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EX-31.2 - EXHIBIT 31.2 - Resolute Forest Products Inc.rfp-2015331xex312.htm

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM    TO
COMMISSION FILE NUMBER: 001-33776
RESOLUTE FOREST PRODUCTS INC.
(Exact name of registrant as specified in its charter)
Delaware
98-0526415
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
111 Duke Street, Suite 5000; Montréal, Québec; Canada H3C 2M1
(Address of principal executive offices) (Zip Code)
(514) 875-2515
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
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 þ    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
    Yes þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No þ
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes þ    No ¨
As of April 30, 2015, there were 94,801,259 shares of Resolute Forest Products Inc. common stock, $0.001 par value, outstanding.
 



RESOLUTE FOREST PRODUCTS INC.
TABLE OF CONTENTS
 
 
Page
Number
PART I. FINANCIAL INFORMATION
 
 
 
 
 
Item 1. Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share amounts)

 
Three Months Ended 
 March 31,
 
2015
 
 
2014
 
 
Sales
$
920

 
$
1,016

 
Costs and expenses:
 
 
 
 
 
 
Cost of sales, excluding depreciation, amortization and distribution costs
 
718

 
 
821

 
Depreciation and amortization
 
57

 
 
62

 
Distribution costs
 
113

 
 
120

 
Selling, general and administrative expenses
 
41

 
 
36

 
Closure costs, impairment and other related charges
 
6

 
 
10

 
Operating loss
 
(15
)
 
 
(33
)
 
Interest expense
 
(12
)
 
 
(12
)
 
Other income (expense), net
 
5

 
 
(13
)
 
Loss before income taxes
 
(22
)
 
 
(58
)
 
Income tax (provision) benefit
 
(10
)
 
 
8

 
Net loss including noncontrolling interests
 
(32
)
 
 
(50
)
 
Net income attributable to noncontrolling interests
 
(1
)
 
 

 
Net loss attributable to Resolute Forest Products Inc.
$
(33
)
 
$
(50
)
 
Net loss per share attributable to Resolute Forest Products Inc. common shareholders:
 
 
 
 
 
 
Basic
$
(0.35
)
 
$
(0.53
)
 
Diluted
 
(0.35
)
 
 
(0.53
)
 
Weighted-average number of Resolute Forest Products Inc. common shares outstanding:
 
 
 
 
 
 
Basic
 
94.9

 
 
94.6

 
Diluted
 
94.9

 
 
94.6

 
See accompanying notes to unaudited interim consolidated financial statements.


1


RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in millions)

 
Three Months Ended 
 March 31,
 
2015
 
 
2014
 
 
Net loss including noncontrolling interests
$
(32
)
 
$
(50
)
 
Other comprehensive (loss) income:
 
 
 
 
 
 
Change in unamortized prior service credits, net of tax of $0 and $17 in 2015 and 2014, respectively
 
(5
)
 
 
24

 
Change in unamortized actuarial losses, net of tax of $5 and $1 in 2015 and 2014, respectively
 
16

 
 
1

 
Foreign currency translation
 
(1
)
 
 
(1
)
 
Other comprehensive income, net of tax
 
10

 
 
24

 
Comprehensive loss including noncontrolling interests
 
(22
)
 
 
(26
)
 
Comprehensive income attributable to noncontrolling interests
 
(1
)
 
 

 
Comprehensive loss attributable to Resolute Forest Products Inc.
$
(23
)
 
$
(26
)
 
See accompanying notes to unaudited interim consolidated financial statements.

2


RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except per share amount)
 
March 31,
2015
December 31,
2014
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
324

 
$
337

 
Accounts receivable, net:
 
 
 
 
 
 
Trade
 
422

 
 
449

 
Other
 
80

 
 
90

 
Inventories, net
 
563

 
 
542

 
Deferred income tax assets
 
64

 
 
70

 
Other current assets
 
51

 
 
46

 
Total current assets
 
1,504

 
 
1,534

 
Fixed assets, net
 
1,956

 
 
1,985

 
Amortizable intangible assets, net
 
62

 
 
62

 
Deferred income tax assets
 
1,099

 
 
1,219

 
Other assets
 
125

 
 
121

 
Total assets
$
4,746

 
$
4,921

 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
487

 
$
518

 
Current portion of long-term debt
 
1

 
 
1

 
Total current liabilities
 
488

 
 
519

 
Long-term debt, net of current portion
 
596

 
 
596

 
Pension and other postretirement benefit obligations
 
1,491

 
 
1,616

 
Deferred income tax liabilities
 
3

 
 
3

 
Other long-term liabilities
 
68

 
 
70

 
Total liabilities
 
2,646

 
 
2,804

 
Commitments and contingencies
 

 
 

 
Equity:
 
 
 
 
 
 
Resolute Forest Products Inc. shareholders’ equity:
 
 
 
 
 
 
Common stock, $0.001 par value. 117.3 shares issued and 94.8 shares outstanding as of March 31, 2015 and December 31, 2014
 

 
 

 
Additional paid-in capital
 
3,759

 
 
3,754

 
Deficit
 
(902
)
 
 
(869
)
 
Accumulated other comprehensive loss
 
(708
)
 
 
(718
)
 
Treasury stock at cost, 22.5 shares as of March 31, 2015 and December 31, 2014
 
(61
)
 
 
(61
)
 
Total Resolute Forest Products Inc. shareholders’ equity
 
2,088

 
 
2,106

 
Noncontrolling interests
 
12

 
 
11

 
Total equity
 
2,100

 
 
2,117

 
Total liabilities and equity
$
4,746

 
$
4,921

 
See accompanying notes to unaudited interim consolidated financial statements.

3


RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in millions)
 
 
Three Months Ended March 31, 2015
 
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, 2014
$

 
$
3,754

 
$
(869
)
 
$
(718
)
 
$
(61
)
 
$
11

 
$
2,117

 
Share-based compensation costs for equity-classified awards
 

 
 
5

 
 

 
 

 
 

 
 

 
 
5

 
Net (loss) income
 

 
 

 
 
(33
)
 
 

 
 

 
 
1

 
 
(32
)
 
Other comprehensive income, net of tax
 

 
 

 
 

 
 
10

 
 

 
 

 
 
10

 
Balance as of March 31, 2015
$

 
$
3,759

 
$
(902
)
 
$
(708
)
 
$
(61
)
 
$
12

 
$
2,100

 
 
 
Three Months Ended March 31, 2014
 
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, 2013
$

 
$
3,751

 
$
(592
)
 
$
(271
)
 
$
(61
)
 
$
12

 
$
2,839

 
Net loss
 

 
 

 
 
(50
)
 
 

 
 

 
 

 
 
(50
)
 
Stock options exercised and stock unit awards vested (0.1 shares), net of shares forfeited for employee withholding taxes
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Other comprehensive income, net of tax
 

 
 

 
 

 
 
24

 
 

 
 

 
 
24

 
Balance as of March 31, 2014
$

 
$
3,751

 
$
(642
)
 
$
(247
)
 
$
(61
)
 
$
12

 
$
2,813

 
See accompanying notes to unaudited interim consolidated financial statements.


4


RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)

 
Three Months Ended 
 March 31,
 
2015
 
 
2014
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss including noncontrolling interests
$
(32
)
 
$
(50
)
 
Adjustments to reconcile net loss including noncontrolling interests to net cash provided by (used in) operating activities:
 
 
 
 
 
 
Share-based compensation
 
5

 
 

 
Depreciation and amortization
 
57

 
 
62

 
Closure costs, impairment and other related charges
 
2

 
 
4

 
Inventory write-downs related to closures
 
1

 
 
1

 
Deferred income taxes
 
14

 
 
(8
)
 
Net pension contributions and other postretirement benefit payments
 
(9
)
 
 
(34
)
 
Loss on translation of foreign currency denominated deferred income taxes
 
107

 
 
48

 
Gain on translation of foreign currency denominated pension and other postretirement benefit obligations
 
(101
)
 
 
(37
)
 
Changes in working capital:
 
 
 
 
 
 
Accounts receivable
 
38

 
 
29

 
Inventories
 
(22
)
 
 
(64
)
 
Other current assets
 
(4
)
 
 
(5
)
 
Accounts payable and accrued liabilities
 
(26
)
 
 
8

 
Other, net
 
(1
)
 
 
5

 
Net cash provided by (used in) operating activities
 
29

 
 
(41
)
 
Cash flows from investing activities:
 
 
 
 
 
 
Cash invested in fixed assets
 
(40
)
 
 
(36
)
 
Decrease in restricted cash
 

 
 
1

 
Decrease in deposit requirements for letters of credit, net
 

 
 
1

 
Net cash used in investing activities
 
(40
)
 
 
(34
)
 
Cash flows from financing activities:
 
 
 
 
 
 
Payments of debt
 

 
 
(1
)
 
Net cash used in financing activities
 

 
 
(1
)
 
Effect of exchange rate changes on cash and cash equivalents
 
(2
)
 
 
(6
)
 
Net decrease in cash and cash equivalents
 
(13
)
 
 
(82
)
 
Cash and cash equivalents:
 
 
 
 
 
 
Beginning of period
 
337

 
 
322

 
End of period
$
324

 
$
240

 
See accompanying notes to unaudited interim consolidated financial statements.

5


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Note 1. Organization and Basis of Presentation
Nature of operations
Resolute Forest Products Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “Resolute Forest Products,” “we,” “our,” “us,” “Parent” or the “Company”) is incorporated in Delaware. We are a global leader in the forest products industry, with a diverse range of products, including newsprint, specialty papers, market pulp and wood products, which are marketed in close to 80 countries. We own or operate some 40 pulp and paper mills and wood products facilities in the United States, Canada and South Korea, and power generation assets in Canada.
Financial statements
Our interim consolidated financial statements are unaudited and have been prepared in accordance with the requirements of the United States Securities and Exchange Commission (the “SEC”) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required by United States generally accepted accounting principles may be condensed or omitted. In our opinion, all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the unaudited interim consolidated financial statements have been made. All amounts are expressed in U.S. dollars, unless otherwise indicated. The results for the interim period ended March 31, 2015 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, 2014, filed with the SEC on March 2, 2015.
New accounting pronouncements
In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02, “Amendments to the Consolidation Analysis,” which affects the variable interest entity and voting entity consolidation models for all companies. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2015. We are evaluating the impact of this standard on our result of operations or financial position.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2015. The adoption of this accounting guidance will not materially impact our financial position.
Note 2. Closure Costs, Impairment and Other Related Charges
Closure costs, impairment and other related charges for the three months ended March 31, 2015 were comprised of the following:
(Unaudited, in millions)
Accelerated
Depreciation
Severance
and Other
Costs
Total
Permanent closures:
 
 
 
 
 
 
 
 
 
Paper mill in Iroquois Falls, Ontario
$

 
$
4

 
$
4

 
Paper machine in Clermont, Québec
 
2

 
 

 
 
2

 
Total
$
2

 
$
4

 
$
6

 
Closure costs, impairment and other related charges for the three months ended March 31, 2014 were comprised of the following:
(Unaudited, in millions)
Impairment of Assets
Accelerated
Depreciation
Severance
and Other
Costs
Total
Permanent closures:
 
 
 
 
 
 
 
 
 
 
 
 
Pulp and paper mill in Fort Frances, Ontario
$

 
$

 
$
6

 
$
6

 
Paper machine in Iroquois Falls
 

 
 
3

 
 

 
 
3

 
Other
 
1

 
 

 
 

 
 
1

 
Total
$
1

 
$
3

 
$
6

 
$
10

 

6


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Note 3. Other Income (Expense), Net
Other income (expense), net for the three months ended March 31, 2015 and 2014 was comprised of the following:
(Unaudited, in millions)
2015
 
 
2014
 
 
Foreign exchange gain (loss)
$
2

 
$
(14
)
 
Miscellaneous income
 
3

 
 
1

 
 
$
5

 
$
(13
)
 
Note 4. Accumulated Other Comprehensive Loss
The change in our accumulated other comprehensive loss by component (net of tax) for the three months ended March 31, 2015 was as follows:
(Unaudited, in millions)
Unamortized Prior Service Credits
Unamortized Actuarial Losses
Foreign
Currency
Translation
Total
Balance as of December 31, 2014
$
94

 
$
(812
)
 
$

 
$
(718
)
 
Other comprehensive loss before reclassifications
 

 
 

 
 
(1
)
 
 
(1
)
 
Amounts reclassified from accumulated other comprehensive loss (1)
 
(5
)
 
 
16

 
 

 
 
11

 
Net current period other comprehensive (loss) income
 
(5
)
 
 
16

 
 
(1
)
 
 
10

 
Balance as of March 31, 2015
$
89

 
$
(796
)
 
$
(1
)
 
$
(708
)
 
(1) 
See the table below for details about these reclassifications.
The reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2015 were comprised of the following:
(Unaudited, in millions)
Amounts Reclassified From Accumulated Other Comprehensive Loss
Affected Line in the Consolidated Statements of Operations
Unamortized Prior Service Credits
 
 
 
 
Amortization of prior service credits
$
(5
)
 
Cost of sales, excluding depreciation, amortization and distribution costs (1)
 
 

 
Income tax (provision) benefit
 
$
(5
)
 
Net of tax
Unamortized Actuarial Losses
 
 
 
 
Amortization of actuarial losses
$
21

 
Cost of sales, excluding depreciation, amortization and distribution costs (1)
 
 
(5
)
 
Income tax (provision) benefit
 
$
16

 
Net of tax
Total Reclassifications
$
11

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

7


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Note 5. Net Loss Per Share
The weighted-average number of stock options and equity-classified restricted stock units, deferred stock units and performance stock units (collectively, “stock unit awards”) outstanding for the three months ended March 31, 2015 and 2014 was as follows:
(Unaudited, in millions)
2015

 
2014

 
Stock options
1.6

 
1.8

 
Stock unit awards
1.2

 
1.0

 
These stock options and stock unit awards were excluded from the calculation of diluted net loss per share as the impact would have been antidilutive for all periods presented.
Note 6. Inventories, Net
Inventories, net as of March 31, 2015 and December 31, 2014 were comprised of the following:
(Unaudited, in millions)
March 31,
2015
December 31,
2014
Raw materials and work in process
$
175

 
$
160

 
Finished goods
 
194

 
 
192

 
Mill stores and other supplies
 
194

 
 
190

 
 
$
563

 
$
542

 
Note 7. Long-Term Debt
Overview
Long-term debt, including current portion, as of March 31, 2015 and December 31, 2014 was comprised of the following:
(Unaudited, in millions)
March 31,
2015
December 31,
2014
5.875% senior notes due 2023:
 
 
 
 
 
 
Principal amount
$
600

 
$
600

 
Unamortized discount
 
(5
)
 
 
(5
)
 
Total senior notes due 2023
 
595

 
 
595

 
Capital lease obligation
 
2

 
 
2

 
Total debt
 
597

 
 
597

 
Less: Current portion of long-term debt
 
(1
)
 
 
(1
)
 
Long-term debt, net of current portion
$
596

 
$
596

 
5.875% senior notes due 2023
We issued $600 million in aggregate principal amount of 5.875% senior notes due 2023 (the “2023 Notes”) on May 8, 2013. Interest on the notes is payable semi-annually on May 15 and November 15, until their maturity date of May 15, 2023. The fair value of the 2023 Notes was $577 million and $571 million as of March 31, 2015 and December 31, 2014, respectively, and was determined by reference to over-the-counter prices (Level 1).
ABL Credit Facility
Our senior secured asset-based revolving credit facility (the “ABL Credit Facility”), as amended, matures on October 28, 2016 and provides for an aggregate lender commitment of up to $665 million at any time outstanding, subject to borrowing base availability. As of March 31, 2015, we had no borrowings and $36 million of letters of credit outstanding under the ABL Credit Facility. As of March 31, 2015, we had $464 million of availability under the ABL Credit Facility, which was comprised of $281 million for the U.S. borrowers (Resolute Forest Products Inc., Resolute FP US Inc. and AbiBow Recycling LLC) and $183 million for the Canadian borrower (Resolute FP Canada Inc.).

8


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Capital lease obligation
We have a capital lease obligation for a warehouse, which can be renewed for 20 years at our option. Minimum payments are determined by an escalatory price clause.
Note 8. Employee Benefit Plans
Pension and OPEB plans
The components of net periodic benefit cost relating to our pension and OPEB plans for the three months ended March 31, 2015 and 2014 were as follows:
Pension Plans:
(Unaudited, in millions)
2015
 
 
2014
 
 
Service cost
$
6

 
$
7

 
Interest cost
 
58

 
 
69

 
Expected return on plan assets
 
(67
)
 
 
(75
)
 
Amortization of actuarial losses
 
22

 
 
1

 
Amortization of prior service credits
 
(1
)
 
 

 
 
$
18

 
$
2

 
OPEB Plans:
(Unaudited, in millions)
2015
 
 
2014
 
 
Service cost
$

 
$
1

 
Interest cost
 
2

 
 
3

 
Amortization of actuarial gains
 
(1
)
 
 
(1
)
 
Amortization of prior service credits
 
(4
)
 
 
(2
)
 
 
$
(3
)
 
$
1

 
Defined contribution plans
Our expense for the defined contribution plans totaled $6 million for both the three months ended March 31, 2015 and 2014.
Note 9. Income Taxes
The income tax (provision) benefit attributable to loss before income taxes differs from the amounts computed by applying the United States federal statutory income tax rate of 35% for the three months ended March 31, 2015 and 2014 as a result of the following:
(Unaudited, in millions)
2015
 
 
2014
 
 
Loss before income taxes
$
(22
)
 
$
(58
)
 
Income tax (provision) benefit:
 
 
 
 
 
 
Expected income tax benefit
 
8

 
 
20

 
Changes resulting from:
 
 
 
 
 
 
Valuation allowance (1)
 
(19
)
 
 
(8
)
 
Foreign exchange
 
(5
)
 
 
(6
)
 
State income taxes and foreign tax rate differences
 
3

 
 
2

 
Other, net
 
3

 
 

 
 
$
(10
)
 
$
8

 
(1) 
During the three months ended March 31, 2015 and 2014, we recorded a net increase in our valuation allowance of $19 million and $8 million, respectively, primarily because we no longer recognize tax benefits related to our U.S. operations.

9


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Note 10. Commitments and Contingencies
Legal matters
We become involved in various legal proceedings and other disputes in the normal course of business, including matters related to contracts, commercial disputes, taxes, environmental issues, activists damages, employment and workers’ compensation claims, Aboriginal claims and other matters. Although the final outcome is subject to many variables and cannot be predicted with any degree of certainty, we regularly assess the status of the matters and establish provisions (including legal costs expected to be incurred) when we believe an adverse outcome is probable, and the amount can be reasonably estimated. Except as described below and for claims that cannot be assessed due to their preliminary nature, we believe that the ultimate disposition of these matters outstanding or pending as of March 31, 2015, will not have a material adverse effect on our consolidated financial statements.
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. (“Fibrek”) shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the issuance of a final order of the Québec Superior Court in Canada approving the arrangement on July 27, 2012. Certain former shareholders of Fibrek exercised (or purported to exercise) rights of dissent in respect of the transaction, asking for a judicial determination of the fair value of their claim under the Canada Business Corporations Act. No consideration has to date been paid to the former Fibrek shareholders who exercised (or purported to exercise) rights of dissent. Any such consideration will only be paid out upon settlement or judicial determination of the fair value of their claims and will be paid entirely in cash. Accordingly, we cannot presently determine the amount that ultimately will be paid to former holders of Fibrek shares in connection with the proceedings, but we have accrued approximately Cdn $14 million ($11 million, based on the exchange rate in effect on March 31, 2015) for the eventual payment of those claims.
On June 12, 2012, we filed a motion for directives with the Québec Superior Court in Canada, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada), from which our predecessor entity and all but one of its affiliates emerged in 2010, seeking an order to prevent pension regulators in each of Québec, 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 creditor protection proceedings. These plans are subject to the funding relief regulations described in Note 14, “Pension and Other Postretirement Benefit Plans - Canadian pension funding,” to our consolidated financial statements for the year ended December 31, 2014 and we contend, among other things, that any such declaration, if issued, would be inconsistent with the Québec Superior Court in Canada’s sanction order confirming the plan of reorganization and the terms of our emergence from the creditor protection proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to Cdn $150 million ($120 million based on the exchange rate in effect on March 31, 2015), would have to be funded if we do not obtain the relief sought. No hearing date has been set to date.
Environmental matters
We are subject to a variety of federal, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. Environmental regulations promulgated in the future could require substantial additional expenditures for compliance and could have a material impact on us, in particular, and the industry in general.
We may be a “potentially responsible party” with respect to four hazardous waste sites that are being addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund) or the Resource Conservation and Recovery Act corrective action authority. We believe we will not be liable for any significant amounts at any of these sites.
We have recorded $14 million and $18 million of environmental liabilities as of March 31, 2015 and December 31, 2014, respectively. The amount of these liabilities represents management’s estimate based on an assessment of relevant factors and assumptions of the ultimate settlement and could be affected by changes in facts or assumptions not currently known to management for which the outcome cannot be reasonably estimated at this time. These liabilities are included in “Accounts payable and accrued liabilities” or “Other long-term liabilities” in our Consolidated Balance Sheets.
We have also recorded $22 million of asset retirement obligations as of both March 31, 2015 and December 31, 2014, primarily consisting of liabilities for landfills, sludge basins and decontamination of closed sites. These liabilities are included in “Accounts payable and accrued liabilities” or “Other long-term liabilities” in our Consolidated Balance Sheets.

10


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Other matters
On October 30, 2014, we received a notice from the Ministry of Natural Resources and Forestry of Ontario (the “MNRF”) directing us to repay a conditional incentive of Cdn $23 million ($18 million based on the exchange rate in effect on March 31, 2015) offered in 2007 toward the construction of an electricity-producing turbine, should we fail to restart our Fort Frances pulp and paper mill or otherwise implement an alternative remedy that is acceptable to the MNRF. Several extensions to implement an alternative remedy have been granted to us by the MNRF, with the latest remedy date being July 31, 2015. We announced the permanent closure of the mill in the second quarter of 2014 and have been exploring a number of opportunities for the mill. We are not presently able to determine the outcome of this process, but we currently believe that we could reach an acceptable outcome for the MNRF within the time limit prescribed. Accordingly, we have recorded no contingent liability in respect of this notice in our Consolidated Balance Sheet as of March 31, 2015.
Note 11. Segment Information
We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our principal product lines: newsprint, specialty papers, market pulp and wood products.
None of the income or loss items following “Operating 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, net gain 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, excluding certain discretionary charges and credits, are allocated to our segments.
Information about certain segment data for the three months ended March 31, 2015 and 2014 was as follows:
(Unaudited, in millions)
Newsprint
Specialty
Papers
Market
Pulp (1)
Wood
Products
Corporate
and Other
Consolidated
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First three months 2015
$
291

 
$
272

 
$
218

 
$
139

 
$

 
$
920

 
First three months 2014
 
346

 
 
301

 
 
234

 
 
135

 
 

 
 
1,016

 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First three months 2015
$
16

 
$
17

 
$
14

 
$
8

 
$
2

 
$
57

 
First three months 2014
 
18

 
 
22

 
 
13

 
 
8

 
 
1

 
 
62

 
Operating (loss) income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First three months 2015
$
(6
)
 
$
1

 
$
10

 
$
5

 
$
(25
)
 
$
(15
)
 
First three months 2014
 
(15
)
 
 
(24
)
 
 
8

 
 
12

 
 
(14
)
 
 
(33
)
 
(1) 
Market pulp sales excluded inter-segment sales of $3 million for both the three months ended March 31, 2015 and 2014.


11


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

Note 12. 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 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 (the “Guarantor Subsidiaries”). The 2023 Notes are not guaranteed by our foreign subsidiaries and our less than 100% owned U.S. subsidiaries (the “Non-guarantor Subsidiaries”).
The following condensed consolidating financial information sets forth the Statements of Operations and Comprehensive (Loss) Income for the three months ended March 31, 2015 and 2014, the Balance Sheets as of March 31, 2015 and December 31, 2014, and the Statements of Cash Flows for the three months ended March 31, 2015 and 2014 for the Parent, the Guarantor Subsidiaries on a combined basis, and the Non-guarantor Subsidiaries 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 elimination entries to eliminate the investments in subsidiaries and intercompany balances and transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For the Three Months Ended March 31, 2015
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Sales
$

 
$
751

 
$
581

 
$
(412
)
 
$
920

 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation, amortization and distribution costs
 

 
 
704

 
 
424

 
 
(410
)
 
 
718

 
Depreciation and amortization
 

 
 
23

 
 
34

 
 

 
 
57

 
Distribution costs
 

 
 
41

 
 
73

 
 
(1
)
 
 
113

 
Selling, general and administrative expenses
 
3

 
 
12

 
 
26

 
 

 
 
41

 
Closure costs, impairment and other related charges
 

 
 

 
 
6

 
 

 
 
6

 
Operating (loss) income
 
(3
)
 
 
(29
)
 
 
18

 
 
(1
)
 
 
(15
)
 
Interest expense
 
(18
)
 
 
(1
)
 
 
(2
)
 
 
9

 
 
(12
)
 
Other (expense) income, net
 
(1
)
 
 
12

 
 
3

 
 
(9
)
 
 
5

 
Parent’s equity in loss of subsidiaries
 
(11
)
 
 

 
 

 
 
11

 
 

 
(Loss) income before income taxes
 
(33
)
 
 
(18
)
 
 
19

 
 
10

 
 
(22
)
 
Income tax benefit (provision)
 

 
 
4

 
 
(14
)
 
 

 
 
(10
)
 
Net (loss) income including noncontrolling interests
 
(33
)
 
 
(14
)
 
 
5

 
 
10

 
 
(32
)
 
Net income attributable to noncontrolling interests
 

 
 

 
 
(1
)
 
 

 
 
(1
)
 
Net (loss) income attributable to Resolute Forest Products Inc.
$
(33
)
 
$
(14
)
 
$
4

 
$
10

 
$
(33
)
 
Comprehensive (loss) income attributable to Resolute Forest Products Inc.
$
(23
)
 
$
(14
)
 
$
14

 
$

 
$
(23
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
For the Three Months Ended March 31, 2014
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Sales
$

 
$
845

 
$
701

 
$
(530
)
 
$
1,016

 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation, amortization and distribution costs
 

 
 
820

 
 
532

 
 
(531
)
 
 
821

 
Depreciation and amortization
 

 
 
25

 
 
37

 
 

 
 
62

 
Distribution costs
 

 
 
37

 
 
84

 
 
(1
)
 
 
120

 
Selling, general and administrative expenses
 
4

 
 
9

 
 
23

 
 

 
 
36

 
Closure costs, impairment and other related charges
 

 
 
2

 
 
8

 
 

 
 
10

 
Operating (loss) income
 
(4
)
 
 
(48
)
 
 
17

 
 
2

 
 
(33
)
 
Interest expense
 
(17
)
 
 
(1
)
 
 
(3
)
 
 
9

 
 
(12
)
 
Other (expense) income, net
 
(1
)
 
 
11

 
 
(14
)
 
 
(9
)
 
 
(13
)
 
Parent’s equity in loss of subsidiaries
 
(28
)
 
 

 
 

 
 
28

 
 

 
Loss before income taxes
 
(50
)
 
 
(38
)
 
 

 
 
30

 
 
(58
)
 
Income tax benefit (provision)
 

 
 
15

 
 
(6
)
 
 
(1
)
 
 
8

 
Net loss including noncontrolling interests
 
(50
)
 
 
(23
)
 
 
(6
)
 
 
29

 
 
(50
)
 
Net income attributable to noncontrolling interests
 

 
 

 
 

 
 

 
 

 
Net loss attributable to Resolute Forest Products Inc.
$
(50
)
 
$
(23
)
 
$
(6
)
 
$
29

 
$
(50
)
 
Comprehensive (loss) income attributable to Resolute Forest Products Inc.
$
(26
)
 
$
1

 
$
(6
)
 
$
5

 
$
(26
)
 

13


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2015
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
277

 
$
47

 
$

 
$
324

 
Accounts receivable, net
 

 
 
353

 
 
149

 
 

 
 
502

 
Accounts receivable from affiliates
 
1

 
 
386

 
 
107

 
 
(494
)
 
 

 
Inventories, net
 

 
 
240

 
 
333

 
 
(10
)
 
 
563

 
Deferred income tax assets
 

 
 

 
 
64

 
 

 
 
64

 
Interest receivable from parent
 

 
 
6

 
 

 
 
(6
)
 
 

 
Notes receivable from affiliates
 

 
 
321

 
 

 
 
(321
)
 
 

 
Other current assets
 

 
 
22

 
 
29

 
 

 
 
51

 
Total current assets
 
1

 
 
1,605

 
 
729

 
 
(831
)
 
 
1,504

 
Fixed assets, net
 

 
 
726

 
 
1,230

 
 

 
 
1,956

 
Amortizable intangible assets, net
 

 
 

 
 
62

 
 

 
 
62

 
Deferred income tax assets
 

 
 

 
 
1,097

 
 
2

 
 
1,099

 
Notes receivable from parent
 

 
 
678

 
 

 
 
(678
)
 
 

 
Investments in consolidated subsidiaries and affiliates
 
4,095

 
 
2,028

 
 

 
 
(6,123
)
 
 

 
Other assets
 
7

 
 
56

 
 
62

 
 

 
 
125

 
Total assets
$
4,103

 
$
5,093

 
$
3,180

 
$
(7,630
)
 
$
4,746

 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
14

 
$
184

 
$
289

 
$

 
$
487

 
Current portion of long-term debt
 

 
 
1

 
 

 
 

 
 
1

 
Accounts payable to affiliates
 
386

 
 
107

 
 
1

 
 
(494
)
 
 

 
Interest payable to subsidiary
 
6

 
 

 
 

 
 
(6
)
 
 

 
Notes payable to affiliate
 

 
 

 
 
321

 
 
(321
)
 
 

 
Total current liabilities
 
406

 
 
292

 
 
611

 
 
(821
)
 
 
488

 
Long-term debt, net of current portion
 
595

 
 
1

 
 

 
 

 
 
596

 
Notes payable to subsidiaries
 
678

 
 

 
 

 
 
(678
)
 
 

 
Pension and other postretirement benefit obligations
 

 
 
416

 
 
1,075

 
 

 
 
1,491

 
Deferred income tax liabilities
 

 
 

 
 
3

 
 

 
 
3

 
Other long-term liabilities
 
1

 
 
29

 
 
38

 
 

 
 
68

 
Total liabilities
 
1,680

 
 
738

 
 
1,727

 
 
(1,499
)
 
 
2,646

 
Total equity
 
2,423

 
 
4,355

 
 
1,453

 
 
(6,131
)
 
 
2,100

 
Total liabilities and equity
$
4,103

 
$
5,093

 
$
3,180

 
$
(7,630
)
 
$
4,746

 

14


RESOLUTE FOREST PRODUCTS INC.
Notes to Unaudited Interim Consolidated Financial Statements

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2014
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
257

 
$
80

 
$

 
$
337

 
Accounts receivable, net
 

 
 
383

 
 
156

 
 

 
 
539

 
Accounts receivable from affiliates
 

 
 
384

 
 
95

 
 
(479
)
 
 

 
Inventories, net
 

 
 
251

 
 
300

 
 
(9
)
 
 
542

 
Deferred income tax assets
 

 
 

 
 
70

 
 

 
 
70

 
Note and interest receivable from parent
 

 
 
287