UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 20192020
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| ☐ | 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)
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Delaware | 98-0526415 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) |
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111 Robert-Bourassa Boulevard | Suite 5000 | Montreal | Quebec | Canada | H3C 2M1 |
(Address of principal executive offices) (Zip Code) |
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(Registrant’s telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.001 per share | RFP | New York Stock Exchange |
Toronto Stock Exchange
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(Title of class) | (Trading Symbol)
| (Name of exchange on which registered)
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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Large Accelerated Filer | ☐ | | Accelerated Filer | ☒ | | Non-accelerated Filer | ☐ | | Smaller Reporting Company | ☐ | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of July 31, 2019,2020, there were 89,293,75286,078,247 shares of Resolute Forest Products Inc. common stock, $0.001 par value, outstanding.
RESOLUTE FOREST PRODUCTS INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION | | |
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Item 1. Financial Statements: | | |
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PART II. OTHER INFORMATION | | |
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Item 5. Other Information | | |
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PART I. | FINANCIAL INFORMATION |
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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 June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Sales | $ | 755 |
| | $ | 976 |
| | $ | 1,550 |
| | $ | 1,850 |
| | $ | 612 |
| | $ | 755 |
| | $ | 1,301 |
| | $ | 1,550 |
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Costs and expenses: | | | | | | | | | | | | | | | | | | |
Cost of sales, excluding depreciation, amortization and distribution costs | | 536 |
| | 639 |
| | 1,090 |
| | 1,253 |
| | | 464 |
| | 536 |
| | 988 |
| | 1,090 |
| |
Depreciation and amortization | | 42 |
| | 54 |
| | 82 |
| | 107 |
| | | 40 |
| | 42 |
| | 82 |
| | 82 |
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Distribution costs | | 101 |
| | 123 |
| | 201 |
| | 239 |
| | | 79 |
| | 101 |
| | 178 |
| | 201 |
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Selling, general and administrative expenses | | 36 |
| | 42 |
| | 73 |
| | 85 |
| | | 32 |
| | 36 |
| | 66 |
| | 73 |
| |
Closure costs, impairment and other related charges | | — |
| | 1 |
| | — |
| | 1 |
| | | — |
| | — |
| | (2 | ) | | — |
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Net gain on disposition of assets | | — |
| | (4 | ) | | — |
| | (4 | ) | | | (9 | ) | | — |
| | (9 | ) | | — |
| |
Operating income | | 40 |
| | 121 |
| | | 104 |
| | 169 |
| | |
Operating income (loss) | | | 6 |
| | 40 |
| | | (2 | ) | | 104 |
| |
Interest expense | | (7 | ) | | (11 | ) | | (16 | ) | | (24 | ) | | | (9 | ) | | (7 | ) | | (18 | ) | | (16 | ) | |
Non-operating pension and other postretirement benefit credits | | 12 |
| | 12 |
| | 24 |
| | 25 |
| | | 4 |
| | 12 |
| | 19 |
| | 24 |
| |
Other expense, net | | (1 | ) | | (3 | ) | | (5 | ) | | (10 | ) | | |
Other income (expense), net | | | 10 |
| | (1 | ) | | 38 |
| | (5 | ) | |
Income before income taxes | | 44 |
| | 119 |
| |
| | 107 |
| | 160 |
| | | 11 |
| | 44 |
| |
| | 37 |
| | 107 |
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Income tax provision | | (19 | ) | | (47 | ) | | (40 | ) | | (78 | ) | | | (5 | ) | | (19 | ) | | (32 | ) | | (40 | ) | |
Net income including noncontrolling interests | | 25 |
| | 72 |
| | 67 |
| | 82 |
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Net income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
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Net income including noncontrolling interest | | | 6 |
| | 25 |
| | 5 |
| | 67 |
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Net income attributable to noncontrolling interest | | | — |
| | — |
| | — |
| | — |
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Net income attributable to Resolute Forest Products Inc. | $ | 25 |
| | $ | 72 |
| | | $ | 67 |
| | $ | 82 |
| | $ | 6 |
| | $ | 25 |
| | | $ | 5 |
| | $ | 67 |
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Net income per share attributable to Resolute Forest Products Inc. common shareholders: | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.79 |
| | $ | 0.73 |
| | $ | 0.90 |
| | $ | 0.07 |
| | $ | 0.27 |
| | $ | 0.06 |
| | $ | 0.73 |
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Diluted | | 0.27 |
| | 0.77 |
| | 0.71 |
| | 0.88 |
| | $ | 0.07 |
| | $ | 0.27 |
| | $ | 0.06 |
| | $ | 0.71 |
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Weighted-average number of Resolute Forest Products Inc. common shares outstanding: | | | | | | | | | | | | | | | | | | |
Basic | | 92.4 |
| | 91.3 |
| | 92.4 |
| | 91.2 |
| | | 88.1 |
| | 92.4 |
| | 88.1 |
| | 92.4 |
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Diluted | | 93.6 |
| | 93.2 |
| | 93.8 |
| | 93.1 |
| | | 88.2 |
| | 93.6 |
| | 88.2 |
| | 93.8 |
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See accompanying notes to unaudited interim Consolidated Financial Statements.
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in millions of U.S. dollars)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Net income including noncontrolling interests | $ | 25 |
| | $ | 72 |
| | $ | 67 |
| | $ | 82 |
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Other comprehensive (loss) income: | | | | | | | | | | |
Net income including noncontrolling interest | | $ | 6 |
| | $ | 25 |
| | $ | 5 |
| | $ | 67 |
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Other comprehensive income (loss): | | | | | | | | | | |
Unamortized prior service credits | | | | | | | | | | | | | | | | | | |
Change in unamortized prior service credits | | (4 | ) | | (4 | ) | | (7 | ) | | (8 | ) | | | (1 | ) | | (4 | ) | | (16 | ) | | (7 | ) | |
Income tax provision | | — |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
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Change in unamortized prior service credits, net of tax | | (4 | ) | | (4 | ) | | (7 | ) | | (8 | ) | | | (1 | ) | | (4 | ) | | (16 | ) | | (7 | ) | |
Unamortized actuarial losses | | | | | | | | | | | | | | | | | | |
Change in unamortized actuarial losses | | 3 |
| | 9 |
| | 11 |
| | 18 |
| | | 15 |
| | 3 |
| | 32 |
| | 11 |
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Income tax provision | | — |
| | (2 | ) | | (2 | ) | | (4 | ) | | | (4 | ) | | — |
| | (7 | ) | | (2 | ) | |
Change in unamortized actuarial losses, net of tax | | 3 |
| | 7 |
| | 9 |
| | 14 |
| | | 11 |
| | 3 |
| | 25 |
| | 9 |
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Other comprehensive (loss) income, net of tax | | (1 | ) | | 3 |
| | 2 |
| | 6 |
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Comprehensive income including noncontrolling interests | | 24 |
| | 75 |
| | 69 |
| | 88 |
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Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
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Foreign currency translation | | | — |
| | — |
| | (1 | ) | | — |
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Other comprehensive income (loss), net of tax | | | 10 |
| | (1 | ) | | 8 |
| | 2 |
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Comprehensive income including noncontrolling interest | | | 16 |
| | 24 |
| | 13 |
| | 69 |
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Comprehensive income attributable to noncontrolling interest | | | — |
| | — |
| | — |
| | — |
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Comprehensive income attributable to Resolute Forest Products Inc. | $ | 24 |
| | $ | 75 |
| | $ | 69 |
| | $ | 88 |
| | $ | 16 |
| | $ | 24 |
| | $ | 13 |
| | $ | 69 |
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See accompanying notes to unaudited interim Consolidated Financial Statements.
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions of U.S. dollars, except per share amount)
| | | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
Assets | | | | | | | | | | |
Current assets: | | | | | | | | | | |
Cash and cash equivalents | $ | 98 |
| | $ | 304 |
| | $ | 27 |
| | $ | 3 |
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Accounts receivable, net: | | | | | | | | | | |
Trade | | 333 |
| | 347 |
| | | 239 |
| | 273 |
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Other | | 67 |
| | 102 |
| | | 65 |
| | 76 |
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Inventories, net | | 530 |
| | 508 |
| | | 506 |
| | 522 |
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Other current assets | | 42 |
| | 43 |
| | | 45 |
| | 33 |
| |
Total current assets | | 1,070 |
| | 1,304 |
| | | 882 |
| | 907 |
| |
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 |
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Amortizable intangible assets, less accumulated amortization of $25 and $24 as of June 30, 2019 and December 31, 2018, respectively | | 50 |
| | 50 |
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Fixed assets, less accumulated depreciation of $1,503 and $1,658 as of June 30, 2020 and December 31, 2019, respectively | | | 1,524 |
| | 1,459 |
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Amortizable intangible assets, less accumulated amortization of $30 and $27 as of June 30, 2020 and December 31, 2019, respectively | | | 66 |
| | 48 |
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Goodwill | | | 31 |
| | — |
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Deferred income tax assets | | 869 |
| | 876 |
| | | 837 |
| | 915 |
| |
Operating lease right-of-use assets | | 63 |
| | — |
| | | 59 |
| | 61 |
| |
Other assets | | 221 |
| | 190 |
| | | 268 |
| | 236 |
| |
Total assets | $ | 3,752 |
| | $ | 3,935 |
| | $ | 3,667 |
| | $ | 3,626 |
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Liabilities and equity | | | | | | | | | | |
Current liabilities: | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | 376 |
| | $ | 427 |
| | $ | 300 |
| | $ | 342 |
| |
Current portion of long-term debt | | 1 |
| | 223 |
| | | 2 |
| | 1 |
| |
Current portion of operating lease liabilities | | 8 |
| | — |
| | | 8 |
| | 8 |
| |
Total current liabilities | | 385 |
| | 650 |
| | | 310 |
| | 351 |
| |
Long-term debt, net of current portion | | 422 |
| | 422 |
| | | 628 |
| | 448 |
| |
Pension and other postretirement benefit obligations | | 1,231 |
| | 1,257 |
| | | 1,349 |
| | 1,460 |
| |
Operating lease liabilities, net of current portion | | 59 |
| | — |
| | | 53 |
| | 57 |
| |
Other liabilities | | 55 |
| | 71 |
| | | 77 |
| | 75 |
| |
Total liabilities | | 2,152 |
| | 2,400 |
| | | 2,417 |
| | 2,391 |
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Commitments and contingencies | |
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Equity: | | | | | | | | | | |
Resolute Forest Products Inc. shareholders’ equity: | | | | | | | | | | |
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 | | — |
| | — |
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Common stock, $0.001 par value. 120.2 shares issued and 87.1 shares outstanding as of June 30, 2020; 119.5 shares issued and 86.7 shares outstanding as of December 31, 2019 | | | — |
| | — |
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Additional paid-in capital | | 3,803 |
| | 3,802 |
| | | 3,805 |
| | 3,802 |
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Deficit | | (1,131 | ) | | (1,198 | ) | | | (1,240 | ) | | (1,245 | ) | |
Accumulated other comprehensive loss | | (948 | ) | | (950 | ) | | | (1,171 | ) | | (1,179 | ) | |
Treasury stock at cost, 28.7 shares and 28.0 shares as of June 30, 2019 and December 31, 2018, respectively | | (125 | ) | | (120 | ) | | |
Treasury stock at cost, 33.1 shares and 32.8 shares as of June 30, 2020 and December 31, 2019, respectively | | | (145 | ) | | (144 | ) | |
Total Resolute Forest Products Inc. shareholders’ equity | | 1,599 |
| | 1,534 |
| | | 1,249 |
| | 1,234 |
| |
Noncontrolling interests | | 1 |
| | 1 |
| | |
Noncontrolling interest | | | 1 |
| | 1 |
| |
Total equity | | 1,600 |
| | 1,535 |
| | | 1,250 |
| | 1,235 |
| |
Total liabilities and equity | $ | 3,752 |
| | $ | 3,935 |
| | $ | 3,667 |
| | $ | 3,626 |
| |
See accompanying notes to unaudited interim Consolidated Financial Statements.
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in millions of U.S. dollars)
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| Three Months Ended June 30, 2020 |
| Resolute Forest Products Inc. Shareholders’ Equity | | | | | | |
| Common Stock | Additional Paid-In Capital | Deficit | Accumulated Other Comprehensive Loss | Treasury Stock | Non-controlling Interest | Total Equity |
Balance as of March 31, 2020 | $ | — |
| | $ | 3,804 |
| | $ | (1,246 | ) | | $ | (1,181 | ) | | $ | (144 | ) | | $ | 1 |
| | $ | 1,234 |
| |
Share-based compensation, net of withholding taxes | | — |
| | | 1 |
| | | — |
| | | — |
| | | — |
| | | — |
| | | 1 |
| |
Net income | | — |
| | | — |
| | | 6 |
| | | — |
| | | — |
| | | — |
| | | 6 |
| |
Purchases of treasury stock (0.3 shares) (Note 12) | | — |
| | | — |
| | | — |
| | | — |
| | | (1 | ) | | | — |
| | | (1 | ) | |
Other comprehensive income, net of tax | | — |
| | | — |
| | | — |
| | | 10 |
| | | — |
| | | — |
| | | 10 |
| |
Balance as of June 30, 2020 | $ | — |
| | $ | 3,805 |
| | $ | (1,240 | ) | | $ | (1,171 | ) | | $ | (145 | ) | | $ | 1 |
| | $ | 1,250 |
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| 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 |
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Share-based compensation, net of withholding taxes | | — |
| | | 1 |
| | | — |
| | | — |
| | | — |
| | | — |
| | | 1 |
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Net income | | — |
| | | — |
| | | 25 |
| | | — |
| | | — |
| | | — |
| | | 25 |
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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 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
| |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Resolute Forest Products Inc. Shareholders’ Equity | | | | | | |
| Common Stock | Additional Paid-In Capital | Deficit | Accumulated Other Comprehensive Loss | Treasury Stock | Non-controlling Interest | Total Equity |
Balance as of December 31, 2019 | $ | — |
| | $ | 3,802 |
| | $ | (1,245 | ) | | $ | (1,179 | ) | | $ | (144 | ) | | $ | 1 |
| | $ | 1,235 |
| |
Share-based compensation, net of withholding taxes | | — |
| | | 3 |
| | | — |
| | | — |
| | | — |
| | | — |
| | | 3 |
| |
Net income | | — |
| | | — |
| | | 5 |
| | | — |
| | | — |
| | | — |
| | | 5 |
| |
Purchases of treasury stock (0.3 shares) (Note 12) | | — |
| | | — |
| | | — |
| | | — |
| | | (1 | ) | | | — |
| | | (1 | ) | |
Stock unit awards vested (0.7 shares), net of shares forfeited for employee withholding taxes | | — |
| | | — |
| | | — |
| | | — |
| | | — |
| | | — |
| | | — |
| |
Other comprehensive income, net of tax | | — |
| | | — |
| | | — |
| | | 8 |
| | | — |
| | | — |
| | | 8 |
| |
Balance as of June 30, 2020 | $ | — |
| | $ | 3,805 |
| | $ | (1,240 | ) | | $ | (1,171 | ) | | $ | (145 | ) | | $ | 1 |
| | $ | 1,250 |
| |
RESOLUTE FOREST PRODUCTS INC. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
| |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Unaudited, in millions of U.S. dollars)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 Interest | 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 12) | | — |
| | | — |
| | | — |
| | | — |
| | | (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 |
| |
| | | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2019 |
| Resolute Forest Products Inc. Shareholders’ Equity | | | | | | Resolute Forest Products Inc. Shareholders’ Equity | | | | | |
| Common Stock | Additional Paid-In Capital | Deficit | Accumulated Other Comprehensive Loss | Treasury Stock | Non- controlling Interests | Total Equity | Common Stock | Additional Paid-In Capital | Deficit | Accumulated Other Comprehensive Loss | Treasury Stock | Non- controlling Interest | Total Equity |
Balance as of December 31, 2017 | $ | — |
| | $ | 3,793 |
| | $ | (1,294 | ) | | $ | (780 | ) | | $ | (120 | ) | | $ | 1 |
| | $ | 1,600 |
| | |
Balance as of December 31, 2018 | | $ | — |
| | $ | 3,802 |
| | $ | (1,198 | ) | | $ | (950 | ) | | $ | (120 | ) | | $ | 1 |
| | $ | 1,535 |
| |
Share-based compensation, net of withholding taxes | | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| |
Net income | | — |
| | — |
| | 82 |
| | — |
| | — |
| | — |
| | 82 |
| | | — |
| | — |
| | 67 |
| | — |
| | — |
| | — |
| | 67 |
| |
Stock unit awards vested (0.1 shares), net of shares forfeited for employee withholding taxes | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Purchases of treasury stock (0.7 shares) (Note 12) | | | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) | |
Stock unit awards vested (0.3 shares), net of shares forfeited for employee withholding taxes | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Other comprehensive income, net of tax | | — |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | 6 |
| | | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| |
Balance as of June 30, 2018 | $ | — |
| | $ | 3,797 |
| | $ | (1,212 | ) | | $ | (774 | ) | | $ | (120 | ) | | $ | 1 |
| | $ | 1,692 |
| | |
Balance as of June 30, 2019 | | $ | — |
| | $ | 3,803 |
| | $ | (1,131 | ) | | $ | (948 | ) | | $ | (125 | ) | | $ | 1 |
| | $ | 1,600 |
| |
See accompanying notes to unaudited interim Consolidated Financial Statements.
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions of U.S. dollars)
| | | Six Months Ended June 30, | Six Months Ended June 30, |
| 2019 | | | 2018 | | | 2020 | | | 2019 | | |
Cash flows from operating activities: | | | | | | | | | | |
Net income including noncontrolling interests | $ | 67 |
| | $ | 82 |
| | |
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: | | | | | | |
Net income including noncontrolling interest | | $ | 5 |
| | $ | 67 |
| |
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities: | | | | | | |
Share-based compensation | | 3 |
| | 5 |
| | | 4 |
| | 3 |
| |
Depreciation and amortization | | 82 |
| | 107 |
| | | 82 |
| | 82 |
| |
Reversal of inventory write-downs related to closures | | — |
| | (1 | ) | | |
Deferred income taxes | | 40 |
| | 75 |
| | | 32 |
| | 40 |
| |
Net pension contributions and other postretirement benefit payments | | (57 | ) | | (70 | ) | | | (48 | ) | | (57 | ) | |
Net gain on disposition of assets | | — |
| | (4 | ) | | | (9 | ) | | — |
| |
(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 | ) | | |
Loss (gain) on translation of foreign currency denominated deferred income taxes | | | 39 |
| | (35 | ) | |
(Gain) loss on translation of foreign currency denominated pension and other postretirement benefit obligations | | | (47 | ) | | 37 |
| |
Net planned major maintenance (payments) amortization | | | (2 | ) | | 7 |
| |
Changes in working capital: | | | | | | | | | | |
Accounts receivable | | 38 |
| | 17 |
| | | 50 |
| | 38 |
| |
Inventories | | (21 | ) | | (20 | ) | | | 25 |
| | (21 | ) | |
Other current assets | | (3 | ) | | (1 | ) | | | (7 | ) | | (3 | ) | |
Accounts payable and accrued liabilities | | (64 | ) | | 18 |
| | | (49 | ) | | (64 | ) | |
Other, net | | 1 |
| | 7 |
| | | 1 |
| | 1 |
| |
Net cash provided by operating activities | | 95 |
| | 220 |
| | | 76 |
| | 95 |
| |
Cash flows from investing activities: | | | | | | | | | | |
Cash invested in fixed assets | | (45 | ) | | (53 | ) | | | (37 | ) | | (45 | ) | |
Acquisition of business, net of cash acquired | | | (172 | ) | | — |
| |
Disposition of assets | | 2 |
| | 2 |
| | | 9 |
| | 2 |
| |
Decrease (increase) in countervailing duty cash deposits on supercalendered paper | | 1 |
| | (11 | ) | | |
Decrease in countervailing duty cash deposits on supercalendered paper | | | — |
| | 1 |
| |
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber | | (33 | ) | | (41 | ) | | | (32 | ) | | (33 | ) | |
Decrease (increase) in countervailing duty cash deposits on uncoated groundwood paper | | 6 |
| | (6 | ) | | |
Decrease in countervailing duty cash deposits on uncoated groundwood paper | | | — |
| | 6 |
| |
Other investing activities, net | | | 5 |
| | — |
| |
Net cash used in investing activities | | (69 | ) | | (109 | ) | | | (227 | ) | | (69 | ) | |
Cash flows from financing activities: | | | | | | | | | | |
Net repayments under revolving credit facilities | | — |
| | (114 | ) | | | (2 | ) | | — |
| |
Payments of debt | | (225 | ) | | — |
| | |
Proceeds from long-term debt | | | 180 |
| | — |
| |
Repayments of debt | | | (1 | ) | | (225 | ) | |
Purchases of treasury stock | | (5 | ) | | — |
| | | (1 | ) | | (5 | ) | |
Payments of financing and credit facility fees | | (2 | ) | | (1 | ) | | | — |
| | (2 | ) | |
Cash used in financing activities | | (232 | ) | | (115 | ) | | |
Net cash provided by (used in) financing activities | | | 176 |
| | (232 | ) | |
Effect of exchange rate changes on cash and cash equivalents, and restricted cash | | 1 |
| | (2 | ) | | | (1 | ) | | 1 |
| |
Net decrease in cash and cash equivalents, and restricted cash | | (205 | ) | | (6 | ) | | |
Net increase (decrease) in cash and cash equivalents, and restricted cash | | $ | 24 |
| | $ | (205 | ) | |
Cash and cash equivalents, and restricted cash: | | | | | | | | | | |
Beginning of period | | 345 |
| | 49 |
| | $ | 42 |
| | $ | 345 |
| |
End of period | $ | 140 |
| | $ | 43 |
| | $ | 66 |
| | $ | 140 |
| |
Cash and cash equivalents, and restricted cash at period end: | | | | | | |
Cash and cash equivalents, and restricted cash at end of period: | | | | | | |
Cash and cash equivalents | $ | 98 |
| | $ | 6 |
| | $ | 27 |
| | $ | 98 |
| |
Restricted cash (included in “Other current assets” and “Other assets”) | | 42 |
| | 37 |
| | |
Restricted cash (included in “Other assets”) | | $ | 39 |
| | $ | 42 |
| |
See accompanying notes to unaudited interim Consolidated Financial Statements.
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, either individually or collectively, unless otherwise indicated, referred to as “Resolute Forest Products,” “we,” “our,” “us,” “Parent,” or the “Company”) is incorporated in Delaware. We are a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood products, newsprint and specialty papers,paper, which are marketed in close to 70 countries. We own or operate some 40 facilities, as well as power generation assets, in the United StatesU.S. and Canada.
Financial statements
Our interim consolidated financial statements and 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 (or, “GAAP”) 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 June 30, 2019,2020, 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, 20182019, filed with the SEC on March 1, 2019.2, 2020. Certain prior period amounts in the notes to our footnotesConsolidated Financial Statements have been reclassified to conform to the 20192020 presentation.
Use of estimates
The uncertainties around the novel coronavirus (or, “COVID-19”) pandemic required the use of judgments and estimates that resulted in no significant impacts to our Consolidated Financial Statements as of and for the three and six months ended June 30, 2020. The future impact of the COVID-19 pandemic could generate, in future reporting periods, a significant risk of material adjustment to the carrying amounts of deferred income tax assets and long-lived assets.
New accounting pronouncementpronouncements adopted in 20192020
ASU 2016-02 “Leases”2016-13 “Measurement of Credit Losses on Financial Instruments”
Effective January 1, 2019,2020, we adopted on a modified retrospective basis Accounting Standards Update (or, “ASU”) 2016-02, “Leases,2016-13, “Measurement of Credit Losses on Financial Instruments,” issued by the Financial Accounting Standards Board and(or, the series of related accounting standard updates that followed (collectively, “Topic 842FASB”), through a cumulative-effect adjustment as in 2016 and amended in 2018 by ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” which introduces the current expected credit losses model in the estimation of that date.
credit losses on financial instruments. The effectadoption of this ASU on our Consolidated Balance Sheetnew accounting guidance did not impact the opening deficit balance as of January 1, 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 842. Furthermore, we elected to use hindsight in determining the lease term and assessing impairment of the operating lease right-of-use assets.2020. As a result of the implementationadoption of Topic 842,ASU 2016-13, our leasesaccounts receivable accounting policy was updated as follows:
We determine if a contract contains a leaseAccounts receivable are recorded at inception. Leases are classified as either operating leases or finance leases. Operating leases are included in “Operating lease right-of-use assets,” “Current portion of operating lease liabilities,” and “Operating lease liabilities,cost, net of current portion,” whereas finance leasesan allowance for expected credit losses that is based on expected collectability, and such carrying value approximates fair value.
Accounts receivable are included in “Fixed assets, net,” “Current portion of long-term debt,” and “Long-term debt, net of current portion” in our Consolidated Balance Sheets. Leases with a term of less than 12 months are not recorded in our Consolidated Balance Sheets, and are expensed over the term of the lease in our Consolidated Statements of Operations.
Operating lease right-of-use assets represent our rightsubject to use an underlying asset for the term of the lease, and the related liabilities represent our obligation to make the lease payments arising from the lease. Operating lease right-of-use assets and the related liabilities are recognized at the lease commencement dateimpairment review that is based on the present valueaging method. Impairment is calculated based on how long a receivable has been outstanding. We established an impairment loss allowance by considering historical credit loss experience (based on days past due), current conditions, and forward-looking factors specific to the customers and the economic environment.
We also consider if we are no longer doing business with the customer, and any other factors that may affect collectability from customers with significant outstanding balances. A receivable is written off when there is no reasonable expectation of recovering the lease payments overcontractual cash flows. Usually, the termallowance for doubtful accounts fully covers the receivable.
ASU 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”
Effective January 1, 2020, we adopted ASU 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” issued by the FASB in 2018. The adoption of this accounting guidance did not impact our Consolidated Financial Statements and disclosures.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
ASU 2018-15 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”
Effective January 1, 2020, we adopted ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” issued by the FASB in 2018, 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). The adoption of this accounting guidance did not materially impact our results of operations or financial position.
Accounting pronouncement not yet adopted as of June 30, 2020
ASU 2020-04 “Reference Rate Reform”
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform,” which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform. This update is effective as of March 12, 2020, through December 31, 2022. We are currently evaluating this accounting guidance and have not elected an adoption date. We do not expect this accounting guidance to materially impact our results of operations or financial position.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 2. Business Acquisition
On February 1, 2020 (or, the “Acquisition Date”), we acquired from Conifex Timber Inc. all of the lease. Renewalequity securities and termination optionsmembership interests in certain of its subsidiaries, the business of which consists mainly in the operation of three sawmills and related assets in Cross City (Florida) and in Glenwood and El Dorado (Arkansas) (or, the “U.S. Sawmill Business”). The U.S. Sawmill Business acquired produces construction-grade dimensional lumber and decking products from locally sourced southern yellow pine for distribution within the U.S. This acquisition will diversify our lumber production, and increase our operating capacity in the U.S. South.
The fair value of the consideration, paid in cash, for the U.S. Sawmill Business acquired is $173 million. We intend to structure the acquisition as an asset purchase for tax purposes.
We account for business combinations using the acquisition method when control is transferred to us. Under this approach, identifiable assets acquired and liabilities assumed are includedrecorded at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair values of net identifiable assets acquired is recorded in “Goodwill” in our lease terms when it is reasonably certain that theyConsolidated Balance Sheets. Transaction costs are expensed as incurred in our Consolidated Statements of Operations.
The following table summarizes our preliminary allocation of the purchase price to the fair values of assets acquired and liabilities assumed at the Acquisition Date:
|
| | | |
(Unaudited, in millions) | | |
Current assets (1) | $ | 19 |
|
Fixed assets (2) | | 114 |
|
Amortizable intangible assets (3) | | 21 |
|
Operating lease right-of-use assets | | 2 |
|
Goodwill (4) | | 31 |
|
Total assets acquired and goodwill | $ | 187 |
|
Current liabilities | $ | 11 |
|
Long-term debt, net of current portion | | 2 |
|
Operating lease liabilities, net of current portion | | 1 |
|
Total liabilities assumed | $ | 14 |
|
Net assets acquired | $ | 173 |
|
| | |
Fair value of consideration transferred | $ | 173 |
|
| |
(1) | Includes cash and cash equivalents of $1 million. |
| |
(2) | We recognized a $36 million reduction from the preliminary valuation of fixed assets reported as of March 31, 2020. |
| |
(3) | We identified and separately recognized customer relationships of $21 million since our preliminary purchase price allocation reported as of March 31, 2020. These intangible assets are being amortized over a weighted-average useful life of 10 years. The fair value of the customer relationships was determined using the income approach through an excess earnings analysis discounted at a rate of 12.6%. |
| |
(4) | The revision of our preliminary allocation of the purchase price reported as of March 31, 2020, resulted in the recognition of $31 million of goodwill. The goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized and is mostly attributable to the U.S. Sawmill Business’s assembled workforce and synergies expected from combining our operations with the U.S. Sawmill Business. Goodwill will be assigned to the wood products reportable segment for the purposes of impairment testing in the future. The total amount of goodwill is deductible for tax purposes. |
The allocation of the purchase price to assets acquired and liabilities assumed was based upon a preliminary valuation for all items and may be exercised. In determiningsubject to adjustment during the present value12-month measurement period following the Acquisition Date since we are finalizing the assumptions in regards to the fair values of lease payments, we usethese assets and liabilities.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
The allocation of the implicit rate when readily determinable, or our estimated incremental borrowing rate, which ispurchase price was based on information available atmanagement’s estimate of the lease commencement date. Lease payments are expensedfair values of the acquired identifiable assets and assumed liabilities using valuation techniques including income, cost and market approaches. We utilized both the cost and market approaches to value fixed assets, and both the income and cost approaches to value intangible assets (Level 3).
From the Acquisition Date to the six months period ended June 30, 2020, our consolidated financial results included sales of $44 million and net income of $6 million attributable to the U.S. Sawmill Business. In connection with the acquisition of the U.S. Sawmill Business, we also recognized transaction costs of $3 million in “Other income (expense), net” in our Consolidated Statements of Operations on a straight-line basis overfor the termsix months ended June 30, 2020.
The following unaudited pro forma information for the three and six months ended June 30, 2020 and 2019, represents our results of operations as if the acquisition of the lease.
For buildings, we accountU.S. Sawmill Business had occurred on January 1, 2019, excluding the results of operations of the El Dorado sawmill that has been idled since October 2019. This pro forma information does not purport to be indicative of the results that would have occurred for the lease and non-lease components as a single lease component. For all other contracts, we accountperiods presented or that may be expected in the future.
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2020 | | | 2019 | | | | 2020 | | | 2019 | | |
Sales | $ | 612 |
| | $ | 781 |
| | | $ | 1,309 |
| | $ | 1,597 |
| |
Net income attributable to Resolute Forest Products Inc. | $ | 6 |
| | $ | 25 |
| | | $ | 5 |
| | $ | 67 |
| |
Note 3. Other Income (Expense), Net
Other income (expense), net for the leasethree and non-lease components separately.six months ended June 30, 2020 and 2019, was comprised of the following:
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2020 | | | 2019 | | | | 2020 | | | 2019 | | |
Foreign exchange (loss) gain | $ | (9 | ) | | $ | (6 | ) | | | $ | 14 |
| | $ | (10 | ) | |
Insurance recovery (1) | | 15 |
| | | — |
| | | | 15 |
| | | — |
| |
Miscellaneous income | | 4 |
| | | 5 |
| | | | 9 |
| | | 5 |
| |
| $ | 10 |
| | $ | (1 | ) | | | $ | 38 |
| | $ | (5 | ) | |
| |
(1) | We recorded $15 million as other income for the three and six months ended June 30, 2020, from the settlement of an insurance claim in connection with our acquisition of Atlas Paper Holdings, Inc. (or, “Atlas”) in 2015. |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 2.4. Accumulated Other Comprehensive Loss
The change in our accumulated other comprehensive loss by component (net of tax) for the three and six months ended June 30, 2020 and 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 March 31, 2020 | $ | 1 |
| | $ | (1,175 | ) | | $ | (7 | ) | | $ | (1,181 | ) | |
Amounts reclassified from accumulated other comprehensive loss | | (1 | ) | | | 11 |
| | | — |
| | | 10 |
| |
Balance as of June 30, 2020 | $ | — |
| | $ | (1,164 | ) | | $ | (7 | ) | | $ | (1,171 | ) | |
|
| | | | | | | | | | | | | | | | |
(Unaudited, in millions) | Unamortized Prior Service Credits | Unamortized Actuarial Losses | Foreign Currency Translation | Total |
Balance as of December 31, 2019 | $ | 16 |
| | $ | (1,189 | ) | | $ | (6 | ) | | $ | (1,179 | ) | |
Other comprehensive loss before reclassifications | | — |
| | | — |
| | | (1 | ) | | | (1 | ) | |
Amounts reclassified from accumulated other comprehensive loss | | (16 | ) | | | 25 |
| | | — |
| | | 9 |
| |
Net current period other comprehensive (loss) income | | (16 | ) | | | 25 |
| | | (1 | ) | | | 8 |
| |
Balance as of June 30, 2020 | $ | — |
| | $ | (1,164 | ) | | $ | (7 | ) | | $ | (1,171 | ) | |
| |
(1) | | | | | | | | | | | | | | | | | | (Unaudited, in millions) | Unamortized Prior Service Credits | Unamortized Actuarial Losses | Foreign Currency Translation | Total | Balance as of March 31, 2019 | $ | 25 |
| | $ | (965 | ) | | $ | (7 | ) | | $ | (947 | ) | | Other comprehensive loss before reclassifications | | — |
| | | (3 | ) | | | — |
| | | (3 | ) | | Amounts reclassified from accumulated other comprehensive loss | | (4 | ) | | | 6 |
| | | — |
| | | 2 |
| | Net current period other comprehensive (loss) income | | (4 | ) | | | 3 |
| | | — |
| | | (1 | ) | | 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, 2018 | $ | 28 |
| | $ | (971 | ) | | $ | (7 | ) | | $ | (950 | ) | | Other comprehensive loss before reclassifications | | — |
| | | (3 | ) | | | — |
| | | (3 | ) | | Amounts reclassified from accumulated other comprehensive loss | | (7 | ) | | | 12 |
| | | — |
| | | 5 |
| | Net current period other comprehensive (loss) income | | (7 | ) | | | 9 |
| | | — |
| | | 2 |
| | Balance as of June 30, 2019 | $ | 21 |
| | $ | (962 | ) | | $ | (7 | ) | | $ | (948 | ) | |
RESOLUTE FOREST PRODUCTS INC. Notes to Unaudited Interim Consolidated Financial Statements
| See the table below for details about these reclassifications. |
The reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2020 and 2019,, were comprised of the following:
| | | | | | | | Three Months Ended June 30, | Six Months Ended June 30, | |
(Unaudited, in millions) | Amounts Reclassified From Accumulated Other Comprehensive Loss | Affected Line in the Consolidated Statements of Operations | 2020 | | | 2019 | | | 2020 | | | 2019 | | | Affected Line in the Consolidated Statements of Operations |
Unamortized Prior Service Credits | | | | | | | | | | | | |
Amortization of prior service credits | $ | (6 | ) | | Non-operating pension and other postretirement benefit credits (1) | $ | (1 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (6 | ) | | Non-operating pension and other postretirement benefit credits (1) |
Curtailment gain | | (1 | ) | | Non-operating pension and other postretirement benefit credits (1) | |
Other items | | | — |
| | (1 | ) | | (14 | ) | | (1 | ) | |
| | — |
| | Income tax provision | | — |
| | — |
| | — |
| | — |
| | Income tax provision |
| $ | (7 | ) | | Net of tax | |
Net of tax | | | (1 | ) | | (4 | ) | | (16 | ) | | (7 | ) | |
Unamortized Actuarial Losses | | | | | | | | | | | | |
Amortization of actuarial losses | $ | 15 |
| | Non-operating pension and other postretirement benefit credits (1) | | 15 |
| | 7 |
| | 29 |
| | 15 |
| | Non-operating pension and other postretirement benefit credits (1) |
Other items | | | — |
| | — |
| | 3 |
| | — |
| |
| | (3 | ) | | Income tax provision | | (4 | ) | | (1 | ) | | (7 | ) | | (3 | ) | | Income tax provision |
| $ | 12 |
| | Net of tax | |
Net of tax | | | 11 |
| | 6 |
| | 25 |
| | 12 |
| |
Total Reclassifications | $ | 5 |
| | Net of tax | $ | 10 |
| | $ | 2 |
| | $ | 9 |
| | $ | 5 |
| |
| |
(1) | These items are included in the computation of net periodic benefit cost (credit) related to our pension and other postretirement benefit (or, “OPEB”) plans summarized in Note 8,9, “Employee Benefit Plans.” |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 3.5. Net Income Per Share
The reconciliation of the basic and diluted net income per share for the three and six months ended June 30, 20192020 and 2018,2019, was as follows:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except per share amounts) | 2019 | | | 2018 | | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | | 2020 | | | 2019 | | |
Numerator: | | | | | | | | | | | | | | | | | | |
Net income attributable to Resolute Forest Products Inc. | $ | 25 |
| | $ | 72 |
| | $ | 67 |
| | $ | 82 |
| | $ | 6 |
| | $ | 25 |
| | $ | 5 |
| | $ | 67 |
| |
Denominator: | | | | | | | | | | | | | | | | | | |
Basic weighted-average number of Resolute Forest Products Inc. common shares outstanding | | 92.4 |
| | 91.3 |
| | 92.4 |
| | 91.2 |
| | |
Weighted-average number of Resolute Forest Products Inc. common shares outstanding | | | 88.1 |
| | 92.4 |
| | 88.1 |
| | 92.4 |
| |
Dilutive impact of nonvested stock unit awards (1) | | 1.2 |
| | 1.9 |
| | 1.4 |
| | 1.9 |
| | | 0.1 |
| | 1.2 |
| | 0.1 |
| | 1.4 |
| |
Diluted weighted-average number of Resolute Forest Products Inc. common shares outstanding | | 93.6 |
| | 93.2 |
| | 93.8 |
| | 93.1 |
| | | 88.2 |
| | 93.6 |
| | 88.2 |
| | 93.8 |
| |
Net income per share attributable to Resolute Forest Products Inc. common shareholders: | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.79 |
| | $ | 0.73 |
| | $ | 0.90 |
| | $ | 0.07 |
| | $ | 0.27 |
| | $ | 0.06 |
| | $ | 0.73 |
| |
Diluted | | 0.27 |
| | 0.77 |
| | 0.71 |
| | 0.88 |
| | $ | 0.07 |
| | $ | 0.27 |
| | $ | 0.06 |
| | $ | 0.71 |
| |
| |
(1)
| When we refer to stock unit awards we mean equity-classified restricted stock units, deferred stock units and performance stock units. |
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 per share, as their impact would have been antidilutive, was 1.0 million and 1.3 million for the three months ended June 30, 2019 and 2018, respectively, and 1.0 million and 1.3 million for the six months ended June 30, 2020 and 2019, and 2018, respectively.was as follows:
|
| | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2020 |
| | 2019 |
| | | 2020 |
| | 2019 |
| |
Stock options | 0.9 |
| | 1.0 |
| | | 0.9 |
| | 1.0 |
| |
Stock unit awards | 0.9 |
| | — |
| | | 0.9 |
| | — |
| |
Note 4.6. Inventories, Net
Inventories, net as of June 30, 20192020 and December 31, 20182019, were comprised of the following:
| | (Unaudited, in millions) | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
Raw materials | $ | 102 |
| | $ | 106 |
| | $ | 107 |
| | $ | 128 |
| |
Work in process | | 41 |
| | 39 |
| | | 52 |
| | 46 |
| |
Finished goods | | 194 |
| | 180 |
| | | 155 |
| | 164 |
| |
Mill stores and other supplies | | 193 |
| | 183 |
| | | 192 |
| | 184 |
| |
| $ | 530 |
| | $ | 508 |
| | $ | 506 |
| | $ | 522 |
| |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 5. Operating leases
We have operating leases for buildings, machinery, chemical equipment, rail cars, and office equipment with remaining terms from less than one year to 24 years. These leases may include renewal options for up to 13 years.
The components of lease expense for the three and six months ended June 30, 2019, were as follows:
|
| | | | | | | | | |
(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 |
| |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 6.7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of June 30, 20192020 and December 31, 2018,2019, were comprised of the following:
| | (Unaudited, in millions) | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
Trade accounts payable | $ | 270 |
| | $ | 299 |
| | $ | 226 |
| | $ | 255 |
| |
Accrued compensation | | 49 |
| | 66 |
| | | 42 |
| | 52 |
| |
Accrued interest | | 3 |
| | 5 |
| | | 4 |
| | 3 |
| |
Pension and other postretirement benefit obligations | | 17 |
| | 17 |
| | | 14 |
| | 15 |
| |
Accrued provision for former Fibrek Inc. dissenting shareholders | | 11 |
| | — |
| | |
Income and other taxes payable | | 4 |
| | 4 |
| | | 4 |
| | 4 |
| |
Deposits | | 10 |
| | 20 |
| | |
Other | | 12 |
| | 16 |
| | | 10 |
| | 13 |
| |
| $ | 376 |
| | $ | 427 |
| | $ | 300 |
| | $ | 342 |
| |
Note 7.8. Long-Term Debt
Overview
Long-term debt, including current portion, as of June 30, 20192020 and December 31, 20182019, was comprised of the following:
| | (Unaudited, in millions) | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
5.875% senior unsecured notes due 2023: | | | | | | | | | | |
Principal amount | $ | 375 |
| | $ | 600 |
| | $ | 375 |
| | $ | 375 |
| |
Deferred financing costs | | (3 | ) | | (5 | ) | | | (2 | ) | | (3 | ) | |
Unamortized discount | | (2 | ) | | (3 | ) | | | (1 | ) | | (1 | ) | |
Total 5.875% senior unsecured notes due 2023 | | 370 |
| | 592 |
| | | 372 |
| | 371 |
| |
Term loan due 2025 | | 46 |
| | 46 |
| | |
Finance lease obligation | | 7 |
| | 7 |
| | |
Term loans due 2030 | | | 180 |
| | — |
| |
Borrowings under revolving credit facilities | | | 69 |
| | 71 |
| |
Finance lease obligations | | | 9 |
| | 7 |
| |
Total debt | | 423 |
| | 645 |
| | | 630 |
| | 449 |
| |
Less: Current portion of 5.875% senior unsecured notes due 2023 | | — |
| | (222 | ) | | |
Less: Current portion of finance lease obligation | | (1 | ) | | (1 | ) | | |
Less: Current portion of finance lease obligations | | | (2 | ) | | (1 | ) | |
Long-term debt, net of current portion | $ | 422 |
| | $ | 422 |
| | $ | 628 |
| | $ | 448 |
| |
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 notes2023 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,2023 Notes, resulting in an effective interest rate of 6%. Interest on the notes2023 Notes is payable semi-annually beginning November 15, 2013, until their maturity date of May 15, 2023. In connection with the issuance of the notes,2023 Notes, we incurred financing costs of $9 million, which were deferred and recorded as a reduction of the notes.2023 Notes. Deferred financing costs are amortized to “Interest expense” in our Consolidated Statements of Operations using the interest method over the term of the notes.2023 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.interest. As a result of the repurchase, we recorded a net loss on
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
extinguishment of debt of $3 million in “Other expense,income (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 $379$341 million and $598$380 million as of June 30, 20192020 and December 31, 2018,2019, 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 (or the “Term Loan”), and a revolving credit facility of up to $139 million with a maturity date of September 7, 2022 (or the “Revolving Credit Facility”). As of June 30, 2019, we had $139 million of availability under the Revolving Credit Facility, which was undrawn. The fair value of the Term Loan (Level 2) approximated its carrying value as of both June 30, 2019 and December 31, 2018.
ABL Credit Facility
On May 14, 2019, we entered into an amendment to the credit agreement dated May 22, 2015, for a senior secured asset-based revolving credit facility (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 $500 million at any time outstanding, subject to borrowing base availability based on specified advance rates, eligibility criteria and customary reserves.
The aggregate lender commitment under the facility includes a $60 million swingline sub-facility and a $200 million letter of credit sub-facility, and we may convert up to $50 million of the commitments under the facility to a first-in last-out facility (or “FILO Facility”), subject to the consent of each converting lender. The ABL Credit Facility also provides for an uncommitted ability to increase the revolving credit facility by up to $500 million, subject to certain terms and conditions set forth in the agreement.
Revolving loan (and letter of credit) availability under the facility is subject to a borrowing base, which at any time is equal to the sum of (i) 85% of eligible accounts receivable (or 90% with respect to certain insured or letter of credit backed accounts or with accounts owed by investment grade obligors), plus (ii) the lesser of (A) 70% of the lesser of the cost or market value of eligible inventory or (B) 85% of the net orderly liquidation value of eligible inventory, plus (iii) 100% of the value of eligible cash and 95% of the value of permitted investments held in deposit accounts controlled solely by the administrative and collateral agent (or the “agent”). The credit agreement includes reserves that reduce the borrowing base, including: (i) a reserve commencing March 16, 2023 for the outstanding principal amount due under the 2023 Notes; and (ii) a reserve for the outstanding principal amount due under the Senior Secured Credit Facility, commencing 60 days before its maturity. The borrowing base is subject to other customary reserves and eligibility criteria, in the exercise of the agent’s reasonable discretion.
The obligations under the credit agreement are guaranteed by certain material subsidiaries of the Company and are secured by first priority liens on and security interests in accounts receivable, inventory and related assets.
Loans under the credit agreement bear interest at a rate equal to a base rate, the 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.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Senior Secured Credit Facility
On September 7, 2016, we entered into a senior secured credit facility for up to $185 million. This senior secured credit facility provided a term loan of $46 million with a maturity date of September 7, 2025, and a revolving credit facility of up to $139 million with a maturity date of September 7, 2022. On October 28, 2019, we entered into an amended and restated senior secured credit facility (or, the “Senior Secured Credit Facility”) for up to $360 million, replacing our existing $185 million senior secured credit facility. The Senior Secured Credit Facility provides a term loan facility of up to $180 million with a delayed draw period of up to three years, and the choice of maturities of six to 10 years from the date of drawing (or, the “Term Loan Facility”), and a six-year revolving credit agreement contains customary covenants for asset-based credit agreementsfacility of this type, including, among other things: (i) requirementsup to deliver financial statements, other reports$180 million with a maturity date of October 28, 2025 (or, the “Revolving Credit Facility”). There is also an uncommitted option to increase the Senior Secured Credit Facility by up to an additional $360 million, subject to certain terms and notices; (ii) restrictions on the existence or incurrence and repayment of indebtednessconditions. On October 28, 2019, we repaid our $46 million term loan 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 determinedborrowing under the credit agreement, of 1.0:1.0, anytime availabilityRevolving Credit Facility.
In March 2020, we borrowed under the facility falls below the greater of $45Term Loan Facility $180 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.
in term loans maturing in 2030. As of June 30, 2020, we had $128 million of availability under the Revolving Credit Facility, net of $52 million of borrowings. The fair values of the Term Loan Facility (Level 2) and Revolving Credit Facility (Level 2) approximated their carrying values as of both June 30, 2020 and December 31, 2019.
ABL Credit Facility
On May 14, 2019, we entered into an amended senior secured asset-based revolving credit facility (or, the “ABL Credit Facility”) with an aggregate lender commitment of up to $500 million at any time outstanding, subject to borrowing base availability based on specified advance rates, eligibility criteria and customary reserves. The amended credit agreement provides for an extension of the maturity date to May 14, 2024. As of June 30, 2020, we had $353$241 million of availability under the ABL Credit Facility, which was undrawn except for $51net of $17 million of borrowings and $48 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 June 30, 2020 and December 31, 2019.
Finance lease obligation
We have a finance lease obligation for a warehouse with a maturity date of December 1, 2027, which can be renewed for 20 years at our option. Minimum monthly payments are determined by an escalatory price clause.15
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 8.9. Employee Benefit Plans
Pension and other postretirement benefit plans
The components of net periodic benefit cost (credit) relating to our pension and OPEB plans for the three and six months ended June 30, 20192020 and 2018,2019, were as follows:
Pension Plans:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Interest cost | $ | 45 |
| | $ | 48 |
| | $ | 90 |
| | $ | 96 |
| | $ | 36 |
| | $ | 45 |
| | $ | 74 |
| | $ | 90 |
| |
Expected return on plan assets | | (61 | ) | | (67 | ) | | (124 | ) | | (134 | ) | | | (55 | ) | | (61 | ) | | (111 | ) | | (124 | ) | |
Amortization of actuarial losses | | 9 |
| | 10 |
| | 18 |
| | 20 |
| | | 17 |
| | 9 |
| | 32 |
| | 18 |
| |
Amortization of prior service credits | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | | — |
| | (1 | ) | | — |
| | (1 | ) | |
Non-operating pension credits | | (8 | ) | | (9 | ) | | (17 | ) | | (19 | ) | | | (2 | ) | | (8 | ) | | (5 | ) | | (17 | ) | |
Service cost | | 3 |
| | 4 |
| | 7 |
| | 9 |
| | | 3 |
| | 3 |
| | 7 |
| | 7 |
| |
Net periodic benefit credits before special events | | (5 | ) | | (5 | ) | | (10 | ) | | (10 | ) | | |
Curtailment and settlement (gain) loss | | (1 | ) | | 1 |
| | (1 | ) | | 1 |
| | |
Net periodic benefit costs (credits) before special events
| | | 1 |
| | (5 | ) | | 2 |
| | (10 | ) | |
Other (gains) losses | | | — |
| | (1 | ) | | 3 |
| | (1 | ) | |
| $ | (6 | ) | | $ | (4 | ) | | $ | (11 | ) | | $ | (9 | ) | | $ | 1 |
| | $ | (6 | ) | | $ | 5 |
| | $ | (11 | ) | |
OPEB Plans:
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2020 | | | 2019 | | | | 2020 | | | 2019 | | |
Interest cost | $ | 1 |
| | $ | 1 |
| | | $ | 2 |
| | $ | 2 |
| |
Amortization of actuarial gains | | (2 | ) | | | (2 | ) | | | | (3 | ) | | | (3 | ) | |
Amortization of prior service credits | | (1 | ) | | | (2 | ) | | | | (2 | ) | | | (5 | ) | |
Non-operating other postretirement benefit credits | | (2 | ) | | | (3 | ) | | | | (3 | ) | | | (6 | ) | |
Service cost | | 1 |
| | | — |
| | | | 1 |
| | | — |
| |
Net periodic benefit credits before special events | | (1 | ) | | | (3 | ) | | | | (2 | ) | | | (6 | ) | |
Curtailment gain | | — |
| | | — |
| | | | (14 | ) | | | — |
| |
| $ | (1 | ) | | $ | (3 | ) | | | $ | (16 | ) | | $ | (6 | ) | |
Defined contribution plans
Our expense for the defined contribution plans totaled $4 million for both the three months ended June 30, 2020 and 2019, and $8 million and $9 million for the six months ended June 30, 2020 and 2019, respectively.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
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 defined contribution plans totaled $4 million and $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.
Note 9.10. Income Taxes
The income tax provision attributable to income before income taxes differs from the amounts computed by applying the U.S. federal statutory income tax rate of 21% for the three and six months ended June 30, 20192020 and 2018,2019, as a result of the following:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Income before income taxes | $ | 44 |
| | $ | 119 |
| | $ | 107 |
| | $ | 160 |
| | $ | 11 |
| | $ | 44 |
| | $ | 37 |
| | $ | 107 |
| |
Income tax provision: | | | | | | | | | | | | | | | | | | |
Expected income tax provision | | (9 | ) | | (25 | ) | | (22 | ) | | (34 | ) | | | (3 | ) | | (9 | ) | | (8 | ) | | (22 | ) | |
Changes resulting from: | | | | | | | | | | | | | | | | | | |
Valuation allowance (1) | | (4 | ) | | 13 |
| | (11 | ) | | 8 |
| | | (7 | ) | | (4 | ) | | (16 | ) | | (11 | ) | |
Foreign exchange | | 1 |
| | (7 | ) | | 4 |
| | (14 | ) | | | 2 |
| | 1 |
| | (10 | ) | | 4 |
| |
U.S. tax on non-U.S. earnings (2) | | (5 | ) | | (18 | ) | | (5 | ) | | (25 | ) | | | — |
| | (5 | ) | | — |
| | (5 | ) | |
State income taxes, net of federal income tax benefit | | 1 |
| | — |
| | 2 |
| | 2 |
| | | — |
| | 1 |
| | 2 |
| | 2 |
| |
Foreign tax rate differences | | (4 | ) | | (7 | ) | | (9 | ) | | (12 | ) | | | (2 | ) | | (4 | ) | | (5 | ) | | (9 | ) | |
Other, net(3) | | 1 |
| | (3 | ) | | 1 |
| | (3 | ) | | | 5 |
| | 1 |
| | 5 |
| | 1 |
| |
| $ | (19 | ) | | $ | (47 | ) | | $ | (40 | ) | | $ | (78 | ) | | $ | (5 | ) | | $ | (19 | ) | | $ | (32 | ) | | $ | (40 | ) | |
| |
(1) | Relates to our U.S. operations. |
| |
(2) | Reduces income tax benefits on U.S. losses for the three and six months ended June 30, 20192019. |
| |
(3) | Includes $4 million for the three and 2018.six months ended June 30, 2020, related to the settlement of an insurance claim in connection with our acquisition of Atlas. |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 10.11. Commitments and Contingencies
Legal matters
We become involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the normal course of business, including matters related to contracts, commercial and trade disputes, taxes, environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting and disclosure obligations, corporate governance, First Nations claims, antitrust, governmental regulations, and other matters. Although the final outcome is subject to many variables and cannot be predicted with any degree of certainty, we regularly assess the status of the matters and establish provisions (including legal costs expected to be incurred) when we believe an adverse outcome is
RESOLUTE FOREST PRODUCTS INC.
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 assessed due to their preliminary nature, we believe that the ultimate disposition of these matters outstanding or pending as of June 30, 2019,2020, 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 wereHearings for certain of these matters are scheduled to occur 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.next twelve months.
Countervailing duty and anti-dumping investigations on softwood lumber
On November 25, 2016, countervailing duty and anti-dumping petitions were filed with the U.S. Department of Commerce (or, “Commerce”) and the U.S. International Trade Commission (or, “ITC”) by certain U.S. softwood lumber products producers and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin softwood lumber products exported to the U.S. One of our subsidiaries was identified in the petitions as being a Canadian exporting producer of softwood lumber products to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in both the countervailing duty and anti-dumping investigations.
On April 24, 2017, Commerce announced its preliminary determination in the countervailing duty investigation and, as a result, after April 28, 2017, we were required to pay cash deposits to the U.S. Customs and Border Protection agency (or, “U.S. Customs”) at a rate of 12.82% for estimated countervailing duties on our U.S. imports of softwood lumber products produced at our Canadian sawmills. The preliminary rate remained in effect until August 26, 2017. Commerce changed the rate in its final affirmative determination on November 2, 2017, but the new rate did not take effect until December 28, 2017, following the ITC’s final affirmative determination and the publication by Commerce of a countervailing duty order. Since that date, we have been required to resume paying cash deposits to the U.S. Customs at a rate of 14.7%14.70% for our U.S. imports of Canadian-produced softwood lumber products U.S. imports from our Canadian sawmills.products. This rate will continueapply until Commerce sets a duty rate in an administrative review, or a new rate may be set through a remand determination by a North American Free Trade Agreement binational panel (or, “NAFTAPanel”) binational panel on appeal. Through June 30, 2019,2020, our cash deposits totaled $106$154 million and, based on the 14.7%14.70% rate and our current operating parameters, could be as high as $60$50 million per year. Commerce issued on January 31, 2020, its preliminary results in the countervailing duties administrative review, and on May 15, 2020, and July 10, 2020, post-preliminary results establishing our new preliminary rates at 17.57% for the period of review from April 28, 2017, to December 31, 2017, and at 17.11% for the period of review from January 1, 2018, to December 31, 2018, which are not yet effective. The new rate to be established in the final results for the period of review from January 1, 2018, to December 31, 2018, will be used as the basis for cash deposits to U.S. Customs from the publication of the final results.
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%3.20% for our U.S. imports of Canadian-produced softwood lumber products U.S. imports from our Canadian sawmills.products. This rate will apply until Commerce sets a duty rate in an administrative review, or a new rate may be set through a remand determination by a NAFTA binational panelPanel on appeal. Through June 30, 2019,2020, our cash deposits totaled $30$40 million and,
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
based on the 3.2%3.20% rate and our current operating parameters, could be as high as $15$10 million per year. On January 31, 2020, Commerce issued its preliminary results in the anti-dumping administrative review and established our new preliminary rate at 1.18%, which will not be effective until the issuance of the final results.
On April 1, 2019, Commerce published a notice initiating the administrative reviews of the countervailing duty and anti-dumping orders on softwood lumber products from Canada. We were selected as a mandatory respondent in these administrative reviews and we are in the process of responding to Commerce with the information requested. On March 10, 2020, Commerce published a notice initiating the second administrative review of the countervailing duty and anti-dumping orders on softwood lumber products from Canada. We were selected as a mandatory respondent for the second administrative review of the countervailing duty order and we are acting as a voluntary respondent for the second administrative review of the anti-dumping order.
In parallel, on September 4, 2019, a Panel issued an interim decision upholding the affirmative final injury determinations of the ITC in both investigations of softwood lumber products from Canada. The Panel remanded the ITC to reconsider several findings and ordered the ITC to submit its redetermination on remand within 90 days from the date of the Panel interim decision. On December 19, 2019, the ITC issued its redetermination on remand that maintained the affirmative final injury determinations, and on May 22, 2020, the Panel issued its final decision and affirmed in its entirety the ITC’s injury determination on remand.
We are not presently able to determine the ultimate resolution of these matters, but we believe it is not probable that we will ultimately be assessed with significant duties, if any, on our U.S. imports of Canadian-produced softwood lumber products. Accordingly, no0 contingent loss was recorded in respect of these petitions in our Consolidated Statements of Operations, and our cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets. Cash deposits for the countervailing duty and anti-dumping investigations through December 31, 2019, totaled $128 million and $34 million, respectively.
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
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
issuance of a final order ofby the Quebec Superior Court in Canada (or, “Quebec Superior Court”) 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 toOn September 26, 2019, 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 ofQuebec Superior Court rendered a decision fixing the fair value of theirthe shares of the dissenting shareholders at C$1.99 per share, or C$31 million in aggregate, plus interest and an additional indemnity, for a total estimated at C$44 million payable in cash. As previously reported, we had accrued C$14 million for the payment of the dissenting shareholders’ claims and accrued an additional C$30 million following the court decision. Of the total amount of C$44 million, C$19 million was payable immediately and paid on October 2, 2019, bringing the remaining balance to C$25 million ($18 million and $19 million as of June 30, 2020 and December 31, 2019, respectively), which was recorded in “Other liabilities” in our Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019. We are appealing the decision, therefore the payment of any additional consideration and its timing will be paid entirelydepend on the outcome of the appeal. On November 13, 2019, a legal hypothec in cash. Accordingly, we cannot presently determine the amount that ultimately will be paidof C$30 million was registered on our Saint-Félicien (Quebec) immovable and movable property to former holders of Fibrek shares in connection withsecure the proceedings, but we have accrued Cdn $14 million ($11 million, based on the exchange rate in effect on June 30, 2019) for the eventual payment of those claims. The hearing in this matter occurred in 2019 and we are awaitingany additional amounts following the decisionoutcome of the court.appeal.
Partial wind-ups of pension plans
On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (or, the “CCAA Creditor Protection Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the CCAA Creditor Protection Proceedings. We contend, among other things, that any such declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended, and the terms of our emergence from the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to Cdn $150C$150 million ($115 million, based on the exchange rate in effect on June 30, 2019)110 million), would have to be funded if we do not obtain the relief sought. The hearing in this matter has not yet been scheduled but could occur in 2019 or 2020.the next twelve months.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Environmental matters
We are subject to a varietynumber of federal or national, state, provincial, and local environmental laws, regulations, and regulationsorders in the jurisdictions in which we operate.various jurisdictions. We believe our operations are in material compliance with current applicable environmental laws and regulations. Environmental regulations promulgated and orders issued in the future could require substantial additional expenditures for compliance and could have a material impact on us, in particular, and the industry in general.
We may be a “potentially responsible party” with respect to a hazardous waste site that is being addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund). We believe we will not be liable for any significant amounts at this site.
We have environmental liabilities of $8 million recorded as of both June 30, 20192020 and December 31, 2018,2019, 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” orand “Other liabilities” in our Consolidated Balance Sheets.
We also have asset retirement obligations of $26 million and $23 million recorded as of both June 30, 20192020 and December 31, 2018, respectively,2019, 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” orand “Other liabilities” in our Consolidated Balance Sheets.
Note 11.12. Share Capital
On March 2, 2020, our board of directors authorized a share repurchase program of up to 15% of our common stock, for an aggregate consideration of up to $100 million. During the three and six months ended June 30, 2020, we repurchased 253,898 shares, at a cost of $1 million. 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 launchedcompleted 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.2019.
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
Note 12.13. 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, and paper. As of the second quarter of 2020, the results from our newsprint and specialty papers.papers operations have been combined to form the paper reportable segment. This better reflects management’s internal analysis, given the diminishing percentage newsprint and specialty papers represent in our product portfolio. Comparative year information has been modified to conform to this revised segment presentation.
None of the income or loss items following “Operating income”income (loss)” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, as well as other discretionary charges or credits are not allocated to our segments. We allocate depreciation and amortization expense to our segments, although the related fixed assets and amortizable intangible assets are not allocated to segment assets. Additionally, all selling, general and administrative expenses are allocated to our segments, with the exception of certain discretionary charges and credits, which we present under “corporate and other.”
Information about certain segment data for the three and six months ended June 30, 20192020 and 2018,2019, was as follows:
| | (Unaudited, in millions) | Market Pulp (1) | Tissue (2) | Wood Products (3) | Newsprint | Specialty Papers | Segment Total | Corporate and Other | Total | Market Pulp (1) | Tissue | Wood Products (2) | Paper | Segment Total | Corporate and Other | Total |
Sales | Sales | | | | | | | | | | | | | | | | Sales | | | | | | | | | | | | | |
Second quarter | Second quarter | | | | | | | | | | | | | | | | Second quarter | | | | | | | | | | | | | |
2020 | | $ | 161 |
| | $ | 44 |
| | $ | 199 |
| | $ | 208 |
| | $ | 612 |
| | $ | — |
| | $ | 612 |
| |
2019 | $ | 189 |
| | $ | 43 |
| | $ | 168 |
| | $ | 209 |
| | $ | 146 |
| | $ | 755 |
| | $ | — |
| | $ | 755 |
| | $ | 189 |
| | $ | 43 |
| | $ | 168 |
| | $ | 355 |
| | $ | 755 |
| | $ | — |
| | $ | 755 |
| |
2018 | | 264 |
| | 35 |
| | 254 |
| | 230 |
| | 193 |
| | 976 |
| | — |
| | 976 |
| | |
First six months | First six months | | | | | | | | | | | | | | | | First six months | | | | | | | | | | | | | |
2020 | | $ | 338 |
| | $ | 93 |
| | $ | 373 |
| | $ | 497 |
| | $ | 1,301 |
| | $ | — |
| | $ | 1,301 |
| |
2019 | | 420 |
| | 82 |
| | 329 |
| | 421 |
| | 298 |
| | 1,550 |
| | — |
| | 1,550 |
| | $ | 420 |
| | $ | 82 |
| | $ | 329 |
| | $ | 719 |
| | $ | 1,550 |
| | $ | — |
| | $ | 1,550 |
| |
2018 | | 521 |
| | 57 |
| | 463 |
| | 428 |
| | 381 |
| | 1,850 |
| | — |
| | 1,850 |
| | |
Depreciation and amortization | Depreciation and amortization | | | | | | | | | | | | | | Depreciation and amortization | | | | | | | | | | | |
Second quarter | Second quarter | | | | | | | | | | | | | | | | Second quarter | | | | | | | | | | | | | |
2020 | | $ | 6 |
| | $ | 5 |
| | $ | 10 |
| | $ | 16 |
| | $ | 37 |
| | $ | 3 |
| | $ | 40 |
| |
2019 | $ | 5 |
| | $ | 4 |
| | $ | 9 |
| | $ | 8 |
| | $ | 11 |
| | $ | 37 |
| | $ | 5 |
| | $ | 42 |
| | $ | 5 |
| | $ | 4 |
| | $ | 9 |
| | $ | 19 |
| | $ | 37 |
| | $ | 5 |
| | $ | 42 |
| |
2018 | | 8 |
| | 5 |
| | 7 |
| | 17 |
| | 12 |
| | 49 |
| | 5 |
| | 54 |
| | |
First six months | First six months | | | First six months | | | | | |
2020 | | $ | 12 |
| | $ | 9 |
| | $ | 21 |
| | $ | 33 |
| | $ | 75 |
| | $ | 7 |
| | $ | 82 |
| |
2019 | | 10 |
| | 9 |
| | 17 |
| | 15 |
| | 21 |
| | 72 |
| | 10 |
| | 82 |
| | $ | 10 |
| | $ | 9 |
| | $ | 17 |
| | $ | 36 |
| | $ | 72 |
| | $ | 10 |
| | $ | 82 |
| |
2018 | | 15 |
| | 6 |
| | 15 |
| | 33 |
| | 24 |
| | 93 |
| | 14 |
| | 107 |
| | |
Operating income (loss) | Operating income (loss) | | | | | | | | | | | | | | | | Operating income (loss) | | | | | | | | | | | | | |
Second quarter | Second quarter | | | | | | | | | | | | | | | | Second quarter | | | | | | | | | | | | | |
2020 | | $ | 10 |
| | $ | (2 | ) | | $ | 15 |
| | $ | (12 | ) | | $ | 11 |
| | $ | (5 | ) | | $ | 6 |
| |
2019 | $ | 27 |
| | $ | (4 | ) | | $ | (3 | ) | | $ | 17 |
| | $ | 15 |
| | $ | 52 |
| | $ | (12 | ) | | $ | 40 |
| | $ | 27 |
| | $ | (4 | ) | | $ | (3 | ) | | $ | 32 |
| | $ | 52 |
| | $ | (12 | ) | | $ | 40 |
| |
2018 | | 41 |
| | (10 | ) | | 79 |
| | 18 |
| | 4 |
| | 132 |
| | (11 | ) | | 121 |
| | |
First six months | First six months | | | | | | | | | | | | | | | | First six months | | | | | | | | | | | | | |
2020 | | $ | 7 |
| | $ | — |
| | $ | 20 |
| | $ | (15 | ) | | $ | 12 |
| | $ | (14 | ) | | $ | (2 | ) | |
2019 | | 69 |
| | (12 | ) | | 3 |
| | 45 |
| | 30 |
| | 135 |
| | (31 | ) | | 104 |
| | $ | 69 |
| | $ | (12 | ) | | $ | 3 |
| | $ | 75 |
| | $ | 135 |
| | $ | (31 | ) | | $ | 104 |
| |
2018 | | 74 |
| | (11 | ) | | 132 |
| | 14 |
| | (3 | ) | | 206 |
| | (37 | ) | | 169 |
| | |
| |
(1) | Inter-segment sales of $11$7 million and $9$11 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $22$14 million and $19$22 million for the six months ended June 30, 2020 and 2019, and 2018, which arewere transacted either at the lowest market price of the previous month or 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 $6$5 million and $8$6 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $11$10 million and $16$11 million for the six months ended June 30, 20192020 and 2018, respectively.2019. |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
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 six months ended June 30, 2019 and 2018, the Balance Sheets as of June 30, 2019 and December 31, 2018, and the Statements of Cash Flows for the six months ended June 30, 2019 and 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 (LOSS) |
For the Three Months Ended June 30, 2019 |
(Unaudited, in millions) | Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidating Adjustments | Consolidated |
Sales | $ | — |
| | $ | 613 |
| | $ | 569 |
| | $ | (427 | ) | | $ | 755 |
| |
Costs and expenses: | | | | | | | | | | | | | | | |
Cost of sales, excluding depreciation, amortization and distribution costs | | — |
| | | 599 |
| | | 371 |
| | | (434 | ) | | | 536 |
| |
Depreciation and amortization | | — |
| | | 9 |
| | | 33 |
| | | — |
| | | 42 |
| |
Distribution costs | | — |
| | | 23 |
| | | 76 |
| | | 2 |
| | | 101 |
| |
Selling, general and administrative expenses | | 4 |
| | | 15 |
| | | 17 |
| | | — |
| | | 36 |
| |
Operating (loss) income | | (4 | ) | | | (33 | ) | | | 72 |
| | | 5 |
| | | 40 |
| |
Interest expense | | (17 | ) | | | — |
| | | (2 | ) | | | 12 |
| | | (7 | ) | |
Non-operating pension and other postretirement benefit credits | | — |
| | | 2 |
| | | 10 |
| | | — |
| | | 12 |
| |
Other income (expense), net | | — |
| | | 15 |
| | | (4 | ) | | | (12 | ) | | | (1 | ) | |
Equity in income of subsidiaries | | 46 |
| | | 7 |
| | | — |
| | | (53 | ) | | | — |
| |
Income (loss) before income taxes | | 25 |
| | | (9 | ) | | | 76 |
| | | (48 | ) | | | 44 |
| |
Income tax provision | | — |
| | | — |
| | | (18 | ) | | | (1 | ) | | | (19 | ) | |
Net income (loss) including noncontrolling interests | | 25 |
| | | (9 | ) | | | 58 |
| | | (49 | ) | | | 25 |
| |
Net income attributable to noncontrolling interests | | — |
| | | — |
| | | — |
| | | — |
| | | — |
| |
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 |
| |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
For the Six Months Ended June 30, 2019 |
(Unaudited, in millions) | Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidating Adjustments | Consolidated |
Sales | $ | — |
| | $ | 1,285 |
| | $ | 1,166 |
| | $ | (901 | ) | | $ | 1,550 |
| |
Costs and expenses: | | | | | | | | | | | | | | | |
Cost of sales, excluding depreciation, amortization and distribution costs | | — |
| | | 1,247 |
| | | 742 |
| | | (899 | ) | | | 1,090 |
| |
Depreciation and amortization | | — |
| | | 19 |
| | | 63 |
| | | — |
| | | 82 |
| |
Distribution costs | | — |
| | | 49 |
| | | 155 |
| | | (3 | ) | | | 201 |
| |
Selling, general and administrative expenses | | 10 |
| | | 24 |
| | | 39 |
| | | — |
| | | 73 |
| |
Operating (loss) income | | (10 | ) | | | (54 | ) | | | 167 |
| | | 1 |
| | | 104 |
| |
Interest expense | | (34 | ) | | | (2 | ) | | | (6 | ) | | | 26 |
| | | (16 | ) | |
Non-operating pension and other postretirement benefit credits | | — |
| | | 5 |
| | | 19 |
| | | — |
| | | 24 |
| |
Other (expense) income, net | | (3 | ) | | | 32 |
| | | (8 | ) | | | (26 | ) | | | (5 | ) | |
Equity in income of subsidiaries | | 114 |
| | | 18 |
| | | — |
| | | (132 | ) | | | — |
| |
Income (loss) before income taxes | | 67 |
| | | (1 | ) | | | 172 |
| | | (131 | ) | | | 107 |
| |
Income tax provision | | — |
| | | — |
| | | (40 | ) | | | — |
| | | (40 | ) | |
Net income (loss) including noncontrolling interests | | 67 |
| | | (1 | ) | | | 132 |
| | | (131 | ) | | | 67 |
| |
Net income attributable to noncontrolling interests | | — |
| | | — |
| | | — |
| | | — |
| | | — |
| |
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 |
| |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME |
For the Three Months Ended June 30, 2018 |
(Unaudited, in millions) | Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidating Adjustments | Consolidated |
Sales | $ | — |
| | $ | 731 |
| | $ | 674 |
| | $ | (429 | ) | | $ | 976 |
| |
Costs and expenses: | | | | | | | | | | | | | | | |
Cost of sales, excluding depreciation, amortization and distribution costs | | — |
| | | 666 |
| | | 396 |
| | | (423 | ) | | | 639 |
| |
Depreciation and amortization | | — |
| | | 21 |
| | | 33 |
| | | — |
| | | 54 |
| |
Distribution costs | | — |
| | | 38 |
| | | 85 |
| | | — |
| | | 123 |
| |
Selling, general and administrative expenses | | 7 |
| | | 14 |
| | | 21 |
| | | — |
| | | 42 |
| |
Closure costs, impairment and other related charges | | — |
| | | — |
| | | 1 |
| | | — |
| | | 1 |
| |
Net gain on disposition of assets | | — |
| | | — |
| | | (4 | ) | | | — |
| | | (4 | ) | |
Operating (loss) income | | (7 | ) | | | (8 | ) | | | 142 |
| | | (6 | ) | | | 121 |
| |
Interest expense | | (24 | ) | | | (1 | ) | | | (3 | ) | | | 17 |
| | | (11 | ) | |
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 | | — |
| | | — |
| | | (48 | ) | | | 1 |
| | | (47 | ) | |
Net income including noncontrolling interests | | 72 |
| | | 41 |
| | | 95 |
| | | (136 | ) | | | 72 |
| |
Net income attributable to noncontrolling interests | | — |
| | | — |
| | | — |
| | | — |
| | | — |
| |
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 |
| |
RESOLUTE FOREST PRODUCTS INC.
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 |
| |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING BALANCE SHEET |
As of June 30, 2019 |
(Unaudited, in millions) | Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidating Adjustments | Consolidated |
Assets | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 91 |
| | $ | 7 |
| | $ | — |
| | $ | 98 |
| |
Accounts receivable, net | | — |
| | | 270 |
| | | 130 |
| | | — |
| | | 400 |
| |
Accounts receivable from affiliates | | — |
| | | 248 |
| | | 748 |
| | | (996 | ) | | | — |
| |
Inventories, net | | — |
| | | 214 |
| | | 328 |
| | | (12 | ) | | | 530 |
| |
Advance and interest receivable from parent | | — |
| | | 66 |
| | | — |
| | | (66 | ) | | | — |
| |
Interest receivable from affiliate | | — |
| | | 4 |
| | | — |
| | | (4 | ) | | | — |
| |
Other current assets | | — |
| | | 16 |
| | | 26 |
| | | — |
| | | 42 |
| |
Total current assets | | — |
| | | 909 |
| | | 1,239 |
| | | (1,078 | ) | | | 1,070 |
| |
Fixed assets, net | | — |
| | | 525 |
| | | 954 |
| | | — |
| | | 1,479 |
| |
Amortizable intangible assets, net | | — |
| | | 3 |
| | | 47 |
| | | — |
| | | 50 |
| |
Deferred income tax assets | | — |
| | | 1 |
| | | 865 |
| | | 3 |
| | | 869 |
| |
Operating lease right-of-use assets | | — |
| | | 29 |
| | | 34 |
| | | — |
| | | 63 |
| |
Notes receivable from parent | | — |
| | | 1,264 |
| | | — |
| | | (1,264 | ) | | | — |
| |
Note receivable from affiliate | | — |
| | | 111 |
| | | — |
| | | (111 | ) | | | — |
| |
Investments in consolidated subsidiaries and affiliates | | 3,875 |
| | | 2,083 |
| | | — |
| | | (5,958 | ) | | | — |
| |
Other assets | | — |
| | | 158 |
| | | 63 |
| | | — |
| | | 221 |
| |
Total assets | $ | 3,875 |
| | $ | 5,083 |
| | $ | 3,202 |
| | $ | (8,408 | ) | | $ | 3,752 |
| |
Liabilities and equity | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | 10 |
| | $ | 122 |
| | $ | 244 |
| | $ | — |
| | $ | 376 |
| |
Current portion of long-term debt | | — |
| | | 1 |
| | | — |
| | | — |
| | | 1 |
| |
Current portion of operating lease liabilities | | — |
| | | 4 |
| | | 4 |
| | | — |
| | | 8 |
| |
Accounts payable to affiliates | | 257 |
| | | 784 |
| | | — |
| | | (1,041 | ) | | | — |
| |
Advance and interest payable to subsidiaries | | 66 |
| | | — |
| | | — |
| | | (66 | ) | | | — |
| |
Interest payable to affiliate | | — |
| | | — |
| | | 4 |
| | | (4 | ) | | | — |
| |
Total current liabilities | | 333 |
| | | 911 |
| | | 252 |
| | | (1,111 | ) | | | 385 |
| |
Long-term debt, net of current portion | | 370 |
| | | 52 |
| | | — |
| | | — |
| | | 422 |
| |
Notes payable to subsidiaries | | 1,264 |
| | | — |
| | | — |
| | | (1,264 | ) | | | — |
| |
Note payable to affiliate | | — |
| | | — |
| | | 111 |
| | | (111 | ) | | | — |
| |
Pension and other postretirement benefit obligations | | — |
| | | 330 |
| | | 901 |
| | | — |
| | | 1,231 |
| |
Operating lease liabilities, net of current portion | | — |
| | | 26 |
| | | 33 |
| | | — |
| | | 59 |
| |
Other liabilities | | — |
| | | 22 |
| | | 33 |
| | | — |
| | | 55 |
| |
Total liabilities | | 1,967 |
| | | 1,341 |
| | | 1,330 |
| | | (2,486 | ) | | | 2,152 |
| |
Total equity | | 1,908 |
| | | 3,742 |
| | | 1,872 |
| | | (5,922 | ) | | | 1,600 |
| |
Total liabilities and equity | $ | 3,875 |
| | $ | 5,083 |
| | $ | 3,202 |
| | $ | (8,408 | ) | | $ | 3,752 |
| |
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 |
| |
RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
For the Six Months Ended June 30, 2019 |
(Unaudited, in millions) | Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Consolidating Adjustments | Consolidated |
Net cash provided by operating activities | $ | — |
| | $ | 64 |
| | $ | 31 |
| | $ | — |
| | $ | 95 |
| |
Cash flows from investing activities: | | | | | | | | | | | | | | | |
Cash invested in fixed assets | | — |
| | | (19 | ) | | | (26 | ) | | | — |
| | | (45 | ) | |
Disposition of assets | | — |
| | | 2 |
| | | — |
| | | — |
| | | 2 |
| |
Decrease in countervailing duty cash deposits on supercalendered paper | | — |
| | | 1 |
| | | — |
| | | — |
| | | 1 |
| |
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber | | — |
| | | (33 | ) | | | — |
| | | — |
| | | (33 | ) | |
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 | | — |
| | | (273 | ) | | | (26 | ) | | | 230 |
| | | (69 | ) | |
Cash flows from financing activities: | | | | | | | | | | | | | | | |
Payments of debt | | (225 | ) | | | — |
| | | — |
| | | — |
| | | (225 | ) | |
Purchases of treasury stock | | (5 | ) | | | — |
| | | — |
| | | — |
| | | (5 | ) | |
Payments of financing and credit facility fees | | — |
| | | (1 | ) | | | (1 | ) | | | — |
| | | (2 | ) | |
Increase in notes payable to and advance from subsidiaries | | 230 |
| | | — |
| | | — |
| | | (230 | ) | | | — |
| |
Net cash used in financing activities | | — |
| | | (1 | ) | | | (1 | ) | | | (230 | ) | | | (232 | ) | |
Effect of exchange rate changes on cash and cash equivalents, and restricted cash | | — |
| | | — |
| | | 1 |
| | | — |
| | | 1 |
| |
Net (decrease) increase in cash and cash equivalents, and restricted cash | | — |
| | | (210 | ) | | | 5 |
| | | — |
| | | (205 | ) | |
Cash and cash equivalents, and restricted cash: | | | | | | | | | | | | | | | |
Beginning of period | | — |
| | | 306 |
| | | 39 |
| | | — |
| | | 345 |
| |
End of period | $ | — |
| | $ | 96 |
| | $ | 44 |
| | $ | — |
| | $ | 140 |
| |
Cash and cash equivalents, and restricted cash at period end: | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 91 |
| | $ | 7 |
| | $ | — |
| | $ | 98 |
| |
Restricted cash | | — |
| | | 5 |
| | | 37 |
| | | — |
| | | 42 |
| |
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 |
| |
| |
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“Financial Statements,” of this Quarterly Report on Form 10-Q (or, “Form 10-Q”).
When we refer to “Resolute Forest Products,” “Resolute,” “we,” “our,” “us” or the “Company,” we mean Resolute Forest Products Inc. with its subsidiaries, either individually or collectively, unless otherwise indicated.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF 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 the impact of the novel coronavirus (or, “COVID-19”) pandemic and resulting economic conditions on our business, results of operations and market price of our securities, and to our: efforts and initiatives to reduce costs, and increase revenues, and improve profitability; business and operating outlook; future pension obligations; assessment of market conditions; growth strategies and prospects, and the growth potential of the Company and the industry in which we operate; liquidity; future cash flows, including as a result of the changes to our pension funding obligations; estimated capital expenditures; and strategies for achieving our goals generally. Forward-looking statements may be identified by the use of forward-looking terminology such as the words “should,” “would,” “could,” “will,” “may,” “expect,” “believe,” “see,” “anticipate,” “continue,” “attempt,” “project,” “progress,” “build,” “pursue,” “plan,” “grow” 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: the COVID-19 pandemic and resulting economic conditions; developments in non-print media, and the effectiveness of our responses to these developments; intense competition in the forest products industry; any inability to offer products certified to globally recognized forestry management and chain of custody standards; any inability to successfully implement our strategies to increase our earnings power; the possible failure to successfully integrate acquired businesses with ours or to realize the anticipated benefits of acquisitions, such as our entry into wood manufacturing in the U.S., and tissue production and sales, or divestitures or other strategic transactions or projects;projects, including loss of synergies following business divestitures; uncertainty or changes in political or economic conditions in the United States,U.S., Canada or other countries in which we sell our products;products, including the effects of pandemics; 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;disputes or occupational health and safety issues; difficulties in our employee relations or in employee attraction or retention; disruptions to our supply chain, operations, or the delivery of our products;products, including due to public health epidemics; disruptions to our information technology systems including cybersecurity incidents; risks related to the operation and transition of legacy system applications; negative publicity, even if unjustified; currency fluctuations; any increase in the level of required contributions to our pension plans, including as a result of any increase in the amount by which they are underfunded; our ability to maintain adequate capital resources to provide for all of our substantial capital requirements; the terms of our outstanding indebtedness, which could restrict our current and future operations; changes relating to the London Interbank Offered Rate, which could impact our borrowings under our credit facilities; losses that are not covered by insurance; any shutdown of machines or facilities, restructuring of operations or sale of assets resulting in any additional closure costs and long-lived asset impairment or accelerated depreciation charges; any need to record additional valuation allowances against our recorded deferred income tax assets; our exports from one country to another country becoming or remaining subject to duties, cash deposit requirements, border taxes, quotas, or other trade remedies or restrictions; countervailing and anti-dumping duties on imports to the U.S. of substantially allthe vast majority of our softwood lumber products produced at our Canadian sawmills; any failure to comply with laws or regulations generally; any additional environmental or health and safety liabilities; any violation of trade laws, export controls, or other laws relating to our international sales and operations; adverse outcomes of legal proceedings, claims and governmental inquiries, investigations, and other disputes in which we are involved; the actions of holders of a significant percentage of our common stock; and the potential risks and uncertainties set forth under Part I, Item 1A, “Risk Factors,” of our annual report on Form 10-K for the year ended December 31, 2018,2019, filed with the U.S. Securities and Exchange Commission or(or, the “SEC”,) on March 1, 20192, 2020 (or, the
“20182019 Annual Report”)., which have been heightened by the COVID-19 pandemic, including related governmental responses and economic impacts, market disruptions and changes in consumer habits, and which should be read in conjunction with the COVID-19 pandemic risk factor update further set forth in Part II, Item 1A, “Risk Factors,” in this Form 10-Q.
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.
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,paper, which are marketed in close to 70 countries. The Company owns or operates some 40 facilities, as well as power generation assets, in the U.S. and Canada. We are the largest Canadian producer of wood products east of the Canadian Rockies, and a competitive pulp producer in North America. By capacity, we are the number one producer of newsprint in the world and the largest producer of uncoated mechanical papers in North America, and a competitive pulp producer in North America. We are also a leading global producer of newsprint and an emerging tissue producer.
We report our activities in fivefour business segments: market pulp, tissue, wood products, newsprint, and specialty papers.paper. We believe an integrated approach across these segments maximizes value creation for our Company and stakeholders.
We are guided by our vision and values, focusing on safety, sustainability, profitability, accountability, and teamwork. We believe we can be distinguished by the following competitive strengths:
Competitive cost structure combined with diversified and integrated asset base
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– | large-scale efficient and cost-effective operations;operations, including significant internal energy production from cogeneration and hydroelectric facilities, which support our value proposition; |
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– | accesscontrol over fiber transformation chain from standing timber to renewableend-product for the majority of our offering; |
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– | nearly 100% of our products sourced from high-quality virgin fiber; |
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– | significant internal energy production from cogenerationharvesting rights for the majority of fiber needs in Canada; and hydroelectric facilities; |
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– | 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;sophisticated logistics capabilities to meet demanding customer expectations. |
Solid balance sheet
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– | strategically located mills, including economical access to international markets; |
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– | competitive selling, generalfavorable pricing and administrative expenses (or “SG&A”) to sales ratio;
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– | flexibility under borrowing agreements together with our liquidity levels support our ability to optimize staffing acrossweather challenging market cycles and to execute our various operations; andtransformation strategy; |
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– | significant tax assets that helpto defer cash income taxes and provide synergies in the execution of our growthto execute this strategy; and diversification strategy. |
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•– | Strong balance sheet – our low debt, which has favorable pricingcustomers benefit from a financially stable and flexibility, combinedreliable business partner in a challenging industry.
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Seasoned management team
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– | deep industry expertise, with strong liquidity levels, provide us with the ability to execute our strategy, particularly the continued transformation to a more profitableinfluential leaders in forestry, operations, environmental risk management and sustainable company for the long term.public policy; |
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•– | Seasoned management team – our senior management team has many yearsculture of experience in the pulp, tissue, wood products,accountability, encouraging transparency 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 rolestraightforwardness; and accountabilities, improving the link between compensation and individual performance, and improving our succession planning process.
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– | core identity tied to renewable resources we harvest in a truly sustainable manner. |
Our Business
For information relating to our products, strategy and highlights, sustainable development and performance, and power generation assets, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Our Business” in our 20182019 Annual Report.
Second Quarter Overview
Five-year extensionImpact of ABL Credit Facilitythe COVID-19 pandemic
We have sustained operations across all of our business segments through the COVID-19 pandemic, but we had to take certain measures in the face of the dramatic reduction in economic activity, particularly for marketing-dependent products like newspapers, inserts, flyers and commercial paper. In particular, we continue to focus on key short-term priorities, including: operating under rigorous protocols around the health and safety of our employees, contractors and suppliers; reducing our paper production consistent with the dramatic decrease in economic activity affecting demand; maintaining disciplined liquidity management; monitoring customer credit risk; and controlling spending around selling, general and administrative (or, “SG&A”) expenses and capital expenditures.
Specifically, as of the end of the second quarter, we reduced our operational footprint by temporarily idling paper machines representing in aggregate 29% of our run-rate capacity (equivalent to 49,000 metric tons per month). This decision led to workforce reductions and spending limitations or deferrals.
Business acquisition
On May 14, 2019,February 1, 2020, we entered into an amendment toacquired from Conifex Timber Inc. all of the credit agreement dated May 22, 2015, for a senior secured asset-based revolving credit facilityequity securities and membership interests in certain of its subsidiaries, the business of which consists mainly in the operation of three sawmills and related assets in Cross City (Florida) and in Glenwood and El Dorado (Arkansas) (or, the “ABL Credit FacilityU.S. Sawmill Business”). The amended credit agreement providesU.S. Sawmill Business acquired produces construction-grade dimensional lumber and decking products from locally-sourced southern yellow pine for an extensiondistribution within the U.S.
The fair value of the maturity dateconsideration, paid in cash, for the U.S. Sawmill Business acquired was $173 million. For more information, see Note 2, “Business Acquisition,” to May 14, 2024, with an aggregate lender commitment of $500 million at any time outstanding, representing a voluntary reduction of $100 million.
Share repurchase program
During the second quarter of 2019, we repurchased 0.7 million shares, at a cost of $5 million under our share repurchase program.Consolidated Financial Statements.
Three months ended June 30, 20192020 vs. June 30, 20182019
Our operating income was $40$6 million in the quarter, compared to $121operating income of $40 million in the second quarter of 2018.2019. Excluding special items, we generatedincurred an operating loss of $3 million, compared to operating income of $40 million, compared to $118 million in the year-ago period. Special items are described below.
Our net income in the quarter was $25$6 million, or $0.27$0.07 per diluted share, compared to $72net income of $25 million, or $0.77$0.27 per diluted share, in the year-ago period. Our net incomeloss in the quarter, excluding special items, was $22 million, or $0.25 per share, compared to net income of $11 million, or $0.12 per diluted share, compared to $66 million, or $0.71 per diluted share, in the year-ago period.
| | Three Months Ended June 30, 2019 | Operating Income (Loss) | Net Income (Loss) | EPS | | | |
Three Months Ended June 30, 2020 | Operating Income (Loss) | Net Income (Loss) | EPS | | |
(Unaudited, in millions, except per share amounts) | Operating Income (Loss) | Net Income (Loss) | EPS | | |
GAAP, as reported | $ | 6 |
| | $ | 6 |
| | $ | 0.07 |
| |
Adjustments for special items: | | | | | | | | | | | | | | |
Foreign exchange loss | | — |
| | 6 |
| | 0.06 |
| | |
Net gain on disposition of assets | | | (9 | ) | | (9 | ) | | (0.10 | ) | |
Non-operating pension and other postretirement benefit credits | | — |
| | (12 | ) | | (0.13 | ) | | | — |
| | (4 | ) | | (0.05 | ) | |
Other income, net | | — |
| | (5 | ) | | (0.05 | ) | | | — |
| | (10 | ) | | (0.11 | ) | |
Income tax effect of special items | | — |
| | (3 | ) | | (0.03 | ) | | | — |
| | (5 | ) | | (0.06 | ) | |
Adjusted for special items (1) | $ | 40 |
| | $ | 11 |
| | $ | 0.12 |
| | $ | (3 | ) | | $ | (22 | ) | | $ | (0.25 | ) | |
| | Three Months Ended June 30, 2018 | Operating Income (Loss) | Net Income (Loss) | EPS | | | |
Three Months Ended June 30, 2019 | Operating Income | Net Income | EPS | | |
(Unaudited, in millions, except per share amounts) | Operating Income (Loss) | Net Income (Loss) | EPS | | |
GAAP, as reported | $ | 40 |
| | $ | 25 |
| | $ | 0.27 |
| |
Adjustments for special items: | | | | | | | | | | | | | | |
Foreign exchange loss | | — |
| | 1 |
| | 0.01 |
| | |
Closure costs, impairment and other related charges | | 1 |
| | 1 |
| | 0.01 |
| | |
Net gain on disposition of assets | | (4 | ) | | (4 | ) | | (0.04 | ) | | |
Non-operating pension and other postretirement benefit credits | | — |
| | (12 | ) | | (0.13 | ) | | | — |
| | (12 | ) | | (0.13 | ) | |
Other expense, net | | — |
| | 2 |
| | 0.02 |
| | | — |
| | 1 |
| | 0.01 |
| |
Income tax effect of special items | | — |
| | 6 |
| | 0.07 |
| | | — |
| | (3 | ) | | (0.03 | ) | |
Adjusted for special items (1) | $ | 118 |
| | $ | 66 |
| | $ | 0.71 |
| | $ | 40 |
| | $ | 11 |
| | $ | 0.12 |
| |
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(1) | Operating income (loss), net income (loss) and net income (loss) per share (or, “EPS”), in each case as adjusted for special items, are not financial measures recognized under U.S. generally accepted accounting principles (or, “GAAP”). We calculate operating income (loss), as adjusted for special items, as operating income (loss) from our Consolidated Statements of Operations, adjusted for items such as closure costs, impairment, and other related charges, inventory write-downs related to closures, start-up costs,and gains and losses on disposition of assets 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 gainsnon-operating pension and losses, non-other postretirement benefit (or, “OPEB”) costs and credits, other income and expense, net, and the income tax effect of the special items. EPS, as adjusted for special items, is calculated as net income (loss), as adjusted for special items, per diluted share. We believe that using these non-GAAP measures is useful because they are consistent with the indicators management uses internally to measure the Company’s performance, and it allows the reader to compare our operations and financial performance from period to period. Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items, are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP. |
Six months ended June 30, 2020 vs. June 30, 2019
Our operating loss was $2 million in the first half of the year, compared to operating income of $104 million in the year-ago period. Excluding special items, we incurred an operating loss of $13 million, compared to operating income of $104 million in the year-ago period. Special items are described below.
Our net income in the first half of the year was $5 million, or $0.06 per diluted share, compared to net income of $67 million, or $0.71 per diluted share, in the year-ago period. Our net loss in the period, excluding special items, was $51 million, or $0.57 per share, compared to net income of $41 million, or $0.44 per diluted share, in the year-ago period.
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Six Months Ended June 30, 2020 | Operating Loss | Net Income (Loss) | EPS | | |
(Unaudited, in millions, except per share amounts) |
GAAP, as reported | $ | (2 | ) | | $ | 5 |
| | $ | 0.06 |
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Adjustments for special items: | | | | | | | | | |
Closure costs, impairment and other related charges | | (2 | ) | | | (2 | ) | | | (0.02 | ) | |
Net gain on disposition of assets | | (9 | ) | | | (9 | ) | | | (0.10 | ) | |
Non-operating pension and other postretirement benefit credits | | — |
| | | (19 | ) | | | (0.22 | ) | |
Other income, net | | — |
| | | (38 | ) | | | (0.43 | ) | |
Income tax effect of special items | | — |
| | | 12 |
| | | 0.14 |
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Adjusted for special items (1) | $ | (13 | ) | | $ | (51 | ) | | $ | (0.57 | ) | |
operating pension and other postretirement benefit (or “OPEB”) costs and credits, other income and expense, net, and the income tax effect of the special items. EPS, as adjusted for special items, is calculated as net income (loss), as adjusted for special items, per diluted share. We believe that using these non-GAAP measures is useful because they are consistent with the indicators management uses internally to measure the Company’s performance, and it allows the reader to 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.
Six months ended June 30, 2019 vs. June 30, 2018
Our operating income was $104 million in the first half of the year, compared to $169 million in the year-ago period. Excluding special items, we generated operating income of $104 million, compared to $173 million in the year-ago period. Special items are described below.
Our net income in the first half of the year was $67 million, or $0.71 per diluted share, compared to $82 million or $0.88 per diluted share in the year-ago period. Our net income in the period, excluding special items, was $41 million, or $0.44 per diluted share, compared to $83 million, or $0.89 per diluted share, in the year-ago period.
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| | | | | | | | | | | | |
Six Months Ended June 30, 2019 | Operating Income (Loss) | Net Income (Loss) | EPS | | |
(Unaudited, in millions, except per share amounts) |
GAAP, as reported | $ | 104 |
| | $ | 67 |
| | $ | 0.71 |
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Adjustments for special items: | | | | | | | | | |
Foreign exchange loss | | — |
| | | 10 |
| | | 0.11 |
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Non-operating pension and other postretirement benefit credits | | — |
| | | (24 | ) | | | (0.26 | ) | |
Other income, net | | — |
| | | (5 | ) | | | (0.05 | ) | |
Income tax effect of special items | | — |
| | | (7 | ) | | | (0.07 | ) | |
Adjusted for special items (1) | $ | 104 |
| | $ | 41 |
| | $ | 0.44 |
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| | Six Months Ended June 30, 2018 | Operating Income (Loss) | Net Income (Loss) | EPS | | | |
Six Months Ended June 30, 2019 | Operating Income | Net Income | EPS | | |
(Unaudited, in millions, except per share amounts) | Operating Income (Loss) | Net Income (Loss) | EPS | | |
GAAP, as reported | $ | 104 |
| | $ | 67 |
| | $ | 0.71 |
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Adjustments for special items: | | | | | | | | | | | | | | |
Foreign exchange loss | | — |
| | 2 |
| | 0.02 |
| | |
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 | ) | | (0.05 | ) | | |
Non-operating pension and other postretirement benefit credits | | — |
| | (25 | ) | | (0.27 | ) | | | — |
| | (24 | ) | | (0.26 | ) | |
Other expense, net | | — |
| | 8 |
| | 0.09 |
| | | — |
| | 5 |
| | 0.06 |
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Income tax effect of special items | | — |
| | 12 |
| | 0.13 |
| | | — |
| | (7 | ) | | (0.07 | ) | |
Adjusted for special items (1) | $ | 173 |
| | $ | 83 |
| | $ | 0.89 |
| | $ | 104 |
| | $ | 41 |
| | $ | 0.44 |
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(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 – Second Quarter Overview” above. |
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.
RESULTS OF OPERATIONS
Consolidated Results
Selected financial information
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except per share amounts) | 2019 | 2018 | | 2019 | 2018 | 2020 | 2019 | | 2020 | 2019 |
Sales | $ | 755 |
| | $ | 976 |
| | $ | 1,550 |
| | $ | 1,850 |
| | $ | 612 |
| | $ | 755 |
| | $ | 1,301 |
| | $ | 1,550 |
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Operating income (loss) per segment: | | | | | | | | | | | | | | | | | | |
Market pulp | | 27 |
| | 41 |
| | 69 |
| | 74 |
| | $ | 10 |
| | $ | 27 |
| | $ | 7 |
| | $ | 69 |
| |
Tissue | | (4 | ) | | (10 | ) | | (12 | ) | | (11 | ) | | | (2 | ) | | (4 | ) | | — |
| | (12 | ) | |
Wood products | | (3 | ) | | 79 |
| | 3 |
| | 132 |
| | | 15 |
| | (3 | ) | | 20 |
| | 3 |
| |
Newsprint | | 17 |
| | 18 |
| | 45 |
| | 14 |
| | |
Specialty papers | | 15 |
| | 4 |
| | 30 |
| | (3 | ) | | |
Paper | | | (12 | ) | | 32 |
| | (15 | ) | | 75 |
| |
Segment total | | 52 |
| | 132 |
| | 135 |
| | 206 |
| | | 11 |
| | 52 |
| | 12 |
| | 135 |
| |
Corporate and other | | (12 | ) | | (11 | ) | | (31 | ) | | (37 | ) | | | (5 | ) | | (12 | ) | | (14 | ) | | (31 | ) | |
Operating income | | 40 |
| | 121 |
| | 104 |
| | 169 |
| | |
Operating income (loss) | | $ | 6 |
| | $ | 40 |
| | $ | (2 | ) | | $ | 104 |
| |
Net income attributable to Resolute Forest Products Inc. | | 25 |
| | 72 |
| | 67 |
| | 82 |
| | $ | 6 |
| | $ | 25 |
| | $ | 5 |
| | $ | 67 |
| |
Net income per common share attributable to Resolute Forest Products Inc. common shareholders: | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.79 |
| | $ | 0.73 |
| | $ | 0.90 |
| | $ | 0.07 |
| | $ | 0.27 |
| | $ | 0.06 |
| | $ | 0.73 |
| |
Diluted | | 0.27 |
| | 0.77 |
| | 0.71 |
| | 0.88 |
| | $ | 0.07 |
| | $ | 0.27 |
| | $ | 0.06 |
| | $ | 0.71 |
| |
Adjusted EBITDA (1) | $ | 82 |
| | $ | 172 |
| | $ | 186 |
| | $ | 280 |
| | $ | 37 |
| | $ | 82 |
| | $ | 69 |
| | $ | 186 |
| |
| | (Unaudited, in millions) | June 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
Cash and cash equivalents | $ | 98 |
| | $ | 304 |
| | $ | 27 |
| | $ | 3 |
| |
Total assets | | 3,752 |
| | 3,935 |
| | $ | 3,667 |
| | $ | 3,626 |
| |
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(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 interestsinterest 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, closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, non-operating pension and OPEB costs and credits, and other charges or credits.income and expense, net. We believe that using non-GAAP measures such as EBITDA and adjusted EBITDA is useful because they are consistent with the indicators management uses internally to measure the Company’s performance and it allows the reader to 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 June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | | 2019 | | | 2018 | | |
Net income including noncontrolling interests | $ | 25 |
| | $ | 72 |
| | | $ | 67 |
| | $ | 82 |
| |
Interest expense | | 7 |
| | | 11 |
| | | | 16 |
| | | 24 |
| |
Income tax provision | | 19 |
| | | 47 |
| | | | 40 |
| | | 78 |
| |
Depreciation and amortization | | 42 |
| | | 54 |
| | | | 82 |
| | | 107 |
| |
EBITDA | $ | 93 |
| | $ | 184 |
| | | $ | 205 |
| | $ | 291 |
| |
Foreign exchange loss | | 6 |
| | | 1 |
| | | | 10 |
| | | 2 |
| |
Closure costs, impairment and other related charges | | — |
| | | 1 |
| | | | — |
| | | 1 |
| |
Reversal of inventory write-downs related to closures | | — |
| | | — |
| | | | — |
| | | (1 | ) | |
Start-up costs | | — |
| | | — |
| | | | — |
| | | 8 |
| |
Net gain on disposition of assets | | — |
| | | (4 | ) | | | | — |
| | | (4 | ) | |
Non-operating pension and other postretirement benefit credits | | (12 | ) | | | (12 | ) | | | | (24 | ) | | | (25 | ) | |
Other (income) expense, net | | (5 | ) | | | 2 |
| | | | (5 | ) | | | 8 |
| |
Adjusted EBITDA | $ | 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 June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2020 | | | 2019 | | | | 2020 | | | 2019 | | |
Net income including noncontrolling interest | $ | 6 |
| | $ | 25 |
| | | $ | 5 |
| | $ | 67 |
| |
Interest expense | | 9 |
| | | 7 |
| | | | 18 |
| | | 16 |
| |
Income tax provision | | 5 |
| | | 19 |
| | | | 32 |
| | | 40 |
| |
Depreciation and amortization | | 40 |
| | | 42 |
| | | | 82 |
| | | 82 |
| |
EBITDA | $ | 60 |
| | $ | 93 |
| | | | 137 |
| | | 205 |
| |
Closure costs, impairment and other related charges | | — |
| | | — |
| | | | (2 | ) | | | — |
| |
Net gain on disposition of assets | | (9 | ) | | | — |
| | | | (9 | ) | | | — |
| |
Non-operating pension and other postretirement benefit credits | | (4 | ) | | | (12 | ) | | | | (19 | ) | | | (24 | ) | |
Other (income) expense, net | | (10 | ) | | | 1 |
| | | | (38 | ) | | | 5 |
| |
Adjusted EBITDA | $ | 37 |
| | $ | 82 |
| | | $ | 69 |
| | $ | 186 |
| |
Three months ended June 30, 20192020 vs. June 30, 20182019
Operating income variance analysis
Sales
Sales decreased by $221$143 million compared to the year-ago period, to $755$612 million. After removing the effectsales related to the acquisition of the divestitures of the Catawba (South Carolina) and Fairmont (West Virginia) facilitiesU.S. Sawmill Business in the fourthfirst quarter of 2018,2020, sales declined by $171 million. Lower volume was $42reduced sales by $129 million, lower, mainly due to lower shipmentsthe paper segment ($122 million). Pricing had an unfavorable impact of newsprint and market pulp, while pricing contributed to$41 million, mainly as a $68 million decreaseresult of a drop in sales. Thethe average transaction price for market pulp and paper, respectively 16% and 12%, partly offset by an increase in average transaction price for tissue and wood products, fell by 32%, more than offsetting the higher prices in specialty papersrespectively 8% and newsprint, up by 7% and 2%, respectively.
10%.
Cost of sales, excluding depreciation, amortization and distribution costs
Cost of sales, excluding depreciation, amortization and distribution costs which we refer to as(or, “COS”, improved) decreased by $103$72 million in the quarter. After removing the COS related to the divestitures,acquisition of the effectU.S. Sawmill Business, and the effects of the weaker Canadian dollar and lower volume, COS improved by $16 million, largely reflecting:
favorable maintenance costs ($11 million), as a result of reduced spending, the timing of scheduled outages and the Canadian dollar fluctuation, COS increasedindefinite idling of our Augusta (Georgia) mill in November 2019, partly offset by $31 million, reflecting:the temporary idling of the Baie-Comeau (Quebec) and Amos (Quebec) paper mills; and
highera decrease in wood fiber costs ($18 million), mostly due to wood shortages;
an increase in maintenance costs ($3 million), largely scheduled repairs;
lower contribution from our cogeneration assets that sell power externally ($2 million), due to scheduled maintenance; and
higher chemical costs ($26 million).
Distribution costs
After removing the impact
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 improvedexpenses decreased by $6$4 million in the quarter, primarily due to lower incentive plan expense, which is basedheadcount.
Net gain on company performance.disposition of assets
See the corresponding variance analysis under “Corporate and Other” below.
Net income variance analysis
Interest expenseNon-operating pension and other postretirement benefit credits
Interest expense wasWe recorded non-operating pension and OPEB credits of $4 million lower in the quarter, as we repurchased $225compared to $12 million in aggregate principal amountthe year-ago period. The difference mainly reflects: lower interest cost ($9 million); partly offset by higher amortization of actuarial losses ($8 million) and lower amortization of prior service credits ($2 million); and lower expected return on plan assets ($6 million).
Other income (expense), net
We recorded other income, net of $10 million in the quarter, compared to other expense, net of $1 million in the year-ago period. The difference mostly reflects, in the current period, a favorable insurance claim settlement of $15 million related to our 5.875% senior unsecured notes due 2023acquisition of Atlas Paper Holdings Inc. (or the “2023 notes”“Atlas”) on January 3, 2019, and we fully repaid borrowings of $144 million under our revolving credit facilities in 2018.2015.
Income taxes
We recorded an income tax provision of $19$5 million in the period,quarter, on income before income taxes of $11 million, compared to an expected income tax provision of $3 million based on the U.S. federal statutory income tax rate of 21%. The difference mainly reflects: an increase to our valuation allowance related to our U.S. operations ($7 million) where we recognize a valuation allowance against virtually all of our net deferred income tax assets; partially offset by other items ($5 million), mainly related to the settlement of an insurance claim in connection with our acquisition of Atlas.
In the second quarter of 2019, we recorded an income tax provision of $19 million, on income before income taxes of $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 reflectsreflects: U.S. tax on non-U.S. earnings ($5 million), a; an increase to our valuation allowance related to our U.S. operations where we recognize a valuation allowance against virtually all of our net deferred income tax assets ($4 million),; and state and foreign tax rate differences ($3 million).
In the second quarter of 2018, we recorded an income tax provision of $47 million, on income before income taxes of $119 million, compared to an expected income tax provision of $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).
Six months ended June 30, 20192020 vs. June 30, 20182019
Operating (loss) income variance analysis
Sales
Sales decreased by $300$249 million compared to the year-ago period, to $1,550$1,301 million. After removing the effectsales related to the acquisition of the divestitures of the Catawba and Fairmont facilities,U.S. Sawmill Business, sales declined by $82$293 million. Lower shipments in all business segments, except tissue,volume reduced sales by $64$139 million, while pricingreflecting lower shipments in paper ($143 million) and wood products ($18 million), partly offset by higher shipments of market pulp ($16 million) and tissue ($6 million). Pricing had an unfavorable impact of $31 million. The 26%$153 million, mainly as a result of a drop in the average transaction price for market pulp and paper, down by 22% and 14%, respectively, slightly offset by an improvement in pricing 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.up 8% and 6%, respectively.
Cost of sales, excluding depreciation, amortization and distribution costs
COS was $163decreased by $102 million lower in the period. After removing the COS related to the divestituresacquisition of the U.S. Sawmill Business, and Calhoun’s tissue operations, as well as the effecteffects of the weaker Canadian dollar and lower volume, and the Canadian dollar fluctuation, COS increasedimproved by $82$54 million, largely reflecting:
higher wood fiber costs ($38 million), mostly due to wood shortages;
an increase infavorable maintenance costs ($1527 million), largelyas a result of reduced spending, the timing of scheduled repairs;outages and the indefinite idling of our Augusta mill;
higher labor expense ($10 million);
a rise inlower recycled fiber prices ($8 million);
lower contribution from our cogeneration assets that sell power externallya decrease in energy prices ($8 million);
a decrease in wood fiber costs ($3 million) and our hydroelectric facilities ($2 million); and
higher chemical costslower labor expense ($3 million);, primarily due to the indefinite idling of our Augusta mill, partly offset by the temporary idling of the Baie-Comeau and Amos paper mills;
partly offset by start-up costs incurred in the year-ago periodunfavorable chemical usage ($73 million) for the Calhoun tissue manufacturing.
Selling, general and converting facility.administrative expenses
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 costsSG&A expenses decreased by $4$7 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, reflecting2020 compared to the full amortizationsame period last year, due to lower headcount.
Net gain on disposition of certain newsprint assets at
See the end of the fourth quarter of 2018, the divestitures of the Catawbacorresponding variance analysis under “Corporate and Fairmont facilities, and the increase of the useful lives of certain of our newsprint machinery and equipment.Other” below.
Selling, generalNet income variance analysis
Non-operating pension and administrative expensesother postretirement benefit credits
SG&A improved by $12We recorded non-operating pension and OPEB credits of $19 million in the first half of the year2020, compared to $24 million in the same period last year,year-ago period. The difference mainly duereflects: lower interest cost ($16 million); and an OPEB curtailment credit related to the indefinite idling of our Augusta mill ($14 million); partly offset by: higher amortization of actuarial losses ($14 million) and lower incentiveamortization of prior service credits ($4 million); lower expected return on plan expense, which is based on company performance.assets ($13 million); and a pension special termination benefit cost related to the indefinite idling of our Augusta mill ($3 million).
NetOther income variance analysis(expense), net
Interest expense
Interest expense was $8We recorded other income, net of $38 million lower in the first half of 2019, as we repurchased $2252020, compared to other expense, net of $5 million in aggregate principal amountthe year-ago period. The difference mostly reflects a favorable insurance claim settlement of $15 million related to our 2023 notes on January 3, 2019,acquisition of Atlas in 2015 and we fully repaid borrowingsforeign exchange gain of $144$14 million under our revolving credit facilities in 2018.the current period, compared to foreign exchange loss of $10 million in the year-ago period.
Income taxes
We recorded an income tax provision of $40$32 million in the period, on income before income taxes of $37 million, compared to an expected income tax provision of $8 million based on the U.S. federal statutory income tax rate of 21%. The difference mainly reflects: an increase to our valuation allowance related to our U.S. operations ($16 million) where we recognize a valuation allowance against virtually all of our net deferred income tax assets; foreign exchange items ($10 million); and state and foreign tax rate differences ($3 million); partially offset by other items ($5 million), mainly related to the settlement of an insurance claim in connection with our acquisition of Atlas.
In the first half of 2019, we recorded an income tax provision of $40 million, 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 areflects: an increase to our valuation allowance related to our U.S. operations ($11 million),; state and foreign tax rate differences ($7 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 ($14 million), and state and foreign tax rate differences ($10 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. Our reportable segments correspond to our principal product lines: market pulp, tissue, wood products, and paper. As of the second quarter of 2020, the results from our newsprint and specialty papers.papers operations have been combined to form the paper reportable segment. This better reflects management’s internal analysis, given the diminishing percentage newsprint and specialty papers represent in our product portfolio. Comparative information has been modified to conform to this revised segment presentation.
We do not allocate any of the income or loss items following “operating income”income (loss)” in our Consolidated Statements of Operations to our segments because those items are reviewed separately by management. Similarly, we do not allocate to the segments: closure costs, impairment and other related charges; inventory write-downs related to closures; start-up costs; gains and losses on disposition of assets; as well as other discretionary charges or credits.
We allocate depreciation and amortization expense to our segments, although the related fixed assets and amortizable intangible assets are not allocated to segment assets. Additionally, all SG&A expenses are allocated to our segments, with the exception of certain discretionary charges and credits, which we present under “corporate and other.”
MARKET PULP
Highlights
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except where otherwise stated) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Sales | $ | 189 |
| | $ | 264 |
| | $ | 420 |
| | $ | 521 |
| | $ | 161 |
| | $ | 189 |
| | $ | 338 |
| | $ | 420 |
| |
Operating income (1) | | 27 |
| | 41 |
| | 69 |
| | 74 |
| | $ | 10 |
| | $ | 27 |
| | $ | 7 |
| | $ | 69 |
| |
EBITDA (2) | | 32 |
| | 49 |
| | 79 |
| | 89 |
| | $ | 16 |
| | $ | 32 |
| | $ | 19 |
| | $ | 79 |
| |
(In thousands of metric tons) | | | | | | | | | | | | | | | | | | |
Shipments | | 257 |
| | 353 |
| | 543 |
| | 715 |
| | | 258 |
| | 257 |
| | 561 |
| | 543 |
| |
Downtime | | 15 |
| | 22 |
| | 23 |
| | 28 |
| | | 33 |
| | 15 |
| | 33 |
| | 23 |
| |
| | | June 30, | June 30, |
(Unaudited, in thousands of metric tons) | 2019 | 2018 | 2020 | 2019 |
Finished goods inventory | | 110 |
| | 108 |
| | | 87 |
| | 110 |
| |
| |
(1) | Net income including noncontrolling interestsinterest 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“Results of Operations – Consolidated Results – Selected Financial Informationfinancial information” above. |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Net income including noncontrolling interests | $ | 27 |
| | $ | 41 |
| | $ | 69 |
| | $ | 74 |
| | |
Net income including noncontrolling interest | | $ | 10 |
| | $ | 27 |
| | $ | 7 |
| | $ | 69 |
| |
Depreciation and amortization | | 5 |
| | 8 |
| | 10 |
| | 15 |
| | | 6 |
| | 5 |
| | 12 |
| | 10 |
| |
EBITDA | | 32 |
| | 49 |
| | 79 |
| | 89 |
| | $ | 16 |
| | $ | 32 |
| | $ | 19 |
| | $ | 79 |
| |
Industry trends
World demand for chemical pulp fellgrew by 2.9%7.8% in the first five months of the year2020 compared to the year-ago period, reflecting decreasesan increase in China of 10.5% and 3.7% in Western Europe and China, respectively,11.6%, while North America was up 11.2%.down by 1.3%, and Western Europe was essentially flat. World capacity grew by 1.1%0.2% over the same period.
World demand for softwood pulp grew by 1.0%1.4% in the first five months of 2020, reflecting an increase of 5.8% in North America, while Western Europe and China were down by 6.4% and 1.3%, respectively. The operating rate was 93%.
In the year,same period, world demand for hardwood pulp rose by 13.1%, with increases in shipments to North AmericaChina and China of 5.0%Western Europe up by 19.9% and 4.0%3.7%, respectively, while Western EuropeNorth America was down by 5.4%9.8%. The operating rate was 91%.
In the same period, demand for hardwood pulp dropped by 6.0%, with shipments to Western Europe and China down by 14.3% and 9.2%, respectively, while North America was up by 21.1%. The operating rate was 80%, reflecting elevated producer inventory levels.
Three months ended June 30, 20192020 vs. June 30, 20182019
Operating income variance analysis
Sales
Sales were $75$28 million lower, or 28%15%, to $189$161 million in the quarter,quarter. Sales volume was $3 million higher, but pricing reduced sales by $31 million, reflecting a reductiondecline 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 which decreased by $8of $120 per metric ton, this quarter.mostly in virgin pulp grades due to softer market conditions.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $8 million afterAfter adjusting for the effecteffects of lowerhigher volume the divestitures, and the weaker Canadian dollar, fluctuation, mainly reflecting higher wood fibermanufacturing costs due to wood shortages.improved by $9 million, reflecting:
Depreciation and amortization
Depreciation and amortization was $3 million lower in the quarter,favorable maintenance costs ($5 million), mainly due to the divestiturestiming of the Catawbascheduled outages and Fairmont facilities.reduced spending; and
lower energy prices, and favorable chemical usage and prices ($4 million).
Six months ended June 30, 20192020 vs. June 30, 20182019
Operating income variance analysis
Sales
Sales were $101$82 million lower, or 19%20%, to $420$338 million in the first half of 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. Loweryear. Sales volume was $16 million higher. Pricing reduced sales volume due to the current weakness in pulp markets was compensated by an increase$98 million, reflecting a decline in the average transaction price of $47$174 per metric ton as price increases realized acrossdue to a significant drop in all grades in 2018 outweighed the weaker pricing in the second quarter of 2019.pulp grades.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the effecteffects of lowerhigher volume the divestitures, and the weaker Canadian dollar, fluctuation, manufacturing costs increasedimproved by $31$27 million, reflecting:
highera decrease in wood fiber costs ($1611 million), mostly due to wood shortages;;
a rise in recycled fiber prices ($8 million); and
higherfavorable maintenance costs ($69 million), mostly planned.
Depreciation and amortization
Depreciation and amortization was $5 million lower in the current year,mainly due to the divestiturestiming of the Catawbascheduled outages; and Fairmont facilities.
lower energy prices ($5 million).
TISSUE
Highlights
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except where otherwise stated) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Sales | $ | 43 |
| | $ | 35 |
| | $ | 82 |
| | $ | 57 |
| | $ | 44 |
| | $ | 43 |
| | $ | 93 |
| | $ | 82 |
| |
Operating loss (1) | | (4 | ) | | (10 | ) | | (12 | ) | | (11 | ) | | $ | (2 | ) | | $ | (4 | ) | | $ | — |
| | $ | (12 | ) | |
EBITDA (2) | | — |
| | (5 | ) | | (3 | ) | | (5 | ) | | $ | 3 |
| | $ | — |
| | $ | 9 |
| | $ | (3 | ) | |
(In thousands of short tons) | | | | | | | | | | | | | | | | | | |
Shipments (3) | | 25 |
| | 23 |
| | 49 |
| | 38 |
| | | 24 |
| | 25 |
| | 52 |
| | 49 |
| |
Downtime | | — |
| | 1 |
| | 1 |
| | 1 |
| | | 2 |
| | — |
| | 2 |
| | 1 |
| |
| | | June 30, | June 30, |
(Unaudited, in thousands of short tons) | 2019 | 2018 | 2020 | 2019 |
Finished goods inventory (3) | | 7 |
| | 8 |
| | | 5 |
| | 7 |
| |
| |
(1) | Net loss including noncontrolling interestsinterest 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“Results of Operations – Consolidated Results – Selected Financial Informationfinancial information” above. |
| |
(3) | Tissue converted products, which are measured in cases, are converted to short tons. |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Net loss including noncontrolling interests | $ | (4 | ) | | $ | (10 | ) | | $ | (12 | ) | | $ | (11 | ) | | |
Net loss including noncontrolling interest | | $ | (2 | ) | | $ | (4 | ) | | $ | — |
| | $ | (12 | ) | |
Depreciation and amortization | | 4 |
| | 5 |
| | 9 |
| | 6 |
| | | 5 |
| | 4 |
| | 9 |
| | 9 |
| |
EBITDA | | — |
| | (5 | ) | | (3 | ) | | (5 | ) | | $ | 3 |
| | $ | — |
| | $ | 9 |
| | $ | (3 | ) | |
Industry trends
Total U.S. tissue consumption in the U.S. grew by 2.6%6.4% in the first half of 20192020 compared to the same period last year. U.S. converted tissue productsyear-ago period. Converted product shipments also increased by 2.3% as a result of an increase in10.2%, led by at-home shipments, up by 18.4%, while away-from-home shipments up 3.3%,decreased by 6.0%.
and at-home shipments, up 1.8%. U.S. parent roll production showed a growth of 2.4% fromrose by 5.8% in the year-ago period. Tissue capacity also increased by 3.3%,first six months, contributing to a 93%97% average industry operating rate, down 0.9%production-to-capacity ratio, up from 93% in the year-ago period.
Three months ended June 30, 20192020 vs. June 30, 20182019
Operating loss variance analysis
Sales
Sales were $8$1 million higher, or 23%2%, to $43$44 million in the quarter, reflectingquarter. The average transaction price was $128 per short ton higher, due to favorable product mix and price increases. Shipments decreased by 1,000 short tons.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the positive trend in converted products shipments, whicheffect of lower volume, our manufacturing costs increased by 22%$1 million compared to the year-ago period, andmainly due to the realizationtiming of previously announced away-from-home products price increases. Accordingly, the average transaction price rose by $144 per short ton, or 9%.annual outages.
Six months ended June 30, 20192020 vs. June 30, 20182019
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$11 million higher, or 44%13%, to $82$93 million in the first half of the year. Shipments rose by 11,000 short tons, primarily due to the inclusion of Calhoun’s results in our tissue segment starting on April 1, 2018, and sales volume growth. The average transaction price was $157$108 per short ton higher, due to favorable product mix. Pricing also improvedmix and price increases. Higher volume increased sales by $6 million, mainly due to the realizationrapid increase in customer demand in the first quarter during the early stages of previously announced away-from-home products price increases.the pandemic, and productivity improvement.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effect of higher volume, and the COS related to Calhoun’s operations and the divestiture of the Fairmont mill, our manufacturing costs improved by $2 million compared to the year-ago period, mainly due to lower maintenancefavorable wood fiber costs.
Depreciation and amortization
Depreciation and amortization was $3 million higher in the current year, mostly attributable to the inclusion of Calhoun’s results in our tissue segment.
WOOD PRODUCTS
Highlights
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except where otherwise stated) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Sales | $ | 168 |
| | $ | 254 |
| | $ | 329 |
| | $ | 463 |
| | $ | 199 |
| | $ | 168 |
| | $ | 373 |
| | $ | 329 |
| |
Operating (loss) income (1) | | (3 | ) | | 79 |
| | 3 |
| | 132 |
| | |
Operating income (loss) (1) | | $ | 15 |
| | $ | (3 | ) | | $ | 20 |
| | $ | 3 |
| |
EBITDA (2) | | 6 |
| | 86 |
| | 20 |
| | 147 |
| | $ | 25 |
| | $ | 6 |
| | $ | 41 |
| | $ | 20 |
| |
(In millions board feet) | | | | | | | | | | | | | | | | | | |
Shipments (3) | | 484 |
| | 494 |
| | 912 |
| | 949 |
| | | 521 |
| | 484 |
| | 964 |
| | 912 |
| |
Downtime | | 53 |
| | 26 |
| | 94 |
| | 49 |
| | | 73 |
| | 53 |
| | 168 |
| | 94 |
| |
| | | June 30, | June 30, |
(Unaudited, in millions board feet) | 2019 | 2018 | 2020 | 2019 |
Finished goods inventory (3) | | 122 |
| | 128 |
| | | 119 |
| | 122 |
| |
| |
(1) | Net income (loss) income including noncontrolling interestsinterest is equal to operating income (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“Results of Operations – Consolidated Results – Selected Financial Informationfinancial information” above. |
| |
(3) | Includes wood pellets measured by mass, converted to board feet using a density-based conversion ratio. |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Net (loss) income including noncontrolling interests | $ | (3 | ) | | $ | 79 |
| | $ | 3 |
| | $ | 132 |
| | |
Net income (loss) including noncontrolling interest | | $ | 15 |
| | $ | (3 | ) | | $ | 20 |
| | $ | 3 |
| |
Depreciation and amortization | | 9 |
| | 7 |
| | 17 |
| | 15 |
| | | 10 |
| | 9 |
| | 21 |
| | 17 |
| |
EBITDA | | 6 |
| | 86 |
| | 20 |
| | 147 |
| | $ | 25 |
| | $ | 6 |
| | $ | 41 |
| | $ | 20 |
| |
Industry trends
Average U.S. housing starts were 1.21.3 million on a seasonally-adjusted basis in the first half of 2019, down 4.1%2020, up by 2.7% from the same period last year, which reflects a 4.5% decrease9.7% increase in multi-family starts, and single-family starts and a 2.3% decrease in multi-family starts. The 2x4 –essentially flat.
The 2x4 – Random Length (or, “RL”) #1-2 Kiln Dried (or, “KD”) Great Lakes (or, “KD GL”) price droppedrose by 32.9%8.2% in the first half of 20192020 compared to the year-ago period, whileand the 2x4x8 Stud KD GL price increased by 23.7%. The 2x4 – RL #2 KD Southern Pine (Eastside) price increased by 4.2%, and the 2x4 – RL #2 KD Southern Pine (Westside) price was downup by 27.3%3.2%.
Three months ended June 30, 20192020 vs. June 30, 20182019
Operating income (loss) income variance analysis
Sales
Sales were $86$31 million lower,higher, or 34%18%, to $168$199 million in the quarter, asprimarily due to the sales related to the acquisition of the U.S. Sawmill Business ($28 million). After removing the sales related to the acquisition, sales volume was $8 million lower, mainly due to a strong second quarter of 2019 and reduced demand related to the COVID-19 pandemic. Pricing contributed to an $11 million increase in sales, reflecting a rise in the average transaction price fell by $166of $35 per thousand board feet, or 32%, and shipments decreased by 10 million board feet, reflecting weaker lumber market conditions. Given market headwinds, we temporarily curtailed lumber production in the quarter, for a total of 53 million board feet. Consequently, finished goods inventory fell to more normal levels of 122 million board feet at quarter-end.
Cost of sales, excluding depreciation, amortization and distribution costs
After removingadjusting for the effect of lower volume, the COS related to the acquisition of the U.S. Sawmill Business, and the Canadian dollar fluctuation, manufacturing costs increaseddecreased by $7$3 million, largelymainly reflecting higherlower wood fiber costs.
Six months ended June 30, 20192020 vs. June 30, 20182019
Operating income variance analysis
Sales
Sales were $134$44 million lower,higher, or 29%13%, to $329$373 million in the first half of the year, driven byprimarily due to the sales related to the acquisition of the U.S. Sawmill Business ($44 million). After removing the sales related to the acquisition, sales volume was $18 million lower, mainly due to the lack of transportation availability, resulting from rail blockades in Canada and the economic fallout of the unfolding COVID-19 pandemic. Pricing contributed to an $18 million increase in sales, reflecting a $128 per thousand board feet decreaserise in the average transaction price and a 37 millionof $27 per thousand board feet decrease in shipments, as market conditions remained weak in 2019.feet.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $18 million afterAfter adjusting for the effect of lower volume, the COS related to the acquisition of the U.S. Sawmill Business, and the Canadian dollar fluctuation, manufacturing costs increased by $3 million, mainly reflecting higher wood fiber costs ($13 million),costs.
Depreciation and an increase in labor costs ($4 million).amortization
Depreciation and amortization increased by $4 million compared to the year-ago period, primarily due to the acquisition of the U.S. Sawmill Business.
NEWSPRINTPAPER
Highlights
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except where otherwise stated) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Sales | $ | 209 |
| | $ | 230 |
| | $ | 421 |
| | $ | 428 |
| | $ | 208 |
| | $ | 355 |
| | $ | 497 |
| | $ | 719 |
| |
Operating income (1) | | 17 |
| | 18 |
| | 45 |
| | 14 |
| | |
Operating (loss) income (1) | | $ | (12 | ) | | $ | 32 |
| | $ | (15 | ) | | $ | 75 |
| |
EBITDA (2) | | 25 |
| | 35 |
| | 60 |
| | 47 |
| | $ | 4 |
| | $ | 51 |
| | $ | 18 |
| | $ | 111 |
| |
(In thousands of metric tons) | | | | | | | | | | | | | | | | | | |
Shipments | | 350 |
| | 393 |
| | 685 |
| | 748 |
| | | 350 |
| | 525 |
| | 832 |
| | 1,040 |
| |
Downtime | | 52 |
| | 6 |
| | 53 |
| | 14 |
| | | 178 |
| | 65 |
| | 200 |
| | 77 |
| |
| | | June 30, | June 30, |
(Unaudited, in thousands of metric tons) | 2019 | 2018 | 2020 | 2019 |
Finished goods inventory | | 105 |
| | 85 |
| | | 130 |
| | 154 |
| |
| |
(1) | Net (loss) income including noncontrolling interestsinterest 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“Results of Operations – Consolidated Results – Selected Financial Informationfinancial information” above. |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Net income including noncontrolling interests | $ | 17 |
| | $ | 18 |
| | $ | 45 |
| | $ | 14 |
| | |
Net (loss) income including noncontrolling interest | | $ | (12 | ) | | $ | 32 |
| | $ | (15 | ) | | $ | 75 |
| |
Depreciation and amortization | | 8 |
| | 17 |
| | 15 |
| | 33 |
| | | 16 |
| | 19 |
| | 33 |
| | 36 |
| |
EBITDA | | 25 |
| | 35 |
| | 60 |
| | 47 |
| | $ | 4 |
| | $ | 51 |
| | $ | 18 |
| | $ | 111 |
| |
Industry trends
North American newsprint demand for newsprint declinedfell by 15.7%23.4% in the first half of the year compared to the same period last year, as demandyear. Demand from newspaper publishers was reducedfell by 19.6%23.0%, reflecting in part continued consumer inventory destocking. Demandwhile demand from commercial printers also decreased, dropping by 8.4%24.0%. The North American shipment-to-capacity ratio was 84% in the first half of 2019, down from 96%79%, compared to 85% in the year-ago period.
Global demand for newsprint was downfell by 8.2%19.9% in the first half of 2020, with Western Europe down by 23.3%, North America down by 23.4%, and Asia down by 16.5%. Accordingly, the yearglobal operating rate decreased to 73%, down from 85% in the year-ago period.
North American demand for uncoated mechanical papers was down by 23.5% in the first half of 2020 compared to the year-ago period, with North America, Asia,reflecting a 30.8% decline in supercalendered grades, and Western Europe down 15.7%, 7.3%, and 5.3%, respectively. The global operating rate was 85%a 16.5% decrease in standard grades. Accordingly, the shipment-to-capacity ratio for all uncoated mechanical papers decreased to 72%, compared to 91%84% in the year-ago period.
Three months ended June 30, 20192020 vs. June 30, 20182019
Operating (loss) income variance analysis
Sales
Newsprint sales decreasedSales fell by $21$147 million, or 9%41%, to $209$208 million in the second quarterquarter. Shipments decreased by 175,000 metric tons, largely reflecting much lower demand levels since the onset of the year. Despite the recent softening market conditions, thepandemic and our resulting capacity adjustments. The average transaction price increaseddeclined by $13$84 per metric ton compareddue to the same quarter last year. Shipments, however, dropped by 43,000 metric tons, reflecting the ongoing structural demand decline. To offset this slowdown in demand, 52,000 metric tons of temporary production downtime was taken this quarter, reducing finished goods inventory closer to trend levels of 105,000 metric tons at quarter-end.weaker market fundamentals.
Cost of sales, excluding depreciation, amortization and distribution costs
After removingManufacturing costs improved by $7 million after adjusting for the effect of the weaker Canadian dollar, as a significant portion of our production capacity is based in Canada, and the effect of lower volume, and the Canadian dollar fluctuation, manufacturing costs increased by $12 million, mainly reflecting:
higherfavorable maintenance costs ($37 million), mostly due to more planned repairs;reduced spending; and
an increasea decrease 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, 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.
Six months ended June 30, 20192020 vs. June 30, 20182019
Operating (loss) income variance analysis
Sales
Newsprint sales decreasedSales fell by $7$222 million, or 2%31%, to $421$497 million in the first half of the year. Shipments decreased by 63,000208,000 metric tons, largely reflecting ongoing structuralmuch lower demand decline. However,levels since the onset of the pandemic and our resulting capacity adjustments. The average transaction price was $44declined by $95 per metric ton higher compareddue to the first half of 2018.weaker market fundamentals, mostly in export markets.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increasedimproved by $20$24 million after adjusting for the effect of the weaker Canadian dollar, as a significant portion of our production capacity is based in Canada, and the effect of lower volume, and the Canadian dollar fluctuation, mainly reflecting:
higherfavorable maintenance costs ($519 million), mostly due to more planned repairs;the indefinite idling of our Augusta mill in the fourth quarter of 2019, as well as reduced spending;
lower labor and overhead costs ($7 million), primarily due to the indefinite idling of our Augusta mill; and
lower energy prices ($3 million);
partly offset by an increase in wood fiber costs ($54 million), due to wood shortages;
higher laborand in chemical costs ($3 million); and
lower contribution from our cogeneration assets that sell power externally ($3 million).
DepreciationSelling, general and amortizationadministrative expenses
Depreciation and amortization was $18SG&A expenses decreased by $5 million lower in the first half of 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.
SPECIALTY PAPERS
Highlights
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions, except where otherwise stated) | 2019 | | | 2018 | | | | 2019 | | | 2018 | | |
Sales | $ | 146 |
| | $ | 193 |
| | | $ | 298 |
| | $ | 381 |
| |
Operating income (loss) (1) | | 15 |
| | | 4 |
| | | | 30 |
| | | (3 | ) | |
EBITDA (2) | | 26 |
| | | 16 |
| | | | 51 |
| | | 21 |
| |
(In thousands of short tons) | | | | | | | | | | | | | |
Shipments | | 193 |
| | | 275 |
| | | | 392 |
| | | 554 |
| |
Downtime | | 14 |
| | | 12 |
| | | | 26 |
| | | 15 |
| |
|
| | | | | | | | |
| June 30, |
(Unaudited, in thousands of short tons) | 2019 | 2018 |
Finished goods inventory | | 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 June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | | 2019 | | | 2018 | | |
Net income (loss) including noncontrolling interests | $ | 15 |
| | $ | 4 |
| | | $ | 30 |
| | $ | (3 | ) | |
Depreciation and amortization | | 11 |
| | | 12 |
| | | | 21 |
| | | 24 |
| |
EBITDA | | 26 |
| | | 16 |
| | | | 51 |
| | | 21 |
| |
Industry trends
North American demand for uncoated mechanical papers was down by 13.6% in the first half of 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, while the demand for supercalendered grades fell by 7.0%. Accordingly, the operating rate decreased to 83%, compared to 92% in the year-ago period.
Three months ended June 30, 2019 vs. June 30, 2018
Operating income variance analysis
Sales
Specialty paper sales decreased by $47 million, or 24%, to $146 million in the second quarter of the year as the increase in the average transaction price of $52 per short ton was more than offset by lower sales volume, down by 82,000 short tons, resulting from the sale of the paper and pulp mill at Catawba.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $7 million after adjusting for the effect of lower volume, the 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 impact of the Catawba mill divestiture, distribution costs decreased by $3 million, reflecting an improvement in freight rates and transportation optimization.
Six months ended June 30, 2019 vs. June 30, 2018
Operating income (loss) variance analysis
Sales
Specialty paper sales decreased by $83 million, or 22%, to $298 million in the 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.lower headcount.
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:
higher maintenance costs ($4 million), largely due to more planned repairs;
higher wood fiber costs ($4 million), mostly due to wood shortages;
an increase in labor costs ($2 million);
lower internal hydroelectric generation ($2 million); and
higher chemical costs ($2 million).
Distribution costs
After removing the impact of the Catawba mill divestiture, distribution costs decreased by $5 million, reflecting an improvement in freight rates and transportation optimization.
Corporate and Other
Highlights
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Cost of sales, excluding depreciation, amortization and distribution costs | $ | — |
| | $ | (2 | ) | | $ | (7 | ) | | $ | (9 | ) | | $ | (2 | ) | | $ | — |
| | $ | (4 | ) | | $ | (7 | ) | |
Depreciation and amortization | | (5 | ) | | (5 | ) | | (10 | ) | | (14 | ) | | | (3 | ) | | (5 | ) | | (7 | ) | | (10 | ) | |
Selling, general and administrative expenses | | (7 | ) | | (7 | ) | | (14 | ) | | (17 | ) | | | (9 | ) | | (7 | ) | | (14 | ) | | (14 | ) | |
Closure costs, impairment and other related charges | | — |
| | (1 | ) | | — |
| | (1 | ) | | | — |
| | — |
| | 2 |
| | — |
| |
Net gain on disposition of assets | | — |
| | 4 |
| | — |
| | 4 |
| | | 9 |
| | — |
| | 9 |
| | — |
| |
Operating loss | $ | (12 | ) | | $ | (11 | ) | | $ | (31 | ) | | $ | (37 | ) | | | (5 | ) | | (12 | ) | | (14 | ) | | (31 | ) | |
Interest expense | | (7 | ) | | (11 | ) | | (16 | ) | | (24 | ) | | | (9 | ) | | (7 | ) | | (18 | ) | | (16 | ) | |
Non-operating pension and other postretirement benefit credits | | 12 |
| | 12 |
| | 24 |
| | 25 |
| | | 4 |
| | 12 |
| | 19 |
| | 24 |
| |
Other expense, net | | (1 | ) | | (3 | ) | | (5 | ) | | (10 | ) | | |
Other income (expense), net | | | 10 |
| | (1 | ) | | 38 |
| | (5 | ) | |
Income tax provision | | (19 | ) | | (47 | ) | | (40 | ) | | (78 | ) | | | (5 | ) | | (19 | ) | | (32 | ) | | (40 | ) | |
Net loss including noncontrolling interests | $ | (27 | ) | | $ | (60 | ) | | $ | (68 | ) | | $ | (124 | ) | | |
Net loss including noncontrolling interest | | $ | (5 | ) | | $ | (27 | ) | | $ | (7 | ) | | $ | (68 | ) | |
The table below shows the reconciliation of net loss including noncontrolling interestsinterest 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“Results of Operations – Consolidated Results – Selected Financial Informationfinancial information” above.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
Net loss including noncontrolling interests | $ | (27 | ) | | $ | (60 | ) | | $ | (68 | ) | | $ | (124 | ) | | |
Net loss including noncontrolling interest | | $ | (5 | ) | | $ | (27 | ) | | $ | (7 | ) | | $ | (68 | ) | |
Interest expense | | 7 |
| | 11 |
| | 16 |
| | 24 |
| | | 9 |
| | 7 |
| | 18 |
| | 16 |
| |
Income tax provision | | 19 |
| | 47 |
| | 40 |
| | 78 |
| | | 5 |
| | 19 |
| | 32 |
| | 40 |
| |
Depreciation and amortization | | 5 |
| | 5 |
| | 10 |
| | 14 |
| | | 3 |
| | 5 |
| | 7 |
| | 10 |
| |
EBITDA | $ | 4 |
| | $ | 3 |
| | $ | (2 | ) | | $ | (8 | ) | | | 12 |
| | 4 |
| | 50 |
| | (2 | ) | |
Foreign exchange loss | | 6 |
| | 1 |
| | 10 |
| | 2 |
| | |
Closure costs, impairment and other related charges | | — |
| | 1 |
| | — |
| | 1 |
| | | — |
| | — |
| | (2 | ) | | — |
| |
Reversal of inventory write-downs related to closures | | — |
| | — |
| | — |
| | (1 | ) | | |
Start-up costs | | — |
| | — |
| | — |
| | 8 |
| | |
Net gain on disposition of assets | | — |
| | (4 | ) | | — |
| | (4 | ) | | | (9 | ) | | — |
| | (9 | ) | | — |
| |
Non-operating pension and other postretirement benefit credits | | (12 | ) | | (12 | ) | | (24 | ) | | (25 | ) | | | (4 | ) | | (12 | ) | | (19 | ) | | (24 | ) | |
Other (income) expense, net | | (5 | ) | | 2 |
| | (5 | ) | | 8 |
| | | (10 | ) | | 1 |
| | (38 | ) | | 5 |
| |
Adjusted EBITDA | $ | (7 | ) | | $ | (9 | ) | | $ | (21 | ) | | $ | (19 | ) | | $ | (11 | ) | | $ | (7 | ) | | $ | (18 | ) | | $ | (21 | ) | |
Three and six months ended June 30, 2020 vs. June 30, 2019
Net gain on disposition of assets
We recorded a net gain of $9 million on the disposition of the Augusta mill in the quarter. The mill was indefinitely idled in November 2019.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
We rely on cash and cash equivalents, net cash flows provided by operations, and our revolving credit facilities to fund our operations, make pension contributions, and finance our working capital, capital expenditures, and duty cash deposits. In addition, from time to time we may use available cash to reduce debt and to return capital to shareholders, including through share repurchases or special dividends. As of June 30, 20192020, we had cash and cash equivalents of $98$27 million and availability of $492$369 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 deposit requirements, and maintain an appropriate level of capital spending.
Based on market conditions, we may seek to retire, repay or refinance our outstanding indebtedness, including under the 5.875% senior unsecured notes due 2023 notes(or, the “2023 Notes”) and credit facilities, through redemptions, prepayments, open market purchases or individually negotiated transactions, as we continue to focus on reducing costs and enhancing our flexibility.
Five-year extension of ABL Credit Facilityrating risk
On May 14, 2019,March 18, 2020, Standard & Poor’s revised:
our senior unsecured debt rating from B+ to B;
our long-term corporate credit rating from BB- to B+; and
our outlook from stable to negative.
On April 20, 2020, Moody’s Investors Service revised:
our senior unsecured debt rating from B1 to B2;
our corporate family rating from Ba3 to B1;
our outlook from stable to negative; and
our liquidity rating from SGL-1 to SGL-2.
Although our debt agreements do not include any provision that would require material changes in payment schedules or terminations as a result of a credit rating downgrade, we entered into an amendmentbelieve our access to capital markets at a reasonable cost is determined in part by credit quality. A credit rating downgrade could impact our ability to access capital markets at a reasonable cost. These ratings reflect the credit agreement dated May 22, 2015, for the ABL Credit Facility. The amended credit agreement provides for an extensionviews of the maturity daterating agencies only. An explanation of the significance of these ratings can be obtained from each rating agency. The ratings are not a recommendation to May 14, 2024, with an aggregate lender commitment of $500 millionbuy, sell or hold securities. Any rating can be revised upward or downward or withdrawn at any time outstanding, subject to borrowing base availability based on specified advance rates, eligibility criteria and customary reserves. The amended aggregate lender commitment amount representsby a voluntary reduction of $100 million. For more information, see Note 7, “Long-Term Debt – ABL Credit Facility,” to our Consolidated Financial Statements.rating agency.
Flow of Funds
Summary of cash flows
A summary of cash flows for the six months ended June 30, 20192020 and 2018,2019, was as follows:
| | | Six Months Ended June 30, | Six Months Ended June 30, |
(Unaudited, in millions) | 2019 | | | 2018 | | | 2020 | | | 2019 | | |
Net cash provided by operating activities | $ | 95 |
| | $ | 220 |
| | $ | 76 |
| | $ | 95 |
| |
Net cash used in investing activities | | (69 | ) | | (109 | ) | | | (227 | ) | | (69 | ) | |
Cash used in financing activities | | (232 | ) | | (115 | ) | | |
Net cash provided by (used in) financing activities | | | 176 |
| | (232 | ) | |
Effect of exchange rate changes on cash and cash equivalents, and restricted cash | | 1 |
| | (2 | ) | | | (1 | ) | | 1 |
| |
Net decrease in cash and cash equivalents, and restricted cash | $ | (205 | ) | | $ | (6 | ) | | |
Net increase (decrease) in cash and cash equivalents, and restricted cash | | $ | 24 |
| | $ | (205 | ) | |
Six months ended June 30, 20192020 vs. June 30, 20182019
Net cash provided by operating activities
We generated $95$76 million of cash from operating activities in the first half of 2019,2020, compared to $220$95 million of cash generated in the year-ago period. The decrease is primarily attributabledue to lower profitability and an increase inoffset by a favorable working capital variance in the current period, partially offset byand lower interest payments and pension contributions.
Net cash used in investing activities
We used $69$227 million of cash in investing activities in the current period, which included:
$45compared to $69 million in capital expenditures;the year-ago period. The difference primarily reflects the acquisition of the U.S. Sawmill Business, net of cash acquired, in the current period ($172 million), and
$33 million of higher net countervailing and anti-dumping duty cash deposits on softwood lumber;($6 million); partly offset by lower capital expenditures ($8 million) and higher proceeds from the disposition of assets ($7 million).
offsetNet cash provided by (used in) financing activities
Net cash provided by financing activities was $176 million in part by the full refundfirst half of countervailing duty2020, compared to cash deposits on uncoated groundwood paperused in financing activities of $6$232 million in the year-ago period. In the current period, we drew $180 million in 10-year term loans under our existing senior secured credit facility (or, the “Senior Secured Credit Facility”) to finance the acquisition of the U.S. Sawmill Business, whereas in the year-ago period we repurchased of $225 million in aggregate principal amount of our 2023 Notes.
Employee Benefit Plans
Newly enacted U.S. legislation in 2020, the Coronavirus Aid, Relief and Economic Security Act, allows plan sponsors to delay contributions due in 2020. Accordingly, we have postponed our current quarter contributions to U.S. pension plans of $8 million, and we expect to postpone the remaining $26 million, to the end of the fourth quarter of 2020.
Share Repurchase Program
On March 2, 2020, our board of directors authorized a share repurchase program of up to 15% of our common stock, for aggregate consideration of up to $100 million. For more information, see Note 12, “Share Capital,” to our Consolidated Financial Statements.
InSUPPLEMENTAL OBLIGOR GROUP INFORMATION
The following information is presented in accordance with Rule 13-01 of Regulation S-X adopted in 2020, and the year-ago period, net cash usedpublic information requirements of Rule 144 promulgated pursuant to the Securities Act of 1933, as amended, in investing activities was $109 million, or $40 million higher, reflecting countervailingconnection to the 2023 Notes issued by Resolute Forest Products Inc. (or, the “Issuer”) and anti-dumping duty cash deposits of $58 millionfully guaranteed, on a joint and capital expenditures of $53 million.
Cash used in financing activities
In 2019, we repurchased $225 million in aggregate principal amountseveral basis, by all of our existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiaries that guarantee the ABL Credit Facility as further defined below (or, the “Guarantor Subsidiaries”) (together, the “Obligor Group”). The 2023 notes, as well as $5 millionNotes are not guaranteed by our foreign subsidiaries (or, the “Non-Guarantor Subsidiaries”).
The following summarized financial information of shares, as described below. This compares to repayments of $114 million under our revolving credit facilitiesthe Obligor Group is presented on a combined basis, with all intercompany transactions between the Issuer and the Guarantor Subsidiaries eliminated and excluding any earnings from and investments in the first halfNon-Guarantor Subsidiaries. Financial information of 2018.the Non-Guarantor Subsidiaries is not included.
Share Repurchase Program
DuringSummarized financial information for the six months ended June 30, 2020 and year ended December 31, 2019, we repurchased 0.7 million shares, at a cost of $5 million under our $150 million share repurchase program, which was launched in 2012. There remains $19 million under the programas follows:
|
| | | | | | | | | |
(Unaudited, in millions) | Six Months Ended June 30, 2020 | | Year Ended December 31, 2019 |
Sales (1) | $ | 1,076 |
| | | $ | 2,379 |
| |
Operating loss | $ | (57 | ) | | | $ | (203 | ) | |
Net loss | $ | (49 | ) | | | $ | (207 | ) | |
| |
(1) | Includes $23 million and $76 million of sales to the Non-Guarantor Subsidiaries for the six months ended June 30, 2020 and year ended December 31, 2019, respectively. |
Summarized financial information as of June 30, 2020 and December 31, 2019, was as follows:
|
| | | | | | | | | |
(Unaudited, in millions) | June 30, 2020 | | December 31, 2019 |
Total current assets (1) | $ | 425 |
| | | $ | 414 |
| |
Total long-term assets (2) | $ | 907 |
| | | $ | 833 |
| |
Total current liabilities (3) | $ | 885 |
| | | $ | 913 |
| |
Total long-term liabilities | $ | 1,043 |
| | | $ | 872 |
| |
| |
(1) | Includes $4 million of interest receivable from the Non-Guarantor Subsidiaries as of December 31, 2019. |
| |
(2) | Includes a note receivable of $112 million from the Non-Guarantor Subsidiaries as of December 31, 2019. |
| |
(3) | Includes accounts payable to the Non-Guarantor Subsidiaries of $770 million and $794 million as of June 30, 2020 and December 31, 2019, respectively. |
The 2023 Notes are unsecured and effectively junior to indebtedness under both the senior secured asset-based revolving credit facility (or, “ABL Credit Facility”) and the Senior Secured Credit Facility, and to future secured indebtedness. In addition, the 2023 Notes are structurally subordinated to all existing and future liabilities of our Non-Guarantor Subsidiaries.
RESOLUTE FOREST PRODUCTS INC.
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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 20182019 Annual Report. There have been no material changes in our exposure to market risk as previously disclosed in our 20182019 Annual Report.Report, except that our exposure to market risk has been heightened by the COVID-19 pandemic, including related governmental responses and economic impacts, market disruptions and changes in consumer habits, and such prior disclosure should be read in conjunction with the COVID-19 pandemic risk factor update further described in Part II, Item 1A, “Risk Factors,” in this Form 10-Q.
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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 June 30, 2019.2020. 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.
RESOLUTE FOREST PRODUCTS INC.
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PART II. | OTHER INFORMATION |
In addition to the legal proceedings presented under Part I, Item 3, “Legal Proceedings,” in our 20182019 Annual Report, see the description of our material pending legal proceedings in Note 10,11, “Commitments and Contingencies – Legal matters,” to our Consolidated Financial Statements, which is incorporated in this “Item 1 – Legal Proceedings” by reference.
In addition to the other information set forth in this Form 10-Q, you should carefully considerWe are supplementing the risk factors set forthdescribed under Part I, Item 1A, “Risk Factors” in our 20182019 Annual Report and Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the period ended March 31, 2020, with the additional risk factor set forth below. This supplemental risk factor should be read in conjunction with the other risk factors described in our 2019 Annual Report,which have been heightened by this additional risk factor.
We face various risks related to the COVID-19 pandemic
The outbreak of the pandemic caused by COVID-19 has had, and could materiallycontinue to have a negative impact on financial markets, economic conditions and portions of our business. While we are unable to predict the extent, nature and duration of these impacts at this time, the global COVID-19 pandemic could negatively affect our business financial conditionand results of operations, as well as the market price of our securities, in a number of ways, including the following:
While we expect to continue to operate in all of our business segments in Canada and the U.S., we have reduced our operational footprint to levels consistent with essential needs for the duration of the crisis, including by the temporary idling of certain machines or future results. facilities and implementing temporary layoffs. Further adjustments to our operational footprint, temporary or permanent, could be made as the COVID-19 pandemic situation develops.
The COVID-19 pandemic could accelerate the secular demand decline for paper products like those we manufacture as widespread confinement is altering consumer habits. The decline in demand and altered habits could become permanent.
Any construction slowdown in North America may result in a decline in demand for wood products. If the demand for wood products falls and we reduce harvesting and sawmill activity as a result, we could have greater difficulty obtaining the supply of timber and wood fiber required for our operations at favorable prices, or at all.
There have been no material changesis increased risk that we may not obtain raw materials, chemicals and other required supplies or services in timely fashion and at favorable prices due to the impact of the reduced economic activity as a result of the COVID-19 pandemic on our suppliers, which could affect our production output.
Additional trade restrictions or barriers could also affect negatively our supply chain as well as the sales or distribution of our products.
The impact of the reduced economic activity as a result of the COVID-19 pandemic on our customers could increase our risk of credit exposure.
Although the forest products industry has generally been recognized as critical or essential in locations where we operate, the current health restrictions, including social distancing measures, are having an impact on how our workers can fulfill their duties, and limit the number of employees we can have in our operations, which in turn could impact our production output and costs.
It could be difficult or costly to restart certain of our temporarily idled operations, and we could face personnel shortages if employees are no longer available or amenable to return to work.
Further, should any key employees become ill from COVID-19 or unable to work, the attention of our management team could be diverted.
The reduced operations and staffing in our facilities, remote working conditions and increased risk in not obtaining supplies or services could increase the risk of non-compliance and incidents.
In an effort to preserve liquidity, we expect to suspend or defer capital projects, as well as other strategic initiatives. Strategies to increase earnings power or generate additional cash flow, including acquisitions, divestitures and other transactions could be
RESOLUTE FOREST PRODUCTS INC.
delayed or not materialize given the current economic uncertainty. In response to the COVID-19 pandemic, we could decide to permanently shut down machines or facilities and be required to record significant closure costs, long-lived asset impairment or accelerated depreciation charges.
The economic uncertainty resulting from the COVID-19 pandemic and the ensuing decline in financial market returns and low-interest rate environment could result in an increase in the amount by which our pension plans are underfunded by the next measurement date at year-end. This could result in a significant increase in the amount of our required future pension contributions, which could have an adverse effect on our financial condition.
If we don’t generate enough cash to fund our short-term or long-term obligations, we may have to draw further on our credit facilities to meet our obligations or seek additional sources of liquidity. The economic uncertainty resulting from the COVID-19 pandemic and recent downgrades of our credit ratings could lead to greater difficulty in obtaining additional financing on favorable terms.
The COVID-19 pandemic, including related governmental responses and economic impacts, market disruptions and changes in consumer habits, has heightened the risks related to the other risk factors previously discloseddescribed in our 20182019 Annual Report.Report, and should be read in conjunction therewith.
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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, 2019:2020:
| | 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) | 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 |
| | | — |
| | $ | — |
| | — |
| | $ | 100,000,000 |
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May 1 to May 31 | | — |
| | — |
| | — |
| | 23,983,730 |
| | | — |
| | — |
| | — |
| | 100,000,000 |
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June 1 to June 30 | | 720,000 |
| | 6.23 |
| | 720,000 |
| | 19,498,130 |
| | | 253,898 |
| | 2.09 |
| | 253,898 |
| | 99,469,293 |
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Total | | 720,000 |
| | $ | 6.23 |
| | 720,000 |
| | $ | 19,498,130 |
| | | 253,898 |
| | $ | 2.09 |
| | 253,898 |
| | $ | 99,469,293 |
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(1) | $150100 million share repurchase program launched in 2012.2020. For more information, see Note 12, “Share Capital,” to our Consolidated Financial Statements. |
As of July 31, 2019,2020, we repurchased 1,106,1201,035,249 additional shares at an average price per share of $6.79$2.47 for a total cost of $7$3 million.
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.
RESOLUTE FOREST PRODUCTS INC.
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Exhibit No. | | Description |
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| | 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). |
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| | 20192020 Resolute Forest Products Inc. Short-Term Incentive Plan – U.S. |
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| | 20192020 Resolute Forest Products Inc. Short-Term Incentive Plan – Canada / International. |
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| | First Amendment to the Resolute Forest Products Inc. 2019 Equity Incentive Plan.Plan (incorporated by reference from Exhibit 10.1 to Resolute Forest Products Inc.’s Registration Statement on Form S-8 filed August 5, 2020, SEC Registration No. 333-241026). |
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| | Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS* | | XBRL Instance Document. |
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101.SCH* | | XBRL Taxonomy Extension Schema Document. |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
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† | 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, (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. |
RESOLUTE FOREST PRODUCTS INC.
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.
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RESOLUTE FOREST PRODUCTS INC. |
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By | | /s/ Remi G. Lalonde |
| | Remi G. Lalonde |
| | Senior Vice President and Chief Financial Officer |
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By | | /s/ Hugues Dorban |
| | Hugues Dorban |
| | Vice President and Chief Accounting Officer |
Date: August 9, 201910, 2020