ($4 million);
partly offset by favorable chemical costs ($4 million).
Depreciation and amortization
Depreciation and amortization was $6 million lower in 2017, largely reflecting the reduced carrying value of our Coosa Pines
assets after the impairment charge taken in the second quarter of 2017.
41
TISSUE
Highlights
(In millions, except where otherwise stated)
Sales
Operating loss (1)
EBITDA (2)
(In thousands of short tons)
Shipments (3)
Downtime
(In thousands of short tons)
Finished goods inventory (3)
$
Years Ended December 31,
2018
130
(30)
(15)
84
2
2018
5
$
$
2017
81
(6)
(1)
53
1
December 31,
2017
11
2016
89
(10)
(5)
54
—
2016
5
(1)
(2)
(3)
Net loss including noncontrolling interests is equal to operating loss in this segment.
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons
we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial
Information” above.
Tissue converted products, which are measured in cases, are converted to short tons.
(In millions)
Net loss including noncontrolling interests
Depreciation and amortization
EBITDA
$
Years Ended December 31,
2018
(30)
15
(15)
$
2017
(6)
5
(1)
$
2016
(10)
5
(5)
The operating results of our Calhoun tissue operations, previously recorded under “corporate and other,” have been recorded in
our tissue segment since April 1, 2018.
Industry trends
42
Total tissue consumption in the U.S. grew by 2.5% in 2018. U.S. converted tissue products shipments were up by 2.1%, led by
away-from home shipments, which grew by 3.4%, while at-home shipments increased by 1.5%. U.S. parent roll production
increased by 1.6% in 2018, contributing to a 93% average industry production-to-capacity ratio, unchanged from 2017.
2018 vs. 2017
Operating loss variance analysis
Sales
Sales were $49 million greater, or 60%, to $130 million in 2018, reflecting an increase in shipments of 31,000 short tons
attributable to the inclusion of Calhoun’s results in our tissue segment since April 1, 2018, and favorable product mix. Sales
volumes from our Calhoun tissue facility increased in 2018, reflecting growing Resolute tissue brand awareness in the
marketplace.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the higher volume and the COS related to Calhoun’s operations, our manufacturing costs increased by $1
million in 2018, mainly due to scheduled maintenance costs. The operating cost per unit remained elevated at $1,916 per short
ton, as we continued to ramp up the production of the tissue machine and converting lines at Calhoun in 2018, with a focus on
improving productivity and quality.
Depreciation and amortization
Depreciation and amortization was $10 million higher in 2018, mostly attributable to the inclusion of Calhoun’s results in our
tissue segment.
43
2017 vs. 2016
Operating loss variance analysis
The operating loss variance analysis for the tissue segment includes only the results of Atlas. The operating loss, excluding
depreciation and amortization, of $25 million incurred in 2017, for our Calhoun tissue manufacturing and converting facility,
was recorded as start-up costs under “corporate and other.”
Sales
Sales were $8 million lower, or 9%, to $81 million in 2017. The average transaction price dropped by $114 per short ton, or
7%, as a result of unfavorable product mix. The decrease in shipments was mainly attributable to converted products, in part
due to the discontinuance of unprofitable away-from-home business, mostly offset by an increase in parent roll shipments.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the lower volume, our manufacturing costs improved by $6 million in 2017, despite facility damage and
business interruption costs associated with Hurricane Irma. The cost improvement was primarily attributable to lower
maintenance and related labor costs, improved material usage, as well as integration costs recorded in 2016.
44
WOOD PRODUCTS
Highlights
(In millions, except where otherwise stated)
Sales
Operating income (1)
EBITDA (2)
(In million board feet)
Shipments (3)
Downtime (3)
(In million board feet)
Finished goods inventory (3)
$
Years Ended December 31,
2018
823
169
201
1,846
147
2018
157
$
$
2017
797
186
219
2,011
130
December 31,
2017
124
2016
596
69
100
1,844
199
2016
124
(1)
(2)
(3)
Net income including noncontrolling interests is equal to operating income in this segment.
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons
we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial
Information” above.
Includes wood pellets measured by mass, converted to board feet using a density-based conversion ratio.
(In millions)
Net income including noncontrolling interests
Depreciation and amortization
EBITDA
Industry trends
Years Ended December 31,
$
2018
169
32
201
$
2017
186
33
219
$
2016
69
31
100
2018 U.S. housing starts were 1.2 million, up by 3.6% compared to 2017, which reflects a 5.5% increase in multi-family starts,
and a 2.8% increase in single-family starts.
45
2018 vs. 2017
Operating income variance analysis
Sales
Sales were $26 million higher, or 3%, to $823 million in 2018. The average transaction price rose by $50 per thousand board
feet, or 13%, largely due to supply constraints in the first half of the year, partly offset by weaker lumber market conditions in
the latter part of 2018. Shipments, however, were lower by 165 million board feet, reflecting:
•
•
•
a temporary production curtailment of 10% in the fourth quarter of 2018, given challenging market and weather
conditions;
lower productivity; and
the sale of the Saint-Hilarion (Quebec) sawmill and the consolidation of our two sawmills at Senneterre in the third
quarter of 2017.
Despite market and weather-related production curtailment in the fourth quarter of 2018, finished goods inventory increased to
157 million board feet.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the lower volume and the effect of the Canadian dollar fluctuation, manufacturing costs increased by
$67 million, reflecting: higher wood fiber costs ($51 million), almost entirely market-driven; and an increase in maintenance
costs ($9 million).
Distribution costs
After removing the lower volume, distribution costs increased by $7 million in 2018, mostly reflecting higher freight rates.
46
2017 vs. 2016
Operating income variance analysis
Sales
Sales were $201 million higher, or 34%, to $797 million in 2017. Shipments were higher by 167 million board feet, reflecting
improved productivity for certain sawmills, incremental capacity from our sawmill in Senneterre – Lac-Clair (Quebec), which
has been consolidated with our Senneterre sawmill, as well as a 69 million board feet reduction in downtime compared to 2016,
which included downtime taken due to unfavorable pricing for eight-foot stud grades. The average transaction price increased
by $73 per thousand board feet, or 23%, largely due to supply constraints from a very active 2017 forest fire season in British
Columbia and marginally improving demand in the U.S. housing market.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the higher volume and the effect of the Canadian dollar fluctuation, manufacturing costs increased by
$28 million, reflecting higher fiber costs ($12 million), including higher stumpage fees in the province of Quebec and higher
transportation costs, and higher maintenance, log yard and other related costs ($8 million).
Distribution costs
After removing the higher volume and the effect of the Canadian dollar fluctuation, distribution costs increased by $6 million,
primarily as a result of higher freight rates.
47
NEWSPRINT
Highlights
(In millions, except where otherwise stated)
Sales
Operating income (loss) (1)
EBITDA (2)
(In thousands of metric tons)
Shipments
Downtime
(In thousands of metric tons)
Finished goods inventory
Years Ended December 31,
$
2018
907
74
140
1,507
22
2018
101
$
2017
842
(23)
43
1,638
55
$
2016
1,009
(16)
58
1,992
81
December 31,
2017
78
2016
105
(1)
(2)
Net income (loss) including noncontrolling interests is equal to operating income (loss) in this segment.
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons
we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial
Information” above.
(In millions)
Net income (loss) including noncontrolling interests
Depreciation and amortization
EBITDA
Industry trends
Years Ended December 31,
$
2018
74
66
140
$
2017
(23)
66
43
$
2016
(16)
74
58
North American demand for newsprint declined by 11.1% in 2018, driven by a reduction in demand from newspaper
publishers, down by 14.0%. Demand from commercial printers also decreased, dropping by 6.5%. The North American
shipment-to-capacity ratio was 94% in 2018, unchanged from the prior year.
48
Global demand for newsprint was down by 7.8% in 2018, with Western Europe down 8.2%, and Asia 6.8%. The global
operating rate was 90%, unchanged from 2017.
2018 vs. 2017
Operating income (loss) variance analysis
Sales
Newsprint sales increased by $65 million, or 8%, to $907 million in 2018, reflecting an increase of $88 per metric ton in the
average transaction price, as price increases were realized in both North American and export markets. Shipments, however,
were lower by 131,000 metric tons, or 8%, mostly due to the paper machine closures at Calhoun, and the permanent closure of
the Mokpo paper mill. We recorded 22,000 metric tons of downtime in 2018, compared to 55,000 metric tons in the prior year,
which included downtime taken in the latter part of 2017 due to softer market conditions.
Compared to 2017, our domestic shipments fell by 11%, and our international shipments by 4%. Domestic shipments
represented 61% of total newsprint shipments in 2018, essentially unchanged from 2017.
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $36 million lower in 2018. Restructuring initiatives reduced COS by $60 million, including the elimination of
$18 million in fixed manufacturing costs. After removing the lower volume and the effects of the Canadian dollar fluctuation
and restructuring initiatives, manufacturing costs increased by $27 million, reflecting:
•
•
•
•
higher maintenance and labor costs ($23 million), mainly due to more planned repairs and production disruptions;
higher power prices ($5 million), largely related to unusual weather conditions in 2018;
lower contribution from our cogeneration facilities ($3 million), mostly the result of a turbine failure; and
higher chemical costs ($3 million), mostly price-related;
partly offset by lower wood fiber costs ($11 million), almost entirely market-driven.
Distribution costs
After removing the lower volume and the effect of restructuring initiatives, distribution costs increased by $15 million, mainly
due to higher truck and rail car rates, and an increase in the average length of haul.
49
2017 vs. 2016
Operating loss variance analysis
Sales
Newsprint sales dropped by $167 million, or 17%, to $842 million in 2017, reflecting a 354,000 metric ton decrease in
shipments, due to the lower production volumes following the paper machine closures at Calhoun, the indefinite idling of our
Thorold paper mill, the permanent closure of the Mokpo paper mill, and the permanent closure of a newsprint machine at our
Augusta mill. In 2017, global capacity reductions exceeded declines in demand, resulting in favorable short-term market
conditions for newsprint, particularly in the latter part of the year. The average transaction price increased by $8 per metric ton,
as price increases were realized in North America, and our finished goods inventory fell by 27,000 metric tons.
Compared to 2016, our international shipments fell by 21%, and our domestic shipments by 15%. Accordingly, our domestic
shipments represented 62% of total newsprint shipments in 2017, up by 1% from 2016.
We recorded 55,000 metric tons of downtime in 2017, compared to 81,000 metric tons in the prior year, which included
downtime related to our Thorold paper mill, which has since been indefinitely idled.
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $141 million lower in 2017. Restructuring initiatives reduced COS by $172 million, including the elimination of
$47 million in fixed manufacturing costs. After removing the higher volume and the effects of the Canadian dollar fluctuation
and restructuring initiatives, manufacturing costs increased by $21 million, reflecting:
•
•
higher power costs ($10 million), mostly due to a favorable adjustment in Thunder Bay in 2016, and unfavorable
usage;
lower contribution from our cogeneration facilities ($6 million), mostly the result of a more extensive planned
maintenance outage in 2017 at Thunder Bay; and
•
unfavorable steam costs ($3 million), mainly due to higher natural gas prices.
Distribution costs
After removing the effect of restructuring initiatives, distribution costs increased by $7 million, primarily as a result of higher
freight rates, higher fuel surcharges, and an increase in the average length of haul.
50
Depreciation and amortization
The lower depreciation and amortization was due to the indefinite idling of our Thorold paper mill and the permanent closure
of a newsprint machine at our Augusta mill.
Selling, general and administrative expenses
The higher overall SG&A were mostly offset by lower allocated expenses as a result of capacity reductions.
51
SPECIALTY PAPERS
Highlights
(In millions, except where otherwise stated)
Sales
Operating income (loss) (1)
EBITDA (2)
(In thousands of short tons)
Shipments
Downtime
(In thousands of short tons)
Finished goods inventory
Years Ended December 31,
$
2018
811
40
87
1,130
21
2018
54
$
2017
882
(9)
36
1,343
33
December 31,
2017
66
2016
$
1,015
19
64
1,514
22
2016
92
(1)
(2)
Net income (loss) including noncontrolling interests is equal to operating income (loss) in this segment.
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons
we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial
Information” above.
(In millions)
Net income (loss) including noncontrolling interests
Depreciation and amortization
EBITDA
Industry trends
Years Ended December 31,
$
2018
40
47
87
$
2017
(9)
45
36
$
2016
19
45
64
North American demand for uncoated mechanical papers was down by 6.1% in 2018. Lower demand for standard papers drove
this decline, decreasing by 8.7%, while the demand for supercalendered (or “SC”) grades was down by only 0.7%. The
operating rate increased to 92%, compared to 90% in the prior year.
52
North American coated mechanical paper demand was down by 7.6% in 2018. Industry production, however, was significantly
lower, down by 324,000 short tons, or 13.8%, while imports rose by 88,000 short tons, or 22.3%. Operating rates in North
America were 95% in 2018, unchanged from 2017. With the sale of the Catawba facility, we have exited coated mechanical
grades.
2018 vs. 2017
Operating income (loss) variance analysis
Sales
Specialty paper sales decreased by $71 million, or 8%, to $811 million in 2018. While the average transaction price rose by $61
per short ton, reflecting price increases across all grades, shipments decreased by 213,000 short tons, or 16%, largely due to the
permanent closure of two paper machines at Calhoun and one paper machine at Catawba.
53
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $120 million lower in 2018. Restructuring initiatives reduced COS by $110 million, including the elimination of
$34 million in fixed manufacturing costs. After removing the lower volume and the effects of the Canadian dollar fluctuation
and restructuring initiatives, manufacturing costs improved by $6 million, reflecting:
•
•
lower wood fiber costs ($11 million), almost entirely market-driven; and
higher internal hydroelectric generation ($8 million), due to investments in 2017, in part to improve productivity;
offset in part by:
•
•
•
higher power and steam costs ($5 million), mostly due to unfavorable steam usage;
an increase in maintenance and related labor costs ($5 million); and
higher chemical prices ($4 million).
Distribution costs
After removing the lower volume and the effect of restructuring initiatives, distribution costs increased by $19 million,
reflecting higher freight rates, and an increase in the average length of haul.
2017 vs. 2016
Operating (loss) income variance analysis
Sales
Specialty paper sales decreased by $133 million, or 13%, to $882 million in 2017. The average transaction price dropped by
$14 per short ton, despite some pricing gains realized in the latter part of 2017. Shipments were 171,000 short tons lower, or
11%, mainly in white and coated paper grades, largely due to declining market conditions, which led to the permanent closure
of two paper machines at Calhoun, and one paper machine at Catawba, partly offset by an increase due to the restart of a paper
machine at Alma. Finished goods fell by 26,000 short tons.
54
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $102 million lower in 2017. Restructuring initiatives reduced COS by $65 million, including the elimination of
$32 million in fixed manufacturing costs. After removing the lower volume and the effects of the Canadian dollar fluctuation
and restructuring initiatives, manufacturing costs improved by $9 million, reflecting:
•
•
•
favorable chemical costs ($9 million), mainly price-related;
lower power costs ($5 million), mostly price-related; and
higher contribution from our cogeneration assets in Dolbeau that sell power externally ($2 million);
offset in part by:
•
•
unfavorable steam costs ($6 million), mostly due to higher natural gas prices; and
lower internal hydroelectric generation ($5 million), due to a planned maintenance outage.
Distribution costs
After removing the lower volume, the restructuring initiatives, and the Canadian dollar fluctuation, distribution costs increased
by $8 million, primarily as a result of an increase in the average length of haul, and higher freight rates, including the effect of
the shortage of truck drivers.
Selling, general and administrative expenses
The higher overall SG&A were mostly offset by lower allocated expenses as a result of capacity reductions.
55
CORPORATE AND OTHER
Highlights
(In millions)
Cost of sales, excluding depreciation, amortization and distribution costs
Depreciation and amortization
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Net gain on disposition of assets
Operating loss
Interest expense
Non-operating pension and other postretirement benefit credits (costs)
Other income, net
Income tax provision
Net loss including noncontrolling interests
Years Ended December 31,
2018
(12)
(25)
(33)
(121)
145
(46)
(47)
50
5
(152)
(190)
$
$
$
2017
(53)
(24)
(41)
(82)
15
(185)
(49)
7
6
(84)
(305)
$
$
$
2016
(17)
(14)
(26)
(62)
2
(117)
(38)
(8)
7
(19)
(175)
$
$
$
The table below shows the reconciliation of net loss including noncontrolling interests to EBITDA and adjusted EBITDA,
which are non-GAAP financial measures. For more information on the calculation and reasons we include these measures, see
note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial Information” above.
(In millions)
Net loss including noncontrolling interests
Interest expense
Income tax provision
Depreciation and amortization
EBITDA
Foreign exchange loss (gain)
Closure costs, impairment and other related charges
(Reversal of) inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit (credits) costs
Other (income) expense, net
Adjusted EBITDA
Years Ended December 31,
2018
(190)
47
152
25
34
2
121
(1)
8
(145)
(50)
(7)
(38)
$
$
$
2017
(305)
49
84
24
(148)
(9)
82
24
27
(15)
(7)
3
(43)
$
$
$
2016
(175)
38
19
14
(104)
7
62
7
8
(2)
8
(14)
(28)
$
$
$
56
2018 vs. 2017
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $12 million in 2018, mainly reflecting:
•
•
start-up costs ($7 million) for the Calhoun tissue manufacturing and converting facility in the first quarter of 2018; and
asset preservation costs ($6 million), primarily related to our indefinitely idled Thorold paper mill and our
permanently closed Fort Frances (Ontario) mill.
In 2017, we incurred COS of $53 million, which included:
• write-downs of mill stores and other supplies ($24 million), primarily related to the permanent closure of two paper
machines at Calhoun, a paper machine at Catawba, and the Mokpo paper mill;
•
•
start-up costs ($22 million) related to the Calhoun tissue manufacturing and converting facility, and the restart of a
paper machine in Alma; and
asset preservation costs ($9 million), primarily related to our indefinitely idled Thorold paper mill and our
permanently closed Fort Frances mill.
Selling, general and administrative expenses
SG&A decreased by $8 million in 2018, mainly because of: higher start-up costs incurred in 2017, related to the Calhoun tissue
manufacturing and converting facility; lower share-based compensation; and lower project costs.
Closure costs, impairment and other related charges
In 2018, we recorded closure costs, impairment and other related charges of $121 million, mostly reflecting impairment charges
of $120 million related to the assets from the 2015 acquisition of Atlas, including: a goodwill impairment charge of $81
million; fixed assets impairment charges of $29 million; and intangible assets impairment charges of $10 million.
This compares to closure costs, impairment and other related charges of $82 million in 2017, comprised of:
•
•
•
a long-lived asset impairment charge related to our Coosa Pines pulp mill ($55 million);
a long-lived asset impairment charge ($5 million) and severance and other closure-related costs ($4 million) in
connection with the permanent closure of a paper machine at the Catawba mill;
accelerated depreciation ($6 million) and severance and other closure-related costs ($2 million) associated with the
permanent closure of two paper machines at Calhoun; and
•
severance and other costs related to the permanent closure of the Mokpo paper mill ($7 million).
Net gain on disposition of assets
In 2018, we recorded a net gain on disposition of assets of $145 million, reflecting: the sale of the paper and pulp mill at
Catawba for total cash consideration of $280 million (subject to final working capital adjustments), resulting in a net gain of
$101 million; and the sale of the RBK pulp mill at Fairmont for total cash consideration of $62 million, resulting in a net gain
of $40 million. This compares to a net gain on disposition of assets of $15 million recorded in 2017, including the sale of the
assets of the permanently closed Mokpo paper mill for a cash consideration of $18 million, resulting in a net gain of $13
million.
2017 vs. 2016
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $53 million in 2017 (as further discussed above) compared to $17 million in 2016, which included:
• write-downs of mill stores and other supplies ($7 million), mostly as a result of the permanent closure of a newsprint
machine at our Augusta mill;
•
start-up costs ($6 million) for the tissue manufacturing and converting facility and the continuous pulp digester
project, both located in Calhoun; and
57
•
asset preservation costs ($3 million), primarily for our permanently closed Fort Frances mill.
Depreciation and amortization
Depreciation and amortization was $10 million higher in 2017, mainly because of the amortization of costs associated with the
Calhoun tissue manufacturing and converting facility, and the additional costs related to the implementation of our integrated
business management software.
Selling, general and administrative expenses
SG&A were $15 million higher in 2017, mainly because of higher compensation expense, including an $8 million increase in
share-based compensation as a result of an increase in share price and the Company’s performance. The latter also caused an
increase in short-term incentive plan expense. The additional SG&A related to our tissue facility in Calhoun, recorded as start-
up costs ($3 million), contributed as well to the overall increase.
Closure costs, impairment and other related charges
We recorded closure costs, impairment and other related charges of $82 million in 2017 (as further discussed above) compared
to $62 million in 2016, which primarily included accelerated depreciation in connection with the permanent closure of a
newsprint machine at our Augusta mill, and long-lived asset impairment charges mostly related to the Mokpo recycled
newsprint assets, due to declining market conditions and rising recycled fiber prices.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
We rely on cash and cash equivalents, net cash provided by operations, and our revolving credit facilities to fund our
operations, make pension contributions, and finance our working capital, capital expenditures, and duty cash deposits. In
addition, from time to time we may use available cash to reduce debt and to return capital to shareholders, including through
share repurchases or special dividends. As of December 31, 2018, we had cash and cash equivalents of $304 million and
availability of $517 million under our revolving credit facilities.
Based on our current projections, we expect to have sufficient financial resources available to finance our business plan, make
pension contributions, meet working capital and cash duty deposit requirements, and maintain an appropriate level of capital
spending.
Based on market conditions, we may seek to retire, repay or refinance our outstanding indebtedness, including under our
5.875% senior unsecured notes due 2023 (or the “2023 notes”) and credit facilities, through redemptions, prepayments, open
market purchases or individually negotiated transactions, as we continue to focus on reducing costs and enhancing our
flexibility.
The 2023 notes
The 2023 notes, issued on May 8, 2013, are unsecured and are guaranteed by substantially all of our U.S. subsidiaries. The
2023 notes bear interest at a rate of 5.875%; they were sold at an offering price of 99.062% of the $600 million aggregate
principal amount and began paying interest semi-annually on November 15, 2013.
The terms of the 2023 notes impose certain restrictions, subject to a number of exceptions and qualifications, including limits
on our ability to:
•
•
•
•
incur, assume or guarantee additional indebtedness;
issue redeemable stock and preferred stock;
pay dividends or make distributions or redeem or repurchase capital stock;
prepay, redeem or repurchase certain debt;
• make loans and investments;
•
•
incur liens;
restrict dividends, loans or transfer assets from our subsidiaries;
58
•
•
•
•
sell or otherwise dispose of assets, including capital stock of subsidiaries;
consolidate or merge with or into, or sell substantially all of our assets to, another person;
enter into transactions with affiliates; and
enter into new lines of business.
The 2023 notes are redeemable, in whole or in part, since May 15, 2017, at the redemption prices specified in the 2023 notes
indenture, plus accrued and unpaid interest. We could be required to make an offer to purchase the notes upon the sale of
certain assets or upon a change of control.
On January 3, 2019 (the “closing date”), we repurchased $225 million in aggregate principal amount of the 2023 notes,
pursuant to a notes purchase agreement entered into on December 21, 2018, with certain noteholders, at a purchase price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the closing date.
Senior secured credit facility
On September 7, 2016, we entered into a senior secured credit facility (or the “Senior secured credit facility”) for up to $185
million. The Senior secured credit facility provides a term loan of $46 million with a maturity date of September 7, 2025 (or the
“Term loan”), a revolving credit facility of up to $139 million with a maturity date of September 7, 2022 (or the “Revolving
credit facility”), and also provides an uncommitted option to increase the Senior secured credit facility by up to $175 million,
subject to certain terms and conditions. As of December 31, 2018, we had $139 million of availability under the Revolving
credit facility, which was undrawn.
The obligations under the Senior secured credit facility are guaranteed by certain material U.S. subsidiaries of the Company
and are secured by a first priority mortgage on the real property of our Calhoun facility and a first priority security interest on
the fixtures and equipment located therein, and related assets.
Interest rates under the Senior secured credit facility are based, at the Company’s election, on either a floating rate based on the
London Interbank Offered Rate (or the “LIBOR”), or a base rate, in each case plus a spread over the index. The base rate is the
highest of (i) the prime rate; (ii) the federal funds effective rate plus 0.5%; and (iii) the one-month LIBOR plus 1%. The
applicable spread over the index fluctuates quarterly based upon the Company’s capitalization ratio, which is defined as the
ratio of the Company’s funded indebtedness to the sum of the Company’s funded indebtedness and its net worth. For the Term
loan, the applicable spread ranges from 0.875% to 1.5% for base rate loans, and from 1.875% to 2.5% for LIBOR loans. For
loans under the Revolving credit facility, the applicable spread ranges from 0.5% to 1.125% for base rate loans, and from 1.5%
to 2.125% for LIBOR loans. The Senior secured credit facility was issued by lenders within the farm credit system and is
eligible for patronage refunds. Patronage refunds are distributions of profits from lenders in the farm credit system, which are
cooperatives that are required to distribute profits to their members. Patronage distributions, which are made in either cash or
stock, are received in the year after they were earned. Future refunds are dependent on future farm credit lender profits, made at
the discretion of each farm credit lender.
In addition to paying interest on outstanding principal under the Senior secured credit facility, we are required to pay a fee in
respect of unutilized commitments under the Revolving credit facility equal to 0.325% per annum when average daily
utilization under the Revolving credit facility for the prior fiscal quarter is less than or equal to 35% of the total revolving
commitments, and 0.275% per annum when average daily utilization under the Revolving credit facility for the prior fiscal
quarter is greater than 35% of the total revolving commitments.
Base rate loans under the Senior secured credit facility may be repaid from time to time at our discretion without premium or
penalty. LIBOR loans may be repaid from time to time at our discretion, subject to breakage costs, if any. Amounts repaid on
the Term loan may not be subsequently re-borrowed. Principal amounts under the Revolving credit facility may be drawn,
repaid, and redrawn until September 6, 2022.
Pursuant to the Senior secured credit facility, we are also required to maintain a capitalization ratio not greater than 45% at all
times, available liquidity of not less than $100 million, and a collateral coverage ratio of not less than 1.8 to 1.0 (each as
defined in the Senior secured credit facility). In addition, the Senior secured credit facility contains certain covenants applicable
to the Company and its subsidiaries, including, among others: (i) requirements to deliver financial statements, other reports and
notices; (ii) restrictions on the existence or incurrence and repayment of indebtedness; (iii) restrictions on the existence or
incurrence of liens; (iv) restrictions on the Company and certain of its subsidiaries making certain restricted payments; (v)
restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations, and asset dispositions; (vii)
restrictions on transactions with affiliates; and (viii) restrictions on modifications to material indebtedness. The Senior secured
59
credit facility includes customary representations and warranties, and, subject to customary grace periods and notice
requirements, also contains certain customary events of default.
ABL credit facility
On May 22, 2015, we entered into a five-year credit agreement for a senior secured asset-based revolving credit facility (or the
“ABL credit facility”), with an aggregate lender commitment of up to $600 million at any time outstanding, subject to
borrowing base availability based on specified advance rates, eligibility criteria and customary reserves. The ABL credit facility
will mature on May 22, 2020. As of December 31, 2018, we had $378 million of availability under the ABL credit facility,
which was undrawn except for $53 million of ordinary course letters of credit outstanding.
The aggregate lender commitment under the facility includes a $60 million swingline sub-facility and a $200 million letter of
credit sub-facility, and we may convert up to $50 million of the commitments under the facility to a first-in last-out facility (or
“FILO facility”), subject to the consent of each converting lender. The ABL credit facility also provides for an uncommitted
ability to increase the revolving credit facility by up to $500 million, subject to certain terms and conditions set forth in the
agreement.
Revolving loan (and letter of credit) availability under the credit agreement is subject to a borrowing base, which is determined
on the basis of eligible accounts receivable, inventory, and cash and the value of permitted investments held in deposit accounts
controlled solely by the administrative and collateral agent. The FILO facility is also subject to a borrowing base, which is
determined on the basis of eligible accounts receivable and inventory.
The obligations under the credit agreement are guaranteed by certain material subsidiaries of the Company and are secured by
first priority security interests in accounts receivable, inventory and related assets.
Loans under the credit agreement bear interest at a rate equal to the base rate, the LIBOR, or the Canadian banker’s acceptance
(or “BA”) rate, in each case plus an applicable margin. The applicable margin is between 0.00% and 0.75% with respect to base
rate loans and between 1.00% and 1.75% with respect to LIBOR and Canadian BA loans, in each case based on availability
under the credit facility and a leverage ratio.
Loans outstanding under the FILO facility bear interest at a rate that is 1.25% per annum higher than the interest rate payable
on revolving loans not made under the FILO facility.
In addition to paying interest on outstanding principal under the ABL credit facility, we are required to pay a fee in respect of
unutilized commitments under the ABL credit facility equal to 0.30% per annum when average daily utilization under the ABL
credit facility for the prior fiscal quarter is less than 35% of the total revolving commitments, and 0.25% per annum when
average daily utilization under the ABL credit facility for the prior fiscal quarter is greater than or equal to 35% of the total
revolving commitments, as well as a fee in respect of outstanding letters of credit (equal to the applicable margin in respect of
LIBOR and Canadian BA loans plus a fronting fee of 0.125% and certain administrative fees).
Base rate loans under the ABL credit facility may be repaid from time to time at our discretion without premium or penalty.
LIBOR and Canadian BA rate loans may be repaid from time to time at our discretion, subject to breakage costs, if any.
However, no loans under the FILO facility can be repaid unless all other loans under the credit agreement are repaid first. We
are required to repay outstanding loans that exceed the maximum availability then in effect.
The credit agreement contains customary covenants for asset-based credit agreements of this type, including, among other
things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence
and repayment of indebtedness by the Company and its subsidiaries; (iii) restrictions on the existence or incurrence of liens by
the Company and its subsidiaries; (iv) restrictions on the Company and certain of its subsidiaries making certain restricted
payments; (v) restrictions on the Company and certain of its subsidiaries making certain investments; (vi) restrictions on certain
mergers, consolidations and asset dispositions; (vii) restrictions on transactions with affiliates; (viii) restrictions on amendments
or modifications to the Canadian pension plans; (ix) restrictions on modifications to material indebtedness; and (x) a springing
requirement for the Company to maintain a minimum consolidated fixed charge coverage ratio, as determined under the credit
agreement, of 1.0:1.0, anytime availability under the facility falls below the greater of $50 million or 10% of the maximum
available borrowing amount for two consecutive business days. Subject to customary grace periods and notice requirements,
the credit agreement also contains certain customary events of default.
60
Credit rating risk
Although our debt agreements do not include any provision that would require material changes in payment schedules or
terminations as a result of a credit rating downgrade, we believe our access to capital markets at a reasonable cost is determined
in part by credit quality. A credit rating downgrade could impact our ability to access capital markets at a reasonable cost.
Standard & Poor’s
Senior unsecured debt
Long-term corporate credit rating
Outlook (1)
Moody’s Investors Service
Senior unsecured debt
Corporate family rating
Outlook
Liquidity rating
December 31,
2018
2017
2016
B+
BB-
B+
BB-
B+
BB-
Stable
Negative
Negative
B1
Ba3
Stable
SGL-1
B2
B1
Stable
SGL-1
B1
Ba3
Stable
SGL-1
(1)
On January 7, 2019, Standard & Poor's revised the Company’s outlook from stable to positive.
Subject to other factors affecting the credit markets as a whole, we believe our current ratings should provide a significant
degree of flexibility in obtaining funds on competitive terms. These ratings reflect the views of the rating agencies only. An
explanation of the significance of these ratings can be obtained from each rating agency. The ratings are not a recommendation
to buy, sell or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.
Flow of Funds
Summary of cash flows
A summary of cash flows for the years ended December 31, 2018, 2017 and 2016 was as follows:
(In millions)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents, and restricted cash
2018 vs. 2017
Net cash provided by operating activities
Years Ended December 31,
2018
435
146
(281)
(4)
296
$
$
2017
158
(191)
3
6
(24)
$
$
2016
81
(273)
169
1
(22)
$
$
We generated $435 million of cash from operating activities in 2018, compared to $158 million last year. The increase is almost
all attributable to higher profitability. The year-ago period also included cash closure costs in connection with the permanent
closures of paper machines at the Catawba and Calhoun paper mills, as well as the permanent closure of the paper mill at
Mokpo.
Net cash provided by (used in) investing activities
Investing activities provided $146 million of cash in 2018, compared to cash used of $191 million in the prior year. The
difference reflects:
•
the disposition of the assets of the Catawba and Fairmont mills for total net proceeds of $333 million in the current
year; and
61
•
the refund in 2018 of substantially all of the cash deposits of $61 million made on our U.S. imports of SC paper
produced at our Canadian mills;
offset in part by:
•
•
higher countervailing and anti-dumping duty cash deposits on our imports of softwood lumber products to the U.S.
from our Canadian sawmills ($51 million); and
the disposition of the assets of the permanently closed paper mill in Mokpo in 2017, for a cash consideration of $18
million.
Net cash (used in) provided by financing activities
We fully repaid our outstanding borrowings of $144 million under our revolving credit facilities and paid a special dividend of
$1.50 per share, or $136 million, on our common stock in 2018. This compares to a net increase in borrowings of $19 million
in the year-ago period, and a cash payment of $15 million for the acquisition of the 49% equity interest held by The New York
Times Company in Donohue Malbaie Inc. We already owned 51% of the shares of Donohue Malbaie Inc.
2017 vs. 2016
Net cash provided by operating activities
We generated $158 million of cash from operating activities in 2017, compared to $81 million in 2016. The increase is mainly
attributable to higher profitability, and lower pension contributions, partly offset by higher working capital and start-up costs
for the tissue manufacturing and converting facility in Calhoun.
Net cash used in investing activities
We used $191 million in investing activities in 2017, a decrease of $82 million compared to the previous year, reflecting lower
cash invested in fixed assets of $85 million, mainly due to the substantial completion of the tissue manufacturing and
converting facility in Calhoun in the first quarter of 2017, and the disposition of the assets of the permanently closed paper mill
in Mokpo in 2017, for a cash consideration of $18 million, offset in part by countervailing and anti-dumping duty cash deposits
of $26 million on our imports of softwood lumber products to the U.S. from our Canadian sawmills in 2017.
Net cash provided by financing activities
We borrowed $19 million under our credit facilities in 2017, compared to $171 million in 2016, primarily to support the tissue
project, which was substantially completed at the end of the first quarter of 2017. We also acquired in 2017 the 49% equity
interest held by The New York Times Company in Donohue Malbaie Inc. for a cash purchase price of $15 million.
2019 outlook
For 2019, we expect to invest $160 million in capital expenditures, net of support under existing business development
programs, including the next phase in our organic capacity growth project at Saint-Félicien, and a number of investments to
improve productivity and yields at our sawmills.
As further discussed above, on January 3, 2019, we repurchased $225 million in aggregate principal amount of the 2023 notes.
Countervailing duty and anti-dumping investigations
Beginning October 15, 2015, we were required to pay cash deposits at a subsidy rate of 17.87% for estimated countervailing
duties on our U.S. imports of SC paper produced at our Canadian mills. On March 21, 2018, Verso Corporation, the sole
remaining U.S. SC paper petitioner, filed a request with the U.S. Department of Commerce (or “Commerce”) for a changed
circumstances review to revoke the countervailing duty order, retroactive to August 3, 2015, and for Commerce to refund all
countervailing duty deposits with interest. On May 8, 2018, Commerce announced the initiation of a changed circumstances
review, and on July 6, 2018, Commerce signed the revocation order. As a result, we were refunded substantially all of the cash
deposits of $61 million made on our U.S. imports of SC paper produced at our Canadian mills, plus interest, and no further
cash deposits are required going forward.
We also became required to pay cash deposits for estimated countervailing duties and anti-dumping duties on our U.S. imports
of softwood lumber products produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of
62
December 31, 2018, the rates for these estimated countervailing duties and anti-dumping duties were 14.7% and 3.2%,
respectively. Based on our current operating parameters, the cash deposits could be as high as $75 million per year.
Additionally, since January 16, 2018, we had been required to make cash deposits at a subsidy rate of 4.42% for estimated
countervailing duties on uncoated groundwood (or “UGW”) paper we import to the U.S. from our Canadian mills. On August
29, 2018, the U.S. International Trade Commission determined that the U.S. UGW paper producer was not materially injured
nor threatened with material injury by U.S. imports of Canadian-origin UGW paper, and that no countervailing duty or anti-
dumping orders would be issued. As a result, we will receive a refund of all cash deposits made on our U.S. imports of UGW
paper produced at our Canadian mills, plus interest, and no further cash deposits are required going forward. Through
December 31, 2018, cash deposits to be refunded totaled $6 million.
For additional information, see Part I, Item 1A, “Risk Factors – Legal and Compliance Risk – We are subject to countervailing
and anti-dumping duties on substantially all of our U.S. imports of softwood lumber products produced at our Canadian
sawmills, which could materially affect our operations and cash flows,” of this Form 10 K.
Employee Benefit Plans
Pension and OPEB plans
In 2018, we contributed $101 million to our defined benefit pension plans and $20 million to our defined contribution pension
plans, while expensing an aggregate of $1 million, before special events. We also made payments of $13 million to OPEB
plans, compared to a $12 million credit to the net periodic benefit cost, before special events.
For 2019, we expect to make approximately $80 million of contributions to our defined benefit pension plans, $16 million to
our defined contribution pension plans, and $14 million to OPEB plans. We expect to expense approximately $16 million of
defined contribution pension plan costs, with credits of $19 million and $11 million for our defined benefit pension and OPEB
plans, respectively.
The expected $21 million decrease in defined benefit pension plan contributions in 2019 is in part due to lower contributions
for past capacity reductions, and our exit from the Ontario funding relief, as further discussed below.
We fund our pension and OPEB plans as required by applicable laws and regulations; we could, from time to time, make
additional contributions.
Canadian pension funding
Quebec plans
The funding of our Quebec pension plans are subject to Quebec’s Supplemental Pension Plans Act (or the “SPPA”), which is
the pension plan funding regime generally applicable to pension plans in that province. Our contributions to our Quebec plans
are determined on a going concern basis under the Quebec’s SPPA, as more fully described below.
Ontario plans
Prior to December 31, 2018, the funding of our material Ontario pension plans (or the “affected plans”) was governed by
regulation specific to us, adopted by the province of Ontario, which we refer to as the “funding relief regulation.” In accordance
with the funding relief regulation, on December 21, 2018, we provided notice to the Ontario pension plan regulatory authorities
that, effective December 31, 2018, we would voluntarily exit the Ontario funding relief regulation. As a result, since January 1,
2019, all of our Ontario pension plans have been subject to the Ontario Pension Benefits Act (or the “PBA”), which is the
pension plan funding regime generally applicable to pension plans in that province. The PBA provides for funding pension fund
deficits on a going concern basis, or on a solvency basis if the solvency funded status of a pension plan is below 85%, as more
fully described below. The funding relief regulation, as amended, provided that our annual basic contribution to the affected
plans was Cdn $9 million.
As originally adopted, the funding relief regulation provided that corrective measures would be required if the aggregate
solvency ratio of the affected plans fell below a prescribed level under the targets specified in the regulations as of
December 31 in any year through 2014. This requirement was removed in 2013, but the 2011 and 2012 amounts (Cdn $110
million in the aggregate) had been deferred to after the expiration of the funding relief regulation in 2020. The funding relief
regulation also required us to make a supplemental contribution, payable over a three-year period, should the affected plans’
aggregate solvency ratio be more than 2% below the target specified in the funding relief regulations for the preceding year. As
a result of our exit from the funding relief regulation, these requirements were removed.
63
Funding deficit calculation
The assumptions used to calculate the pension funding deficit are materially different from the assumptions used to determine
the net pension obligations for purposes of our Consolidated Financial Statements.
The funding deficit calculation of our Quebec pension plans are subject to Quebec’s SPPA, which provides for funding pension
deficits on a going concern basis. The funding deficit calculation of our Ontario pension plans are subject to, since January 1,
2019, Ontario’s PBA, which provides for funding pension fund deficits on a going concern basis, or on a solvency basis if the
solvency funded status of a pension plan is below 85%. Under a going concern basis, the liabilities are calculated on the
assumption that the plans will continue to operate indefinitely, and the liabilities are discounted using a rate determined by a
model that develops an expected long-term return on assets, based on the asset mix of the plans as of the actuarial valuation
date. The liabilities also include a provision for adverse deviation. Under a solvency basis, the liabilities are calculated on the
assumption that the plans are terminated at the measurement date (each December 31), and the liabilities are discounted
primarily using a specified annuity purchase rate, which is the spot interest rate on government securities in Canada plus a
prescribed margin at the measurement date.
The funding of our U.S. pension plan is governed by the Employee Retirement Income Security Act of 1974, as amended, and
the Internal Revenue Code, and is also subject to the Moving Ahead for Progress in the 21st Century Act, the Highway and
Transportation Funding Act of 2014, and the Bipartisan Budget Act of 2015. Under these regulations, the liabilities are
discounted using 25-year average corporate bond rates within a specified corridor. The corridor will be maintained at 10%
through 2020, will widen to 15% in 2021, and will widen an additional 5% each year to 30% in 2024 and beyond.
By contrast, for purposes of our Consolidated Financial Statements, the discount rate is determined with a model that develops
a hypothetical high-quality bond portfolio, where the bonds are theoretically purchased to settle the expected benefit payments
of the plans.
The weighted-average discount rate, funded ratio, and deficit of the pension plans for both accounting and funding purposes for
the years ended December 31, 2018 and 2017, were as follows:
(In millions, except percentages)
Discount rate
Funded ratio
Deficit
Accounting
December 31,
2018
3.8%
76%
$ (1,122)
2017
3.6%
80%
$ (1,097)
Funding
December 31,
2018 (1)
5.7%
87%
$
(572)
$
2017 (2)
5.1%
89%
(562)
(1)
(2)
Determined on a going concern basis for Canadian plans, and on a 25-year average interest rate basis for U.S. plans.
Preliminary, subject to final actuarial reports.
Determined on a going concern basis for Quebec plans, on a solvency basis for Ontario plans, and on a 25-year
average interest rate basis for U.S. plans.
Additional undertakings
Our principal Canadian subsidiaries had entered into certain undertakings with the Government of Ontario and Quebec, which
expired in 2015 and 2016, respectively. The expiration of those undertakings, did not eliminate ongoing obligations we incurred
under the terms of those undertakings prior to their expiration, including the undertaking requiring us to make an additional
solvency deficit reduction contribution to our pension plans of Cdn $75, payable over four years, for each metric ton of
capacity reduced in Quebec or Ontario, in the event of downtime of more than six consecutive months or nine cumulative
months over a period of 18 months. Accordingly, we made additional contributions for past capacity reductions of Cdn $14
million and Cdn $12 million in 2017 and 2018, respectively, and will also be required to make our final remaining
contributions for past capacity reductions of approximately Cdn $4 million, and Cdn $2 million in 2019, and 2020,
respectively.
Partial wind-ups of pension plans
On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor
protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA Creditor Protection
Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and
Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and
64
Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial
wind-up is a barred claim under the CCAA Creditor Protection Proceedings. We contend, among other things, that any such
declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’
CCAA Plan of Reorganization and Compromise, as amended, and the terms of our emergence from the CCAA Creditor
Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could
reach up to Cdn $150 million ($110 million, based on the exchange rate in effect on December 31, 2018), would have to be
funded if we do not obtain the relief sought. The hearing in this matter could occur in 2019.
Share Repurchase Program
We are authorized to repurchase $150 million of our outstanding common stock under our share repurchase program. We did
not repurchase any shares during 2018, 2017 and 2016. There remains $24 million under the program.
Dividends
We declared and paid a special dividend of $1.50 per share ($136 million) on our common stock in 2018. We did not declare or
pay any dividends on our common stock during the years ended December 31, 2017 and 2016.
Contractual Obligations
As of December 31, 2018, the Company’s contractual obligations, including payments due by period, were as follows:
(In millions)
Long-term debt (1)
Non-cancelable operating lease obligations (2)
Purchase obligations (2)
$
Total
769
34
340
$
1,143
2019
252
9
78
339
$
$
2020-2021
2022-2023
Thereafter
$
$
50
13
127
190
$
$
414
5
105
524
$
$
53
7
30
90
(1)
(2)
Long-term debt obligations primarily represent: interest payments, principal amount repurchase of $225 million in
2019, and the payment of the remaining principal balance at maturity of our 2023 notes; as well as interest payments
and principal repayment at maturity of our Term loan. Interest on our Term loan is assumed to remain unchanged from
the rates in effect as of December 31, 2018, assuming no repayments until maturity. Information on our long-term debt
can be found in “Note 11, “Long-Term Debt,” to our Consolidated Financial Statements.
Information on our operating leases and purchase obligations can be found in Note 17, “Operating Leases and
Purchase Obligations,” to our Consolidated Financial Statements.
The above table excludes the future obligations under our pension and OPEB plans due to the uncertainty in the timing and
amount of future payments. Information on our pension and OPEB plans can be found in “Note 12, “Pension and Other
Postretirement Benefit Plans,” to our Consolidated Financial Statements.
RECENT ACCOUNTING GUIDANCE
New accounting pronouncements adopted in 2018
See Note 2, “Summary of Significant Accounting Policies – New accounting pronouncements in 2018,” to our Consolidated
Financial Statements for more information.
Accounting pronouncements not yet adopted as of December 31, 2018
See Note 2, “Summary of Significant Accounting Policies – Accounting pronouncements not yet adopted as of December 31,
2018,” to our Consolidated Financial Statements for more information.
65
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make accounting estimates based on
assumptions, judgments and projections of future results of operations and cash flows. These estimates and assumptions affect
the reported amounts of revenues and expenses during the periods presented and the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities as of the date of the financial statements.
We base our estimates, assumptions and judgments on a number of factors, including historical experience, recent events,
existing conditions, internal budgets and forecasts, projections obtained from industry research firms, and other data that we
believe are reasonable under the circumstances. We believe that our accounting estimates are appropriate and that the resulting
financial statement amounts are reasonable. Due to the inherent uncertainties in making estimates, actual results could differ
materially from these estimates, requiring adjustments to financial statement amounts in future periods.
A summary of our significant accounting policies is disclosed in Note 2, “Summary of Significant Accounting Policies,” to our
Consolidated Financial Statements. Based upon a review of our significant accounting policies, we believe the following
accounting policies require us to make accounting estimates that can significantly affect the results reported in our
Consolidated Financial Statements. We have reported the development, selection and disclosures of our critical accounting
estimates to the audit committee of our board of directors, and the audit committee has reviewed the disclosures relating to
these estimates.
Pension and OPEB obligations
Description of accounts impacted by the accounting estimates
We record pension and OPEB obligations, net of pension plan assets that may be considered material to our financial position.
We also record net periodic benefit costs associated with these net obligations as our employees render service. As of
December 31, 2018, we had pension and OPEB obligations aggregating $4,922 million and accumulated pension plan assets at
fair value of $3,652 million. In 2018, we recorded a net periodic benefit credit of $41 million.
Judgments and uncertainties involved in the accounting estimates
The following inputs are used to determine our net obligations and our net periodic benefit cost each year and the determination
of these inputs requires judgment:
•
•
•
•
•
discount rate – used to determine the net present value of our pension and OPEB obligations and to determine the
interest cost component of our net periodic benefit cost. The discount rate for our domestic and foreign plans was
determined with a model that develops a hypothetical high-quality bond portfolio, where the bonds are theoretically
purchased to settle the expected benefit payments of the plans. The discount rate reflects the single rate that produces
the same discounted values as the value of the theoretical high-quality bond portfolio;
return on assets – used to estimate the growth in the value of invested assets that are available to satisfy pension
benefit obligations and to determine the expected return on plan assets component of our net periodic pension benefit
cost. In determining the expected return on assets, we considered the historical returns and the future expectations for
returns for each asset class, as well as the target asset allocation of the pension portfolio;
life expectancy rate – used to estimate the impact of life expectancy on our pension and OPEB obligations. In
determining the life expectancy rate of our domestic and foreign plans, we used the most recent actuarially-determined
mortality tables and improvement scales. For the foreign plans, the mortality tables were adjusted with the result of
our historical mortality experience study. The rates used are consistent with our future expectations of life expectancy
for the employees who participate in our pension and OPEB plans;
rate of compensation increase – used to calculate the impact future pay increases will have on our pension obligations.
In determining the rate of compensation increase, we reviewed historical salary increases and promotions, while
considering current industry conditions, the terms of collective bargaining agreements with our employees and the
outlook for our industry; and
health care cost trend rate – used to calculate the impact of future health care costs on our OPEB obligations. For the
health care cost trend rate, we considered historical trends for these costs, as well as recently enacted healthcare
legislation.
66
Effect if actual results differ from assumptions
Variations in assumptions could have a significant effect on the net periodic benefit cost and pension and OPEB obligations
reported in our Consolidated Financial Statements. For example, a 25 basis point change in any one of these assumptions would
have increased (decreased) our net periodic benefit cost for our pension and OPEB plans and our pension and OPEB
obligations as follows:
(In millions)
Assumption:
Discount rate
Return on assets
Rate of compensation increase
Health care cost trend rate
2018 Net Periodic Benefit
Cost
Pension and OPEB
Obligations as of December
31, 2018
25 Basis Point
Increase
25 Basis Point
Decrease
25 Basis Point
Increase
25 Basis Point
Decrease
$
$
(1)
(10)
1
—
2
10
(1)
—
$
(117)
—
3
2
$
128
—
(3)
(2)
As of December 31, 2018, the most significant change in our assumptions affecting our pension and OPEB obligations was an
increase in the discount rate to 3.8% from 3.6% as of December 31, 2017, resulting in an actuarial gain of $109 million and a
corresponding decrease in our pension and OPEB obligations.
The net periodic benefit cost of our pension plans incorporates an expected return on plan assets and not the actual return on
plan assets. The difference between the expected and actual return on plan assets resulted in an actuarial loss of $365 million in
2018.
These net actuarial losses of $256 million in 2018, before tax, were recorded in “accumulated other comprehensive loss” and
will be amortized into our Consolidated Statements of Operations in future years, including approximately $28 million in 2019.
Deferred income tax assets
Description of accounts impacted by the accounting estimates
We have net deferred income tax assets of $876 million recorded in our Consolidated Balance Sheet as of December 31, 2018,
almost all of which is related to our Canadian operations, and a valuation allowance recorded against virtually all of our U.S.
net deferred income tax assets. Our net deferred income tax assets are comprised of:
U.S.:
• Deferred income tax assets of $688 million, comprised of $532 million for federal and state net operating loss
carryforwards expiring between 2021 and 2038, and $156 million for other temporary differences, mostly related to
pension and OPEB plans.
• Deferred income tax liabilities of $35 million, mostly related to tax accelerated depreciation on fixed assets.
• A valuation allowance of $652 million against the net deferred income tax assets, which are not more likely than not to
be realized in the future.
Canada:
• Deferred income tax assets of $915 million, comprised of $176 million related to undeducted research and
development expenditures with no expiry, $72 million for tax credit carryforwards expiring between 2021 and 2038,
$19 million for federal and provincial non-capital loss carryforwards expiring between 2026 and 2038, as well as
$648 million for other temporary differences, mostly related to fixed asset undepreciated capital costs with no expiry,
as well as pension and OPEB plans.
• Deferred income tax liabilities of $26 million for various temporary differences.
• A valuation allowance of $14 million, virtually all of which is related to net capital loss carryforwards with no expiry.
67
Other:
• Deferred income tax assets of $35 million, mostly comprised of other foreign subsidiaries net operating loss
carryforwards expiring between 2020 and 2027.
• A valuation allowance of $35 million against the net deferred income tax assets of other foreign subsidiaries, which
are not more likely than not to be realized in the future.
Judgments and uncertainties involved in the accounting estimates
At each reporting period, we assess whether it is more likely than not that the deferred income tax assets will be realized, based
on the review of all available positive and negative evidence, including future reversals of existing taxable temporary
differences, estimates of future taxable income, past operating results, and prudent and feasible tax planning strategies. The
carrying value of our deferred income tax assets reflects our expected ability to generate sufficient future taxable income in
certain tax jurisdictions to realize these deferred income tax assets.
Following the assessment of our ability to realize the deferred income tax assets of our U.S. operations, we concluded that
existing negative evidence outweighed positive evidence. As a result, we recognize a valuation allowance against virtually all
of our net U.S. deferred income tax assets. The cumulative loss of our U.S. operations limited our ability to consider other
subjective positive evidence. A valuation allowance does not reduce our underlying tax attributes, nor hinders our ability to use
them in the future. If, in the future, sufficient objective positive evidence becomes available such that, based on the weight of
available evidence, it is determined to be more likely than not that some or all of the deferred income tax assets associated with
our U.S. operations can be realized, the valuation allowance will be reduced as appropriate, with the related adjustment being
recognized as a decrease to the income tax provision.
The weight of positive evidence, which included a review of historical cumulative earnings and our forecasted future earnings,
resulted in the conclusion by management that no significant valuation allowances were required for our deferred income tax
assets in Canada, as they were determined to be more likely than not to be realized.
The Company calculates its income tax provision for the period based on estimates and assumptions that could differ from the
actual results reflected in income tax returns filed in subsequent years. Adjustments based on actual filed income tax returns are
recorded when identified.
Tax benefits related to uncertain tax positions are recorded when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination by the relevant tax authority. The amount of tax benefit recognized may differ
from the amount taken or expected to be taken on a tax return. These differences represent unrecognized tax benefits and are
reviewed at each reporting period based on facts, circumstances and other available evidence. We have unrecognized tax
benefits of $28 million as of December 31, 2018. As income tax legislation and regulations are complex and subject to
interpretation, our tax positions could be challenged by taxing authorities.
Effect if actual results differ from assumptions
Our forecasted future earnings represent important positive evidence in determining the recoverability of our deferred income
tax assets. If actual future financial results are not consistent with the assumptions and judgments used, or if additional
significant closure-related costs are recorded in future years, we may be required to reduce the value of our net deferred income
tax assets by recording additional valuation allowances, resulting in an income tax expense that could be material.
We do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. However, any
adjustments arising from certain ongoing examinations by taxing authorities could alter the timing or amount of taxable income
or deductions, or the allocation of income among tax jurisdictions, and these adjustments could differ from the amount accrued.
Long-lived assets
Description of accounts impacted by the accounting estimates
We have long-lived assets recorded in our Consolidated Balance Sheet of $1,565 million as of December 31, 2018. These long-
lived assets include fixed assets, net and amortizable intangible assets, net. In 2018, we recorded depreciation and amortization
of $212 million and impairment charges of $39 million associated with these long-lived assets. Depreciation and amortization
and impairment charges are based on accounting estimates.
The unit of accounting for impairment testing for long-lived assets is its asset group (see Note 2, “Summary of Significant
Accounting Policies – Impairment of long-lived assets,” to our Consolidated Financial Statements). The unit of accounting for
68
the depreciation and amortization of long-lived assets is at a lower level, either as a group of closely-related assets or at an
individual asset level. The cost of a long-lived asset is amortized over its estimated remaining useful life, which is subject to
change based on events and circumstances or management’s intention for the use of the asset.
Losses related to the impairment of long-lived assets to be held and used are recognized when circumstances indicate the
carrying value of an asset group may not be recoverable, such as continuing losses in certain businesses. When indicators that
the carrying value of an asset group may not be recoverable are triggered, we evaluate the carrying value of the asset group in
relation to its expected undiscounted future cash flows. If the carrying value of an asset group is greater than the expected
undiscounted future cash flows to be generated by the asset group, an impairment charge is recognized based on the excess of
the asset group’s carrying value over its fair value. If it is determined that the carrying value of an asset group is recoverable,
we review and adjust, as necessary, the estimated useful lives of the assets in the group.
When an asset group meets the criteria for classification as an asset held for sale, an impairment charge is recognized, if
necessary, based on the excess of the asset group’s carrying value over the expected net proceeds from the sale (the estimated
fair value minus the estimated costs to sell the asset group).
Our long-lived asset impairment and accelerated depreciation charges are disclosed in Note 3, “Closure Costs, Impairment and
Other Related Charges,” to our Consolidated Financial Statements.
Judgments and uncertainties involved in the accounting estimates
The calculation of depreciation and amortization of long-lived assets requires us to apply judgment in selecting the remaining
useful lives of the assets, which must address both physical and economic considerations. The remaining economic life of a
long-lived asset is frequently shorter than its physical life. Estimates of future economic conditions for our long-lived assets
and therefore, their remaining useful economic lives, require considerable judgment. The paper industry has been characterized
by considerable uncertainty in business conditions.
Asset impairment for long-lived assets to be held and used is tested at the lowest asset group level having largely independent
cash flows. Determining the asset groups for long-lived assets to be held and used requires management’s judgment.
Asset impairment loss calculations require us to apply judgment in estimating asset group fair values and future cash flows,
including periods of operation, projections of product pricing, production levels, product costs, market supply and demand,
foreign exchange rates, inflation, projected capital spending and, specifically for fixed assets acquired, assigned useful lives,
functional obsolescence, asset condition and discount rates. When performing impairment tests, we estimate the fair values of
the assets using management’s best assumptions, which we believe would be consistent with the assumptions that a
hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as
appropriate. One key assumption, especially for our long-lived assets in Canada, is the foreign exchange rate, which was
determined based on our budgeted exchange rates for 2019. The assessment of whether an asset group should be classified as
held for sale requires us to apply judgment in estimating the probable timing of the sale, and in testing for impairment loss,
judgment is required in estimating the net proceeds from the sale.
Effect if actual results differ from assumptions
If our estimate of the remaining useful life changes, such a change is accounted for prospectively in our determination of
depreciation and amortization. Actual depreciation and amortization charges for an individual asset may therefore be
significantly accelerated if the outlook for its remaining useful life is shortened considerably.
A number of judgments were made in the determination of our asset groups. If a different conclusion had been reached for any
one of those judgments, it could have resulted in the identification of asset groups different from those we actually identified,
and consequently, could result in a different conclusion when comparing the expected undiscounted future cash flows or the
fair value to the carrying value of the asset group.
Actual asset impairment losses could vary considerably from estimated impairment losses if actual results are not consistent
with the assumptions and judgments used in estimating future cash flows and asset fair values. Assets of facilities that are idled
have a greater risk of acceleration in depreciation and amortization or additional impairment.
69
Goodwill
Description of accounts impacted by the accounting estimates
As of December 31, 2018, our Consolidated Balance Sheet did not include any goodwill, compared to $81 million as of
December 31, 2017. Goodwill was assigned to our tissue segment.
We review the carrying value of our goodwill for impairment annually as of November 30, or more frequently, whenever
indicators of potential impairment exist. As more fully discussed in Note 2, “Summary of Significant Accounting Policies –
Goodwill,” to our Consolidated Financial Statements, in the event that the net carrying amount of the reporting unit exceeds its
fair value, an impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its
fair value, not to exceed the carrying amount of goodwill in that reporting unit.
Our goodwill impairment test for the tissue reporting unit as of November 30, 2018, concluded that the carrying value of the
reporting unit exceeded its estimated fair value. As a result, we recorded a goodwill impairment charge of $81 million for the
year ended December 31, 2018, representing the entire goodwill amount. This impairment charge resulted from cumulative
losses of the tissue business and lower-than-expected projected cash flows, driven by operating and market-related factors.
Our goodwill impairment charges are disclosed in Note 3, “Closure Costs, Impairment and Other Related Charges,” to our
Consolidated Financial Statements.
Judgments and uncertainties involved in the accounting estimates
We test goodwill for impairment at the reporting unit level. Determining which reporting units’ goodwill should be assigned to
requires considerable judgment. A reporting unit is a component of an operating segment, or a combination of components of
an operating segment that share similar economic characteristics. Based on our analysis of the components of our tissue
segment, we concluded that all significant components of the tissue segment should be combined into a single reporting unit.
Goodwill was entirely assigned to this reporting unit, which includes the net assets of our Atlas manufacturing facilities in
Hialeah and Sanford, both located in Florida, as well as our Calhoun tissue facility.
When performing our goodwill impairment test, we estimate the fair value of the reporting unit using a discounted cash flow
model, and we validate the resulting fair value with a valuation technique based on multiples of earnings for comparable
industry participants. The determination of the fair value involves many assumptions and judgments, including: projection of
sales volume and pricing; projected levels of revenue growth and market penetration; product costs; inflation; projected capital
spending; change in working capital; economic, industry and market conditions; and discount rate.
The estimates used are consistent with our internal projections and operating plans, which we believe would be consistent with
what a hypothetical marketplace participant would use. The discount rate assumption is based on the weighted-average cost of
capital of comparable industry participants, adjusted to consider the risks associated with the ramp-up of the Calhoun tissue
facility and underlying risk associated with meeting projected levels of revenue growth and margin.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, we
determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including
goodwill, then an impairment test is performed.
We elected to bypass the optional qualitative assessment of the tissue reporting unit for our 2018 annual goodwill impairment
test.
Effect if actual results differ from assumptions
A number of judgments were made in the determination of the reporting unit. If a different conclusion had been reached for any
one of those judgments, it could have resulted in a different reporting unit identification from the one we identified, and
consequently, could result in a different conclusion when comparing the fair value to the carrying value of the reporting unit.
70
The actual fair value of the reporting unit could vary considerably from the estimated fair value if actual results are not
consistent with the assumptions and judgments used in estimating future cash flows and the reporting unit fair value. For
example, a 1% change in any one of these assumptions, assuming that all other assumptions remain constant, would have
increased (decreased) the fair value of the reporting unit as of November 30, 2018, as follows:
(In millions)
Assumption:
Sales pricing
Product costs
Discount rate
1% Increase
1% Decrease
$
35
(21)
(10)
$
(35)
21
10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to risks associated with fluctuations in foreign currency exchange rates, prices for the products we
manufacture, commodity prices, and credit risk on accounts receivable from our customers.
Foreign Currency Exchange Risk
We compete with producers from around the world, particularly North America, Europe, and South America, in most of our
product lines, with the exception of wood products and tissue, where we compete primarily with other North American
producers. We sell our products mainly in transactions denominated in U.S. dollars, but we also sell in certain local currencies,
including the Canadian dollar, the euro, and the pound sterling. Changes in the relative strength or weakness of these
currencies, particularly the U.S. dollar, could affect international trade flows in these products. A stronger U.S. dollar might
attract imports, thereby increasing product supply and possibly creating downward pressure on prices. On the other hand, a
weaker U.S. dollar might encourage U.S. exports but also increase manufacturing costs in Canadian dollars.
We are particularly sensitive to changes in the value of the Canadian dollar versus the U.S. dollar. The actual impact of these
changes depends primarily on the proportion of our production and sales that occur in Canada, the proportion of our financial
assets and liabilities denominated in Canadian dollars, and the magnitude, direction and duration of changes in the exchange
rate. We expect exchange rate fluctuations to continue to impact costs and revenues, but we cannot predict the magnitude or
direction of this effect for any period, and there can be no assurance of any future effects. In 2017 and 2018, the Canadian
dollar fluctuated between a low of US$0.73 in May of 2017 and a high of US$0.83 in September of 2017. Based on operating
projections for 2019, if the Canadian dollar strengthens by one cent against the U.S. dollar, we expect that it will decrease our
annual operating income by approximately $18 million, and vice versa.
Furthermore, certain monetary assets and liabilities, including a substantial portion of our net pension and OPEB obligations
and our net deferred income tax assets, are denominated in Canadian dollars. As a result, our earnings can be subject to the
potentially significant effect of foreign exchange gains or losses in respect of these Canadian dollar net monetary items. A
fluctuation of the Canadian dollar against the U.S. dollar in any given period would generally cause a foreign exchange gain or
loss.
Product Price Risk
Historically, economic and market shifts, fluctuations in capacity, and changes in foreign currency exchange rates have created
cyclical changes in prices, sales volume and margins for our products. In general, our products, other than tissue, are
commodities that are widely available from other producers; because these products have few distinguishing qualities from
producer to producer, competition is based primarily on price, which is determined by supply relative to demand. The overall
levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user
demand. The demand for some of our products has weakened significantly over the past decade. For example, over the 10 years
ended December 31, 2018, according to industry statistics, North American newsprint demand fell by 65%. This trend, which
similarly affects our specialty papers, could continue as a result of developments in non-print media, lower North American
newspaper circulation, weaker paper-based advertising, grade substitution and conservation measures taken by publishers and
retailers. Without change in capacity, the lower demand in relation to supply can cause downward pressure on price.
In the table below, we show the impact of a $25 change to the average transaction price per unit of our products, other than
tissue, based on our operating configuration as of December 31, 2018. This presentation measures only the impact of pricing
and items directly related to price, and assumes that every other factor is held constant.
71
PRODUCT
Market pulp
Wood products
Newsprint
Specialty papers
Commodity Price Risk
Projected change in
annualized EBITDA
($ millions) based
on $25 change in
price per unit
29
45
38
21
Unit
$ / metric ton
$ / thousand board feet
$ / metric ton
$ / short ton
We purchase significant amounts of wood fiber, chemicals, and energy to supply our manufacturing facilities. These raw
materials are market-priced commodities and as such, are subject to fluctuations in prices. Increases in the prices of these
commodities will tend to reduce our reported earnings and decreases will tend to increase our reported earnings. From time to
time, we may enter into contracts aimed at securing a stable source of supply for these commodities. These contracts typically
require us to pay the market price at the time of purchase. Thus, under these contracts, we generally remain subject to market
fluctuations in commodity prices.
Credit Risk
We are exposed to credit risk on the accounts receivable from our customers. In order to manage our credit risk, we have
adopted policies, which include the analysis of the financial position of our customers and the regular review of their credit
limits. We also subscribe to credit insurance and, in some cases, require bank letters of credit. Our customers are mainly in the
business of newspaper publishing, advertising, printing, paper converting, consumer products, as well as lumber wholesale and
retail.
72
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Management’s Report on Financial Statements and Assessment of Internal Control over Financial Reporting
Page
74
75
76
77
78
80
125
127
73
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
Sales
Costs and expenses:
Years Ended December 31,
2018
2017
2016
$
3,756
$
3,513
$
3,545
Cost of sales, excluding depreciation, amortization and distribution costs
2,549
Depreciation and amortization
Distribution costs
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Net gain on disposition of assets
Operating income (loss)
Interest expense
Non-operating pension and other postretirement benefit credits (costs)
Other income, net
Income (loss) before income taxes
Income tax provision
Net income (loss) including noncontrolling interests
Net income attributable to noncontrolling interests
Net income (loss) attributable to Resolute Forest Products Inc.
Net income (loss) per share attributable to Resolute Forest Products Inc.
common shareholders:
Basic
Diluted
Weighted-average number of Resolute Forest Products Inc. common
shares outstanding:
Basic
Diluted
212
475
165
121
(145)
379
(47)
50
5
387
(152)
235
—
235
2.57
2.52
91.3
93.3
$
$
2,588
204
442
170
82
(15)
42
(49)
7
6
6
(84)
(78)
(6)
(84)
(0.93)
(0.93)
90.5
90.5
$
$
2,710
206
440
147
62
(2)
(18)
(38)
(8)
7
(57)
(19)
(76)
(5)
(81)
(0.90)
(0.90)
89.9
89.9
$
$
See accompanying notes to Consolidated Financial Statements.
74
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Net income (loss) including noncontrolling interests
Other comprehensive loss:
Unamortized prior service credits
Change in unamortized prior service credits
Income tax benefit
Change in unamortized prior service credits, net of tax
Unamortized actuarial losses
Change in unamortized actuarial losses
Income tax benefit
Change in unamortized actuarial losses, net of tax
Foreign currency translation
Other comprehensive loss, net of tax
Comprehensive income (loss) including noncontrolling interests
Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to Resolute Forest Products
Inc.
$
Years Ended December 31,
2018
235
$
2017
(78)
$
2016
(76)
$
(25)
1
(24)
(194)
51
(143)
(1)
(168)
67
—
67
(15)
—
(15)
(10)
3
(7)
(3)
(25)
(103)
(6)
(17)
—
(17)
(183)
31
(152)
1
(168)
(244)
(5)
$
(109)
$
(249)
See accompanying notes to Consolidated Financial Statements.
75
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amount)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net:
Trade
Other
Inventories, net
Other current assets
Total current assets
Fixed assets, net
Amortizable intangible assets, net
Goodwill
Deferred income tax assets
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt, net of current portion
Pension and other postretirement benefit obligations
Deferred income tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies
Equity:
Resolute Forest Products Inc. shareholders’ equity:
Common stock, $0.001 par value. 118.8 shares issued and 90.8 shares outstanding as of
December 31, 2018; 118.2 shares issued and 90.2 shares outstanding as of December
31, 2017
Additional paid-in capital
Deficit
Accumulated other comprehensive loss
Treasury stock at cost, 28.0 shares as of December 31, 2018 and 2017
Total Resolute Forest Products Inc. shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
December 31,
2018
December 31,
2017
$
304
$
6
347
102
508
43
1,304
1,515
50
—
876
190
3,935
427
223
650
422
1,257
—
71
2,400
—
3,802
(1,198)
(950)
(120)
1,534
1
1,535
3,935
$
$
$
399
80
526
33
1,044
1,716
65
81
1,076
165
4,147
420
1
421
788
1,257
13
68
2,547
—
3,793
(1,294)
(780)
(120)
1,599
1
1,600
4,147
$
$
$
See accompanying notes to Consolidated Financial Statements.
76
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
Resolute Forest Products Inc. Shareholders’ Equity
Common
Stock
Additional
Paid-in
Capital
$ — $ 3,765
Deficit
$ (1,126)
Accumulated
Other
Comprehensive
Loss
(587)
$
Treasury
Stock
$ (120)
Non-
controlling
Interests
Total
Equity
$
13
$ 1,945
Balance as of December 31, 2015
Share-based compensation, net of
withholding taxes
Net (loss) income
Stock unit awards vested (0.3 shares),
net of shares forfeited for employee
withholding taxes
Other comprehensive loss, net of tax
Balance as of December 31, 2016
Share-based compensation, net of
withholding taxes
Net (loss) income
Acquisition of noncontrolling interest
(Note 1)
Cumulative-effect adjustment upon
deferred tax charge elimination
(Note 13)
Stock unit awards vested (0.4 shares),
net of shares forfeited for employee
withholding taxes
Other comprehensive loss, net of tax
Balance as of December 31, 2017
Share-based compensation, net of
withholding taxes
Net income
Special dividend
Reclassification of stranded income tax
(Note 2)
Stock unit awards vested (0.6 shares),
net of shares forfeited for employee
withholding taxes
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10
—
—
—
3,775
10
—
8
—
—
—
3,793
6
—
3
—
—
—
(81)
—
—
(1,207)
—
(84)
—
(3)
—
—
(1,294)
—
235
(141)
2
—
Other comprehensive loss, net of tax
Balance as of December 31, 2018
—
—
$ — $ 3,802
—
$ (1,198)
$
—
—
—
(168)
(755)
—
—
—
—
—
(25)
(780)
—
—
—
(2)
—
(168)
(950)
—
—
—
—
(120)
—
—
—
—
—
—
(120)
—
—
—
—
—
—
$ (120)
$
—
5
—
—
18
—
6
(23)
—
—
—
1
—
—
—
—
—
—
1
10
(76)
—
(168)
1,711
10
(78)
(15)
(3)
—
(25)
1,600
6
235
(138)
—
—
(168)
$ 1,535
See accompanying notes to Consolidated Financial Statements.
77
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash flows from operating activities:
Net income (loss) including noncontrolling interests
Adjustments to reconcile net income (loss) including noncontrolling interests
$
235
$
(78)
$
(76)
Years Ended December 31,
2018
2017
2016
to net cash provided by operating activities:
Share-based compensation
Depreciation and amortization
Closure costs, impairment and other related charges
(Reversal of) inventory write-downs related to closures
Deferred income taxes
Net pension contributions and other postretirement benefit payments
Net gain on disposition of assets
Loss (gain) on translation of foreign currency denominated deferred income
taxes
(Gain) loss on translation of foreign currency denominated pension and
other postretirement benefit obligations
Gain on disposition of equity method investment
Net planned major maintenance (payments) amortization
Changes in working capital:
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Cash invested in fixed assets
Acquisition of a sawmill in Senneterre (Quebec)
Disposition of assets
Decrease (increase) in countervailing duty cash deposits on supercalendered
paper, net
Increase in countervailing and anti-dumping duty cash deposits on softwood
lumber
Increase in countervailing duty cash deposits on uncoated groundwood paper
Net cash provided by (used in) investing activities
12
212
120
(1)
164
(144)
(145)
75
(63)
—
(20)
(19)
(46)
1
38
16
435
(155)
—
336
48
(77)
(6)
146
15
204
66
24
80
(109)
(15)
(71)
58
—
3
(37)
23
1
(17)
11
158
(164)
—
21
(22)
(26)
—
(191)
11
206
59
7
14
(125)
(2)
(28)
27
(5)
(3)
26
(37)
7
(3)
3
81
(249)
(6)
5
(23)
—
—
(273)
78
Years Ended December 31,
2018
2017
2016
Cash flows from financing activities:
Net (repayments) borrowings under revolving credit facilities
Payment of special dividend
Acquisition of noncontrolling interest in Donohue Malbaie Inc.
Issuance of long-term debt
Payments of debt
Payments of financing and credit facility fees
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents, and restricted
cash
Net increase (decrease) in cash and cash equivalents, and restricted cash
Cash and cash equivalents, and restricted cash:
Beginning of year
End of year
Cash and cash equivalents, and restricted cash at year end:
Cash and cash equivalents
Restricted cash (included in “Other current assets” and “Other assets”)
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest, including capitalized interest of $1, $1 and $7 in 2018, 2017 and
2016, respectively
Income taxes
(144)
(136)
—
—
—
(1)
(281)
(4)
296
49
345
304
41
40
(1)
$
$
$
$
$
$
See accompanying notes to Consolidated Financial Statements.
19
—
(15)
—
(1)
—
3
6
(24)
73
49
6
43
47
7
125
—
—
46
(1)
(1)
169
1
(22)
95
73
35
38
40
3
$
$
$
79
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 1. Organization and Basis of Presentation
Nature of operations
Resolute Forest Products Inc. (with its subsidiaries, either individually or collectively, unless otherwise indicated, referred to as
“Resolute Forest Products,” “we,” “our,” “us,” “Parent,” or the “Company”) is incorporated in Delaware. We are a global leader
in the forest products industry with a diverse range of products, including market pulp, tissue, wood products, newsprint and
specialty papers, which are marketed in close to 70 countries. We own or operate some 40 facilities, as well as power generation
assets, in the United States and Canada.
Financial statements
We have prepared our consolidated financial statements and the accompanying notes (or the “Consolidated Financial
Statements”) in accordance with U.S. generally accepted accounting principles (or “GAAP”). All amounts are expressed in U.S.
dollars, unless otherwise indicated. Certain prior period amounts in our Consolidated Statements of Operations, Consolidated
Statements of Cash Flows, and footnotes have been reclassified to conform to the 2018 presentation.
Consolidation
Our Consolidated Financial Statements include the accounts of Resolute Forest Products Inc. and its controlled subsidiaries. All
transactions and balances between these companies have been eliminated. All consolidated subsidiaries are wholly-owned as of
December 31, 2018, with the exception of the following:
Consolidated Subsidiary
Resolute Forest
Products
Ownership
Partner
Partner
Ownership
Forest Products Mauricie L.P.
93.2%
Coopérative Forestière du Haut Saint-Maurice
6.8%
In 2017, we acquired the 49% equity interest held by The New York Times Company in Donohue Malbaie Inc. for a cash
purchase price of $15 million. We already owned 51% of the shares of Donohue Malbaie Inc. This acquisition was accounted
for as an equity transaction and resulted in an increase of $8 million to “Additional paid-in capital” in our Consolidated Balance
Sheet.
Equity method investments
We account for our investments in affiliated companies where we have significant influence, but not control over their
operations, using the equity method of accounting.
Note 2. Summary of Significant Accounting Policies
Use of estimates
In preparing our Consolidated Financial Statements in accordance with GAAP, management is required to make accounting
estimates based on assumptions, judgments, and projections of future results of operations and cash flows. These estimates and
assumptions affect the reported amounts of revenues and expenses during the periods presented, the reported amounts of assets
and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements. The most critical
estimates relate to the assumptions underlying the benefit obligations of our pension and other postretirement benefit (or
“OPEB”) plans, the recoverability of deferred income tax assets, and the carrying values of our long-lived assets and goodwill.
Estimates, assumptions, and judgments are based on a number of factors, including historical experience, recent events, existing
conditions, internal budgets and forecasts, projections obtained from industry research firms, and other data that management
believes are reasonable under the circumstances. Actual results could differ materially from those estimates under different
assumptions or conditions.
80
Cash and cash equivalents, and restricted cash
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Cash and cash equivalents generally consist of direct obligations of the U.S. and Canadian governments and their agencies,
demand deposits, and other short-term, highly liquid securities with a maturity of three months or less from the date of
purchase. Restricted cash consists primarily of deposits held as collateral for letters of credit.
Accounts receivable
Accounts receivable are recorded at cost, net of an allowance for doubtful accounts that is based on expected collectibility, and
such carrying value approximates fair value.
Inventories
Inventories are stated at the lower of cost or net realizable value using the average cost method. Cost includes labor, materials
and production overhead, which is based on the normal capacity of our production facilities. Unallocated overhead, including
production overhead associated with abnormal production levels, is recognized in “Cost of sales, excluding depreciation,
amortization and distribution costs” in our Consolidated Statements of Operations when incurred.
Assets held for sale
Assets held for sale are carried in our Consolidated Balance Sheets at the lower of carrying value or fair value less costs to sell.
We cease recording depreciation and amortization when assets are classified as held for sale.
Fixed assets
Fixed assets acquired, including internal-use software, are stated at acquisition cost less accumulated depreciation and
impairment. The cost of the fixed assets is reduced by any investment tax credits or government capital grants earned.
Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. We capitalize interest on
borrowings during the construction period of major capital projects as part of the related asset and amortize the capitalized
interest in “Depreciation and amortization” in our Consolidated Statements of Operations over the related asset’s remaining
useful life. Planned major maintenance costs are recorded using the deferral method, whereby the costs of each planned major
maintenance activity are capitalized to “Other current assets” or “Other assets” in our Consolidated Balance Sheets, and
amortized to “Cost of sales, excluding depreciation, amortization and distribution costs” in our Consolidated Statements of
Operations on a straight-line basis over the estimated period until the next planned major maintenance activity. All other routine
repair and maintenance costs are expensed as incurred.
Amortizable intangible assets
Amortizable intangible assets are stated at acquisition cost less accumulated amortization and impairment. Amortization is
provided on a straight-line basis over the estimated useful lives of the assets.
Impairment of long-lived assets
The unit of accounting for impairment testing for long-lived assets is its group, which includes fixed assets, net, amortizable
intangible assets, net, and liabilities directly related to those assets (herein defined as “asset group”). For asset groups that are
held and used, that group represents the lowest level for which identifiable cash flows are largely independent of the cash flows
of other asset groups. For asset groups that are to be disposed of by sale or otherwise, that group represents assets to be
disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred
in the transaction.
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value of an
asset group may no longer be recoverable. The recoverability of an asset group that is held and used is tested by comparing the
carrying value of the asset group to the sum of the estimated undiscounted future cash flows expected to be generated by that
asset group. In estimating the undiscounted future cash flows, we use projections of cash flows directly associated with, and
which are expected to arise as a direct result of, the use and eventual disposition of the asset group. If there are multiple
plausible scenarios for the use and eventual disposition of an asset group, we assess the likelihood of each scenario occurring in
order to determine a probability-weighted estimate of the undiscounted future cash flows. The principal assumptions include
periods of operation, projections of product pricing, production levels and sales volumes, product costs, market supply and
81
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
demand, foreign exchange rates, inflation, and projected capital spending. Changes in any of these assumptions could have a
material effect on the estimated undiscounted future cash flows expected to be generated by the asset group. If it is determined
that an asset group is not recoverable, an impairment loss is recognized in the amount that the asset group’s carrying value
exceeds its fair value. The fair value of a long-lived asset group is determined in accordance with our accounting policy for fair
value measurements, as discussed below. If it is determined that the carrying value of an asset group is recoverable, we review
and adjust, as necessary, the estimated useful lives of the assets in the group.
When an asset group meets the criteria for classification as an asset held for sale, an impairment charge is recognized, if
necessary, based on the excess of the asset group’s carrying value over the expected net proceeds from the sale (the estimated
fair value minus the estimated costs to sell).
Asset groups to be disposed of other than by sale are classified as held and used until the asset group is disposed of or use of the
asset group has ceased.
Goodwill
Goodwill is not amortized and is evaluated every year, or more frequently, whenever indicators of potential impairment exist.
The impairment test of goodwill is performed at the reporting unit’s level.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount including goodwill. In performing the qualitative assessment, we identify the
relevant drivers of fair value of a reporting unit and the relevant events and circumstances that may have an impact on those
drivers of fair value. This process involves significant judgment and assumptions including the assessment of the results of the
most recent fair value calculations, the identification of macroeconomic conditions, industry and market considerations, cost
factors, overall financial performance, specific events affecting us and the business, and making the assessment on whether
each relevant factor will impact the impairment test positively or negatively, and the magnitude of any such impact. If, after
assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, including goodwill, then an impairment test is performed. We can also elect to bypass the
qualitative assessment and proceed directly to the impairment test.
The first step of an impairment test is to compare the fair value of a reporting unit to its carrying amount, including goodwill.
Significant judgment is required to estimate the fair value of a reporting unit.
Using the income method to determine the fair value of a reporting unit, we estimate the fair value of a reporting unit based on
the present value of estimated future cash flows. The assumptions used in the model requires estimating future sales volumes,
selling prices and costs, changes in working capital, investments in fixed assets, and the selection of the appropriate discount
rate. The assumptions used are consistent with internal projections and operating plans. Unanticipated market and
macroeconomic events and circumstances may occur and could affect the exactitude and validity of management assumptions
and estimates. Sensitivities of these fair value estimates to changes in assumptions are also performed.
In the event that the net carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized for the
amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that
reporting unit.
Goodwill is assigned to the tissue segment for the purposes of impairment testing.
Income taxes
We use the asset and liability approach in accounting for income taxes. Under this approach, deferred income tax assets and
liabilities are recognized for the expected future tax consequences attributable to differences between the carrying amounts in
our Consolidated Financial Statements of existing assets and liabilities and their respective tax bases. This approach also
requires the recording of deferred income tax assets related to operating loss and tax credit carryforwards. Deferred income tax
assets and liabilities are measured using enacted tax rates applicable when temporary differences and carryforwards are
expected to be recovered or settled. We have not provided for the additional U.S. and foreign income taxes that could become
payable upon remittance of undistributed earnings of our foreign subsidiaries, as we have specific plans for the reinvestment of
such earnings.
Valuation allowances are recognized to reduce deferred income tax assets to the amount that is more likely than not to be
realized. In assessing the likelihood of realization, we consider all available positive and negative evidence, including future
82
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
reversals of existing taxable temporary differences, estimates of future taxable income, past operating results, and prudent and
feasible tax planning strategies.
Tax benefits related to uncertain tax positions are recorded when it is more likely than not, based on technical merits, that the
position will be sustained upon examination by the relevant taxing authorities. The amount of tax benefit recognized may differ
from the amount taken or expected to be taken on a tax return. These differences represent unrecognized tax benefits and are
reviewed at each reporting period based on facts, circumstances and available evidence. We recognize accrued interest and
penalties related to unrecognized tax benefits as a component of the income tax expense.
The Tax Cuts and Jobs Act (or “TCJA”) of 2017 introduced the global intangible low-taxed income (or “GILTI”) regime, which
required accounting policy elections to be made during the 12-month measurement period following the enactment of the
TCJA. Accordingly, we have elected to account for GILTI as a period cost, if and when incurred, and to apply the tax law
ordering approach to assess the impact of GILTI on the realizability of net operating loss carryforwards. For more information,
see Note 13, “Income Taxes.”
Environmental costs
We expense environmental costs related to existing conditions resulting from past or current operations and from which no
current or future benefit is discernible. These costs are included in “Cost of sales, excluding depreciation, amortization and
distribution costs” in our Consolidated Statements of Operations. Expenditures that extend the life of the related property are
capitalized. We determine our liability on a site-by-site basis and record a liability at the time it is probable and can be
reasonably estimated. Such accruals are adjusted as further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of
expected cash payments are reliably determinable.
Pension and OPEB plans
For each defined benefit pension and OPEB plan, a liability is recognized for a plan’s under-funded status, net of the fair value
of plan assets, and an asset is recognized for a plan’s over-funded status, net of the plan’s obligations. Changes in the funding
status that have not been recognized in our net periodic benefit cost are reflected as an adjustment to our “Accumulated other
comprehensive loss” in our Consolidated Balance Sheets. We recognize net periodic benefit cost or credit as employees render
the services necessary to earn the pension and OPEB. The service cost component of net periodic pension and OPEB cost or
credit is recorded in operating expenses (together with other employee compensation costs arising during the period). The other
components of the net periodic pension and OPEB cost or credit (or “non-operating pension and OPEB costs”) are reported
separately outside any subtotal of operating income (loss). Amounts we contribute to our defined contribution plans are
expensed as incurred.
Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants at the measurement date, and is based on any principal market for the specific asset or
liability. We consider the risk of non-performance of the obligor, which in some cases reflects our own credit risk, in
determining fair value. We categorize assets and liabilities measured at fair value (other than those measured at net asset value,
or “NAV,” per share, or its equivalent) into one of three different levels depending on the observability of the inputs employed
in the measurement. This fair value hierarchy is as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets and liabilities.
Level 2 - Valuations based on observable inputs, other than Level 1 prices, such as quoted interest or currency exchange
rates.
Level 3 - Valuations based on significant unobservable inputs that are supported by little or no market activity, such as
discounted cash flow methodologies based on internal cash flow forecasts.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques used in the determination of fair value of our assets and
liabilities, when required, maximize the use of observable inputs and minimize the use of unobservable inputs.
83
Share-based compensation
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
We recognize the cost of our share-based compensation over the requisite service period using the straight-line attribution
approach, based on the grant date fair value for equity-based awards, and based on the fair value at the end of each reporting
period for liability-based awards. The requisite service period is reduced for those employees who are retirement eligible at the
date of the grant or who will become retirement eligible during the vesting period and who will be entitled to continue vesting
in their entire award upon retirement.
Our stock incentive awards (as defined in Note 16, “Share-Based Compensation”) may be subject to market, performance and/
or service conditions. For equity-based awards, the fair value of stock options is determined using a Black-Scholes option
pricing formula, and the fair value of restricted stock units (or “RSUs”), deferred stock units (or “DSUs”) and performance
stock units (or “PSUs”) is determined based on the market price of a share of our common stock on the grant date. Liability-
based awards, consisting of RSUs, DSUs, and PSUs, are initially measured based on the market price of a share of our common
stock on the grant date and remeasured at the end of each reporting period, until settlement. Certain PSUs have a market
condition considered in the determination of the fair value of the award, such that the ultimate number of units that vest will be
determined in part by total shareholder relative to a group of peer companies. The fair value of those PSUs is determined using
a Monte Carlo simulation model.
We estimate forfeitures of stock incentive awards and performance adjustments for our PSUs based on historical experience and
forecasts, and recognize compensation cost only for those awards expected to vest. Estimated forfeitures and performance
adjustments are updated to reflect new information or actual experience, as it becomes available.
Revenue recognition
Revenue arises from contracts with customers in which the sale of goods is the main performance obligation. A contract’s
transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance
obligation is satisfied, which is when (point in time) or as (over time) control of the promised good or service is transferred to
the customer.
Revenue is measured at the amount to which we are expected to be entitled in exchange for transferring goods based on
consideration specified in the contract with the customer. Taxes assessed by a governmental authority that are both imposed on
and concurrent with a specific revenue-producing transaction, that we collect from the customer, are excluded from revenue.
When a contract with a customer includes variable consideration such as special pricing agreements and other volume-based
incentives, revenue is recognized at the most likely amount based on sales forecasts, for which it is probable that a revenue
reversal will not subsequently occur.
Revenue is recorded at a point in time when control over the goods transfers to the customer, which typically occurs upon
shipment or delivery depending on the terms of the underlying contracts with customers. Pulp, tissue, paper and wood products
are delivered to our customers in the United States and Canada directly from our mills primarily by truck or rail. Pulp and paper
products are delivered to our international customers primarily by ship. For sales where control transfers to the customer at the
shipping point, revenue is recorded when the product leaves the facility, whereas for sales where control transfers at the
destination, revenue is recorded when the product is delivered to the customer’s delivery site.
Sales of our other products (green power produced from renewable sources and wood-related products) are recognized when
the products are delivered and are included in “Cost of sales, excluding depreciation, amortization and distribution costs” in our
Consolidated Statements of Operations.
Distribution costs
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are
accounted for as a fulfillment cost and are included in “Distribution costs” in our Consolidated Statements of Operations.
Translation
The functional currency of the majority of our operations is the U.S. dollar. Non-monetary assets and liabilities denominated in
foreign currencies of these operations and the related income and expense items such as depreciation and amortization are
remeasured into U.S. dollars using historical exchange rates. Remaining assets and liabilities are remeasured into U.S. dollars
using the exchange rate as of the balance sheet date. Remaining income and expense items are remeasured into U.S. dollars
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RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
using a daily or monthly average exchange rate for the period. Gains and losses from foreign currency transactions and from
remeasurement of the balance sheet are reported in “Other income, net” in our Consolidated Statements of Operations.
The functional currency of our other operations is their local currency. Assets and liabilities of these operations are translated
into U.S. dollars at the exchange rate in effect as of the balance sheet date. Income and expense items are translated using a
daily or monthly average exchange rate for the period. The resulting translation gains or losses are recognized as a component
of equity in “Accumulated other comprehensive loss.”
Net income (loss) per share
We calculate basic net income (loss) per share attributable to Resolute Forest Products Inc. common shareholders by dividing
our net income (loss) by the basic weighted-average number of outstanding common shares. We calculate diluted net income
per share attributable to Resolute Forest Products Inc. common shareholders by dividing our net income by the basic weighted-
average number of outstanding common shares, as adjusted for dilutive potential common shares using the treasury-stock
method. Potentially dilutive common shares consist of outstanding stock options, RSUs, DSUs and PSUs. To calculate diluted
net loss per share attributable to Resolute Forest Products Inc. common shareholders, no adjustments to our basic weighted-
average number of outstanding common shares are made, since the impact of potentially dilutive common shares would be
antidilutive.
New accounting pronouncements adopted in 2018
ASU 2014-09 “Revenue from Contracts from Customers”
Effective January 1, 2018, we adopted Accounting Standards Update (or “ASU”) 2014-09, “Revenue from Contracts from
Customers,” issued by the Financial Accounting Standards Board (or the “FASB”), and the series of related accounting standard
updates that followed (collectively, “Topic 606”). We utilized the modified retrospective method, which required the application
of Topic 606 to: (i) all new revenue contracts entered into after January 1, 2018; and (ii) all existing revenue contracts as of
January 1, 2018. The adoption of Topic 606 had no impact on our revenues, results of operations, or financial position.
ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities”
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,”
which amends certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. This
update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We
adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not impact our results of operations,
financial position or cash flows.
ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments”
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which is
intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This update is
effective retrospectively for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We
adopted this ASU and all amendments to the guidance on January 1, 2018. The adoption of this accounting guidance did not
impact the presentation of our cash flows.
ASU 2016-18 “Restricted Cash”
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires companies to include amounts generally
described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. This update is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on January 1, 2018. Prior period
amounts have been reclassified to conform to the 2018 presentation.
ASU 2017-05 “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial
Assets”
In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for
Partial Sales of Nonfinancial Assets,” which clarifies the scope of Subtopic 610-20, “Other Income – Gains and Losses from the
85
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Derecognition of Nonfinancial Assets” and adds guidance for partial sales of nonfinancial assets. This update is effective for
fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on
January 1, 2018. The adoption of this accounting guidance did not impact our results of operations, financial position or cash
flows.
ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost,” which requires employers that present a measure of operating income in their statements of
earnings to disaggregate and present only the service cost component of net periodic pension and OPEB cost in operating
expenses (together with other employee compensation costs arising during the period). Non-operating pension and OPEB costs
are reported separately outside any subtotal of operating income. This update is effective retrospectively for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU on January 1,
2018.
The effect of this ASU on our Consolidated Statements of Operations for the year ended December 31, 2018, was as follows:
(In millions)
Cost of sales, excluding depreciation, amortization and distribution costs
Selling, general and administrative expenses
Operating income
Non-operating pension and other postretirement benefit credits
Before
Accounting
Standards
Update
2,497
$
$
167
429
—
Effect of
Change
52
(2)
(50)
50
As
Reported
$
2,549
165
379
50
The effect of this ASU on our Consolidated Statements of Operations for the year ended December 31, 2017, was as follows:
(In millions)
As
Previously
Reported
Effect of
change
Cost of sales, excluding depreciation, amortization and distribution costs
$
2,574
$
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Operating income
Non-operating pension and other postretirement benefit credits
172
87
49
—
14
(2)
(5)
(7)
7
As Adjusted
$
2,588
170
82
42
7
The effect of this ASU on our Consolidated Statements of Operations for the year ended December 31, 2016, was as follows:
(In millions)
As
Previously
Reported
Cost of sales, excluding depreciation, amortization and distribution costs
$
2,716
$
Selling, general and administrative expenses
Operating loss
Non-operating pension and other postretirement benefit costs
149
(26)
—
Effect of
change
(6)
(2)
8
(8)
As Adjusted
$
2,710
147
(18)
(8)
ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income”, allowing an election to reclassify from accumulated other comprehensive income to retained earnings
stranded income tax effects resulting from the TCJA. This update is effective for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to
each period in which the effect of the TCJA is recognized. As early adoption is permitted in a period for which financial
86
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
statements have not yet been issued, we adopted this ASU in 2018, and elected to reclassify the income tax effects, resulting in
a $2 million decrease to “Deficit” and a corresponding increase to “Accumulated other comprehensive loss” in our
Consolidated Balance Sheet as of December 31, 2018.
Accounting pronouncements not yet adopted as of December 31, 2018
ASU 2016-02 “Leases”
In February 2016, the FASB issued ASU 2016-02, “Leases,” amended in July by ASU 2018-10, “Codification Improvements to
Topic 842, Leases,” ASU 2018-11, “Targeted Improvements,” and ASU 2018-20, “Narrow-Scope Improvements for Lessors,”
which requires lessees to recognize leases on the balance sheet while continuing to recognize expenses in the income statement
in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the
accounting for sales-type and direct financing leases. Enhanced disclosures will also be required to give financial statement
users the ability to assess the amount, timing, and uncertainty of cash flows arising from leases.
This ASU may either be adopted on a modified retrospective approach at the beginning of the earliest comparative period, or
through a cumulative-effect adjustment at the adoption date. This update is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. We adopted these standards on January 1, 2019,
through a cumulative-effect adjustment, resulting in an increase in total assets and total liabilities of approximately $65 million
and no cumulative-effect adjustment to “Deficit” in our Consolidated Balance Sheet as of that date.
On adoption, we elected to apply the package of practical expedients that allows us not to reassess whether expired or existing
contracts contain leases, the classification of these leases and whether previously capitalized initial direct costs would qualify
for capitalization under Accounting Standards Codification (or “ASC”) 842. Furthermore, we elected to use hindsight in
determining the lease term and assessing impairment of the right-of-use assets.
We are in the process of identifying and implementing appropriate changes in processes and internal controls to support the
recognition of leases and disclosure under the new standard.
ASU 2016-13 “Measurement of Credit Losses on Financial Instruments”
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” amended in
November by ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” which
introduces the current expected credit losses model in the estimation of credit losses on financial instruments. This update is
effective retrospectively for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with
early adoption being permitted for fiscal years beginning after December 15, 2018. We plan to adopt this ASU on January 1,
2020. We are still evaluating the impact of this accounting guidance on our results of operations and financial position as
implementation of this project is at the assessment stage.
ASU 2018-14 “Changes to the Disclosure Requirements for Defined Benefit Plans”
In August 2018, the FASB issued ASU 2018-14, “Changes to the Disclosure Requirements for Defined Benefit Plans,” which
intends to add, remove, and clarify disclosure requirements related to defined benefit pension and OPEB plans. This update is
effective for fiscal years ending after December 15, 2020, with early adoption being permitted. We are still evaluating the
impact of this standard on our consolidated financial statements.
ASU 2018-15 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract”
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This update
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early
adoption being permitted as of the beginning of an interim or annual reporting period. We are still evaluating the impact of this
standard on our consolidated financial statements.
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RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 3. Closure Costs, Impairment and Other Related Charges
Closure costs, impairment and other related charges were $121 million for the year ended December 31, 2018, including
$120 million of impairment charges related to the assets from the 2015 acquisition of Atlas Paper Holdings Inc. and its
subsidiaries (or “Atlas”).
Goodwill impairment charge
Following our 2018 annual impairment test of goodwill, we determined that the carrying value of the tissue reporting unit
exceeded its estimated fair value. As a result, we recorded a goodwill impairment charge of $81 million for the year ended
December 31, 2018, representing the entire goodwill amount. This impairment charge resulted from cumulative losses of the
tissue business and lower-than-expected projected cash flows, driven by operating and market-related factors. The fair value of
the reporting unit was determined based on the present value of estimated future cash flows.
Long-lived assets impairment charges
As a result of the deterioration of estimated future cash flows of Atlas, we recorded for the year ended December 31, 2018,
fixed assets impairment charges of $29 million and intangible assets impairment charges of $10 million to reduce the carrying
value of these assets to their estimated fair value. The fair value of fixed assets was estimated using the market approach, by
reference to estimated selling prices for similar assets, less costs to sell. The fair value of intangible assets was estimated using
the income approach. Projected discounted cash flows utilized under the income approach included estimates regarding future
revenues and expenses attributable to Atlas, projected capital expenditures and a discount rate of 12%. These fair value
measurements are considered Level 3 measurements due to the significance of their unobservable inputs.
Closure costs, impairment and other related charges for the year ended December 31, 2017, were comprised of the following:
(In millions)
Pulp mill at Coosa Pines (Alabama) (1)
Permanent closures
Paper machine at Catawba (South Carolina)
Paper machines at Calhoun (Tennessee)
Paper mill at Mokpo (South Korea)
Impairment
of Assets
Accelerated
Depreciation
Severance
and Other
Costs
$
55
$ —
$ —
Total
$
55
5
—
—
—
60
$
—
6
—
—
6
$
4
2
7
3
9
8
7
3
$
16
$
82
Other
(1)
Other
(1)
As a result of the continued deterioration of actual and projected cash flows, we recorded long-lived asset impairment
charges of $55 million for the year ended December 31, 2017, to reduce the carrying value of the assets to their
estimated fair value, which was determined using the market approach, by reference to market transaction prices for
similar assets. The fair value measurement is considered a Level 3 measurement due to the significance of its
unobservable inputs.
Closure costs, impairment and other related charges for the year ended December 31, 2016, were comprised of the following:
(In millions)
Paper mill at Mokpo (1)
Permanent closure
Paper machine at Augusta (Georgia)
Impairment
of Assets
Accelerated
Depreciation
$
13
$ —
Severance
and Other
Costs
$ —
—
9
22
$
32
3
35
$
4
1
5
$
Total
$
13
36
13
62
$
Due to declining market conditions and rising recycled fiber prices, we recorded long-lived asset impairment charges
of $13 million for the year ended December 31, 2016, to reduce the carrying value of the assets to fair value.
88
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Management estimated fair value using the market approach, by reference to transactions on comparable assets
adjusted for additional risks and uncertainties associated with the deteriorating market environment, as well as
increased competition in Asia. The fair value measurement is considered a Level 3 measurement due to the
significance of its unobservable inputs. In 2017, we announced the permanent closure of the Mokpo paper mill
effective March 9, 2017.
Note 4. Net Gain on Disposition of Assets
During 2018, we recorded a net gain on disposition of assets of $145 million, which included: the sale of the paper and pulp
mill at Catawba for total cash consideration of $280 million (subject to final working capital adjustments), resulting in a net
gain of $101 million; and the sale of the recycled bleached kraft pulp mill at Fairmont (West Virginia) for total cash
consideration of $62 million, resulting in a net gain of $40 million.
During 2017, we recorded a net gain on disposition of assets of $15 million, which included the sale of the assets of the
permanently closed Mokpo paper mill for total consideration of $18 million, resulting in a net gain of $13 million.
89
Note 5. Accumulated Other Comprehensive Loss
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The change in our accumulated other comprehensive loss by component (net of tax) for the year ended December 31, 2018, was
as follows:
(In millions)
Balance as of December 31, 2017
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive
loss (1)
Net current period other comprehensive loss
Reclassification of stranded income tax (Note 2)
Balance as of December 31, 2018
Unamortized
Prior Service
Credits
52
(5)
$
Unamortized
Actuarial
Losses
(826)
(162)
$
Foreign
Currency
Translation
$
(6)
(1)
(19)
(24)
—
28
$
19
(143)
(2)
(971)
$
—
(1)
—
(7)
$
Total
(780)
(168)
—
(168)
(2)
(950)
$
$
(1)
See the table below for details about these reclassifications.
The reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2018, were comprised of
the following:
(In millions)
Unamortized Prior Service Credits
Amortization of prior service
credits
Curtailment gain
Amounts
Reclassified
From
Accumulated
Other
Comprehensive
Loss
Affected Line in the Consolidated Statements of Operations
$
(15)
(5)
1
Non-operating pension and other postretirement benefit credits (costs) (1)
Net gain on disposition of assets (1)
Income tax provision
Unamortized Actuarial Losses
Amortization of actuarial losses
Curtailment gain
Settlement loss
Settlement loss
Total Reclassifications
$
$
$
$
(19)
Net of tax
33
(8)
2
1
(9)
19
—
Non-operating pension and other postretirement benefit credits (costs) (1)
Net gain on disposition of assets (1)
Net gain on disposition of assets (1)
Non-operating pension and other postretirement benefit credits (costs) (1)
Income tax provision
Net of tax
Net of tax
(1)
These items are included in the computation of net periodic benefit cost related to our pension and OPEB plans
summarized in Note 12, “Pension and Other Postretirement Benefit Plans.”
90
Note 6. Net Income (Loss) Per Share
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The reconciliation of the basic and diluted net income (loss) per share for the years ended December 31, 2018, 2017 and 2016,
was as follows:
(In millions)
Numerator:
2018
2017
2016
Net income (loss) attributable to Resolute Forest Products Inc.
$
235
$
(84)
$
(81)
Denominator:
Basic weighted-average number of Resolute Forest Products Inc. common
shares outstanding
Dilutive impact of nonvested stock incentive awards
Diluted weighted-average number of Resolute Forest Products Inc.
common shares outstanding
Net income (loss) per share attributable to Resolute Forest Products Inc.
common shareholders:
Basic
Diluted
91.3
2.0
93.3
2.57
2.52
$
90.5
—
90.5
89.9
—
89.9
$
(0.93)
(0.93)
$
(0.90)
(0.90)
The weighted-average number of outstanding stock options and nonvested equity-classified RSUs, DSUs and PSUs
(collectively, “stock unit awards”) that were excluded from the calculation of diluted net income (loss) per share, as their impact
would have been antidilutive, for the years ended December 31, 2018, 2017 and 2016, was as follows:
(In millions)
Stock options
Stock unit awards
Note 7. Inventories, Net
Inventories, net as of December 31, 2018 and 2017, were comprised of the following:
(In millions)
Raw materials
Work in process
Finished goods
Mill stores and other supplies
2018
1.2
—
2017
1.4
4.1
2016
1.4
2.6
2018
106
39
180
183
508
$
$
2017
108
38
175
205
526
$
$
In 2017, we recorded charges of $24 million for write-downs of mill stores and other supplies, primarily related to the
permanent closure of two paper machines at Calhoun, a paper machine at the Catawba paper mill, and the Mokpo paper mill. In
2016, we recorded charges of $7 million for write-downs of mill stores and other supplies, primarily as a result of the
permanent closure of a newsprint machine at our Augusta mill. These charges were included in “Cost of sales, excluding
depreciation, amortization and distribution costs” in our Consolidated Statements of Operations.
91
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 8. Fixed Assets, Net
Fixed assets, net as of December 31, 2018 and 2017, were comprised of the following:
(Dollars in millions)
Land and land improvements
Buildings
Machinery and equipment (1)
Hydroelectric power plants
Timberlands and timberlands improvements
Construction in progress
Less: Accumulated depreciation
Estimated Useful
Lives (Years)
5 – 20
10 – 40
2 – 25
10 – 40
10 – 20
$
2018
51
305
2,185
297
113
62
$
2017
56
298
2,544
292
110
30
3,013
(1,498)
1,515
$
3,330
(1,614)
1,716
$
(1)
Internal-use software included in fixed assets, net as of December 31, 2018 and 2017, was as follows:
(In millions)
Machinery and equipment
Less: Accumulated depreciation
2018
114
(59)
55
$
$
2017
111
(42)
69
$
$
Depreciation expense related to internal-use software is estimated to be $17 million in 2019, $13 million from 2020 to
2021, $8 million in 2022, and $3 million in 2023.
92
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 9. Amortizable Intangible Assets, Net
Amortizable intangible assets, net as of December 31, 2018 and 2017, were comprised of the following:
(Dollars in millions)
Water rights (1)
Energy contracts
Customer relationships (2)
Other
2018
2017
Estimated
Useful
Lives
(Years)
Gross
Carrying
Value
Accumulated
Amortization
$
10 – 40
15 – 25
10
19
52
2
1
$
74
$
$
7
16
1
—
24
$
Net
12
36
1
1
$
50
Gross
Carrying
Value
$
$
19
52
14
1
86
Accumulated
Amortization
Net
$
$
5
14
2
—
21
$
$
14
38
12
1
65
(1)
(2)
In order to operate our hydroelectric generation and transmission network, we draw water from various rivers in
Quebec. For some of our facilities, the use of such government-owned waters is governed by water power agreements
with the province of Quebec, which set out the terms, conditions, and fees (as applicable). Terms of these agreements
typically range from 10 to 25 years and are generally renewable, under certain conditions. In some cases, the
agreements are contingent on the continued operation of the related paper mills and a minimum level of capital
spending in the region. For our other facilities, the right to generate hydroelectricity stems from our ownership of the
riverbed on which these facilities are located.
As a result of the deterioration of estimated future cash flows of Atlas, we recorded intangible assets impairment
charges of $10 million for the year ended December 31, 2018. See Note 3, “Closure Costs, Impairment and Other
Related Charges” for more information.
Amortization expense related to amortizable intangible assets was $5 million for the years ended December 31, 2018 and 2017,
respectively, and $4 million for the year ended December 31, 2016. Amortization expense related to amortizable intangible
assets is estimated to be $4 million for each of the next three years and $3 million in 2022 and 2023.
Note 10. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of December 31, 2018 and 2017, were comprised of the following:
(In millions)
Trade accounts payable
Payroll, bonuses and severance payable
Accrued interest
Pension and other postretirement benefit obligations
Income and other taxes payable
Deposits
Environmental liabilities
Other
2018
299
$
2017
306
$
63
5
17
4
20
2
17
$
427
$
55
5
18
10
3
2
21
420
93
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 11. Long-Term Debt
Overview
Long-term debt, including current portion, as of December 31, 2018 and 2017, was comprised of the following:
(In millions)
5.875% senior unsecured notes due 2023:
Principal amount
Deferred financing costs
Unamortized discount
Total senior unsecured notes due 2023
Term loan due 2025
Borrowings under revolving credit facilities
Capital lease obligation
Total debt
Less: Current portion of 5.875% senior unsecured notes due 2023
Less: Current portion of capital lease obligation
Long-term debt, net of current portion
Debt instruments
2023 Notes
2018
2017
$
$
600
(5)
(3)
592
46
—
7
645
(222)
(1)
422
$
$
600
(5)
(3)
592
46
144
7
789
—
(1)
788
We issued $600 million in aggregate principal amount of 5.875% senior unsecured notes due 2023 (or the “2023 Notes”) on
May 8, 2013, pursuant to an indenture as of that date (the “indenture”). Upon their issuance, the notes were recorded at their
fair value of $594 million, which reflected a discount of $6 million that is amortized to “Interest expense” in our Consolidated
Statements of Operations using the interest method over the term of the notes, resulting in an effective interest rate of 6%.
Interest on the notes is payable semi-annually beginning November 15, 2013, until their maturity date of May 15, 2023. In
connection with the issuance of the notes, we incurred financing costs of $9 million, which were deferred and recorded as a
reduction of the notes. These deferred financing costs are amortized to “Interest expense” in our Consolidated Statements of
Operations using the interest method over the term of the notes. On May 27, 2014, the 2023 Notes and related guarantees were
registered under the Securities Act of 1933 (as amended, the “Securities Act”).
On January 3, 2019 (the “closing date”), we repurchased $225 million in aggregate principal amount of the 2023 Notes,
pursuant to a notes purchase agreement entered into on December 21, 2018, with certain noteholders, at a purchase price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the closing date. The aggregate
principal amount and related deferred financing costs and unamortized discount were included in “Current portion of long-term
debt” in our Consolidated Balance Sheet as of December 31, 2018. As a result of the repurchase, we will record a net loss on
extinguishment of debt of $3 million in “Other income, net” in our Consolidated Statements of Operations in the first quarter of
2019.
The 2023 Notes are guaranteed by all of our existing and subsequently acquired or organized direct or indirect wholly-owned
U.S. subsidiaries that guarantee the ABL Credit Facility (as defined and discussed below). The notes are unsecured and
effectively junior to indebtedness under both the ABL Credit Facility and the Senior Secured Credit Facility (as defined and
discussed below), and to future secured indebtedness. In addition, the notes are structurally subordinated to all existing and
future liabilities of our subsidiaries that do not guarantee the notes.
The terms of the indenture impose certain restrictions, subject to a number of exceptions and qualifications, including limits on
our ability to: incur, assume or guarantee additional indebtedness; issue redeemable stock and preferred stock; pay dividends or
make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and
investments; incur liens; restrict dividends, loans or transfer assets from our subsidiaries; sell or otherwise dispose of assets,
including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to, another
person; enter into transactions with affiliates; and enter into new lines of business.
94
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
In the event of a change of control, each holder will have the right to require us to repurchase all or any part of that holder’s
notes at a purchase price in cash equal to 101% of the aggregate principal amount of the notes plus any accrued and unpaid
interest. If we sell certain of our assets and do not use the proceeds to pay down certain indebtedness, purchase additional assets
or make capital expenditures, each as specified in the indenture, we must offer to purchase the notes at a redemption price of
100% of the principal amount thereof plus accrued and unpaid interest with the net cash proceeds from the asset sale.
The 2023 Notes are redeemable, in whole or in part, since May 15, 2017, at redemption prices equal to a percentage of the
principal amount plus accrued and unpaid interest, as follows:
Year (beginning May 15)
2018
2019
2020 and thereafter
Redemption Price
102.938%
101.469%
100.000%
The fair value of the 2023 Notes (Level 1) was $598 million and $622 million as of December 31, 2018 and 2017, respectively.
Senior Secured Credit Facility
On September 7, 2016, we entered into a senior secured credit facility (or the “Senior Secured Credit Facility”) for up to
$185 million. The Senior Secured Credit Facility provides a term loan of $46 million with a maturity date of September 7, 2025
(the “Term Loan”), a revolving credit facility of up to $139 million with a maturity date of September 7, 2022 (the “Revolving
Credit Facility”), and also provides an uncommitted option to increase the Senior Secured Credit Facility by up to $175 million,
subject to certain terms and conditions.
The obligations under the Senior Secured Credit Facility are guaranteed by certain material U.S. subsidiaries of the Company
and are secured by a first priority mortgage on the real property of our Calhoun facility and a first priority security interest on
the fixtures and equipment located therein, and related assets.
Interest rates under the Senior Secured Credit Facility are based, at the Company’s election, on either a floating rate based on
the London Interbank Offered Rate (or the “LIBOR”), or a base rate, in each case plus a spread over the index. The base rate is
the highest of (i) the prime rate; (ii) the federal funds effective rate plus 0.5%; and (iii) the one-month LIBOR plus 1%. The
applicable spread over the index fluctuates quarterly based upon the Company’s capitalization ratio, which is defined as the
ratio of the Company’s funded indebtedness to the sum of the Company’s funded indebtedness and its net worth. For the Term
Loan, the applicable spread ranges from 0.875% to 1.5% for base rate loans, and from 1.875% to 2.5% for LIBOR loans. For
loans under the Revolving Credit Facility, the applicable spread ranges from 0.5% to 1.125% for base rate loans, and from 1.5%
to 2.125% for LIBOR loans. The Senior Secured Credit Facility was issued by lenders within the farm credit system and is
eligible for patronage refunds. Patronage refunds are distributions of profits from lenders in the farm credit system, which are
cooperatives that are required to distribute profits to their members. Patronage distributions, which are made in either cash or
stock, are received in the year after they were earned. Future refunds are dependent on future farm credit lender profits, made at
the discretion of each farm credit lender.
In addition to paying interest on outstanding principal under the Senior Secured Credit Facility, we are required to pay a fee in
respect of unutilized commitments under the Revolving Credit Facility equal to 0.325% per annum when average daily
utilization under the Revolving Credit Facility for the prior fiscal quarter is less than or equal to 35% of the total revolving
commitments, and 0.275% per annum when average daily utilization under the Revolving Credit Facility for the prior fiscal
quarter is greater than 35% of the total revolving commitments.
Base rate loans under the Senior Secured Credit Facility may be repaid from time to time at our discretion without premium or
penalty. LIBOR loans may be repaid from time to time at our discretion, subject to breakage costs, if any. Amounts repaid on
the Term Loan may not be subsequently re-borrowed. Principal amounts under the Revolving Credit Facility may be drawn,
repaid, and redrawn until September 6, 2022.
Pursuant to the Senior Secured Credit Facility, we are also required to maintain a capitalization ratio not greater than 45% at all
times, available liquidity of not less than $100 million, and a collateral coverage ratio of not less than 1.8 to 1.0 (each as defined
in the Senior Secured Credit Facility). In addition, the Senior Secured Credit Facility contains certain covenants applicable to
the Company and its subsidiaries, including, among others: (i) requirements to deliver financial statements, other reports and
notices; (ii) restrictions on the existence or incurrence and repayment of indebtedness; (iii) restrictions on the existence or
95
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
incurrence of liens; (iv) restrictions on the Company and certain of its subsidiaries making certain restricted payments; (v)
restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations, and asset dispositions; (vii)
restrictions on transactions with affiliates; and (viii) restrictions on modifications to material indebtedness. The Senior Secured
Credit Facility includes customary representations and warranties, and, subject to customary grace periods and notice
requirements, also contains certain customary events of default.
As of December 31, 2018, we had $139 million of availability under the Revolving Credit Facility, which was undrawn. The
fair values of the Term Loan and Revolving Credit Facility (Level 2) approximated their carrying values as of both
December 31, 2018 and 2017.
ABL Credit Facility
On May 22, 2015, we entered into a five-year credit agreement for a senior secured asset-based revolving credit facility (the
“ABL Credit Facility”), with an aggregate lender commitment of up to $600 million at any time outstanding, subject to
borrowing base availability based on specified advance rates, eligibility criteria and customary reserves. The ABL Credit
Facility will mature on May 22, 2020.
The aggregate lender commitment under the facility includes a $60 million swingline sub-facility and a $200 million letter of
credit sub-facility, and we may convert up to $50 million of the commitments under the facility to a first-in last-out facility (or
“FILO Facility”), subject to the consent of each converting lender. The ABL Credit Facility also provides for an uncommitted
ability to increase the revolving credit facility by up to $500 million, subject to certain terms and conditions set forth in the
agreement.
Revolving loan (and letter of credit) availability under the credit agreement is subject to a borrowing base, which at any time is
equal to the sum of (i) 85% of eligible accounts receivable (or 90% with respect to certain insured or letter of credit backed
accounts or with accounts owed by investment grade obligors), plus (ii) the lesser of (A) 70% of the lesser of the cost or market
value of eligible inventory or (B) 85% of the net orderly liquidation value of eligible inventory, plus (iii) 100% of the value of
eligible cash and 95% of the value of permitted investments held in deposit accounts controlled solely by the administrative and
collateral agent (or the “agent”). The FILO Facility will be subject to a borrowing base, which at any time will be equal to (i)
5% of the eligible accounts receivable, plus (ii) 10% of the appraised net orderly value of the eligible inventory (subject to
reduction to 5% over the term of the facility). Each borrowing base described above is subject to customary reserves and
eligibility criteria, in the exercise of the agent’s reasonable discretion.
The obligations under the credit agreement are guaranteed by certain material subsidiaries of the Company and are secured by
first priority security interests in accounts receivable, inventory, and related assets.
Loans under the credit agreement bear interest at a rate equal to the base rate, the LIBOR, or the Canadian banker’s acceptance
(or “BA”) rate, in each case plus an applicable margin. The applicable margin is between 0.00% and 0.75% with respect to base
rate loans and between 1.00% and 1.75% with respect to LIBOR and Canadian BA loans, in each case based on availability
under the credit facility and a leverage ratio.
Loans outstanding under the FILO Facility bear interest at a rate that is 1.25% per annum higher than the interest rate payable
on revolving loans not made under the FILO Facility.
In addition to paying interest on outstanding principal under the ABL Credit Facility, we are required to pay a fee in respect of
unutilized commitments under the ABL Credit Facility equal to 0.30% per annum when average daily utilization under the ABL
Credit Facility for the prior fiscal quarter is less than 35% of the total revolving commitments, and 0.25% per annum when
average daily utilization under the ABL Credit Facility for the prior fiscal quarter is greater than or equal to 35% of the total
revolving commitments, as well as a fee in respect of outstanding letters of credit (equal to the applicable margin in respect of
LIBOR and Canadian BA loans plus a fronting fee of 0.125% and certain administrative fees).
Base rate loans under the ABL Credit Facility may be repaid from time to time at our discretion without premium or penalty.
LIBOR and Canadian BA rate loans may be repaid from time to time at our discretion, subject to breakage costs, if any.
However, no loans under the FILO Facility can be repaid unless all other loans under the credit agreement are repaid first. We
are required to repay outstanding loans that exceed the maximum availability then in effect.
The credit agreement contains customary covenants for asset-based credit agreements of this type, including, among other
things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence
and repayment of indebtedness by the Company and its subsidiaries; (iii) restrictions on the existence or incurrence of liens by
96
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
the Company and its subsidiaries; (iv) restrictions on the Company and certain of its subsidiaries making certain restricted
payments; (v) restrictions on the Company and certain of its subsidiaries making certain investments; (vi) restrictions on certain
mergers, consolidations and asset dispositions; (vii) restrictions on transactions with affiliates; (viii) restrictions on amendments
or modifications to the Canadian pension plans; (ix) restrictions on modifications to material indebtedness; and (x) a springing
requirement for the Company to maintain a minimum consolidated fixed charge coverage ratio, as determined under the credit
agreement, of 1.0:1.0, anytime availability under the facility falls below the greater of $50 million or 10% of the maximum
available borrowing amount for two consecutive business days. Subject to customary grace periods and notice requirements, the
credit agreement also contains certain customary events of default.
As of December 31, 2018, we had $378 million of availability under the ABL Credit Facility, which was undrawn except for
$53 million of ordinary course letters of credit outstanding. The fair value of the ABL Credit Facility (Level 2) approximated its
carrying value as of both December 31, 2018 and 2017.
Capital lease obligation
We have a capital lease obligation for a warehouse with a maturity date of December 1, 2027, which can be renewed for 20
years at our option. Minimum monthly payments are determined by an escalatory price clause.
Assets pledged as collateral
The carrying value of assets pledged as collateral for our total debt obligations was $1,675 million as of December 31, 2018.
Note 12. Pension and Other Postretirement Benefit Plans
We have a number of defined contribution plans covering a portion of our U.S. and Canadian employees. Under the U.S.
qualified defined contribution plan, employees are allowed to make contributions that we match, and most employees also
receive an automatic company contribution, regardless of the employee’s contribution. The amount of the automatic company
contribution, in most instances, is a percentage of the employee’s pay, determined based on age and years of service. The
Canadian registered defined contribution plans provide for mandatory contributions by employees and by us, as well as
opportunities for employees to make additional optional contributions and receive, in some cases, matching contributions on
those optional amounts. Our expense for the defined contribution plans totaled $20 million in 2018, and $21 million in both
2017 and 2016.
We also have multiple contributory and non-contributory defined benefit pension plans covering a portion of our U.S. and
Canadian employees. Benefits are based on years of service and, depending on the plan, average compensation earned by
employees either during their last years of employment or over their careers. Our plan assets and cash contributions to the plans
have been sufficient to provide pension benefits to participants and meet the funding requirements of the Employee Retirement
Income Security Act of 1974 in the United States as well as applicable legislation in Canada. We also sponsor a number of
OPEB plans (e.g., health care and life insurance plans) for retirees at certain locations.
Certain of the above plans are covered under collective bargaining agreements.
The following tables include both our foreign (Canada) and domestic plans. The assumptions used to measure the obligations of
each of our foreign and domestic plans are not significantly different from each other, with the exception of the health care
trend rates, which are presented below.
97
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The changes in our pension and OPEB obligations and plan assets for the years ended December 31, 2018 and 2017, and the
funded status and reconciliation of amounts recognized in our Consolidated Balance Sheets as of December 31, 2018 and 2017,
were as follows:
(In millions)
Change in benefit obligations:
Pension Plans
OPEB Plans
2018
2017
2018
2017
Benefit obligations as of beginning of year
$
5,474
$
5,196
$
172
$
172
Service cost
Interest cost
Actuarial (gain) loss
Participant contributions
Plan amendment
Special termination benefits
Curtailments
Settlements
Divestiture
Benefits paid
Effect of foreign currency exchange rate changes
Benefit obligations as of end of year
Change in plan assets:
Fair value of plan assets as of beginning of year
Actual return on plan assets
Employer contributions
Participant contributions
Settlements
Divestiture
Benefits paid
Effect of foreign currency exchange rate changes
Fair value of plan assets as of end of year
Funded status as of end of year
Amounts recognized in our Consolidated Balance Sheets
consisted of:
Other assets
Accounts payable and accrued liabilities
Pension and OPEB obligations
Net obligations recognized
19
189
(102)
7
—
—
—
(25)
(84)
(367)
(337)
4,774
4,377
(101)
101
7
(25)
(58)
(367)
(282)
3,652
$ (1,122)
19
199
156
7
—
5
1
(29)
—
(365)
285
5,474
4,073
346
111
7
(29)
—
(365)
234
4,377
$ (1,097)
$
4
(3)
(1,123)
$ (1,122)
$
6
(3)
(1,100)
$ (1,097)
1
6
(7)
2
5
—
—
—
(8)
(15)
(8)
148
—
—
13
2
—
—
(15)
—
—
(148)
—
(14)
(134)
(148)
1
7
(7)
2
(1)
—
4
—
—
(13)
7
172
—
—
11
2
—
—
(13)
—
—
(172)
—
(15)
(157)
(172)
$
$
$
$
$
$
The total benefit obligations and the total fair value of plan assets for pension plans with benefit obligations in excess of plan
assets were $4,548 million and $3,422 million, respectively, as of December 31, 2018, and were $5,213 million and
$4,110 million, respectively, as of December 31, 2017. The total accumulated benefit obligations and the total fair value of plan
assets for pension plans with accumulated benefit obligations in excess of plan assets were $4,510 million and $3,422 million,
respectively, as of December 31, 2018, and were $5,163 million and $4,110 million, respectively, as of December 31, 2017. The
total accumulated benefit obligations for all pension plans were $4,735 million and $5,421 million as of December 31, 2018
and 2017, respectively.
98
Components of net periodic benefit cost
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The components of net periodic benefit cost relating to our pension and OPEB plans for the years ended December 31, 2018,
2017 and 2016, were as follows:
(In millions)
Interest cost
Expected return on plan assets
Amortization of prior service credits
Amortization of actuarial losses (gains)
Non-operating (credits) costs
Service cost
Net periodic benefit (credits) costs before
special events
Curtailments, settlements and other losses
(gains)
Pension Plans
OPEB Plans
2018
$
189
$
(264)
(1)
38
(38)
19
(19)
3
(16)
$
$
2017
199
(254)
(1)
55
(1)
19
18
7
25
2016
215
(247)
(1)
54
21
20
41
—
41
$
$
2018
2017
2016
$
6
$
7
$
—
(14)
(5)
(13)
1
(12)
(13)
(25)
$
—
(14)
(5)
(12)
1
(11)
(1)
(12)
$
$
7
—
(15)
(5)
(13)
1
(12)
—
(12)
The prior service credits and the actuarial gains and losses are amortized to “Cost of sales, excluding depreciation, amortization
and distribution costs” in our Consolidated Statements of Operations, over the expected average remaining service lifetime or
the average future lifetime, as applicable, of the respective plans. We estimate that $28 million of actuarial losses and
$11 million of prior service credits will be amortized from accumulated other comprehensive loss into our Consolidated
Statements of Operations in 2019.
Assumptions used to determine benefit obligations and net periodic benefit cost
The weighted-average assumptions used to determine the benefit obligations at the measurement dates and the net periodic
benefit cost for the years ended December 31, 2018, 2017 and 2016, were as follows:
Benefit obligations:
Discount rate
Rate of compensation increase
Net periodic benefit cost:
Discount rate
Expected return on assets
Rate of compensation increase
Pension Plans
OPEB Plans
2018
2017
2016
2018
2017
2016
3.8%
2.1%
3.6%
6.5%
2.1%
3.6%
2.1%
3.8%
6.3%
2.5%
3.8%
2.5%
4.2%
6.2%
2.5%
3.9%
3.6%
3.9%
3.6%
3.9%
4.4%
The discount rate for our domestic and foreign plans was determined with a model that develops a hypothetical high-quality
bond portfolio, where the bonds are theoretically purchased to settle the expected benefit payments of the plans. The discount
rate reflects the single rate that produces the same discounted values as the value of the theoretical bond portfolio. In
determining the expected return on assets, we considered the historical returns and the future expectations for returns for each
asset class, as well as the target asset allocation of the pension portfolio. In determining the rate of compensation increase, we
reviewed historical salary increases and promotions, while considering current industry conditions, the terms of collective
bargaining agreements with our employees and the outlook for our industry. In determining the life expectancy rate of our
domestic and foreign plans, we used the most-recent actuarially-determined mortality tables and improvement scales. For the
foreign plans, the mortality tables were adjusted with the result of our historical mortality experience study. The rates used are
consistent with our future expectations of life expectancy for the employees who participate in our pension and OPEB plans.
99
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The assumed health care cost trend rates used to determine the benefit obligations for our domestic and foreign OPEB plans as
of December 31, 2018 and 2017, were as follows:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (ultimate
trend rate)
Year that the rate reaches the ultimate trend rate
2018
2017
Domestic
Plan
7.2%
4.5%
2031
Foreign
Plans
4.8%
4.5%
2031
Domestic
Plan
7.2%
4.5%
2030
Foreign
Plans
4.8%
4.5%
2028
For the health care cost trend rates, we considered historical trends for these costs, actual experience of the plans, recently
enacted health care legislation as well as future expectations.
Variations of the health care cost trend rate can have a significant effect on the amounts reported. A 1% change in this
assumption would have had the following impact on our 2018 OPEB obligation and costs for our domestic and foreign plans:
1% Increase
1% Decrease
(In millions, except percentages)
Domestic Plan
Foreign Plans
Domestic Plan
Foreign Plans
(4)%
(5)%
(3)% $
(4)
(5)% $ —
OPEB obligation
Service and interest costs
$
2
$ —
4% $
5
6% $ —
5%
6%
$
(2)
$ —
Fair value of plan assets
The fair value of plan assets held by our pension plans as of December 31, 2018, was as follows:
(In millions)
Equity securities:
U.S. companies
Non-U.S. companies
Debt securities:
Corporate and government securities
Asset-backed securities
Cash and cash equivalents
Other plan assets, net
Total before investments measured at NAV
Investments measured at NAV
Total
Level 1
Level 2
$
$
725
946
71
—
216
—
1,958
$
—
—
950
309
—
11
1,270
$
$
$
$
725
946
1,021
309
216
11
3,228
424
3,652
100
The fair value of plan assets held by our pension plans as of December 31, 2017, was as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
(In millions)
Equity securities:
U.S. companies
Non-U.S. companies
Debt securities:
Corporate and government securities
Asset-backed securities
Cash and cash equivalents
Other plan liabilities, net
Total before investments measured at NAV
Investments measured at NAV
Total
Level 1
Level 2
$
882
1,132
$
882
1,132
$
—
—
126
—
166
—
$
2,306
$
1,118
275
3
(2)
1,394
1,244
275
169
(2)
3,700
677
4,377
$
$
Equity securities include large-cap, mid-cap and small-cap publicly-traded companies mainly located in the United States,
Canada and other developed and emerging countries, as well as commingled equity funds invested in the same types of
securities. The fair value of the equity securities is determined based on quoted market prices (Level 1).
Debt securities include corporate bonds of U.S. and Canadian companies from diversified industries, bonds and Treasuries
issued by the U.S. government and the Canadian federal and provincial governments, asset-backed securities and commingled
fixed income funds invested in these same types of securities. The fair value of the debt securities is determined based on
quoted market prices (Level 1), and market-corroborated inputs such as matrix prices, yield curves and indices (Level 2).
Other plan assets and liabilities include accrued interest and dividends, and amounts receivable or payable for unsettled security
transactions. The fair value of accrued interest and dividends is determined based on market-corroborated inputs such as
declared dividends and stated interest rates (Level 2). The fair value of receivables and payables for unsettled security
transactions is determined based on market-corroborated inputs such as the trade date fair value of the security (Level 2).
Investments measured at NAV are excluded from the fair value hierarchy tables. These investments are commingled funds,
composed of either debt securities, equity securities or real estate investments, where the corresponding NAV per share is equal
to the total net assets divided by the total number of shares.
Long-term strategy and objective
Our investment strategy and objective is to maximize the long-term rate of return on our plan assets within an acceptable level
of risk in order to meet our current and future obligations to pay benefits to qualifying employees and their beneficiaries while
minimizing and stabilizing pension benefit costs and contributions. Diversification of assets is achieved through strategic
allocations to various asset classes, and by retaining multiple, experienced third-party investment management firms with
complementary investment styles and philosophies to implement these allocations. Risk is further managed by reviewing our
investment policies at least annually and monitoring our fund managers at least quarterly for compliance with mandates and
performance measures. A series of permitted and prohibited investments are listed in our respective investment policies, which
are provided to our fund managers. The use of derivative financial instruments for speculative purposes and investments in the
equity or debt securities of Resolute and its affiliates is prohibited.
We have established a target asset allocation policy and ranges for each participating defined benefit pension plan based upon
analysis of risk and return tradeoffs and correlations of asset mixes given long-term historical returns, prospective capital
market returns, forecasted benefit payments and the forecasted timing of those payments. The targeted asset allocation policy of
the plan assets is designed to hedge the change in the pension liabilities resulting from fluctuations in the discount rate by
investing in debt and other securities, while also generating excess returns required to reduce the unfunded pension deficit by
investing in equity securities with higher potential returns. The targeted asset allocation policy of each participating defined
benefit pension plan is 50% equity securities, with an allowable range of 30% to 60%, and 50% debt and other securities, with
an allowable range of 40% to 70%, including up to 5% in short-term instruments required for near-term liquidity needs.
Approximately 60% of the equity securities are targeted to be invested in the U.S. and Canada, with the balance in other
developed and emerging countries. Substantially all of the debt securities are targeted to be invested in the U.S. and Canada.
101
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The asset allocation for each participating defined benefit pension plan is reviewed periodically and, when necessary,
rebalanced to bring the asset allocation within the prescribed ranges.
Expected benefit payments and future contributions
As of December 31, 2018, benefit payments expected to be paid over the next 10 years are as follows:
(In millions)
2019
2020
2021
2022
2023
2024 - 2028
Pension
Plans (1)
351
$
344
338
333
326
1,529
OPEB Plans
$
14
13
13
12
12
51
(1)
Benefit payments are expected to be paid from the plans’ net assets.
We expect our 2019 pension contributions (excluding contributions to our defined contribution plans) to be approximately
$80 million, including pension contributions of Cdn $73 million ($54 million, based on the exchange rate in effect on
December 31, 2018) related to our Canadian plans.
Canadian pension funding
Quebec plans
The funding of our Quebec pension plans are subject to Quebec’s Supplemental Pension Plans Act, or the “SPPA,” which is the
pension plan funding regime generally applicable to pension plans in that province. Our contributions to our Quebec plans are
determined on a going concern basis under the Quebec’s SPPA.
Ontario plans
Prior to December 31, 2018, the funding of our material Ontario pension plans (or the “affected plans”) was governed by
regulation specific to us, adopted by the province of Ontario, which we refer to as the “funding relief regulation.” In accordance
with the funding relief regulation, on December 21, 2018, we provided notice to the Ontario pension plan regulatory authorities
that, effective December 31, 2018, we would voluntarily exit the Ontario funding relief regulation. As a result, since January 1,
2019, all of our Ontario pension plans have been subject to the Ontario Pension Benefits Act, or the “PBA,” which is the
pension plan funding regime generally applicable to pension plans in that province. The PBA provides for funding pension fund
deficits on a going concern basis, or on a solvency basis if the solvency funded status of a pension plan is below 85%. The
funding relief regulation, as amended, provided that our annual basic contribution to the affected plans was Cdn $9 million.
As originally adopted, the funding relief regulation provided that corrective measures would be required if the aggregate
solvency ratio of the affected plans fell below a prescribed level under the targets specified in the regulations as of
December 31 in any year through 2014. This requirement was removed in 2013, but the 2011 and 2012 amounts (Cdn $110
million in the aggregate) had been deferred to after the expiration of the funding relief regulation in 2020. The funding relief
regulation also required us to make a supplemental contribution, payable over a three-year period, should the affected plans’
aggregate solvency ratio be more than 2% below the target specified in the funding relief regulations for the preceding year. As
a result of our exit from the funding relief regulation, these requirements were removed.
Additional undertakings
Our principal Canadian subsidiaries had entered into certain undertakings with the Government of Ontario and Quebec, which
expired in 2015 and 2016, respectively. The expiration of those undertakings, did not eliminate ongoing obligations we incurred
under the terms of those undertakings prior to their expiration, including the undertaking requiring us to make an additional
solvency deficit reduction contribution to our pension plans of Cdn $75, payable over four years, for each metric ton of capacity
reduced in Quebec or Ontario, in the event of downtime of more than six consecutive months or nine cumulative months over a
period of 18 months. Accordingly, we made additional contributions for past capacity reductions of Cdn $14 million and Cdn
102
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
$12 million in 2017 and 2018, respectively, and will also be required to make our final remaining contributions for past
capacity reductions of approximately Cdn $4 million, and Cdn $2 million in 2019, and 2020, respectively.
Note 13. Income Taxes
(Loss) income before income taxes by taxing jurisdiction for the years ended December 31, 2018, 2017 and 2016, was as
follows:
(In millions)
United States
Foreign
2018
(90)
477
387
$
$
2017
(289)
295
6
$
$
2016
(227)
170
(57)
$
$
The income tax benefit (provision) for the years ended December 31, 2018, 2017 and 2016, was comprised of the following:
(In millions)
U.S. Federal and State:
Current
Deferred
Foreign:
Current
Deferred
Total:
Current
Deferred
Tax Cuts and Jobs Act
2018
2017
2016
$
$
—
—
—
12
(164)
(152)
12
(164)
(152)
$
$
—
2
2
(4)
(82)
(86)
(4)
(80)
(84)
$
$
—
(11)
(11)
(5)
(3)
(8)
(5)
(14)
(19)
On December 22, 2017, the TCJA was enacted into law which, among other changes, reduced the U.S. federal statutory income
tax rate from 35% to 21%, and implemented a new system of taxation for non-U.S. earnings, including the imposition of a one-
time transition tax on deemed repatriation of undistributed earnings of non-U.S. subsidiaries. We were required to recognize the
effects of tax law changes in the period of enactment. On December 22, 2017, the United States Securities and Exchange
Commission (or the “SEC”) issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the TCJA,
which allowed us to account for the TCJA provisions under the following scenarios: (a) reflect the tax effects of the TCJA for
which the accounting is complete, (b) report provisional amounts for those income tax effects of the TCJA where the
accounting is incomplete but a reasonable estimate can be determined, or (c) not to report provisional amounts for any income
tax effects of the TCJA for which a reasonable estimate cannot be determined until the reporting period that a reasonable
estimate can be determined, and to continue to apply ASC 740 based on the provision of the tax laws that were in effect
immediately prior to the enactment of the TCJA. The SEC provided that the accounting must be completed during the 12-month
measurement period following the enactment of the TCJA.
Based on available information, we had provisionally estimated the impacts of the TCJA on our 2017 financial results, with the
exception of the effects of the newly enacted GILTI regime as we were unable to determine a reasonable estimate. Accordingly,
we had provisionally decreased our net U.S. deferred income tax assets and related valuation allowance by $356 million and
$359 million, respectively, in 2017, mainly to correspond to the lower U.S. federal statutory income tax rate. We also did not
expect to be subject to the one-time transition tax on deemed repatriation of undistributed earnings of non-U.S. subsidiaries.
During the 12-month measurement period, we completed the accounting for the impacts of the TCJA with no material changes
to provisional amounts recorded in the period of enactment.
103
Effective income tax rate reconciliation
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The income tax provision attributable to income (loss) before income taxes differs from the amounts computed by applying the
U.S. federal statutory income tax rate of 21% for the years ended December 31, 2018, 2017 and 2016, as a result of the
following:
(In millions)
Income (loss) before income taxes
Income tax provision:
Expected income tax (provision) benefit
Changes resulting from:
U.S. federal tax rate change reconciliation
Valuation allowance (1)
Enactment of change in tax rate (2)
Adjustments for unrecognized tax benefits (3)
Foreign exchange
State income taxes, net of federal income tax benefit
Foreign tax rate differences (4)
Nondeductible expenses (5)
Other, net
2018
387
$
2017
$
6
$
2016
(57)
(81)
(1)
—
59
—
—
(29)
4
(89)
(15)
(1)
(152)
$
(1)
247
(368)
1
6
10
23
(2)
1
(84)
$
$
12
8
(99)
—
55
(9)
6
11
1
(4)
(19)
(1)
(2)
(3)
(4)
(5)
During 2018, we recorded a decrease in our valuation allowance of $59 million, primarily related to our U.S.
operations.
During 2017, we recorded a decrease in our valuation allowance of $359 million, due to the enactment of the TCJA,
offset by an increase of $112 million, primarily related to our U.S. operations.
During 2016, we recorded an increase to our valuation allowance of $99 million, primarily related to our U.S.
operations.
During 2017, we recorded decreases to our net deferred income tax assets of $356 million due to the enactment of the
TCJA, and $12 million due to a lower foreign income tax rate.
During 2016, we recorded an income tax benefit of $55 million, almost all of which related to the release of previously
unrecognized tax benefits due to the lapse of the statute of limitations of the applicable jurisdictions.
During 2018, we recorded an income tax provision of $65 million, before an adjustment to valuation allowance,
attributable to the GILTI inclusion.
Includes a $13 million increase to our income tax provision, before an adjustment to valuation allowance, for a
nondeductible goodwill impairment charge in 2018.
Deferred income taxes
At each reporting period, we assess whether it is more likely than not that the deferred income tax assets will be realized, based
on the review of all available positive and negative evidence, including future reversals of existing taxable temporary
differences, estimates of future taxable income, past operating results, and prudent and feasible tax planning strategies. The
carrying value of our deferred income tax assets reflects our expected ability to generate sufficient future taxable income in
certain tax jurisdictions to utilize these deferred income tax assets.
Following the assessment of our ability to realize the deferred income tax assets of our U.S. operations, we concluded that
existing negative evidence outweighed positive evidence. As a result, we recognize a valuation allowance against virtually all of
our net U.S. deferred income tax assets. The cumulative loss of our U.S. operations limited our ability to consider other
subjective positive evidence. A valuation allowance does not reduce our underlying tax attributes, nor hinders our ability to use
them in the future.
104
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The weight of positive evidence, which included a review of historical cumulative earnings and our forecasted future earnings,
resulted in the conclusion by management that no significant valuation allowances were required for our deferred income tax
assets in Canada, as they were determined to be more likely than not to be realized.
Net deferred income tax assets as of December 31, 2018 and 2017, were comprised of the following:
(In millions)
Fixed assets
Other
Deferred income tax liabilities
Fixed assets
Pension and OPEB plans
Net operating loss carryforwards
Net capital loss carryforwards
Undeducted research and development expenditures
Tax credit carryforwards
Other
Deferred income tax assets
Valuation allowance
Net deferred income tax assets
Amounts recognized in our Consolidated Balance Sheets consisted of:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
2018
(32)
(29)
(61)
362
328
586
13
176
93
80
1,638
(701)
876
876
—
876
$
$
$
$
2017
(4)
(23)
(27)
506
330
619
12
196
119
72
1,854
(764)
1,063
1,076
(13)
1,063
$
$
$
$
105
The balance of tax attributes and their dates of expiration as of December 31, 2018, were as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
(In millions)
Net operating loss carryforwards:
U.S. federal: $2,109
U.S. state: $1,771
Canadian federal and provincial (excluding Quebec): $86
Quebec: $48
Other
Net capital loss carryforwards:
Canadian federal and provincial (excluding Quebec): $42
Quebec: $46
Undeducted research and development expenditures:
Canadian federal and provincial (excluding Quebec): $626
Quebec: $757
Tax credit carryforwards:
Canadian research and development, and other
U.S. state and other
Related
Deferred
Income Tax
Asset
Year of
Expiration
$
$
$
$
$
$
$
$
443 (1) 2022 – 2037
89 (1) 2021 – 2038
2026 – 2038
16
2026 – 2038
2020 – 2027
Indefinite
Indefinite
Indefinite
Indefinite
3
35
586
9
4
13
106
70
176
2021 – 2038
72
21 (1) 2019 – 2033
93
(1)
As of December 31, 2018, we had a valuation allowance against virtually all of our U.S. operations net deferred
income tax assets.
Our U.S. federal net operating loss carryforwards are subject to annual limitations under § 382 of the U.S. Internal Revenue
Code of 1986, as amended, (or “IRC § 382”), resulting from a previous ownership change. We do not expect that IRC § 382
would limit the utilization of our available U.S. federal net operating loss carryforwards prior to their expiration.
We consider our foreign earnings to be permanently invested. Accordingly, we do not provide for the additional U.S. and
foreign income taxes that could become payable upon remittance of undistributed earnings of our foreign subsidiaries. It is not
practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S.
Deferred tax charge
On January 1, 2017, we adopted ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which eliminates the
deferral of the tax effects of intra-entity asset transfers other than inventory until the transferred assets are sold to a third party
or recovered through use. As a result, a cumulative-effect adjustment of $3 million was recorded to “Deficit” in our
Consolidated Balance Sheet as of January 1, 2017.
106
Unrecognized tax benefits
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended December 31,
2018 and 2017:
(In millions)
Beginning of year
Decrease resulting from:
Enactment of change in tax rate (1)
Settlements with taxing authorities
End of year
2018
28
—
—
28
$
$
2017
44
(15)
(1)
28
$
$
(1)
During 2017, previously unrecognized tax benefits decreased by $15 million due to the enactment of the TCJA.
We recognize accrued interest and penalties on unrecognized tax benefits as components of the income tax provision. The total
amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate, is $2 million.
In the normal course of business, we are subject to audits from federal, state, provincial and other tax authorities. U.S. federal
tax returns for 2015 and subsequent years, as well as Canadian tax returns for 2013 and subsequent years, remain subject to
examination by tax authorities.
We do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. However, any
adjustments arising from certain ongoing examinations by taxing authorities could alter the timing or amount of taxable income
or deductions, or the allocation of income among tax jurisdictions, and these adjustments could differ from the amount accrued.
We believe that taxes accrued in our Consolidated Balance Sheets fairly represent the amount of income taxes to be settled or
realized in the future.
Note 14. Commitments and Contingencies
Legal matters
We become involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the
normal course of business, including matters related to contracts, commercial and trade disputes, taxes, environmental issues,
activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit
plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting and disclosure
obligations, corporate governance, First Nations claims, antitrust, governmental regulations, and other matters. Although the
final outcome is subject to many variables and cannot be predicted with any degree of certainty, we regularly assess the status
of the matters and establish provisions (including legal costs expected to be incurred) when we believe an adverse outcome is
probable, and the amount can be reasonably estimated. Except as described below and for claims that cannot be assessed due to
their preliminary nature, we believe that the ultimate disposition of these matters outstanding or pending as of December 31,
2018, will not have a material adverse effect on our Consolidated Financial Statements.
Countervailing duty and anti-dumping investigations on uncoated groundwood paper
On August 9, 2017, countervailing duty and anti-dumping petitions were filed with the U.S. Department of Commerce (or
“Commerce”) and the U.S. International Trade Commission (or “ITC”) by a U.S. uncoated groundwood (or “UGW”) paper
producer requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin UGW paper
exported to the U.S. One of our subsidiaries was identified in the petitions as being a Canadian exporting producer of UGW
paper to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in both the countervailing duty
and anti-dumping investigations.
On January 9, 2018, Commerce announced its preliminary determination in its countervailing duty investigation on Canadian-
origin UGW paper exported to the U.S. As a result, beginning January 16, 2018, we were required to pay cash deposits to the
U.S. Customs and Border Protection agency (or “U.S. Customs”) at a rate of 4.42% of the custom’s value for estimated
countervailing duties on our U.S. imports of the UGW paper produced at our Canadian mills, with the exception of
supercalendered (or “SC”) paper, which was subject to distinct countervailing duties, as further discussed below. The
preliminary rate remained in effect until May 15, 2018. On March 13, 2018, Commerce also announced its preliminary
107
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
determination in the anti-dumping investigation, whereby it determined that we did not sell Canadian-origin UGW paper
exported to the U.S. for less than fair market value during the relevant period (from July 1, 2016 to June 30, 2017).
On August 29, 2018, the ITC determined that the U.S. UGW paper producer was not materially injured nor threatened with
material injury by U.S. imports of Canadian-origin UGW paper, and that no countervailing duty or anti-dumping orders would
be issued. As a result, we will receive a refund of all cash deposits made on our U.S. imports of UGW paper produced at our
Canadian mills, plus interest, and no further cash deposits are required going forward. Through December 31, 2018, cash
deposits to be refunded totaled $6 million. These cash deposits were recorded in “Accounts receivable, net – Other” in our
Consolidated Balance Sheets as of December 31, 2018.
Countervailing duty and anti-dumping investigations of softwood lumber
On November 25, 2016, countervailing duty and anti-dumping petitions were filed with Commerce and the ITC by certain U.S.
softwood lumber producers and forest landowners, requesting that the U.S. government impose countervailing and anti-
dumping duties on Canadian-origin softwood lumber exported to the U.S. One of our subsidiaries was identified in the petitions
as being a Canadian exporting producer of softwood lumber to the U.S. and was selected as a mandatory respondent to be
investigated by Commerce in both the countervailing duty and anti-dumping investigations.
On April 24, 2017, Commerce announced its preliminary determination in the countervailing duty investigation and, as a result,
after April 28, 2017, we were required to pay cash deposits to the U.S. Customs at a rate of 12.82% for estimated countervailing
duties on our U.S. imports of softwood lumber produced at our Canadian sawmills. The preliminary rate remained in effect
until August 26, 2017. Commerce changed the rate in its final affirmative determination on November 2, 2017, but the new rate
did not take effect until December 28, 2017, following the ITC’s final affirmative determination and the publication by
Commerce of a countervailing duty order. Since that date, we have been required to resume paying cash deposits to the U.S.
Customs at a rate of 14.7% for our softwood lumber U.S. imports from our Canadian sawmills. This rate will continue until
Commerce sets a duty rate in an administrative review, or a new rate may be set through a remand determination should a North
American Free Trade Agreement binational panel on appeal remand the final determination to Commerce. Through
December 31, 2018, our cash deposits totaled $79 million and, based on the 14.7% rate and our current operating parameters,
could be as high as $60 million per year.
On June 26, 2017, Commerce announced its preliminary determination in the anti-dumping investigation and, as a result, after
June 30, 2017, we were required to pay cash deposits to the U.S. Customs at a rate of 4.59% for estimated anti-dumping duties
on our U.S. imports of softwood lumber produced at our Canadian sawmills. On November 2, 2017, Commerce announced its
final affirmative determination in the anti-dumping investigation and, as a result, since November 8, 2017, we have been
required to pay cash deposits to the U.S. Customs, at a rate of 3.2% for our softwood lumber U.S. imports from our Canadian
sawmills. This rate will apply until Commerce sets a duty rate in an administrative review, or in a possible remand
determination. Through December 31, 2018, our cash deposits totaled $24 million and, based on the 3.2% rate and our current
operating parameters, could be as high as $15 million per year.
We are not presently able to determine the ultimate resolution of these matters, but we believe it is not probable that we will
ultimately be assessed with significant duties, if any, on our U.S. imports of Canadian-produced softwood lumber. Accordingly,
no contingent loss was recorded in respect of these petitions in our Consolidated Statement of Operations for the year ended
December 31, 2018, and our cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets.
Countervailing duty investigation on supercalendered paper
On February 26, 2015, a countervailing duty petition was filed with Commerce and the ITC by certain U.S. SC paper producers
requesting that the U.S. government impose countervailing duties on Canadian-origin SC paper exported to the U.S. market.
One of our subsidiaries was identified in the petition as being a Canadian exporting producer of SC paper to the U.S. and was
selected as a mandatory respondent to be investigated by Commerce. As a result of that investigation, after August 3, 2015, we
were required to pay cash deposits to the U.S. Customs for estimated countervailing duties on our U.S. imports of SC paper
produced at our Canadian mills. Between August 3, 2015 and October 15, 2015, we were required to make cash deposits at a
rate of 2.04%. On October 15, 2015, that rate increased to 17.87%, 17.10% of which was not based on any countervailable
subsidy we received, but rather on a punitive application of “adverse facts available.”
On March 21, 2018, Verso Corporation, the sole remaining U.S. SC paper petitioner, filed a request with Commerce for a
changed circumstances review to revoke the countervailing duty order, retroactive to August 3, 2015, and for Commerce to
refund all countervailing duty deposits with interest. On May 8, 2018, Commerce announced the initiation of a changed
108
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
circumstances review, and on July 6, 2018, Commerce signed the revocation order. As a result, we will receive a refund of all
cash deposits made on our U.S. imports of SC paper produced at our Canadian mills, plus interest, and no further cash deposits
are required going forward. In addition, this resulted in the termination of all pending administrative reviews.
Through December 31, 2018, we were refunded substantially all of the cash deposits of $61 million, plus interest.
Asbestos-related lawsuits
We are involved in a number of asbestos-related lawsuits filed primarily in U.S. state courts, including certain cases involving
multiple defendants and plaintiffs that have been consolidated. These lawsuits principally allege direct or indirect personal
injury or death resulting from exposure to asbestos-containing premises. While we dispute the plaintiffs' allegations and intend
to vigorously defend these claims, the ultimate resolution of these matters cannot be determined at this time. These lawsuits
frequently involve claims for unspecified compensatory and punitive damages, and we are unable to reasonably estimate a
range of possible losses. However, unfavorable rulings, judgments or settlement terms could materially impact our
Consolidated Financial Statements. The hearings for certain of these matters are scheduled to begin as early as March 2019.
Jedson Case
On March 9, 2017, Jedson Engineering, Inc. and Jedson C.M., Inc. (or the “Jedson plaintiffs”) filed a complaint against our
subsidiary, Resolute FP US Inc., and other defendants in state court in Tennessee. The complaint alleged breach of contract and
violation of Tennessee’s Prompt Pay Act for failure to pay for services in connection with the design and construction of our
Calhoun tissue project, and sought a recovery of, and enforcement of mechanic’s liens for, approximately $10 million, plus
interest and cost of litigation, which was later amended to include additional claims of up to approximately $20 million. On
April 17, 2017, we filed an answer and counterclaim alleging, among other things, breach of contract and professional
negligence by the Jedson plaintiffs and seeking recovery for, among other things, resulting costs on the project. On
December 12, 2018, the Company and the parties entered into a settlement agreement that did not result in any material impact
on our Consolidated Financial Statements. An agreed order of dismissal of all claims of the parties was issued by the Court on
January 4, 2019.
Modification of U.S. OPEB plan
Effective January 1, 2015, we modified our U.S. OPEB plan so that unionized participants, upon reaching Medicare eligibility,
are provided Medicare coverage via a Medicare Exchange program rather than via a Company-sponsored medical plan. On
March 2, 2016, a proposed class action lawsuit (Reynolds, et al v. Resolute Forest Products Inc., Resolute FP US Inc., Resolute
FP US Health and Resolute Welfare Benefit Plan) was filed in the United States District Court for the Eastern District of
Tennessee (or the “District Court”) on behalf of certain Medicare-eligible retirees who were previously unionized employees of
the Calhoun, Catawba, and Coosa Pines mills, and their spouses and dependents (or the “proposed class”). The plaintiffs
alleged that the modifications described above breached the collective bargaining agreements and plan covering the members of
the proposed class in the lawsuit. Plaintiffs sought reinstatement of the health care benefits as in effect before January 1, 2015,
for the proposed class in the lawsuit. On June 28, 2017, a settlement agreement in principle was reached between the parties to
the lawsuit subject to court approval. The District Court issued a final order on August 3, 2018, approving the class action
settlement and dismissing the case, resulting in an amendment of our U.S. OPEB plan. Accordingly, an increase of $3 million to
both “Pension and other postretirement benefit obligations” and “Accumulated other comprehensive loss” was recorded in our
Consolidated Balance Sheet in 2018.
Fibrek acquisition
Effective July 31, 2012, we completed the final step of the transaction pursuant to which we acquired the remaining 25.4% of
the outstanding Fibrek Inc. (or “Fibrek”) shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the
issuance of a final order of the Quebec Superior Court in Canada approving the arrangement on July 27, 2012. Certain former
shareholders of Fibrek exercised (or purported to exercise) rights of dissent in respect of the transaction, asking for a judicial
determination of the fair value of their claim under the Canada Business Corporations Act. No consideration has to date been
paid to the former Fibrek shareholders who exercised (or purported to exercise) rights of dissent. Any such consideration will
only be paid out upon settlement or judicial determination of the fair value of their claims and will be paid entirely in cash.
Accordingly, we cannot presently determine the amount that ultimately will be paid to former holders of Fibrek shares in
connection with the proceedings, but we have accrued Cdn $14 million ($10 million, based on the exchange rate in effect on
December 31, 2018) for the eventual payment of those claims. The hearing in this matter is scheduled to begin in March 2019.
109
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Partial wind-ups of pension plans
On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor
protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (or the “CCAA Creditor Protection
Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and
Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and
Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial
wind-up is a barred claim under the CCAA Creditor Protection Proceedings. We contend, among other things, that any such
declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’
CCAA Plan of Reorganization and Compromise, as amended, and the terms of our emergence from the CCAA Creditor
Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could
reach up to Cdn $150 million ($110 million, based on the exchange rate in effect on December 31, 2018), would have to be
funded if we do not obtain the relief sought. The hearing in this matter could occur in 2019.
Environmental matters
We are subject to a variety of federal or national, state, provincial, and local environmental laws and regulations in the
jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental
laws and regulations. Environmental regulations promulgated in the future could require substantial additional expenditures for
compliance and could have a material impact on us, in particular, and the industry in general.
We may be a “potentially responsible party” with respect to a hazardous waste site that is being addressed pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund). We
believe we will not be liable for any significant amounts at this site.
We have environmental liabilities of $8 million recorded as of both December 31, 2018 and 2017, primarily related to
environmental remediation related to closed sites. The amount of these liabilities represents management’s estimate of the
ultimate settlement based on an assessment of relevant factors and assumptions and could be affected by changes in facts or
assumptions not currently known to management for which the outcome cannot be reasonably estimated at this time. These
liabilities are included in “Accounts payable and accrued liabilities” or “Other liabilities” in our Consolidated Balance Sheets.
We also have asset retirement obligations of $23 million and $24 million recorded as of December 31, 2018 and 2017,
respectively, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets.
These liabilities are included in “Accounts payable and accrued liabilities” or “Other liabilities” in our Consolidated Balance
Sheets.
Note 15. Share Capital
Common stock
We are authorized under our certificate of incorporation, as amended and restated, to issue up to 190 million shares of common
stock, par value $0.001 per share, of which 9,020,960 shares are reserved for issuance under the Resolute Forest Products
Equity Incentive Plan (as amended, the “Incentive Plan”).
Treasury stock
We are authorized to repurchase $150 million of our outstanding common stock under our share repurchase program. We did
not repurchase any shares during 2018, 2017 and 2016. There remains $24 million under the program.
Dividends
We declared and paid a special dividend of $1.50 per share ($136 million) on our common stock in 2018. We did not declare or
pay any dividends on our common stock during the years ended December 31, 2017 and 2016.
Preferred stock
We are authorized under our certificate of incorporation, as amended and restated, to issue 10 million shares of preferred stock,
par value $0.001 per share. As of December 31, 2018 and 2017, no preferred shares were issued and outstanding.
110
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 16. Share-Based Compensation
Incentive Plan
The Incentive Plan, which became effective in 2010 and is administered by the human resources and compensation/nominating
and governance committee of the board of directors, provides for the grant of equity-based and liability-based awards, including
stock options, stock appreciation rights, restricted stock, RSUs, DSUs, PSUs (collectively, “stock incentive awards”), and cash
incentive awards to certain of our officers, directors, employees, consultants and advisors. As discussed in Note 15, “Share
Capital,” we have been authorized to issue stock incentive awards for up to 9 million shares under the Incentive Plan. As of
December 31, 2018, 0.9 million shares were available for issuance.
Awards for employees who retire (upon meeting certain age and service criteria) at least six months after the grant date and
prior to the end of the vesting period will continue to vest after retirement, in accordance with the normal vesting schedule. The
requisite service periods for the stock incentive awards are reduced on an individual basis, as necessary, to reflect the grantee’s
individual retirement eligibility date.
For the years ended December 31, 2018, 2017 and 2016, share-based compensation expense under the Incentive Plan was
$17 million ($1 million of tax benefit), $18 million (no tax benefit) and $11 million (no tax benefit), respectively. As of
December 31, 2018, there was $9 million of unrecognized compensation cost, which is expected to be recognized over a
remaining service period of three years.
Stock options
Under the Incentive Plan, stock options become exercisable ratably over a period of four years and, unless terminated earlier in
accordance with their terms, expire 10 years from the date of grant. New shares of our common stock are issued upon the
exercise of a stock option. In certain cases, we withhold shares in respect of option costs and applicable taxes. We have not
granted any stock options since 2013.
The activity of outstanding stock options for the year ended December 31, 2018, was as follows:
Balance as of December 31, 2017
Exercised
Expired
Balance as of December 31, 2018
Exercisable as of December 31, 2018
Number of
Shares
1,304,541
(67,003)
(172,517)
1,065,021
1,065,021
Weighted-
Average
Exercise
Price
15.90
$
11.41
15.24
16.30
16.30
$
$
Weighted-
Average
Contractual
Life (years)
4.8
3.8
3.8
The total intrinsic value of stock options exercised in 2018 was less than $1 million. No stock options were exercised in 2017
and 2016.
Restricted stock units and deferred stock units
Under the Incentive Plan, each RSU and DSU granted provides the holder upon vesting the right to receive one share of our
common stock for equity-based awards, and the equivalent in cash for liability-based awards. The awards vest ratably over a
period of four years for employees and one year for directors. Awards to employees are settled upon vesting, while awards to
directors are settled ratably over a period of three years or upon separation from the board of directors, as applicable, based on
the director’s country of residency. We withhold shares in respect of applicable taxes.
111
The activity of nonvested RSUs and DSUs for the year ended December 31, 2018, was as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Balance as of December 31, 2017
Granted
Vested
Forfeited
Balance as of December 31, 2018
Number of Units
Equity-
Based
Awards
1,964,261
346,757
(724,856)
(40,983)
1,545,179
Liability-
Based
Awards
17,161
784,169
(265,540)
(16,828)
518,962
Weighted-
Average Fair
Value at Grant
Date
5.96
$
8.93
7.20
5.80
7.00
$
Total
1,981,422
1,130,926
(990,396)
(57,811)
2,064,141
There were 259,230 equity-based and 124,574 liability-based RSUs and DSUs granted to directors that vested but were not
settled as of December 31, 2018.
The weighted-average grant-date fair value of all RSUs and DSUs granted in 2017 and 2016, was $7.34 and $3.97, respectively.
The total fair value of RSUs and DSUs vested in 2018, 2017 and 2016, was $12 million, $8 million and $3 million,
respectively. We paid $2 million and $1 million for liability-based RSUs and DSUs in 2018 and 2017, respectively. There was
no cash paid for liability-based RSUs and DSUs in 2016.
Performance stock units
Under the Incentive Plan, each PSU provides the holder the right to receive upon vesting one share of our common stock for
equity-based awards, and the equivalent in cash for liability-based awards, subject to an adjustment based on market and/or
performance conditions. The awards vest after a period of up to 40 months upon which they are settled. No awards vest when
the minimum thresholds are not achieved. We withhold shares in respect of applicable taxes. The fair value of certain PSUs
granted in 2018 was initially estimated using a Monte Carlo simulation model, using the following assumptions:
Expected volatility two year
Risk-free interest rate 2019
Risk-free interest rate 2020
Risk-free interest rate 2021
The activity of nonvested PSUs for the year ended December 31, 2018, was as follows:
2018
57%
2.73%
2.92%
2.99%
Balance as of December 31, 2017
Granted
Vested
Forfeited
Balance as of December 31, 2018
Number of Units
Equity-
Based
Awards
2,204,102
468,954
(233,300)
(57,582)
2,382,174
Liability-
Based
Awards
387,294
598,351
—
(9,713)
975,932
Weighted-
Average Fair
Value at Grant
Date
6.94
$
9.01
18.61
13.48
6.66
$
Total
2,591,396
1,067,305
(233,300)
(67,295)
3,358,106
The weighted-average grant-date fair value of all PSUs granted in 2017 and 2016, was $8.63 and $3.95, respectively. The total
fair value of PSUs vested in 2018 was $2 million. No PSUs vested in 2016 and 2017. There was no cash paid for liability-based
PSUs in 2018, 2017, and 2016.
112
Deferred Compensation Plan
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
In 2011, the board of directors adopted the Resolute Forest Products Outside Director Deferred Compensation Plan (the
“Deferred Compensation Plan”), which allows non-employee directors to surrender 50% or 100% of their cash fees in
exchange for DSUs or RSUs, as applicable, based on the director’s country of residency. The number of awards issued pursuant
to the Deferred Compensation Plan is based on 110% of the fees earned, resulting in a 10% premium incentive.
Under the Deferred Compensation Plan, each RSU and DSU granted provides the holder the right to receive payment in cash in
an amount equal to the fair market value of one share of our common stock upon vesting. The awards have a nonforfeitable
right or vest ratably over a period of three years, as applicable, and are settled with cash ratably over a period of three years or
upon separation from the board of directors, as applicable, based on the director’s country of residency. All of our outstanding
stock incentive awards pursuant to the Deferred Compensation Plan were accounted for as liability awards.
Share-based compensation expense under the Deferred Compensation Plan was less than $1 million, $1 million, and less than
$1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
RSUs and DSUs outstanding under the Deferred Compensation Plan as of December 31, 2018 and 2017, were 260,672 and
183,046, respectively. The total fair value of RSUs and DSUs vested in 2018 was $1 million, and less than $1 million in 2017
and 2016, respectively.
Note 17. Operating Leases and Purchase Obligations
We lease office and manufacturing premises, office equipment, and rail cars under operating leases for which total expense was
$12 million in 2018, $8 million in 2017 and $9 million in 2016. In the normal course of business, we have also entered into
various supply agreements, guarantees, water rights agreements, purchase commitments and harvesting rights agreements (for
land that we manage for which we make payments to various Canadian provinces based on the amount of timber harvested).
As of December 31, 2018, the commitments for purchase obligations and future minimum rental payments under operating
leases were as follows:
(In millions)
2019
2020
2021
2022
2023
Thereafter
Purchase
Obligations (1)
78
$
64
63
63
42
30
Operating
Leases
$
9
7
6
3
2
7
$
340
$
34
(1)
Includes energy purchase obligations of $256 million through 2023 for certain of our pulp and paper mills.
113
Note 18. Segment Information
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our
principal product lines: market pulp, tissue, wood products, newsprint, and specialty papers.
None of the income or loss items following “Operating income (loss)” in our Consolidated Statements of Operations are
allocated to our segments, since those items are reviewed separately by management. For the same reason, closure costs,
impairment and other related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition
of assets, as well as other discretionary charges or credits are not allocated to our segments. We allocate depreciation and
amortization expense to our segments, although the related fixed assets and amortizable intangible assets are not allocated to
segment assets. Additionally, all selling, general and administrative expenses are allocated to our segments, with the exception
of certain discretionary charges and credits, which we present under “corporate and other.”
In each of 2018, 2017 and 2016, no assets were identifiable by segment and reviewed by management.
Information about certain segment data for the years ended December 31, 2018, 2017 and 2016, was as follows:
(In millions)
Market
Pulp (1)
Tissue (2)(3)
Wood
Products (4) Newsprint
Specialty
Papers
Segment
Total
Corporate
and Other
Total
Sales
2018
2017
2016
$ 1,085
$
130
$
911
836
Depreciation and amortization
2018
2017
$
27
31
2016
37
Operating income (loss) (5)
172
2018
$
2017
2016
Capital expenditures
$
2018
2017
2016
79
37
53
12
20
$
$
$
81
89
15
5
5
(30)
(6)
(10)
27
101
156
$
$
$
823
797
596
32
33
31
169
186
69
37
9
23
$
$
$
$
907
842
1,009
66
66
74
74
(23)
(16)
18
6
2
$
$
$
$
811
882
1,015
47
45
45
40
(9)
19
16
20
23
$ 3,756
$
— $ 3,756
3,513
3,545
187
180
192
425
227
99
151
148
224
$
$
$
—
—
25
24
14
(46)
(185)
(117)
4
16
25
$
$
$
3,513
3,545
212
204
206
$
$
379
42
(18)
155
164
249
$
(1)
(2)
(3)
(4)
(5)
Inter-segment sales of $39 million, $36 million and $33 million, which are transacted at cost, were excluded from
market pulp sales for the years ended December 31, 2018, 2017 and 2016, respectively.
The operating results of our Calhoun tissue operations, previously recorded under “corporate and other,” have been
recorded in our tissue segment since April 1, 2018.
Tissue capital expenditures in 2017 and 2016 consisted almost entirely of expenditures for the tissue manufacturing
and converting facility in Calhoun.
Wood products sales to our joint ventures, which are transacted at arm’s length negotiated prices, were $26 million,
$20 million and $17 million for the years ended December 31, 2018, 2017 and 2016, respectively.
In the first quarter of 2018, we changed our presentation of operating income in accordance with FASB ASU 2017-07,
to present only the service cost component of net periodic pension cost and OPEB cost in operating expenses (together
with other employee compensation costs arising during the period). The non-operating pension and OPEB costs,
presented under “corporate and other,” are reported separately outside any subtotal of operating income. Prior period
amounts have been reclassified to conform to the 2018 presentation. See Note 2. Summary of Significant Accounting
Policies – New accounting pronouncements adopted in 2018 – ASU 2017-07 “Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” for more information.
114
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Sales are attributed to countries based on the location of the customer. No single customer, related or otherwise, accounted for
10% or more of our 2018, 2017 or 2016 consolidated sales. No country in the “Other countries” group in the table below
exceeded 2% of consolidated sales. Sales by country for the years ended December 31, 2018, 2017 and 2016, were as follows:
(In millions)
United States
Foreign countries:
Canada
Mexico
Other countries
2018
2017
2016
$
2,581
$
2,387
$
2,464
513
148
514
517
126
483
428
126
527
1,175
3,756
$
1,126
3,513
$
1,081
3,545
$
Certain long-lived assets by country (comprised of fixed assets, net, water rights, net, energy contracts, net and other assets) as
of December 31, 2018 and 2017, were as follows:
(In millions)
United States
Canada
2018
650
1,103
1,753
$
$
2017
790
1,143
1,933
$
$
115
Note 19. Condensed Consolidating Financial Information
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The following information is presented in accordance with Rule 3-10 of Regulation S-X and the public information
requirements of Rule 144 promulgated pursuant to the Securities Act, as amended, in connection with Resolute Forest Products
Inc.’s 2023 Notes that are fully and unconditionally guaranteed, on a joint and several basis, by all of our 100% owned material
U.S. subsidiaries (or the “Guarantor Subsidiaries”). The 2023 Notes are not guaranteed by our foreign subsidiaries (or the
“Non-guarantor Subsidiaries”).
The following condensed consolidating financial information sets forth the Statements of Operations and Comprehensive
Income (Loss) for the years ended December 31, 2018, 2017 and 2016, the Balance Sheets as of December 31, 2018 and 2017,
and the Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016, for the Parent, the Guarantor
Subsidiaries on a combined basis, and the Non-guarantor Subsidiaries also on a combined basis. The condensed consolidating
financial information reflects the investments of the Parent in the Guarantor Subsidiaries and Non-guarantor Subsidiaries, as
well as the investments of the Guarantor Subsidiaries in the Non-guarantor Subsidiaries, using the equity method of accounting.
The principal consolidating adjustments are entries to eliminate the investments in subsidiaries and intercompany balances and
transactions.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2018
(In millions)
Sales
Costs and expenses:
Parent
Guarantor
Subsidiaries
$
— $
3,123
Non-guarantor
Subsidiaries
2,468
$
Consolidating
Adjustments Consolidated
$ (1,835)
3,756
$
Cost of sales, excluding depreciation, amortization and
distribution costs
Depreciation and amortization
Distribution costs
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Net gain on disposition of assets
Operating (loss) income
Interest expense
Non-operating pension and other postretirement benefit
credits
Other income, net
Equity in income of subsidiaries
Income before income taxes
Income tax provision
Net income including noncontrolling interests
Net income attributable to noncontrolling interests
Net income attributable to Resolute Forest Products
Inc.
Comprehensive income attributable to Resolute
Forest Products Inc.
$
$
—
—
—
26
—
—
(26)
(87)
—
—
348
235
—
235
—
235
67
$
$
2,856
1,521
78
158
64
120
(141)
(12)
(7)
14
52
99
146
—
146
—
146
118
$
$
134
320
75
1
(4)
421
(12)
36
38
—
483
(153)
330
—
330
185
(1,828)
—
(3)
—
—
—
(4)
59
—
(85)
(447)
(477)
1
(476)
—
(476)
(303)
$
$
2,549
212
475
165
121
(145)
379
(47)
50
5
—
387
(152)
235
—
235
67
$
$
116
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For the Year Ended December 31, 2017
(In millions)
Sales
Costs and expenses:
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
$
— $
2,849
$
2,264
Consolidating
Adjustments Consolidated
$ (1,600)
3,513
$
Cost of sales, excluding depreciation, amortization and
distribution costs
Depreciation and amortization
Distribution costs
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Net gain on disposition of assets
Operating (loss) income
Interest expense
Non-operating pension and other postretirement benefit
(costs) credits
Other income (expense), net
Equity in income of subsidiaries
(Loss) income before income taxes
Income tax benefit (provision)
Net (loss) income including noncontrolling interests
Net income attributable to noncontrolling interests
Net (loss) income attributable to Resolute Forest
Products Inc.
Comprehensive (loss) income attributable to Resolute
Forest Products Inc.
$
$
—
—
—
30
—
—
(30)
(95)
—
—
41
(84)
—
(84)
—
(84)
(109)
$
$
2,707
1,476
74
159
68
71
—
(230)
(9)
(1)
76
43
(121)
2
(119)
—
(119)
(135)
$
$
130
291
72
11
(15)
299
(13)
8
(2)
—
292
(85)
207
(6)
201
192
(1,595)
—
(8)
—
—
—
3
68
—
(68)
(84)
(81)
(1)
(82)
—
(82)
(57)
$
$
2,588
204
442
170
82
(15)
42
(49)
7
6
—
6
(84)
(78)
(6)
(84)
(109)
$
$
117
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For the Year Ended December 31, 2016
(In millions)
Sales
Costs and expenses:
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
$
— $
2,907
$
2,145
Consolidating
Adjustments Consolidated
$ (1,507)
3,545
$
Cost of sales, excluding depreciation, amortization and
distribution costs
Depreciation and amortization
Distribution costs
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Net gain on disposition of assets
Operating (loss) income
Interest expense
Non-operating pension and other postretirement benefit
credits (costs)
Other income, net
Equity in income of subsidiaries
(Loss) income before income taxes
Income tax provision
Net (loss) income including noncontrolling interests
Net income attributable to noncontrolling interests
Net (loss) income attributable to Resolute Forest
Products Inc.
Comprehensive (loss) income attributable to Resolute
Forest Products Inc.
$
$
—
—
—
20
—
—
(20)
(80)
—
—
19
(81)
—
(81)
—
(81)
(249)
$
$
2,752
1,458
78
168
60
38
—
(189)
—
6
57
24
(102)
(11)
(113)
—
(113)
(197)
$
$
128
273
67
24
(2)
197
(10)
(14)
2
—
175
(10)
165
(5)
160
73
(1,500)
—
(1)
—
—
—
(6)
52
—
(52)
(43)
(49)
2
(47)
—
(47)
124
$
$
2,710
206
440
147
62
(2)
(18)
(38)
(8)
7
—
(57)
(19)
(76)
(5)
(81)
(249)
$
$
118
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2018
(In millions)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Accounts receivable from affiliates
Inventories, net
Note, advance and interest receivable from parent
Interest receivable from affiliate
Other current assets
Total current assets
Fixed assets, net
Amortizable intangible assets, net
Deferred income tax assets
Notes receivable from parent
Note receivable from affiliate
Investments in consolidated subsidiaries and affiliates
Other assets
Total assets
Liabilities and equity
Current liabilities:
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
4,119
—
301
301
588
194
422
4
15
1,825
523
2
1
657
107
2,205
126
$
3
148
1,071
327
—
—
28
1,577
992
48
872
—
—
—
64
$
4,119
$
5,446
$
3,553
$
— $
—
(1,659)
(13)
(422)
(4)
—
(2,098)
—
—
3
(657)
(107)
(6,324)
—
$ (9,183)
304
449
—
508
—
—
43
1,304
1,515
50
876
—
—
—
190
$
3,935
Accounts payable and accrued liabilities
$
7
$
170
$
250
$
— $
Current portion of long-term debt
Accounts payable to affiliates
Note, advance and interest payable to subsidiaries
Interest payable to affiliate
Total current liabilities
Long-term debt, net of current portion
Notes payable to subsidiaries
Note payable to affiliate
Pension and other postretirement benefit obligations
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
222
592
422
—
1
1,112
—
—
1,243
1,283
370
657
—
—
6
52
—
—
342
21
—
—
—
4
254
—
—
107
915
44
2,276
1,843
4,119
1,698
3,748
5,446
$
$
1,320
2,233
3,553
$
—
(1,704)
(422)
(4)
(2,130)
—
(657)
(107)
—
—
(2,894)
(6,289)
$ (9,183)
$
427
223
—
—
—
650
422
—
—
1,257
71
2,400
1,535
3,935
119
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2017
(In millions)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Accounts receivable from affiliates
Inventories, net
Note, advance and interest receivable from parent
Notes and interest receivable from affiliates
Other current assets
Total current assets
Fixed assets, net
Amortizable intangible assets, net
Goodwill
Deferred income tax assets
Notes receivable from parent
Note receivable from affiliate
Investments in consolidated subsidiaries and affiliates
Other assets
Total assets
Liabilities and equity
Current liabilities:
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
$
— $
3
$
—
—
—
—
—
—
—
—
—
—
—
—
—
3,939
—
319
535
243
538
32
16
1,686
692
13
81
1
330
116
2,111
98
3
160
729
292
—
—
17
1,201
1,024
52
—
1,073
—
—
—
67
$
3,939
$
5,128
$
3,417
$
— $
—
(1,264)
(9)
(538)
(32)
—
(1,843)
—
—
—
2
(330)
(116)
(6,050)
—
$ (8,337)
6
479
—
526
—
—
33
1,044
1,716
65
81
1,076
—
—
—
165
$
4,147
$
171
$
245
$
— $
420
Accounts payable and accrued liabilities
$
Current portion of long-term debt
Accounts payable to affiliates
Note, advance and interest payable to subsidiaries
Notes and interest payable to affiliate
Total current liabilities
Long-term debt, net of current portion
Note payable to subsidiary
Note payable to affiliate
Pension and other postretirement benefit obligations
Deferred income tax liabilities
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
4
—
536
538
—
1,078
592
330
—
—
—
5
1
728
—
—
900
196
—
—
378
—
24
—
—
—
32
277
—
—
116
879
13
39
—
(1,264)
(538)
(32)
(1,834)
—
(330)
(116)
—
—
—
(2,280)
(6,057)
$ (8,337)
$
1
—
—
—
421
788
—
—
1,257
13
68
2,547
1,600
4,147
2,005
1,934
3,939
1,498
3,630
5,128
$
1,324
2,093
3,417
$
$
120
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2018
Consolidating
Adjustments Consolidated
$
— $
435
—
—
—
—
—
1
135
136
—
—
—
(1)
(135)
(136)
—
—
—
$
$
— $
— $
—
(155)
336
48
(77)
(6)
—
—
146
(144)
(136)
(1)
—
—
(281)
(4)
296
49
345
304
41
(In millions)
Parent
Guarantor
Subsidiaries
Net cash provided by operating activities
$
— $
334
Non-guarantor
Subsidiaries
$
101
Cash flows from investing activities:
Cash invested in fixed assets
Disposition of assets
Decrease in countervailing duty cash deposits on
supercalendered paper, net
Increase in countervailing and anti-dumping duty cash
deposits on softwood lumber
Increase in countervailing duty cash deposits on
uncoated groundwood paper
Advance to parent
Increase in notes receivable from affiliate, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net repayments under revolving credit facilities
Payment of special dividend
Payments of financing and credit facility fees
Advance from subsidiary
Increase (decrease) in notes payable to affiliate
Net cash used in financing activities
Effect of exchange rate changes on cash and cash
equivalents, and restricted cash
Net increase (decrease) in cash and cash equivalents, and
restricted cash
Cash and cash equivalents, and restricted cash:
Beginning of year
End of year
Cash and cash equivalents, and restricted cash at
year end:
Cash and cash equivalents
Restricted cash
—
—
—
—
—
—
—
—
—
(136)
(1)
1
136
—
—
—
—
(51)
335
48
(77)
(6)
(1)
(135)
113
(144)
—
—
—
—
(144)
—
303
3
$
$
— $
306
$
— $
301
$
—
5
(104)
1
—
—
—
—
—
(103)
—
—
—
—
(1)
(1)
(4)
(7)
46
39
3
36
121
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2017
(In millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
Net cash provided by operating activities
$
— $
125
$
33
$
— $
158
Cash flows from investing activities:
Cash invested in fixed assets
Disposition of assets
Increase in countervailing duty cash deposits on
supercalendered paper
Increase in countervailing and anti-dumping duty cash
deposits on softwood lumber
Decrease in notes receivable from affiliate, net
Net cash used in investing activities
Cash flows from financing activities:
Net borrowings under revolving credit facilities
Acquisition of noncontrolling interest in Donohue
Malbaie Inc.
Payments of debt
Decrease in notes payable to affiliate, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents, and restricted cash
Net increase (decrease) in cash and cash equivalents, and
restricted cash
Cash and cash equivalents, and restricted cash:
Beginning of year
End of year
Cash and cash equivalents, and restricted cash at
year end:
Cash and cash equivalents
Restricted cash
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
— $
— $
—
(116)
—
(22)
(26)
22
(142)
19
—
(1)
—
18
—
1
2
3
3
—
$
$
(48)
21
—
—
—
(27)
—
(15)
—
(22)
(37)
6
(25)
71
46
3
43
—
—
—
—
(22)
(22)
—
—
—
22
22
—
—
—
$
$
— $
— $
—
(164)
21
(22)
(26)
—
(191)
19
(15)
(1)
—
3
6
(24)
73
49
6
43
122
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2016
(In millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
Net cash provided by operating activities
$
— $
30
$
51
$
— $
81
Cash flows from investing activities:
Cash invested in fixed assets
Acquisition of a sawmill in Senneterre
Disposition of assets
Increase in countervailing duty cash deposits on
supercalendered paper
Increase in notes receivable from affiliate
Net cash used in investing activities
Cash flows from financing activities:
Net borrowings under revolving credit facilities
Issuance of long-term debt
Payments of debt
Payments of financing and credit facility fees
Increase in notes payable to affiliate
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash
equivalents, and restricted cash
Net decrease in cash and cash equivalents, and restricted
cash
Cash and cash equivalents, and restricted cash:
Beginning of year
End of year
Cash and cash equivalents, and restricted cash at
year end:
Cash and cash equivalents
Restricted cash
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
— $
— $
—
(179)
—
—
(23)
(8)
(210)
125
46
(1)
(1)
—
169
—
(70)
(6)
5
—
—
(71)
—
—
—
—
8
8
1
(11)
(11)
13
2
2
—
$
$
82
71
33
38
—
—
—
—
8
8
—
—
—
—
(8)
(8)
—
—
—
$
$
— $
— $
—
(249)
(6)
5
(23)
—
(273)
125
46
(1)
(1)
—
169
1
(22)
95
73
35
38
123
Note 20. Quarterly Information (Unaudited)
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
(In millions, except per share amounts)
Sales
Operating income
Net income attributable to Resolute Forest Products Inc.
Basic net income per share attributable to Resolute Forest
Products Inc. common shareholders
Diluted net income per share attributable to Resolute
Forest Products Inc. common shareholders
First
Quarter
Second
Quarter
$
874
$
48
10
0.11
0.11
976
121
72
0.79
0.77
(In millions, except per share amounts)
Sales
Operating (loss) income
Net (loss) income attributable to Resolute Forest Products
Inc.
Basic net (loss) income per share attributable to Resolute
Forest Products Inc. common shareholders
Diluted net (loss) income per share attributable to
Resolute Forest Products Inc. common shareholders
First
Quarter
872
(9)
$
Second
Quarter
858
(48)
$
(47)
(74)
(0.52)
(0.82)
(0.52)
(0.82)
Note 21. Subsequent Event
The following significant event occurred subsequent to December 31, 2018:
2018
Third
Quarter
$
974
135
117
1.28
1.25
2017
Third
Quarter
885
$
46
24
0.27
0.26
Fourth
Quarter
Year
$
932
$ 3,756
75
36
0.39
0.38
379
235
2.57
2.52
Fourth
Quarter
898
$
Year
$ 3,513
53
13
0.14
0.14
42
(84)
(0.93)
(0.93)
• On January 3, 2019, we repurchased $225 million in aggregate principal of the 2023 Notes, as further discussed in
Note 11. Long-Term Debt – Debt instruments – 2023 Notes.
124
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Resolute Forest Products Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Resolute Forest Products Inc. and its subsidiaries, (together,
the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive
income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2018, including
the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (or “COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and their results of their operations and their cash flows for each
of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Financial Statements and Assessment of Internal Control over Financial
Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
125
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP / s.r.l / s.e.n.c.r.l. (1)
Montréal, Québec, Canada
March 1, 2019
(1) CPA auditor, CA, public accountancy permit No.A115888
We have served as the Company’s auditor since 2007.
126
MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS AND ASSESSMENT OF INTERNAL CONTROL
OVER FINANCIAL REPORTING
Financial Statements
Management of Resolute Forest Products Inc. is responsible for the preparation of the financial information included in this
Form 10-K. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles and include amounts that are based on the best estimates and judgments of management.
Assessment of Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Resolute Forest Products Inc.’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that:
— pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Resolute Forest Products Inc.;
— provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. generally accepted accounting principles;
— provide reasonable assurance that receipts and expenditures of Resolute Forest Products Inc. are being made only in
accordance with the authorizations of management and directors of Resolute Forest Products Inc.; and
— provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Resolute Forest Products Inc.’s internal control over financial reporting as of
December 31, 2018. Management based this assessment on the criteria for effective internal control over financial reporting
described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Management’s assessment included an evaluation of the design of Resolute Forest Products Inc.’s
internal control over financial reporting and testing of the operational effectiveness of its internal control over financial
reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.
Based on this assessment, management determined that, as of December 31, 2018, Resolute Forest Products Inc.’s internal
control over financial reporting was effective.
The effectiveness of Resolute Forest Products Inc.’s internal control over financial reporting as of December 31, 2018, has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report above.
127
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) are our controls and other
procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our President and Chief Executive Officer and Senior Vice President and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2018. Based on that evaluation, the
President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of such date in recording, processing, summarizing and timely reporting information
required to be disclosed in our reports to the SEC.
Management’s Report on Internal Control over Financial Reporting
Management has issued its report on internal control over financial reporting, which included management’s assessment that
the Company’s internal control over financial reporting was effective as of December 31, 2018. Management’s report on
internal control over financial reporting can be found on page 127 of this Form 10-K. Our independent registered public
accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on the effectiveness of internal control over
financial reporting as of December 31, 2018. This report can be found on page 125 of this Form 10-K.
Changes in Internal Control over Financial Reporting
In connection with the evaluation of internal control over financial reporting, there were no changes during the quarter ended
December 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
128
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information appearing under the captions entitled “Management Proposals – Vote on the Election of Directors,”
“Section 16 Beneficial Ownership Reporting Compliance,” and “Corporate Governance and Board Matters” in our definitive
proxy statement for our 2019 annual meeting of shareholders to be held on May 24, 2019 (or our “2019 proxy statement”),
which will be filed within 120 days of the end of our fiscal year ended December 31, 2018, is incorporated herein by reference.
Information regarding our executive officers is presented in Part I, Item 1, “Business – Executive Officers,” of this Form 10-K.
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal
accounting officer. This code of ethics (which is entitled “Code of Business Conduct”) and our corporate governance policies
are posted on our website at www.resolutefp.com. We intend to satisfy disclosure requirements regarding amendments to or
waivers from our code of ethics by posting such information on this website. The charters of the Audit Committee and the
Human Resources and Compensation/Nominating and Governance Committee of our Board of Directors are available on our
website as well. This information is also available in print free of charge to any person who requests it.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions entitled “Executive Compensation,” “Corporate Governance and Board Matters,”
“Director Compensation,” and “Compensation Committee Interlocks and Insider Participation” in our 2019 proxy statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information appearing under the caption entitled “Information on Stock Ownership” in our 2019 proxy statement is
incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2018, regarding securities to be issued upon exercise of
outstanding stock options or pursuant to outstanding stock unit awards, and securities remaining available for issuance under
our equity compensation plan. The Incentive Plan is the only compensation plan with shares authorized.
(a)
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
—
6,227,695 (2)
6,227,695
$
$
—
16.30 (3)
16.30
—
912,797
912,797
Plan category
Equity compensation plans approved by security
holders
Equity compensation plans not approved by
security holders (1)
Total
(1)
(2)
The Incentive Plan was approved by the Courts in connection with the CCAA Creditor Protection Proceedings, and
the creditor protection proceedings under Chapter 11 of the United States Bankruptcy Code, as amended, as
applicable.
Includes shares issuable upon the exercise of 1,065,021 stock options and shares issuable upon the settlement of
1,804,409 RSUs and DSUs issued under the Incentive Plan, at a rate of one share per unit. Also includes shares
issuable upon the settlement of 2,382,174 PSUs issued under the Incentive Plan at the maximum payout rate
(3,358,265 shares).
129
(3)
The weighted-average exercise price in column (b) represents the weighted-average exercise price of the outstanding
stock options disclosed in column (a). The stock unit awards do not have an exercise price and are not included in the
calculation of the weighted-average exercise price in column (b).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information appearing under the captions entitled “Related Party Transactions” and “Corporate Governance and Board
Matters – Director Independence” in our 2019 proxy statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information appearing under the caption entitled “Management Proposals – Vote on the Ratification of the Appointment of
PricewaterhouseCoopers LLP” in our 2019 proxy statement is incorporated herein by reference.
130
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as a part of this Form 10-K:
(1) The following are included at the indicated page of this Form 10-K:
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018,
2017 and 2016
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2018, 2017 and
2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Management’s Report on Financial Statements and Assessment of Internal Control over Financial
Reporting
Page
74
75
76
77
78
80
125
127
(2) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit No.
Description
#2.1*
#2.2*
#2.3*
3.1*
3.2*
4.1*
4.2*
4.3*
Share Purchase Agreement, dated December 10, 2012, among The Province of Nova Scotia, Bowater
Canadian Limited, The Daily Herald Company and Resolute Forest Products Inc. (incorporated by reference
from Exhibit 2.1 to Resolute Forest Products Inc.’s Current Report on Form 8-K filed December 14, 2012,
SEC File No. 001-33776).
Asset Purchase Agreement between Resolute FP US Inc., New-Indy Containerboard LLC and New-Indy
Catawba LLC, dated October 2, 2018 (incorporated by reference from Exhibit 2.1 to Resolute Forest
Products Inc.’s Current Report on Form 8-K filed on January 7, 2019, SEC File No. 001-33776).
Amendment to the Asset Purchase Agreement between Resolute FP US Inc., New-Indy Containerboard
LLC and New-Indy Catawba LLC, dated December 27, 2018 (incorporated by reference from Exhibit 2.2 to
Resolute Forest Products Inc.’s Current Report on Form 8-K filed on January 7, 2019, SEC File No.
001-33776).
Amended and Restated Certificate of Incorporation of Resolute Forest Product Inc. (incorporated by
reference from Exhibit 3.1 to Resolute Forest Product Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2012, filed March 1, 2013, SEC File No. 001-33776).
By-laws of Resolute Forest Products Inc., as amended through December 4, 2014 (incorporated by
reference from Exhibit 3.1 to Resolute Forest Products Inc.’s Current Report on Form 8-K filed on
December 10, 2014, SEC File No. 001-33776).
Indenture, dated as of May 8, 2013, among Resolute Forest Products Inc., the guarantors party thereto and
Wells Fargo Bank, National Association, as trustee. (incorporated by reference from Exhibit 4.4 to Resolute
Forest Products Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed May 10,
2013, SEC File No. 001-33776).
Supplemental Indenture, dated as of January 12, 2018 (to the Indenture dated as of May 8, 2013), by and
among Resolute Forest Products Inc., certain subsidiary guarantors, and Wells Fargo Bank, N.A., as trustee
(incorporated by reference from exhibit 10.1 to Resolute Forest Products Inc.’s Current Report on Form 8-K
filed January 12, 2018, SEC File No. 001-33776).
Registration Rights Agreement, dated as of May 8, 2013, among Resolute Forest Products Inc., the
guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative.
(incorporated by reference from Exhibit 4.5 to Resolute Forest Products Inc.’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2013, filed May 10, 2013, SEC File No. 001-33776).
131
Exhibit No.
10.1*
Description
Securities Purchase Agreement, dated February 11, 2011, among AbiBow Canada Inc., Caisse de dépôt et
placement du Québec and CDP Investissements Inc., as vendors, and Infra H2O GP Partners Inc., Infra H2O
LP Partners Inc. and BluEarth Renewables Inc., as the purchaser (incorporated by reference from Exhibit
2.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 17, 2011, SEC File No.
001-33776).
†10.2*
†10.3*
†10.4*
†10.5*
†10.6*
†10.7*
10.8*
10.9*
†10.10*
†10.11*
†10.12*
†10.13*
†10.14*
†10.15*
†10.16*
AbitibiBowater 2010 Canadian DB Supplemental Executive Retirement Plan, effective as of December 9,
2010 (incorporated by reference from Exhibit 10.4 to AbitibiBowater Inc.’s Annual Report on Form 10-K
for the year ended December 31, 2010, filed April 5, 2011, SEC File No. 001-33776).
AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Nonqualified Stock Option Agreement
(incorporated by reference from Exhibit 10.3 to AbitibiBowater Inc.’s Registration Statement on Form S-8
filed January 7, 2011, SEC Registration No. 333-171602).
AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Employee Nonqualified Stock Option Agreement
(incorporated by reference from Exhibit 10.4 to AbitibiBowater Inc.’s Registration Statement on Form S-8
filed January 7, 2011, SEC Registration No. 333-171602).
AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Employee Nonqualified Stock Option Agreement
(incorporated by reference from Exhibit 10.14 to AbitibiBowater Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2011, filed February 29, 2012, SEC File No. 001-33776).
AbitibiBowater Executive Restricted Stock Unit Plan, effective as of April 1, 2011 (incorporated by
reference from Exhibit 10.13 to AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2010, filed April 5, 2011, SEC File No. 001-33776).
Retirement Compensation Trust Agreement (with Letter of Credit) between AbiBow Canada Inc. and
AbitibiBowater Inc. and CIBC Mellon Trust Company, dated and effective as of November 1, 2011
(incorporated by reference from Exhibit 10.39 to AbitibiBowater Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2011, filed February 29, 2012, SEC File No. 001-33776).
Agreement Concerning the Pulp and Paper Operations of AbiBow Canada in Ontario, dated November 10,
2010, between Bowater Canadian Forest Products Inc. and Abitibi-Consolidated Company of Canada and
The Province of Ontario (incorporated by reference from Exhibit 10.32 to AbitibiBowater Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2010, filed April 5, 2011, SEC File No. 001-33776).
Agreement Concerning the Pulp and Paper Operations of AbiBow Canada in Quebec, dated September 13,
2010, between Bowater Canadian Forest Products Inc. and Abitibi-Consolidated Company of Canada and
The Government of Quebec (incorporated by reference from Exhibit 10.33 to AbitibiBowater Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2010, filed April 5, 2011, SEC File No. 001-33776).
Offer letter between John Lafave and AbitibiBowater Inc., dated February 14, 2011 (incorporated by
reference from Exhibit 10.29 to AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2010, filed April 5, 2011, SEC File No. 001-33776).
Offer Letter between Jacques Vachon and AbitibiBowater Inc., dated March 19, 2012 (incorporated by
reference from Exhibit 10.2 to AbitibiBowater Inc.’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012, filed May 10, 2012, SEC File No. 001-33776).
Resolute Forest Products DC Make-up Program, effective January 1, 2012 (incorporated by reference from
Exhibit 10.3 to AbitibiBowater Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012,
filed May 10, 2012, SEC File No. 001-33776).
Resolute Forest Products Inc. Severance Policy – Chief Executive Officer and Direct Reports, effective as
of August 1, 2012 (incorporated by reference from Exhibit 10.1 to Resolute Forest Products Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2012, filed August 9, 2012, SEC File No. 001-33776).
Resolute Forest Products Equity Incentive Plan (previously named the AbitibiBowater Inc. 2010 Equity
Incentive Plan), effective as of December 9, 2010 (incorporated by reference from Exhibit 10.2 to Resolute
Forest Products Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed
November 9, 2012, SEC File No. 001-33776).
Resolute Forest Products Outside Director Deferred Compensation Plan (previously named the
AbitibiBowater Inc. Outside Director Deferred Compensation Plan), effective as of April 1, 2011
(incorporated by reference from Exhibit 10.3 to Resolute Forest Products Inc.’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2012, filed November 9, 2012, SEC File No. 001-33776).
Form of Indemnification Agreement for Directors and Officers of Resolute Forest Products Inc.
(incorporated by reference from Exhibit 10.41 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2012, filed March 1, 2013, SEC File No. 001-33776).
132
Exhibit No.
Description
†10.17*
†10.18*
†10.19*
†10.20*
†10.21*
10.22*
10.23*
†10.24*
†10.25*
†10.26*
†10.27*
†10.28*
†10.29*
†10.30*
Resolute Forest Products Equity Incentive Plan Form of Employee Nonqualified Stock Option Agreement
(incorporated by reference from Exhibit 10.41 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2013, filed March 3, 2014, SEC File No. 001-33776).
Offer Letter between Richard Tremblay and Resolute Forest Products Inc., dated February 4, 2014
(incorporated by reference from Exhibit 10.43 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2013, filed March 3, 2014, SEC File No. 001-33776).
First Amendment dated February 14, 2014 to the AbitibiBowater 2010 Canadian DB Supplemental
Executive Retirement Plan, effective as of December 9, 2010 (incorporated by reference from Exhibit 10.44
to Resolute Forest Products Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014,
filed March 2, 2015, SEC File No. 001-33776).
Resolute FP Canada Inc. and Resolute Forest Products Inc. Security Protocol with respect to the Resolute
Forest Products 2010 Canadian DB Supplemental Executive Retirement Plan and the Resolute Canada
SERP, amended and restated effective April 11, 2014. (incorporated by reference from Exhibit 10.45 to
Resolute Forest Products Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014, filed
March 2, 2015, SEC File No. 001-33776).
Form of Indemnification Agreement for Directors and Officers of Resolute Forest Products Inc.
(incorporated by reference from Exhibit 10.46 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2014, filed March 2, 2015, SEC File No. 001-33776).
Credit Agreement, dated as of May 22, 2015, among Resolute Forest Products Inc., Resolute FP Canada
Inc., certain other subsidiaries of Resolute Forest Products Inc. as borrowers or guarantors, various lenders,
Bank of America, N.A., as U.S. Administrative Agent and Collateral Agent, and Bank of America, N.A.
(through its Canada branch), as Canadian Administrative Agent (incorporated by reference from Exhibit
10.1 to Resolute Forest Products Inc.’s Current Report on Form 8-K filed May 26, 2015, SEC file No.
001-033776).
Credit Agreement, dated as of September 7, 2016, among Resolute Forest Products Inc., certain U.S.
subsidiaries of Resolute Forest Products Inc. as borrowers and guarantors, various lenders, and American
AgCredit, PCA, as administrative agent and collateral agent (incorporated by reference from Exhibit 10.1 to
Resolute Forest Products Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016,
filed November 9, 2016, SEC File No. 001-33776).
Resolute Forest Products Equity Incentive Plan Form of Director Deferred Stock Unit Agreement
(incorporated by reference from Exhibit 10.39 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
Resolute Forest Products Equity Incentive Plan Form of Director Restricted Stock Unit Agreement
(incorporated by reference from Exhibit 10.40 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
Indemnification Policy for the Executive Officers and Chief Accounting Officer of Resolute Forest Products
Inc (incorporated by reference from Exhibit 10.41 to Resolute Forest Products Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
Guarantee Agreement, entered into on February 21, 2017, and dated as of June 18, 2014, between Resolute
FP Canada Inc. and Resolute FP US Inc. as Guarantors, and Jacques Vachon as the Guaranteed Party
(incorporated by reference from Exhibit 10.42 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
First Amendment to the Resolute Forest Products Equity Incentive Plan, dated February 28, 2017
(incorporated by reference from Exhibit 10.43 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
Resolute Forest Products Equity Incentive Plan Amended and Restated 2015 Restricted Stock Unit
Agreement between Resolute Forest Products Inc. and Richard Garneau, dated February 28, 2017
(incorporated by reference from Exhibit 10.44 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
Resolute Forest Products Equity Incentive Plan Amended and Restated 2016 Restricted Stock Unit
Agreement between Resolute Forest Products Inc. and Richard Garneau, dated February 28, 2017
(incorporated by reference from Exhibit 10.45 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
133
Exhibit No.
†10.31*
Description
Resolute Forest Products Equity Incentive Plan Amended and Restated 2015 Performance Stock Unit
Agreement between Resolute Forest Products Inc. and Richard Garneau, dated February 28, 2017
(incorporated by reference from Exhibit 10.46 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
†10.32*
†10.33*
†10.34*
†10.35*
†10.36*
†10.37*
†10.38*
†10.39*
†10.40*
†10.41*
†10.42**
10.43**
†10.44**
†10.45**
†10.46**
†10.47**
†10.48**
†10.49**
†10.50**
Resolute Forest Products Equity Incentive Plan Amended and Restated 2016 Performance Stock Unit
Agreement between Resolute Forest Products Inc. and Richard Garneau, dated February 28, 2017
(incorporated by reference from Exhibit 10.47 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2016, filed March 1, 2017, SEC File No. 001-33776).
Offer Letter between Patrice Minguez and Resolute Forest Products Inc., dated July 24, 2017 (incorporated
by reference from Exhibit 10.1 to Resolute Forest Products Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2017, filed August 9, 2017, SEC File No. 001-33776).
Form of Resolute Forest Products Equity Incentive Plan Executive Stock Settled Performance Stock Unit
Agreement (incorporated by reference from Exhibit 10.2 to Resolute Forest Products Inc.’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2017, filed November 9, 2017, SEC File No.
001-33776).
Second Amendment to the Resolute Forest Products Equity Incentive Plan, dated October 31, 2017
(incorporated by reference from Exhibit 10.3 to Resolute Forest Products Inc.’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2017, filed November 9, 2017, SEC File No. 001-33776).
Executive Employment Agreement between Resolute Forest Products Inc. and Yves Laflamme, dated
February 1, 2018 (incorporated by reference from Exhibit 10.51 to Resolute Forest Products Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2017, filed March 1, 2018, SEC File No.
001-33776).
Change in Control Agreement between Resolute Forest Products Inc. and Yves Laflamme, dated February 1,
2018 (incorporated by reference from Exhibit 10.52 to Resolute Forest Products Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed March 1, 2018, SEC File No. 001-33776).
Employment Agreement between Richard Garneau and Resolute FP Canada Inc., dated February 1, 2018
(incorporated by reference from Exhibit 10.53 to Resolute Forest Products Inc.’s Annual Report on Form
10-K for the year ended December 31, 2017, filed March 1, 2018, SEC File No. 001-33776).
Director Compensation Program Chart, dated February 27, 2018 (incorporated by reference from Exhibit
10.54 to Resolute Forest Products Inc.’s Annual Report on Form 10-K for the year ended December 31,
2017, filed March 1, 2018, SEC File No. 001-33776).
2018 Resolute Forest Products Inc. Short-Term Incentive Plan (incorporated by reference from Exhibit 10.1
to Resolute Forest Products Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, filed
August 9, 2018, SEC File No. 001-33776).
2018 Resolute Forest Products Inc. Short-Term Incentive Plan - U.S. (incorporated by reference from
Exhibit 10.2 to Resolute Forest Products Inc.’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2018, filed August 9, 2018, SEC File No. 001-33776).
Offer Letter between Daniel Ouellet and Resolute Forest Products Inc., dated April 7, 2018.
Note Purchase Agreement, dated as of December 21, 2018, among Resolute Forest Products Inc., and
certain noteholders.
Employment Agreement Renewal between Richard Garneau and Resolute FP Canada Inc., dated January
30, 2019.
Transition to Retirement Agreement between Jo-Ann Longworth and Resolute FP Canada Inc., dated
January 30, 2019.
Offer Letter between Remi Lalonde and Resolute Forest Products Inc., dated January 30, 2019.
Form of Resolute Forest Products Equity Incentive Plan Director Cash-Settled Deferred Stock Unit
Agreement.
Form of Resolute Forest Products Equity Incentive Plan Director Cash-Settled Restricted Stock Unit
Agreement.
Form of Resolute Forest Products Equity Incentive Plan Stock Settled Performance Stock Unit Agreement.
Form of Resolute Forest Products Equity Incentive Plan Stock Settled Restricted Stock Unit Agreement.
134
Exhibit No.
Description
†10.51**
†10.52**
†10.53**
†10.54**
21.1**
23.1**
24.1**
31.1**
31.2**
32.1**
32.2**
99.1*
Form of First Amendment to the Resolute Forest Products Equity Incentive Plan Director Deferred Stock
Unit Agreement.
Form of First Amendment to the Resolute Forest Products Equity Incentive Plan Director Restricted Stock
Unit Agreement.
Form of First Amendment to the Resolute Forest Products Equity Incentive Plan Performance Stock Unit
Agreement.
Form of First Amendment to the Resolute Forest Products Equity Incentive Plan Restricted Stock Unit
Agreement.
Subsidiaries of the registrant.
Consent of PricewaterhouseCoopers LLP.
Power of attorney for certain Directors of the registrant.
Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Unaudited Pro Forma Condensed Consolidated Financial Information (incorporated by reference from
Exhibit 99.1 to Resolute Forest Products Inc.’s Current Report on Form 8-K filed on January 7, 2019, SEC
File No. 001-33776).
101.INS***
XBRL Instance Document.
101.SCH***
XBRL Taxonomy Extension Schema Document.
101.CAL***
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB***
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE***
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF***
XBRL Taxonomy Extension Definition Linkbase Document.
*
#
†
**
***
(b)
(c)
Previously filed and incorporated herein by reference.
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted
schedule or exhibit will be furnished supplementally to the SEC upon request; provided, however, that the registrant
may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act, as amended, for any
schedules or exhibits so furnished.
This is a management contract or compensatory plan or arrangement.
Filed with this Form 10-K.
Interactive data files furnished with this Form 10-K, which represent the following materials from this Form 10-K
formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the
Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the
Consolidated Statement of Changes in Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to
Consolidated Financial Statements.
The above-referenced exhibits are being filed with this Form 10-K.
None.
ITEM 16. FORM 10-K SUMMARY
None.
135
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2019
RESOLUTE FOREST PRODUCTS INC.
By:
/s/ Yves Laflamme
Yves Laflamme
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Yves Laflamme
Yves Laflamme
President and Chief Executive Officer
(Principal Executive Officer)
Date
March 1, 2019
/s/ Bradley P. Martin*
Bradley P. Martin
Chairman, Director
March 1, 2019
/s/ Remi G. Lalonde
Remi G. Lalonde
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
March 1, 2019
/s/ Hugues Dorban
Hugues Dorban
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Randall C. Benson*
Randall C. Benson
/s/ Suzanne Blanchet*
Suzanne Blanchet
/s/ Jennifer C. Dolan*
Jennifer C. Dolan
/s/ Richard D. Falconer*
Richard D. Falconer
/s/ Jeffrey A. Hearn*
Jeffrey A. Hearn
/s/ Alain Rhéaume*
Alain Rhéaume
/s/ Michael S. Rousseau*
Michael S. Rousseau
Director
Director
Director
Director
Director
Director
Director
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
March 1, 2019
* Remi G. Lalonde, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to
powers of attorney duly executed by such persons that are filed herewith as Exhibit 24.1.
By:
/s/ Remi G. Lalonde
Remi G. Lalonde, Attorney-in-Fact
136
BOARD OF
DIRECTORS
CORPORATE
OFFICERS
Yves Laflamme
President and Chief Executive Officer
John Lafave
Senior Vice President
Pulp and Paper Sales and Marketing
Remi G. Lalonde
Senior Vice President and
Chief Financial Officer
Patrice Minguez
President
Tissue Group
Daniel Ouellet
Senior Vice President
Human Resources
Richard Tremblay
Senior Vice President
Pulp and Paper Operations
Jacques P. Vachon
Senior Vice President
Corporate Affairs and Chief Legal Officer
Bradley P. Martin b, c
Chairman of the Board of Directors;
Vice President for Strategic Investments
Fairfax Financial Holdings Limited
Yves Laflamme
Corporate Director
President and Chief Executive Officer
Resolute Forest Products
Randall C. Benson b, c, d
Corporate Director
Principal, RC Benson Consulting Inc.
Suzanne Blanchet
Corporate Director
Jennifer C. Dolan a, b, d
Corporate Director
Richard D. Falconer a, c, d
Corporate Director
Senior Advisor, Lazard Canada
Jeffrey A. Hearn b
Corporate Director
Alain Rhéaume a, c, d
Lead Director;
Managing Partner, Trio Capital Inc.
Michael S. Rousseau a, c, d
Corporate Director
Deputy Chief Executive Officer and
Chief Financial Officer, Air Canada
Board Committees
a. Audit Committee
b. Environmental, Health and Safety Committee
c. Finance Committee
d. Human Resources, Compensation and Nominating
and Governance Committee
Note: As at January 31, 2019
SHAREHOLDER
INFORMATION
Annual General Meeting
Form 10-K
Our annual meeting of stockholders will be held on Friday,
May 24, 2019, at 10:00 a.m. (Eastern) at the Hampton Inn
Cleveland, located at 4355 Frontage Road, Cleveland,
Tennessee 37312, United States.
Transfer Agent for Common Stock
Computershare Trust Company, N.A.
P.O. Box 30170
College Station, Texas 77842-3170, United States
1-866-820-6919 (toll-free within the United States and Canada)
or 781-575-3100
www.computershare.com/investor
Resolute Forest Products Inc. files its Annual Report
on Form 10-K with the U.S. Securities and Exchange
Commission (SEC). Free copies (without exhibits) are available
upon request to Resolute’s Investor Relations department.
The company’s SEC filings, annual reports, news releases
and other investor information can be accessed at
www.resolutefp.com/investors.
Stock Listings
The shares of common stock of Resolute Forest Products Inc.
trade under the stock symbol RFP on both the New York
Stock Exchange and the Toronto Stock Exchange.
Co-Transfer Agent – Canada
Resolute Forest Products – Head Office
Computershare Investor Services Inc.
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1, Canada
1-800-564-6253 (toll-free within the United States and Canada)
www.computershare.com/investor
111 Robert-Bourassa Blvd., Suite 5000
Montreal, Quebec H3C 2M1, Canada
514-875-2160 or 1-800-361-2888
Vous trouverez la version française de ce rapport
au www.pfresolu.com.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
1250 René-Lévesque Boulevard West, Suite 2800
Montreal, Quebec H3B 2G4, Canada
Investor Information and Financial Reporting
Silvana Travaglini
Treasurer and Vice President, Investor Relations
514-394-2217
ir@resolutefp.com
Media Inquiries
Seth Kursman
Vice President, Corporate Communications,
Sustainability and Government Affairs
514-394-2398
seth.kursman@resolutefp.com
ABOUT RESOLUTE FOREST PRODUCTS
Resolute Forest Products is a global leader in the forest
products industry with a diverse range of products,
including market pulp, tissue, wood products, newsprint and
specialty papers, which are marketed in close to 70 countries.
The company owns or operates some 40 facilities, as well as
power generation assets, in the United States and Canada.
Resolute has third-party certified 100% of its managed
woodlands to internationally recognized sustainable forest
management standards.
The shares of Resolute Forest Products trade under the stock
symbol RFP on both the New York Stock Exchange and the
Toronto Stock Exchange.
Resolute has received regional, North American and global
recognition for its leadership in corporate social responsibility
and sustainable development, as well as for its business
practices. Visit www.resolutefp.com for more information.
EQUAL OFFSET
The inside pages of this report are printed on Equal Offset® 42.5 lb (63 g/m2) paper,
manufactured at Resolute Forest Products’ Alma (Quebec) mill.
Certifi cations at Alma include:
• Sustainable Forestry Initiative® (SFI®), Programme for the Endorsement of Forest
Certifi cation (PEFC) and Forest Stewardship Council® (FSC®) chain of custody
• SFI fi ber sourcing
• ISO 14001 environmental management system
HEAD OFFICE
Resolute Forest Products
111 Robert-Bourassa Blvd., Suite 5000
Montreal, Quebec H3C 2M1, Canada
514-875-2160 or 1-800-361-2888
For a full list of contacts, visit
www.resolutefp.com/contact.
FORM
10-K
ANNUAL REPORT
ON FORM 10-K
2018
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