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EX-31.1 - EXHIBIT 31.1 - Resolute Forest Products Inc.rfp-2015930xex311.htm
EX-32.2 - EXHIBIT 32.2 - Resolute Forest Products Inc.rfp-2015930xex322.htm
EX-32.1 - EXHIBIT 32.1 - Resolute Forest Products Inc.rfp-2015930xex321.htm
EX-31.2 - EXHIBIT 31.2 - Resolute Forest Products Inc.rfp-2015930xex312.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 SEPTEMBER 30, 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 October 30, 2015, there were 89,306,132 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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
 
2014
 
 
 
2015
 
 
2014
 
 
Sales
$
905

 
$
1,096

 
 
$
2,751

 
$
3,203

 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation, amortization and distribution costs
 
687

 
 
816

 
 
 
2,097

 
 
2,449

 
Depreciation and amortization
 
59

 
 
60

 
 
 
176

 
 
184

 
Distribution costs
 
117

 
 
134

 
 
 
348

 
 
388

 
Selling, general and administrative expenses
 
34

 
 
41

 
 
 
115

 
 
118

 
Closure costs, impairment and other related charges
 
2

 
 
85

 
 
 
8

 
 
147

 
Net gain on disposition of assets
 

 
 

 
 
 

 
 
(2
)
 
Operating income (loss)
 
6

 
 
(40
)
 
 
 
7

 
 
(81
)
 
Interest expense
 
(9
)
 
 
(12
)
 
 
 
(32
)
 
 
(35
)
 
Other (expense) income, net
 
(1
)
 
 
(65
)
 
 
 
5

 
 
(58
)
 
Loss before income taxes
 
(4
)
 
 
(117
)
 

 
(20
)
 
 
(174
)
 
Income tax (provision) benefit
 
(2
)
 
 
1

 
 
 
(22
)
 
 
8

 
Net loss including noncontrolling interests
 
(6
)
 
 
(116
)
 
 
 
(42
)
 
 
(166
)
 
Net income attributable to noncontrolling interests
 

 
 

 
 
 
(1
)
 
 
(2
)
 
Net loss attributable to Resolute Forest Products Inc.
$
(6
)
 
$
(116
)
 
 
$
(43
)
 
$
(168
)
 
Net loss per share attributable to Resolute Forest Products Inc. common shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(0.07
)
 
$
(1.23
)
 
 
$
(0.46
)
 
$
(1.78
)
 
Diluted
 
(0.07
)
 
 
(1.23
)
 
 
 
(0.46
)
 
 
(1.78
)
 
Weighted-average number of Resolute Forest Products Inc. common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
91.1

 
 
94.6

 
 
 
93.3

 
 
94.6

 
Diluted
 
91.1

 
 
94.6

 
 
 
93.3

 
 
94.6

 
See accompanying notes to unaudited interim consolidated financial statements.


1


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

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
 
2014
 
 
 
2015
 
 
2014
 
 
Net loss including noncontrolling interests
$
(6
)
 
$
(116
)
 
 
$
(42
)
 
$
(166
)
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized prior service credits:
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unamortized prior service credits
 
(4
)
 
 
(4
)
 
 
 
(12
)
 
 
82

 
Income tax benefit (provision)
 

 
 
1

 
 
 

 
 
(33
)
 
Change in unamortized prior service credits, net of tax
 
(4
)
 
 
(3
)
 
 
 
(12
)
 
 
49

 
Unamortized actuarial losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unamortized actuarial losses
 
20

 
 
(42
)
 
 
 
60

 
 
(46
)
 
Income tax (provision) benefit
 
(4
)
 
 
11

 
 
 
(13
)
 
 
14

 
Change in unamortized actuarial losses, net of tax
 
16

 
 
(31
)
 
 
 
47

 
 
(32
)
 
Foreign currency translation
 
(1
)
 
 
1

 
 
 
(3
)
 
 
1

 
Other comprehensive income (loss), net of tax
 
11

 
 
(33
)
 
 
 
32

 
 
18

 
Comprehensive income (loss) including noncontrolling interests
 
5

 
 
(149
)
 
 
 
(10
)
 
 
(148
)
 
Comprehensive income attributable to noncontrolling interests
 

 
 

 
 
 
(1
)
 
 
(2
)
 
Comprehensive income (loss) attributable to Resolute Forest Products Inc.
$
5

 
$
(149
)
 
 
$
(11
)
 
$
(150
)
 
See accompanying notes to unaudited interim consolidated financial statements.

2


RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except per share amount)
 
September 30,
2015
December 31,
2014
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
235

 
$
337

 
Accounts receivable, net:
 
 
 
 
 
 
Trade
 
420

 
 
449

 
Other
 
93

 
 
90

 
Inventories, net
 
535

 
 
542

 
Deferred income tax assets
 
22

 
 
70

 
Other current assets
 
63

 
 
46

 
Total current assets
 
1,368

 
 
1,534

 
Fixed assets, net
 
1,932

 
 
1,985

 
Amortizable intangible assets, net
 
60

 
 
62

 
Deferred income tax assets
 
1,028

 
 
1,219

 
Other assets
 
160

 
 
121

 
Total assets
$
4,548

 
$
4,921

 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
467

 
$
518

 
Current portion of long-term debt
 
1

 
 
1

 
Total current liabilities
 
468

 
 
519

 
Long-term debt, net of current portion
 
596

 
 
596

 
Pension and other postretirement benefit obligations
 
1,356

 
 
1,616

 
Deferred income tax liabilities
 
3

 
 
3

 
Other liabilities
 
67

 
 
70

 
Total liabilities
 
2,490

 
 
2,804

 
Commitments and contingencies
 

 
 

 
Equity:
 
 
 
 
 
 
Resolute Forest Products Inc. shareholders’ equity:
 
 
 
 
 
 
Common stock, $0.001 par value. 117.3 shares issued and 89.3 shares outstanding as of September 30, 2015; 117.3 shares issued and 94.8 shares outstanding as of December 31, 2014
 

 
 

 
Additional paid-in capital
 
3,764

 
 
3,754

 
Deficit
 
(912
)
 
 
(869
)
 
Accumulated other comprehensive loss
 
(686
)
 
 
(718
)
 
Treasury stock at cost, 28.0 shares and 22.5 shares as of September 30, 2015 and December 31, 2014, respectively
 
(120
)
 
 
(61
)
 
Total Resolute Forest Products Inc. shareholders’ equity
 
2,046

 
 
2,106

 
Noncontrolling interests
 
12

 
 
11

 
Total equity
 
2,058

 
 
2,117

 
Total liabilities and equity
$
4,548

 
$
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)
 
 
Nine Months Ended September 30, 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
 

 
 
10

 
 

 
 

 
 

 
 

 
 
10

 
Net (loss) income
 

 
 

 
 
(43
)
 
 

 
 

 
 
1

 
 
(42
)
 
Purchases of treasury stock (5.5 shares) (Note 11)
 

 
 

 
 

 
 

 
 
(59
)
 
 

 
 
(59
)
 
Other comprehensive income, net of tax
 

 
 

 
 

 
 
32

 
 

 
 

 
 
32

 
Balance as of September 30, 2015
$

 
$
3,764

 
$
(912
)
 
$
(686
)
 
$
(120
)
 
$
12

 
$
2,058

 

 
Nine Months Ended September 30, 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

 
Share-based compensation costs for equity-classified awards
 

 
 
3

 
 

 
 

 
 

 
 

 
 
3

 
Net (loss) income
 

 
 

 
 
(168
)
 
 

 
 

 
 
2

 
 
(166
)
 
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
 

 
 

 
 

 
 
18

 
 

 
 

 
 
18

 
Balance as of September 30, 2014
$

 
$
3,754

 
$
(760
)
 
$
(253
)
 
$
(61
)
 
$
14

 
$
2,694

 
See accompanying notes to unaudited interim consolidated financial statements.


4


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

 
Nine Months Ended 
 September 30,
 
2015
 
 
2014
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss including noncontrolling interests
$
(42
)
 
$
(166
)
 
Adjustments to reconcile net loss including noncontrolling interests to net cash provided by operating activities:
 
 
 
 
 
 
Share-based compensation
 
10

 
 
3

 
Depreciation and amortization
 
176

 
 
184

 
Closure costs, impairment and other related charges
 
2

 
 
139

 
Inventory write-downs related to closures
 
1

 
 
10

 
Deferred income taxes
 
26

 
 
(9
)
 
Net pension contributions and other postretirement benefit payments
 
(66
)
 
 
(128
)
 
Net gain on disposition of assets
 

 
 
(2
)
 
Loss on translation of foreign currency denominated deferred income taxes
 
160

 
 
63

 
Gain on translation of foreign currency denominated pension and other postretirement benefit obligations
 
(148
)
 
 
(51
)
 
Net planned major maintenance payments
 
(12
)
 
 
(1
)
 
Write-down of equity method investment
 

 
 
50

 
Dividends received from equity method investees in excess of income
 

 
 
2

 
Changes in working capital:
 
 
 
 
 
 
Accounts receivable
 
24

 
 
35

 
Inventories
 
4

 
 
(44
)
 
Other current assets
 
(7
)
 
 
(10
)
 
Accounts payable and accrued liabilities
 
(45
)
 
 

 
Other, net
 
7

 
 
5

 
Net cash provided by operating activities
 
90

 
 
80

 
Cash flows from investing activities:
 
 
 
 
 
 
Cash invested in fixed assets
 
(123
)
 
 
(142
)
 
Disposition of assets
 

 
 
6

 
Decrease in restricted cash
 

 
 
1

 
(Increase) decrease in deposit requirements for letters of credit, net
 
(5
)
 
 
2

 
Net cash used in investing activities
 
(128
)
 
 
(133
)
 
Cash flows from financing activities:
 
 
 
 
 
 
Payments of debt
 

 
 
(1
)
 
Payments of financing and credit facility fees
 
(3
)
 
 
(1
)
 
Purchases of treasury stock
 
(59
)
 
 

 
Net cash used in financing activities
 
(62
)
 
 
(2
)
 
Effect of exchange rate changes on cash and cash equivalents
 
(2
)
 
 
(2
)
 
Net decrease in cash and cash equivalents
 
(102
)
 
 
(57
)
 
Cash and cash equivalents:
 
 
 
 
 
 
Beginning of period
 
337

 
 
322

 
End of period
$
235

 
$
265

 
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 September 30, 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 update 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.
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 update 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.
In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This update is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted as of the beginning of an interim or annual reporting period. The adoption of this accounting guidance will not materially impact our financial position.
In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which eliminates the requirement to categorize investments in the fair value hierarchy if the fair value is measured at net asset value per share, or its equivalent, using the practical expedient in FASB Accounting Standards Codification 820, “Fair Value Measurements and Disclosures.” This update is effective for financial statements issued for fiscal years beginning after December 15, 2015. The adoption of this accounting guidance will modify the fair value hierarchy presentation of our pension plan assets in our consolidated financial statements.
In July 2015, the FASB approved a one-year deferral of ASU 2014-09, “Revenue from Contracts with Customers,” deferring the effective date to fiscal years beginning after December 15, 2017. Early adoption is permitted for financial statements issued for fiscal years beginning after December 15, 2016.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which requires that inventory within the scope of this update, including inventory stated at average cost, be measured at the lower of cost and net realizable value. This update is effective for financial statements issued for fiscal years beginning after December 15, 2016, with early adoption permitted as of the beginning of an interim or annual reporting period. The adoption of this accounting guidance will not materially impact our financial position.


6


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

Note 2. Closure Costs, Impairment and Other Related Charges
Closure costs, impairment and other related charges for the three and nine months ended September 30, 2015, were comprised of the following:
(Unaudited, in millions)
Impairment
of Assets
Accelerated
Depreciation
Severance
and Other
Costs
Total
Permanent closures:
 
 
 
 
 
 
 
 
 
 
 
 
Paper mill in Iroquois Falls, Ontario
 

 
 

 
 

 
 

 
Third quarter
$
1

 
$
1

 
$
(1
)
 
$
1

 
First nine months
 
1

 
 
1

 
 
4

 
 
6

 
Paper machine in Clermont, Québec
 

 
 

 
 

 
 

 
Third quarter
 

 
 

 
 

 
 

 
First nine months
 

 
 
2

 
 

 
 
2

 
Other
 

 
 

 
 

 
 

 
Third quarter
 

 
 

 
 
1

 
 
1

 
First nine months
 

 
 

 
 

 
 

 
Total
 

 
 

 
 

 
 

 
Third quarter
$
1

 
$
1

 
$

 
$
2

 
First nine months
 
1

 
 
3

 
 
4

 
 
8

 
Closure costs, impairment and other related charges for the three and nine months ended September 30, 2014, were comprised of the following:
(Unaudited, in millions)
Impairment of Assets
Accelerated
Depreciation
Severance
and Other
Costs
Total
Permanent closures:
 
 
 
 
 
 
 
 
 
 
 
 
Laurentide, Québec paper mill
 
 
 
 
 
 
 
 
 
 
 
 
Third quarter
$

 
$
65

 
$
16

 
$
81

 
First nine months
 

 
 
65

 
 
16

 
 
81

 
Paper machine in Catawba, South Carolina
 
 
 
 
 
 
 
 
 
 
 
 
Third quarter
 

 
 

 
 

 
 

 
First nine months
 

 
 
45

 
 
1

 
 
46

 
Pulp and paper mill in Fort Frances, Ontario
 

 
 

 
 

 
 

 
Third quarter
 

 
 

 
 

 
 

 
First nine months
 

 
 

 
 
8

 
 
8

 
Paper machine in Iroquois Falls
 

 
 

 
 

 
 

 
Third quarter
 

 
 

 
 

 
 

 
First nine months
 

 
 
3

 
 

 
 
3

 
Other
 

 
 

 
 

 
 

 
Third quarter
 
3

 
 

 
 
1

 
 
4

 
First nine months
 
9

 
 

 
 

 
 
9

 
Total
 

 
 

 
 

 
 

 
Third quarter
$
3

 
$
65

 
$
17

 
$
85

 
First nine months
 
9

 
 
113

 
 
25

 
 
147

 

7


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

Note 3. Other (Expense) Income, Net
Other (expense) income, net for the three and nine months ended September 30, 2015 and 2014, was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(Unaudited, in millions)
2015
 
 
2014
 
 
 
2015
 
 
2014
 
 
Foreign exchange loss
$
(5
)
 
$
(17
)
 
 
$
(2
)
 
$
(14
)
 
Write-down of equity method investment (1)
 

 
 
(50
)
 
 
 

 
 
(50
)
 
Miscellaneous income
 
4

 
 
2

 
 
 
7

 
 
6

 
 
$
(1
)
 
$
(65
)
 
 
$
5

 
$
(58
)
 
(1) 
As a result of the continued deterioration of actual and projected cash flows in Ponderay Newsprint Company, a partnership in which we have a 40% interest, we recorded an other-than-temporary write-down of $50 million during the three months ended September 30, 2014. The carrying value of the investment was reduced to fair value, which was determined using the discounted cash flow method.

8


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

Note 4. Accumulated Other Comprehensive Loss
The change in our accumulated other comprehensive loss by component (net of tax) for the nine months ended September 30, 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
 

 
 

 
 
(3
)
 
 
(3
)
 
Amounts reclassified from accumulated other comprehensive loss (1)
 
(12
)
 
 
47

 
 

 
 
35

 
Net current period other comprehensive (loss) income
 
(12
)
 
 
47

 
 
(3
)
 
 
32

 
Balance as of September 30, 2015
$
82

 
$
(765
)
 
$
(3
)
 
$
(686
)
 
(1) 
See the table below for details about these reclassifications.
The reclassifications out of accumulated other comprehensive loss for the nine months ended September 30, 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
$
(12
)
 
Cost of sales, excluding depreciation, amortization and distribution costs (1)
 
 

 
Income tax (provision) benefit
 
$
(12
)
 
Net of tax
Unamortized Actuarial Losses
 
 
 
 
Amortization of actuarial losses
$
60

 
Cost of sales, excluding depreciation, amortization and distribution costs (1)
 
 
(13
)
 
Income tax (provision) benefit
 
$
47

 
Net of tax
Total Reclassifications
$
35

 
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.”
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 and nine months ended September 30, 2015 and 2014, was as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(Unaudited, in millions)
2015

 
2014

 
 
2015

 
2014

 
Stock options
1.5

 
1.8

 
 
1.6

 
1.8

 
Stock unit awards
1.2

 
1.0

 
 
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.

9


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

Note 6. Inventories, Net
Inventories, net as of September 30, 2015 and December 31, 2014, were comprised of the following:
(Unaudited, in millions)
September 30,
2015
December 31,
2014
Raw materials and work in process
$
147

 
$
160

 
Finished goods
 
185

 
 
192

 
Mill stores and other supplies
 
203

 
 
190

 
 
$
535

 
$
542

 
Note 7. Long-Term Debt
Overview
Long-term debt, including current portion, as of September 30, 2015 and December 31, 2014, was comprised of the following:
(Unaudited, in millions)
September 30,
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 $459 million and $571 million as of September 30, 2015 and December 31, 2014, respectively, and was determined by reference to over-the-counter prices (Level 1).
ABL Credit Facility
On May 22, 2015, we entered into a new five-year credit agreement for a senior secured asset-based revolving credit facility (the “ABL Credit Facility”), with an aggregate lender commitment of up to $600 million at any time outstanding, subject to borrowing base availability based on specified advance rates, eligibility criteria and customary reserves. This facility replaces our previous $665 million senior secured asset-based revolving credit facility, originally dated as of December 9, 2010. The ABL Credit Facility will mature on May 22, 2020.
The aggregate lender commitment under the facility includes a $60 million swingline sub-facility and a $200 million letter of credit sub-facility, and we may convert up to $50 million of the commitments under the facility to a first-in last-out facility (“FILO Facility”), subject to the consent of each converting lender. The ABL Credit Facility also provides for an uncommitted ability to increase the revolving credit facility by up to $500 million, subject to certain terms and conditions set forth in the agreement.
Revolving loan (and letter of credit) availability under the credit agreement is subject to a borrowing base, which at any time is equal to the sum of (i) 85% of eligible accounts receivable (or 90% with respect to certain insured or letter of credit backed accounts or with accounts owed by investment grade obligors), plus (ii) the lesser of (A) 70% of the lesser of the cost or market value of eligible inventory or (B) 85% of the net orderly liquidation value of eligible inventory, plus (iii) 100% of the value of eligible cash and 95% of the value of permitted investments held in deposit accounts controlled solely by the administrative and collateral agent (the “agent”). The FILO Facility will be subject to a borrowing base, which at any time will be equal to (i) 5% of the eligible accounts receivable, plus (ii) 10% of the appraised net orderly value of the eligible inventory (subject to

10


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

reduction to 5% over the term of the facility). Each borrowing base described above is subject to customary reserves and eligibility criteria, in the exercise of the agent’s reasonable discretion.
The obligations under the credit agreement are guaranteed by certain material subsidiaries of the Company and are secured by first priority liens on and security interests in accounts receivable, inventory and related assets.
Borrowings under the credit agreement bear interest at a rate equal to the base rate, the London Interbank Offered Rate (“LIBOR”), or the Canadian banker’s acceptance (“BA”) rate, in each case plus an applicable margin. The applicable margin is between 0.00% and 0.75% with respect to base rate borrowings and between 1.00% and 1.75% with respect to LIBOR and Canadian BA borrowings, in each case based on availability under the credit facility and a leverage ratio.
Loans outstanding under the FILO Facility bear interest at a rate that is 1.25% per annum higher than the interest rate payable on revolving loans not made under the FILO Facility.
In addition to paying interest on outstanding principal under the credit agreement, we are required to pay fees of up to 0.30% in respect of unutilized commitments, as well as a fee in respect of outstanding letters of credit (equal to the applicable margin in respect of LIBOR and Canadian BA borrowings plus a fronting fee of 0.125% and certain administrative fees).
The Company is able to voluntarily repay outstanding loans and reduce unused commitments, in each case, in whole or in part, at any time without premium or penalty. However, no loans under the FILO Facility can be repaid unless all other loans under the credit agreement are repaid first. We are required to repay outstanding loans that exceed the maximum availability then in effect.
The credit agreement contains customary covenants for asset-based credit agreements of this type, including, among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence and repayment of indebtedness by the Company and its subsidiaries; (iii) restrictions on the existence or incurrence of liens by the Company and its subsidiaries; (iv) restrictions on the Company and certain of its subsidiaries making certain restricted payments; (v) restrictions on the Company and certain of its subsidiaries making certain investments; (vi) restrictions on certain mergers, consolidations and asset dispositions; (vii) restrictions on transactions with affiliates; (viii) restrictions on amendments or modifications to the Canadian pension and benefit plans; (ix) restrictions on modifications to material indebtedness; and (x) a springing requirement for the Company to maintain a minimum consolidated fixed charge coverage ratio, as determined under the credit agreement, of 1.0:1.0, anytime availability under the facility falls below the greater of $50 million or 10% of the maximum available borrowing amount for two consecutive business days. Subject to customary grace periods and notice requirements, the credit agreement also contains certain customary events of default.
As of September 30, 2015, we had $448 million of availability under the ABL Credit Facility, which was undrawn except for $34 million of ordinary course letters of credit.
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.

11


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

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 and nine months ended September 30, 2015 and 2014, were as follows:
Pension Plans:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(Unaudited, in millions)
2015
 
 
2014
 
 
 
2015
 
 
2014
 
 
Service cost
$
5

 
$
6

 
 
$
17

 
$
20

 
Interest cost
 
56

 
 
69

 
 
 
172

 
 
207

 
Expected return on plan assets
 
(64
)
 
 
(76
)
 
 
 
(198
)
 
 
(227
)
 
Amortization of actuarial losses
 
21

 
 
3

 
 
 
63

 
 
6

 
Amortization of prior service credits
 

 
 

 
 
 
(1
)
 
 
(1
)
 
 
$
18

 
$
2

 
 
$
53

 
$
5

 
OPEB Plans:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(Unaudited, in millions)
2015
 
 
2014
 
 
 
2015
 
 
2014
 
 
Service cost
$
1

 
$

 
 
$
1

 
$
1

 
Interest cost
 
1

 
 
3

 
 
 
5

 
 
9

 
Amortization of actuarial gains
 
(1
)
 
 
(1
)
 
 
 
(3
)
 
 
(3
)
 
Amortization of prior service credits
 
(4
)
 
 
(4
)
 
 
 
(11
)
 
 
(8
)
 
 
$
(3
)
 
$
(2
)
 
 
$
(8
)
 
$
(1
)
 
Defined contribution plans
Our expense for the defined contribution plans totaled $5 million and $6 million for the three months ended September 30, 2015 and 2014, respectively, and $15 million and $17 million for the nine months ended September 30, 2015 and 2014, respectively.

12


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

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 and nine months ended September 30, 2015 and 2014, as a result of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(Unaudited, in millions)
2015
 
 
2014
 
 
 
2015
 
 
2014
 
 
Loss before income taxes
$
(4
)
 
$
(117
)
 
 
$
(20
)
 
$
(174
)
 
Income tax (provision) benefit:
 
 
 
 
 
 
 
 
 
 
 
 
 
Expected income tax benefit
 
1

 
 
41

 
 
 
7

 
 
61

 
Changes resulting from:
 
 
 
 
 
 
 
 
 
 
 
 
 
Valuation allowance (1)
 
(16
)
 
 
(23
)
 
 
 
(43
)
 
 
(43
)
 
Foreign exchange
 
(8
)
 
 
(7
)
 
 
 
(15
)
 
 
(9
)
 
State income taxes and foreign tax rate differences
 
4

 
 
(5
)
 
 
 
9

 
 
6

 
Effect of change in tax rates (2)
 
18

 
 
2

 
 
 
18

 
 
2

 
Other, net
 
(1
)
 
 
(7
)
 
 
 
2

 
 
(9
)
 
 
$
(2
)
 
$
1

 
 
$
(22
)
 
$
8

 
(1) 
We recorded a net increase in our valuation allowance of $16 million and $23 million for the three months ended September 30, 2015 and 2014, respectively, and $43 million for both the nine months ended September 30, 2015 and 2014, primarily related to our U.S. operations where we recognize a full valuation allowance against our net deferred income tax assets.
(2) 
During the three months ended September 30, 2015, we recorded an income tax benefit of $18 million as a result of a change in tax rates on deferred income taxes, primarily due to an intercompany asset transfer in connection with an operating company realignment.
Deferred tax charge
As a result of a gain on an intercompany asset transfer in connection with an operating company realignment, a $38 million income tax provision was deferred and recorded in “Other assets” in our Consolidated Balance Sheet as of September 30, 2015. This deferred tax charge will be amortized, as the underlying assets are consumed or sold to an unrelated party, in “Income tax provision” in our Consolidated Statements of Operations.
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 September 30, 2015, will not have a material adverse effect on our consolidated financial statements.
On February 26, 2015, a countervailing duty petition was filed with the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“USITC”) by certain U.S. supercalendered (“SC”) paper producers requesting the U.S. government to impose countervailing duties on Canadian-origin SC paper exported to the U.S. market. One of our subsidiaries was identified in the petition as being a Canadian exporting producer of SC paper to the U.S. and was selected as a mandatory respondent to be individually investigated by Commerce. On August 3, 2015, Commerce assigned a preliminary subsidy rate of 2.04% to our SC paper produced at our Canadian mills. On October 15, 2015, Commerce issued a final determination and increased the subsidy rate applicable to our Canadian-produced SC paper to 17.87%. Since October 20, 2015, we have been required to make cash deposits at the 17.87% subsidy rate for estimated and projected countervailing duties on SC papers we import to the U.S. from our Canadian mills. If the USITC rules that exports from Canada to the U.S. have caused or threatened

13


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

to cause material injury to the U.S. SC paper industry, we will be required to continue making cash deposits at the 17.87% subsidy rate until Commerce sets a countervailing duty rate in an administrative review, which may not be finalized until December of 2017, or possibly later. Based on our current operating parameters, the cash deposits could be as high as $25 million per year. To the extent the countervailing duty rate set by Commerce is lower than 17.87%, we will recover excess deposits, plus interest. If the countervailing duty rate set by Commerce is at or above 17.87%, the deposits and any deficiency will be converted into actual countervailing duties. We are not presently able to determine the ultimate resolution of this matter, but we believe it is not probable that we will be assessed with significant countervailing duties. Accordingly, no contingent loss was recorded in respect of this petition in our Consolidated Statement of Operations for the nine months ended September 30, 2015.
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 September 30, 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 ($113 million, based on the exchange rate in effect on September 30, 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 $13 million and $18 million of environmental liabilities as of September 30, 2015 and December 31, 2014, respectively, primarily related to environmental remediation related to closed sites. The amount of these liabilities represents management’s estimate of the ultimate settlement based on an assessment of relevant factors and assumptions and could be affected by changes in facts or assumptions not currently known to management for which the outcome cannot be reasonably estimated at this time. These liabilities are included in “Accounts payable and accrued liabilities” or “Other liabilities” in our Consolidated Balance Sheets.
We have also recorded $24 million and $22 million of asset retirement obligations as of September 30, 2015 and December 31, 2014, respectively, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets. These liabilities are included in “Accounts payable and accrued liabilities” or “Other liabilities” in our Consolidated Balance Sheets.

14


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 ($17 million, based on the exchange rate in effect on September 30, 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 November 30, 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 September 30, 2015.
Note 11. Share Capital
On May 28, 2015, our board of directors authorized a $50 million increase to our existing $100 million share repurchase program, which was originally launched in May of 2012. As of December 31, 2014, we had repurchased 5.6 million shares, at a cost of $67 million. During the three and nine months ended September 30, 2015, we repurchased 2.3 million and 5.5 million shares, respectively, at a cost of $22 million and $59 million, respectively. There remains $24 million under the program.

15


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

Note 12. Segment Information
We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our principal product lines: newsprint, specialty papers, market pulp and wood products.
None of the income or loss items following “Operating income (loss)” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, net gain on disposition of assets, certain components of pension and OPEB costs and credits 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.
In 2015, we changed our presentation of segment operating income to reallocate certain components of pension and OPEB costs, which consist of interest cost, expected return on plan assets and amortization of actuarial losses and gains, from the reportable segments to “corporate and other” in the segment presentation of operating income. Current service costs and amortization of prior service credits will continue to be allocated to the reportable segments. This approach is consistent with the indicators management uses internally to evaluate performance, including those used by the chief operating decision maker. Prior period amounts have been reclassified to conform to the 2015 presentation.
Information about certain segment data for the three and nine months ended September 30, 2015 and 2014, was as follows:
(Unaudited, in millions)
Newsprint
Specialty
Papers
Market
Pulp (1)
Wood
Products
Segment
Total
Corporate
and Other
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third quarter 2015
$
258

 
$
286

 
$
230

 
$
131

 
$
905

 
$

 
$
905

 
Third quarter 2014
 
346

 
 
329

 
 
255

 
 
166

 
 
1,096

 
 

 
 
1,096

 
First nine months 2015
 
838

 
 
830

 
 
679

 
 
404

 
 
2,751

 
 

 
 
2,751

 
First nine months 2014
 
1,056

 
 
955

 
 
730

 
 
462

 
 
3,203

 
 

 
 
3,203

 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third quarter 2015
$
16

 
$
18

 
$
14

 
$
9

 
$
57

 
$
2

 
$
59

 
Third quarter 2014
 
17

 
 
20

 
 
13

 
 
8

 
 
58

 
 
2

 
 
60

 
First nine months 2015
 
48

 
 
54

 
 
40

 
 
26

 
 
168

 
 
8

 
 
176

 
First nine months 2014
 
52

 
 
64

 
 
39

 
 
24

 
 
179

 
 
5

 
 
184

 
Operating (loss) income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third quarter 2015
$
(10
)
 
$
9

 
$
22

 
$
9

 
$
30

 
$
(24
)
 
$
6

 
Third quarter 2014
 
5

 
 
6

 
 
20

 
 
24

 
 
55

 
 
(95
)
 
 
(40
)
 
First nine months 2015
 
(10
)
 
 
31

 
 
59

 
 
10

 
 
90

 
 
(83
)
 
 
7

 
First nine months 2014
 
6

 
 
(23
)
 
 
51

 
 
51

 
 
85

 
 
(166
)
 
 
(81
)
 
(1) 
Market pulp sales excluded inter-segment sales of $5 million for both the three months ended September 30, 2015 and 2014, and $13 million and $15 million for the nine months ended September 30, 2015 and 2014, respectively.

16


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 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 Income (Loss) for the three and nine months ended September 30, 2015 and 2014, the Balance Sheets as of September 30, 2015 and December 31, 2014, and the Statements of Cash Flows for the nine months ended September 30, 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 INCOME (LOSS)
For the Three Months Ended September 30, 2015
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Sales
$

 
$
748

 
$
544

 
$
(387
)
 
$
905

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

 
 
696

 
 
381

 
 
(390
)
 
 
687

 
Depreciation and amortization
 

 
 
23

 
 
36

 
 

 
 
59

 
Distribution costs
 

 
 
43

 
 
74

 
 

 
 
117

 
Selling, general and administrative expenses
 
3

 
 
12

 
 
19

 
 

 
 
34

 
Closure costs, impairment and other related charges