FORM
10-K
ANNUAL REPORT
ON FORM 10-K
2019
R
E
S
O
L
U
T
E
F
O
R
E
S
T
P
R
O
D
U
C
T
S
–
A
N
N
U
A
L
R
E
P
O
R
T
O
N
F
O
R
M
1
0
-
K
2
0
1
9
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
HEADQUARTERS
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
At Resolute Forest Products, we believe
an integrated approach across our market
pulp, tissue, wood products, newsprint
and specialty papers business segments
maximizes value creation for the company
and our stakeholders. With our competitive
cost structure, our diversified and
integrated asset base, our role in
the value-transformation chain for fiber –
a renewable resource – and our seasoned
management team, we are investing
in our business to build the Resolute
of the future.
We continue to take important steps to advance Resolute’s
transformation strategy. With the recent acquisition of three
sawmills in the Southern United States, we are growing the
lumber business in an attractive fiber basket, near growing
end-markets. We are capitalizing on our hydroelectric assets
by investing in the development and production of sustainable
biomaterials, such as cellulose filaments, highlighting
the added value we can bring to fiber. We are optimizing
our operations to enhance performance, improve energy
efficiency and reduce our carbon footprint. We are investing
in the state-of-the-art Toundra Greenhouse joint venture
in Quebec to double the production capacity to 90 million
cucumbers annually. And our 7,500 employees from
across some 40 facilities in the United States and Canada
are working hard each and every day to produce quality,
sustainable products for our customers around the globe.
Financial performance1
After the highs of 2018, this past year we faced stronger
headwinds, including a significant drop in market prices for
dimension lumber and market pulp. On the other hand, we
took steps to deleverage our balance sheet, strengthen our
liquidity and return capital to shareholders. Our developing
tissue business also started to gather momentum with
encouraging sales growth and productivity gains.
Sales were down by $833 million in 2019 compared to 2018,
operating income was $17 million in 2019 compared to
$379 million in the previous year, and adjusted EBITDA was
$213 million compared to $574 million in 2018. Our 2019
financial performance was significantly affected by lower
selling prices, particularly for wood products and market pulp,
followed by: higher manufacturing costs, due mostly to higher
fiber costs and additional maintenance; the lost contribution
from divested assets, including the Catawba (South Carolina)
and Fairmont (West Virginia) mills; the net unfavorable impact
of closure costs, impairments and net gain on disposition
of assets; and a decrease in overall shipments. These
items were only partially offset by: lower depreciation and
amortization; the favorable impact of the weaker Canadian
dollar; lower selling, general and administrative expenses;
and favorable freight costs.
Most business segments generated less EBITDA in 2019:
$62 million for market pulp, compared to $199 million in 2018;
$28 million for wood products, down from $201 million;
$78 million for newsprint, down from $140 million; and
$76 million for specialty papers, down from $87 million.
But our tissue business posted EBITDA of $2 million, a
$17 million improvement over 2018.
We generated $85 million of cash from operating activities
in 2019, compared to $435 million in the previous year.
The decrease is almost all attributable to lower profitability,
partially offset by lower major maintenance and interest
payments, and pension contributions.
In 2019, the company repurchased 4.8 million shares of
common stock – over 5% of the total outstanding – for
$24 million as part of our initiatives to return capital to
shareholders. In order to deleverage our balance sheet, we
also redeemed $225 million of our senior notes due 2023
in the first quarter with a portion of the proceeds from the
divestiture of the Catawba mill. In October, we amended
and restated our existing senior secured credit agreement
to extend its maturity and upsize the facility by $175 million,
to $360 million, and at very competitive rates, flexible terms
and maturities of up to 13 years. The facility is another tool
to further enhance our financial flexibility in the execution
of our strategic transformation initiatives.
We made $113 million of capital expenditures in the year,
and $59 million of softwood lumber duty deposits, for
cumulative deposits of $162 million as of year-end. The net
pension and other postretirement benefit liability on the
balance sheet as of December 31, 2019, increased by over
$200 million from 2018, to $1.5 billion, due to a decrease
in applicable discount rates. Total liquidity stood at a solid
$583 million at year-end, including the extended and upsized
senior secured credit facility.
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. EBITDA is not a financial measure recognized under GAAP; see note 1 on page 31 of the Form 10-K.
Operational and corporate highlights
On February 1, 2020, we acquired three sawmills in
Cross City (Florida), and Glenwood and El Dorado (Arkansas)
for $175 million, including working capital. The facilities have
a combined annual production capacity of up to 550 million
board feet of construction-grade dimension lumber and
decking products. This transaction will give us scale in an
attractive region, with quality assets in a rich fiber basket.
When operating to capacity, almost 25% of Resolute’s
lumber production will be in the U.S. South.
In January 2020, we announced the construction of a
commercial plant to produce cellulose filaments, a new
sustainable biomaterial derived from wood fiber, at our
Kénogami (Quebec) paper mill, as well as the optimization
of the mill, for a total investment of C$38 million. Cellulose
filaments can be integrated into commercial and consumer
products for many industries, including transportation,
construction and energy, increasing the resistance and
durability of those products. Our efforts to modernize the
mill will enhance Kénogami's short-term competitiveness,
enabling it to produce high-grade SCA+ supercalendered
paper and access more favorable markets.
In May 2019, in partnership with a leading industry research
organization, we inaugurated a thermomechanical pulp (TMP)
bio-refinery plant at our Thunder Bay (Ontario) pulp and paper
mill. We are developing new ways to efficiently manufacture
and market innovative wood-based biochemical products,
such as wood adhesives, animal feed and composites.
In November, we made the difficult decision to indefinitely idle
the paper mill in Augusta (Georgia) as a result of the decline
in North American newsprint consumption. The decision
allows us to focus production on our more competitive mills,
and to eliminate substantial fixed costs associated with
surplus capacity. We also closed our administrative office in
Plattsburgh (New York), consolidating corporate functions,
and downsized the office space at our Montreal (Quebec)
headquarters, reducing costs.
Human resources highlights
Resolute has a steadfast commitment to maintaining
the highest safety standards possible – for us, this is an
absolute priority. In 2019, we continued to build on our
world-class performance, achieving an Occupational
Safety and Health Administration (OSHA) incident rate of
0.49. This is clearly the result of the coordinated efforts of
our thousands of employees, who are helping create an
injury-free workplace. We are especially proud that over
half of our operations worked the full year without a single
recordable injury. The company-wide severity rate, however,
was 22.3 compared to the lowest-ever rate of 15.7 achieved
in 2018. We will continue to work diligently to reduce
the severity of injuries and to enhance our safety culture
through leadership and individual accountability.
In an industry facing significant labor shortages, we have
become an employer of choice by fostering a safe and
inclusive workplace environment, and by providing our
employees with opportunities to maximize their potential.
In 2019, we ramped up our recruitment efforts, attracting
1,046 new and diverse employees through our social
media presence, career events and job boards, forest
and operations tours for students, and international
recruitment initiatives. We also partnered with educational
institutions in innovative college-level programs, such
as Cégep de St-Félicien’s (Quebec) Instrumentation,
Automation and Robotics program, and Confederation
College’s (Thunder Bay, Ontario) Technology, Education
and Collaboration Hub.
During the year, we renewed 15 collective agreements with
unions, covering approximately 1,300 employees across
our operations. We signed an additional 12 collective
agreements covering 700 employees that will take effect
in 2020. These mutually beneficial agreements enhance
Resolute’s operational stability and ensure the long-term
competitiveness of our business.
Sustainability leadership
Resolute’s sustainability strategy is based on a balanced
approach to environmental, social and economic
performance. In 2019, we continued reducing our carbon
and environmental footprints, stewarding the natural
resources in our care, and building solid community relations.
We maintained third-party certification of 100% of Resolute-
owned or managed woodlands to internationally recognized
forest management standards, as well as fiber-tracking
systems with chain of custody certification. We continued
to report climate, water and forest data to CDP a global
disclosure organization for investors, companies, cities,
states and regions, receiving “B” (management) scores
in all three categories.
Ongoing modernization and optimization initiatives
at our operations are helping further reduce our carbon
footprint. We are pleased to report that Resolute’s absolute
greenhouse gas (GHG) emissions (scope 1 and 2) are
down by 83% compared to 2000 levels.
In August 2019, we completed the company-wide initiative
launched the previous year to phase out approximately
1.7 million single-use plastic bottles of water and rehydration
drinks annually.
These initiatives, both big and small, are the reason we
continue to be recognized for our sustainability leadership.
In 2019, Resolute earned 28 awards and distinctions from
regional, North American and global organizations for
excellence in corporate social responsibility and sustainable
development, as well as for our business practices.
In the area of corporate philanthropy, we focus our
contributions on two pillars of sustainable development:
social (community health and education) and environmental
(community projects and education). Our 2019 donations
and sponsorships – at both the corporate and local levels –
totaled over $1.3 million, and we contributed $402,000 toward
scholarships and research grants. Our deep community
roots are reflected by our civic-minded employees, who
each year generously volunteer their time to give back to the
communities where they live, work and raise their families.
A look ahead
We see stronger operating rates, especially for softwood
pulp, as an indicator of long-term demand growth for
quality market pulp, despite the cyclical pricing weakness
that weighed against our 2019 results. Based on growing
momentum in U.S. housing starts, the improving pricing
environment and our recent acquisition of three U.S. sawmills,
we are excited with the path forward in wood products. For
tissue, we see progressive earnings growth in 2020. But the
outlook for our paper segments is modest given sustained
pricing pressures and low operating rates. In order to support
the evolution of Resolute’s transformation strategy, we will
continue to optimize our assets, drive efficiencies across
our operational footprint to further lower costs and deliver
competitive returns across business cycles.
Our key business priorities for 2020 include enhancing
our world-class safety performance, and implementing
workforce attraction and retention initiatives. We will focus
on the rapid integration of the U.S. sawmills, and build on
recent improvements in our tissue business. We will optimize
operational performance and avoid production disruptions
across our network. We will also focus on maximizing
value generation from existing assets, reducing costs and
strengthening our competitiveness. Finally, we will focus
on acquisitions and organic opportunities to further our
business transformation.
At the time of writing this letter, we are acutely aware of
Covid-19 and its evolving impact on people and overall
business conditions across the globe. Resolute is closely
monitoring developments and reviewing our preparedness
plans. We will make the necessary accommodations to
support the health and well-being of our people and
to protect the integrity of our business.
When we look to the future – in the years and decades ahead
– wood fiber will replace so much of what today is petroleum-
based. We are now developing and commercializing an
innovative portfolio of assets, taking advantage of growing
and developing markets. Resolute is embracing innovation
and is proud to be at the cutting edge of wood fiber
transformation.
On May 1, 2020, Resolute will celebrate its 200th anniversary.
Through vision, determination and expansion – and thanks
to the unwavering support of our employees, customers,
investors, operating communities, and business and
Aboriginal partners – we have built one of the most respected
and sustainable forest products companies in the world.
Our pioneering past will help us transform our future, and
it is truly our honor to lead Resolute into its third century.
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, 2019
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
Montreal
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)
RFP
(Trading Symbol)
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 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 28, 2019) was $429 million.
As of January 31, 2020, there were 86,694,188 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, 2019, 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
2
9
19
19
20
20
21
23
24
64
66
120
120
120
121
121
122
122
122
123
127
128
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;
future pension obligations; 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, including as a result of the changes to our pension
funding obligations; estimated capital expenditures; 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,” “estimate,” “guide,” “strive,” “continue,” “create,” “plan,” “see,” “seek,” “improve,” “move,” “position,” “build,”
“grow,” “pursue,” 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 wood manufacturing in the
U.S., and tissue production and sales, or divestitures or other strategic transactions or projects; uncertainty or changes in
political or economic conditions in the U.S., 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, attraction 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; the replacement of the London Interbank Offered Rate (or, the “LIBOR”) with an alternative interest rate; 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 the vast majority 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 U.S. 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 U.S.
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”).
Information About our Executive Officers
The following is information about our executive officers as of March 2, 2020:
Name
Age
Position
Yves Laflamme
63 President and Chief Executive Officer
Lori Kilgour
John Lafave
49 Senior Vice President, Process Improvement and Chief Information Officer
55 Senior Vice President, Pulp and Paper Sales and Marketing
Remi G. Lalonde
43 Senior Vice President and Chief Financial Officer
Patrice Minguez
56 President, Tissue Group
Daniel Ouellet
49 Senior Vice President, Human Resources
Luc Thériault
48 Senior Vice President, Wood Products
Richard Tremblay
56 Senior Vice President, Pulp and Paper Operations
Jacques P. Vachon
60 Senior Vice President, Corporate Affairs and Chief Legal Officer
Officer
Since
2007
2019
2018
2018
2017
2018
2019
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 39-year veteran of the industry, as well as of Resolute
and its predecessor companies.
Ms. Kilgour previously served as vice president, information technology, from July 2017 to May 2019, as vice president and
program director from July 2015 to July 2017, and as vice president, operational excellence, engineering and energy, from
January 2013 to July 2015. Prior to joining Resolute in 2013, she worked at Tembec, Verso Corporation/International Paper and
Catalyst.
Mr. Lafave previously served at Abitibi as vice president, sales, national accounts – paper sales, vice-president, sales, national
accounts – newsprint, vice president, sales, national accounts – commercial printers, and executive sales representative from
2003 to 2009. Prior to joining Resolute, 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., a tissue business, 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
2
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. Thériault was previously division vice president, wood products – sales and fiber supply, from February 2018 to May 2019.
He held a range of other positions since he joined Resolute in April 2002, including vice president, information technology, and
vice president, finance – wood products, supply chain and information technology. He also held a number of progressive
positions in finance. Prior to joining the Company, Mr. Thériault worked at St-Laurent Paperboard and Smurfit Stone Container
Corporation.
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.
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 1.4 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 a
leading global producer. Approximately 75% 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. 26% of our
2019 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 10 converting lines. We manufacture a range of
tissue products for the away-from-home and at-home markets, including 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 2019,
we shipped 1.6 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.
On February 1, 2020, we completed the acquisition of three sawmills in the U.S. South, with combined production capacity of
550 million board feet once ramped-up. For more information, see Note 21, “Subsequent Event,” 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.
Newsprint
We produce newsprint at six facilities in North America. With total capacity of 1.3 million metric tons, which represents 6% of
total worldwide capacity and 32% of total North American capacity, we are a leading global producer of newsprint. We sell
3
newsprint to newspaper publishers worldwide and also to commercial printers in North America for uses such as inserts and
flyers. In 2019, North American deliveries represented 62% 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 22% 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 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.
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, 2019, excluding facilities and machines that have been permanently closed or indefinitely idled as of
December 31, 2019. The table presents our total 2019 production by product line (which represents all of our reportable
segments except wood products), reflecting the impact of any downtime taken in 2019, and our 2020 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)
U.S. (1)
Calhoun (Tennessee)
Coosa Pines (Alabama)
Grenada (Mississippi)
Hialeah (Florida)
Menominee (Michigan)
Sanford (Florida)
Other
Indefinitely idled facility (2)
Number of
Machines
2020
Total
Capacity
2019
Total
Production
2019 Production By Product Line
Market
Pulp
Tissue
Newsprint
Specialty
Papers
3
1
2
1
1
1
1
1
2
3
1
1
2
1
1
341
194
322
221
140
197
132
365
527
391
265
229
32
170
27
312
193
258
174
119
199
126
329
485
317
265
225
28
159
25
—
—
9
—
—
—
—
329
312
142
265
—
—
159
—
22
3,553
117
3,331
—
1,216
—
—
—
—
—
—
—
—
—
43
—
—
28
—
25
—
96
—
192
249
174
—
199
—
—
168
—
—
225
—
—
—
117
1,324
312
1
—
—
119
—
126
—
5
132
—
—
—
—
—
—
695
(1)
(2)
We own through a subsidiary a 40% interest in Ponderay Newsprint Company, an unconsolidated partnership located
in Usk (Washington), which is not included in the above table since we no longer operate as managing partner.
In 2019, we indefinitely idled our paper mill at Augusta (Georgia). For additional information, see Note 3, “Closure
Costs, Impairment and Other Related Charges,” to our Consolidated Financial Statements.
4
Wood products facilities
The following table lists the sawmills we owned or operated as of December 31, 2019, excluding facilities that have been
permanently closed as of December 31, 2019. The table presents our total 2019 production, reflecting the impact of any
downtime taken in 2019, and our 2020 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) (2)
Maniwaki (Quebec)
Mistassini (Quebec)
Obedjiwan (Quebec) (3)
Pointe-aux-Outardes (Quebec)
Saint-Félicien (Quebec)
Saint-Thomas (Quebec)
Senneterre (Quebec)
Thunder Bay (Ontario)
2020
Total Capacity (1)
145
145
220
115
198
186
204
209
65
184
174
93
167
330
2019
Total Production
119
71
212
19
181
104
107
209
53
108
101
43
133
265
2,435
1,725
(1)
(2)
(3)
On February 1, 2020, we acquired from Conifex Timber Inc. all of the equity securities and membership interests in
certain of its subsidiaries, the business of which consists mainly in the operation of three sawmills and related assets in
Cross City (Florida) and in Glenwood and El Dorado (Arkansas), with combined production capacity of 550 million
board feet. When operating to capacity, almost 25% of our lumber production will be in the U.S. South. For more
information, see Note 21, “Subsequent Event,” to our Consolidated Financial Statements.
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 sawmill’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 sawmill’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, 2019, and their respective 2020 capacity and 2019 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)
2020
Total Capacity
2019
Total Production
66
16
82
145
45
44
14
58
127
36
(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
5
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 U.S.
Sales of these other products are considered a recovery of the cost of manufacturing our primary products.
We also have a 49% interest in Serres Toundra 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 2020.
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, 2019, 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, 2019. 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. The prices generated by the auction system are used to set
pricing for the remainder of the AAC. The timber requirements for our U.S. sawmills are met mostly by purchasing timber
harvested by timberland owners.
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 2019, we successfully maintained SFI forest management certifications for all of our managed
woodlands in Quebec and Ontario. We also continued to maintain the 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 certified in 2020, and of our three recently acquired sawmills
in the U.S. South. 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, and of
our three recently acquired sawmills in the U.S. South.
6
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.
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 2019, the Alma, Calhoun, Coosa Pines, Dolbeau, Gatineau,
Kénogami, Saint-Félicien and Thunder Bay operations collectively consumed 62% 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.
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 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, 2019, 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 the
vast majority 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.
7
In 2019, the five largest North American producers represented 86% of North American newsprint capacity, and the five largest
global producers represented 34% 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 47% of global uncoated mechanical papers capacity in 2019. In addition, imports from overseas
accounted for 11% of North American uncoated mechanical paper demand in 2019. 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 our customers’ products. 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 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, 2019, we employed approximately 6,700 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 1,200 employees in Canada and 800 employees in the U.S.
Collective agreements covering approximately 300 employees in Canada have expired, involving certain Canadian sawmills
and a Canadian paper mill, and additional collective agreements covering approximately 500 employees in Canada are
scheduled to expire in 2020, involving certain Canadian sawmills.
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 U.S., 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 number of federal or national, state, provincial, and local environmental laws and regulations in various
jurisdictions. 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 U.S. standards. For additional information, see
Note 15, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.
8
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).
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Form 10-K and in other documents we file with the SEC, you should
carefully consider the following factors, amongst others, which could materially affect our business, financial condition, future
results, reputation as well as the market price of our securities. 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, changes to consumption habits, 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 our customers’ products. 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 our paper products has weakened significantly
over the past decade. For example, over the 10 years ended December 31, 2019, according to industry statistics, North
American newsprint demand fell by 60%. This trend, which similarly affects our specialty papers, is expected to 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, retailers, and consumers.
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, research and development, innovation, 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 impact 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 or
meeting customers’ product specifications, 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, wood
products, and tissue products with specific designations to one or more globally recognized forest management, chain of
custody standards and product specifications to meet customers’ requirements. 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
9
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 or meet the product specifications of our customers, 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 is focused on continuing to transform the Company away from mature markets and declining products
toward a more profitable and sustainable organization over the long run. This includes maximizing value generation from
structurally declining 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.
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 wood manufacturing in the U.S., and tissue production
and sales. In connection with any acquisition, divestiture, strategic transaction or project, we may not successfully integrate an
acquired business, assets, technologies, processes, controls, policies, and operations with ours or realize some or all of the
anticipated benefits and synergies of the acquisition, divestiture, strategic transaction or project. In connection with such
transactions, we may face challenges associated with entering into a new market, production location, or product category, such
as our entry into wood manufacturing in the U.S., and tissue production and sales. We may also face issues with the separation
of processes and loss of synergies following the divestiture of businesses. 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, costly, 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 U.S., Canada or other countries in which we sell our products could
adversely affect our results of operations.
We manufacture products in the U.S. 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 and economic instability, including pandemics, 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
10
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
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 primarily use 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. The prices generated by the auction system are used to set pricing for the remainder of the
AAC.
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;
protection of habitats, and endangered or other species, including the woodland caribou;
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 could significantly reduce timber supply to our 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
11
concentrated in one or more regions due to market shifts. The timber requirements for our U.S. sawmills are met mostly by
purchasing timber harvested by timberland owners.
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.
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 facilities.
We also generate electricity for our operations at our hydroelectric facilities. There can be no certainty that we will be able to
maintain the water rights necessary for our hydroelectric power generating facilities, or to renew them on favorable conditions.
The amount of electricity we can generate 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 and availability. 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 could make wildfires more frequent or more severe, and could
adversely affect timber harvesting 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 or occupational health and
safety issues.
As of December 31, 2019, we employed approximately 6,700 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 1,200 employees in Canada and
800 employees in the U.S. Collective agreements covering approximately 300 employees in Canada have expired, involving
certain Canadian sawmills and a Canadian paper mill, and additional collective agreements covering approximately
500 employees in Canada are scheduled to expire in 2020, involving certain Canadian sawmills.
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.
Occupational health and safety issues could also cause disruptions in operations or otherwise affect labor-related costs.
Difficulties in our employee relations or difficulties identifying, attracting, and retaining employees for work, particularly in
remote locations, key positions, or with specialized skills, could lead to operational disruptions 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
12
employee turnover, or difficulty in attracting and retaining employees, particularly for work in remote locations, key positions,
or positions with specialized skill sets, could lead to operational disruptions 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 and cost-efficient 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, accidental release of toxic materials, severe weather and natural disasters, mechanical and power failures, structural
failures at any of our dams or hydroelectric facilities, supplier disruptions, labor shortages or other difficulties, public health
epidemics, 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 used to manage our operations and other business
processes, including cybersecurity incidents that could involve sensitive company, employee, customer, vendor, and
shareholder information.
We use information technology to securely manage operations and various business functions. We rely on various technologies
to process, store, and report on our business and interact with employees, customers, vendors, and shareholders. 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. A cybersecurity breach
could result in operational disruptions or the misappropriation of sensitive data or personal information 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, business interruptions, and unanticipated increases in costs. Further, our
ability to achieve anticipated operational benefits from new platforms is not assured.
13
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, social and corporate governance, 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.
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, as well as 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 of 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 2018 and 2019, the Canadian
dollar fluctuated between a low of US$0.73 in December of 2018 and a high of US$0.82 in February of 2018. Based on
operating projections for 2020, 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 $19 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, 2019, we had net pension obligations of $1,326 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 13, “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, the payments of benefits, 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
14
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 regulators, including Canadian provincial pension regulators, could attempt to compel additional funding
of certain of our pension plans, including our Canadian registered pension plans, in respect of plan members associated with
sites we formerly operated. 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 in which any deficit within those plans, which could reach up to C$150 million ($115 million), 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, comply with environmental laws, and innovate to remain competitive. 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, and changes relating to LIBOR could impact our borrowings under these
facilities.
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, borrowing, 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 12, “Long-Term Debt,” to our Consolidated Financial Statements.
A breach of the covenants under the ABL Credit Facility, the Senior Secured Credit Facility, or 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; unable to compete effectively or
to take advantage of new business opportunities; or forced to sell assets.
In addition, our borrowings under the ABL Credit Facility and the Senior Secured Credit Facility bear interest at variable rates,
primarily based on LIBOR as the reference rate. LIBOR is subject to national and international proposals for reform that may
cause LIBOR to cease to exist after 2021 or to perform differently than in the past. While we expect that reasonable alternatives
to LIBOR will be available, we cannot predict the consequences and timing of the development of alternative reference rates,
and the transition to an alternative reference rate could result in an increase in our interest expense.
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, general liability, casualty, and other types of insurance, including
environmental liability, that we believe are in accordance with customary industry practices, but we are not fully insured
15
against all potential hazards inherent in our business, including losses resulting from human error, cybersecurity issues, 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 curtail production, shut down machines or facilities, restructure operations, or sell non-core assets,
which could result in recording significant additional closure costs and long-lived asset impairment or accelerated
depreciation charges.
As part of our transformation strategy, and in response to changing market dynamics and structurally declining demand for
some of our products, it may be necessary to further curtail production, permanently shut down machines and facilities,
restructure operations, or sell non-core assets. In addition to the potential loss of production, curtailments and shutdowns could
result in asset impairments, accelerated depreciation, and closure costs for the affected facilities, including restructuring
charges, exit or disposal costs, and remediation and other environmental 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 severance, additional pension contributions, or wind-up deficiencies.
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, 2019. 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 provision 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 or suppliers; and compliance with governance policies
and procedures, such as those relating to financial reporting and disclosure obligations, 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 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
16
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, should be 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 Canada, and until it is, there may remain some uncertainty. 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 the vast majority of our U.S. imports of softwood lumber
products produced at our Canadian sawmills, which could materially affect our operations and cash flows.
The vast majority 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.
On January 31, 2020, Commerce issued its preliminary determination in the countervailing duties and anti-dumping
administrative reviews and established our new preliminary rates at 14.86% for countervailing duties and 1.18% for anti-
dumping duties, which will not be effective until the issuance of the final determinations. Through December 31, 2019, our
aggregate cash deposits paid to the U.S. for all affected products totaled $162 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 incur or 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
17
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, or introduction of new laws and regulations, 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.
As an owner of real estate and manufacturing and processing facilities, we could be required to incur or 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 exposure, 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 or waste. 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 incur or 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 U.S., 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, as well as result in a default under certain of our financing
agreements, each of 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, transactions, 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,
intellectual property, financial reporting and disclosure obligations, corporate governance, First Nations claims, antitrust,
18
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 15, “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, and
changes relating to LIBOR could impact our borrowings under these facilities” 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, shareholders, governments or governmental agencies, activists and others. Even if such a matter does not
involve a 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, machinery,
chemical equipment, office equipment, and rail cars, 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 10, “Operating Leases” and Note 15, “Commitments and Contingencies – Commitments,” 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 as of December 31, 2019, 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. On November 13, 2019, a
legal hypothec in the amount of C$30 million ($23 million) was registered on our Saint-Félicien immovable and movable
property, for more information see Note 15, “Commitments and Contingencies – Legal matters – Fibrek acquisition,” to our
Consolidated Financial Statements.
19
ITEM 3. LEGAL PROCEEDINGS
See the description of our material pending legal proceedings in Note 15, “Commitments and Contingencies – Legal matters,”
to our Consolidated Financial Statements, which is incorporated in this “Item 3 – Legal Proceedings” by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
20
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, 2020, there were
2,924 holders of record of our common stock.
We did not declare or pay any dividends on our common stock in 2019. While we do not currently pay regular dividends on our
common stock, we declared and paid a special dividend of $1.50 per share ($136 million) on our common stock in 2018. 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 Note 12, “Long-Term Debt,” to our Consolidated
Financial Statements.
With our repurchase of 4.8 million shares at a cost of $24 million during the year ended December 31, 2019, we completed our
$150 million share repurchase program, which was launched in 2012. We did not repurchase any shares during 2018 and 2017.
The following table sets forth information about our stock repurchases for the three months ended December 31, 2019:
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
—
1,286,877
1,712,412
2,999,289
$
$
$
$
—
3.94
4.05
4.00
—
1,286,877
1,712,412
2,999,289
Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or
Programs (1)
12,000,000
$
$
$
$
6,927,000
—
—
Period
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
(1)
$150 million share repurchase program launched in 2012.
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.
21
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 and the Peer Group (as defined below), since
December 31, 2014. The graph tracks the performance of a $100 investment in our common stock, in the S&P 500 index, and
in the Peer Group on December 31, 2014 (with the reinvestment of all dividends) to December 31, 2019. The stock price
performance included in the graph is not necessarily indicative of future stock price performance.
(1)
(2)
The information contained in this stock performance graph shall not be deemed to be “soliciting material” or “filed” or
incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended (or, the “Exchange Act”), except to the extent that we specifically incorporate it by
reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act.
The group of individual peer companies comprising the peer group (or, the “Peer Group”) are: Clearwater Paper
Corporation, Domtar Corporation, Verso Corporation, Mercer International Incorporated, Rayonier Advanced
Materials, Canfor Corporation, Conifex Timber Incorporated, Interfor Corporation, and West Fraser Timber Company
Limited. Orchids Paper Products Company, which was previously included in the Peer Group, is no longer considered
in the Peer Group as it was acquired in 2019.
22
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, 2019, 2018 and 2017, and as of December 31, 2019 and 2018, 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.
(In millions, except per share amounts)
Statement of Operations Data
Sales
Operating income (loss)
Net (loss) income including noncontrolling interests
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
Dividend declared per common share
Segment Sales Information
Market pulp
Tissue
Wood products
Newsprint
Specialty papers
Statement of Cash Flows Data
Net cash provided by operating activities
Cash invested in fixed assets
Disposition of assets
Years Ended December 31,
2019
2018
2017
2016
2015
$ 2,923
$
$
$
17
(47)
(47)
$ 3,756
$ 379
$ 235
$ 235
$ 3,513
42
(78)
(84)
$
$ 3,545
(18)
(76)
(81)
$
$
$ 3,645
$ (169)
$ (255)
$ (257)
$ (0.51)
$ 2.57
(0.93)
$ (0.90)
$ (2.78)
$ (0.51)
$ 2.52
$ — $ 1.50
(0.93)
$ (2.78)
$ (0.90)
$ — $ — $ —
$ 797
$ 1,085
$ 911
$ 836
$ 889
165
616
773
572
130
823
907
811
81
797
842
882
89
596
1,009
1,015
11
536
1,105
1,104
$ 2,923
$ 3,756
$ 3,513
$ 3,545
$ 3,645
$
85
$ 113
$
3
$ 435
$ 155
$ 336
$ 158
$ 164
$
21
$
81
$ 249
$
5
$ 138
$ 185
$ —
(In millions, except otherwise indicated)
2019
2018
2017
2016
2015
As of December 31,
Financial Position
Fixed assets, net
Total assets
Total debt
Additional Information
Number of employees
$ 1,459
$ 3,626
$ 449
$ 1,515
$ 3,935
$ 645
$ 1,716
$ 4,147
$ 789
$ 1,842
$ 4,227
$ 762
$ 1,810
$ 4,220
$ 591
6,700
7,400
7,700
8,300
8,000
23
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, the largest producer of uncoated mechanical papers in North America, and a
competitive pulp producer in North America. We are also a leading global producer of newsprint and an emerging tissue
producer.
We report our activities in five business segments: market pulp, tissue, wood products, newsprint and specialty papers. We
believe an integrated approach across these segments maximizes value creation for our Company and stakeholders.
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 and cost-effective operations, including significant internal energy production from cogeneration
and hydroelectric facilities, which support our value proposition;
control over fiber transformation chain from standing timber to end-product for the majority of our offering;
nearly 100% of our products sourced from high-quality virgin fiber;
harvesting rights for the majority of fiber needs in Canada; and
sophisticated logistics capabilities to meet demanding customer expectations.
•
Solid balance sheet
–
–
–
favorable pricing and flexibility under borrowing agreements together with our liquidity levels support ability
to weather challenging market cycles and to execute transformation strategy;
significant tax assets to defer cash income taxes and provide synergies to execute this strategy; and
customers benefit from a financially stable and reliable business partner in a challenging industry.
•
Seasoned management team
–
–
–
deep industry expertise, with influential leaders in forestry, operations, environmental risk management and
public policy;
culture of accountability, encouraging transparency and straightforwardness; and
core identity tied to renewable resources we harvest in a truly sustainable manner.
24
Our Business
Products
For information on our products, see Part I, Item 1, “Business – Products” of this Form 10-K.
Strategy and highlights
Our corporate strategy is focused on continuing to transform the Company away from mature markets and declining products
toward a more profitable and sustainable organization over the long run, founded on a competitive portfolio of manufacturing
assets and a solid presence in long-term growth markets. Our strategy is based on maximizing value generation from
structurally declining 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 – newsprint and specialty papers – remain an important part of our business, generating cash to help finance
our transformation strategy. In order to remain competitive in mature and declining 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
Market pulp and wood products are core segments for the Company, and we believe in their long-term, sustained growth
potential. We are confident in our ability to generate attractive returns for shareholders as operators of these assets. Our strategy
is to take an opportunistic approach to these strategic initiatives, such as:
•
•
•
spending to improve productivity and/or lower costs;
investing selectively in organic expansions; and
pursuing opportunistic strategic acquisitions.
For example, we recently completed the acquisition of three sawmills in the U.S. South, with combined production capacity of
550 million board feet once ramped-up. The transaction will give us immediate scale in an attractive region, with quality assets
in a rich fiber basket, close to growing end-markets, and it gives us an opportunity to create value by deploying our operational
expertise in sawmilling, with a focus on reliability, productivity and safety. We plan to pursue capital investments started under
the previous owner, to maintain appropriate working capital, and to upgrade maintenance practices.
Integrating our pulp into value-added quality tissue
We entered the tissue market in 2015 with the construction of a greenfield tissue facility at our Calhoun (Tennessee) site and the
acquisition of two tissue mills and a recovered paper facility in Florida. The purpose of our diversification into tissue is to add
value with the integration of our market pulp, particularly as printing and writing demand for pulp continues to decline. We also
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 is transferred directly 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 mostly sells converted products that target the fast growing premium private-label
markets in the U.S.
25
Investing in product innovation
Fiber from trees is renewable, reusable and fossil-free, and we believe that it can serve as a core pillar in the ongoing shift away
from fossil-based materials toward renewable alternatives. With our large-scale access to high-quality fiber, our expertise in
managing its value-transformation chain and our strategically-located manufacturing facilities, we believe in investing in our
business to build a competitive forest products company for the future.
For example, today we manufacture wood pellets used in renewable energy production from sawmill byproducts and, in
partnership with a leading industry research organization, we recently launched an innovative pilot bio-refinery plant to
produce lignin and cellulosic sugars for uses such as wood adhesives, animal feed and composites. In early 2020, we also
announced the construction of a commercial plant to produce cellulose filaments, a new sustainable biomaterial derived from
wood fiber that can be integrated into commercial and consumer products for many industries, including transportation,
construction and energy, increasing the resistance and durability of those products. The cellulose filaments will be marketed
with the help of Performance BioFilaments Inc., a joint venture established in 2014 by Resolute and Mercer International Inc.,
dedicated to the development of non-traditional applications for cellulose filaments.
We see certain megatrends around evolving customer preferences toward more renewable alternatives, urbanization and
demographic changes that could open opportunities for our Company in value-added engineered wood products to capitalize on
the growing role of wood in multi-family residential and commercial construction, as well as innovative fiber-derived products.
Disciplined approach to capital allocation
As we operate in a capital-intensive and cyclical industry, we believe that the proper allocation of capital is a top priority, and
that it should be done in a disciplined manner, with a view to maximize free cash flow through the business cycle and to
generate attractive returns for our shareholders. Accordingly, we:
•
•
•
•
spend our capital in a disciplined, strategic and focused manner, concentrating on our most competitive sites and the
highest-return projects;
explore value-creating opportunities to divest idled, non-core or marginal operations;
seek to maintain conservative debt levels and solid 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.
26
Here is a summary of some of our key strategic initiatives since 2012:
(1)
(2)
(3)
(4)
(5)
By acquiring Fibrek Inc. (or, “Fibrek”), 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 Paper Holdings Inc. and its subsidiaries (or, “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.
The acquisition of three sawmills in the U.S. South from Conifex Timber Inc., with combined production capacity of
550 million board feet, gives us immediate scale in an attractive region, with quality assets in a rich fiber basket, close
to growing end-markets. The facilities produce construction-grade dimensional lumber and decking products from
locally sourced southern yellow pine for distribution within the U.S.
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.
27
Our recent key sustainability achievements include:
• Beating our safety target by achieving an Occupational Safety and Health Administration incident rate of 0.49 in 2019.
Safety is our first priority, and we strive for zero injuries.
• Achieving an 83% reduction in absolute greenhouse gas (or, “GHG”) emissions (scope 1 and 2), below 2000 levels.
•
Inaugurating a C$23 million biorefinery plant at our Thunder Bay pulp and paper mill in partnership with
FPInnovations. The initiative is focused on developing new ways to efficiently produce and commercialize innovative
biochemicals derived from wood.
• Announcing a C$27 million project to establish a commercial plant specializing in the production of cellulose
filaments, a sustainable biomaterial derived from wood fiber, at our Kénogami (Quebec) paper mill.
• Continuing implementation of a $45 million strategic investment plan at our Saint-Félicien pulp mill to improve 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.
•
Increasing facilities’ energy efficiency and lowering GHG emissions, including initiatives at our Alma (Quebec) and
Kénogami specialty paper mills to optimize boiler performance for a reduction of 6,000 metric tons of CO2
equivalents per year, as well as our Baie-Comeau newsprint mill to increase control of combustion for a 50%
reduction in oil usage, or approximately 4,000 metric tons of CO2 equivalents per year.
• Deploying a carbon capture unit and ancillary equipment at our Saint-Félicien pulp mill to improve growth rates at
Serres Toundra Inc. 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®”). As a result, 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 manufacturing 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 certified in 2020.
• Launching our regional procurement web portal to support the development of local and regional business in our
operating communities as part of our commitment to further integrate sustainability practices in our procurement
process.
• Appointing Suzanne Blanchet as a member of our board of directors and chair of the Environmental, Health and
Safety Committee.
• 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 environmental management by beating our environmental
incidents target (class 1 and 2) by recording 18 environmental incidents in 2019.
• Maintaining 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 continued
to expand the scope of our social media presence as well as 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
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’s GRI Standards are available on our website (www.resolutefp.com). Such sustainability disclosures on our
28
website are 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.
Our leadership and sustainability accomplishments have been recognized by independent organizations. In 2019, we received
extensive regional, North American and global recognition for our sustainability achievements. Some of the more noteworthy
included:
•
the Business Intelligence Group Sustainability Award, in the Sustainability Initiative of the Year category (August 1,
2019);
• Canada’s 2020 Clean50 and 2020 Clean16 (www.clean50.com), for our President and Chief Executive Officer’s
contribution to sustainability and clean capitalism in Canada (October 3, 2019);
•
•
three gold International Business Awards (known as the “Stevies®”), for Energy Industry Innovation of the Year,
Company of the Year – Manufacturing (Large) and Corporate Social Responsibility Program of the Year for the U.S.
and Canada (October 19, 2019); and
the American Forest and Paper Association’s Leadership in Sustainability Award, in the Energy Efficiency/Greenhouse
Gas Reduction (Large Company) category (November 11, 2019).
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 2020)
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
25
170
25
330,000
154,000
1,117,000
197,000
We estimate that the approximate annualized cost savings to our operations attributable to internal consumption from our
cogeneration assets and hydroelectric facilities is between $35 million and $40 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
195,000
108,000
287,000
397,000
External sales generated from our cogeneration assets reduced cost of sales, excluding depreciation, amortization and
distribution costs (or, “COS”), by $36 million, $37 million and $40 million for the years ended December 31, 2019, 2018 and
2017, respectively.
29
2019 Overview
ASU 2016-02 “Leases”
Effective January 1, 2019, we adopted Accounting Standards Update (or, “ASU”) 2016-02, “Leases,” issued by the Financial
Accounting Standards Board, and the series of related accounting standard updates that followed, through a cumulative-effect
adjustment as of that date. For more information, including the effect on our Consolidated Balance Sheet as of January 1, 2019,
refer to Note 2, “Summary of Significant Accounting Policies – New accounting pronouncements adopted in 2019,” to our
Consolidated Financial Statements.
Long-term debt
On January 3, 2019, we repurchased $225 million in aggregate principal amount of our 5.875% senior unsecured noted due
2023 (or, the “2023 Notes”). On May 14, 2019, we entered into an amendment to our senior secured asset-based revolving
credit facility (or, “ABL Credit Facility”), providing for an extension of the maturity date to May 14, 2024, and representing a
voluntary reduction of the aggregate lender commitment of $100 million. On October 28, 2019, we entered into an amended
and restated senior secured credit facility for up to $360 million, replacing our existing $185 million senior secured credit
facility. See below under “Liquidity and Capital Resources – Capital Resources” for more information.
Fibrek litigation
On September 26, 2019, the Quebec Superior Court in Canada rendered a decision fixing the fair value of the shares of the
dissenting Fibrek shareholders at C$1.99 per share, or C$31 million in aggregate, plus interest and an additional indemnity, for
a total currently estimated at C$44 million ($33 million) payable in cash. As previously reported, we accrued C$14 million
($10 million) for the payment of the dissenting shareholders’ claims. Following the court decision, we have accrued an
additional C$30 million ($23 million), and as a result recorded $23 million in “Other (expense) income, net” in our
Consolidated Statement of Operations for the year ended December 31, 2019. Of the total amount of C$44 million,
C$19 million ($14 million) was payable immediately and paid on October 2, 2019, bringing the remaining balance to
C$25 million ($19 million), which is recorded in “Other liabilities” in our Consolidated Balance Sheet as of December 31,
2019. We are appealing the decision, therefore the payment of any additional consideration and its timing will depend on the
outcome of the appeal.
Share repurchase program
With our repurchase of 4.8 million shares at a cost of $24 million during the year ended December 31, 2019, we completed our
$150 million share repurchase program.
Indefinite idling of Augusta mill
In November 2019, we announced the indefinite idling of the Augusta (Georgia) mill, with newsprint capacity of 214,000
metric tons, as a result of the decline in North American newsprint consumption. We took 158,000 metric tons of temporary
downtime in newsprint in 2019; the decision allows us to focus production on fewer, more competitive mills and to eliminate
fixed costs associated with surplus capacity. As a result of the indefinite idling of the Augusta mill, we recorded accelerated
depreciation of $8 million and severance and other costs of $10 million (recorded in “Closure costs, impairment and other
related charges” in our Consolidated Statement of Operations for the year ended December 31, 2019), as well as inventory
write-downs of $13 million (recorded in “Cost of sales, excluding depreciation, amortization and distribution costs” in our
Consolidated Statement of Operations for the year ended December 31, 2019).
Business acquisition
On February 1, 2020 (or, the “Closing Date”), we acquired from Conifex Timber Inc. all of the equity securities and
membership interests in certain of its subsidiaries, the business of which consists mainly in the operation of three sawmills and
related assets in Cross City (Florida) and in Glenwood and El Dorado (Arkansas) (or, the “U.S. Sawmill Business”). The fair
value of the consideration, paid in cash at the Closing Date, for the U.S. Sawmill Business acquired was $175 million, subject
to post-closing working capital adjustments. We financed the acquisition by borrowing $175 million under our revolving credit
facilities. For more information, see Note 21, “Subsequent Event,” to our Consolidated Financial Statements.
30
2019 vs. 2018
Our operating income was $17 million during the year, compared to $379 million in 2018. Excluding special items, we
generated operating income of $46 million in 2019, compared to $362 million in 2018. Special items are described below.
Our net loss in 2019 was $47 million, or $0.51 per share, compared to net income of $235 million, or $2.52 per diluted share, in
2018. Our net loss for 2019, excluding special items, was $46 million, or $0.50 per share, compared to net income of
$183 million, or $1.96 per diluted share, in 2018.
Year Ended December 31, 2019
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
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 credits
Other expense, net
Income tax effect of special items
Adjusted for special items (1)
Year Ended December 31, 2018
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
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 income, net
Income tax effect of special items
Adjusted for special items (1)
Operating
Income
$
17
Net Loss
(47)
$
EPS
$ (0.51)
18
13
(2)
—
—
—
46
$
18
13
(2)
(47)
22
(3)
(46)
$
0.19
0.14
(0.02)
(0.51)
0.24
(0.03)
$ (0.50)
Operating
Income
Net Income
$
379
$
235
$
121
(1)
8
(145)
—
—
—
121
(1)
8
(145)
(50)
(5)
20
EPS
2.52
1.30
(0.01)
0.09
(1.55)
(0.54)
(0.06)
0.21
$
362
$
183
$
1.96
(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 U.S. generally accepted accounting principles (or,
“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 as closure costs, impairment and other related charges,
inventory write-downs related to closures, start-up costs, and gains and losses on disposition of assets 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 non-operating pension and other postretirement benefit
(or, “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 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.
31
Fourth Quarter Overview
Three months ended December 31, 2019 vs. December 31, 2018
Our operating loss was $69 million in the quarter, compared to operating income of $75 million in the year-ago period.
Excluding special items, we incurred an operating loss of $39 million in the quarter, compared to operating income of
$54 million in the year-ago period. Special items are described below.
Our net loss in the quarter was $71 million, or $0.79 per share, compared to net income of $36 million, or $0.38 per diluted
share, in the year-ago period. Our net loss in the quarter, excluding special items, was $53 million, or $0.59 per share,
compared to net income of $4 million, or $0.04 per diluted share, in the year-ago period.
Three Months Ended December 31, 2019
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
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 credits
Income tax effect of special items
Adjusted for special items (1)
Three Months Ended December 31, 2018
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Operating
Loss
$
(69)
18
13
(1)
—
—
(39)
$
Net Loss
(71)
$
EPS
$ (0.79)
18
13
(1)
(11)
(1)
(53)
$
0.20
0.14
(0.01)
(0.12)
(0.01)
$ (0.59)
Operating
Income
Net Income
$
75
$
36
$
EPS
0.38
1.27
(1.49)
(0.13)
(0.01)
0.02
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)
120
(141)
—
—
—
54
$
120
(141)
(12)
(1)
2
$
4
$
0.04
(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 – 2019 Overview” above.
32
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
Net (loss) income attributable to Resolute Forest Products Inc.
Net (loss) income 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,
2019
2,923
2018
$ 3,756
39
(16)
(6)
49
33
99
(82)
17
(47)
(0.51)
(0.51)
213
$
$
$
$
$
$
172
(30)
169
74
40
425
(46)
379
235
2.57
2.52
574
$
$
$
$
$
$
$
2017
3,513
79
(6)
186
(23)
(9)
227
(185)
42
(84)
(0.93)
(0.93)
364
$
$
$
$
$
$
$
As of December 31,
2019
3
3,626
$
$
2018
304
3,935
$
$
(1)
Earnings before interest expense, income taxes, and depreciation and amortization (or, “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
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, and other income and
expense, net. 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 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.
33
(In millions)
Net (loss) income including noncontrolling interests
$
Interest expense
Income tax provision
Depreciation and amortization
EBITDA
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 (income), net
Adjusted EBITDA
Years Ended December 31,
$
2019
(47)
31
58
167
209
18
13
—
(2)
(47)
22
2018
235
47
152
212
646
121
(1)
8
(145)
(50)
(5)
574
$
2017
(78)
49
84
204
259
82
24
27
(15)
(7)
(6)
364
$
$
213
$
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.
2019 vs. 2018
Operating income variance analysis
Sales
Sales were $833 million, or 22%, lower in 2019, to $2,923 million. After removing the sales related to the divestitures of the
Catawba and Fairmont facilities in the fourth quarter of 2018, sales declined by $362 million. Lower volume reduced sales by
$134 million, reflecting lower shipments in newsprint, wood products, and specialty papers, while pricing had an unfavorable
impact of $240 million, mainly as a result of a drop in the average transaction price for wood products and market pulp, down
by 20% and 9%, respectively. The inclusion of our Calhoun tissue operations’ results in our tissue segment for the full year in
2019 increased sales by $16 million.
34
Cost of sales, excluding depreciation, amortization and distribution costs
COS improved by $351 million in 2019. After removing the COS related to divestitures, the Canadian dollar fluctuation, as
well as the effects of lower volume and of the inclusion of Calhoun’s tissue operations for the full year in 2019, COS increased
by $135 million, largely reflecting:
•
•
higher wood fiber costs ($66 million), mainly due to wood shortages, as well as higher transportation costs;
unfavorable maintenance costs ($32 million), largely associated with scheduled outages;
• write-downs of mill stores and other supplies inventory associated with the indefinite idling of the Augusta mill
($13 million);
higher labor expense ($11 million);
higher chemical costs ($10 million), mainly due to unfavorable usage; and
lower contribution from our hydroelectric facilities ($8 million), largely due to scheduled maintenance;
•
•
•
partially offset by:
•
•
start-up costs incurred in 2018 ($7 million) for the Calhoun tissue manufacturing and converting facility; and
favorable recycled fiber prices ($6 million).
Distribution costs
After removing the distribution costs related to divestitures, the Canadian dollar fluctuation, as well as the effects of lower
volume and of the inclusion of Calhoun’s tissue operations for the full year in 2019, distribution costs decreased by $11 million,
reflecting improved freight rates, the new tissue distribution center in Calhoun in the first quarter of 2019, and transportation
optimization, mainly in specialty papers.
Depreciation and amortization
Depreciation and amortization was $45 million lower in 2019, mainly reflecting certain newsprint assets that were fully
depreciated at the end of the fourth quarter of 2018, the divestitures of the Catawba and Fairmont facilities, and the increase of
the useful lives of certain of our newsprint machinery and equipment in the first quarter of 2019.
Selling, general & administrative expenses
Selling, general and administrative (or, “SG&A”) expenses improved by $29 million in 2019, mainly due to lower incentive
plan expense, which is based on company performance, and lower stock-based compensation expense.
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) income variance analysis
Interest expense
Interest expense was $16 million lower in 2019, as we repurchased $225 million in aggregate principal amount of our 2023
Notes on January 3, 2019, and we fully repaid borrowings of $144 million under our revolving credit facilities in 2018.
Other (expense) income, net
We recorded other expense, net of $22 million in 2019, compared to other income, net of $5 million in the prior year. The
difference mostly reflects the $23 million provision related to the Fibrek litigation recorded in 2019.
35
Income taxes
We recorded an income tax provision of $58 million in 2019, on income before income taxes of $11 million, compared to an
expected income tax provision of $2 million based on the U.S. federal statutory income tax rate of 21%. The difference mainly
reflects: an increase to our valuation allowance related to our U.S. operations ($43 million) where we recognize a valuation
allowance against virtually all of our net deferred income tax assets; foreign tax rate differences ($11 million); and U.S. tax on
non-U.S. earnings ($7 million); partly offset by state income taxes ($7 million).
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
reflected mostly: U.S. tax on non-U.S. earnings ($65 million); foreign exchange items ($29 million); foreign tax rate
differences ($24 million); and the effect of a nondeductible goodwill impairment charge ($13 million); partly offset by a
decrease to our valuation allowance primarily related to our U.S. operations ($59 million).
Q4 of 2019 vs. Q4 of 2018
Operating (loss) income variance analysis
Sales
Sales decreased by $264 million, or 28%, compared to the fourth quarter of 2018, to $668 million. After removing the sales
related to the divestitures of the Catawba and Fairmont facilities, sales volume was $43 million lower, mainly due to lower
shipments of newsprint and wood products, partially offset by higher volumes of market pulp. Pricing also contributed to a
$98 million decrease in sales, reflecting lower average transaction prices for market pulp, newsprint, and specialty papers,
down by 26%, 14%, and 7%, respectively.
Cost of sales, excluding depreciation, amortization and distribution costs
COS improved by $118 million in the quarter. After removing the COS related to divestitures, the effect of lower volume, and
the Canadian dollar fluctuation, COS increased by $4 million, mainly reflecting:
•
higher wood fiber costs ($15 million), mostly due to wood shortages, as well as higher transportation costs; and
• write-downs of mill stores and other supplies inventory associated with the indefinite idling of the Augusta mill
($13 million);
partly offset by:
•
•
a decrease in recycled fiber prices ($9 million);
favorable maintenance costs ($7 million), mainly attributable to the indefinite idling of the Augusta mill, as well as the
timing of scheduled outages;
•
lower labor costs ($6 million), mainly attributable to the indefinite idling of the Augusta mill; and
36
•
favorable power prices ($3 million).
Distribution costs
After removing the distribution costs related to divestitures and the effect of lower volume, distribution costs improved by
$5 million, reflecting transportation optimization, mainly in specialty papers, and the new tissue distribution center in Calhoun
in the first quarter of 2019.
Depreciation and amortization
Depreciation and amortization was $8 million lower in the quarter, mainly reflecting certain newsprint assets that were fully
depreciated at the end of the fourth quarter of 2018.
Selling, general & administrative expenses
SG&A expenses improved by $7 million in the quarter, mainly due to lower stock-based compensation expense and lower
incentive plan expense, which is based on company performance.
Closure costs, impairment and other related charges
In the fourth quarter of 2019, we recorded closure costs, impairment and other related charges of $18 million, related to the
indefinite idling of our paper mill at Augusta, including severance and other costs of $10 million and accelerated depreciation
charges of $8 million. This compares to impairment charges of $120 million recorded in the year-ago period, 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.
Net gain on disposition of assets
We recorded a net gain on disposition of assets of $1 million in the fourth quarter of 2019, compared to $141 million in the
year-ago period, which included: the sale of the paper and pulp mill at Catawba for total cash consideration of $280 million,
resulting in a net gain of $101 million; and the sale of the recycled bleached kraft (or, “RBK”) pulp mill at Fairmont for total
cash consideration of $62 million, resulting in a net gain of $40 million.
Net (loss) income variance analysis
Interest expense
Interest expense was $4 million lower in the quarter, as we repurchased $225 million in aggregate principal amount of our 2023
Notes on January 3, 2019.
Income taxes
We recorded an income tax provision of $6 million in the fourth quarter of 2019, on a loss before income taxes of $65 million,
compared to an expected income tax benefit of $14 million based on the U.S. federal statutory income tax rate of 21%. The
difference reflects mostly an increase to our valuation allowance related to our U.S. operations ($25 million), partly offset by
U.S. tax on non-U.S. earnings ($4 million).
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 21%. The difference reflected mainly: foreign exchange items ($17 million); the effect of a nondeductible goodwill
impairment charge ($13 million); U.S. tax on non-U.S. earnings ($12 million); and foreign tax rate differences ($5 million);
partly offset by a decrease to our valuation allowance primarily related to our U.S. operations ($19 million).
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Consolidated Results – 2018 vs. 2017,” of our
annual report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019 (or, the “2018 Annual
Report”).
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” 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 expenses are allocated to our segments, with the exception of
certain discretionary charges and credits, which we present under “corporate and other.”
38
MARKET PULP
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
Years Ended December 31,
$
$
$
2019
797
39
62
1,156
56
2019
68
$
$
$
$
$
$
2018
1,085
172
199
1,424
93
December 31,
2018
80
2017
911
79
110
1,425
84
2017
89
(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,
2019
39
23
62
$
$
2018
172
27
199
$
$
2017
79
31
110
$
$
World demand for chemical pulp grew by 4.8% in 2019, reflecting an increase of 16.2% in China, partly offset by a decrease of
7.0% in Western Europe, while North America was essentially unchanged. World capacity grew by 1.1% over the same period.
39
World demand for softwood pulp increased by 5.8% in 2019, with shipments to China and North America up by 18.4% and
3.1%, respectively, while Western Europe was down by 6.3%. The operating rate was 92%.
In the same period, demand for hardwood pulp rose by 4.5%, with shipments to China up by 15.5%, while Western Europe and
North America were down by 7.5% and 3.1%, respectively. The operating rate was 90%.
2019 vs. 2018
Operating income variance analysis
Sales
Sales were $288 million lower, or 27%, to $797 million in 2019, primarily due to lower production capacity resulting from the
divestitures of the Catawba and Fairmont facilities in the fourth quarter of 2018. After removing the sales related to these
divestitures, sales volume was $39 million higher as a result of better production levels compared to the prior year. Pricing also
reduced sales by $86 million. The average transaction price declined by $72 per metric ton, as price increases realized across all
grades in 2018 eroded with weaker global pulp markets.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the effect of higher volume, the COS related to divestitures, and the Canadian dollar fluctuation,
manufacturing costs increased by $45 million, reflecting:
•
•
•
higher wood fiber costs ($30 million), mostly due to wood shortages;
unfavorable maintenance costs ($22 million), largely associated with scheduled outages; and
higher chemical costs ($6 million), mainly due to unfavorable usage;
partly offset by:
•
•
•
a decrease in recycled fiber prices ($6 million);
favorable steam usage ($4 million); and
lower power prices ($4 million).
40
Depreciation and amortization
Depreciation and amortization was $4 million lower in 2019, mainly due to the divestitures of the Catawba and Fairmont
facilities.
Selling, general & administrative expenses
SG&A expenses improved by $8 million in the year, mainly due to lower allocated expenses as a result of capacity reductions,
and lower incentive plan expense, which is based on company performance.
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Market Pulp – 2018 vs. 2017,”
of our 2018 Annual Report.
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,
2019
165
(16)
2
97
2
2019
8
$
$
$
$
$
$
2018
130
(30)
(15)
84
2
December 31,
2018
5
2017
81
(6)
(1)
53
1
2017
11
(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
Industry trends
Years Ended December 31,
2019
(16)
18
2
$
$
2018
(30)
15
(15)
$
$
2017
(6)
5
(1)
$
$
Total U.S. tissue consumption grew by 2.5% in 2019. Converted product shipments increased by 2.3%, including an
improvement of 3.5% in away-from-home shipments, and 1.8% in at-home shipments. U.S. parent roll production increased by
2.9% in 2019, contributing to a 93% average industry production-to-capacity ratio, unchanged from 2018.
42
2019 vs. 2018
Operating loss variance analysis
The operating results of our Calhoun tissue operations have been recorded in our tissue segment since April 1, 2018. The
operating loss of $12 million incurred in the first quarter of 2018 for our Calhoun tissue manufacturing and converting facility
was recorded under “corporate and other.”
Sales
Sales were $35 million greater, or 27%, to $165 million in 2019. Shipments rose by 13,000 short tons, primarily due to the
inclusion of Calhoun’s results in our tissue segment starting on April 1, 2018, and sales volume growth. The average transaction
price was $160 per short ton higher, mainly due to favorable product and customer mix, and the realization of previously
announced away-from-home products price increases.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effects of higher volume and of the inclusion of Calhoun’s operations for the full year in 2019, and the
impact of higher COS following the divestiture of the Fairmont mill, our manufacturing costs improved by $2 million
compared to 2018, mainly due to lower maintenance costs.
Distribution costs
After removing the effect of the inclusion of Calhoun’s operations for the full year in 2019, distribution costs improved by
$4 million, mainly as a result of the new tissue distribution center in Calhoun in the first quarter of 2019.
Depreciation and amortization
Depreciation and amortization was $3 million higher in 2019, reflecting the effect of the inclusion of Calhoun’s results in our
tissue segment for the full year in 2019, partly offset by the reduced carrying value of our Florida assets after the impairment
charge taken in the fourth quarter of 2018.
43
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Tissue – 2018 vs. 2017,” of our
2018 Annual Report.
44
WOOD PRODUCTS
Highlights
(In millions, except where otherwise stated)
Sales
Operating (loss) income (1)
EBITDA (2)
(In million board feet)
Shipments (3)
Downtime (3)
(In million board feet)
Finished goods inventory (3)
Years Ended December 31,
$
$
$
2019
616
(6)
28
1,731
242
$
$
$
2018
823
169
201
1,846
147
$
$
$
December 31,
2019
133
2018
157
2017
797
186
219
2,011
130
2017
124
(1)
(2)
(3)
Net (loss) income including noncontrolling interests is equal to operating (loss) 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 (loss) income including noncontrolling interests
Depreciation and amortization
EBITDA
Industry trends
Years Ended December 31,
2019
(6)
34
28
$
$
2018
169
32
201
$
$
2017
186
33
219
$
$
2019 U.S. housing starts were 1.3 million, up by 3.2% compared to 2018, which reflects a 7.3% increase in multi-family starts,
and a 1.4% increase in single-family starts. The 2x4 – Random Length (or, “RL”) #1-2 Kiln Dried Great Lakes (or, “KD GL”)
price dropped by 22.0% in 2019, and the 2x4x8 Stud KD GL price was down by 20.2%.
45
2019 vs. 2018
Operating (loss) income variance analysis
Sales
Sales were $207 million lower, or 25%, to $616 million in 2019, reflecting a $90 per thousand board feet drop in the average
transaction price, or 20%, and a reduction of 115 million board feet in shipments, in each case reflecting a sharp drop in market
prices in the second half of 2018, and a slow recovery through 2019. Lack of transportation availability also contributed to the
decrease in shipments in the latter part of 2019. Despite lower shipments, finished goods inventory remained at a normal level
of 133 million board feet, as we took 95 million board feet of additional downtime compared to 2018, for a total of 242 million
board feet in 2019.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $23 million after adjusting for the effect of lower volume and the Canadian dollar
fluctuation, mainly reflecting:
•
•
•
higher wood fiber costs ($13 million), including higher transportation costs;
an increase in labor costs ($6 million); and
unfavorable maintenance costs ($5 million).
Selling, general & administrative expenses
SG&A expenses improved by $4 million in the year, mainly due to lower incentive plan expense, which is based on company
performance.
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Wood Products – 2018 vs.
2017,” of our 2018 Annual Report.
46
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,
$
$
$
2019
773
49
78
1,315
158
2019
105
$
$
$
2018
907
74
140
1,507
22
$
$
$
2017
842
(23)
43
1,638
55
December 31,
2018
101
2017
78
(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,
2019
49
29
78
$
$
2018
74
66
140
$
$
2017
(23)
66
43
$
$
North American newsprint demand fell by 14.0% in 2019, compared to 2018. Demand from newspaper publishers fell by
16.7%, while demand from commercial printers also decreased, by 8.9%. Even with the slower pace of demand decline in the
fourth quarter of 2019, the North American shipment-to-capacity ratio dropped to 84%.
47
Global demand for newsprint fell by 12.7% in 2019, with Asia down by 14.9%, and Western Europe down by 7.5%.
Accordingly, the global operating rate decreased to 80%, down from 90% in 2018.
2019 vs. 2018
Operating income variance analysis
Sales
Newsprint sales fell by $134 million, or 15%, to $773 million in 2019. Shipments decreased by 192,000 metric tons, largely
reflecting reduced production due to ongoing structural demand decline. The average transaction price was $14 per metric ton
lower compared to 2018, as the realization of previously announced price increases in the first half of 2019 was more than
offset by weaker market fundamentals, mostly in export markets, in the second half of 2019.
In November 2019, we announced the indefinite idling of the Augusta mill, as a result of the decline in North American
newsprint consumption. We took 158,000 metric tons of temporary downtime in 2019, compared to 22,000 metric tons in 2018.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $22 million after adjusting for the effect of lower volume and the Canadian dollar
fluctuation, reflecting:
•
•
•
an increase in wood fiber costs ($14 million), due to wood shortages;
higher power and steam costs ($6 million), mainly due to unfavorable steam usage; and
higher labor costs ($3 million).
Depreciation and amortization
Depreciation and amortization was $37 million lower in 2019, reflecting certain assets that were fully depreciated at the end of
the fourth quarter of 2018, and the increase of the useful lives of certain of our machinery and equipment in the first quarter of
2019.
48
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Newsprint – 2018 vs. 2017,”
of our 2018 Annual Report.
49
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,
$
$
$
2019
572
33
76
774
50
2019
40
$
$
$
2018
811
40
87
1,130
21
$
$
$
2017
882
(9)
36
1,343
33
December 31,
2018
54
2017
66
(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,
2019
2018
$
$
33
43
76
$
$
40
47
87
$
$
2017
(9)
45
36
North American demand for uncoated mechanical papers contracted by 15.8% in 2019 compared to last year, reflecting a
20.6% drop in standard grades, and an 11.1% decrease in supercalendered (or, “SC”) grades. Compared to 2018, the shipment-
to-capacity ratio for all uncoated mechanical papers decreased from 92% to 82%.
50
2019 vs. 2018
Operating income variance analysis
Sales
Specialty paper sales decreased by $239 million, or 29%, to $572 million in 2019. The average transaction price increased by
$21 per short ton, or 3%, compared to the prior year, as the realization of previously announced price increases was mostly
offset by weaker market conditions. Shipments decreased by 356,000 short tons, mainly due to the Catawba mill divestiture.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effect of lower volume, the COS related to the Catawba mill divestiture, and the Canadian dollar
fluctuation, manufacturing costs increased by $36 million, mainly due to:
•
•
•
•
•
higher maintenance costs ($10 million), in part due to planned outages;
higher wood fiber costs ($10 million), mostly due to wood shortages;
lower contribution from our hydroelectric facilities ($8 million), largely due to scheduled maintenance;
unfavorable chemical costs ($4 million); and
an increase in labor costs ($3 million);
partly offset by lower power and steam costs ($2 million).
Distribution costs
After removing the distribution costs related to the Catawba mill, the effect of lower volume, and the Canadian dollar
fluctuation, distribution costs decreased by $7 million, reflecting improved freight rates and transportation optimization.
Depreciation and amortization
Depreciation and amortization was $4 million lower in the current year, mainly due to the divestiture of the Catawba facility.
51
Selling, general & administrative expenses
SG&A expenses improved by $6 million in the year, mainly due to lower allocated expenses as a result of capacity reductions,
and lower incentive plan expense, which is based on company performance.
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Specialty Papers – 2018 vs.
2017,” of our 2018 Annual Report.
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
Other (expense) income, net
Income tax provision
Net loss including noncontrolling interests
$
Years Ended December 31,
2019
(23)
(20)
(23)
(18)
2
(82)
(31)
47
(22)
(58)
(146)
2018
(12)
(25)
(33)
(121)
145
(46)
(47)
50
5
(152)
(190)
$
$
2017
(53)
(24)
(41)
(82)
15
(185)
(49)
7
6
(84)
(305)
$
$
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
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 (income), net
Adjusted EBITDA
Years Ended December 31,
$
2019
(146)
31
58
20
(37)
18
13
—
(2)
(47)
22
(33)
$
2018
(190)
47
152
25
34
121
(1)
8
(145)
(50)
(5)
(38)
$
$
2017
(305)
49
84
24
(148)
82
24
27
(15)
(7)
(6)
(43)
$
$
52
2019 vs. 2018
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $23 million in 2019, mainly reflecting:
• write-downs of mill stores and other supplies inventory ($13 million) related to the indefinite idling of our paper mill
at Augusta; and
•
asset preservation costs ($5 million), mainly related to our indefinitely idled Thorold (Ontario) paper mill and our
permanently closed Fort Frances (Ontario) mill.
In 2018, we incurred COS of $12 million, which included:
•
•
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 mill.
Depreciation and amortization
Depreciation and amortization was $5 million lower in 2019, mostly attributable to the inclusion of Calhoun’s results in our
tissue segment since April 1, 2018.
Selling, general and administrative expenses
SG&A expenses decreased by $10 million in 2019, mainly due to lower stock-based compensation expense.
Closure costs, impairment and other related charges
In 2019, we recorded closure costs, impairment and other related charges of $18 million, related to the indefinite idling of our
paper mill at Augusta, including: severance and other costs of $10 million; and accelerated depreciation charges of $8 million.
This compares to closure costs, impairment and other related charges of $121 million in 2018, 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.
Net gain on disposition of assets
In 2019, we recorded a net gain on disposition of assets of $2 million, compared to $145 million in 2018, which reflected: the
sale of the paper and pulp mill at Catawba for total cash consideration of $280 million, 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.
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations – Corporate and Other – 2018 vs. 2017,” of our 2018
Annual Report.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
We rely on cash and cash equivalents, cash flows provided by operations, and our 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, 2019, we had cash and cash equivalents of $3 million and availability of $580 million
under our 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 duty cash deposit requirements, and maintain an appropriate level of capital
spending.
53
Based on market conditions, we may seek to repay or refinance our outstanding indebtedness, including under the 2023 Notes
and credit facilities, 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. On January 3, 2019, 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. As a result of the repurchase, we recorded a net loss on extinguishment of debt of $3 million in “Other
(expense) income, net” in our Consolidated Statement of Operations for the year ended December 31, 2019.
For more information, see Note 12, “Long-Term Debt – Debt instruments – 2023 Notes,” to our Consolidated Financial
Statements.
Senior Secured Credit Facility
On September 7, 2016, we entered into a senior secured credit facility for up to $185 million. This senior secured credit facility
provided a term loan of $46 million with a maturity date of September 7, 2025, and a revolving credit facility of up to
$139 million with a maturity date of September 7, 2022. On October 28, 2019, we entered into an amended and restated senior
secured credit facility (or, the “Senior Secured Credit Facility”) for up to $360 million, replacing our existing $185 million
senior secured credit facility. The Senior Secured Credit Facility provides a term loan facility of up to $180 million with a
delayed draw period of up to three years, and the choice of maturities of six to ten years from the date of drawing (or, the “Term
Loan Facility”), and a six-year revolving credit facility of up to $180 million with a maturity date of October 28, 2025 (or, the
“Revolving Credit Facility”). There is also an uncommitted option to increase the Senior Secured Credit Facility by up to an
additional $360 million, subject to certain terms and conditions. On October 28, 2019, we repaid our $46 million term loan by
borrowing under the Revolving Credit Facility.
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.
As of December 31, 2019, we had $180 million of availability under the Term Loan Facility and $134 million of availability
under the Revolving Credit Facility, net of $46 million of borrowings.
For more information, see Note 12, “Long-Term Debt – Debt instruments – Senior Secured Credit Facility,” to our
Consolidated Financial Statements.
ABL Credit Facility
On May 14, 2019, we entered into an amendment to the five-year credit agreement dated May 22, 2015, for our ABL Credit
Facility. The amended credit agreement provides for an extension of the maturity date to May 14, 2024, with an aggregate
lender commitment of up to $500 million at any time outstanding, subject to borrowing base availability based on specified
advance rates, eligibility criteria and customary reserves.
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,
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.
The obligations under the credit agreement are guaranteed by certain material subsidiaries of the Company and are secured by
first priority liens on and security interests in accounts receivable, inventory and related assets.
As of December 31, 2019, we had $266 million of availability under the ABL Credit Facility, net of $25 million of borrowings
and $51 million of ordinary course letters of credit outstanding.
For more information, see Note 12, “Long-Term Debt – Debt instruments – ABL Credit Facility,” to our Consolidated Financial
Statements.
54
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
Moody’s Investors Service
Senior unsecured debt
Corporate family rating
Outlook
Liquidity rating
December 31,
2019
2018
2017
B+
BB-
Stable
B1
Ba3
Stable
SGL-1
B+
BB-
Stable
B1
Ba3
Stable
SGL-1
B+
BB-
Negative
B2
B1
Stable
SGL-1
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, 2019, 2018 and 2017 was as follows:
(In millions)
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
Net (decrease) increase in cash and cash equivalents, and restricted cash
Years Ended December 31,
2019
85
(162)
(228)
2
(303)
$
$
2018
435
146
(281)
(4)
296
$
$
2017
158
(191)
3
6
(24)
$
$
2019 vs. 2018
Net cash provided by operating activities
We generated $85 million of cash from operating activities in 2019, compared to $435 million last year. The decrease is almost
all attributable to lower profitability, partially offset by lower major maintenance payments, interest payments, and pension
contributions.
Net cash (used in) provided by investing activities
Investing activities used $162 million of cash in 2019, compared to cash provided of $146 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 prior year;
and
a higher net refund in 2018 of the cash deposits made on our U.S. imports of SC paper produced at our Canadian mills
($47 million);
55
offset in part by:
•
•
•
lower cash invested in fixed assets ($42 million), mainly due to payments made in the prior year for the strategic
investment plan at Saint-Félicien and the tissue distribution center at Calhoun;
lower countervailing and anti-dumping duty cash deposits on our imports of softwood lumber products to the U.S.
from our Canadian sawmills ($18 million); and
the full refund in 2019 of the $6 million in countervailing duty cash deposits that we made in 2018 on our U.S.
imports of uncoated groundwood paper produced at our Canadian mills.
Net cash used in financing activities
Financing activities used $228 million of cash in 2019, compared to $281 million in 2018. The difference reflects:
•
borrowings of $71 million under our revolving credit facilities in the current year, compared to repayments of
$144 million in the prior year; and
•
a special dividend of $1.50 per share, or $136 million, on our common stock in 2018;
partly offset by:
•
•
the repurchase of $225 million in aggregate principal amount of our 2023 Notes in the first quarter of 2019;
the repayment of our $46 million term loan, following an amended and restated senior secured credit agreement in the
fourth quarter of 2019; and
•
the repurchase of $24 million of shares in the current year, as described below.
2018 vs. 2017
For a variance analysis of our 2018 vs. 2017 cash flows, see Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources – Flow of Funds – 2018 vs. 2017,” of our
2018 Annual Report.
2020 outlook
As further discussed above under “Overview – 2019 Overview – Business acquisition,” on February 1, 2020, we acquired the
U.S. Sawmill Business from Conifex Timber Inc., for a cash consideration of $175 million, subject to post-closing working
capital adjustments. We financed the acquisition by borrowing $175 million under our revolving credit facilities. For more
information, see Note 21, “Subsequent Event,” to our Consolidated Financial Statements.
For 2020, we expect to invest $115 million in capital expenditures, net of funding under existing business development
programs, including: $5 million for the recently acquired U.S. Sawmill Business; and investments for the cellulose filament
plant in Kénogami, and for the improvement of productivity and yields at our sawmills.
Countervailing duty and anti-dumping investigations of softwood lumber
We 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
December 31, 2019, 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 $60 million per year.
For additional information, see Part I, Item 1A, “Risk Factors – Legal and Compliance Risk – We are subject to countervailing
and anti-dumping duties on the vast majority 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, and Note 15, “Commitments and
Contingencies – Legal matters – Countervailing duty and anti-dumping investigations of softwood lumber,” to our
Consolidated Financial Statements.
56
Employee Benefit Plans
Pension and OPEB plans
In 2019, we contributed $81 million to our defined benefit pension plans and $18 million to our defined contribution pension
plans, while recognizing a $3 million credit in aggregate, before special events. We also made payments of $12 million to
OPEB plans, while recognizing an $11 million credit to the net periodic benefit credit, before special events.
For 2020, we expect to make approximately $95 million of contributions to our defined benefit pension plans, $17 million to
our defined contribution pension plans, and $13 million to OPEB plans. We expect to expense approximately $17 million of
defined contribution pension plan costs, with a defined benefit pension cost of $32 million and an $18 million credit for our
defined benefit OPEB plans. Included in these amounts are an OPEB curtailment credit of $13 million and a pension special
termination benefit cost of $3 million related to the indefinite idling of our Augusta mill.
The expected $14 million increase in defined benefit pension plan contributions in 2020 is mainly due to a $16 million increase
to our U.S. pension plan, which is partially offset by lower contributions for past capacity reductions. The contribution increase
in the U.S. pension plan is mainly due to reductions to U.S. funding interest rates.
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 is 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. Refer to Note 13, “Pension and Other Postretirement Benefit
Plans,” to our Consolidated Financial Statements.
Ontario plans
The funding of our Ontario pension plans is 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. Prior to December 31, 2018, the funding of our
material Ontario pension plans was governed by regulations specific to us, adopted by the province of Ontario. Since January 1,
2019, all of our Ontario pension plans have been subject to the PBA, which provides for funding pension fund deficits on a
going concern basis. Refer to Note 13, “Pension and Other Postretirement Benefit Plans,” to our Consolidated Financial
Statements.
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 is subject to Quebec’s SPPA, which provides for the funding of
pension deficits on a going concern basis, or on a solvency basis if the solvency funded status of a multi-jurisdictional pension
plan is below 75%. The funding deficit calculation of our Ontario pension plans is subject to Ontario’s PBA, which provides for
the funding of 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.
57
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, 2019 and 2018, were as follows:
(In millions, except percentages)
Discount rate
Funded ratio
Deficit
Accounting
December 31,
2019
3.0%
74%
$ (1,326)
2018
3.8%
76%
$ (1,122)
Funding
December 31,
2019 (1)
5.6%
88%
$
(497)
$
2018 (2)
5.7%
87%
(550)
(1)
(2)
Determined on a going concern basis for Canadian plans, and on a 25-year average interest rate basis for U.S. plans,
and assuming actuarial valuations performed for all plans on December 31, 2019.
Determined on a going concern basis for Canadian 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 C$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 C$12 million and
C$4 million in 2018 and 2019, respectively, and will also be required to make our final remaining contributions for past
capacity reductions of approximately C$2 million in 2020.
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 C$150 million ($115 million), would have to be funded if we do not obtain the relief sought. The hearing in this
matter could occur in 2020.
Share Repurchase Program
With our repurchase of 4.8 million shares at a cost of $24 million during the year ended December 31, 2019, we completed our
$150 million share repurchase program, which was launched in 2012. We did not repurchase any shares during 2018 and 2017.
On March 2, 2020, we announced the adoption of a new $100 million share repurchase 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, 2019 and 2017.
58
Contractual Obligations
As of December 31, 2019, 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
545
84
296
925
$
$
2020
2021-2022
2023-2024
Thereafter
$
$
26
11
77
114
$
$
51
19
137
207
$
$
418
14
52
484
$
$
50
40
30
120
(1)
(2)
Long-term debt obligations primarily represent interest payments and the payment of the remaining principal balance
at maturity of our 2023 Notes, assuming no prior redemptions. Interest on our credit facility borrowings is assumed to
remain unchanged from the rates in effect as of December 31, 2019, assuming no additional borrowings or repayments
until maturity. Information on our long-term debt can be found in “Note 12, “Long-Term Debt,” to our Consolidated
Financial Statements.
Information on our operating leases and purchase obligations can be found in Note 10, “Operating Leases” and Note
15, “Commitments and Contingencies – Commitments,” 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 13, “Pension and Other
Postretirement Benefit Plans,” to our Consolidated Financial Statements.
RECENT ACCOUNTING GUIDANCE
New accounting pronouncements adopted in 2019
See Note 2, “Summary of Significant Accounting Policies – New accounting pronouncements adopted in 2019,” to our
Consolidated Financial Statements for more information.
Accounting pronouncements not yet adopted as of December 31, 2019
See Note 2, “Summary of Significant Accounting Policies – Accounting pronouncements not yet adopted as of December 31,
2019,” to our Consolidated Financial Statements for more information.
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.
59
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 (credits) costs associated with these net obligations as our employees render service. As of
December 31, 2019, we had pension and OPEB obligations aggregating $5,335 million and accumulated pension plan assets at
fair value of $3,862 million. In 2019, we recorded a net periodic benefit credit of $32 million.
Judgments and uncertainties involved in the accounting estimates
The following inputs are used to determine our net obligations and our net periodic benefit (credit) 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 (credit) 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
(credit) 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.
Effect if actual results differ from assumptions
Variations in assumptions could have a significant effect on the net periodic benefit (credit) 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 credit 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
2019 Net Periodic Benefit
Credit
Pension and OPEB
Obligations as of December
31, 2019
25 Basis Point
Increase
25 Basis Point
Decrease
25 Basis Point
Increase
25 Basis Point
Decrease
$
$
$
$
1
9
—
—
$
$
$
$
(1)
(9)
—
—
$
$
$
$
(125)
—
3
1
$
$
$
$
137
—
(3)
(1)
As of December 31, 2019, the most significant change in our assumptions affecting our pension and OPEB obligations was a
decrease in the discount rate to 3.0% from 3.8% as of December 31, 2018, resulting in an actuarial loss of $382 million and a
corresponding increase in our pension and OPEB obligations.
60
The net periodic benefit credit 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 gain of $85 million in
2019.
These net actuarial losses of $302 million in 2019, before tax, were recorded in “accumulated other comprehensive loss” and
will be amortized into our Consolidated Statements of Operations in future years, including approximately $85 million in 2020.
Deferred income tax assets
Description of accounts impacted by the accounting estimates
We have net deferred income tax assets of $915 million recorded in our Consolidated Balance Sheet as of December 31, 2019,
almost all of which is related to our Canadian operations; a valuation allowance is recorded against virtually all of our U.S. net
deferred income tax assets. Our net deferred income tax assets are primarily comprised of:
U.S.:
•
•
•
Canada:
•
•
•
deferred income tax assets of $754 million, of which $537 million is for federal and state net operating loss
carryforwards expiring between 2020 and 2039; $47 million for federal and state net operating loss carryforwards with
no expiry; and $170 million for other temporary differences, mostly related to pension and OPEB plans;
deferred income tax liabilities of $37 million, mostly related to tax accelerated depreciation on fixed assets; and
a valuation allowance of $716 million against the net deferred income tax assets, which are not more likely than not to
be realized in the future;
deferred income tax assets of $985 million, comprised of $188 million related to undeducted research and
development expenditures with no expiry; $75 million for tax credit carryforwards expiring between 2022 and 2039;
$18 million for federal and provincial net operating loss carryforwards expiring between 2030 and 2038; as well as
$704 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 $35 million for various temporary differences; and
a valuation allowance of $36 million, virtually all of which is related to net capital loss carryforwards with no expiry.
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 recognized 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.
61
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 $29 million as of December 31, 2019. As income tax legislation and regulations are complex and subject to
interpretation, our tax positions could be challenged by tax 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 carrying value of our net
deferred income tax assets by recording additional valuation allowances, resulting in an income tax provision 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 tax 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 $1,568 million as of December 31, 2019. These long-
lived assets include fixed assets, net, amortizable intangible assets, net, and operating lease right-of-use assets. In 2019, we
recorded depreciation and amortization of $167 million and accelerated depreciation charges of $8 million associated with
these long-lived assets. Depreciation and amortization and accelerated depreciation charges are based on accounting estimates.
The unit of accounting for impairment testing for long-lived assets is its group (see Note 2, “Summary of Significant
Accounting Policies – Impairment of long-lived assets,” to our Consolidated Financial Statements). The unit of accounting for
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.
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
62
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 2020. 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.
63
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 2018 and 2019, the Canadian
dollar fluctuated between a low of US$0.73 in December of 2018 and a high of US$0.82 in February of 2018. Based on
operating projections for 2020, 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 $19 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, 2019, according to industry statistics, North American newsprint demand fell by 60%. This trend, which
similarly affects our specialty papers, is expected to 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 $25 change to the average transaction price per unit of our products, other than
tissue, based on our operating configuration as of December 31, 2019. This presentation measures only the impact of pricing
and items directly related to price, and assumes that every other factor is held constant.
PRODUCT
Market pulp
Wood products
Newsprint
Specialty papers
Projected change in
annualized operating income
($ millions) based on $25
change in price per unit
$ / metric ton
$ / thousand board feet
$ / metric ton
$ / short ton
32
39
33
21
64
Commodity Price Risk
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.
65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
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
67
68
69
70
71
73
117
119
66
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of U.S. dollars, except per share amounts)
Sales
Costs and expenses:
Years Ended December 31,
2019
2018
2017
$
2,923
$
3,756
$
3,513
Cost of sales, excluding depreciation, amortization and distribution costs
2,198
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
Interest expense
Non-operating pension and other postretirement benefit credits
Other (expense) income, net
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.
Net (loss) income 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
167
389
136
18
(2)
17
(31)
47
(22)
11
(58)
(47)
—
(47)
(0.51)
(0.51)
91.4
91.4
$
$
$
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
$
$
$
See accompanying notes to Consolidated Financial Statements.
67
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions of U.S. dollars)
Net (loss) income 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 (loss) income including noncontrolling interests
Comprehensive income attributable to noncontrolling interests
Comprehensive (loss) income attributable to Resolute Forest Products
Inc.
Years Ended December 31,
2019
(47)
$
2018
235
$
2017
(78)
$
(12)
—
(12)
(273)
55
(218)
1
(229)
(276)
—
$
(276)
$
(25)
1
(24)
(194)
51
(143)
(1)
(168)
67
—
67
(15)
—
(15)
(10)
3
(7)
(3)
(25)
(103)
(6)
$
(109)
See accompanying notes to Consolidated Financial Statements.
68
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(In millions of U.S. dollars, 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
Deferred income tax assets
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities
Current portion of long-term debt
Current portion of operating lease liabilities
Total current liabilities
Long-term debt, net of current portion
Pension and other postretirement benefit obligations
Operating lease liabilities, net of current portion
Other liabilities
Total liabilities
Commitments and contingencies
Equity:
Resolute Forest Products Inc. shareholders’ equity:
Common stock, $0.001 par value. 119.5 shares issued and 86.7 shares outstanding as of
December 31, 2019; 118.8 shares issued and 90.8 shares outstanding as of December
31, 2018
Additional paid-in capital
Deficit
Accumulated other comprehensive loss
Treasury stock at cost, 32.8 shares and 28.0 shares as of December 31, 2019 and 2018,
respectively
Total Resolute Forest Products Inc. shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
December 31,
2019
December 31,
2018
$
3
$
304
273
76
522
33
907
1,459
48
915
61
236
3,626
342
1
8
351
448
1,460
57
75
2,391
—
3,802
(1,245)
(1,179)
(144)
1,234
1
1,235
3,626
$
$
$
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
$
$
$
See accompanying notes to Consolidated Financial Statements.
69
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions of U.S. dollars)
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 14)
Stock unit awards vested (0.4 shares),
net of shares forfeited for employee
withholding taxes (Note 17)
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 14)
Stock unit awards vested (0.6 shares),
net of shares forfeited for employee
withholding taxes (Note 17)
Other comprehensive loss, net of tax
Balance as of December 31, 2018
Net loss
Purchases of treasury stock (4.8 shares)
(Note 16)
Stock unit awards vested (0.7 shares),
net of shares forfeited for employee
withholding taxes (Note 17)
Resolute Forest Products Inc. Shareholders’ Equity
Common
Stock
Additional
Paid-in
Capital
$ — $ 3,775
Deficit
$ (1,207)
Accumulated
Other
Comprehensive
Loss
$
(755)
Treasury
Stock
$ (120)
Non-
controlling
Interests
Total
Equity
$
18
$ 1,711
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10
—
8
—
—
—
3,793
6
—
3
—
—
—
3,802
—
—
—
—
(84)
—
(3)
—
—
(1,294)
—
235
(141)
2
—
—
(1,198)
(47)
—
—
—
—
—
—
—
(25)
(780)
—
—
—
(2)
—
(168)
(950)
—
—
—
(229)
$ (1,179)
—
—
—
—
—
—
(120)
—
—
—
—
—
—
(120)
—
(24)
—
—
$ (144)
$
—
6
(23)
—
—
—
1
—
—
—
—
—
—
1
—
—
—
—
1
10
(78)
(15)
(3)
—
(25)
1,600
6
235
(138)
—
—
(168)
1,535
(47)
(24)
—
(229)
$ 1,235
Other comprehensive loss, net of tax
Balance as of December 31, 2019
—
—
$ — $ 3,802
—
$ (1,245)
See accompanying notes to Consolidated Financial Statements.
70
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of U.S. dollars)
Cash flows from operating activities:
Net (loss) income including noncontrolling interests
Adjustments to reconcile net (loss) income including noncontrolling interests
$
(47)
$
235
$
(78)
Years Ended December 31,
2019
2018
2017
to net cash provided by operating activities:
Share-based compensation
Depreciation and amortization
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Deferred income taxes
Net pension contributions and other postretirement benefit payments
Net gain on disposition of assets
(Gain) loss on translation of foreign currency denominated deferred income
taxes
Loss (gain) on translation of foreign currency denominated pension and
other postretirement benefit obligations
Net planned major maintenance amortization (payments)
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
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
Decrease (increase) in countervailing duty cash deposits on uncoated
groundwood paper
Net cash (used in) provided by investing activities
4
167
8
13
58
(125)
(2)
(42)
43
13
88
(27)
—
(82)
16
85
(113)
3
1
(59)
6
(162)
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)
71
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of U.S. dollars)
Years Ended December 31,
2019
2018
2017
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities
Payment of special dividend
Acquisition of noncontrolling interest in Donohue Malbaie Inc.
Repayments of debt
Purchases of treasury stock
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 (decrease) increase 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”)
Restricted cash (included in “Other assets”)
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest, including capitalized interest of $0, $1 and $1 in 2019, 2018 and
2017, respectively
Income taxes
71
—
—
(271)
(24)
(4)
(228)
2
(303)
345
42
3
—
39
26
(11)
$
$
$
$
$
$
$
$
(144)
(136)
—
—
—
(1)
(281)
(4)
296
49
345
304
—
41
40
(1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19
—
(15)
(1)
—
—
3
6
(24)
73
49
6
4
39
47
7
See accompanying notes to Consolidated Financial Statements.
72
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 U.S. 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 the accompanying notes to our Consolidated Financial
Statements have been reclassified to conform to the 2019 presentation.
Consolidation
Our Consolidated Financial Statements include the accounts of Resolute Forest Products Inc. and its subsidiaries. All
transactions and balances between these companies have been eliminated. All consolidated subsidiaries are wholly-owned as of
December 31, 2019, 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 companies where we have significant influence or joint control, 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, 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.
73
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 fixed assets, net, amortizable intangible assets, net, and operating lease right-
of-use assets (collectively, “long-lived assets”) is its group, which includes long-lived assets 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
74
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.
Long-lived assets 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 was assigned to the tissue segment for the purposes of impairment testing. We recorded a goodwill impairment charge
of $81 million for the year ended December 31, 2018, representing the entire goodwill amount. See Note 3, “Closure Costs,
Impairment and Other Related Charges” for more information.
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 account for global intangible low-taxed income (or, “GILTI”) as a period cost, if and when incurred, and apply the tax law
ordering approach to assess the impact of GILTI on the realizability of net operating loss carryforwards.
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.
75
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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
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 provision.
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 credits”) are reported
separately outside any subtotal of operating income. 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.
Share-based compensation
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
76
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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 17, “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 return 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 U.S. 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
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 items are reported in “Other (expense) 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
77
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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 (loss) income per share
We calculate basic net (loss) income per share attributable to Resolute Forest Products Inc. common shareholders by dividing
our net (loss) income 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 2019
ASU 2016-02 “Leases”
Effective January 1, 2019, we adopted Accounting Standards Update (or, “ASU”) 2016-02, “Leases,” issued by the Financial
Accounting Standards Board (or, the “FASB”), and the series of related accounting standard updates that followed (collectively,
“Topic 842”), through a cumulative-effect adjustment as of that date.
The effect of this ASU on our Consolidated Balance Sheet as of January 1, 2019, was as follows:
(Unaudited, in millions)
Operating lease right-of-use assets
Current portion of operating lease liabilities
Operating lease liabilities, net of current portion
Other liabilities
Before ASU
Effect of
Change
As Adjusted
$
$
$
$
—
—
—
71
$
$
$
$
65
7
60
(2)
$
$
$
$
65
7
60
69
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 Topic 842. Furthermore, we elected to use hindsight in determining the lease term and assessing
impairment of the operating lease right-of-use assets. As a result of the implementation of Topic 842, our leases accounting
policy was updated as follows:
We determine if a contract contains a lease at inception. Leases are classified as either operating leases or finance leases.
Operating leases are included in “Operating lease right-of-use assets,” “Current portion of operating lease liabilities,” and
“Operating lease liabilities, net of current portion,” whereas finance leases are included in “Fixed assets, net,” “Current portion
of long-term debt,” and “Long-term debt, net of current portion” in our Consolidated Balance Sheets. Leases with a term of less
than 12 months are not recorded in our Consolidated Balance Sheets, and are expensed over the term of the lease in our
Consolidated Statements of Operations.
Operating lease right-of-use assets represent our right to use an underlying asset for the term of the lease, and the related
liabilities represent our obligation to make the lease payments arising from the lease. Operating lease right-of-use assets and the
related liabilities are recognized at the lease commencement date based on the present value of the lease payments over the term
of the lease. Renewal and termination options are included in our lease terms when it is reasonably certain that they will be
exercised. In determining the present value of lease payments, we use the implicit rate when readily determinable, or our
estimated incremental borrowing rate, which is based on information available at the lease commencement date. Lease
payments are expensed in our Consolidated Statements of Operations on a straight-line basis over the term of the lease.
For buildings, we account for the lease and non-lease components as a single lease component. For all other contracts, we
account for the lease and non-lease components separately.
78
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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. As early adoption is permitted, we adopted this ASU on January 1,
2019. The adoption of this accounting guidance modified the presentation of Note 13, “Pension and Other Postretirement
Benefit Plans.”
Accounting pronouncements not yet adopted as of December 31, 2019
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 on a modified retrospective approach for fiscal years beginning after December 15, 2019, and interim periods within
those fiscal years. We adopted this ASU on January 1, 2020. The adoption of this accounting guidance did not materially impact
our results of operations or financial position.
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. We adopted
this ASU on January 1, 2020. The adoption of this accounting guidance did not materially impact our results of operations or
financial position.
ASU 2019-12 “Simplifying the Accounting for Income Taxes”
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which removes specific
exceptions to the general principles in ASC 740, “Income Taxes,” and clarifies certain aspects of the existing guidance. This
update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with
early adoption being permitted as of the beginning of an interim or annual reporting period. All amendments to this ASU must
be adopted in the same period on a prospective basis, with certain exceptions. We are still evaluating the impact of this
accounting guidance on our results of operations and financial position.
Note 3. Closure Costs, Impairment and Other Related Charges
Closure costs, impairment and other related charges for the year ended December 31, 2019, were comprised of the following:
(In millions)
Indefinite idling
Accelerated
Depreciation
Severance
and Other
Costs
Total
Paper mill at Augusta (Georgia)
$
8
$
10
$
18
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
79
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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)
Other
(1)
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
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.
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, 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.
80
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 years ended December 31, 2019,
2018 and 2017, was as follows:
Unamortized
Prior Service
Credits
67
$
Unamortized
Actuarial
Losses
(819)
(48)
$
Foreign
Currency
Translation
$
(3)
(3)
$
1
(16)
(15)
52
(5)
(19)
(24)
—
28
—
(12)
(12)
16
41
(7)
(826)
(162)
19
(143)
(2)
(971)
(240)
22
(218)
$ (1,189)
$
—
(3)
(6)
(1)
—
(1)
—
(7)
1
—
1
(6)
Total
(755)
(50)
25
(25)
(780)
(168)
—
(168)
(2)
(950)
(239)
10
(229)
$ (1,179)
(In millions)
Balance as of December 31, 2016
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
loss (1)
Net current period other comprehensive loss
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 14)
Balance as of December 31, 2018
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive
loss (1)
Net current period other comprehensive (loss) income
Balance as of December 31, 2019
$
(1)
See the table below for details about these reclassifications.
81
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2019, 2018 and 2017,
were comprised of the following:
(In millions)
2019
2018
2017
Affected Line in the Consolidated
Statements of Operations
Unamortized Prior Service Credits
Amortization of prior service
credits
Other items
Net of tax
Unamortized Actuarial Losses
Amortization of actuarial losses
Other items
Net of tax
Total Reclassifications
$
$
(11)
$
(15)
$
(1)
—
(12)
28
1
(7)
22
10
(5)
1
(19)
33
(5)
(9)
19
$ —
$
Non-operating pension and other
postretirement benefit credits (1)
(15)
(1)
— Income tax provision
(16)
Non-operating pension and other
postretirement benefit credits (1)
Income tax provision
50
2
(11)
41
25
(1)
These items are included in the computation of net periodic benefit (credit) cost related to our pension and OPEB plans
summarized in Note 13, “Pension and Other Postretirement Benefit Plans.”
Note 6. Net (Loss) Income Per Share
The reconciliation of the basic and diluted net (loss) income per share for the years ended December 31, 2019, 2018 and 2017,
was as follows:
(In millions, except per share amounts)
2019
2018
2017
Numerator:
Net (loss) income attributable to Resolute Forest Products Inc.
$
(47)
$
235
$
(84)
Denominator:
Basic weighted-average number of Resolute Forest Products Inc. common
shares outstanding
Dilutive impact of nonvested stock unit awards
Diluted weighted-average number of Resolute Forest Products Inc.
common shares outstanding
Net (loss) income per share attributable to Resolute Forest Products Inc.
common shareholders:
Basic
Diluted
91.4
—
91.4
91.3
2.0
93.3
90.5
—
90.5
$
$
(0.51)
(0.51)
$
$
2.57
2.52
$
$
(0.93)
(0.93)
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 (loss) income per share, as their impact
would have been antidilutive, for the years ended December 31, 2019, 2018 and 2017, was as follows:
(In millions)
Stock options
Stock unit awards
2019
1.0
2.1
2018
1.2
—
2017
1.4
4.1
82
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 7. Inventories, Net
Inventories, net as of December 31, 2019 and 2018, were comprised of the following:
(In millions)
Raw materials
Work in process
Finished goods
Mill stores and other supplies
2019
128
46
164
184
522
$
$
2018
106
39
180
183
508
$
$
In 2019, we recorded charges of $13 million for write-downs of mill stores and other supplies due to the indefinite idling of the
Augusta paper mill. 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.
Note 8. Fixed Assets, Net
Fixed assets, net as of December 31, 2019 and 2018, 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
$
2019
52
313
2,256
303
128
65
$
2018
51
305
2,185
297
113
62
3,117
(1,658)
1,459
$
3,013
(1,498)
1,515
$
(1)
Internal-use software included in fixed assets, net as of December 31, 2019 and 2018, was as follows:
(In millions)
Machinery and equipment
Less: Accumulated depreciation
2019
115
(76)
39
$
$
2018
114
(59)
55
$
$
Depreciation expense related to internal-use software is estimated to be $13 million in 2020 and 2021, $9 million in
2022, $4 million in 2023, and $1 million in 2024.
As a result of the indefinite idling of our paper mill in Augusta, we recorded accelerated depreciation of $8 million for the year
ended December 31, 2019. We also recorded fixed asset impairment charges of $29 million for the year ended December 31,
2018, as a result of the deterioration of estimated future cash flows of Atlas. See Note 3, “Closure Costs, Impairment and Other
Related Charges” for more information.
Depreciation expense related to fixed assets was $164 million, $207 million, and $199 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
83
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 9. Amortizable Intangible Assets, Net
Amortizable intangible assets, net as of December 31, 2019 and 2018, were comprised of the following:
2019
2018
(Dollars in millions)
Water rights (1)
Energy contracts
Customer relationships (2)
Other
Estimated
Useful
Lives
(Years)
Gross
Carrying
Value
Accumulated
Amortization
$
10 – 40
15 – 25
10
19
52
2
2
$
75
$
$
8
18
1
—
27
$
Net
11
34
1
2
Gross
Carrying
Value
Accumulated
Amortization
$
19
52
2
1
$
$
7
16
1
—
24
$
Net
12
36
1
1
$
50
$
48
$
74
(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). 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 $3 million for the year ended December 31, 2019, and
$5 million for the years ended December 31, 2018 and 2017, respectively. Amortization expense related to amortizable
intangible assets is estimated to be $4 million for each of the next two years and $3 million per year for 2022, 2023 and 2024.
Note 10. Operating Leases
We have operating leases for buildings, machinery, chemical equipment, rail cars, and office equipment with remaining terms
from less than one year to 23 years. These leases may include renewal options for up to 15 years.
The components of lease expense for the year ended December 31, 2019, were as follows:
(In millions)
Operating lease cost
Variable lease cost (1)
(1)
Variable lease cost is determined by the consumption of the underlying asset.
Supplemental information related to operating leases was as follows:
Weighted-average remaining operating lease term (in years)
Weighted-average operating lease discount rate
(In millions)
Operating cash flow payments for operating lease liabilities
Operating lease right-of-use assets obtained in exchange for operating lease liabilities
84
2019
13
21
$
$
December 31,
2019
11.1
4.7%
Year Ended
December 31, 2019
$
$
11
4
The maturities of operating lease liabilities as of December 31, 2019, were as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total operating lease liabilities
The future minimum rental payments under operating leases, as of December 31, 2018, were as follows:
(In millions)
2019
2020
2021
2022
2023
Thereafter
Operating Leases
$
$
11
10
9
8
6
40
84
19
65
Operating Leases
$
9
7
6
3
2
7
$
34
Operating lease expense for the years ended December 31, 2018 and 2017, was $12 million and $8 million, respectively.
Note 11. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of December 31, 2019 and 2018, were comprised of the following:
(In millions)
Trade accounts payable
Accrued compensation
Accrued interest
Pension and other postretirement benefit obligations
Income and other taxes payable
Deposits
Other
2019
255
$
2018
299
$
52
3
15
4
1
12
342
$
66
5
17
4
20
16
$
427
85
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Note 12. Long-Term Debt
Overview
Long-term debt, including current portion, as of December 31, 2019 and 2018, was comprised of the following:
(In millions)
5.875% senior unsecured notes due 2023:
Principal amount
Deferred financing costs
Unamortized discount
Total 5.875% senior unsecured notes due 2023
Term loan due 2025 (repaid October 28, 2019)
Borrowings under revolving credit facilities
Finance lease obligation
Total debt
Less: Current portion of 5.875% senior unsecured notes due 2023
Less: Current portion of finance lease obligation
Long-term debt, net of current portion
Debt instruments
2023 Notes
2019
2018
$
$
375
(3)
(1)
371
—
71
7
449
—
(1)
448
$
$
600
(5)
(3)
592
46
—
7
645
(222)
(1)
422
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 (or, 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 being 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. Deferred financing costs are being 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, 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. 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 recorded a net loss on extinguishment of debt of $3 million in “Other
(expense) income, net” in our Consolidated Statement of Operations for the year ended December 31, 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.
86
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)
2019
2020 and thereafter
Redemption Price
101.469%
100.000%
The fair value of the 2023 Notes (Level 1) was $380 million and $598 million as of December 31, 2019 and 2018, respectively.
Senior Secured Credit Facility
On September 7, 2016, we entered into a senior secured credit facility for up to $185 million. This senior secured credit facility
provided a term loan of $46 million with a maturity date of September 7, 2025, and a revolving credit facility of up to
$139 million with a maturity date of September 7, 2022. On October 28, 2019, we entered into an amended and restated senior
secured credit facility (or, the “Senior Secured Credit Facility”) for up to $360 million, replacing our existing $185 million
senior secured credit facility. The Senior Secured Credit Facility provides a term loan facility of up to $180 million with a
delayed draw period of up to three years, and the choice of maturities of six to 10 years from the date of drawing (or, the “Term
Loan Facility”), and a six-year revolving credit facility of up to $180 million with a maturity date of October 28, 2025 (or, the
“Revolving Credit Facility”). There is also an uncommitted option to increase the Senior Secured Credit Facility by up to an
additional $360 million, subject to certain terms and conditions. On October 28, 2019, we repaid our $46 million term loan by
borrowing under the Revolving Credit Facility.
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.
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 Senior
Secured Credit Facility also contains provisions for an expedited amendment procedure for replacing LIBOR if LIBOR quotes
are no longer available. The base rate is the highest of (i) the prime rate; (ii) the federal funds rate plus 0.5%; and (iii) the one-
month LIBOR plus 1%. The applicable spread over the index fluctuates quarterly based upon (a) 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 adjusted net worth; and (b) in the case of the loans under the Term Loan Facility, the maturity date of such loans. For loans
under the Term Loan Facility, the applicable spread ranges from 0.5% to 1.5% for base rate loans, and from 1.5% to 2.5% for
LIBOR loans. For loans under the Revolving Credit Facility, the applicable spread ranges from 0.5% to 1.0% for base rate
loans, and from 1.5% to 2.0% for LIBOR loans. The Senior Secured Credit Facility was issued by a syndicate of 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 based on the average daily utilization for the prior fiscal quarter ranging from 0.275% to
0.325% per annum under the Revolving Credit Facility and ranging from 0.25% to 0.40% for the Term Loan Facility during the
delay draw period.
The outstanding principal balance of any term loan made under the Term Loan Facility is subject to annual payments of 5% of
the initial principal amount of such term loan commencing on the fifth anniversary of each term loan’s draw date with the
balance due six to 10 years after the draw date based on the chosen maturity of each term loan. Loans under the Revolving
Credit Facility and the Term Loan Facility may be prepaid from time to time at our discretion without premium or penalty but
subject to breakage costs, if any, in the case of LIBOR loans. Amounts repaid on the Term Loan Facility may not be
87
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
subsequently re-borrowed. Principal amounts under the Revolving Credit Facility may be drawn, repaid, and redrawn until
October 27, 2025.
Pursuant to the Senior Secured Credit Facility, we are also required to maintain (i) a capitalization ratio not greater than 45% at
all times; (ii) a collateral coverage ratio of not less than 1.8:1.0; and (iii) a springing consolidated fixed charge coverage ratio of
1.0:1.0, which is triggered only when adjusted availability under the ABL Credit Facility falls below the greater of $45 million
or 10% of the maximum available borrowing amount under the ABL Credit Facility for two consecutive business days. The
consolidated fixed charge coverage ratio is the ratio of (a) consolidated EBITDA less certain capital expenditures and less cash
taxes paid, to (b) consolidated fixed charges, as determined under 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 Credit Facility includes
customary representations, warranties and events of default subject to customary grace periods and notice requirements.
As of December 31, 2019, we had $180 million of availability under the Term Loan Facility and $134 million of availability
under the Revolving Credit Facility, net of $46 million of borrowings. The fair value of the Term Loan (Level 2) approximated
its carrying value as of December 31, 2018. The fair value of the Revolving Credit Facility (Level 2) approximated its carrying
value as of December 31, 2019. The Revolving Credit Facility was bearing interest at LIBOR plus a spread of 1.63% as of
December 31, 2019; there were no borrowings as of December 31, 2018.
ABL Credit Facility
On May 14, 2019, we entered into an amendment to the five-year credit agreement dated May 22, 2015, for a senior secured
asset-based revolving credit facility (or, “ABL Credit Facility”). The amended credit agreement provides for an extension of the
maturity date to May 14, 2024, with an aggregate lender commitment of up to $500 million at any time outstanding, subject to
borrowing base availability based on specified advance rates, eligibility criteria and customary reserves.
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 facility 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 credit agreement includes reserves that reduce the borrowing base, including: (i) a reserve
commencing March 16, 2023 for the outstanding principal amount due under the 2023 Notes; and (ii) a reserve for the
outstanding principal amount due under the Senior Secured Credit Facility, commencing 60 days before its maturity. The
borrowing base is subject to other 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 liens on and security interests in accounts receivable, inventory and related assets.
Loans under the credit agreement bear interest at a rate equal to a base rate, the LIBOR, or the Canadian Dollar Offered Rate
(or, the “CDOR”), in each case plus an applicable margin. The applicable margin is between 0.00% and 0.50% with respect to
base rate loans and between 1.00% and 1.50% with respect to LIBOR and CDOR loans, in each case based on availability
under the credit facility and a leverage ratio.
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
88
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
revolving commitments, as well as a fee in respect of outstanding letters of credit (equal to the applicable margin in respect of
LIBOR and CDOR loans plus a fronting fee of 0.125% and certain administrative fees).
Loans under the ABL Credit Facility may be repaid from time to time at our discretion without premium or penalty, with the
exception of breakage costs for LIBOR and CDOR loans, 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 and benefit 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 $45 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, 2019, we had $266 million of availability under the ABL Credit Facility, net of $25 million of borrowings
and $51 million of ordinary course letters of credit outstanding. The fair value of the ABL Credit Facility (Level 2)
approximated its carrying value as of December 31, 2019. The ABL Credit Facility was bearing interest at the base rate as of
December 31, 2019; there were no borrowings as of December 31, 2018.
Finance lease obligation
We have a finance 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.
Debt maturities
The aggregate maturities of long-term debt as of December 31, 2019, were as follows:
(In millions)
2020
2021
2022
2023
2024
Thereafter
Long-term debt
$
$
1
1
1
372
26
48
449
Assets pledged as collateral
The carrying value of assets pledged as collateral for our total debt obligations was $1,284 million as of December 31, 2019.
89
Note 13. Pension and Other Postretirement Benefit Plans
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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 most cases, matching contributions on
those optional amounts. Our expense for the defined contribution plans totaled $18 million in 2019, $20 million in 2018, and
$21 million in 2017.
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 U.S. 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.
90
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The changes in our pension and OPEB benefit obligations and plan assets for the years ended December 31, 2019 and 2018,
and the funded status and reconciliation of amounts recognized in our Consolidated Balance Sheets as of December 31, 2019
and 2018, were as follows:
(In millions)
Change in benefit obligations:
Pension Plans
OPEB Plans
2019
2018
2019
2018
Benefit obligations as of beginning of year
$
4,774
$
5,474
$
Service cost
Interest cost
Actuarial loss (gain)
Participant contributions
Plan amendment
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
15
181
386
7
—
(18)
—
(347)
190
5,188
3,652
336
81
7
(18)
—
(347)
151
3,862
$ (1,326)
19
189
(102)
7
—
(25)
(84)
(367)
(337)
4,774
4,377
(101)
101
7
(25)
(58)
(367)
(282)
3,652
$ (1,122)
$
2
(4)
(1,324)
$ (1,326)
$
4
(3)
(1,123)
$ (1,122)
$
$
$
148
—
6
1
2
—
—
—
(14)
4
147
—
—
12
2
—
—
(14)
—
—
(147)
—
(11)
(136)
(147)
$
172
1
6
(7)
2
5
—
(8)
(15)
(8)
148
—
—
13
2
—
—
(15)
—
—
(148)
—
(14)
(134)
(148)
$
$
$
The total benefit obligations and the total fair value of plan assets for pension plans with benefit obligations in excess of plan
assets were $4,923 million and $3,595 million, respectively, as of December 31, 2019, and were $4,548 million and
$3,422 million, respectively, as of December 31, 2018. 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 $4,884 million and $3,595 million,
respectively, as of December 31, 2019, and were $4,510 million and $3,422 million, respectively, as of December 31, 2018. The
total accumulated benefit obligations for all pension plans were $5,149 million and $4,735 million as of December 31, 2019
and 2018, respectively.
The actuarial losses impacting the benefit obligations for our pension and OPEB plans in 2019 are primarily due to changes in
the economic environment, which resulted in a decrease to the discount rates selected for the plans as of December 31, 2019,
compared to December 31, 2018. The actuarial gains impacting the benefit obligations for our pension and OPEB plans in 2018
91
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
are primarily due to changes in the economic environment, which resulted in an increase to the discount rates selected for the
plans as of December 31, 2018, compared to December 31, 2017.
Components of net periodic benefit (credit) cost
The components of net periodic benefit (credit) cost relating to our pension and OPEB plans for the years ended December 31,
2019, 2018 and 2017, 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
Service cost
Net periodic benefit (credits) costs before
special events
Curtailments, settlements and other losses
(gains)
Pension Plans
OPEB Plans
2019
$
181
$
(251)
—
34
(36)
15
(21)
—
$
(21)
$
2018
189
(264)
(1)
38
(38)
19
(19)
3
(16)
2017
199
(254)
(1)
55
(1)
19
18
7
25
$
$
2019
2018
2017
$
6
$
6
$
—
(11)
(6)
(11)
—
(11)
—
(11)
$
—
(14)
(5)
(13)
1
(12)
(13)
(25)
$
$
7
—
(14)
(5)
(12)
1
(11)
(1)
(12)
The prior service credits and the actuarial gains and losses are amortized to “Non-operating pension and other postretirement
benefit credits” in our Consolidated Statements of Operations, over the expected average remaining service lifetime or the
average future lifetime, as applicable, of the respective plans.
Assumptions used to determine benefit obligations and net periodic benefit (credit) cost
The weighted-average assumptions used to determine the benefit obligations at the measurement dates (each December 31) and
the net periodic benefit (credit) cost for the years ended December 31, 2019, 2018 and 2017, were as follows:
Benefit obligations:
Discount rate
Rate of compensation increase
Net periodic benefit (credit) cost:
Discount rate
Expected return on assets
Rate of compensation increase
Pension Plans
OPEB Plans
2019
2018
2017
2019
2018
2017
3.0%
2.1%
3.8%
6.5%
2.1%
3.8%
2.1%
3.6%
6.5%
2.1%
3.6%
2.1%
3.8%
6.3%
2.5%
3.1%
3.9%
3.6%
3.9%
3.6%
3.9%
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.
92
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, 2019 and 2018, 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
2019
2018
Domestic
Plan
7.2%
4.5%
2032
Foreign
Plans
4.8%
4.5%
2032
Domestic
Plan
7.2%
4.5%
2031
Foreign
Plans
4.8%
4.5%
2031
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.
Fair value of plan assets
The fair value of plan assets held by our pension plans as of December 31, 2019, 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
Certain insurance contracts (1)
Total before investments measured at NAV
Investments measured at NAV
Total
Level 1
Level 2
Level 3
$
717
978
145
—
158
—
1,998
$
$
$
—
—
1,009
294
—
—
1,303
$
$
—
—
—
—
—
106
106
$
$
$
717
978
1,154
294
158
106
3,407
455
3,862
(1)
The Level 3 plan assets were purchased during the year ended December 31, 2019. There were no Level 3 plan asset
balances during the year ended December 31, 2018.
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
—
$
—
—
950
309
—
11
$
1,958
$
1,270
$
$
$
725
946
1,021
309
216
11
3,228
424
3,652
93
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Equity securities include large-cap, mid-cap and small-cap publicly-traded companies mainly located in the U.S., 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).
Certain insurance contracts include group contracts that have been purchased to cover a portion of the plan members. The fair
value of annuity buy-in contracts changes based on fluctuations in the obligation associated with the covered plan members
(Level 3).
Other plan assets, net, 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.
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.
94
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Expected benefit payments and future contributions
As of December 31, 2019, benefit payments expected to be paid over the next 10 years are as follows:
(In millions)
2020
2021
2022
2023
2024
2025 - 2029
Pension
Plans (1)
448
332
327
320
313
1,462
$
$
$
$
$
$
OPEB Plans
$
$
$
$
$
$
13
12
12
12
11
47
(1)
Benefit payments are expected to be paid from the plans’ net assets.
We expect our 2020 pension contributions (excluding contributions to our defined contribution plans) to be approximately
$95 million.
Canadian pension funding
Quebec plans
The funding of our Quebec pension plans is 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, or on a solvency basis if the solvency funded status of a multi-
jurisdictional pension plan is below 75%.
Ontario plans
Prior to December 31, 2018, the funding of our material Ontario pension 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 of our exit from the funding
relief regulation, all remaining requirements, including the requirement for corrective measures that was deferred to after the
expiration of the funding relief regulation, were removed.
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%.
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 C$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 C$12 million and
C$4 million in 2018 and 2019, respectively, and will also be required to make our final remaining contributions for past
capacity reductions of approximately C$2 million in 2020.
95
Note 14. Income Taxes
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Income before income taxes by taxing jurisdiction for the years ended December 31, 2019, 2018 and 2017, was as follows:
(In millions)
U.S.
Foreign
2019
(205)
216
11
$
$
2018
(90)
477
387
$
$
2017
(289)
295
6
$
$
The income tax provision for the years ended December 31, 2019, 2018 and 2017, 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
2019
2018
2017
$
$
—
—
—
—
(58)
(58)
—
(58)
(58)
$
$
—
—
—
12
(164)
(152)
12
(164)
(152)
$
$
—
2
2
(4)
(82)
(86)
(4)
(80)
(84)
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.
We were required to recognize the effects of tax law changes in the period of enactment. On December 22, 2017, the U.S.
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 in
which a reasonable estimate can be determined, and to continue to apply Accounting Standards Codification 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.
96
Effective income tax rate reconciliation
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
The income tax provision attributable to income 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, 2019, 2018 and 2017, as a result of the following:
(In millions)
Income before income taxes
Income tax provision:
Expected income tax provision
Changes resulting from:
U.S. federal tax rate change reconciliation
Valuation allowance (1)
Enactment of change in tax rate (2)
Foreign exchange
U.S. tax on non-U.S. earnings
State income taxes, net of federal income tax benefit
Foreign tax rate differences
Nondeductible expenses (3)
Other, net
2019
11
$
2018
387
$
2017
6
$
(2)
—
(43)
—
2
(7)
7
(11)
(6)
2
(58)
(81)
—
59
—
(29)
(65)
4
(24)
(15)
(1)
(152)
$
(1)
(1)
247
(368)
6
(2)
10
25
(2)
2
(84)
$
$
(1)
(2)
(3)
During 2019, we recorded an increase to our valuation allowance of $43 million, related to our U.S. operations.
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 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 2018, we recorded an income tax provision of $13 million for a nondeductible goodwill impairment charge,
before a corresponding adjustment to valuation allowance.
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.
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.
97
Net deferred income tax assets as of December 31, 2019 and 2018, were comprised of the following:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
(In millions)
Fixed assets
Operating lease right-of-use 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
Operating lease liabilities
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
2019
(28)
(16)
(28)
(72)
346
378
603
35
188
96
16
78
1,740
(753)
915
915
$
$
$
2018
(32)
—
(29)
(61)
362
328
586
13
176
93
—
80
1,638
(701)
876
876
$
$
$
98
The balance of tax attributes and their dates of expiration as of December 31, 2019, were as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
(In millions)
Net operating loss carryforwards:
U.S. federal: $2,072
U.S. federal: $205
U.S. state: $2,032
U.S. state: $82
Canadian federal and provincial (excluding Quebec): $79
Quebec: $64
Other
Net capital loss carryforwards:
Canadian federal and provincial (excluding Quebec): $115
Quebec: $52
Undeducted research and development expenditures:
Canadian federal and provincial (excluding Quebec): $669
Quebec: $807
Tax credit carryforwards:
Canadian research and development, and other
U.S. state and other
Related
Deferred
Income Tax
Asset
Year of
Expiration
435 (1) 2023 – 2037
43 (1)
Indefinite
102 (1) 2020 – 2039
Indefinite
4 (1)
14
2030 – 2038
2032 – 2038
Indefinite
Indefinite
Indefinite
Indefinite
Indefinite
4
1
603
30
5
35
114
74
188
75
2022 – 2039
21 (1) 2020 – 2034
96
$
$
$
$
$
$
$
$
(1)
As of December 31, 2019, we had a valuation allowance against virtually all of our U.S. 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.
Reclassification of stranded income tax
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. 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.
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.
99
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,
2019 and 2018:
(In millions)
Beginning of year
Increase (decrease) resulting from:
Positions taken in the prior period
Expirations of statute of limitations
End of year
2019
28
2
(1)
29
$
$
2018
28
—
—
28
$
$
If the total amount of unrecognized tax benefits were recognized as of December 31, 2019, $3 million would affect the effective
tax rate.
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 2016 and subsequent years, as well as Canadian tax returns for 2014 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 tax 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 15. Commitments and Contingencies
Commitments
In the normal course of business, we have entered into various supply agreements, 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, 2019, these commitments were as follows:
(In millions)
2020
2021
2022
2023
2024
Thereafter
Commitments (1)
77
$
70
67
48
4
30
$
296
(1)
Includes energy purchase obligations of $210 million through 2024 for certain of our pulp and paper mills.
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
100
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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,
2019, will not have a material adverse effect on our Consolidated Financial Statements.
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. 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. Hearings
for certain of these matters are scheduled to occur in 2020. Certain cases, including cases that were scheduled in March 2019,
were settled without any material impact in our Consolidated Statements of Operations for the year ended December 31, 2019.
Countervailing duty and anti-dumping investigations of softwood lumber
On November 25, 2016, 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 certain U.S. softwood lumber products producers
and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin
softwood lumber products exported to the U.S. One of our subsidiaries was identified in the petitions as being a Canadian
exporting producer of softwood lumber products 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 and Border Protection agency (or, “U.S.
Customs”) at a rate of 12.82% for estimated countervailing duties on our U.S. imports of softwood lumber products 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 U.S. Customs at a rate of 14.7% for our U.S. imports of Canadian-produced
softwood lumber products. 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 by a North American Free Trade Agreement binational panel (or, “Panel”) on
appeal. Through December 31, 2019, our cash deposits totaled $128 million and, based on the 14.7% rate and our current
operating parameters, could be as high as $50 million per year. On January 31, 2020, Commerce issued its preliminary
determination in the countervailing duties administrative review and established our new preliminary rate at 14.86%, which will
not be effective until the issuance of the final determination.
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 U.S. Customs at a rate of 4.59% for estimated anti-dumping duties on
our U.S. imports of softwood lumber products 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 U.S. Customs, at a rate of 3.2% for our U.S. imports of Canadian-produced softwood
lumber products. This rate will apply until Commerce sets a duty rate in an administrative review, or a new rate may be set
through a remand determination by a Panel on appeal. Through December 31, 2019, our cash deposits totaled $34 million and,
based on the 3.2% rate and our current operating parameters, could be as high as $10 million per year. On January 31, 2020,
Commerce issued its preliminary determination in the anti-dumping administrative review and established our new preliminary
rate at 1.18%, which will not be effective until the issuance of the final determination.
On April 1, 2019, Commerce published a notice initiating the administrative reviews of the countervailing duty and anti-
dumping orders on softwood lumber products from Canada. We were selected as a mandatory respondent in these
administrative reviews and we are in the process of responding to Commerce with the information requested.
On September 4, 2019, a Panel issued an interim decision upholding the affirmative final injury determinations of the ITC in
both investigations of softwood lumber products from Canada. The Panel remanded the ITC to reconsider several findings and
ordered the ITC to submit its redetermination on remand within 90 days from the date of the Panel interim decision. On
December 19, 2019, the ITC issued its redetermination on remand that maintained the affirmative final injury determinations.
101
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
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 products.
Accordingly, no contingent loss was recorded in respect of these petitions in our Consolidated Statements of Operations, and
our cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets.
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 by the Quebec Superior Court in Canada (or, “Quebec Superior Court”) approving the arrangement on
July 27, 2012. Certain former shareholders of Fibrek exercised 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. On September 26, 2019, the
Quebec Superior Court rendered a decision fixing the fair value of the shares of the dissenting shareholders at C$1.99 per share,
or C$31 million in aggregate, plus interest and an additional indemnity, for a total currently estimated at C$44 million
($33 million) payable in cash. As previously reported, we accrued C$14 million ($10 million) for the payment of the dissenting
shareholders’ claims. Following the court decision, we have accrued an additional C$30 million ($23 million), and as a result
recorded $23 million in “Other (expense) income, net” in our Consolidated Statement of Operations for the year ended
December 31, 2019. Of the total amount of C$44 million, C$19 million ($14 million) was payable immediately and paid on
October 2, 2019, bringing the remaining balance to C$25 million ($19 million), which is recorded in “Other liabilities” in our
Consolidated Balance Sheet as of December 31, 2019. We are appealing the decision, therefore the payment of any additional
consideration and its timing will depend on the outcome of the appeal. On November 13, 2019, a legal hypothec in the amount
of C$30 million ($23 million) was registered on our Saint-Félicien (Quebec) immovable and movable property to secure the
payment of any additional amounts following the outcome of the appeal.
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 C$150 million ($115 million), would have to be funded if we do not obtain the relief sought. The hearing in this
matter has not yet been scheduled but could occur in 2020.
Environmental matters
We are subject to a number of federal or national, state, provincial, and local environmental laws, regulations, and orders in
various jurisdictions. We believe our operations are in material compliance with current applicable environmental laws and
regulations. Environmental regulations promulgated and orders issued 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, 2019 and 2018, 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 $26 million and $23 million recorded as of December 31, 2019 and 2018,
respectively, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets.
102
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
These liabilities are included in “Accounts payable and accrued liabilities” or “Other liabilities” in our Consolidated Balance
Sheets.
Note 16. 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 12,020,960 shares have been reserved for issuance under the Incentive Plans (as
defined in Note 17, “Share-Based Compensation”).
Treasury stock
With our repurchase of 4.8 million shares at a cost of $24 million during the year ended December 31, 2019, we completed our
$150 million share repurchase program, which was launched in 2012. We did not repurchase any shares during 2018 and 2017.
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, 2019 and 2017.
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, 2019 and 2018, no preferred shares were issued and outstanding.
Note 17. Share-Based Compensation
Incentive Plans
The Resolute Forest Products Equity Incentive Plan, as amended (or, the “Incentive Plan”), administered by the human
resources and compensation/nominating and governance committee of the board of directors, became effective in 2010 and
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. The Incentive Plan reserved for issuance 9 million shares for stock incentive
awards. In 2019, we established and adopted the Resolute Forest Products 2019 Equity Incentive Plan (or, the “2019 Incentive
Plan”), which authorized an additional 3 million shares to be issued as stock incentive awards. Since the adoption of the 2019
Incentive Plan, no more awards can be granted under the Incentive Plan. As of December 31, 2019, 1.4 million shares were
available for grants under the 2019 Incentive Plan. We refer to both the Incentive Plan and the 2019 Incentive Plan as the
“Incentive Plans”.
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, 2019, 2018 and 2017, share-based compensation expense under the Incentive Plans was
$2 million (no tax benefit), $17 million ($1 million tax benefit) and $18 million (no tax benefit), respectively. As of
December 31, 2019, 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 Plans, 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. Since the adoption of the 2019 Incentive Plan, stock options can no longer be granted
under our Incentive Plans.
103
The activity of outstanding stock options for the year ended December 31, 2019, was as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Balance as of December 31, 2018
Expired
Balance as of December 31, 2019
Exercisable as of December 31, 2019
Number of
Shares
1,065,021
(105,622)
959,399
959,399
Weighted-
Average
Exercise
Price
16.30
$
$
$
$
18.20
16.09
16.09
Weighted-
Average
Contractual
Life (years)
3.8
2.8
2.8
The total intrinsic value of stock options exercised in 2018 was less than $1 million. No stock options were exercised in 2019
and 2017.
Restricted stock units and deferred stock units
Under the Incentive Plans, 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.
The activity of nonvested RSUs and DSUs for the year ended December 31, 2019, was as follows:
Balance as of December 31, 2018
Granted
Vested
Forfeited
Balance as of December 31, 2019
Number of Units
Equity-
Based
Awards
1,545,179
606,451
(769,984)
(25,630)
1,356,016
Liability-
Based
Awards
518,962
636,083
(362,253)
(36,858)
755,934
Weighted-
Average Fair
Value at Grant
Date
7.00
$
$
$
$
$
5.55
6.71
6.43
6.32
Total
2,064,141
1,242,534
(1,132,237)
(62,488)
2,111,950
There were 236,036 equity-based and 146,330 liability-based RSUs and DSUs granted to directors that vested but were not
settled as of December 31, 2019.
The weighted-average grant-date fair value of all RSUs and DSUs granted in 2018 and 2017, was $8.93 and $7.34, respectively.
The total fair value of RSUs and DSUs vested in 2019, 2018 and 2017, was $5 million, $12 million and $8 million,
respectively. We paid $1 million, $2 million and $1 million for liability-based RSUs and DSUs in 2019, 2018 and 2017,
respectively.
Performance stock units
Under the Incentive Plans, 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 PSUs granted in
2019 and certain PSUs granted in 2018 was estimated using a Monte Carlo simulation model, using the following assumptions:
Expected volatility
Risk-free interest rate
2019 Grants
56% - 58%
2018 Grants
57%
1.58% - 1.70%
2.73% - 2.99%
104
The activity of nonvested PSUs for the year ended December 31, 2019, was as follows:
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
Balance as of December 31, 2018
Granted
Vested
Performance adjustment
Forfeited
Balance as of December 31, 2019
Number of Units
Equity-
Based
Awards
2,382,174
606,451
(714,891)
87,783
(8,097)
2,353,420
Liability-
Based
Awards
975,932
313,347
(173,403)
29,693
(18,548)
1,127,021
Weighted-
Average Fair
Value at Grant
Date
6.66
$
$
$
$
$
$
5.29
7.62
4.81
6.73
5.99
Total
3,358,106
919,798
(888,294)
117,476
(26,645)
3,480,441
The weighted-average grant-date fair value of all PSUs granted in 2018 and 2017, was $9.01 and $8.63, respectively. The total
fair value of PSUs vested in 2019 and 2018, was $7 million and $2 million, respectively. No PSUs vested in 2017. We paid
$1 million for liability-based PSUs in 2019. There was no cash paid for liability-based PSUs in 2018 and 2017.
Deferred Compensation Plan
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.
There was a $1 million reversal in share-based compensation expense under the Deferred Compensation plan for the year ended
December 31, 2019. Share-based compensation expense for the years December 31, 2018 and 2017 was less than $1 million
and $1 million, respectively.
RSUs and DSUs outstanding under the Deferred Compensation Plan as of December 31, 2019 and 2018, were 330,900 and
260,672, respectively. The total fair value of RSUs and DSUs vested in 2019, 2018 and 2017, was less than $1 million,
$1 million, and less than $1 million, respectively.
105
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” 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 2019, 2018 and 2017, no assets were identifiable by segment and reviewed by management.
Information about certain segment data for the years ended December 31, 2019, 2018 and 2017, was as follows:
(In millions)
Market
Pulp (1)
Tissue (2) (3)
Wood
Products (4) Newsprint
Specialty
Papers
Segment
Total
Corporate
and Other
Total
Sales
2019
2018
$
797
$ 1,085
$
$
2017
$
Depreciation and amortization
911
$
2019
2018
2017
$
$
$
23
27
31
Operating income (loss)
2019
2018
2017
$
$
$
Capital expenditures
2019
2018
2017
$
$
$
39
172
79
29
53
12
$
$
$
$
$
$
$
$
$
165
130
81
18
15
5
(16)
(30)
(6)
8
27
101
$
$
$
$
$
$
$
$
$
$
$
$
616
823
797
34
32
33
(6)
169
186
23
37
9
$
$
$
$
$
$
$
$
$
$
$
$
773
907
842
29
66
66
49
74
(23)
16
18
6
$
$
$
$
$
$
$
$
$
$
$
$
572
811
882
$ 2,923
$ 3,756
$ 3,513
43
47
45
33
40
(9)
27
16
20
$
$
$
$
$
$
$
$
$
147
187
180
99
425
227
103
151
148
$
$
$
$
$
$
$
$
$
$
$
$
— $ 2,923
— $ 3,756
— $ 3,513
20
25
24
(82)
(46)
(185)
10
4
16
$
$
$
$
$
$
$
$
$
167
212
204
17
379
42
113
155
164
(1)
(2)
(3)
(4)
Inter-segment sales of $36 million, $39 million and $36 million, were excluded from market pulp sales for the years
ended December 31, 2019, 2018 and 2017, respectively. Effective July 1, 2019, these sales were transacted either at
the lowest market price of the previous month or cost. Previously these sales were transacted at cost. This change had
no material impact on the segment presentation.
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 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 $22 million,
$26 million and $20 million for the years ended December 31, 2019, 2018 and 2017, respectively.
106
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 2019, 2018 or 2017 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, 2019, 2018 and 2017, were as follows:
2019
2018
2017
$
2,026
$
2,581
$
2,387
405
87
405
897
$
2,923
513
148
514
1,175
3,756
2019
540
1,028
1,568
$
$
$
517
126
483
1,126
3,513
2018
525
1,040
1,565
$
$
$
(In millions)
U.S.
Foreign countries:
Canada
Mexico
Other countries
Long-lived assets by country as of December 31, 2019 and 2018, were as follows:
(In millions)
U.S.
Canada
107
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
(Loss) Income for the years ended December 31, 2019, 2018 and 2017, the Balance Sheets as of December 31, 2019 and 2018,
and the Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017, 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 (LOSS) INCOME
For the Year Ended December 31, 2019
(In millions)
Sales
Costs and expenses:
Parent
Guarantor
Subsidiaries
$
— $
2,379
Non-guarantor
Subsidiaries
2,210
$
Consolidating
Adjustments Consolidated
$ (1,666)
2,923
$
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 (expense) income, net
Equity in income of subsidiaries
(Loss) income before income taxes
Income tax provision
Net (loss) income including noncontrolling interest
Net income attributable to noncontrolling interest
Net (loss) income attributable to Resolute Forest
Products Inc.
Comprehensive (loss) income attributable to Resolute
Forest Products Inc.
$
$
—
—
—
16
—
—
(16)
(63)
—
(3)
35
(47)
—
(47)
—
(47)
(276)
$
$
2,371
1,497
38
94
45
18
—
(187)
(6)
12
57
18
(106)
—
(106)
—
(106)
(189)
$
$
129
297
75
—
(2)
214
(11)
35
(27)
—
211
(57)
154
—
154
1
(1,670)
—
(2)
—
—
—
6
49
—
(49)
(53)
(47)
(1)
(48)
—
(48)
188
$
$
2,198
167
389
136
18
(2)
17
(31)
47
(22)
—
11
(58)
(47)
—
(47)
(276)
$
$
108
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Year Ended December 31, 2018
(In millions)
Sales
Costs and expenses:
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
$
— $
3,123
$
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 interest
Net income attributable to noncontrolling interest
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
$
$
109
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)
$
$
110
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2019
(In millions)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Accounts receivable from affiliates
Inventories, net
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
Operating lease right-of-use 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
$
— $
— $
1
—
—
—
—
—
1
—
—
—
—
—
—
3,565
—
226
268
169
71
4
12
753
510
3
1
27
1,297
112
2,076
179
122
749
360
—
—
21
1,252
949
45
912
34
—
—
—
57
$
3,566
$
4,958
$
3,249
—
(1,017)
(7)
(71)
(4)
—
(1,099)
—
—
2
—
(1,297)
(112)
(5,641)
—
$ (8,147)
3
349
—
522
—
—
33
907
1,459
48
915
61
—
—
—
236
$
3,626
Accounts payable and accrued liabilities
$
$
109
$
227
$
— $
342
Current portion of long-term debt
Current portion of operating lease liabilities
Accounts payable to affiliates
Advance and interest payable to subsidiary
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
Operating lease liabilities, net of current portion
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
6
—
—
278
71
—
355
371
1,297
—
—
—
—
1
4
784
—
—
898
77
—
—
378
25
21
—
4
—
—
4
235
—
—
112
1,082
32
54
1,515
1,734
3,249
—
—
(1,062)
(71)
(4)
(1,137)
—
(1,297)
(112)
—
—
—
(2,546)
(5,601)
$ (8,147)
$
1
8
—
—
—
351
448
—
—
1,460
57
75
2,391
1,235
3,626
2,023
1,543
3,566
$
1,399
3,559
4,958
$
$
111
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
112
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2019
(In millions)
Net cash provided by operating activities
Cash flows from investing activities:
Cash invested in fixed assets
Disposition of assets
Decrease in countervailing duty cash deposits on
supercalendered paper
Increase in countervailing and anti-dumping duty cash
deposits on softwood lumber
Decrease in countervailing duty cash deposits on
uncoated groundwood paper
Advance to parent
Increase in notes receivable from parent
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under revolving credit facilities
Repayments of debt
Purchases of treasury stock
Payments of financing and credit facility fees
Advance from subsidiary
Increase in notes payable to subsidiary
Net cash provided by (used in) 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 (included in “Other assets”)
$
$
$
$
$
$
$
Parent
Guarantor
Subsidiaries
— $
10
Non-guarantor
Subsidiaries
$
75
Consolidating
Adjustments Consolidated
$
— $
85
— $
—
—
—
—
—
—
—
—
(225)
(24)
—
12
237
—
—
(31)
2
1
(59)
6
(12)
(237)
(330)
71
(46)
—
(3)
—
—
22
—
— $
(298)
— $
— $
— $
— $
306
8
3
5
$
$
$
$
$
$
(82)
1
—
—
—
—
—
(81)
—
—
—
(1)
—
—
(1)
2
(5)
39
34
$
— $
—
—
—
—
12
237
249
—
—
—
—
(12)
(237)
(249)
—
(113)
3
1
(59)
6
—
—
(162)
71
(271)
(24)
(4)
—
—
(228)
2
$
$
$
— $
(303)
— $
— $
345
42
— $
34
$
— $
— $
3
39
113
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2018
(In millions)
Net cash provided by operating activities
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 (included in “Other assets”)
$
$
$
$
$
$
$
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
$
$
$
$
101
(104)
1
— $
435
— $
—
—
—
—
1
135
136
—
—
—
(1)
(135)
(136)
—
(155)
336
48
(77)
(6)
—
—
146
(144)
(136)
(1)
—
—
(281)
(4)
$
$
$
$
$
— $
296
— $
— $
— $
— $
49
345
304
41
—
—
—
—
—
(103)
—
—
—
—
(1)
(1)
(4)
(7)
46
39
3
36
— $
334
— $
—
—
—
—
—
—
—
—
(136)
(1)
1
136
—
—
(51)
335
48
(77)
(6)
(1)
(135)
113
(144)
—
—
—
—
(144)
—
— $
303
— $
— $
— $
— $
3
306
301
5
$
$
$
$
$
114
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2017
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
— $
125
(In millions)
Net cash provided by operating activities
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.
Repayment 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 (included in “Other current assets”)
Restricted cash (included in “Other assets”)
$
$
$
$
$
$
$
$
$
$
$
$
$
(116)
—
(22)
(26)
22
(142)
19
—
(1)
—
18
—
1
2
3
3
$
— $
— $
33
(48)
21
—
—
—
(27)
—
(15)
—
(22)
(37)
6
(25)
71
46
3
4
39
$
$
$
$
$
$
$
$
— $
158
— $
—
—
—
(22)
(22)
—
—
—
22
22
—
(164)
21
(22)
(26)
—
(191)
19
(15)
(1)
—
3
6
— $
(24)
— $
— $
— $
— $
— $
73
49
6
4
39
— $
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
— $
— $
115
Note 20. Quarterly Information (Unaudited)
RESOLUTE FOREST PRODUCTS INC.
Notes to Consolidated Financial Statements
First
Quarter
Second
Quarter
(In millions, except per share amounts)
Sales
Operating income (loss)
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
(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
$
$
$
$
$
$
$
$
$
$
795
64
42
0.45
0.45
First
Quarter
874
48
10
0.11
0.11
$
$
$
$
$
$
$
$
$
$
2019
Third
Quarter
$
$
$
705
(18)
(43)
Fourth
Quarter
$
$
$
668
(69)
(71)
Year
$ 2,923
$
$
17
(47)
755
40
25
0.27
$ (0.47)
$ (0.79)
$ (0.51)
0.27
$ (0.47)
$ (0.79)
$ (0.51)
Second
Quarter
976
121
72
0.79
0.77
2018
Third
Quarter
974
135
117
1.28
1.25
$
$
$
$
$
Fourth
Quarter
932
Year
$ 3,756
75
36
0.39
0.38
$
$
$
$
379
235
2.57
2.52
$
$
$
$
$
Note 21. Subsequent Event
The following significant event occurred subsequent to December 31, 2019:
• On February 1, 2020 (or, the “Closing Date”), we acquired from Conifex Timber Inc. all of the equity securities and
membership interests in certain of its subsidiaries, the business of which consists mainly in the operation of three
sawmills and related assets in Cross City (Florida) and in Glenwood and El Dorado (Arkansas) (or, the “U.S. Sawmill
Business”). The U.S. Sawmill Business acquired produces construction-grade dimensional lumber and decking
products from locally sourced southern yellow pine for distribution within the U.S.
The fair value of the consideration, paid in cash at the Closing Date, for the U.S. Sawmill Business acquired was
$175 million, subject to post-closing working capital adjustments. We financed the acquisition by borrowing
$175 million under our revolving credit facilities. The acquisition will be accounted for using the acquisition method
of accounting whereby the net assets acquired and results of operations will be consolidated from the Closing Date.
Since the initial accounting for the business combination is incomplete at the time of issuance of our Consolidated
Financial Statements, certain disclosures are not included. Specifically, we have not yet completed a preliminary
purchase price allocation of the assets acquired and liabilities assumed.
This acquisition will diversify our lumber production, and increase our operating capacity in the U.S. South.
116
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, 2019 and 2018, and the related consolidated statements of operations, comprehensive
(loss) income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019, 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, 2019, 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 U.S. 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.
117
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 (1)
Montréal, Canada
March 2, 2020
(1) CPA auditor, CA, public accountancy permit No.A115888
We have served as the Company’s auditor since 2007.
118
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, 2019. 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, 2019, 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, 2019, has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report above.
119
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, 2019. 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, 2019. Management’s report on
internal control over financial reporting can be found on page 119 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, 2019. This report can be found on page 117 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, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
120
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,”
“Delinquent Section 16(a) Reports,” and “Corporate Governance and Board Matters” in our definitive proxy statement for our
2020 annual meeting of shareholders to be held on May 12, 2020 (or, our “2020 proxy statement”), which will be filed within
120 days of the end of our fiscal year ended December 31, 2019, 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 2020 proxy statement is
incorporated herein by reference.
121
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 2020 proxy statement is
incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2019, 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 plans. The Incentive Plans are the only compensation plans with shares authorized.
Plan category
Equity compensation plans approved by security
holders
Equity compensation plans not approved by
security holders (2)
(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))
1,619,353 (1)
3,992,091 (3)
5,611,444
$
$
$
—
16.09 (4)
16.09
1,380,647
—
1,380,647
Total
(1)
(2)
(3)
(4)
Includes shares issuable upon the exercise of 606,451 RSUs issued under the 2019 Incentive Plan, at a rate of one
share per unit. Also includes shares issuable upon the settlement of 606,451 PSUs issued under the 2019 Incentive
Plan at the maximum payout rate (1,012,902 shares).
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 959,399 stock options and shares issuable upon the settlement of 985,601
RSUs and DSUs issued under the Incentive Plan, at a rate of one share per unit. Also includes shares issuable upon the
settlement of 1,746,969 PSUs issued under the Incentive Plan at the maximum payout rate (2,047,091 shares).
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 2020 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 2020 proxy statement is incorporated herein by reference.
122
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, 2019, 2018 and 2017
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2019,
2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2019, 2018 and
2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
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
67
68
69
70
71
73
117
119
(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
4.4
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).
Securities Purchase Agreement, dated December 23, 2019, among Conifex USA Inc., Conifex Holdco LLC,
Conifex Timber Inc. and Resolute FP US Inc.(incorporated by reference from Exhibit 2.1 to Resolute Forest
Products Inc.’s Current Report on Form 8-K filed on December 27, 2019, SEC File No. 001-33776).
Amended and Restated Certificate of Incorporation of Resolute Forest Products 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).
Description of the Securities Registered under Section 12 of the Securities Exchange Act of 1934.
123
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 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).
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).
124
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
†10.31
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).
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).
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).
125
Exhibit No.
†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
Description
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).
Note Purchase Agreement, dated as of December 21, 2018, among Resolute Forest Products Inc., and
certain noteholders. (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, 2018, filed March 1, 2019, SEC File No.
001-33776).
Offer Letter between Remi Lalonde and Resolute Forest Products Inc., dated January 30, 2019.
(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, 2018, filed March 1, 2019, SEC File No. 001-33776).
Form of Resolute Forest Products Equity Incentive Plan Director Cash-Settled Deferred Stock Unit
Agreement. (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, 2018, filed March 1, 2019, SEC File No. 001-33776).
Form of Resolute Forest Products Equity Incentive Plan Director Cash-Settled Restricted Stock Unit
Agreement. (incorporated by reference from Exhibit 10.48 to Resolute Forest Products Inc.’s Annual Report
on Form 10-K for the year ended December 31, 2018, filed March 1, 2019, SEC File No. 001-33776).
Form of First Amendment to the Resolute Forest Products Equity Incentive Plan Director Deferred Stock
Unit Agreement. (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, 2018, filed March 1, 2019, SEC File No.
001-33776).
Form of First Amendment to the Resolute Forest Products Equity Incentive Plan Director Restricted Stock
Unit Agreement. (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, 2018, filed March 1, 2019, SEC File No.
001-33776).
Second Amendment to the Credit Agreement, dated as of May 14, 2019, 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 20,
2019, SEC file No. 001-33776).
2019 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, 2019, filed August 9, 2019, SEC File No. 001-33776).
2019 Resolute Forest Products Inc. Short-Term Incentive Plan – Canada / International. (incorporated by
reference from Exhibit 10.3 to Resolute Forest Products Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2019, filed August 9, 2019, SEC File No. 001-33776).
Resolute Forest Products Inc. 2019 Equity Incentive Plan. (incorporated by reference from Exhibit 10.4 to
Resolute Forest Products Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed
August 9, 2019, SEC File No. 001-33776).
Amended and Restated Credit Agreement, dated as of October 28, 2019, among Resolute Forest Products
Inc., certain U.S. subsidiaries of Resolute Forest Products Inc. as borrowers and guarantors, various lenders,
and American AgCredit, FLCA, as administrative agent and collateral agent (incorporated by reference
from Exhibit 10.1 to Resolute Forest Products Inc.’s Current Report on Form 8-K filed October 30, 2019,
SEC file No. 001-33776).
Form of Resolute Forest Products 2019 Equity Incentive Plan Cash Settled Restricted 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, 2019, filed November 12, 2019, SEC File No.
001-33776).
Form of Resolute Forest Products 2019 Equity Incentive Plan Stock Settled Performance Stock Unit
Agreement. (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, 2019, filed November 12, 2019, SEC File No.
001-33776).
126
Exhibit No.
†10.46
†10.47
Description
Form of Resolute Forest Products 2019 Equity Incentive Plan Stock Settled Restricted Stock Unit
Agreement. (incorporated by reference from Exhibit 10.4 to Resolute Forest Products Inc.’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2019, filed November 12, 2019, SEC File No.
001-33776).
Summary of 2020 Resolute Forest Products Inc. Short-Term Incentive Plan (incorporated by reference from
the description in Resolute Forest Products Inc.’s Current Report on Form 8-K filed January 30, 2020, SEC
File No. 001-33776).
21.1
23.1
24.1
31.1
31.2
32.1
32.2
99.1
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)
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.
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 (Loss) Income, (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 instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the inline XBRL document.
The above-referenced exhibits are being filed with this Form 10-K.
None.
ITEM 16. FORM 10-K SUMMARY
None.
127
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 2, 2020
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 2, 2020
/s/ Bradley P. Martin*
Bradley P. Martin
Chairman, Director
March 2, 2020
/s/ Remi G. Lalonde
Remi G. Lalonde
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
March 2, 2020
/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/ Alain Rhéaume*
Alain Rhéaume
/s/ Michael S. Rousseau*
Michael S. Rousseau
Director
Director
Director
Director
Director
Director
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
* 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
128
BOARD OF
DIRECTORS
CORPORATE
OFFICERS
Yves Laflamme
President and Chief Executive Officer
Lori Kilgour
Senior Vice President
Process Improvement and Chief Information 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
Luc Thériault
Senior Vice President
Wood Products
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 a, b, c
Corporate Director
Jennifer C. Dolan a, b, d
Corporate Director
Richard D. Falconer a, c, d
Corporate Director;
Senior Advisor, Lazard Canada
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 February 25, 2020
SHAREHOLDER
INFORMATION
Annual General Meeting
Investor Information and Financial Reporting
Our annual meeting of stockholders will be held on Tuesday,
May 12, 2020, at 9:00 a.m. (Eastern), either virtually or at
a location in Montreal, Quebec, Canada, that remains to be
determined.
Remi G. Lalonde
Senior Vice President and Chief Financial Officer
514-394-2345
ir@resolutefp.com
Resolute’s officers are actively monitoring the novel
coronavirus (COVID-19) situation. The management team is
sensitive to the public health and travel concerns shareholders
may have and the protocols that federal, state, provincial
and local governments may impose. In the event it is not
possible or advisable to hold an in-person annual meeting,
the company will announce alternative arrangements for the
meeting as promptly as practicable, which may include holding
the meeting solely by means of remote communication. Please
monitor the “Annual Meeting of Stockholders” page under
the “Investors” section of www.resolutefp.com for updated
information. For stockholders planning to attend the annual
meeting, it is preferable to check the website one week prior
to the meeting date.
Transfer Agent for Common Stock
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219, United States
1-800-937-5449 (toll-free within the United States
and Canada) or 718-921-8124
www.astfinancial.com
Co-Transfer Agent – Canada
AST Trust Company (Canada)
1 Toronto Street, Suite 1200
Toronto, Ontario M5C 2V6, Canada
1-800-387-0825 (toll-free within Canada
and the United States)
www.astfinancial.com/ca-en
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
1250 René-Lévesque Boulevard West, Suite 2800
Montreal, Quebec H3B 2G4, Canada
Media Inquiries
Seth Kursman
Vice President, Corporate Communications,
Sustainability and Government Affairs
514-394-2398
seth.kursman@resolutefp.com
Form 10-K
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.
Resolute Forest Products
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.
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
HEADQUARTERS
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
2019
R
E
S
O
L
U
T
E
F
O
R
E
S
T
P
R
O
D
U
C
T
S
–
A
N
N
U
A
L
R
E
P
O
R
T
O
N
F
O
R
M
1
0
-
K
2
0
1
9