UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



	þ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~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)



Delaware	98-0526415
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)



111 Robert-Bourassa Boulevard	Suite ~~5000;~~ 5000	Montreal ~~Quebec;~~	Quebec	Canada	H3C 2M1
(Address of principal executive offices) (Zip Code)

(514) 875-2160

~~(514) 875-2160~~

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Common Stock, par value $0.001 per share	RFP	New York Stock Exchange Toronto Stock Exchange
(Title of class)	(Trading Symbol)	(Name of exchange on which registered)

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.

Yesþ ☒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).

Yesþ ☒No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

☐

Accelerated ~~filer~~ þ

Filer

~~Non-accelerated filer~~¨

☒

~~Smaller reporting company~~¨

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging ~~growth company~~¨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 Exchange Act).

Yes¨☐No þ☒

As of ~~October~~July 31, ~~2018,~~2019, there were ~~90,344,530~~89,293,752 shares of Resolute Forest Products Inc. common stock, $0.001 par value, outstanding.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

TABLE OF CONTENTS



	Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:

Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	1

Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the Three ~~Months~~ and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	2

Consolidated Balance Sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	3

Consolidated Statements of Changes in Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4

Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~	5

~~Notes to Unaudited Interim Consolidated Financial Statements~~2018	6

Notes to Unaudited Interim Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2926

Item 3. Quantitative and Qualitative Disclosures About Market Risk	6553

Item 4. Controls and Procedures	6553

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	6654

Item 1A. Risk Factors	6654

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 5. Other Information	54

Item 6. Exhibits	6755

SIGNATURES	6856

Table of Contents


PART I.	FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions of U.S. dollars, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Sales	$	974		$	885		$	2,824		$	2,615		$	755		$	976		$	1,550		$	1,850
Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs		628			628			1,881			1,945			536			639			1,090			1,253
Depreciation and amortization		54			52			161			153			42			54			82			107
Distribution costs		117			110			356			328			101			123			201			239
Selling, general and administrative expenses		40			43			125			122			36			42			73			85
Closure costs, impairment and other related charges		—			8			1			80			—			1			—			1
Net gain on disposition of assets		—			(2	)		(4	)		(2	)		—			(4	)		—			(4	)
Operating income (loss)		135			46			304			(11	)
Operating income														40			121			104			169
Interest expense		(12	)		(13	)		(36	)		(36	)		(7	)		(11	)		(16	)		(24	)
Non-operating pension and other postretirement benefit credits		13			2			38			6			12			12			24			25
Other income, net		14			6			4			11
Income (loss) before income taxes		150			41			310			(30	)
Other expense, net														(1	)		(3	)		(5	)		(10	)
Income before income taxes														44			119			107			160
Income tax provision		(33	)		(15	)		(111	)		(63	)		(19	)		(47	)		(40	)		(78	)
Net income (loss) including noncontrolling interests		117			26			199			(93	)
Net income including noncontrolling interests														25			72			67			82
Net income attributable to noncontrolling interests		—			(2	)		—			(4	)		—			—			—			—
Net income (loss) attributable to Resolute Forest Products Inc.	$	117		$	24		$	199		$	(97	)
Net income (loss) per share attributable to Resolute Forest Products Inc. common shareholders:
Net income attributable to Resolute Forest Products Inc.													$	25		$	72		$	67		$	82
Net income per share attributable to Resolute Forest Products Inc. common shareholders:
Basic	$	1.28		$	0.27		$	2.18		$	(1.07	)	$	0.27		$	0.79		$	0.73		$	0.90
Diluted		1.25			0.26			2.14			(1.07	)		0.27			0.77			0.71			0.88
Weighted-average number of Resolute Forest Products Inc. common shares outstanding:
Basic		91.3			90.5			91.3			90.4			92.4			91.3			92.4			91.2
Diluted		93.4			91.6			93.2			90.4			93.6			93.2			93.8			93.1

See accompanying notes to unaudited interim Consolidated Financial Statements.

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RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited, in ~~millions)~~millions of U.S. dollars)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net income (loss) including noncontrolling interests	$	117		$	26		$	199		$	(93	)
Net income including noncontrolling interests													$	25		$	72		$	67		$	82
Other comprehensive (loss) income:
Unamortized prior service credits
Change in unamortized prior service credits		(9	)		(5	)		(17	)		(12	)		(4	)		(4	)		(7	)		(8	)
Income tax provision		—			—			—			—			—			—			—			—
Change in unamortized prior service credits, net of tax		(9	)		(5	)		(17	)		(12	)		(4	)		(4	)		(7	)		(8	)
Unamortized actuarial losses
Change in unamortized actuarial losses		11			(2	)		29			25			3			9			11			18
Income tax provision		(2	)		(3	)		(6	)		(8	)		—			(2	)		(2	)		(4	)
Change in unamortized actuarial losses, net of tax		9			(5	)		23			17			3			7			9			14
Foreign currency translation		—			1			—			1
Other comprehensive (loss) income, net of tax		—			(9	)		6			6			(1	)		3			2			6
Comprehensive income (loss) including noncontrolling interests		117			17			205			(87	)
Comprehensive income including noncontrolling interests														24			75			69			88
Comprehensive income attributable to noncontrolling interests		—			(2	)		—			(4	)		—			—			—			—
Comprehensive income (loss) attributable to Resolute Forest Products Inc.	$	117		$	15		$	205		$	(91	)
Comprehensive income attributable to Resolute Forest Products Inc.													$	24		$	75		$	69		$	88

See accompanying notes to unaudited interim Consolidated Financial Statements.

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RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions of U.S. dollars, except per share amount)


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	72		$	6		$	98		$	304
Accounts receivable, net:
Trade		368			399			333			347
Other		109			80			67			102
Inventories, net		511			526			530			508
Assets held for sale		242			—
Other current assets		45			33			42			43
Total current assets		1,347			1,044			1,070			1,304
Fixed assets, less accumulated depreciation of $1,452 and $1,614 as of September 30, 2018 and December 31, 2017, respectively		1,545			1,716
Amortizable intangible assets, less accumulated amortization of $24 and $21 as of September 30, 2018 and December 31, 2017, respectively		62			65
Goodwill		81			81
Fixed assets, less accumulated depreciation of $1,579 and $1,498 as of June 30, 2019 and December 31, 2018, respectively								1,479			1,515
Amortizable intangible assets, less accumulated amortization of $25 and $24 as of June 30, 2019 and December 31, 2018, respectively								50			50
Deferred income tax assets		924			1,076			869			876
Operating lease right-of-use assets								63			—
Other assets		186			165			221			190
Total assets	$	4,145		$	4,147		$	3,752		$	3,935
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities	$	447		$	420		$	376		$	427
Current portion of long-term debt		1			1			1			223
Liabilities associated with assets held for sale		79			—
Current portion of operating lease liabilities								8			—
Total current liabilities		527			421			385			650
Long-term debt, net of current portion		644			788			422			422
Pension and other postretirement benefit obligations		1,090			1,257			1,231			1,257
Deferred income tax liabilities		1			13
Operating lease liabilities, net of current portion								59			—
Other liabilities		73			68			55			71
Total liabilities		2,335			2,547			2,152			2,400
Commitments and contingencies
Equity:
Resolute Forest Products Inc. shareholders’ equity:
Common stock, $0.001 par value. 118.3 shares issued and 90.3 shares outstanding as of September 30, 2018; 118.2 shares issued and 90.2 shares outstanding as of December 31, 2017		—			—
Common stock, $0.001 par value. 119.1 shares issued and 90.4 shares outstanding as of June 30, 2019; 118.8 shares issued and 90.8 shares outstanding as of December 31, 2018								—			—
Additional paid-in capital		3,798			3,793			3,803			3,802
Deficit		(1,095	)		(1,294	)		(1,131	)		(1,198	)
Accumulated other comprehensive loss		(774	)		(780	)		(948	)		(950	)
Treasury stock at cost, 28.0 shares as of September 30, 2018 and December 31, 2017		(120	)		(120	)
Treasury stock at cost, 28.7 shares and 28.0 shares as of June 30, 2019 and December 31, 2018, respectively								(125	)		(120	)
Total Resolute Forest Products Inc. shareholders’ equity		1,809			1,599			1,599			1,534
Noncontrolling interests		1			1			1			1
Total equity		1,810			1,600			1,600			1,535
Total liabilities and equity	$	4,145		$	4,147		$	3,752		$	3,935

See accompanying notes to unaudited interim Consolidated Financial Statements.

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RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited, in ~~millions)~~millions of U.S. dollars)

Nine Months Ended September 30, 2018
Resolute Forest Products Inc. Shareholders’ Equity

Common
Stock
Additional
Paid-In
Capital
Deficit Accumulated Other Comprehensive Loss
Treasury
Stock
Non-controlling
Interests
Total Equity
Balance as of December 31, 2017 $ —
$ 3,793
$ (1,294 ) $ (780 ) $ (120 ) $ 1
$ 1,600

Share-based compensation costs for equity-classified awards —
5
—
—
—
—
5

Net income —
—
199
—
—
—
199

Stock unit awards vested (0.1 shares), net of shares forfeited for employee withholding taxes —
—
—
—
—
—
—

Other comprehensive income, net of tax —
—
—
6
—
—
6

Balance as of September 30, 2018 $ —
$ 3,798
$ (1,095 ) $ (774 ) $ (120 ) $ 1
$ 1,810



	Three Months Ended June 30, 2019
	Resolute Forest Products Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Non-controlling Interests		Total Equity
Balance as of March 31, 2019	$	—	$	3,802	$	(1,156	)	$	(947	)	$	(120	)	$	1	$	1,580
Share-based compensation, net of withholding taxes		—		1		—			—			—			—		1
Net income		—		—		25			—			—			—		25
Purchases of treasury stock (0.7 shares) (Note 11)		—		—		—			—			(5	)		—		(5	)
Other comprehensive loss, net of tax		—		—		—			(1	)		—			—		(1	)
Balance as of June 30, 2019	$	—	$	3,803	$	(1,131	)	$	(948	)	$	(125	)	$	1	$	1,600

Nine Months Ended September 30, 2017
Resolute Forest Products Inc. Shareholders’ Equity

Common
Stock
Additional
Paid-In
Capital
Deficit Accumulated Other Comprehensive Loss
Treasury
Stock
Non-
controlling
Interests
Total Equity
Balance as of December 31, 2016 $ —
$ 3,775
$ (1,207 ) $ (755 ) $ (120 ) $ 18
$ 1,711

Share-based compensation costs for equity-classified awards —
8
—
—
—
—
8

Net (loss) income —
—
(97 ) —
—
4
(93 )
Cumulative-effect adjustment upon deferred tax charge elimination (Note 10) —
—
(3 ) —
—
—
(3 )
Other comprehensive income, net of tax —
—
—
6
—
—
6

Balance as of September 30, 2017 $ —
$ 3,783
$ (1,307 ) $ (749 ) $ (120 ) $ 22
$ 1,629



	Six Months Ended June 30, 2019
	Resolute Forest Products Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Non-controlling Interests		Total Equity
Balance as of December 31, 2018	$	—	$	3,802	$	(1,198	)	$	(950	)	$	(120	)	$	1	$	1,535
Share-based compensation, net of withholding taxes		—		1		—			—			—			—		1
Net income		—		—		67			—			—			—		67
Purchases of treasury stock (0.7 shares) (Note 11)		—		—		—			—			(5	)		—		(5	)
Stock unit awards vested (0.3 shares), net of shares forfeited for employee withholding taxes		—		—		—			—			—			—		—
Other comprehensive income, net of tax		—		—		—			2			—			—		2
Balance as of June 30, 2019	$	—	$	3,803	$	(1,131	)	$	(948	)	$	(125	)	$	1	$	1,600

Table of Contents



	Three Months Ended June 30, 2018
	Resolute Forest Products Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Non- controlling Interests		Total Equity
Balance as of March 31, 2018	$	—	$	3,796	$	(1,284	)	$	(777	)	$	(120	)	$	1	$	1,616
Share-based compensation, net of withholding taxes		—		1		—			—			—			—		1
Net income		—		—		72			—			—			—		72
Other comprehensive income, net of tax		—		—		—			3			—			—		3
Balance as of June 30, 2018	$	—	$	3,797	$	(1,212	)	$	(774	)	$	(120	)	$	1	$	1,692



	Six Months Ended June 30, 2018
	Resolute Forest Products Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Deficit			Accumulated Other Comprehensive Loss			Treasury Stock			Non- controlling Interests		Total Equity
Balance as of December 31, 2017	$	—	$	3,793	$	(1,294	)	$	(780	)	$	(120	)	$	1	$	1,600
Share-based compensation, net of withholding taxes		—		4		—			—			—			—		4
Net income		—		—		82			—			—			—		82
Stock unit awards vested (0.1 shares), net of shares forfeited for employee withholding taxes		—		—		—			—			—			—		—
Other comprehensive income, net of tax		—		—		—			6			—			—		6
Balance as of June 30, 2018	$	—	$	3,797	$	(1,212	)	$	(774	)	$	(120	)	$	1	$	1,692

See accompanying notes to unaudited interim Consolidated Financial Statements.

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RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in ~~millions)~~millions of U.S. dollars)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income (loss) including noncontrolling interests	$	199		$	(93	)
Adjustments to reconcile net income (loss) including noncontrolling interests to net cash provided by operating activities:
Net income including noncontrolling interests							$	67		$	82
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Share-based compensation		6			8			3			5
Depreciation and amortization		161			153			82			107
Closure costs, impairment and other related charges		—			66
(Reversal of) inventory write-downs related to closures		(1	)		24
Reversal of inventory write-downs related to closures								—			(1	)
Deferred income taxes		106			60			40			75
Net pension contributions and other postretirement benefit payments		(112	)		(92	)		(57	)		(70	)
Net gain on disposition of assets		(4	)		(2	)		—			(4	)
Loss (gain) on translation of foreign currency denominated deferred income taxes		28			(80	)
(Gain) loss on translation of foreign currency denominated pension and other postretirement benefit obligations		(23	)		65
Net planned major maintenance payments		(7	)		(6	)
(Gain) loss on translation of foreign currency denominated deferred income taxes								(35	)		44
Loss (gain) on translation of foreign currency denominated pension and other postretirement benefit obligations								37			(36	)
Net planned major maintenance amortization (payments)								7			(3	)
Changes in working capital:
Accounts receivable		(6	)		(6	)		38			17
Inventories		(53	)		(6	)		(21	)		(20	)
Other current assets		(13	)		(8	)		(3	)		(1	)
Accounts payable and accrued liabilities		61			12			(64	)		18
Other, net		9			4			1			7
Net cash provided by operating activities		351			99			95			220
Cash flows from investing activities:
Cash invested in fixed assets		(94	)		(136	)		(45	)		(53	)
Disposition of assets		2			3			2			2
Decrease (increase) in countervailing duty cash deposits on supercalendered paper, net		13			(17	)
Decrease (increase) in countervailing duty cash deposits on supercalendered paper								1			(11	)
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber		(62	)		(18	)		(33	)		(41	)
Increase in countervailing duty cash deposits on uncoated groundwood paper		(6	)		—
Decrease (increase) in countervailing duty cash deposits on uncoated groundwood paper								6			(6	)
Net cash used in investing activities		(147	)		(168	)		(69	)		(109	)
Cash flows from financing activities:
Net (repayments) borrowings under revolving credit facilities		(144	)		70
Net repayments under revolving credit facilities								—			(114	)
Payments of debt		—			(1	)		(225	)		—
Purchases of treasury stock								(5	)		—
Payments of financing and credit facility fees		(1	)		—			(2	)		(1	)
Net cash (used in) provided by financing activities		(145	)		69
Cash used in financing activities								(232	)		(115	)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash		(1	)		6			1			(2	)
Net increase in cash and cash equivalents, and restricted cash		58			6
Net decrease in cash and cash equivalents, and restricted cash								(205	)		(6	)
Cash and cash equivalents, and restricted cash:
Beginning of period		49			73			345			49
End of period	$	107		$	79		$	140		$	43
Cash and cash equivalents, and restricted cash at period end:
Cash and cash equivalents	$	72		$	38		$	98		$	6
Restricted cash (included in “Other current assets” and “Other assets”)		35			41			42			37

See accompanying notes to unaudited interim Consolidated Financial Statements.

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 1. Organization and Basis of Presentation

Nature of operations

Resolute Forest Products Inc. (with its subsidiaries, ~~and affiliates,~~ either individually or collectively, unless otherwise indicated, referred to as “Resolute Forest Products,” “we,” “our,” “us,” ~~“Parent”~~“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 ~~manufacturing~~ facilities, as well as power generation assets, in the United States and Canada.

Financial statements

Our interim consolidated financial statements and ~~related~~accompanying notes (or the “Consolidated Financial Statements”) are unaudited and have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (or the “SEC”) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles may be condensed or omitted. In our opinion, all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the unaudited interim Consolidated Financial Statements have been made. All amounts are expressed in U.S. dollars, unless otherwise indicated. The results for the interim period ended ~~September~~June 30, ~~2018,~~2019, are not necessarily indicative of the results to be expected for the full year. These unaudited interim Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018, filed with the SEC on March 1, ~~2018.~~2019. Certain prior period amounts in our footnotes have been reclassified to conform to the ~~2018~~2019 presentation.

New accounting ~~pronouncements~~pronouncement adopted in 2019

ASU ~~2014-09 “Revenue from Contracts from Customers”~~2016-02 “Leases”

Effective January 1, ~~2018,~~2019, we adopted Accounting Standards Update (or “ASU”) ~~2014-09, “Revenue from Contracts from Customers,~~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 ~~606~~842”)~~. We utilized the modified retrospective method, which required the application~~, through a cumulative-effect adjustment as of ~~Topic 606 to: (i) all new revenue contracts entered into after January 1, 2018; and (ii) all existing revenue contracts~~that date.

The effect of this ASU on our Consolidated Balance Sheet as of January 1, ~~2018. The~~2019, was as follows:



(Unaudited, in millions)	Before ASU		Effect of Change			As Adjusted
Amortizable intangible assets, net	$	50	$	1		$	51
Operating lease right-of-use assets		—		65			65
Current portion of operating lease liabilities		—		7			7
Operating lease liabilities, net of current portion		—		60			60
Other liabilities		71		(1	)		70

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 ~~606 had no impact on our revenues, results~~842. Furthermore, we elected to use hindsight in determining the lease term and assessing impairment of ~~operations, or financial position.~~the operating lease right-of-use assets. As a result of the implementation of Topic ~~606,~~842, our ~~revenue recognition~~leases accounting policy was updated as follows:

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. WhenWe determine if a contract ~~with~~contains a ~~customer includes variable consideration such~~lease at inception. Leases are classified 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~~either operating leases or delivery depending on the terms of the underlying contracts with customers. Pulp, tissue, paper and wood products are delivered to our customers in the United States and Canada directly from our mills primarily by truck or rail. Pulp and paper products are delivered to our international customers primarily by ship. For sales where control transfers to the customer at the shipping point, revenue is recorded when the product leaves the facility, whereas for sales where control transfers at the destination, revenue is recorded when the product is delivered to the customer’s delivery site. 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 andfinance leases. Operating leases are included in ~~“Distribution costs”~~“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.

~~Sales~~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 ~~other products (green power produced~~obligation to make the lease payments arising from ~~renewable sources, wood chips,~~the lease. Operating lease right-of-use assets and ~~other wood-related products)~~the related liabilities are recognized ~~when~~at the ~~products are delivered and are included in “Cost~~lease commencement date based on the present value of ~~sales, excluding depreciation, amortization and distribution costs” in our Consolidated Statements of Operations.~~the lease payments over the term

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

~~ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities”~~

~~In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects~~ of the ~~recognition, measurement, presentation~~lease. Renewal and ~~disclosure~~termination options are included in our lease terms when it is reasonably certain that they will be exercised. In determining the present value of financial instruments. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not impactlease payments, we use the implicit rate when readily determinable, or our ~~results of operations, financial position or cash flows.~~

~~ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments”~~

~~In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,”~~estimated incremental borrowing rate, which is ~~intended to reduce diversity~~based on information available at the lease commencement date. Lease payments are expensed in practice in how certain transactions are classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. All amendments to the guidance shall be adopted in the same period on a retrospective basis. We adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not impact the presentation of our cash flows.

~~ASU 2016-18 “Restricted Cash”~~

In November 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on January 1, 2018. Prior period amounts have been reclassified to conform to the 2018 presentation.

~~ASU 2017-05 “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”~~

In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of Subtopic 610-20, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets” and adds guidance for partial sales of nonfinancial assets. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not impact our results of operations, financial position or cash flows.

~~ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”~~

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires employers that present a measure of operating income in their statements of earnings to disaggregate and present only the service cost component of net periodic pension cost and net periodic other postretirement benefit (or “~~OPEB”) cost in operating expenses (together with other employee compensation costs arising during the period). The other components of the net periodic pension cost and net periodic OPEB cost (or “Non-operating pension and OPEB costs~~”) are reported separately outside any subtotal of operating income. This update is effective retrospectively for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU on January 1, 2018.

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~~RESOLUTE FOREST PRODUCTS INC.~~

~~Notes to Unaudited Interim Consolidated Financial Statements~~

~~The effect of this ASU on~~ our Consolidated Statements of Operations on a straight-line basis over the term of the lease.

For buildings, we account for the ~~three months ended September 30, 2018~~lease and ~~2017, was~~non-lease components as ~~follows:~~

Three Months Ended September 30, 2018 Three Months Ended September 30, 2017
(Unaudited, in millions)
Before
Accounting
Standards
Update
Effect of Change
As
Reported
As
Previously
Reported
Effect of
Change
As Adjusted
Cost of sales, excluding depreciation, amortization and distribution costs $ 615
$ 13
$ 628
$ 624
$ 4
$ 628

Closure costs, impairment and other related charges —
—
—
10
(2 ) 8

Operating income 148
(13 ) 135
48
(2 ) 46

Non-operating pension and other postretirement benefit credits —
13
13
—
2
2

~~The effect of this ASU on our Consolidated Statements of Operations~~a single lease component. For all other contracts, we account for the ~~nine months ended September 30, 2018~~lease and ~~2017, was as follows:~~

Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
(Unaudited, in millions)
Before
Accounting
Standards
Update
Effect of Change
As
Reported
As
Previously
Reported
Effect of
Change
As Adjusted
Cost of sales, excluding depreciation, amortization and distribution costs $ 1,842
$ 39
$ 1,881
$ 1,936
$ 9
$ 1,945

Selling, general and administrative expenses 126
(1 ) 125
123
(1 ) 122

Closure costs, impairment and other related charges 1
—
1
82
(2 ) 80

Operating income (loss) 342
(38 ) 304
(5 ) (6 ) (11 )
Non-operating pension and other postretirement benefit credits —
38
38
—
6
6

~~Accounting pronouncements not yet adopted~~

~~ASU 2016-02 “Leases”~~

In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to recognize leases on the balance sheet while continuing to recognize expenses in the income statement in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing, and uncertainty of cash flows arising from leases.

We are currently in the process of evaluating our existing lease portfolio, which consists primarily of operating leases where we are the lessee. Upon adoption, we expect to recognize a liability and corresponding asset associated with in-scope leases. We are continuing our assessment and review of existing leases, which may identify other impacts, and are addressing necessary policy and process changes in preparation for adoption.

This ASU may either be adopted on a modified retrospective approach at the beginning of the earliest comparative period, or through a cumulative-effect adjustment at the adoption date. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We plan to adopt this standard on January 1, 2019, through a cumulative-effect adjustment at the adoption date.

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~~RESOLUTE FOREST PRODUCTS INC.~~

~~Notes to Unaudited Interim 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, with early adoption permitted. We are still evaluating the impact of this standard on our consolidated financial statements.

~~ASU 2018-15 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”~~

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period. We are still evaluating the impact of this standard on our consolidated financial statements.non-lease components separately.

~~Note 2. Closure Costs, Impairment and Other Related Charges~~

Closure costs, impairment and other related charges were $1 million for the nine months ended September 30, 2018, and were comprised of the following for the three and nine months ended September 30, 2017:

(Unaudited, in millions)
Impairment
of Assets
Accelerated
Depreciation
Severance
and Other
Costs
Total
Pulp mill at Coosa Pines (Alabama) ⁽¹⁾

Third quarter $ —
$ —
$ —
$ —

First nine months 55
—
—
55

Permanent closures
Paper machine at Catawba (South Carolina)
Third quarter —
—
—
—

First nine months 5
—
4
9

Paper machines at Calhoun (Tennessee)
Third quarter —
6
2
8

First nine months —
6
2
8

Paper mill at Mokpo (South Korea)
Third quarter —
—
—
—

First nine months —
—
7
7

Other

Third quarter —
—
—
—

First nine months —
—
1
1

Total

Third quarter $ —
$ 6
$ 2
$ 8

First nine months 60
6
14
80

⁽¹⁾As a result of the continued deterioration of actual and projected cash flows, we recorded long-lived asset impairment charges of $55 million for the nine months ended September 30, 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.

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~~RESOLUTE FOREST PRODUCTS INC.~~

~~Notes to Unaudited Interim Consolidated Financial Statements~~

Note 3.2. Accumulated Other Comprehensive Loss

The change in our accumulated other comprehensive loss by component (net of tax) for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, was as follows:



(Unaudited, in millions)	Unamortized Prior Service Credits			Unamortized Actuarial Losses			Foreign Currency Translation			Total
Balance as of December 31, 2018	$	28		$	(971	)	$	(7	)	$	(950	)
Other comprehensive loss before reclassifications		—			(3	)		—			(3	)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾		(7	)		12			—			5
Net current period other comprehensive (loss) income		(7	)		9			—			2
Balance as of June 30, 2019	$	21		$	(962	)	$	(7	)	$	(948	)

(Unaudited, in millions) Unamortized Prior Service Credits Unamortized Actuarial Losses
Foreign
Currency
Translation
Total
Balance as of December 31, 2017 $ 52
$ (826 ) $ (6 ) $ (780 )
Other comprehensive (loss) income before reclassifications (5 ) 2
—
(3 )
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾
(12 ) 21
—
9

Net current period other comprehensive (loss) income (17 ) 23
—
6

Balance as of September 30, 2018 $ 35
$ (803 ) $ (6 ) $ (774 )


⁽¹⁾	See the table below for details about these reclassifications.

The reclassifications out of accumulated other comprehensive loss for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, were comprised of the following:


(Unaudited, in millions)	Amounts Reclassified From Accumulated Other Comprehensive Loss			Affected Line in the Consolidated Statements of Operations	Amounts Reclassified From Accumulated Other Comprehensive Loss			Affected Line in the Consolidated Statements of Operations
Unamortized Prior Service Credits
Amortization of prior service credits	$	(12	)	Non-operating pension and other postretirement benefit credits ⁽¹⁾	$	(6	)	Non-operating pension and other postretirement benefit credits ⁽¹⁾
Curtailment gain						(1	)	Non-operating pension and other postretirement benefit credits ⁽¹⁾
		—		Income tax provision		—		Income tax provision
	$	(12	)	Net of tax	$	(7	)	Net of tax
Unamortized Actuarial Losses
Amortization of actuarial losses	$	26		Non-operating pension and other postretirement benefit credits ⁽¹⁾	$	15		Non-operating pension and other postretirement benefit credits ⁽¹⁾
Settlement loss		1		Non-operating pension and other postretirement benefit credits ⁽¹⁾
		(6	)	Income tax provision		(3	)	Income tax provision
	$	21		Net of tax	$	12		Net of tax
Total Reclassifications	$	9		Net of tax	$	5		Net of tax


⁽¹⁾	These items are included in the computation of net periodic benefit cost related to our pension and other postretirement benefit (or “OPEB”) plans summarized in Note 9,8, “Employee Benefit Plans.”

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 4.3. Net Income ~~(Loss)~~ Per Share

The reconciliation of the basic and diluted net income ~~(loss)~~ per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions, except per share amounts)	2019		2018		2019		2018
Numerator:
Net income attributable to Resolute Forest Products Inc.	$	25	$	72	$	67	$	82
Denominator:
Basic weighted-average number of Resolute Forest Products Inc. common shares outstanding		92.4		91.3		92.4		91.2
Dilutive impact of nonvested stock unit awards ⁽¹⁾		1.2		1.9		1.4		1.9
Diluted weighted-average number of Resolute Forest Products Inc. common shares outstanding		93.6		93.2		93.8		93.1
Net income per share attributable to Resolute Forest Products Inc. common shareholders:
Basic	$	0.27	$	0.79	$	0.73	$	0.90
Diluted		0.27		0.77		0.71		0.88


⁽¹⁾	When we refer to stock unit awards we mean equity-classified restricted stock units, deferred stock units and performance stock units.

Three Months Ended
September 30, Nine Months Ended
September 30,
(Unaudited, in millions, except per share amounts) 2018 2017 2018 2017
Numerator:
Net income (loss) attributable to Resolute Forest Products Inc. $ 117
$ 24
$ 199
$ (97 )
Denominator:
Basic weighted-average number of Resolute Forest Products Inc. common shares outstanding 91.3
90.5
91.3
90.4

Dilutive impact of nonvested stock unit awards 2.1
1.1
1.9
—

Diluted weighted-average number of Resolute Forest Products Inc. common shares outstanding 93.4
91.6
93.2
90.4

Net income (loss) per share attributable to Resolute Forest Products Inc. common shareholders:
Basic $ 1.28
$ 0.27
$ 2.18
$ (1.07 )
Diluted 1.25
0.26
2.14
(1.07 )

The weighted-average number of outstanding stock options ~~and nonvested equity-classified restricted stock units, deferred stock units and performance stock units (collectively, “stock unit awards~~”) that were excluded from the calculation of diluted net income ~~(loss)~~ per share, as their impact would have been antidilutive, was 1.0 million and 1.3 million for the three ~~and nine~~ months ended ~~September~~June 30, 2019 and 2018, respectively, and ~~2017, was as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(Unaudited, in millions) 2018
2017
2018

2017

Stock options 0.9
1.4
1.3
1.4

Stock unit awards —
—
—
4.3

1.0 million and 1.3 million for the six months ended June 30, 2019 and 2018, respectively.

Note 5.4. Inventories, Net

Inventories, net as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018, were comprised of the following:



(Unaudited, in millions)	June 30, 2019		December 31, 2018
Raw materials	$	102	$	106
Work in process		41		39
Finished goods		194		180
Mill stores and other supplies		193		183
	$	530	$	508

(Unaudited, in millions) September 30,
2018 December 31,
2017
Raw materials $ 99
$ 108

Work in process 39
38

Finished goods 190
175

Mill stores and other supplies 183
205

$ 511
$ 526

During the three months ended September 30, 2017, we recorded charges for write-downs of mill stores and other supplies of $11 million, primarily related to the permanent closure of two paper machines at Calhoun. During the nine months ended September 30, 2017, we also recorded charges of $13 million for write-downs of mill stores and other supplies primarily related to the permanent closures of a paper machine at our Catawba paper mill and our Mokpo paper mill. These charges were included in “Cost of sales, excluding depreciation, amortization and distribution costs” in our Consolidated Statements of Operations.

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note ~~6. Assets Held~~5. Operating leases

We have operating leases for ~~Sale, Net~~buildings, machinery, chemical equipment, rail cars, and office equipment with remaining terms from less than one year to 24 years. These leases may include renewal options for up to 13 years.

AsThe components of ~~September~~lease expense for the three and six months ended June 30, ~~2018, we held for sale our recycled bleached kraft (or “RBK”) pulp mill at Fairmont (West Virginia) and our paper and pulp mill at Catawba.~~

On August 29, 2018, we entered into a definitive asset purchase agreement to sell our RBK pulp mill at Fairmont. The sale closed on November 1, 2018, for total cash consideration of $62 million, subject to final working capital adjustments, resulting in a net gain on disposition of assets of approximately $40 million, which will be recorded in the fourth quarter of 2018.

On October 2, 2018, we entered into a definitive asset purchase agreement to sell our paper and pulp mill at Catawba for total consideration of approximately $300 million, consisting of $260 million in cash, and the assumption of $40 million of liabilities, largely net pension benefit obligations, subject to customary closing adjustments.

~~Assets held for sale, net~~2019, were as ~~of September 30, 2018 and December 31, 2017, were comprised of the following:~~follows:

(Unaudited, in millions) September 30,
2018 December 31,
2017
Assets held for sale:
Accounts receivable, net $ 45
$ —

Inventories, net 70
—

Other current assets 5
—

Fixed assets, net 121
—

Other assets 1
—

Total assets held for sale 242
—

Liabilities associated with assets held for sale:
Accounts payable and accrued liabilities 40
—

Pension and other postretirement benefit obligations 34
—

Other liabilities 5
—

Total liabilities associated with assets held for sale 79
—

$ 163
$ —



(Unaudited, in millions)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	3	$	6
Variable lease cost ⁽¹⁾		4		10


⁽¹⁾	Variable lease cost is determined by the consumption of the underlying asset.

Supplemental information related to operating leases was as follows:



(Unaudited)	June 30, 2019
Weighted-average remaining operating lease term (in years)		11.4
Weighted-average operating lease discount rate		4.7	%



(Unaudited, in millions)	Six Months Ended June 30, 2019
Operating cash flow payments for operating lease liabilities	$	5
Operating lease right-of-use assets obtained in exchange for operating lease liabilities		2

The maturities of operating lease liabilities as of June 30, 2019, were as follows:



(Unaudited, in millions)	Operating Leases
Years ending December 31,
2019	$	5
2020		11
2021		9
2022		9
2023		7
2024 and thereafter		46
Total lease payments		87
Less: imputed interest		(20	)
Total operating lease liabilities	$	67

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 7.6. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, were comprised of the following:



(Unaudited, in millions)	June 30, 2019		December 31, 2018
Trade accounts payable	$	270	$	299
Accrued compensation		49		66
Accrued interest		3		5
Pension and other postretirement benefit obligations		17		17
Accrued provision for former Fibrek Inc. dissenting shareholders		11		—
Income and other taxes payable		4		4
Deposits		10		20
Other		12		16
	$	376	$	427

(Unaudited, in millions) September 30,
2018 December 31,
2017
Trade accounts payable $ 331
$ 306

Payroll, bonuses and severance payable 55
55

Accrued interest 14
5

Pension and other postretirement benefit obligations 18
18

Income and other taxes payable 10
10

Environmental liabilities 2
2

Other 17
24

$ 447
$ 420

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~~RESOLUTE FOREST PRODUCTS INC.~~

~~Notes to Unaudited Interim Consolidated Financial Statements~~

Note 8.7. Long-Term Debt

Overview

Long-term debt, including current portion, as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018, was comprised of the following:



(Unaudited, in millions)	June 30, 2019			December 31, 2018
5.875% senior unsecured notes due 2023:
Principal amount	$	375		$	600
Deferred financing costs		(3	)		(5	)
Unamortized discount		(2	)		(3	)
Total 5.875% senior unsecured notes due 2023		370			592
Term loan due 2025		46			46
Finance lease obligation		7			7
Total debt		423			645
Less: Current portion of 5.875% senior unsecured notes due 2023		—			(222	)
Less: Current portion of finance lease obligation		(1	)		(1	)
Long-term debt, net of current portion	$	422		$	422

(Unaudited, in millions) September 30,
2018 December 31,
2017
5.875% senior unsecured notes due 2023:
Principal amount $ 600
$ 600

Deferred financing costs (5 ) (5 )
Unamortized discount (3 ) (3 )
Total senior unsecured notes due 2023 592
592

Term loan due 2025 46
46

Borrowings under revolving credit facilities —
144

Capital lease obligation 7
7

Total debt 645
789

Less: Current portion of long-term debt (1 ) (1 )
Long-term debt, net of current portion $ 644
$ 788

2023 Notes

We issued $600 million in aggregate principal amount of 5.875% senior unsecured notes due 2023 (or the “2023 Notes”) on May 8, 2013. 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 ~~on May~~beginning November 15, ~~and November 15,~~2013, until their maturity date of May 15, 2023. In connection with the issuance of the notes, we incurred financing costs of ~~approximately~~ $9 million, which were deferred and recorded as a reduction of the notes. ~~These deferred~~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 January 3, 2019 (or the “closing date”), we repurchased $225 million in aggregate principal amount of the 2023 Notes, pursuant to a notes purchase agreement entered into on December 21, 2018, with certain noteholders, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the closing date. The aggregate principal amount and related deferred financing costs and unamortized discount were included in “Current portion of long-term debt” in our Consolidated Balance Sheet as of December 31, 2018. As a result of the repurchase, we recorded a net loss on

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

extinguishment of debt of $3 million in “Other expense, net” in our Consolidated Statement of Operations for the six months ended June 30, 2019.

The fair value of the 2023 Notes (Level 1) was ~~$615~~$379 million and ~~$622~~$598 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Senior Secured Credit Facility

On September 7, 2016, we entered into a senior secured credit facility (or the “Senior Secured Credit Facility”) for up to $185 million. The Senior Secured Credit Facility provides a term loan of $46 million with a maturity date of September 7, 2025 ~~(the~~(or the “Term Loan”), and a revolving credit facility of up to $139 million with a maturity date of September 7, 2022 ~~(the~~(or the “Revolving Credit Facility”). As of ~~September~~June 30, ~~2018,~~2019, we had $139 million of availability under the Revolving Credit ~~Facility.~~Facility, which was undrawn. The fair ~~values~~value of the Term Loan ~~and Revolving Credit Facility~~ (Level 2) approximated ~~their~~its carrying ~~values~~value as of both ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

ABL Credit Facility

On May 14, 2019, we entered into an amendment to the credit agreement dated May 22, 2015, ~~we entered into~~for a senior secured asset-based revolving credit facility ~~(the~~(or the “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 $600~~$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 ~~will mature~~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 ~~May 22, 2020.~~ 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 London Interbank Offered Rate (or 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 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.

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Notes to Unaudited Interim Consolidated Financial Statements

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 ~~September~~June 30, ~~2018,~~2019, we had ~~$443~~$353 million of availability under the ABL Credit Facility, ~~net of $53~~which was undrawn except for $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 both September 30, 2018 and December 31, 2017.~~

~~Capital~~Finance lease obligation

We have a ~~capital~~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.

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~~Notes to Unaudited Interim Consolidated Financial Statements~~

Note 9.8. Employee Benefit Plans

Pension and other postretirement benefit plans

The components of net periodic benefit cost relating to our pension and OPEB plans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, were as follows:

Pension Plans:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Interest cost	$	46		$	51		$	142		$	149		$	45		$	48		$	90		$	96
Expected return on plan assets		(65	)		(66	)		(199	)		(190	)		(61	)		(67	)		(124	)		(134	)
Amortization of actuarial losses		9			14			29			42			9			10			18			20
Amortization of prior service credits		—			—			(1	)		—			(1	)		—			(1	)		(1	)
Non-operating pension (credits) costs		(10	)		(1	)		(29	)		1
Non-operating pension credits														(8	)		(9	)		(17	)		(19	)
Service cost		5			6			14			15			3			4			7			9
Net periodic benefit (credits) costs before special events		(5	)		5			(15	)		16
Curtailment, settlement and other losses		—			3			1			4
Net periodic benefit credits before special events														(5	)		(5	)		(10	)		(10	)
Curtailment and settlement (gain) loss														(1	)		1			(1	)		1
	$	(5	)	$	8		$	(14	)	$	20		$	(6	)	$	(4	)	$	(11	)	$	(9	)

~~OPEB Plans:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(Unaudited, in millions) 2018 2017 2018 2017
Interest cost $ 1
$ 2
$ 4
$ 5

Amortization of actuarial gains —
(1 ) (3 ) (4 )
Amortization of prior service credits (4 ) (4 ) (11 ) (11 )
Non-operating other postretirement benefit credits (3 ) (3 ) (10 ) (10 )
Service cost —
—
1
1

Net periodic benefit credits before special events (3 ) (3 ) (9 ) (9 )
Curtailment gain —
(1 ) —
(1 )
$ (3 ) $ (4 ) $ (9 ) $ (10 )

~~Defined contribution plans~~

~~Our expense for the defined contribution plans totaled~~ ~~$5 million for both the three months ended September 30, 2018 and 2017, and $15 million and $16 million for the nine months ended September 30, 2018 and 2017, respectively.~~

~~Note 10. Income Taxes~~

~~Tax Cuts and Jobs Act~~

~~On December 22, 2017, the Tax Cuts and Jobs Act (or the “TCJA”) was enacted into law which, among other changes, reduced the U.S. federal statutory income tax rate from 35% to 21%, and introduced the global intangible low-taxed income (or “GILTI”) regime, the base erosion anti-abuse tax, and the foreign-derived intangible income deduction.~~

During the three and nine months ended September 30, 2018, the enactment of the TCJA resulted in an income tax provision attributable to the GILTI inclusion of $28 million and $53 million, respectively, before valuation allowance, with no other impact on our results of operations. After having evaluated the impact of the TCJA on the reinvestment of foreign earnings, we have maintained the position that such earnings continue to be permanently reinvested. Accordingly, no provision was recorded for undistributed foreign earnings.

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~~The impacts of the TCJA on our 2017 financial results remain provisional and unchanged as of September 30, 2018. We have yet to adopt an accounting policy~~OPEB Plans:



	Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2019			2018			2019			2018
Interest cost	$	1		$	2		$	2		$	3
Amortization of actuarial gains		(2	)		(2	)		(3	)		(3	)
Amortization of prior service credits		(2	)		(4	)		(5	)		(7	)
Non-operating other postretirement benefit credits		(3	)		(4	)		(6	)		(7	)
Service cost		—			1			—			1
	$	(3	)	$	(3	)	$	(6	)	$	(6	)

Defined contribution plans

Our expense for the ~~treatment of GILTI,~~defined contribution plans totaled $4 million and ~~accordingly, no deferred tax amounts have been recorded.~~$5 million for the three months ended June 30, 2019 and 2018, respectively, and $9 million and $10 million for the six months ended June 30, 2019 and 2018, respectively.

The final impact of the TCJA may differ due to, among other things, changes in interpretations, the issuance of additional legislative guidance and clarification, and actions we may take as a result of the TCJA. We will recognize any adjustments to our provisional estimates in the reporting period they are determined, up to a period not to exceed one year from the date of enactment.

~~Effective income tax rate reconciliation~~Note 9. Income Taxes

The income tax provision attributable to income ~~(loss)~~ before income taxes differs from the amounts computed by applying the U.S. federal statutory income tax rate of 21% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, as a result of the following:



	Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2019			2018			2019			2018
Income before income taxes	$	44		$	119		$	107		$	160
Income tax provision:
Expected income tax provision		(9	)		(25	)		(22	)		(34	)
Changes resulting from:
Valuation allowance ⁽¹⁾		(4	)		13			(11	)		8
Foreign exchange		1			(7	)		4			(14	)
U.S. tax on non-U.S. earnings ⁽²⁾		(5	)		(18	)		(5	)		(25	)
State income taxes, net of federal income tax benefit		1			—			2			2
Foreign tax rate differences		(4	)		(7	)		(9	)		(12	)
Other, net		1			(3	)		1			(3	)
	$	(19	)	$	(47	)	$	(40	)	$	(78	)

Three Months Ended
September 30, Nine Months Ended
September 30,
(Unaudited, in millions) 2018 2017 2018 2017
Income (loss) before income taxes $ 150
$ 41
$ 310
$ (30 )
Income tax provision:
Expected income tax (provision) benefit (31 ) (9 ) (65 ) 6

Changes resulting from:
U.S. federal tax rate change reconciliation —
(5 ) —
5

Valuation allowance ⁽¹⁾
32
(19 ) 40
(94 )
Enactment of change in foreign tax rate —
—
—
(12 )
Foreign exchange 2
8
(12 ) 9

State income taxes, net of federal income tax benefit (1 ) 1
1
7

Foreign tax rate differences ⁽²⁾
(35 ) 7
(72 ) 15

Other, net —
2
(3 ) 1

$ (33 ) $ (15 ) $ (111 ) $ (63 )


⁽¹⁾	Relates to our U.S. ~~operations for the three and nine months ended September 30, 2018, and the three months ended September 30, 2017, and primarily to our U.S. operations for the nine months ended September 30, 2017.~~operations.


⁽²⁾	~~Includes an~~Reduces income tax ~~provision attributable to the GILTI inclusion of $28 million and $53 million, before valuation allowance,~~benefits on U.S. losses for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively.~~2019 and 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.

Note ~~11.~~10. Commitments and Contingencies

Legal matters

We become involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the normal course of business, including matters related to contracts, commercial and trade disputes, taxes, environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting and disclosure obligations, corporate governance, ~~antitrust,~~ 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

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Notes to Unaudited Interim Consolidated Financial Statements

probable, and the amount can be reasonably estimated. Except as described below and for claims that cannot be

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~~Notes to Unaudited Interim Consolidated Financial Statements~~

assessed due to their preliminary nature, we believe that the ultimate disposition of these matters outstanding or pending as of ~~September~~June 30, ~~2018,~~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. Certain cases, including cases that were scheduled in March 2019, were settled without any material impact in our Consolidated Statements of Operations for the three and six months ended June 30, 2019.

Countervailing duty and anti-dumping investigations on ~~uncoated groundwood paper~~softwood lumber

On ~~August 9, 2017,~~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 acertain U.S. ~~uncoated groundwood (or “UGW”) paper producer~~softwood lumber products producers and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin ~~UGW paper~~softwood lumber products exported to the U.S. One of our subsidiaries was identified in the petitions as being a Canadian exporting producer of ~~UGW paper~~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 January 9, 2018, Commerce announced its preliminary determination in its countervailing duty investigation on Canadian-origin UGW paper exported to the U.S. As a result, beginning January 16, 2018, we were required to pay cash deposits to the U.S. Customs and Border Protection agency (or “~~U.S. Customs”) at a rate of 4.42% of the custom’s value for estimated countervailing duties on our U.S. imports of the UGW paper produced at our Canadian mills, with the exception of supercalendered (or “~~SC”) paper, which was subject to distinct countervailing duties, as further discussed below. The preliminary rate remained in effect until May 15, 2018. On March 13, 2018, Commerce also announced its preliminary determination in the anti-dumping investigation, whereby it determined that we did not sell Canadian-origin UGW paper exported to the U.S. for less than fair market value during the relevant period (from July 1, 2016 to June 30, 2017).

On August 29, 2018, the ITC determined that the U.S. UGW paper producer was not materially injured nor threatened with material injury by U.S. imports of Canadian-origin UGW paper, and that no countervailing duty or anti-dumping orders will be issued. As a result, we will receive a refund of all cash deposits made on our U.S. imports of UGW paper produced at our Canadian mills, plus interest, and no further cash deposits are required going forward. Through September 30, 2018, cash deposits to be refunded totaled $6 million. These cash deposits were recorded in “Accounts receivable, net – Other” in our Consolidated Balance Sheets.

~~Countervailing duty and anti-dumping investigations on softwood lumber~~

On November 25, 2016, countervailing duty and anti-dumping petitions were filed with Commerce and the ITC by certain U.S. softwood lumber producers and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin softwood lumber exported to the U.S. One of our subsidiaries was identified in the petitions as being a Canadian exporting producer of softwood lumber to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in both the countervailing duty and anti-dumping investigations.

On April 24, 2017, Commerce announced its preliminary determination in the countervailing duty investigation and, as a result, after April 28, 2017, we were required to pay cash deposits to the U.S. Customs 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 the U.S. Customs at a rate of 14.7% for our softwood lumber products U.S. imports from our Canadian sawmills. This rate will continue until Commerce sets a duty rate in an administrative review, or a new rate may be set through a remand determination ~~should~~by a North American Free Trade Agreement (or “NAFTA”) binational panel on ~~appeal remand the final determination to Commerce.~~appeal. Through ~~September~~June 30, ~~2018,~~2019, our cash deposits totaled ~~$67~~$106 million and, based on the 14.7% rate and our current operating parameters, could be as high as ~~$65~~$60 million per year.

On June 26, 2017, Commerce announced its preliminary determination in the anti-dumping investigation and, as a result, after June 30, 2017, we were required to pay cash deposits to the U.S. Customs at a rate of 4.59% for estimated anti-dumping duties on our U.S. imports of softwood lumber 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 the U.S. Customs, at a rate of 3.2% for our softwood lumber products U.S. imports from our Canadian sawmills. This rate ~~that~~ will apply until Commerce sets a duty rate in an administrative review, or in a ~~possible~~new rate may be set through a remand ~~determination.~~determination by a NAFTA binational panel on appeal. Through ~~September~~June 30, ~~2018,~~2019, our cash deposits totaled ~~$21~~$30 million and, based on the 3.2% rate and our current operating parameters, could be as high as $15 million per year.

~~Table~~On April 1, 2019, Commerce published a notice initiating the administrative reviews of ~~Contents~~

~~RESOLUTE FOREST PRODUCTS INC.~~

~~Notes~~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 ~~Unaudited Interim Consolidated Financial Statements~~

Commerce with the information requested.

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.~~lumber products. Accordingly, no contingent loss was recorded in respect of these petitions in our Consolidated ~~Statement~~Statements of Operations, ~~for the nine months ended September 30, 2018,~~ and our cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets.

~~Countervailing duty investigation on supercalendered paper~~

On February 26, 2015, a countervailing duty petition was filed with Commerce and the ITC by certain U.S. SC paper producers requesting that the U.S. government impose countervailing duties on Canadian-origin SC paper exported to the U.S. market. One of our subsidiaries was identified in the petition as being a Canadian exporting producer of SC paper to the U.S. and was selected as a mandatory respondent to be investigated by Commerce. As a result of that investigation, after August 3, 2015, we were required to pay cash deposits to the U.S. Customs for estimated countervailing duties on our U.S. imports of SC paper produced at our Canadian mills. Between August 3, 2015 and October 15, 2015, we were required to make cash deposits at a rate of 2.04%. On October 15, 2015, that rate increased to 17.87%, 17.10% of which was not based on any countervailable subsidy we received, but rather on a punitive application of “adverse facts available.”

On March 21, 2018, Verso Corporation, the sole remaining U.S. SC paper petitioner, filed a request with Commerce for a changed circumstances review to revoke the countervailing duty order, retroactive to August 3, 2015, and for Commerce to refund all countervailing duty deposits with interest. On May 8, 2018, Commerce announced the initiation of a changed circumstances review, and on July 6, 2018, Commerce signed the revocation order. As a result, we will receive a refund of all cash deposits made on our U.S. imports of SC paper produced at our Canadian mills, plus interest, and no further cash deposits are required going forward. In addition, this resulted in the termination of all pending administrative reviews.

Through September 30, 2018, cash deposits of $25 million were refunded. Remaining cash deposits to be refunded of $36 million, plus interest, were recorded in “Accounts receivable, net – Other” in our Consolidated Balance Sheets as of September 30, 2018.

~~Jedson Case~~

~~On March 9, 2017, Jedson Engineering, Inc. and Jedson C.M., Inc. (or the “Jedson plaintiffs~~”) filed a complaint against our subsidiary, Resolute FP US Inc., and other defendants in state court in Tennessee. The complaint alleged breach of contract and violation of Tennessee’s Prompt Pay Act for failure to pay for services in connection with the design and construction of our Calhoun tissue project, and sought a recovery of, and enforcement of mechanic’s liens for, approximately $10 million, plus interest and cost of litigation. On April 17, 2017, we filed an answer and counterclaim alleging, among other things, breach of contract and professional negligence by the Jedson plaintiffs and seeking recovery for, among other things, resulting costs on the project. On April 4, 2017, the Jedson plaintiffs also filed a motion for an injunction under the Prompt Pay Act seeking immediate payment of monies claimed and, on April 20, 2017, a motion to abate Resolute FP US Inc.’s counterclaim, both of which we opposed and have not been heard by the court. On August 25, 2017, the Jedson plaintiffs amended their complaint. As amended, the complaint includes allegations of fraud, intentional and negligent misrepresentation, unjust enrichment, and a claim for punitive damages in an amount of up to approximately $20 million. Effective February 20, 2018, the parties entered into an agreement to submit their disputes to binding private arbitration. On February 23, 2018, the state court issued an order staying the consolidated court proceedings pending completion of the arbitration subject to limited exceptions regarding certain defined procedural matters. The Company disputes the plaintiffs’ allegations, and intends to vigorously defend the action. The arbitration hearing is expected to occur in the first half of 2019. We are not presently able to determine the ultimate resolution of this matter or to reasonably estimate the potential impact on our Consolidated Financial Statements.

~~Modification of U.S. OPEB plan~~

Effective January 1, 2015, we modified our U.S. OPEB plan so that unionized participants, upon reaching Medicare eligibility, are provided Medicare coverage via a Medicare Exchange program rather than via a Company-sponsored medical plan. On March 2, 2016, a proposed class action lawsuit (~~Reynolds, et al v. Resolute Forest Products Inc., Resolute FP US Inc., Resolute FP US Health and Resolute Welfare Benefit Plan) was filed in the United States District Court for the Eastern District of Tennessee (or the “District Court”) on behalf of certain Medicare-eligible retirees who were previously unionized employees of our Calhoun, Catawba, and Coosa Pines mills, and their spouses and dependents (or the “proposed class~~”). The plaintiffs alleged that the modifications described above breached the collective bargaining agreements and plan covering the members of the proposed class in the lawsuit. Plaintiffs sought reinstatement of the health care benefits as in effect before January 1, 2015, for the proposed class in the lawsuit. On May 23, 2016, the Company filed a motion to dismiss the complaint. The motion to dismiss was denied by the District Court on March 1, 2017. On June 28, 2017, a settlement agreement in principle was reached

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~~Notes to Unaudited Interim Consolidated Financial Statements~~

~~between the parties to the lawsuit subject to court approval. On June 5, 2018, the District Court issued an order providing for preliminary approval of the settlement~~. On August 3, 2018, a final order approving the class action settlement and dismissing the case was entered, resulting in an amendment of our U.S. OPEB plan and a corresponding increase of $3 million to both “Pension and other postretirement benefit obligations” and “Accumulated other comprehensive loss” was recorded in our Consolidated Balance Sheet in the third quarter of 2018.

Fibrek acquisition

Effective July 31, 2012, we completed the final step of the transaction pursuant to which we acquired the remaining 25.4% of the outstanding Fibrek Inc. (or “Fibrek”) shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the

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Notes to Unaudited Interim Consolidated Financial Statements

issuance of a final order of the Quebec Superior Court in Canada approving the arrangement on July 27, 2012. Certain former shareholders of Fibrek exercised (or purported to exercise) rights of dissent in respect of the transaction, asking for a judicial determination of the fair value of their claim under the Canada Business Corporations Act. No consideration has to date been paid to the former Fibrek shareholders who exercised (or purported to exercise) rights of dissent. Any such consideration will only be paid out upon settlement or judicial determination of the fair value of their claims and will be paid entirely in cash. Accordingly, we cannot presently determine the amount that ultimately will be paid to former holders of Fibrek shares in connection with the proceedings, but we have accrued ~~approximately~~ Cdn $14 million ($11 million, based on the exchange rate in effect on ~~September~~June 30, ~~2018)~~2019) for the eventual payment of those claims. The hearing in this matter ~~is expected to occur~~occurred in ~~2019.~~2019 and we are awaiting the decision of the court.

Partial wind-ups of pension plans

On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (or the “CCAA Creditor Protection Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the CCAA Creditor Protection Proceedings. We contend, among other things, that any such declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended, and the terms of our emergence from the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to Cdn $150 million ($115 million, based on the exchange rate in effect on ~~September~~June 30, ~~2018)~~2019), would have to be funded if we do not obtain the relief sought. The hearing in this matter ~~is expected to~~could occur in ~~2019.~~2019 or 2020.

Environmental matters

We are subject to a variety of federal or national, state, provincial, and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. Environmental regulations promulgated in the future could require substantial additional expenditures for compliance and could have a material impact on us, in particular, and the industry in general.

We may be a “potentially responsible party” with respect to a hazardous waste site that is being addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund). We believe we will not be liable for any significant amounts at this site.

We have environmental liabilities of $8 million recorded as of both ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~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 ~~also~~ asset retirement obligations of ~~$23~~$26 million and ~~$24~~$23 million recorded as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets. These liabilities are included in “Accounts payable and accrued liabilities” or “Other liabilities” in our Consolidated Balance Sheets.

Note 11. Share Capital

During the three and six months ended June 30, 2019, we repurchased 720,000 shares, at a cost of $5 million under our $150 million share repurchase program, which was launched in 2012. We did not repurchase any shares during the three and six months ended June 30, 2018. There remains $19 million under the program.

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Notes to Unaudited Interim Consolidated Financial Statements

Note 12. Segment Information

We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our principal product lines: market pulp, tissue, wood products, newsprint, and specialty papers.

None of the income or loss items following “Operating ~~income (loss)”~~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.”

Information about certain segment data for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, was as follows:

(Unaudited,
in millions)
Market Pulp ⁽¹⁾
Tissue ⁽²⁾
Wood Products ⁽³⁾
Newsprint
Specialty
Papers
Segment
Total
Corporate
and Other
Total
Sales
Third quarter
2018 $ 288
$ 38
$ 203
$ 232
$ 213
$ 974
$ —
$ 974

2017 227
21
219
199
219
885
—
885

First nine months
2018 809
95
666
660
594
2,824
—
2,824

2017 649
61
593
626
686
2,615
—
2,615

Depreciation and amortization
Third quarter
2018 $ 7
$ 5
$ 8
$ 16
$ 12
$ 48
$ 6
$ 54

2017 8
2
9
16
11
46
6
52

First nine months
2018 22
11
23
49
36
141
20
161

2017 24
4
25
49
34
136
17
153

Operating income (loss) ⁽⁴⁾

Third quarter
2018 $ 57
$ (10 ) $ 45
$ 32
$ 26
$ 150
$ (15 ) $ 135

2017 19
(3 ) 64
(6 ) 7
81
(35 ) 46

First nine months
2018 131
(21 ) 177
46
23
356
(52 ) 304

2017 42
(4 ) 129
(17 ) 4
154
(165 ) (11 )



(Unaudited, in millions)	Market Pulp ⁽¹⁾		Tissue ⁽²⁾			Wood Products ⁽³⁾			Newsprint		Specialty Papers			Segment Total		Corporate and Other			Total
Sales
Second quarter
2019	$	189	$	43		$	168		$	209	$	146		$	755	$	—		$	755
2018		264		35			254			230		193			976		—			976
First six months
2019		420		82			329			421		298			1,550		—			1,550
2018		521		57			463			428		381			1,850		—			1,850
Depreciation and amortization
Second quarter
2019	$	5	$	4		$	9		$	8	$	11		$	37	$	5		$	42
2018		8		5			7			17		12			49		5			54
First six months
2019		10		9			17			15		21			72		10			82
2018		15		6			15			33		24			93		14			107
Operating income (loss)
Second quarter
2019	$	27	$	(4	)	$	(3	)	$	17	$	15		$	52	$	(12	)	$	40
2018		41		(10	)		79			18		4			132		(11	)		121
First six months
2019		69		(12	)		3			45		30			135		(31	)		104
2018		74		(11	)		132			14		(3	)		206		(37	)		169


⁽¹⁾	Inter-segment sales of ~~$10~~$11 million and $9 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$29~~$22 million and ~~$28~~$19 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, respectively,~~2018, which are transacted at cost, were excluded from market pulp sales.


⁽²⁾	The operating results of our Calhoun (Tennessee) tissue operations, previously recorded under “corporate and other,” have been recorded in our tissue segment since April 1, 2018.


⁽³⁾	Wood products sales to our joint ventures, which are transacted at arm’s length negotiated prices, were $7$6 million and $6$8 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$23~~$11 million and $16 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.


⁽⁴⁾	In the first quarter of 2018, we changed our presentation of operating income in accordance with FASB ASU 2017-07, to present only the service cost component of net periodic pension cost and OPEB cost in operating expenses (together with other employee compensation costs arising during the period). The non-operating pension and OPEB costs,

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Notes to Unaudited Interim Consolidated Financial Statements

~~presented under “corporate and other,” are reported separately outside any subtotal of operating income. Prior period amounts have been reclassified to conform to the 2018 presentation. See~~ Note 1. Organization and Basis of Presentation – New accounting pronouncements adopted – ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” ~~for more information.~~

Note 13. Condensed Consolidating Financial Information

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 of 1933, as amended, in connection with Resolute Forest Products Inc.’s 2023 Notes that are fully and unconditionally guaranteed, on a joint and several basis, by all of our 100% owned material U.S. subsidiaries (or the “Guarantor Subsidiaries”). The 2023 Notes are not guaranteed by our foreign subsidiaries (or the “Non-guarantor Subsidiaries”).

The following condensed consolidating financial information sets forth the Statements of Operations and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018, the Balance Sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018, and the Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 for the Parent, the Guarantor Subsidiaries on a combined basis, and the Non-guarantor Subsidiaries also on a combined basis. The condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries and Non-guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-guarantor Subsidiaries, using the equity method of accounting. The principal consolidating adjustments are entries to eliminate the investments in subsidiaries and intercompany balances and transactions.


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2018
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)																CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2019																For the Three Months Ended June 30, 2019
(Unaudited, in millions)	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Sales	$	—		$	808		$	609		$	(443	)	$	974		$	—		$	613		$	569		$	(427	)	$	755
Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs		—			708			366			(446	)		628			—			599			371			(434	)		536
Depreciation and amortization		—			20			34			—			54			—			9			33			—			42
Distribution costs		—			42			75			—			117			—			23			76			2			101
Selling, general and administrative expenses		6			17			17			—			40			4			15			17			—			36
Operating (loss) income		(6	)		21			117			3			135			(4	)		(33	)		72			5			40
Interest expense		(20	)		(2	)		(3	)		13			(12	)		(17	)		—			(2	)		12			(7	)
Non-operating pension and other postretirement benefit credits		—			4			9			—			13			—			2			10			—			12
Other income, net		—			14			13			(13	)		14
Other income (expense), net																	—			15			(4	)		(12	)		(1	)
Equity in income of subsidiaries		143			7			—			(150	)		—			46			7			—			(53	)		—
Income before income taxes		117			44			136			(147	)		150
Income (loss) before income taxes																	25			(9	)		76			(48	)		44
Income tax provision		—			—			(32	)		(1	)		(33	)		—			—			(18	)		(1	)		(19	)
Net income including noncontrolling interests		117			44			104			(148	)		117
Net income (loss) including noncontrolling interests																	25			(9	)		58			(49	)		25
Net income attributable to noncontrolling interests		—			—			—			—			—			—			—			—			—			—
Net income attributable to Resolute Forest Products Inc.	$	117		$	44		$	104		$	(148	)	$	117
Comprehensive income attributable to Resolute Forest Products Inc.	$	117		$	38		$	110		$	(148	)	$	117
Net income (loss) attributable to Resolute Forest Products Inc.																$	25		$	(9	)	$	58		$	(49	)	$	25
Comprehensive income (loss) attributable to Resolute Forest Products Inc.																$	24		$	(12	)	$	60		$	(48	)	$	24

2018

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Notes to Unaudited Interim Consolidated Financial Statements


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2018
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)																CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2019																For the Six Months Ended June 30, 2019
(Unaudited, in millions)	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Sales	$	—		$	2,348		$	1,875		$	(1,399	)	$	2,824		$	—		$	1,285		$	1,166		$	(901	)	$	1,550
Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs		—			2,145			1,128			(1,392	)		1,881			—			1,247			742			(899	)		1,090
Depreciation and amortization		—			61			100			—			161			—			19			63			—			82
Distribution costs		—			119			239			(2	)		356			—			49			155			(3	)		201
Selling, general and administrative expenses		18			48			59			—			125			10			24			39			—			73
Closure costs, impairment and other related charges		—			—			1			—			1
Net gain on disposition of assets		—			—			(4	)		—			(4	)
Operating (loss) income		(18	)		(25	)		352			(5	)		304			(10	)		(54	)		167			1			104
Interest expense		(67	)		(6	)		(9	)		46			(36	)		(34	)		(2	)		(6	)		26			(16	)
Non-operating pension and other postretirement benefit credits		—			11			27			—			38			—			5			19			—			24
Other income, net		—			47			3			(46	)		4
Other (expense) income, net																	(3	)		32			(8	)		(26	)		(5	)
Equity in income of subsidiaries		284			56			—			(340	)		—			114			18			—			(132	)		—
Income before income taxes		199			83			373			(345	)		310
Income (loss) before income taxes																	67			(1	)		172			(131	)		107
Income tax provision		—			—			(112	)		1			(111	)		—			—			(40	)		—			(40	)
Net income including noncontrolling interests		199			83			261			(344	)		199
Net income (loss) including noncontrolling interests																	67			(1	)		132			(131	)		67
Net income attributable to noncontrolling interests		—			—			—			—			—			—			—			—			—			—
Net income attributable to Resolute Forest Products Inc.	$	199		$	83		$	261		$	(344	)	$	199
Comprehensive income attributable to Resolute Forest Products Inc.	$	205		$	72		$	278		$	(350	)	$	205
Net income (loss) attributable to Resolute Forest Products Inc.																$	67		$	(1	)	$	132		$	(131	)	$	67
Comprehensive income (loss) attributable to Resolute Forest Products Inc.																$	69		$	(6	)	$	139		$	(133	)	$	69

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended September 30, 2017
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME																CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended June 30, 2018																For the Three Months Ended June 30, 2018
(Unaudited, in millions)	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Sales	$	—		$	716		$	570		$	(401	)	$	885		$	—		$	731		$	674		$	(429	)	$	976
Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs		—			670			360			(402	)		628			—			666			396			(423	)		639
Depreciation and amortization		—			18			34			—			52			—			21			33			—			54
Distribution costs		—			39			71			—			110			—			38			85			—			123
Selling, general and administrative expenses		4			19			20			—			43			7			14			21			—			42
Closure costs, impairment and other related charges		—			8			—			—			8			—			—			1			—			1
Net gain on disposition of assets		—			—			(2	)		—			(2	)		—			—			(4	)		—			(4	)
Operating (loss) income		(4	)		(38	)		87			1			46			(7	)		(8	)		142			(6	)		121
Interest expense		(23	)		(3	)		(3	)		16			(13	)		(24	)		(1	)		(3	)		17			(11	)
Non-operating pension and other postretirement benefit (costs) credits		—			(1	)		3			—			2
Other income, net		—			20			2			(16	)		6
Equity in income (loss) of subsidiaries		51			(3	)		—			(48	)		—
Income (loss) before income taxes		24			(25	)		89			(47	)		41
Non-operating pension and other postretirement benefit credits																	—			3			9			—			12
Other income (expense), net																	—			19			(5	)		(17	)		(3	)
Equity in income of subsidiaries																	103			28			—			(131	)		—
Income before income taxes																	72			41			143			(137	)		119
Income tax provision		—			—			(15	)		—			(15	)		—			—			(48	)		1			(47	)
Net income (loss) including noncontrolling interests		24			(25	)		74			(47	)		26
Net income including noncontrolling interests																	72			41			95			(136	)		72
Net income attributable to noncontrolling interests		—			—			(2	)		—			(2	)		—			—			—			—			—
Net income (loss) attributable to Resolute Forest Products Inc.	$	24		$	(25	)	$	72		$	(47	)	$	24
Comprehensive income (loss) attributable to Resolute Forest Products Inc.	$	15		$	(41	)	$	79		$	(38	)	$	15
Net income attributable to Resolute Forest Products Inc.																$	72		$	41		$	95		$	(136	)	$	72
Comprehensive income attributable to Resolute Forest Products Inc.																$	75		$	39		$	100		$	(139	)	$	75

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Notes to Unaudited Interim Consolidated Financial Statements



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2018
(Unaudited, in millions)	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Sales	$	—		$	1,540		$	1,266		$	(956	)	$	1,850
Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs		—			1,437			762			(946	)		1,253
Depreciation and amortization		—			41			66			—			107
Distribution costs		—			77			164			(2	)		239
Selling, general and administrative expenses		12			31			42			—			85
Closure costs, impairment and other related charges		—			—			1			—			1
Net gain on disposition of assets		—			—			(4	)		—			(4	)
Operating (loss) income		(12	)		(46	)		235			(8	)		169
Interest expense		(47	)		(4	)		(6	)		33			(24	)
Non-operating pension and other postretirement benefit credits		—			7			18			—			25
Other income (expense), net		—			33			(10	)		(33	)		(10	)
Equity in income of subsidiaries		141			49			—			(190	)		—
Income before income taxes		82			39			237			(198	)		160
Income tax provision		—			—			(80	)		2			(78	)
Net income including noncontrolling interests		82			39			157			(196	)		82
Net income attributable to noncontrolling interests		—			—			—			—			—
Net income attributable to Resolute Forest Products Inc.	$	82		$	39		$	157		$	(196	)	$	82
Comprehensive income attributable to Resolute Forest Products Inc.	$	88		$	34		$	168		$	(202	)	$	88

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For the Nine Months Ended September 30, 2017
(Unaudited, in millions) Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Sales $ —
$ 2,131
$ 1,660
$ (1,176 ) $ 2,615

Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs —
2,030
1,091
(1,176 ) 1,945

Depreciation and amortization —
55
98
—
153

Distribution costs —
119
210
(1 ) 328

Selling, general and administrative expenses 18
53
51
—
122

Closure costs, impairment and other related charges —
72
8
—
80

Net gain on disposition of assets —
—
(2 ) —
(2 )
Operating (loss) income (18 ) (198 ) 204
1
(11 )
Interest expense (65 ) (7 ) (9 ) 45
(36 )
Non-operating pension and other postretirement benefit credits —
—
6
—
6

Other income, net —
53
3
(45 ) 11

Equity in loss of subsidiaries (14 ) (2 ) —
16
—

(Loss) income before income taxes (97 ) (154 ) 204
17
(30 )
Income tax provision —
(1 ) (62 ) —
(63 )
Net (loss) income including noncontrolling interests (97 ) (155 ) 142
17
(93 )
Net income attributable to noncontrolling interests —
—
(4 ) —
(4 )
Net (loss) income attributable to Resolute Forest Products Inc. $ (97 ) $ (155 ) $ 138
$ 17
$ (97 )
Comprehensive (loss) income attributable to Resolute Forest Products Inc. $ (91 ) $ (173 ) $ 162
$ 11
$ (91 )

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Notes to Unaudited Interim Consolidated Financial Statements

																							CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2018
As of June 30, 2019												As of June 30, 2019
(Unaudited, in millions)	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated		Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	64	$	8	$	—		$	72	$	—	$	91	$	7	$	—		$	98
Accounts receivable, net		—		350		127		—			477		—		270		130		—			400
Accounts receivable from affiliates		—		566		1,008		(1,574	)		—		—		248		748		(996	)		—
Inventories, net		—		195		330		(14	)		511		—		214		328		(12	)		530
Assets held for sale		—		228		14		—			242
Note, advance and interest receivable from parent		—		419		—		(419	)		—
Notes and interest receivable from affiliates		—		31		—		(31	)		—
Advance and interest receivable from parent													—		66		—		(66	)		—
Interest receivable from affiliate													—		4		—		(4	)		—
Other current assets		—		14		31		—			45		—		16		26		—			42
Total current assets		—		1,867		1,518		(2,038	)		1,347		—		909		1,239		(1,078	)		1,070
Fixed assets, net		—		554		991		—			1,545		—		525		954		—			1,479
Amortizable intangible assets, net		—		12		50		—			62		—		3		47		—			50
Goodwill		—		81		—		—			81
Deferred income tax assets		—		1		920		3			924		—		1		865		3			869
Note receivable from parent		—		488		—		(488	)		—
Operating lease right-of-use assets													—		29		34		—			63
Notes receivable from parent													—		1,264		—		(1,264	)		—
Note receivable from affiliate		—		113		—		(113	)		—		—		111		—		(111	)		—
Investments in consolidated subsidiaries and affiliates		4,229		2,167		—		(6,396	)		—		3,875		2,083		—		(5,958	)		—
Other assets		—		107		79		—			186		—		158		63		—			221
Total assets	$	4,229	$	5,390	$	3,558	$	(9,032	)	$	4,145	$	3,875	$	5,083	$	3,202	$	(8,408	)	$	3,752
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities	$	14	$	163	$	270	$	—		$	447	$	10	$	122	$	244	$	—		$	376
Current portion of long-term debt		—		1		—		—			1		—		1		—		—			1
Liabilities associated with assets held for sale		—		79		—		—			79
Current portion of operating lease liabilities													—		4		4		—			8
Accounts payable to affiliates		566		1,053		—		(1,619	)		—		257		784		—		(1,041	)		—
Note, advance and interest payable to subsidiaries		419		—		—		(419	)		—
Notes and interest payable to affiliate		—		—		31		(31	)		—
Advance and interest payable to subsidiaries													66		—		—		(66	)		—
Interest payable to affiliate													—		—		4		(4	)		—
Total current liabilities		999		1,296		301		(2,069	)		527		333		911		252		(1,111	)		385
Long-term debt, net of current portion		592		52		—		—			644		370		52		—		—			422
Note payable to subsidiary		488		—		—		(488	)		—
Notes payable to subsidiaries													1,264		—		—		(1,264	)		—
Note payable to affiliate		—		—		113		(113	)		—		—		—		111		(111	)		—
Pension and other postretirement benefit obligations		—		318		772		—			1,090		—		330		901		—			1,231
Deferred income tax liabilities		—		—		1		—			1
Operating lease liabilities, net of current portion													—		26		33		—			59
Other liabilities		6		22		45		—			73		—		22		33		—			55
Total liabilities		2,085		1,688		1,232		(2,670	)		2,335		1,967		1,341		1,330		(2,486	)		2,152
Total equity		2,144		3,702		2,326		(6,362	)		1,810		1,908		3,742		1,872		(5,922	)		1,600
Total liabilities and equity	$	4,229	$	5,390	$	3,558	$	(9,032	)	$	4,145	$	3,875	$	5,083	$	3,202	$	(8,408	)	$	3,752

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements



CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2018
(Unaudited, in millions)	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	301	$	3	$	—		$	304
Accounts receivable, net		—		301		148		—			449
Accounts receivable from affiliates		—		588		1,071		(1,659	)		—
Inventories, net		—		194		327		(13	)		508
Note, advance and interest receivable from parent		—		422		—		(422	)		—
Interest receivable from affiliate		—		4		—		(4	)		—
Other current assets		—		15		28		—			43
Total current assets		—		1,825		1,577		(2,098	)		1,304
Fixed assets, net		—		523		992		—			1,515
Amortizable intangible assets, net		—		2		48		—			50
Deferred income tax assets		—		1		872		3			876
Notes receivable from parent		—		657		—		(657	)		—
Note receivable from affiliate		—		107		—		(107	)		—
Investments in consolidated subsidiaries and affiliates		4,119		2,205		—		(6,324	)		—
Other assets		—		126		64		—			190
Total assets	$	4,119	$	5,446	$	3,553	$	(9,183	)	$	3,935
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities	$	7	$	170	$	250	$	—		$	427
Current portion of long-term debt		222		1		—		—			223
Accounts payable to affiliates		592		1,112		—		(1,704	)		—
Note, advance and interest payable to subsidiaries		422		—		—		(422	)		—
Interest payable to affiliate		—		—		4		(4	)		—
Total current liabilities		1,243		1,283		254		(2,130	)		650
Long-term debt, net of current portion		370		52		—		—			422
Notes payable to subsidiaries		657		—		—		(657	)		—
Note payable to affiliate		—		—		107		(107	)		—
Pension and other postretirement benefit obligations		—		342		915		—			1,257
Other liabilities		6		21		44		—			71
Total liabilities		2,276		1,698		1,320		(2,894	)		2,400
Total equity		1,843		3,748		2,233		(6,289	)		1,535
Total liabilities and equity	$	4,119	$	5,446	$	3,553	$	(9,183	)	$	3,935

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2017
(Unaudited, in millions) Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Assets
Current assets:
Cash and cash equivalents $ —
$ 3
$ 3
$ —
$ 6

Accounts receivable, net —
319
160
—
479

Accounts receivable from affiliates —
535
729
(1,264 ) —

Inventories, net —
243
292
(9 ) 526

Note, advance and interest receivable from parent —
538
—
(538 ) —

Notes and interest receivable from affiliates —
32
—
(32 ) —

Other current assets —
16
17
—
33

Total current assets —
1,686
1,201
(1,843 ) 1,044

Fixed assets, net —
692
1,024
—
1,716

Amortizable intangible assets, net —
13
52
—
65

Goodwill —
81
—
—
81

Deferred income tax assets —
1
1,073
2
1,076

Notes receivable from parent —
330
—
(330 ) —

Note receivable from affiliate —
116
—
(116 ) —

Investments in consolidated subsidiaries and affiliates 3,939
2,111
—
(6,050 ) —

Other assets —
98
67
—
165

Total assets $ 3,939
$ 5,128
$ 3,417
$ (8,337 ) $ 4,147

Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities $ 4
$ 171
$ 245
$ —
$ 420

Current portion of long-term debt —
1
—
—
1

Accounts payable to affiliates 536
728
—
(1,264 ) —

Note, advance and interest payable to subsidiaries 538
—
—
(538 ) —

Notes and interest payable to affiliate —
—
32
(32 ) —

Total current liabilities 1,078
900
277
(1,834 ) 421

Long-term debt, net of current portion 592
196
—
—
788

Note payable to subsidiary 330
—
—
(330 ) —

Note payable to affiliate —
—
116
(116 ) —

Pension and other postretirement benefit obligations —
378
879
—
1,257

Deferred income tax liabilities —
—
13
—
13

Other liabilities 5
24
39
—
68

Total liabilities 2,005
1,498
1,324
(2,280 ) 2,547

Total equity 1,934
3,630
2,093
(6,057 ) 1,600

Total liabilities and equity $ 3,939
$ 5,128
$ 3,417
$ (8,337 ) $ 4,147

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

																															CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2018
For the Six Months Ended June 30, 2019																For the Six Months Ended June 30, 2019
(Unaudited, in millions)	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net cash provided by operating activities	$	—		$	291		$	60		$	—		$	351		$	—		$	64		$	31		$	—		$	95
Cash flows from investing activities:
Cash invested in fixed assets		—			(31	)		(63	)		—			(94	)		—			(19	)		(26	)		—			(45	)
Disposition of assets		—			—			2			—			2			—			2			—			—			2
Decrease in countervailing duty cash deposits on supercalendered paper, net		—			13			—			—			13
Decrease in countervailing duty cash deposits on supercalendered paper																	—			1			—			—			1
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber		—			(62	)		—			—			(62	)		—			(33	)		—			—			(33	)
Increase in countervailing duty cash deposits on uncoated groundwood paper		—			(6	)		—			—			(6	)
Advance to parent		—			(1	)		—			1			—
Decrease in notes receivable from affiliate		—			1			—			(1	)		—
Decrease in countervailing duty cash deposits on uncoated groundwood paper																	—			6			—			—			6
Increase in notes receivable from and advance to parent																	—			(230	)		—			230			—
Net cash used in investing activities		—			(86	)		(61	)		—			(147	)		—			(273	)		(26	)		230			(69	)
Cash flows from financing activities:
Net repayments under revolving credit facilities		—			(144	)		—			—			(144	)
Payments of debt																	(225	)		—			—			—			(225	)
Purchases of treasury stock																	(5	)		—			—			—			(5	)
Payments of financing and credit facility fees		(1	)		—			—			—			(1	)		—			(1	)		(1	)		—			(2	)
Advance from subsidiary		1			—			—			(1	)		—
Decrease in notes payable to affiliate		—			—			(1	)		1			—
Increase in notes payable to and advance from subsidiaries																	230			—			—			(230	)		—
Net cash used in financing activities		—			(144	)		(1	)		—			(145	)		—			(1	)		(1	)		(230	)		(232	)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash		—			—			(1	)		—			(1	)		—			—			1			—			1
Net increase (decrease) in cash and cash equivalents, and restricted cash		—			61			(3	)		—			58
Net (decrease) increase in cash and cash equivalents, and restricted cash																	—			(210	)		5			—			(205	)
Cash and cash equivalents, and restricted cash:
Beginning of period		—			3			46			—			49			—			306			39			—			345
End of period	$	—		$	64		$	43		$	—		$	107		$	—		$	96		$	44		$	—		$	140
Cash and cash equivalents, and restricted cash at period end:
Cash and cash equivalents	$	—		$	64		$	8		$	—		$	72		$	—		$	91		$	7		$	—		$	98
Restricted cash		—			—			35			—			35			—			5			37			—			42

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RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2018
(Unaudited, in millions)	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net cash provided by operating activities	$	—		$	187		$	33		$	—		$	220
Cash flows from investing activities:
Cash invested in fixed assets		—			(16	)		(37	)		—			(53	)
Disposition of assets		—			—			2			—			2
Increase in countervailing duty cash deposits on supercalendered paper		—			(11	)		—			—			(11	)
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber		—			(41	)		—			—			(41	)
Increase in countervailing duty cash deposits on uncoated groundwood paper		—			(6	)		—			—			(6	)
Advance to parent		—			(1	)		—			1			—
Net cash used in investing activities		—			(75	)		(35	)		1			(109	)
Cash flows from financing activities:
Net repayments under revolving credit facilities		—			(114	)		—			—			(114	)
Payments of financing and credit facility fees		(1	)		—			—			—			(1	)
Advance from subsidiary		1			—			—			(1	)		—
Net cash used in financing activities		—			(114	)		—			(1	)		(115	)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash		—			—			(2	)		—			(2	)
Net decrease in cash and cash equivalents, and restricted cash		—			(2	)		(4	)		—			(6	)
Cash and cash equivalents, and restricted cash:
Beginning of period		—			3			46			—			49
End of period	$	—		$	1		$	42		$	—		$	43
Cash and cash equivalents, and restricted cash at period end:
Cash and cash equivalents	$	—		$	1		$	5		$	—		$	6
Restricted cash		—			—			37			—			37

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2017
(Unaudited, in millions) Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Net cash provided by operating activities $ —
$ 69
$ 30
$ —
$ 99

Cash flows from investing activities:
Cash invested in fixed assets —
(106 ) (30 ) —
(136 )
Disposition of assets —
—
3
—
3

Increase in countervailing duty cash deposits on supercalendered paper —
(17 ) —
—
(17 )
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber —
(18 ) —
—
(18 )
Decrease in notes receivable from affiliate —
5
—
(5 ) —

Net cash used in investing activities —
(136 ) (27 ) (5 ) (168 )
Cash flows from financing activities:
Net borrowings under revolving credit facilities —
70
—
—
70

Payments of debt —
(1 ) —
—
(1 )
Decrease in notes payable to affiliate —
—
(5 ) 5
—

Net cash provided by (used in) financing activities —
69
(5 ) 5
69

Effect of exchange rate changes on cash and cash equivalents, and restricted cash —
—
6
—
6

Net increase in cash and cash equivalents, and restricted cash —
2
4
—
6

Cash and cash equivalents, and restricted cash:
Beginning of period —
2
71
—
73

End of period $ —
$ 4
$ 75
$ —
$ 79

Cash and cash equivalents, and restricted cash at period end:
Cash and cash equivalents $ —
$ 4
$ 34
$ —
$ 38

Restricted cash —
—
41
—
41

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~~RESOLUTE FOREST PRODUCTS INC.~~

~~Notes to Unaudited Interim Consolidated Financial Statements~~

~~Note 14. Subsequent Event~~

~~The following significant event occurred subsequent to September 30, 2018:~~

We announced a special cash dividend of $1.50 per share on November 1, 2018. The special dividend will be payable on December 20, 2018 to shareholders of record at the close of business on December 6, 2018.

~~Table of Contents~~


ITEM 2.	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 1 – Financial Statements of this Quarterly Report on Form 10-Q (or “Form 10-Q”).

When we refer to “Resolute Forest Products,” “we,” “our,” “us” or the “Company,” we mean Resolute Forest Products Inc. with its subsidiaries, ~~and affiliates,~~ either individually or collectively, unless otherwise indicated.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATIONAND USEOF THIRD-PARTY DATA

Statements in this Form 10-Q that are not reported financial results or other historical information of Resolute Forest Products are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: ~~strategic investment plan for our Saint-Félicien (Quebec) pulp mill;~~ 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;~~flows, including as a result of the changes to our pension funding obligations; and strategies for achieving our goals generally. 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”~~“project,” and other terms with similar meaning indicating possible future events or potential impact on our business or Resolute Forest Products’ shareholders.

The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. These statements are based on management’s current assumptions, beliefs, and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. The potential risks and uncertainties that could cause our actual future financial condition, results of operations, and performance to differ materially from those expressed or implied in this Form 10-Q 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 ~~Atlas Paper Holdings, Inc.~~our entry into tissue production and ~~its subsidiaries (or “Atlas Tissue”),~~sales, or divestitures or other strategic transactions or ~~projects, such as our Calhoun (Tennessee) tissue operations;~~projects; uncertainty or changes in political or economic conditions in the ~~U.S.,~~United States, Canada or other countries in which we sell our products; global economic conditions; the highly cyclical nature of the forest products industry; any difficulties in obtaining timber or wood fiber at favorable prices, or at all; changes in the cost of purchased energy and other raw materials; physical and financial risks associated with global, regional, and local weather conditions, and climate change; any disruption in operations or increased labor costs due to labor disputes; difficulties in our employee relations or retention; disruptions to our supply chain, operations, or the delivery of our products; disruptions to our information technology systems including cybersecurity ~~risks;~~incidents; risks related to the operation and transition of legacy system applications; negative publicity, even if unjustified; currency fluctuations; any increase in the level of required contributions to our pension plans, including as a result of any increase in the amount by which they are underfunded; our ability to maintain adequate capital resources to provide for all of our substantial capital requirements; the terms of our outstanding indebtedness, which could restrict our current and future operations; losses that are not covered by insurance; any additional closure costs and long-lived asset ~~or goodwill~~ 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 orand anti-dumping duties on imports to the U.S. of ~~most of our paper products and~~ substantially all of our softwood lumber products produced at our Canadian ~~mills;~~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, orclaims 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 set forth under Part I, Item 1A, “Risk Factors,” of our annual report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed with the U.S. Securities and Exchange Commission, or the “SEC”, on March 1, 2019 (or the “2018 ~~(the “2017~~ Annual Report”).

All forward-looking statements in this Form 10-Q are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with 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.

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Market and industry data

The information on industry and general economic conditions in this Form 10-Q 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.

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~~Company owns or operates some 40 ~~manufacturing~~ facilities, as well as power generation assets, in the U.S. and Canada. We are the largest Canadian producer of wood products east of the Canadian Rockies and ~~one of the most significant~~a competitive pulp ~~producers~~producer in North America. By capacity, we are the number one producer of newsprint in the world and the largest producer of uncoated mechanical papers in North America. We are also an emerging tissue producer.

We report our activities in five business segments: market pulp, tissue, wood products, newsprint, and specialty papers.

We are guided by our vision and values, focusing on safety, sustainability, profitability, accountability, and teamwork. We believe we can be distinguished by the following competitive strengths:

Competitive cost structure combined with diversified and integrated asset base

~~large-scale, efficient and cost-effective operations, including our ability to optimize staffing across our various operations;~~

~~access to renewable virgin fiber;~~

~~significant internal energy production from cogeneration and hydroelectric facilities;~~

raw materials for our paper, pulp and cogeneration facilities in Canada, our pellet plant at Thunder Bay (Ontario), as well as our value-added and engineered wood facilities in Quebec provided primarily by our sawmills;

~~strategically located mills, including economical access to international markets;~~

~~competitive selling, general and administrative expenses (or “SG&A”) to sales ratio; and~~

~~significant tax assets that help defer cash taxes and provide synergies in the execution of our growth and diversification strategy.~~

~~Strong balance sheet~~

Our low debt, which has favorable pricing and flexibility, combined with strong liquidity levels, provide us with the ability to execute our strategy, particularly the continued transformation to a more profitable and sustainable company for the long term.

~~Seasoned management team~~

Our senior management team is comprised of women and men with many years of experience in the pulp, tissue, wood products, and paper industries. In addition, we have an integrated leadership system focused on increasing our organizational capability by optimizing organizational structure, clarifying each employee’s role and accountabilities, improving the link between compensation and individual performance, and improving our succession planning process.

~~Table of Contents~~


–	large-scale, efficient and cost-effective operations;


–	access to renewable virgin fiber;


–	significant internal energy production from cogeneration and hydroelectric facilities;


–	raw materials for our paper, pulp and cogeneration facilities in Canada, our pellet plant at Thunder Bay (Ontario), as well as our value-added and engineered wood facilities in Quebec provided primarily by our sawmills;


–	strategically located mills, including economical access to international markets;


–	competitive selling, general and administrative expenses (or “SG&A”) to sales ratio;


–	ability to optimize staffing across our various operations; and


–	significant tax assets that help defer cash taxes and provide synergies in the execution of our growth and diversification strategy.


•	Strong balance sheet – our low debt, which has favorable pricing and flexibility, combined with strong liquidity levels, provide us with the ability to execute our strategy, particularly the continued transformation to a more profitable and sustainable company for the long term.

•

Seasoned management team – our senior management team has many years of experience in the pulp, tissue, wood products, and paper industries. In addition, we have an integrated leadership system focused on increasing our organizational capability by optimizing organizational structure, clarifying each employee’s role and accountabilities, improving the link between compensation and individual performance, and improving our succession planning process.

Our Business

For information relating to our products, strategy and highlights, sustainable ~~performance~~development and ~~development,~~performance, and power generation assets, refer to Part II, – Item ~~7. Management’s~~7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Our ~~Business~~Business” in our ~~2017~~2018 Annual Report.

~~Strategy and highlights~~

Our corporate strategy is focused on continuing to transform the company into a more profitable and sustainable organization over the long run, one that we believe can generate consistent value for shareholders through a competitive portfolio of manufacturing assets and a solid presence in long-term growth markets. This includes, on the one hand, a gradual and profitable retreat from paper grades and, on the other, using our strong financial position to act on opportunities to diversify and grow. In addition, we believe in returning excess capital over time to our shareholders. Our strategy is based on maximizing value generation from paper, growing in pulp and wood products, integrating our pulp into value-added quality tissue, and investing in product innovation, while maintaining a disciplined approach to capital allocation.

~~Maximizing value generation from paper~~

Our paper products (newsprint and specialty papers) remain an important part of our ongoing business, generating cash to help finance our strategy to diversify and grow. In order to remain competitive in the demand-challenged markets that our paper operations face, we strive to consistently:

~~maintain a stringent focus on controlling costs and optimizing our diversified asset base;~~

~~manage production and inventory levels; and~~

~~focus production at our most profitable and lower-cost facilities and machines.~~

~~Growing in pulp and wood products~~

We believe in taking an opportunistic approach to strategic initiatives, pursuing only those that reduce our cost position, improve our product diversification, provide synergies, or position us to expand into markets that benefit from long-term growth. We believe that our market pulp and wood products segments are aligned with these criteria, and are therefore critical to our transformation strategy. Opportunities to diversify and grow may arise in a number of ways, including:

~~spending capital on equipment reliability, and improving fiber yields and productivity, to increase production and lower costs;~~

~~investing selectively in organic expansions; and~~

~~pursuing opportunistic strategic acquisitions.~~

~~Integrating our pulp into value-added quality tissue~~

Consistent with our overall business transformation strategy, we entered the tissue market in 2015 with the announcement of our plans to build a greenfield tissue facility at our Calhoun site and to acquire Atlas Tissue. These significant steps supported our belief in adding value through the integration of our market pulp, particularly as paper demand continues its steady decline. In addition, we believe that the tissue business will provide a more stable source of revenue and profitability.

Our tissue operations are almost entirely supplied from our pulp mills, creating synergies and minimizing risks associated with cyclical market pulp pricing. For our Calhoun tissue facility, pulp production is directly transferred as slush pulp into the tissue operation, reducing process, energy, handling, and logistics costs.

Equipped with three modern converting lines sized specifically for the tissue machine, we sell converted products from the Calhoun tissue facility, targeting the fast growing premium private-label markets of the U.S.

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~~Since 2011,~~Second Quarter Overview

Five-year extension of ABL Credit Facility

On May 14, 2019, we ~~have completed~~entered into an amendment to the credit agreement dated May 22, 2015, for a number of strategic initiatives, leading to a relative shift in our business away from our structurally-challenged paper operations (comprised of newsprint and specialty papers) into markets with long-term growth potential (comprised of market pulp, tissue and wood products), as illustrated below.


⁽¹⁾	~~For a reconciliation of net income (loss) including noncontrolling interests to earnings before interest expense, income taxes, and depreciation and amortization, or “EBITDA,” and adjusted EBITDA, see “Reconciliations” below.~~

~~Table of Contents~~

~~Investing in product innovation~~

~~Partnering with others, we are investing in research and development to identify new technologies that use wood fiber in products~~senior secured asset-based revolving credit facility (or the “ABL Credit Facility”). The amended credit agreement provides for an extension of the ~~future. We recently announced~~maturity date to May 14, 2024, with an ~~investment in~~aggregate lender commitment of $500 million at any time outstanding, representing a pilot project, which will be hosted at our Thunder Bay pulp and paper mill. The project will focus on developing new ways to efficiently produce and commercialize innovative bio-chemicals derived from wood. In 2014, we announced our participation in Performance BioFilaments Inc., a joint venture focused onvoluntary reduction of $100 million.

Share repurchase program

During the development of commercial applications for cellulose filaments, a new biomaterial that holds the potential to make a variety of products stronger, lighter, more flexible and more durable, while leveraging a sustainable and renewable resource.

~~Disciplined approach to capital allocation~~

~~We make capital management a priority. To maintain our strong financial position and continued financial flexibility, we:~~

~~spend our capital in a disciplined, strategic and focused manner, concentrating on our most competitive sites;~~

~~explore value-creating opportunities to divest idled, non-core or sub-optimized operations;~~

~~maintain debt leverage and financial liquidity that over time are sufficient to support the evolution of our transformation strategy;~~

~~from time to time, based on market conditions, may 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.~~

~~Table of Contents~~

~~Our transformation since 2011 is summarized below:~~


⁽¹⁾	~~By acquiring Fibrek Inc., our market pulp capacity increased by over 70%.~~


⁽²⁾	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.


⁽³⁾	With the acquisition of Atlas Tissue, 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.


⁽⁴⁾	~~Incremental pulp capacity from the pulp digester serves in part to supply slush pulp to our new Calhoun tissue machine.~~

~~Table of Contents~~

~~Reconciliations~~

The table below shows the reconciliation of net income (loss) including noncontrolling interests to EBITDA and adjusted EBITDA, which are not financial measures recognized under generally accepted accounting principles, or “~~GAAP,” for the year ended December 31, 2011. For more information on the calculation and reasons we include these measures, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial Information” below.~~

Year ended December 31, 2011 Market Pulp Tissue Wood Products Newsprint Specialty Papers Segment Total Corporate and Other Total
(Unaudited, in millions)
Net income (loss) including noncontrolling interests $ 91
$ —
$ (25 ) $ 89
$ 122
$ 277
$ (232 ) $ 45

Interest expense —
—
—
—
—
—
95
95

Income tax provision —
—
—
—
—
—
19
19

Depreciation and amortization 30
—
33
73
84
220
—
220

EBITDA $ 121
$ —
$ 8
$ 162
$ 206
$ 497
$ (118 ) $ 379

Foreign exchange loss —
—
—
—
—
—
21
21

Severance costs —
—
—
—
—
—
12
12

Closure costs, impairment and other related charges —
—
—
—
—
—
46
46

Inventory write-downs related to closures —
—
—
—
—
—
3
3

Net gain on disposition of assets —
—
—
—
—
—
(3 ) (3 )
Non-operating pension and other postretirement benefit costs —
—
—
—
—
—
8
8

Acquisition-related costs —
—
—
—
—
—
5
5

Other expense, net —
—
—
—
—
—
27
27

Adjusted EBITDA $ 121
$ —
$ 8
$ 162
$ 206
$ 497
$ 1
$ 498

The table below shows the reconciliation of net income (loss) including noncontrolling interests to EBITDA, and adjusted EBITDA, which are not financial measures recognized under GAAP, for the 12 months ended September 30, 2018. For more information on the calculation and reasons we include these measures, see note 1 under “~~Results of Operations – Consolidated Results – Selected Annual Financial Information” below.~~

12 months ended September 30, 2018 Market Pulp Tissue Wood Products Newsprint Specialty Papers Segment Total Corporate and Other Total
(Unaudited, in millions)
Net income (loss) including noncontrolling interests $ 168
$ (23 ) $ 234
$ 40
$ 10
$ 429
$ (215 ) $ 214

Interest expense —
—
—
—
—
—
49
49

Income tax provision —
—
—
—
—
—
132
132

Depreciation and amortization 29
12
31
66
47
185
27
212

EBITDA $ 197
$ (11 ) $ 265
$ 106
$ 57
$ 614
$ (7 ) $ 607

Foreign exchange loss —
—
—
—
—
—
3
3

Closure costs, impairment and other related charges —
—
—
—
—
—
3
3

Reversal of inventory write-downs related to closures —
—
—
—
—
—
(1 ) (1 )
Start-up costs —
—
—
—
—
—
17
17

Net gain on disposition of assets —
—
—
—
—
—
(17 ) (17 )
Non-operating pension and other postretirement benefit credits —
—
—
—
—
—
(39 ) (39 )
Other income, net —
—
—
—
—
—
(2 ) (2 )
Adjusted EBITDA $ 197
$ (11 ) $ 265
$ 106
$ 57
$ 614
$ (43 ) $ 571

~~Table of Contents~~

~~Third Quarter Overview~~

~~In the first~~second quarter of ~~2018,~~2019, we ~~changed~~repurchased 0.7 million shares, at a cost of $5 million under our presentation of operating income in accordance with Financial Accounting Standards Board Accounting Standards Update 2017-07, to present only the service cost component of net periodic pension cost and net periodic other postretirement benefit (or “~~OPEB”) cost in operating expenses (together with other employee compensation costs arising during the period). The other components of the net periodic pension cost and net periodic OPEB cost (or “Non-operating pension and OPEB costs”), recorded under “corporate and other,” are reported separately outside any subtotal of operating income. Prior period amounts have been reclassified to conform to the 2018 presentation. See~~ Item 1. Financial Statements – Note 1. Organization and Basis of Presentation – New accounting pronouncements adopted – ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” ~~for more information.~~share repurchase program.

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Our operating income was ~~$135~~$40 million in the quarter, compared to ~~$46~~$121 million in the ~~third~~second quarter of ~~2017.~~2018. Excluding special items, we ~~also~~ generated operating income of ~~$135~~$40 million, compared to ~~$66~~$118 million in the year-ago period. Special items are described below.

Our net income in the quarter was ~~$117~~$25 million, or ~~$1.25~~$0.27 per diluted share, compared to ~~$24~~$72 million, or ~~$0.26~~$0.77 per diluted share, in the year-ago period. Our net income in the quarter, excluding special items, was ~~$96~~$11 million, or ~~$1.03~~$0.12 per diluted share, compared to ~~$31~~$66 million, or ~~$0.34~~$0.71 per diluted share, in the year-ago period.


Three Months Ended September 30, 2018	Operating Income (Loss)		Net Income (Loss)			EPS
Three Months Ended June 30, 2019	Operating Income (Loss)		Net Income (Loss)			EPS			Operating Income (Loss)		Net Income (Loss)			EPS
(Unaudited, in millions, except per share amounts)	Operating Income (Loss)		Net Income (Loss)			EPS			Operating Income (Loss)		Net Income (Loss)			EPS
GAAP, as reported	Operating Income (Loss)		Net Income (Loss)			EPS			$	40	$	25		$	0.27
Adjustments for special items:
Foreign exchange loss										—		6			0.06
Non-operating pension and other postretirement benefit credits		—		(13	)		(0.14	)		—		(12	)		(0.13	)
Other income, net		—		(14	)		(0.15	)		—		(5	)		(0.05	)
Income tax effect of special items		—		6			0.07			—		(3	)		(0.03	)
Adjusted for special items ⁽¹⁾	$	135	$	96		$	1.03		$	40	$	11		$	0.12


Three Months Ended September 30, 2017	Operating Income (Loss)			Net Income (Loss)			EPS
Three Months Ended June 30, 2018	Operating Income (Loss)			Net Income (Loss)			EPS			Operating Income (Loss)			Net Income (Loss)			EPS
(Unaudited, in millions, except per share amounts)	Operating Income (Loss)			Net Income (Loss)			EPS			Operating Income (Loss)			Net Income (Loss)			EPS
GAAP, as reported	Operating Income (Loss)			Net Income (Loss)			EPS			$	121		$	72		$	0.77
Adjustments for special items:
Foreign exchange gain		—			(7	)		(0.08	)
Foreign exchange loss											—			1			0.01
Closure costs, impairment and other related charges		8			8			0.09			1			1			0.01
Inventory write-downs related to closures		11			11			0.12
Start-up costs		3			3			0.03
Net gain on disposition of assets		(2	)		(2	)		(0.02	)		(4	)		(4	)		(0.04	)
Non-operating pension and other postretirement benefit credits		—			(2	)		(0.02	)		—			(12	)		(0.13	)
Other expense, net		—			1			0.01			—			2			0.02
Income tax effect of special items		—			(5	)		(0.05	)		—			6			0.07
Adjusted for special items ⁽¹⁾	$	66		$	31		$	0.34		$	118		$	66		$	0.71

⁽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. ~~GAAP.~~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 and reversals of~~ inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, and other charges or credits that are excluded from our segment’s performance from GAAP operating income (loss). We calculate net income (loss), as adjusted for special items, as net income (loss) from our Consolidated Statements of Operations, adjusted for the same special items applied to operating income (loss), in addition to foreign exchange gains and losses, non-

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operating pension and other postretirement benefit (or “OPEB”) costs and credits, other income ~~(expense),~~and expense, net, and the income tax effect of the special items. EPS, as adjusted for special items, is calculated as net income (loss), as adjusted for special items, per diluted share. We believe that using these non-GAAP measures is useful because they are consistent with the indicators management uses internally to measure the Company’s performance, and it allows the reader to more easily compare our operations and financial performance from period to period. Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items, are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP.

~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Our operating income was ~~$304~~$104 million in the first ~~nine months~~half of the year, compared to ~~a loss of $11~~$169 million in the year-ago period. Excluding special items, we generated operating income of ~~$308~~$104 million, compared to ~~$109~~$173 million in the year-ago period. Special items are described below.

Our net income in the first ~~nine months~~half of the year was ~~$199~~$67 million, or ~~$2.14~~$0.71 per diluted share, compared to ~~a net loss of $97~~$82 million or ~~$1.07~~$0.88 per diluted share in the year-ago period. Our net income in the period, excluding special items, was ~~$179~~$41 million, or ~~$1.92~~$0.44 per diluted share, compared to ~~a net loss, excluding special items, of $2~~$83 million, or ~~$0.02~~$0.89 per diluted share, in the year-ago period.


Nine Months Ended September 30, 2018	Operating Income (Loss)			Net Income (Loss)			EPS
Six Months Ended June 30, 2019	Operating Income (Loss)			Net Income (Loss)			EPS			Operating Income (Loss)		Net Income (Loss)			EPS
(Unaudited, in millions, except per share amounts)	Operating Income (Loss)			Net Income (Loss)			EPS			Operating Income (Loss)		Net Income (Loss)			EPS
GAAP, as reported	Operating Income (Loss)			Net Income (Loss)			EPS			$	104	$	67		$	0.71
Adjustments for special items:
Foreign exchange loss		—			2			0.02			—		10			0.11
Closure costs, impairment and other related charges		1			1			0.01
Reversal of inventory write-downs related to closures		(1	)		(1	)		(0.01	)
Start-up costs		8			8			0.09
Net gain on disposition of assets		(4	)		(4	)		(0.04	)
Non-operating pension and other postretirement benefit credits		—			(38	)		(0.41	)		—		(24	)		(0.26	)
Other income, net		—			(6	)		(0.07	)		—		(5	)		(0.05	)
Income tax effect of special items		—			18			0.19			—		(7	)		(0.07	)
Adjusted for special items ⁽¹⁾	$	308		$	179		$	1.92		$	104	$	41		$	0.44


Nine Months Ended September 30, 2017	Operating Income (Loss)			Net Income (Loss)			EPS
Six Months Ended June 30, 2018	Operating Income (Loss)			Net Income (Loss)			EPS			Operating Income (Loss)			Net Income (Loss)			EPS
(Unaudited, in millions, except per share amounts)	Operating Income (Loss)			Net Income (Loss)			EPS			Operating Income (Loss)			Net Income (Loss)			EPS
GAAP, as reported	Operating Income (Loss)			Net Income (Loss)			EPS			$	169		$	82		$	0.88
Adjustments for special items:
Foreign exchange gain		—			(10	)		(0.11	)
Foreign exchange loss											—			2			0.02
Closure costs, impairment and other related charges		80			80			0.89			1			1			0.01
Inventory write-downs related to closures		24			24			0.26
Reversal of inventory write-downs related to closures											(1	)		(1	)		(0.01	)
Start-up costs		18			18			0.20			8			8			0.09
Net gain on disposition of assets		(2	)		(2	)		(0.02	)		(4	)		(4	)		(0.05	)
Non-operating pension and other postretirement benefit credits		—			(6	)		(0.07	)		—			(25	)		(0.27	)
Other income, net		—			(1	)		(0.01	)
Other expense, net											—			8			0.09
Income tax effect of special items		—			(8	)		(0.09	)		—			12			0.13
Adjusted for special items ⁽¹⁾	$	109		$	(2	)	$	(0.02	)	$	173		$	83		$	0.89


⁽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 – ~~Third~~Second Quarter Overview”above.

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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 1, “Organization and Basis of Presentation – New accounting pronouncement adopted in 2019,” to our Consolidated Financial Statements.

~~Table of Contents~~

RESULTSOF OPERATIONS

Consolidated Results

Selected financial information


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions, except per share amounts)	2018			2017			2018			2017			2019			2018			2019			2018
Sales	$	974		$	885		$	2,824		$	2,615		$	755		$	976		$	1,550		$	1,850
Operating income (loss) per segment:
Market pulp		57			19			131			42			27			41			69			74
Tissue		(10	)		(3	)		(21	)		(4	)		(4	)		(10	)		(12	)		(11	)
Wood products		45			64			177			129			(3	)		79			3			132
Newsprint		32			(6	)		46			(17	)		17			18			45			14
Specialty papers		26			7			23			4			15			4			30			(3	)
Segment total		150			81			356			154			52			132			135			206
Corporate and other		(15	)		(35	)		(52	)		(165	)		(12	)		(11	)		(31	)		(37	)
Operating income (loss)		135			46			304			(11	)
Net income (loss) attributable to Resolute Forest Products Inc.		117			24			199			(97	)
Net income (loss) per common share attributable to Resolute Forest Products Inc. common shareholders:
Operating income														40			121			104			169
Net income attributable to Resolute Forest Products Inc.														25			72			67			82
Net income per common share attributable to Resolute Forest Products Inc. common shareholders:
Basic	$	1.28		$	0.27		$	2.18		$	(1.07	)	$	0.27		$	0.79		$	0.73		$	0.90
Diluted		1.25			0.26			2.14			(1.07	)		0.27			0.77			0.71			0.88
Adjusted EBITDA ⁽¹⁾	$	189		$	118		$	469		$	262		$	82		$	172		$	186		$	280


(Unaudited, in millions)	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Cash and cash equivalents	$	72	$	6	$	98	$	304
Total assets		4,145		4,147		3,752		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 foreign exchange gains and losses, ~~severance costs,~~ closure costs, impairment and other related charges, ~~inventory write-downs and reversals of~~ inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, non-operating pension and OPEB costs and credits, ~~acquisition-related costs,~~ and other charges or credits. We believe that using non-GAAP measures such as EBITDA and adjusted EBITDA is useful because they are consistent with the indicators management uses internally to measure the Company’s performance and it allows the reader to more easily compare our operations and financial performance from period to period. EBITDA and adjusted EBITDA are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP.

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	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Net income (loss) including noncontrolling interests	$	117		$	26		$	199		$	(93	)
Net income including noncontrolling interests													$	25		$	72		$	67		$	82
Interest expense		12			13			36			36			7			11			16			24
Income tax provision		33			15			111			63			19			47			40			78
Depreciation and amortization		54			52			161			153			42			54			82			107
EBITDA	$	216		$	106		$	507		$	159		$	93		$	184		$	205		$	291
Foreign exchange (gain) loss		—			(7	)		2			(10	)
Foreign exchange loss														6			1			10			2
Closure costs, impairment and other related charges		—			8			1			80			—			1			—			1
Inventory write-downs (reversal) related to closures		—			11			(1	)		24
Reversal of inventory write-downs related to closures														—			—			—			(1	)
Start-up costs		—			3			8			18			—			—			—			8
Net gain on disposition of assets		—			(2	)		(4	)		(2	)		—			(4	)		—			(4	)
Non-operating pension and other postretirement benefit credits		(13	)		(2	)		(38	)		(6	)		(12	)		(12	)		(24	)		(25	)
Other (income) expense, net		(14	)		1			(6	)		(1	)		(5	)		2			(5	)		8
Adjusted EBITDA	$	189		$	118		$	469		$	262		$	82		$	172		$	186		$	280

The operating results of our Calhoun (Tennessee) tissue operations, previously recorded under “corporate and other,” have been recorded in our tissue segment since April 1, 2018.

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income variance analysis

Sales

Sales ~~increased~~decreased by ~~$89~~$221 million ~~or 10%,~~ compared to the year-ago period, to ~~$974~~$755 million. ~~Including restructuring initiatives,~~After removing the effect of the divestitures of the Catawba (South Carolina) and Fairmont (West Virginia) facilities in the fourth quarter of 2018, sales volume ~~had an unfavorable impact of $59~~was $42 million lower, mainly ~~reflecting a decline in~~due to lower shipments of ~~44,000 short tons (40,000 metric tons) in specialty papers resulting from the capacity reduction initiatives taken in 2017,~~newsprint and ~~86 million board feet in wood products. Pricing was up across all segments, contributing~~market pulp, while pricing contributed to a ~~$134~~$68 million ~~increase~~decrease in sales. The average transaction price ~~increased 23%~~ for ~~newsprint, 21% for market pulp, 12% for~~wood products fell by 32%, more than offsetting the higher prices in specialty papers and ~~11% for wood products. The inclusion~~newsprint, up by 7% and 2%, respectively.

Table of ~~our Calhoun tissue operations’ results in our tissue segment increased sales by $15 million.~~Contents

Cost of sales, excluding depreciation, amortization and distribution costs

Cost of sales, excluding depreciation, amortization and distribution costs, which we refer to as “COS”, ~~was unchanged~~improved by $103 million in the quarter. ~~Restructuring initiatives reduced COS by $34 million, including the elimination of $10 million in fixed manufacturing~~

~~Table of Contents~~

~~costs.~~ After removing ~~the lower volume,~~ the COS related to ~~Calhoun’s tissue operations,~~the divestitures, the effect of lower volume, and ~~the effects of~~ the Canadian dollar fluctuation, ~~and restructuring initiatives, manufacturing costs~~COS increased by ~~$33~~$31 million, reflecting:

higher ~~log~~wood fiber costs ($~~13 million), including higher market-based stumpage fees and diesel fuel expense;~~

~~higher maintenance costs ($12 million), in part due to planned repairs at certain newsprint mills;~~

~~unfavorable recycled fiber prices ($10 million); and~~

~~unfavorable labor expense ($7~~18 million), mostly due to ~~higher compensation, including variable compensation expense accruals related to the Company’s performance;~~wood shortages;

~~partly offset by write-downs of mill stores and other supplies incurred~~an increase in ~~the year-ago period~~maintenance costs ($113 million), ~~primarily as a result of the permanent closure of two paper machines at Calhoun at the end of the third quarter of 2017.~~largely scheduled repairs;

lower contribution from our cogeneration assets that sell power externally ($2 million), due to scheduled maintenance; and

higher chemical costs ($2 million).

Distribution costs

After removing the ~~distribution costs related to Calhoun’s tissue operations and~~impact of divestitures, the ~~effects~~effect of lower volume, ~~restructuring initiatives,~~ and the Canadian dollar fluctuation, distribution costs ~~rose~~decreased by ~~$14~~$3 million, reflecting an improvement in freight rates and transportation optimization, mainly in specialty papers.

Depreciation and amortization

Depreciation and amortization was $12 million lower in the quarter, reflecting the full amortization of certain newsprint assets 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.

Selling, general and administrative expenses

SG&A improved by $6 million in the quarter, ~~mainly~~primarily due to ~~higher truck and rail car rates, higher fuel surcharges, and an increase in the average length of haul.~~

~~Closure costs, impairment and other related charges~~

~~See the corresponding variance analysis under “Corporate and Other” below.~~lower incentive plan expense, which is based on company performance.

Net income variance analysis

~~Non-operating pension and other postretirement benefit credits~~Interest expense

~~We recorded non-operating pension and OPEB credits of $13~~Interest expense was $4 million lower in the quarter, ~~compared to $2~~as we repurchased $225 million in aggregate principal amount of our 5.875% senior unsecured notes due 2023 (or the ~~year-ago period. The increase compared to the year-ago period is due~~“2023 notes”) on January 3, 2019, and we fully repaid borrowings of $144 million under our revolving credit facilities in ~~part to lower amortization of actuarial losses for our U.S. pension plan, which became predominantly inactive at year-end in 2017, resulting in a longer amortization period.~~2018.

Income taxes

We recorded an income tax provision of ~~$33~~$19 million in the ~~quarter,~~period, on income before income taxes of $150 million, compared to an expected income tax provision of $31 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects mainly foreign tax rate differences ($35 million), including a $28 million income tax provision attributable to the global intangible low-taxed income (or “~~GILTI~~”) inclusion, partly offset by a $32 million valuation allowance reversal related to our U.S. operations where we recognize a valuation allowance against virtually all of our net deferred income tax assets.

~~In the third quarter of 2017, we recorded an income tax provision of $15 million, on income before income taxes of $41~~$44 million, compared to an expected income tax provision of $9 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects ~~mostly a $19 million valuation allowance related to our~~ U.S. ~~operations where we recognized~~tax on non-U.S. earnings ($5 million), a valuation allowance against all of our net deferred income tax assets, and the change in U.S. federal tax rate ($5 million), partially offset by foreign exchange items ($8 million), and foreign tax rate differences ($7 million).

~~On December 22, 2017, the Tax Cuts and Jobs Act (or the “TCJA~~”) was enacted into law which, among other changes, reduced the U.S. federal statutory income tax rate from 35% to 21%, and introduced the GILTI regime, the base erosion anti-abuse tax, and the foreign-derived intangible income deduction. The enactment of the TCJA resulted in an income tax provision attributable to the GILTI inclusion, before valuation allowance, with no other impact on our results of operations. The impacts of the TCJA on our 2017 financial results remain provisional and unchanged as of September 30, 2018. See ~~Item 1 – Financial Statements – Note 10. Income Taxes – Tax Cuts and Jobs Act~~ ~~for more information.~~

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~~Nine months ended September 30, 2018 vs. September 30, 2017~~

~~Operating income (loss) variance analysis~~

~~Sales~~

Sales rose by $209 million, or 8%, compared to the year-ago period, to $2,824 million. Including restructuring initiatives, sales volume had an unfavorable impact of $215 million, reflecting decreases of 203,000 short tons (184,000 metric tons) in shipments of specialty papers, and 109,000 metric tons in newsprint, mainly as a result of the 2017 capacity reduction initiatives. Sales volume in wood products also decreased, down 10%, due in part to shipping constraints in the first quarter of 2018, while market pulp shipments were up 4%. Pricing had a $393 million favorable impact on sales, improving across almost all grades. The average transaction price increased 24% for wood products, 20% for market pulp, 16% for newsprint, and 7% for specialty papers. The inclusion of our Calhoun tissue operations’ results in our tissue segment resulted in a $29 million increase in sales.

~~Cost of sales, excluding depreciation, amortization and distribution costs~~

COS was $64 million lower in the period. Restructuring initiatives reduced COS by $170 million, including the elimination of $52 million in fixed manufacturing costs. After removing the lower volume, the COS related to Calhoun’s tissue operations, and the effects of the Canadian dollar fluctuation and restructuring initiatives, manufacturing costs increased by $63 million, reflecting:

~~unfavorable maintenance costs ($29 million), in part due to planned repairs at certain newsprint mills;~~

~~higher log costs ($24 million), including higher market-based stumpage fees and diesel fuel expense;~~

~~higher labor expense ($17 million), partly due to increased compensation, including variable compensation expense accruals related to the Company’s performance;~~

~~unfavorable recycled fiber prices ($13 million);~~

~~unfavorable power and steam costs ($10 million), largely related to unusual weather conditions in 2018;~~

~~higher chemical costs ($7 million), mostly price-related; and~~

~~unfavorable fiber usage ($5 million);~~

~~partly offset by:~~

write-downs of mill stores and other supplies incurred in the year-ago period ($24 million), primarily as a result of the permanent closure of two paper machines at Calhoun, a paper machine at Catawba (South Carolina) at the end of the second quarter of 2017, and our Mokpo (South Korea) paper mill in the first quarter of 2017;

~~lower external wood chip prices ($10 million);~~

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~~higher start-up costs incurred in the year-ago period, related to the Calhoun tissue manufacturing and converting facility ($7 million); and~~

~~higher internal hydroelectric generation ($6 million), due to capital programs on certain water wheels in the year-ago period.~~

~~Distribution costs~~

After removing the distribution costs related to Calhoun’s tissue operations and the effects of lower volume, restructuring initiatives and the Canadian dollar fluctuation, distribution costs were $48 million greater in 2018, largely due to higher truck and rail car rates, higher fuel surcharges, and an increase in the average length of haul.

~~Depreciation and amortization~~

~~Depreciation and amortization was $8 million greater in the period, mainly explained by an increase in depreciation of costs associated with the Calhoun tissue manufacturing and converting facility.~~

~~Closure costs, impairment and other related charges~~

~~See the corresponding variance analysis under “Corporate and Other” below.~~

~~Net income (loss) variance analysis~~

~~Non-operating pension and other postretirement benefit credits~~

We recorded non-operating pension and OPEB credits of $38 million in the period, compared to $6 million in the prior year. The increase compared to 2017 is primarily due to higher expected return on plan assets, and lower amortization of actuarial losses for our U.S. pension plan, which became predominantly inactive at year-end in 2017, resulting in a longer amortization period.

~~Income taxes~~

We recorded an income tax provision of $111 million in the period, on income before income taxes of $310 million, compared to an expected income tax provision of $65 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects mainly foreign tax rate differences ($72 million), including a $53 million income tax provision attributable to the GILTI inclusion, and foreign exchange items ($12 million), partly offset by a $40 million valuation allowance reversal related to our U.S. operations where we recognize a valuation allowance against virtually all of our net deferred income tax ~~assets.~~assets ($4 million), and state and foreign tax rate differences ($3 million).

In the ~~first nine months~~second quarter of ~~2017,~~2018, we recorded an income tax provision of ~~$63~~$47 million, on ~~a loss~~income before income taxes of ~~$30~~$119 million, compared to an expected income tax ~~benefit~~provision of $6$25 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects U.S. tax on non-U.S. earnings ($18 million), foreign tax rate differences ($7 million), and foreign exchange items ($7 million), partly offset by a valuation allowance reversal related to our U.S. operations ($13 million).

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Six months ended June 30, 2019 vs. June 30, 2018

Operating income variance analysis

Sales

Sales decreased by $300 million compared to the year-ago period, to $1,550 million. After removing the effect of the divestitures of the Catawba and Fairmont facilities, sales declined by $82 million. Lower shipments in all business segments, except tissue, reduced sales by $64 million, while pricing had an unfavorable impact of $31 million. The 26% drop in the average transaction price for wood products more than outweighed increases in the average transaction price for specialty papers, newsprint, and market pulp. The inclusion of our Calhoun tissue operations’ results in our tissue segment increased sales by $16 million.

Cost of sales, excluding depreciation, amortization and distribution costs

COS was $163 million lower in the period. After removing the COS related to the divestitures and Calhoun’s tissue operations, as well as the effect of lower volume, and the Canadian dollar fluctuation, COS increased by $82 million, reflecting:

higher wood fiber costs ($38 million), mostly due to wood shortages;

an increase in maintenance costs ($15 million), largely scheduled repairs;

higher labor expense ($10 million);

a rise in recycled fiber prices ($8 million);

lower contribution from our cogeneration assets that sell power externally ($3 million) and our hydroelectric facilities ($2 million); and

higher chemical costs ($3 million);

partly offset by start-up costs incurred in the year-ago period ($7 million) for the Calhoun tissue manufacturing and converting facility.

Distribution costs

After removing the distribution costs related to Calhoun’s tissue operations and divestitures, the effect of lower volume, and the Canadian dollar fluctuation, distribution costs decreased by $4 million, reflecting improved freight rates and transportation optimization, mainly in specialty papers.

Depreciation and amortization

Depreciation and amortization was $25 million lower in the first half of 2019, reflecting the full amortization of certain newsprint assets 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.

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Selling, general and administrative expenses

SG&A improved by $12 million in the first half of the year compared to the same period last year, mainly due to lower incentive plan expense, which is based on company performance.

Net income variance analysis

Interest expense

Interest expense was $8 million lower in the first half of 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.

Income taxes

We recorded an income tax provision of $40 million in the period, on income before income taxes of $107 million, compared to an expected income tax provision of $22 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects a ~~$94 million~~ valuation allowance ~~primarily~~ related to our U.S. operations where we recognized a valuation allowance against all of our net deferred income tax assets, and a $12 million decrease to our deferred income tax assets due to the enactment of a lower foreign income tax rate, offset in part by($11 million), state and foreign tax rate differences ($227 million), and U.S. tax on non-U.S. earnings ($5 million), partly offset by foreign exchange items ($4 million).

In the first half of 2018, we recorded an income tax provision of $78 million, on income before income taxes of $160 million, compared to an expected income tax provision of $34 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects U.S. tax on non-U.S. earnings ($25 million), foreign exchange items ($914 million), and ~~the change in U.S. federal~~state and foreign tax rate differences ($510 million), partly offset by a valuation allowance reversal related to our U.S. operations ($8 million).

Segment Earnings

We manage our business based on the products we manufacture. ~~Accordingly, our~~Our reportable segments correspond to our principal product lines: market pulp, tissue, wood products, newsprint, and specialty papers.

We do not allocate any of the income or loss items following “operating ~~income (loss)”~~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 and reversals of~~ inventory write-downs related to closures; start-up costs; gains and losses on disposition of assets; as well as other discretionary charges or credits.

We allocate depreciation and amortization expense to our segments, although the related fixed assets and amortizable intangible assets are not allocated to segment assets. Additionally, all SG&A are allocated to our segments, with the exception of certain discretionary charges and credits, which we present under “corporate and other.”

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MARKET PULP

Highlights


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions, except where otherwise stated)	2018		2017		2018		2017		2019		2018		2019		2018
Sales	$	288	$	227	$	809	$	649	$	189	$	264	$	420	$	521
Operating income ⁽¹⁾		57		19		131		42		27		41		69		74
EBITDA ⁽²⁾		64		27		153		66		32		49		79		89
(In thousands of metric tons)
Shipments		367		348		1,082		1,037		257		353		543		715
Downtime		26		20		54		67		15		22		23		28


	September 30,				June 30,
(Unaudited, in thousands of metric tons)	2018		2017		2019		2018
Finished goods inventory		116		100		110		108


⁽¹⁾	Net income including noncontrolling interests is equal to operating income in this segment.


⁽²⁾	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 Financial Information” above.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions)	2018		2017		2018		2017		2019		2018		2019		2018
Net income including noncontrolling interests	$	57	$	19	$	131	$	42	$	27	$	41	$	69	$	74
Depreciation and amortization		7		8		22		24		5		8		10		15
EBITDA		64		27		153		66		32		49		79		89

Industry trends

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World demand for chemical pulp ~~grew~~fell by ~~2.2%~~2.9% in the first ~~nine~~five months of the year compared to the year-ago period, ~~including an increase~~reflecting decreases of ~~5.6% in China,~~10.5% and ~~3.4%~~3.7% in Western Europe ~~partly offset by a decrease of 5.1% in~~and China, respectively, while North ~~America.~~America was up 11.2%. World capacity grew by ~~5.4%~~1.1% over the same period.

World demand for softwood pulp ~~fell~~grew by ~~1.5%~~1.0% in the first ~~nine~~five months of the year, ~~compared to the year-ago period. This reflects decreases~~with increases in shipments to North America ~~Western Europe,~~ and China of ~~3.4%~~5.0% and 4.0%, ~~1.4%, and 1.0%, respectively.~~respectively, while Western Europe was down by 5.4%. The operating rate was ~~89%, a decrease of 5% from the year-ago period.~~91%.

In the same period, demand for hardwood pulp ~~was up~~dropped by ~~4.9%~~6.0%, with shipments to ~~China and~~ Western Europe upand China down by ~~9.8%~~14.3% and ~~6.6%~~9.2%, respectively, while North America was ~~down~~up by ~~7.9%~~21.1%. The operating rate was ~~88%~~80%, a decrease of 2% from the year-ago period. The operating rates do not fully reflect the wave of recurring industry production challenges and general supply disruptions which have affected global pulp markets.reflecting elevated producer inventory levels.

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income variance analysis

Sales

Sales were ~~$61~~$75 million ~~higher,~~lower, or ~~27%~~28%, to ~~$288~~$189 million in the ~~quarter. The increase~~quarter, reflecting a reduction in shipments of 96,000 metric tons, mainly due to the sale of the paper and pulp mill at Catawba and the recycled bleached kraft pulp mill at Fairmont. Volumes were also unfavorably impacted by weaker global pulp markets. Consequently, finished goods inventory rose to 110,000 metric tons at quarter-end. Challenging market conditions also weighed on the average transaction price, ~~of $134~~which decreased by $8 per metric ton reflects higher market prices across all grades. Despite the extended outage at Saint-Félicien, required for the mill’s strategic investment plan, shipments were 19,000 metric tons higher as a result of increased productivity, the timing of scheduled outages, and favorable recycled bleached kraft (or “~~RBK”) market conditions.~~this quarter.

Cost of sales, excluding depreciation, amortization and distribution costs

Manufacturing costs increased by ~~$16~~$8 million after adjusting for the ~~effects~~effect of ~~higher~~lower volume, the divestitures, and the Canadian dollar fluctuation, mainly reflecting ~~an increase in recycled~~higher wood fiber ~~prices ($10 million)~~costs due to wood shortages.

Depreciation and ~~higher maintenance~~amortization

Depreciation and ~~labor costs ($4 million).~~

~~Distribution costs~~

~~After removing the effect of higher volume, distribution costs were $4~~amortization was $3 million ~~greater~~lower in the quarter, ~~mostly~~mainly due to ~~higher truck~~the divestitures of the Catawba and ~~rail car rates, and higher fuel surcharges.~~Fairmont facilities.

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~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income variance analysis

Sales

Sales were ~~$160~~$101 million ~~greater,~~lower, or ~~25%~~19%, to ~~$809~~$420 million in the first ~~nine months~~half of the ~~year. The~~year, primarily due to lower capacity resulting from the sale of the paper and pulp mill at Catawba and the recycled bleached kraft pulp mill at Fairmont. Lower sales volume due to the current weakness in pulp markets was compensated by an increase in the average transaction price ~~rose by $122~~of $47 per metric ton, ~~reflecting higher market prices~~as price increases realized across all ~~grades. Shipments were 45,000 metric tons higher as a result~~grades in 2018 outweighed the weaker pricing in the second quarter of ~~increased productivity, the timing and length of scheduled outages, and higher shipments of RBK as a result of favorable market conditions.~~2019.

Cost of sales, excluding depreciation, amortization and distribution costs

~~Manufacturing costs increased by $40 million after~~After adjusting for the ~~effects~~effect of ~~higher~~lower volume, the divestitures, and the Canadian dollar fluctuation, manufacturing costs increased by $31 million, reflecting:

higher wood fiber costs ($16 million), mostly due to wood shortages;

a rise in recycled fiber prices ($138 million); and

higher maintenance costs ($~~9 million);~~

~~unfavorable labor expense ($9 million);~~

~~unfavorable fiber usage ($4 million);~~

~~unfavorable steam costs ($4~~6 million), ~~due in part to higher natural gas prices;~~mostly planned.

Depreciation and amortization

~~higher chemical costs ($3 million);~~

~~partly offset by~~Depreciation and amortization was $5 million lower ~~wood chip prices ($7 million).~~

~~Distribution costs~~

~~After removing the effect of higher volume, distribution costs rose by $12 million~~ in the current year, ~~reflecting higher truck and rail car rates, higher fuel surcharges, and an increase in~~due to the ~~average length of haul.~~

~~Saint-Félicien pulp mill strategic investment plan~~

During the second quarter of 2018, we announced a strategic investment plan for our Saint-Félicien pulp mill, aimed at improving costs, increasing production capacity, and reducing greenhouse gas emissions from the use of fossil fuels by 20%. A

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~~significant portion~~divestitures of the ~~project has been completed on schedule during an extended outage. The mill restarted production in mid-October~~Catawba and is operating at full capacity. Additional phases of the project are expected to be completed by the end of 2019. This total investment of approximately $45 million will increase annual production by 27,000 metric tons, once completed.Fairmont facilities.

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TISSUE

Highlights


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions, except where otherwise stated)	2018			2017			2018			2017			2019			2018			2019			2018
Sales	$	38		$	21		$	95		$	61		$	43		$	35		$	82		$	57
Operating loss ⁽¹⁾		(10	)		(3	)		(21	)		(4	)		(4	)		(10	)		(12	)		(11	)
EBITDA ⁽²⁾		(5	)		(1	)		(10	)		—			—			(5	)		(3	)		(5	)
(In thousands of short tons)
Shipments ^{(3) (4)}		23			14			61			40
Shipments ⁽³⁾														25			23			49			38
Downtime		—			1			1			1			—			1			1			1


	September 30,				June 30,
(Unaudited, in thousands of short tons)	2018		2017		2019		2018
Finished goods inventory ⁽³⁾		7		8		7		8


⁽¹⁾	Net loss including noncontrolling interests is equal to operating loss in this segment.


⁽²⁾	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 Financial Information” above.


⁽³⁾	Tissue converted products, which are measured in cases, are converted to short tons.


⁽⁴⁾	~~The conversion ratio to short tons for tissue converted products was revised in the fourth quarter of 2017. Prior period data has been adjusted for comparative purposes.~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(Unaudited, in millions) 2018 2017 2018 2017
Net loss including noncontrolling interests $ (10 ) $ (3 ) $ (21 ) $ (4 )
Depreciation and amortization 5
2
11
4

EBITDA (5 ) (1 ) (10 ) —

~~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.~~

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	Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2019			2018			2019			2018
Net loss including noncontrolling interests	$	(4	)	$	(10	)	$	(12	)	$	(11	)
Depreciation and amortization		4			5			9			6
EBITDA		—			(5	)		(3	)		(5	)

Industry trends

~~In the first nine months of the year, total~~Total tissue consumption in the U.S. grew by ~~2.5%~~2.6% in the first half of 2019 compared to the same period last year. U.S. converted tissue products shipments also increased by ~~2.0%,~~2.3% as a result of an increase in away-from-home shipments, up ~~3.1%~~3.3%,

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and at-home shipments, up ~~1.5%~~1.8%. U.S. parent roll production showed a growth of ~~1.7%~~2.4% from the year-ago period. Tissue capacity also increased by ~~1.6%~~3.3%, contributing to a ~~94%~~93% average industry operating rate, ~~unchanged~~down 0.9% from the year-ago period.

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating loss variance analysis

Sales

Sales were ~~$17~~$8 million higher, or ~~81%~~23%, to ~~$38~~$43 million in the quarter, reflecting ~~an increase~~the positive trend in converted products shipments, which increased by 22% compared to the year-ago period, and the realization of ~~9,000~~previously announced away-from-home products price increases. Accordingly, the average transaction price rose by $144 per short ton, or 9%.

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Six months ended June 30, 2019 vs. June 30, 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 $25 million higher, or 44%, to $82 million in the first half of the year. Shipments rose by 11,000 short tons, ~~(8,000 metric tons), attributable~~primarily due to the inclusion of Calhoun’s results in our tissue segment starting on April 1, ~~2018.~~2018, and sales volume growth. The average transaction price ~~also increased, up $93~~was $157 per short ton ~~as a result of~~higher, due to favorable product mix.

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~~Nine months ended September 30, 2018 vs. September 30, 2017~~

~~Operating loss variance analysis~~

~~Sales~~

~~Sales were $34 million greater, or 56%, to $95 million in the first nine months of the year, reflecting an increase in shipments of 21,000 short tons (19,000 metric tons), mainly attributable~~ Pricing also improved due to the ~~inclusion~~realization of ~~Calhoun’s results in our tissue segment.~~previously announced away-from-home products price increases.

Cost of sales, excluding depreciation, amortization and distribution costs

After removing the ~~effects~~effect of ~~the~~ higher volume and the COS related to Calhoun’s operations and the divestiture of the Fairmont mill, our manufacturing costs ~~increased~~improved by $2 million incompared to the year-ago period ~~mainly~~ due to ~~higher~~lower maintenance ~~costs ($1 million), resulting from the timing of annual outages.~~costs.

Depreciation and amortization

Depreciation and amortization was $7$3 million higher ~~this~~in the current year, ~~all~~mostly attributable to the inclusion of Calhoun’s results in our tissue segment.

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WOOD PRODUCTS

Highlights


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
(Unaudited, in millions, except where otherwise stated)	2018		2017		2018		2017		2019			2018		2019		2018
Sales	$	203	$	219	$	666	$	593	$	168		$	254	$	329	$	463
Operating income ⁽¹⁾		45		64		177		129
Operating (loss) income ⁽¹⁾										(3	)		79		3		132
EBITDA ⁽²⁾		53		73		200		154		6			86		20		147
(In millions board feet)
Shipments ⁽³⁾		445		531		1,394		1,545		484			494		912		949
Downtime		44		32		93		112		53			26		94		49


	September 30,				June 30,
(Unaudited, in millions board feet)	2018		2017		2019		2018
Finished goods inventory ⁽³⁾		162		122		122		128


⁽¹⁾	Net (loss) income including noncontrolling interests is equal to operating (loss) income in this segment.


⁽²⁾	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 Financial Information” above.


⁽³⁾	Includes wood pellets measured by mass, converted to board feet using a density-based conversion ratio.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
(Unaudited, in millions)	2018		2017		2018		2017		2019			2018		2019		2018
Net income including noncontrolling interests	$	45	$	64	$	177	$	129
Net (loss) income including noncontrolling interests									$	(3	)	$	79	$	3	$	132
Depreciation and amortization		8		9		23		25		9			7		17		15
EBITDA		53		73		200		154		6			86		20		147

Industry trends

Average U.S. housing starts were ~~1.3~~1.2 million on a seasonally-adjusted basis in the first ~~nine months~~half of ~~2018, up 6.2%~~2019, down 4.1% from the same period last ~~year. Single-family~~year, which reflects a 4.5% decrease in single-family starts, ~~which consume larger lumber volumes per start, rose by 5.7%, while~~and a 2.3% decrease in multi-family ~~starts increased by 7.3%.~~starts. The 2x4 –

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Random Length (or “RL”) #1-2 Kiln Dried Great Lakes (or “KD GL”) price dropped by 32.9% in the first half of 2019 compared to the year-ago period, while the 2x4x8 Stud KD GL price was down by 27.3%.

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating (loss) income variance analysis

Sales

Sales were ~~$16~~$86 million lower, or 7%34%, to ~~$203~~$168 million in the ~~quarter. The~~quarter, as the average transaction price ~~increased~~fell by ~~$44~~$166 per thousand board feet, or ~~11%. Shipments~~32%, and shipments decreased by 8610 million board feet, ~~largely reflecting:~~

~~higher sales~~reflecting weaker lumber market conditions. Given market headwinds, we temporarily curtailed lumber production in the ~~year-ago period resulting from supply disruptions, mostly related to forest fires in British Columbia; and~~

~~higher offer in the current period, mainly from western Canadian producers, due to the unwinding~~quarter, for a total of ~~inventory built in the first quarter of 2018, following shipping constraints.~~

~~Accordingly,~~53 million board feet. Consequently, finished goods inventory ~~increased by 40~~fell to more normal levels of 122 million board feet ~~compared to the year-ago period.~~at quarter-end.

Cost of sales, excluding depreciation, amortization and distribution costs

After ~~adjusting for~~removing the ~~effects~~effect of lower volume and the Canadian dollar fluctuation, ~~and lower volume,~~ manufacturing costs increased by ~~$23~~$7 million, ~~reflecting:~~largely reflecting higher wood fiber costs.

~~higher log costs ($13 million), including higher market-based stumpage fees and diesel fuel expense;~~

~~lower internal wood chip selling prices ($6 million); and~~

~~unfavorable maintenance and labor costs ($4 million).~~

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~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income variance analysis

Sales

Sales were ~~$73~~$134 million ~~higher,~~lower, or ~~12%~~29%, to ~~$666~~$329 million ~~in the first nine months of the year. The average transaction price rose by $94 per thousand board feet, or 24%, largely due to supply constraints~~ in the first half of the year, ~~and the imposition of trade barriers~~driven by a $128 per thousand board feet decrease in the ~~U.S. Shipments, however, were lower by 151~~average transaction price and a 37 million board feet ~~reflecting:~~

~~shipping constraints~~decrease in ~~the first quarter of 2018;~~

~~the recent weakening of lumber~~shipments, as market ~~conditions;~~

~~the sale of our Saint-Hilarion (Quebec) sawmill and the consolidation of our two sawmills at Senneterre~~conditions remained weak in ~~the third quarter of 2017; and~~

~~lower productivity.~~2019.

Cost of sales, excluding depreciation, amortization and distribution costs

~~After adjusting for the effects of the Canadian dollar fluctuation and lower volume, manufacturing~~Manufacturing costs increased by ~~$44~~$18 million ~~reflecting:~~

~~higher log costs ($24 million), including higher market-based stumpage fees and diesel fuel expense;~~

~~lower internal wood chip selling prices ($13 million); and~~

~~unfavorable maintenance and labor costs ($7 million).~~

~~Distribution costs~~

~~After removing~~after adjusting for the effect of lower volume ~~distribution costs increased by $6 million in~~and the ~~current year, mostly~~Canadian dollar fluctuation, reflecting higher ~~rail car rates~~wood fiber costs ($13 million), and an increase in ~~U.S. shipments.~~labor costs ($4 million).

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NEWSPRINT

Highlights


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions, except where otherwise stated)	2018		2017			2018		2017			2019		2018		2019		2018
Sales	$	232	$	199		$	660	$	626		$	209	$	230	$	421	$	428
Operating income (loss) ⁽¹⁾		32		(6	)		46		(17	)
Operating income ⁽¹⁾												17		18		45		14
EBITDA ⁽²⁾		48		10			95		32			25		35		60		47
(In thousands of metric tons)
Shipments		371		388			1,119		1,228			350		393		685		748
Downtime		4		35			18		52			52		6		53		14


	September 30,				June 30,
(Unaudited, in thousands of metric tons)	2018		2017		2019		2018
Finished goods inventory		96		98		105		85


⁽¹⁾	Net income ~~(loss)~~ including noncontrolling interests is equal to operating income ~~(loss)~~ in this segment.


⁽²⁾	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 Financial Information” above.


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions)	2018		2017			2018		2017			2019		2018		2019		2018
Net income (loss) including noncontrolling interests	$	32	$	(6	)	$	46	$	(17	)
Net income including noncontrolling interests											$	17	$	18	$	45	$	14
Depreciation and amortization		16		16			49		49			8		17		15		33
EBITDA		48		10			95		32			25		35		60		47

Industry trends

North American demand for newsprint declined by ~~11.4%~~15.7% in the first ~~nine months~~half of the year compared to the same period last year, ~~driven by a reduction in~~as demand from newspaper publishers ~~down~~was reduced by ~~nearly 14%.~~19.6%, reflecting in part continued consumer inventory destocking. Demand from commercial printers also decreased, dropping by ~~6.7%~~8.4%. The North American shipment-to-capacity ratio ~~rose to 95%, up~~was 84% in the first half of 2019, down from ~~93%~~96% in the year-ago period.

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Global demand for newsprint was down by ~~8.7%~~8.2% in the first ~~nine months~~half of the year compared to the ~~same~~year-ago period, ~~last year,~~ with North America, Asia, and Western Europe down ~~8.8%~~15.7%, 7.3%, and ~~Asia 8.2%. Despite the drop, the~~5.3%, respectively. The global operating rate ~~rose~~was 85%, compared to ~~90%, as a result of major global capacity reductions~~91% in the ~~second half of 2017.~~year-ago period.

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income ~~(loss)~~ variance analysis

Sales

Newsprint sales ~~increased~~decreased by ~~$33~~$21 million, or ~~17%~~9%, to ~~$232~~$209 million in the ~~third~~second quarter of the ~~year, reflecting an increase of $118 per metric ton in~~year. Despite the recent softening market conditions, the average transaction price ~~as price increases were realized in both North American and export markets.~~increased by $13 per metric ton compared to the same quarter last year. Shipments, ~~decreased~~however, dropped by ~~17,000~~43,000 metric tons, ~~mainly resulting from:~~

reflecting the ~~paper machine closures at Calhoun; and~~

~~timing of export sales;~~

~~partly~~ongoing structural demand decline. To offset ~~by 31,000~~this slowdown in demand, 52,000 metric tons of ~~additional~~temporary production downtime was taken ~~in the year-ago period, primarily~~this quarter, reducing finished goods inventory closer to trend levels of 105,000 metric tons at ~~our Baie-Comeau (Quebec) and Augusta (Georgia) mills, due to softer market conditions.~~

Compared to the third quarter of 2017, our international shipments rose by 4%, while our domestic shipments dropped by 9%. Domestic shipments represented 61% of total newsprint shipments in the quarter, compared to 64% in the year-ago period.quarter-end.

Cost of sales, excluding depreciation, amortization and distribution costs

~~COS was $3 million lower in the quarter. Restructuring initiatives reduced COS by $14 million, including the elimination of $4 million in fixed manufacturing costs.~~ After removing the ~~effects~~effect of ~~the Canadian dollar fluctuation, higher~~lower volume and the restructuring initiatives, manufacturing costs increased by $10 million, mainly reflecting higher maintenance and labor costs ($11 million) mostly related to planned repairs, offset in part by lower wood chip prices ($3 million).

~~Distribution costs~~

~~After removing the effects of restructuring initiatives~~ and the Canadian dollar fluctuation, ~~distribution~~manufacturing costs ~~rose~~increased by $3$12 million, mainly reflecting:

higher maintenance costs ($3 million), mostly due to more planned repairs;

an increase in wood fiber costs ($3 million), due to wood shortages;

lower contribution from our cogeneration assets that sell power externally ($2 million), due to scheduled maintenance; and

higher power and steam costs ($2 million).

Depreciation and amortization

Depreciation and amortization was $9 million lower in the quarter, ~~mostly attributable to higher truck~~reflecting the full amortization of certain assets at the end of the fourth quarter of 2018 and ~~rail car rates, higher fuel surcharges,~~the increase of the useful lives of certain of our machinery and ~~an increase in international shipments.~~equipment.

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~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income ~~(loss)~~ variance analysis

Sales

Newsprint sales ~~increased~~decreased by ~~$34~~$7 million, or 5%2%, to ~~$660~~$421 million in the first ~~nine months~~half of the ~~year,~~year. Shipments decreased by 63,000 metric tons, largely reflecting ~~an increase of $80 per metric ton in~~ongoing structural demand decline. However, the average transaction price ~~as price increases were realized in both North American and export markets. Shipments, however, were lower by 109,000~~was $44 per metric ~~tons, or 9%, mostly due to:~~

~~the paper machine closures at Calhoun;~~

~~the permanent closure of our Mokpo paper mill; and~~

~~timing of export sales;~~

~~partly offset by 34,000 metric tons of additional downtime taken in the year-ago period primarily at our Baie-Comeau and Augusta mills.~~

~~Compared~~ton higher compared to the first ~~nine months~~half of ~~2017, our domestic shipments fell by 13%, and our international shipments by 2%. Domestic shipments represented 60% of total newsprint shipments in the period, down by 3% from the year-ago period.~~2018.

Cost of sales, excluding depreciation, amortization and distribution costs

~~COS was $32~~Manufacturing costs increased by $20 million after adjusting for the effect of lower ~~in the period. Restructuring initiatives reduced COS by $60 million, including the elimination of $18 million in fixed manufacturing costs. After removing the effects of~~volume and the Canadian dollar fluctuation, ~~higher volume, and the restructuring initiatives, manufacturing costs increased by $19 million compared to the same period last year,~~mainly reflecting:

higher maintenance costs ($135 million), mostly ~~related~~due to more planned repairs;

~~unfavorable power and steam~~an increase in wood fiber costs ($5 million);, due to wood shortages;

~~unfavorable~~higher labor ~~expense~~costs ($43 million); and

~~higher chemical costs~~lower contribution from our cogeneration assets that sell power externally ($~~2 million);~~

~~partly offset by lower wood chip prices ($8~~3 million).

Depreciation and amortization

~~Table of Contents~~

~~Distribution costs~~

~~After removing the effect of restructuring initiatives, distribution costs increased by $11~~Depreciation and amortization was $18 million ~~in 2018, mainly due to higher truck and rail car rates, higher fuel surcharges, and an increase~~lower in the ~~average length~~first half of ~~haul.~~the year, reflecting the full amortization of certain assets at the end of the fourth quarter of 2018 and the increase of the useful lives of certain of our machinery and equipment.

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SPECIALTY PAPERS

Highlights


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions, except where otherwise stated)	2018		2017		2018		2017		2019		2018		2019		2018
Sales	$	213	$	219	$	594	$	686	$	146	$	193	$	298	$	381
Operating income ⁽¹⁾		26		7		23		4
Operating income (loss) ⁽¹⁾										15		4		30		(3	)
EBITDA⁽²⁾		38		18		59		38		26		16		51		21
(In thousands of short tons)
Shipments		289		333		843		1,046		193		275		392		554
Downtime		1		5		16		28		14		12		26		15


	September 30,				June 30,
(Unaudited, in thousands of short tons)	2018		2017		2019		2018
Finished goods inventory		78		86		55		70


⁽¹⁾	Net income (loss) including noncontrolling interests is equal to operating income (loss) in this segment.


⁽²⁾	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 Financial Information” above.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited, in millions)	2018		2017		2018		2017		2019		2018		2019		2018
Net income including noncontrolling interests	$	26	$	7	$	23	$	4
Net income (loss) including noncontrolling interests									$	15	$	4	$	30	$	(3	)
Depreciation and amortization		12		11		36		34		11		12		21		24
EBITDA		38		18		59		38		26		16		51		21

Industry trends

North American demand for uncoated mechanical papers was down by ~~6.9%~~13.6% in the first ~~nine months~~half of ~~2018~~2019 compared to the year-ago period. Lower consumption and consumer inventory destocking led to a 19.5% decline in the demand for standard papers, ~~drove this decline, decreasing by 9.8%,~~ while the demand for supercalendered ~~(or “~~SC”) grades ~~was down only 1.4%~~fell by 7.0%. ~~The~~Accordingly, the operating rate ~~increased~~decreased to ~~91%~~83%, compared to ~~90%~~92% in the year-ago period.

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North American coated mechanical paper demand was down by 6.8% in the first nine months of 2018 compared to the year-ago period. Industry production, however, was significantly lower, down by 244,000 short tons (221,000 metric tons), or 13.6%, while imports rose by 68,000 short tons (62,000 metric tons), or 23.1%. Operating rates in North America decreased to 94% in the first nine months of 2018, down from 95% in 2017.

~~Table of Contents~~

Three months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Operating income variance analysis

Sales

Specialty paper sales decreased by $6$47 million, or 3%24%, to ~~$213~~$146 million in the ~~third~~second quarter of the ~~year. The overall~~year as the increase in the average transaction price ~~was $78~~of $52 per short ton ~~higher, reflecting price increases across all grades. Shipments were 44,000~~was more than offset by lower sales volume, down by 82,000 short tons, ~~(40,000 metric tons) lower, or 13%, largely due to~~resulting from the ~~permanent closure~~sale of ~~two~~the paper ~~machines at Calhoun,~~ and ~~one paper machine~~pulp mill at Catawba.

Cost of sales, excluding depreciation, amortization and distribution costs

~~COS was $25~~Manufacturing costs increased by $7 million after adjusting for the effect of lower involume, the ~~quarter. Restructuring initiatives reduced COS by $20 million, including the elimination of $6 million in fixed manufacturing costs. After removing the effects of~~Catawba mill divestiture, and the Canadian dollar fluctuation, largely due to higher wood fiber costs as a result of wood shortages.

Distribution costs

After removing the ~~lower volume,~~impact of the Catawba mill divestiture, distribution costs decreased by $3 million, reflecting an improvement in freight rates and ~~the restructuring initiatives, manufacturing costs improved~~transportation optimization.

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Six months ended June 30, 2019 vs. June 30, 2018

Operating income (loss) variance analysis

Sales

Specialty paper sales decreased by $2$83 million, or 22%, to $298 million in the ~~quarter, primarily~~first half of the year. While the average transaction price increased by $73 per short ton compared to the same period last year, shipments decreased by 162,000 short tons, due to the sale of the paper and pulp mill at Catawba.

Cost of sales, excluding depreciation, amortization and distribution costs

After removing the impact of lower volume, the Catawba mill divestiture, and the Canadian dollar fluctuation, manufacturing costs increased by $17 million, mainly due to:

~~lower~~higher maintenance costs ($4 million), largely due to more planned repairs;

higher wood ~~chip prices~~fiber costs ($34 million)~~; and~~, mostly due to wood shortages;

~~higher~~an increase in labor costs ($2 million);

lower internal hydroelectric generation ($32 million)~~, due to capital programs on certain water wheels in the year-ago period;~~; and

~~partly offset by~~ higher chemical costs ($2 million).

Distribution costs

After removing the ~~effects~~impact of ~~lower volume and restructuring initiatives,~~the Catawba mill divestiture, distribution costs ~~increased by $4 million in the current period, reflecting higher truck and rail car rates, higher fuel surcharges, and an increase in the average length of haul.~~

~~Table of Contents~~

~~Nine months ended September 30, 2018 vs. September 30, 2017~~

~~Operating income variance analysis~~

~~Sales~~

Specialty paper sales were lower by $92 million, or 13%, to $594 million in the first nine months of the year. The overall transaction price rose by $49 per short ton, reflecting price increases across all grades. Shipments decreased by ~~203,000 short tons (184,000 metric tons), or 19%, largely due to the permanent closure of two paper machines at Calhoun~~$5 million, reflecting an improvement in freight rates and ~~one paper machine at Catawba.~~transportation optimization.

~~Cost of sales, excluding depreciation, amortization and distribution costs~~

COS was $113 million lower in the period. Restructuring initiatives reduced COS by $110 million, including the elimination of $34 million in fixed manufacturing costs. After removing the effects of the Canadian dollar fluctuation, the lower volume, and the restructuring initiatives, manufacturing costs improved by $6 million in the period, primarily due to:

~~lower wood chip prices ($8 million); and~~

~~higher internal hydroelectric generation ($6 million), due to capital programs on certain water wheels in 2017;~~

~~partly offset by:~~

~~unfavorable power and steam costs ($3 million); and~~

~~higher maintenance and labor costs ($3 million).~~

~~Distribution costs~~

After removing the effects of lower volume, restructuring initiatives and the Canadian dollar fluctuation, distribution costs rose by $17 million in the period, mostly due to higher truck and rail car rates, higher fuel surcharges, and an increase in the average length of haul.

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~~CORPORATE AND OTHER~~Corporate and Other

Highlights


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Cost of sales, excluding depreciation, amortization and distribution costs	$	(1	)	$	(15	)	$	(10	)	$	(46	)	$	—		$	(2	)	$	(7	)	$	(9	)
Depreciation and amortization		(6	)		(6	)		(20	)		(17	)		(5	)		(5	)		(10	)		(14	)
Selling, general and administrative expenses		(8	)		(8	)		(25	)		(24	)		(7	)		(7	)		(14	)		(17	)
Closure costs, impairment and other related charges		—			(8	)		(1	)		(80	)		—			(1	)		—			(1	)
Net gain on disposition of assets		—			2			4			2			—			4			—			4
Operating loss	$	(15	)	$	(35	)	$	(52	)	$	(165	)	$	(12	)	$	(11	)	$	(31	)	$	(37	)
Interest expense		(12	)		(13	)		(36	)		(36	)		(7	)		(11	)		(16	)		(24	)
Non-operating pension and other postretirement benefit credits		13			2			38			6			12			12			24			25
Other income, net		14			6			4			11
Other expense, net														(1	)		(3	)		(5	)		(10	)
Income tax provision		(33	)		(15	)		(111	)		(63	)		(19	)		(47	)		(40	)		(78	)
Net loss including noncontrolling interests	$	(33	)	$	(55	)	$	(157	)	$	(247	)	$	(27	)	$	(60	)	$	(68	)	$	(124	)

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 Financial Information” above.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited, in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Net loss including noncontrolling interests	$	(33	)	$	(55	)	$	(157	)	$	(247	)	$	(27	)	$	(60	)	$	(68	)	$	(124	)
Interest expense		12			13			36			36			7			11			16			24
Income tax provision		33			15			111			63			19			47			40			78
Depreciation and amortization		6			6			20			17			5			5			10			14
EBITDA	$	18		$	(21	)	$	10		$	(131	)	$	4		$	3		$	(2	)	$	(8	)
Foreign exchange (gain) loss		—			(7	)		2			(10	)
Foreign exchange loss														6			1			10			2
Closure costs, impairment and other related charges		—			8			1			80			—			1			—			1
Inventory write-downs (reversal) related to closures		—			11			(1	)		24
Reversal of inventory write-downs related to closures														—			—			—			(1	)
Start-up costs		—			3			8			18			—			—			—			8
Net gain on disposition of assets		—			(2	)		(4	)		(2	)		—			(4	)		—			(4	)
Non-operating pension and other postretirement benefit credits		(13	)		(2	)		(38	)		(6	)		(12	)		(12	)		(24	)		(25	)
Other (income) expense, net		(14	)		1			(6	)		(1	)		(5	)		2			(5	)		8
Adjusted EBITDA	$	(9	)	$	(9	)	$	(28	)	$	(28	)	$	(7	)	$	(9	)	$	(21	)	$	(19	)

~~Three months ended September 30, 2018 vs. September 30, 2017~~

~~Cost of sales, excluding depreciation, amortization and distribution costs~~

~~We incurred COS of $1 million in the quarter. This compares to COS of $15 million in the year-ago period, which was comprised of:~~

~~write-downs of mill stores and other supplies ($11 million), primarily related to the permanent closure of two paper machines at Calhoun;~~

~~start-up costs ($2 million) for the Calhoun tissue manufacturing and converting facility; and~~

~~Table of Contents~~

~~asset preservation costs ($2 million), primarily related to the indefinite idling of our Thorold (Ontario) paper mill in the first quarter of 2017.~~

~~Closure costs, impairment and other related charges~~

We recorded no closure costs, impairment and other related charges in the quarter. In the same period last year, we recorded closure costs, impairment and other related charges of $8 million, which included accelerated depreciation ($6 million) and severance and other closure-related costs ($2 million) associated with the permanent closure of two paper machines at Calhoun.

~~Nine months ended September 30, 2018 vs. September 30, 2017~~

~~Cost of sales, excluding depreciation, amortization and distribution costs~~

~~COS of $10 million in the first nine months of 2018 was primarily comprised of:~~

~~start-up costs ($7 million) for the Calhoun tissue manufacturing and converting facility; and~~

~~asset preservation costs ($4 million), primarily related to the indefinite idling of our Thorold paper mill and our permanently closed Fort Frances (Ontario) mill.~~

~~This compares to COS of $46 million in the year-ago period, including:~~

write-downs of mill stores and other supplies ($24 million), primarily related to the permanent closures of two paper machines at Calhoun, a paper machine at our Catawba paper mill, and our Mokpo paper mill;

~~start-up costs ($14 million) for the Calhoun tissue manufacturing and converting facility; and~~

~~asset preservation costs ($8 million), primarily related to the indefinite idling of our Thorold paper mill and our permanently closed Fort Frances mill.~~

~~Depreciation and amortization~~

Depreciation and amortization was $3 million greater in the first nine months of 2018, mainly explained by additional costs associated with the implementation of our integrated business management software.

~~Closure costs, impairment and other related charges~~

~~We incurred closure costs, impairment and other related charges of $1 million in the first nine months of the year, compared to $80 million in the year-ago period. The prior year included:~~

~~a long-lived asset impairment charge related to our Coosa Pines (Alabama) pulp mill ($55 million);~~

~~a long-lived asset impairment charge ($5 million), and severance and other closure-related costs ($4 million) in connection with the permanent closure of a paper machine at our Catawba paper mill;~~

~~accelerated depreciation ($6 million) and severance and other closure-related costs ($2 million) associated with the permanent closure of two paper machines at Calhoun; and~~

~~severance and other costs related to the permanent closure of our paper mill at Mokpo ($7 million).~~

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LIQUIDITYAND CAPITAL RESOURCES

Capital Resources

We rely on cash and cash equivalents, net cash provided by operations, and our revolving credit facilities to fund our operations, make pension contributions, and finance our working capital, capital expenditures, and duty cash ~~duty~~ deposits. In addition, from time to time we may use available cash to reduce ~~debt.~~debt and to return capital to shareholders, including through share repurchases or special dividends. As of ~~September~~June 30, ~~2018~~2019, we had cash and cash equivalents of ~~$72~~$98 million and availability of ~~$582~~$492 million under our revolving credit facilities.

Based on our current projections, we expect to have sufficient financial resources available to finance our business plan, make pension contributions, meet working capital and duty cash ~~duty~~ deposit requirements, and maintain an appropriate level of capital spending.

~~Credit facilities~~

~~Interest rates~~Based on market conditions, we may seek to retire, repay or refinance our outstanding indebtedness, including under ~~our~~the 2023 notes and credit facilities, ~~are~~through redemptions, prepayments, open market purchases or individually negotiated transactions, as we continue to focus on reducing costs and enhancing our flexibility.

Five-year extension of ABL Credit Facility

On May 14, 2019, we entered into an amendment to the credit agreement dated May 22, 2015, for the 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 $500 million at any time outstanding, subject to borrowing base availability based on ~~an index, plus~~specified advance rates, eligibility criteria and customary reserves. The amended aggregate lender commitment amount represents a spread, which fluctuates based on availability and the Company’s leverage ratio, or the capitalization ratio, as applicable. Improvement in these ratios reduced the spread over the index by 0.25% during the third quartervoluntary reduction of ~~2018.~~$100 million. For more information, ~~on our credit facilities’ interest rates,~~ see ~~Part II – Item 8. Financial Statements and Supplementary Data –~~ Note ~~13. Long-Term~~7, “Long-Term Debt – ~~Debt instruments~~ inABL Credit Facility,” to our ~~2017 Annual Report.~~Consolidated Financial Statements.

Flow of Funds

Summary of cash flows

A summary of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, was as follows:


	Nine Months Ended September 30,						Six Months Ended June 30,
(Unaudited, in millions)	2018			2017			2019			2018
Net cash provided by operating activities	$	351		$	99		$	95		$	220
Net cash used in investing activities		(147	)		(168	)		(69	)		(109	)
Net cash (used in) provided by financing activities		(145	)		69
Cash used in financing activities								(232	)		(115	)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash		(1	)		6			1			(2	)
Net increase in cash and cash equivalents, and restricted cash	$	58		$	6
Net decrease in cash and cash equivalents, and restricted cash							$	(205	)	$	(6	)

~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 vs. ~~September~~June 30, ~~2017~~2018

Net cash provided by operating activities

We generated ~~$351~~$95 million of cash from operating activities in the first ~~nine months~~half of ~~2018,~~2019, compared to ~~$99~~$220 million in the year-ago period. The ~~increase~~decrease is ~~almost all~~primarily attributable to ~~higher profitability. The year-ago~~lower profitability, and an increase in working capital in the current period, ~~also included higher timing-related~~partially offset by lower interest payments and pension ~~contributions and cash closure costs in connection with the permanent closures of paper machines at our Catawba and Calhoun paper mills, as well as the permanent closure of our paper mill at Mokpo.~~contributions.

Net cash used in investing activities

We used ~~$147~~$69 million of cash in investing activities in the current period, ~~$21~~which included:

$45 million ~~less compared to~~in capital expenditures; and

$33 million of countervailing and anti-dumping duty cash deposits on softwood lumber;

offset in part by the ~~year-ago period, reflecting:~~

~~lower cash invested in fixed assets of $42 million, mainly due to the substantial completion of the tissue manufacturing and converting facility at Calhoun in the first quarter of 2017; and~~

~~refunds~~full refund of countervailing duty cash deposits on ~~imports~~uncoated groundwood paper of ~~SC paper to~~$6 million.

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In the ~~U.S. of $25~~year-ago period, net cash used in investing activities was $109 million, ~~in the current year;~~

~~offset in part by~~or $40 million higher, reflecting countervailing and anti-dumping duty cash deposits of ~~$44~~$58 million ~~on imports~~and capital expenditures of ~~softwood lumber to the U.S.~~$53 million.

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~~Net cash (used in) provided by~~Cash used in financing activities

~~We fully repaid~~In 2019, we repurchased $225 million in aggregate principal amount of our ~~outstanding borrowings~~2023 notes, as well as $5 million of ~~$144~~shares, as described below. This compares to repayments of $114 million under our revolving credit facilities in the first ~~nine~~half of 2018.

Share Repurchase Program

During the six months ~~of 2018. This compares to a net increase in borrowings of $70~~ended June 30, 2019, we repurchased 0.7 million ~~in the year-ago period primarily to support the completion of the Calhoun tissue project.~~

~~Asset divestitures~~

On August 29, 2018, we entered into a definitive asset purchase agreement to sell our RBK pulp mill at Fairmont (West Virginia). The sale closed on November 1, 2018, for total cash consideration of $62 million, subject to final working capital adjustments.

~~Special dividend~~

~~Countervailing duty and anti-dumping investigations~~

~~Since October 15, 2015, we were required to pay cash deposits~~shares, at a ~~subsidy rate~~cost of ~~17.87% for estimated countervailing duties on~~$5 million under our ~~U.S. imports~~$150 million share repurchase program, which was launched in 2012. There remains $19 million under the program as of ~~SC paper produced at our Canadian mills. On March 21, 2018, Verso Corporation, the sole remaining U.S. SC paper petitioner, filed a request with the U.S. Department of Commerce (or “Commerce~~”) for a changed circumstances review to revoke the countervailing duty order, retroactive to August 3, 2015, and for Commerce to refund all countervailing duty deposits with interest. On May 8, 2018, Commerce announced the initiation of a changed circumstances review, and on July 6, 2018, Commerce signed the revocation order. As a result, we will receive a refund of all cash deposits made on our U.S. imports of SC paper produced at our Canadian mills, plus interest, and no further cash deposits are required going forward. Through September 30, 2018, cash deposits of $25 million were refunded. Remaining cash deposits to be refunded of $36 million, plus interest, are expected to be received during the fourth quarter of the year.

We have also been required to pay cash deposits for estimated countervailing duties and anti-dumping duties on our U.S. imports of softwood lumber produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of December 28, 2017, the rates for these estimated countervailing duties and anti-dumping duties were 14.7% and 3.2%, respectively. Based on these rates and our current operating parameters, the cash deposits could be as high as $80 million per year.2019.

Additionally, from January 16, 2018 to May 15, 2018, we were required to make cash deposits at a preliminary subsidy rate of 4.42% for estimated countervailing duties on our U.S. imports of the uncoated groundwood (or “~~UGW~~”) paper produced at our Canadian mills, with the exception of SC paper, which was subject to distinct countervailing duties. The preliminary rate remained in effect until May 15, 2018. On March 13, 2018, Commerce also announced its preliminary determination in the UGW anti-dumping investigation, whereby it determined that we did not sell Canadian-origin UGW paper exported to the U.S. for less than fair market value during the relevant period (from July 1, 2016 to June 30, 2017). On August 29, 2018, the U.S. International Trade Commission determined that there was no material injury, nor threat of material injury, resulting from U.S. imports of Canadian-origin UGW paper, and that no countervailing duty or anti-dumping orders will be issued. As a result, we will receive a refund of all cash deposits made on our U.S. imports of UGW paper produced at our Canadian mills, plus interest, and no further cash deposits are required going forward. Through September 30, 2018, cash deposits to be refunded totaled $6 million.

~~See~~ Item 1. Financial Statements – Note 11. Commitments and Contingencies – Legal matters – Countervailing duty and anti-dumping investigations on uncoated groundwood paper; Countervailing duty and anti-dumping investigations on softwood lumber; and Countervailing duty investigation on supercalendered paper ~~for more information.~~

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosures about market risk is disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our ~~2017~~2018 Annual Report. There have been no material changes in our exposure to market risk as previously disclosed in our ~~2017~~2018 Annual Report.


ITEM 4.	CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

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 ~~September~~June 30, ~~2018.~~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.

(b) Changes in Internal Control over Financial Reporting:

In connection with the evaluation of internal control over financial reporting, there were no changes during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.	OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

In addition to the legal proceedings presented under Part I, Item 3, “Legal Proceedings,” in our ~~2017~~2018 Annual Report, see the description of our material pending legal proceedings in Note ~~11,~~10, “Commitments and Contingencies – Legal matters,” to our Consolidated Financial Statements, which is incorporated in this “Item 1 – Legal Proceedings” by reference.


ITEM 1A.	RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors set forth under Part I, Item 1A, “Risk Factors” in our ~~2017~~2018 Annual Report, which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors previously disclosed in our ~~2017~~2018 Annual Report.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information about our stock repurchases for the three months ended June 30, 2019:



Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
April 1 to April 30		—	$	—		—	$	23,983,730
May 1 to May 31		—		—		—		23,983,730
June 1 to June 30		720,000		6.23		720,000		19,498,130
Total		720,000	$	6.23		720,000	$	19,498,130


⁽¹⁾	$150 million share repurchase program launched in 2012.

As of July 31, 2019, we repurchased 1,106,120 additional shares at an average price per share of $6.79 for a total cost of $7 million.


ITEM 5.	OTHER INFORMATION

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

As previously reported, on May 24, 2019, the stockholders of Resolute Forest Products approved the Resolute Forest Products 2019 Equity Incentive Plan (or the “2019 Incentive Plan”) at the Company’s 2019 Annual Meeting of Stockholders. The Company’s Board of Directors previously adopted the 2019 Incentive Plan on March 28, 2019, subject to shareholder approval.

Effective as of May 24, 2019, the 2019 Incentive Plan authorizes the granting of restricted stock, restricted stock units, performance stock units, performance shares and other equity-based awards to eligible persons, including executive officers and other employees of the Company, its subsidiaries and affiliates as well as non-employee directors of the Company. An aggregate of 3,000,000 shares are authorized and reserved for issuance under the 2019 Incentive Plan. The 2019 Incentive Plan replaces the Resolute Forest Products Equity Incentive Plan, which was adopted in 2010. A more detailed description of the 2019 Incentive Plan was included in the Company’s Proxy Statement dated April 10, 2019 (the “Proxy Statement”), under the caption “Management Proposals – Item 4: Vote to Approve the Resolute Forest Products 2019 Equity Incentive Plan.”

The foregoing and the summary of the 2019 Incentive Plan in the Proxy Statement are not complete summaries of the terms of the 2019 Incentive Plan and are qualified by reference to the full text of the 2019 Incentive Plan, which was attached as Appendix A to the Proxy Statement and is attached hereto as Exhibit 10.4 and incorporated by reference.

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ITEM 6.	EXHIBITS



Exhibit No.		Description

~~31.1~~ 10.1		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).

†10.2		2019 Resolute Forest Products Inc. Short-Term Incentive Plan – U.S.

†10.3		2019 Resolute Forest Products Inc. Short-Term Incentive Plan – Canada / International.

†10.4		Resolute Forest Products Inc. 2019 Equity Incentive Plan.

31.1		Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.



*†	This is a management contract or compensatory plan or arrangement.
*	Interactive data files furnished with this Form 10-Q, which represent the following materials from this Form 10-Q formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Unaudited Interim 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.

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SIGNATURES

Pursuant to the requirements 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.



RESOLUTE FOREST PRODUCTS INC.

By		/s/ ~~Jo-Ann Longworth~~Remi G. Lalonde
		~~Jo-Ann Longworth~~Remi G. Lalonde
		Senior Vice President and Chief Financial Officer

By		/s/ Hugues Dorban
		Hugues Dorban
		Vice President and Chief Accounting Officer

Date: ~~November~~August 9, ~~2018~~2019

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(Unaudited, in millions)	Impairment of Assets		Accelerated Depreciation		Severance and Other Costs		Total
Pulp mill at Coosa Pines (Alabama) ⁽¹⁾
Third quarter	$	—	$	—	$	—	$	—
First nine months		55		—		—		55
Permanent closures
Paper machine at Catawba (South Carolina)
Third quarter		—		—		—		—
First nine months		5		—		4		9
Paper machines at Calhoun (Tennessee)
Third quarter		—		6		2		8
First nine months		—		6		2		8
Paper mill at Mokpo (South Korea)
Third quarter		—		—		—		—
First nine months		—		—		7		7
Other
Third quarter		—		—		—		—
First nine months		—		—		1		1
Total
Third quarter	$	—	$	6	$	2	$	8
First nine months		60		6		14		80



CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2017
(Unaudited, in millions)	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	3	$	3	$	—		$	6
Accounts receivable, net		—		319		160		—			479
Accounts receivable from affiliates		—		535		729		(1,264	)		—
Inventories, net		—		243		292		(9	)		526
Note, advance and interest receivable from parent		—		538		—		(538	)		—
Notes and interest receivable from affiliates		—		32		—		(32	)		—
Other current assets		—		16		17		—			33
Total current assets		—		1,686		1,201		(1,843	)		1,044
Fixed assets, net		—		692		1,024		—			1,716
Amortizable intangible assets, net		—		13		52		—			65
Goodwill		—		81		—		—			81
Deferred income tax assets		—		1		1,073		2			1,076
Notes receivable from parent		—		330		—		(330	)		—
Note receivable from affiliate		—		116		—		(116	)		—
Investments in consolidated subsidiaries and affiliates		3,939		2,111		—		(6,050	)		—
Other assets		—		98		67		—			165
Total assets	$	3,939	$	5,128	$	3,417	$	(8,337	)	$	4,147
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities	$	4	$	171	$	245	$	—		$	420
Current portion of long-term debt		—		1		—		—			1
Accounts payable to affiliates		536		728		—		(1,264	)		—
Note, advance and interest payable to subsidiaries		538		—		—		(538	)		—
Notes and interest payable to affiliate		—		—		32		(32	)		—
Total current liabilities		1,078		900		277		(1,834	)		421
Long-term debt, net of current portion		592		196		—		—			788
Note payable to subsidiary		330		—		—		(330	)		—
Note payable to affiliate		—		—		116		(116	)		—
Pension and other postretirement benefit obligations		—		378		879		—			1,257
Deferred income tax liabilities		—		—		13		—			13
Other liabilities		5		24		39		—			68
Total liabilities		2,005		1,498		1,324		(2,280	)		2,547
Total equity		1,934		3,630		2,093		(6,057	)		1,600
Total liabilities and equity	$	3,939	$	5,128	$	3,417	$	(8,337	)	$	4,147



Year ended December 31, 2011	Market Pulp		Tissue		Wood Products			Newsprint		Specialty Papers		Segment Total		Corporate and Other			Total
(Unaudited, in millions)	Market Pulp		Tissue		Wood Products			Newsprint		Specialty Papers		Segment Total		Corporate and Other			Total
Net income (loss) including noncontrolling interests	$	91	$	—	$	(25	)	$	89	$	122	$	277	$	(232	)	$	45
Interest expense		—		—		—			—		—		—		95			95
Income tax provision		—		—		—			—		—		—		19			19
Depreciation and amortization		30		—		33			73		84		220		—			220
EBITDA	$	121	$	—	$	8		$	162	$	206	$	497	$	(118	)	$	379
Foreign exchange loss		—		—		—			—		—		—		21			21
Severance costs		—		—		—			—		—		—		12			12
Closure costs, impairment and other related charges		—		—		—			—		—		—		46			46
Inventory write-downs related to closures		—		—		—			—		—		—		3			3
Net gain on disposition of assets		—		—		—			—		—		—		(3	)		(3	)
Non-operating pension and other postretirement benefit costs		—		—		—			—		—		—		8			8
Acquisition-related costs		—		—		—			—		—		—		5			5
Other expense, net		—		—		—			—		—		—		27			27
Adjusted EBITDA	$	121	$	—	$	8		$	162	$	206	$	497	$	1		$	498



12 months ended September 30, 2018	Market Pulp		Tissue			Wood Products		Newsprint		Specialty Papers		Segment Total		Corporate and Other			Total
(Unaudited, in millions)	Market Pulp		Tissue			Wood Products		Newsprint		Specialty Papers		Segment Total		Corporate and Other			Total
Net income (loss) including noncontrolling interests	$	168	$	(23	)	$	234	$	40	$	10	$	429	$	(215	)	$	214
Interest expense		—		—			—		—		—		—		49			49
Income tax provision		—		—			—		—		—		—		132			132
Depreciation and amortization		29		12			31		66		47		185		27			212
EBITDA	$	197	$	(11	)	$	265	$	106	$	57	$	614	$	(7	)	$	607
Foreign exchange loss		—		—			—		—		—		—		3			3
Closure costs, impairment and other related charges		—		—			—		—		—		—		3			3
Reversal of inventory write-downs related to closures		—		—			—		—		—		—		(1	)		(1	)
Start-up costs		—		—			—		—		—		—		17			17
Net gain on disposition of assets		—		—			—		—		—		—		(17	)		(17	)
Non-operating pension and other postretirement benefit credits		—		—			—		—		—		—		(39	)		(39	)
Other income, net		—		—			—		—		—		—		(2	)		(2	)
Adjusted EBITDA	$	197	$	(11	)	$	265	$	106	$	57	$	614	$	(43	)	$	571