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EX-32.2 - EXHIBIT 32.2 - Resolute Forest Products Inc.rfp-2018331xex322.htm
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EX-31.2 - EXHIBIT 31.2 - Resolute Forest Products Inc.rfp-2018331xex312.htm
EX-31.1 - EXHIBIT 31.1 - Resolute Forest Products Inc.rfp-2018331xex311.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, 2018
 
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM    TO
COMMISSION FILE NUMBER: 001-33776
RESOLUTE FOREST PRODUCTS INC.
(Exact name of registrant as specified in its charter)
Delaware
98-0526415
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
111 Robert-Bourassa Boulevard, Suite 5000; Montreal, Quebec; Canada H3C 2M1
(Address of principal executive offices) (Zip Code)
(514) 875-2160
(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer  ¨
 
Accelerated filer þ
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
 
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 þ
As of April 30, 2018, there were 90,315,674 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,
 
2018
 
 
2017
 
 
Sales
$
874

 
$
872

 
Costs and expenses:
 
 
 
 
 
 
Cost of sales, excluding depreciation, amortization and distribution costs
 
614

 
 
671

 
Depreciation and amortization
 
53

 
 
51

 
Distribution costs
 
116

 
 
110

 
Selling, general and administrative expenses
 
43

 
 
42

 
Closure costs, impairment and other related charges
 

 
 
7

 
Operating income (loss)
 
48

 
 
(9
)
 
Interest expense
 
(13
)
 
 
(11
)
 
Non-operating pension and other postretirement benefit credits
 
13

 
 
3

 
Other expense, net
 
(7
)
 
 

 
Income (loss) before income taxes
 
41

 
 
(17
)
 
Income tax provision
 
(31
)
 
 
(29
)
 
Net income (loss) including noncontrolling interests
 
10

 
 
(46
)
 
Net income attributable to noncontrolling interests
 

 
 
(1
)
 
Net income (loss) attributable to Resolute Forest Products Inc.
$
10

 
$
(47
)
 
Net income (loss) per share attributable to Resolute Forest Products Inc. common shareholders:
 
 
 
 
 
 
Basic
$
0.11

 
$
(0.52
)
 
Diluted
 
0.11

 
 
(0.52
)
 
Weighted-average number of Resolute Forest Products Inc. common shares outstanding:
 
 
 
 
 
 
Basic
 
91.2

 
 
90.2

 
Diluted
 
93.0

 
 
90.2

 
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 
 March 31,
 
2018
 
 
2017
 
 
Net income (loss) including noncontrolling interests
$
10

 
$
(46
)
 
Other comprehensive income:
 
 
 
 
 
 
Unamortized prior service credits
 
 
 
 
 
 
Change in unamortized prior service credits
 
(4
)
 
 
(4
)
 
Income tax provision
 

 
 

 
Change in unamortized prior service credits, net of tax
 
(4
)
 
 
(4
)
 
Unamortized actuarial losses
 
 
 
 
 
 
Change in unamortized actuarial losses
 
9

 
 
14

 
Income tax provision
 
(2
)
 
 
(2
)
 
Change in unamortized actuarial losses, net of tax
 
7

 
 
12

 
Foreign currency translation
 

 
 
1

 
Other comprehensive income, net of tax
 
3

 
 
9

 
Comprehensive income (loss) including noncontrolling interests
 
13

 
 
(37
)
 
Comprehensive income attributable to noncontrolling interests
 

 
 
(1
)
 
Comprehensive income (loss) attributable to Resolute Forest Products Inc.
$
13

 
$
(38
)
 
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,
2018
December 31,
2017
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
13

 
$
6

 
Accounts receivable, net:
 
 
 
 
 
 
Trade
 
384

 
 
399

 
Other
 
77

 
 
80

 
Inventories, net
 
577

 
 
526

 
Other current assets
 
32

 
 
33

 
Total current assets
 
1,083

 
 
1,044

 
Fixed assets, less accumulated depreciation of $1,666 and $1,614 as of March 31, 2018 and December 31, 2017, respectively
 
1,684

 
 
1,716

 
Amortizable intangible assets, less accumulated amortization of $22 and $21 as of March 31, 2018 and December 31, 2017, respectively
 
64

 
 
65

 
Goodwill
 
81

 
 
81

 
Deferred income tax assets
 
1,023

 
 
1,076

 
Other assets
 
187

 
 
165

 
Total assets
$
4,122

 
$
4,147

 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
444

 
$
420

 
Current portion of long-term debt
 
1

 
 
1

 
Total current liabilities
 
445

 
 
421

 
Long-term debt, net of current portion
 
778

 
 
788

 
Pension and other postretirement benefit obligations
 
1,198

 
 
1,257

 
Deferred income tax liabilities
 
19

 
 
13

 
Other liabilities
 
66

 
 
68

 
Total liabilities
 
2,506

 
 
2,547

 
Commitments and contingencies
 

 
 

 
Equity:
 
 
 
 
 
 
Resolute Forest Products Inc. shareholders’ equity:
 
 
 
 
 
 
Common stock, $0.001 par value. 118.3 shares issued and 90.3 shares outstanding as of March 31, 2018; 118.2 shares issued and 90.2 shares outstanding as of December 31, 2017
 

 
 

 
Additional paid-in capital
 
3,796

 
 
3,793

 
Deficit
 
(1,284
)
 
 
(1,294
)
 
Accumulated other comprehensive loss
 
(777
)
 
 
(780
)
 
Treasury stock at cost, 28.0 shares as of March 31, 2018 and December 31, 2017
 
(120
)
 
 
(120
)
 
Total Resolute Forest Products Inc. shareholders’ equity
 
1,615

 
 
1,599

 
Noncontrolling interests
 
1

 
 
1

 
Total equity
 
1,616

 
 
1,600

 
Total liabilities and equity
$
4,122

 
$
4,147

 
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, 2018
 
Resolute Forest Products Inc. Shareholders’ Equity
 
 
 
 
 
 
 
Common
Stock
Additional
Paid-In
Capital
Deficit
Accumulated Other Comprehensive Loss
Treasury
Stock
Non-controlling
Interests
Total Equity
Balance as of December 31, 2017
$

 
$
3,793

 
$
(1,294
)
 
$
(780
)
 
$
(120
)
 
$
1

 
$
1,600

 
Share-based compensation costs for equity-classified awards
 

 
 
3

 
 

 
 

 
 

 
 

 
 
3

 
Net income
 

 
 

 
 
10

 
 

 
 

 
 

 
 
10

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

 
 

 
 

 
 

 
 

 
 

 
 

 
Other comprehensive income, net of tax
 

 
 

 
 

 
 
3

 
 

 
 

 
 
3

 
Balance as of March 31, 2018
$

 
$
3,796

 
$
(1,284
)
 
$
(777
)
 
$
(120
)
 
$
1

 
$
1,616

 

 
Three Months Ended March 31, 2017
 
Resolute Forest Products Inc. Shareholders’ Equity
 
 
 
 
 
 
 
Common
Stock
Additional
Paid-In
Capital
Deficit
Accumulated Other Comprehensive Loss
Treasury
Stock
Non-
controlling
Interests
Total Equity
Balance as of December 31, 2016
$

 
$
3,775

 
$
(1,207
)
 
$
(755
)
 
$
(120
)
 
$
18

 
$
1,711

 
Share-based compensation costs for equity-classified awards
 

 
 
3

 
 

 
 

 
 

 
 

 
 
3

 
Net (loss) income
 

 
 

 
 
(47
)
 
 

 
 

 
 
1

 
 
(46
)
 
Cumulative-effect adjustment upon deferred tax charge elimination (Note 9)
 

 
 

 
 
(3
)
 
 

 
 

 
 

 
 
(3
)
 
Other comprehensive income, net of tax
 

 
 

 
 

 
 
9

 
 

 
 

 
 
9

 
Balance as of March 31, 2017
$

 
$
3,778

 
$
(1,257
)
 
$
(746
)
 
$
(120
)
 
$
19

 
$
1,674

 
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,
 
2018
 
 
2017
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income (loss) including noncontrolling interests
$
10

 
$
(46
)
 
Adjustments to reconcile net income (loss) including noncontrolling interests to net cash provided by (used in) operating activities:
 
 
 
 
 
 
Share-based compensation
 
3

 
 
4

 
Depreciation and amortization
 
53

 
 
51

 
(Reversal of) inventory write-downs related to closures
 
(1
)
 
 
4

 
Deferred income taxes
 
30

 
 
28

 
Net pension contributions and other postretirement benefit payments
 
(35
)
 
 
(30
)
 
Loss (gain) on translation of foreign currency denominated deferred income taxes
 
27

 
 
(10
)
 
(Gain) loss on translation of foreign currency denominated pension and other postretirement benefit obligations
 
(22
)
 
 
9

 
Net planned major maintenance amortization
 
6

 
 
1

 
Changes in working capital:
 
 
 
 
 
 
Accounts receivable
 
19

 
 
(11
)
 
Inventories
 
(50
)
 
 
(40
)
 
Other current assets
 
(5
)
 
 

 
Accounts payable and accrued liabilities
 
28

 
 
1

 
Other, net
 
(1
)
 
 

 
Net cash provided by (used in) operating activities
 
62

 
 
(39
)
 
Cash flows from investing activities:
 
 
 
 
 
 
Cash invested in fixed assets
 
(25
)
 
 
(69
)
 
Increase in countervailing duty cash deposits on supercalendered paper
 
(5
)
 
 
(5
)
 
Increase in countervailing and anti-dumping duty cash deposits on softwood lumber
 
(14
)
 
 

 
Increase in countervailing duty cash deposits on uncoated groundwood paper
 
(2
)
 
 

 
Cash used in investing activities
 
(46
)
 
 
(74
)
 
Cash flows from financing activities:
 
 
 
 
 
 
Net (repayments) borrowings under revolving credit facilities
 
(9
)
 
 
118

 
Payments of financing and credit facility fees
 
(1
)
 
 

 
Cash (used in) provided by financing activities
 
(10
)
 
 
118

 
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
 
(1
)
 
 

 
Net increase in cash and cash equivalents, and restricted cash
 
5

 
 
5

 
Cash and cash equivalents, and restricted cash:
 
 
 
 
 
 
Beginning of period
 
49

 
 
73

 
End of period
$
54

 
$
78

 
Cash and cash equivalents, and restricted cash at period end:
 
 
 
 
 
 
Cash and cash equivalents
$
13

 
$
39

 
Restricted cash (included in “Other current assets” and “Other assets”)
 
41

 
 
39

 
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 market pulp, tissue, wood products, newsprint and specialty papers, which are marketed in close to 70 countries. We own or operate some 40 manufacturing facilities, as well as power generation assets, in the United States and Canada.
Financial statements
Our interim consolidated financial statements and related notes (or the “Consolidated Financial Statements”) are unaudited and have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (or the “SEC”) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles may be condensed or omitted. In our opinion, all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the unaudited interim Consolidated Financial Statements have been made. All amounts are expressed in U.S. dollars, unless otherwise indicated. The results for the interim period ended March 31, 2018, are not necessarily indicative of the results to be expected for the full year. These unaudited interim Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 1, 2018. Certain prior period amounts in our footnotes have been reclassified to conform to the 2018 presentation.
New accounting pronouncements adopted
ASU 2014-09 “Revenue from Contracts from Customers”
Effective January 1, 2018, we adopted Accounting Standards Update (or “ASU”) 2014-09, “Revenue from Contracts from Customers,” issued by the Financial Accounting Standards Board (or the “FASB”), and the series of related accounting standard updates that followed (collectively, “Topic 606”). We utilized the modified retrospective method, which required the application of Topic 606 to: (i) all new revenue contracts entered into after January 1, 2018; and (ii) all existing revenue contracts as of January 1, 2018. The adoption of Topic 606 had no impact on our revenues, results of operations, or financial position. As a result of the implementation of Topic 606, our revenue recognition policy was updated as follows:
Revenue arises from contracts with customers in which the sale of goods is the main performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied, which is when (point in time) or as (over time) control of the promised good or service is transferred to the customer.
Revenue is measured at the amount to which we are expected to be entitled in exchange for transferring goods based on consideration specified in the contract with the customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from the customer, are excluded from revenue. When a contract with a customer includes variable consideration such as special pricing agreements and other volume-based incentives, revenue is recognized at the most likely amount based on sales forecasts, for which it is probable that a revenue reversal will not subsequently occur.
Revenue is recorded at a point in time when control over the goods transfers to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts with customers. Pulp, tissue, paper and wood products are delivered to our customers in the United States and Canada directly from our mills primarily by truck or rail. Pulp and paper products are delivered to our international customers primarily by ship. For sales where control transfers to the customer at the shipping point, revenue is recorded when the product leaves the facility, whereas for sales where control transfers at the destination, revenue is recorded when the product is delivered to the customer’s delivery site. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in “Distribution costs” in our Consolidated Statements of Operations.
Sales of our other products (green power produced from renewable sources, wood chips, and other wood related products) are recognized when the products are delivered and are included in “Cost of sales, excluding depreciation, amortization and distribution costs” in our Consolidated Statements of Operations.

6


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

ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities”
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not have a material impact on our results of operations, financial position or cash flows.
ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments”
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. All amendments to the guidance shall be adopted in the same period on a retrospective basis. We adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not impact the presentation of our cash flows.
ASU 2016-18 “Restricted Cash”
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on January 1, 2018. Prior period amounts have been reclassified to conform to the 2018 presentation.
ASU 2017-05 “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”
In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of Subtopic 610-20, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets” and adds guidance for partial sales of nonfinancial assets. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted this ASU on January 1, 2018. The adoption of this accounting guidance did not materially impact our results of operations, financial position or cash flows.
ASU 2017-17 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires employers that present a measure of operating income in their statements of earnings to disaggregate and present only the service cost component of net periodic pension cost and net periodic other postretirement benefit (or “OPEB”) cost in operating expenses (together with other employee compensation costs arising during the period). The other components of the net periodic pension cost and net periodic OPEB cost (or “Non-operating pension and OPEB costs”) are reported separately outside any subtotal of operating income. This update is effective retrospectively for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU on January 1, 2018.

7


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

The effect of this ASU on our Consolidated Statements of Operations for the three months ended March 31, 2018, and 2017 was as follows:
 
Three Months Ended March 31, 2018
Three Months Ended March 31, 2017
(Unaudited, in millions)
Before
Accounting
Standards
Update
Effect of Change
As
Reported
As
Previously
Reported
Effect of
Change
As Adjusted
Cost of sales, excluding depreciation, amortization and distribution costs
$
600

 
$
14

 
$
614

 
$
667

 
$
4

 
$
671

 
Selling, general and administrative expenses
 
44

 
 
(1
)
 
 
43

 
 
43

 
 
(1
)
 
 
42

 
Operating income (loss)
 
61

 
 
(13
)
 
 
48

 
 
(6
)
 
 
(3
)
 
 
(9
)
 
Non-operating pension and other postretirement benefit credits
 

 
 
13

 
 
13

 
 

 
 
3

 
 
3

 
Note 2. Closure Costs, Impairment and Other Related Charges
During the three months ended March 31, 2017, we recorded severance and other costs of $7 million, as a result of the permanent closure of our Mokpo (South Korea), paper mill on March 9, 2017.
 
 
 
Note 3. Accumulated Other Comprehensive Loss
The change in our accumulated other comprehensive loss by component (net of tax) for the three months ended March 31, 2018, was as follows:
(Unaudited, in millions)
Unamortized Prior Service Credits
Unamortized Actuarial Losses
Foreign
Currency
Translation
Total
Balance as of December 31, 2017
$
52

 
$
(826
)
 
$
(6
)
 
$
(780
)
 
Amounts reclassified from accumulated other comprehensive loss (1)
 
(4
)
 
 
7

 
 

 
 
3

 
Balance as of March 31, 2018
$
48

 
$
(819
)
 
$
(6
)
 
$
(777
)
 
(1) 
See the table below for details about these reclassifications.

8


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

The reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2018, 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
$
(4
)
 
Non-operating pension and other postretirement benefit credits (1)
 
 

 
Income tax provision
 
$
(4
)
 
Net of tax
Unamortized Actuarial Losses
 
 
 
 
Amortization of actuarial losses
$
9

 
Non-operating pension and other postretirement benefit credits (1)
 
 
(2
)
 
Income tax provision
 
$
7

 
Net of tax
Total Reclassifications
$
3

 
Net of tax
(1) 
These items are included in the computation of net periodic benefit cost related to our pension and OPEB plans summarized in Note 8, “Employee Benefit Plans.”
Note 4. Net Income (Loss) Per Share
The reconciliation of the basic and diluted net income (loss) per share for the three months ended March 31, 2018 and 2017, was as follows:
 
Three Months Ended 
 March 31,
(Unaudited, in millions, except per share amounts)
2018
 
 
2017
 
 
Numerator:
 
 
 
 
 
 
Net income (loss) attributable to Resolute Forest Products Inc.
$
10

 
$
(47
)
 
Denominator:
 
 
 
 
 
 
Basic weighted-average number of Resolute Forest Products Inc. common shares outstanding
 
91.2

 
 
90.2

 
Dilutive impact of nonvested stock unit awards
 
1.8

 
 

 
Diluted weighted-average number of Resolute Forest Products Inc. common shares outstanding
 
93.0

 
 
90.2

 
Net income (loss) per share attributable to Resolute Forest Products Inc. common shareholders:
 
 
 
 
 
 
Basic
$
0.11

 
$
(0.52
)
 
Diluted
$
0.11

 
$
(0.52
)
 
The weighted-average number of outstanding stock options and nonvested equity-classified restricted stock units, deferred stock units and performance stock units (collectively, “stock unit awards”) that were excluded from the calculation of diluted net income (loss) per share, as their impact would have been antidilutive, for the three months ended March 31, 2018 and 2017, was as follows:
 
Three Months Ended 
 March 31,
(Unaudited, in millions)
2018


2017


Stock options
1.3

 
1.4

 
Stock unit awards

 
4.6

 

9


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

Note 5. Inventories, Net
Inventories, net as of March 31, 2018 and December 31, 2017, were comprised of the following:
(Unaudited, in millions)
March 31,
2018
December 31,
2017
Raw materials
$
126

 
$
108

 
Work in process
 
46

 
 
38

 
Finished goods
 
193

 
 
175

 
Mill stores and other supplies
 
212

 
 
205

 
 
$
577

 
$
526

 
During the three months ended March 31, 2017, we recorded charges of $4 million for write-downs of mill stores and other supplies primarily as a result of the permanent closure of our Mokpo paper mill. These charges were included in “Cost of sales, excluding depreciation, amortization and distribution costs” in our Consolidated Statements of Operations.
Note 6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of March 31, 2018 and December 31, 2017, were comprised of the following:
(Unaudited, in millions)
March 31,
2018
December 31,
2017
Trade accounts payable
$
337

 
$
306

 
Payroll, bonuses and severance payable
 
45

 
 
55

 
Accrued interest
 
14

 
 
5

 
Pension and other postretirement benefit obligations
 
18

 
 
18

 
Income and other taxes payable
 
5

 
 
10

 
Environmental liabilities
 
2

 
 
2

 
Other
 
23

 
 
24

 
 
$
444

 
$
420

 
Note 7. Long-Term Debt
Overview
Long-term debt, including current portion, as of March 31, 2018 and December 31, 2017, was comprised of the following:
(Unaudited, in millions)
March 31,
2018
December 31,
2017
5.875% senior unsecured notes due 2023:
 
 
 
 
 
 
Principal amount
$
600

 
$
600

 
Deferred financing costs
 
(6
)
 
 
(5
)
 
Unamortized discount
 
(3
)
 
 
(3
)
 
Total senior notes due 2023
 
591

 
 
592

 
Term loan due 2025
 
46

 
 
46

 
Borrowings under revolving credit facilities
 
135

 
 
144

 
Capital lease obligation
 
7

 
 
7

 
Total debt
 
779

 
 
789

 
Less: Current portion of long-term debt
 
(1
)
 
 
(1
)
 
Long-term debt, net of current portion
$
778

 
$
788

 

10


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

2023 Notes
We issued $600 million in aggregate principal amount of 5.875% senior unsecured notes due 2023 (or the “2023 Notes”) on May 8, 2013. Upon their issuance, the notes were recorded at their fair value of $594 million, which reflected a discount of $6 million that is being amortized to “Interest expense” in our Consolidated Statements of Operations using the interest method over the term of the notes, resulting in an effective interest rate of 6%. Interest on the notes is payable semi-annually on May 15 and November 15, until their maturity date of May 15, 2023. In connection with the issuance of the notes, we incurred financing costs of approximately $9 million, which were deferred and recorded as a reduction of the notes. These deferred financing costs are being amortized to “Interest expense” in our Consolidated Statements of Operations using the interest method over the term of the notes. The fair value of the 2023 Notes (Level 1) was $614 million and $622 million as of March 31, 2018 and December 31, 2017, respectively.
Senior Secured Credit Facility
On September 7, 2016, we entered into a senior secured credit facility (or the “Senior Secured Credit Facility”) for up to $185 million. The Senior Secured Credit Facility provides a term loan of $46 million with a maturity date of September 7, 2025 (the “Term Loan”), and a revolving credit facility of up to $139 million with a maturity date of September 7, 2022 (the “Revolving Credit Facility”). As of March 31, 2018, we had $81 million of availability under the Revolving Credit Facility, net of $58 million of borrowings. The fair values of the Term Loan and Revolving Credit Facility (Level 2) approximated their carrying values as of March 31, 2018.
ABL Credit Facility
On May 22, 2015, we entered into 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. The ABL Credit Facility will mature on May 22, 2020. As of March 31, 2018, we had $358 million of availability under the ABL Credit Facility, net of $77 million of borrowings and $41 million of ordinary course letters of credit outstanding. The fair value of the ABL Credit Facility (Level 2) approximated its carrying value as of March 31, 2018.
Capital lease obligation
We have a capital 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.
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, 2018 and 2017, were as follows:
Pension Plans:
 
Three Months Ended 
 March 31,
(Unaudited, in millions)
2018
 
 
2017
 
 
Interest cost
$
48

 
$
49

 
Expected return on plan assets
 
(67
)
 
 
(63
)
 
Amortization of actuarial losses
 
10

 
 
14

 
Amortization of prior service credits
 
(1
)
 
 

 
Non-operating pension credits
 
(10
)
 
 

 
Service cost
 
5

 
 
5

 
 
$
(5
)
 
$
5

 

11


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

OPEB Plans:
 
Three Months Ended 
 March 31,
(Unaudited, in millions)
2018
 
 
2017
 
 
Interest cost
$
1

 
$
2

 
Amortization of actuarial gains
 
(1
)
 
 
(1
)
 
Amortization of prior service credits
 
(3
)
 
 
(4
)
 
Non-operating OPEB credits
 
(3
)
 
 
(3
)
 
Service cost
 

 
 

 
 
$
(3
)
 
$
(3
)
 
Defined contribution plans
Our expense for the defined contribution plans totaled $5 million for both the three months ended March 31, 2018 and 2017.

12


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

Note 9. Income Taxes
Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act (or the “TCJA”) was enacted into law which, among other changes, reduced the U.S. federal statutory income tax rate from 35% to 21%, and introduced the global intangible low-taxed income (or “GILTI”) regime, the base erosion anti-abuse tax, and the foreign-derived intangible income deduction.
In the first quarter of 2018, the enactment of the TCJA resulted in a $7 million income tax provision attributable to the GILTI inclusion, which reduced income tax benefits on U.S. losses, with no other material impact on our results of operations. After having evaluated the impact of the TCJA on the reinvestment of foreign earnings, we have maintained the position that such earnings continue to be permanently reinvested. Accordingly, no provision was recorded for undistributed foreign earnings.
The impacts of the TCJA on our 2017 financial results remain provisional and unchanged as of March 31, 2018. We have yet to adopt an accounting policy for the treatment of GILTI, and accordingly, no deferred tax amounts have been recorded.
The final impact of the TCJA may differ due to, among other things, changes in interpretations, the issuance of additional legislative guidance and clarification, and actions we may take as a result of the TCJA. We will recognize any adjustments to our provisional estimates in the reporting period they are determined, up to a period not to exceed one year from the date of enactment.
Effective income tax rate reconciliation
The income tax provision attributable to income (loss) before income taxes differs from the amounts computed by applying the U.S. federal statutory income tax rate of 21% for the three months ended March 31, 2018 and 2017, as a result of the following:
 
Three Months Ended 
 March 31,
(Unaudited, in millions)
2018
 
 
2017
 
 
Income (loss) before income taxes
$
41

 
$
(17
)
 
Income tax provision:
 
 
 
 
 
 
Expected income tax (provision) benefit
 
(9
)
 
 
4

 
Changes resulting from:
 
 
 
 
 
 
U.S. federal tax rate change reconciliation
 

 
 
2

 
Valuation allowance (1)
 
(5
)
 
 
(26
)
 
Enactment of change in foreign tax rate
 

 
 
(12
)
 
Foreign exchange
 
(7
)
 
 
(1
)
 
State income taxes, net of federal income tax benefit
 
2

 
 
2

 
Foreign tax rate differences (2)
 
(12
)
 
 
3

 
Other, net
 

 
 
(1
)
 
 
$
(31
)
 
$
(29
)
 
(1) 
Relates to our U.S. operations for the three months ended March 31, 2018, and primarily to our U.S. operations for the three months ended March 31, 2017.
(2) 
Includes a $7 million income tax provision attributable to the GILTI inclusion, which reduced the income tax benefits on U.S. losses for the three months ended March 31, 2018.
Deferred tax charge
On January 1, 2017, we adopted ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory until the transferred assets are sold to a third party or recovered through use. As a result, a cumulative-effect adjustment of $3 million was recorded to “Deficit” in our Consolidated Balance Sheet as of January 1, 2017.

13


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 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, financial reporting and disclosure obligations, corporate governance, antitrust, First Nations 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, 2018, will not have a material adverse effect on our Consolidated Financial Statements.
Countervailing duty and anti-dumping investigations on uncoated groundwood paper
On August 9, 2017, 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 a U.S. uncoated groundwood (or “UGW”) paper producer requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin UGW paper exported to the U.S. One of our subsidiaries was identified in the petition as being a Canadian exporting producer of UGW paper to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in both the countervailing duty and anti-dumping investigations. On January 9, 2018, Commerce announced its preliminary determination in its countervailing duty investigation on Canadian-origin UGW paper exported to the U.S. As a result, since January 16, 2018, we have been required to pay cash deposits to the U.S. Customs and Border Protection agency (or “U.S. Customs”) at a rate of 4.42% of the custom’s value for estimated countervailing duties on our U.S. imports of the UGW paper produced at our Canadian mills, with the exception of supercalendered (or “SC”) paper, which is subject to distinct countervailing duties, as further discussed below. On March 13, 2018, Commerce announced its preliminary determination in the anti-dumping investigation, whereby it determined that we did not sell Canadian-origin UGW paper exported to the U.S. below market value during the relevant period (from July 1, 2016 to June 30, 2017). As a result, we are not required to pay cash deposits to the U.S. Customs for estimated anti-dumping duties.
The preliminary 4.42% rate set in the countervailing duty investigation can remain in effect for up to four months. If the ITC does not issue an affirmative material injury determination before the four-month period lapses, then we would not be required to pay deposits for countervailing duties on the affected UGW paper imports until the ITC makes an affirmative material injury determination. If, as a result of such a determination, Commerce imposes a countervailing duty order subjecting us to a countervailing duty deposit requirement on any of our affected UGW paper U.S. imports, then we would be required to resume making cash deposits at the rate set in the order until Commerce sets a countervailing duty rate in a subsequent administrative review. Through March 31, 2018, our cash deposits on our imports of the affected UGW paper to the U.S. totaled $2 million, and, based on the 4.42% rate and our current operating parameters, would be approximately $6 million for the initial four-month period, and as high as $20 million per year if the rate were to remain in effect continuously.
In addition, if as a result of an affirmative material injury determination by the ITC, Commerce were to impose an anti-dumping duty order subjecting us to an anti-dumping duty deposit requirement on any of our affected UGW paper U.S. imports, we would then be required to make cash deposits at the rate set in the order until Commerce sets an anti-dumping duty rate in a subsequent administrative review.
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 Canadian-produced UGW that is exported to the U.S. Accordingly, no contingent loss was recorded in respect of these petitions in our Consolidated Statement of Operations for the three months ended March 31, 2018, and our cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets.
Countervailing duty and anti-dumping investigations on softwood lumber
On November 25, 2016, countervailing duty and anti-dumping petitions were filed with Commerce and the ITC by certain U.S. softwood lumber producers and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin softwood lumber exported to the U.S. One of our subsidiaries was identified in the petition as being a Canadian exporting producer of softwood lumber to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in both the countervailing duty and anti-dumping investigations.

14


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

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 at a rate of 12.82% for estimated countervailing duties on our U.S. imports of softwood lumber produced at our Canadian sawmills. The preliminary rate remained in effect until August 26, 2017. Commerce changed the rate in its final affirmative determination on November 2, 2017, but the new rate did not take effect until December 28, 2017, following the ITC’s final affirmative determination and the publication by Commerce of a countervailing duty order. Since that date, we have been required to resume paying cash deposits to the U.S. Customs at a rate of 14.7% for our softwood lumber U.S. imports from our Canadian sawmills. This rate will continue until Commerce sets a duty rate in an administrative review, or a new rate may be set through a remand determination should a North American Free Trade Agreement (or “NAFTA”) binational panel on appeal remand the final determination to Commerce. Through March 31, 2018, our cash deposits totaled $27 million and, based on the 14.7% rate and our current operating parameters, could be as high as $65 million per year.
On June 26, 2017, Commerce announced its preliminary determination in the anti-dumping investigation and, as a result, after June 30, 2017, we were required to pay cash deposits to the U.S. Customs at a rate of 4.59% for estimated anti-dumping duties on our U.S. imports of softwood lumber produced at our Canadian sawmills. On November 2, 2017, Commerce announced its final affirmative determination in the anti-dumping investigation and, as a result, since November 8, 2017, we have been required to pay cash deposits to the U.S. Customs, at a rate of 3.2% for our softwood lumber U.S. imports from our Canadian sawmills, the rate that will apply until Commerce sets a duty rate in an administrative review or in a possible remand determination. Through March 31, 2018, our cash deposits totaled $13 million and, based on the 3.2% rate and our current operating parameters, could be as high as $15 million per year.
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. Accordingly, no contingent loss was recorded in respect of these petitions in our Consolidated Statement of Operations for the three months ended March 31, 2018, and our cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets.
Countervailing duty investigation on SC paper
On February 26, 2015, a countervailing duty petition was filed with Commerce and the ITC by certain U.S. SC paper producers requesting that the U.S. government impose countervailing duties on Canadian-origin SC paper exported to the U.S. market. One of our subsidiaries was identified in the petition as being a Canadian exporting producer of SC paper to the U.S. and was selected as a mandatory respondent to be investigated by Commerce. As a result of that investigation, after August 3, 2015, we were required to pay cash deposits to the U.S. Customs for estimated countervailing duties on our U.S. imports of SC paper produced at our Canadian mills. Between August 3, 2015 and October 15, 2015, we were required to make cash deposits at a rate of 2.04%. On October 15, 2015, that rate increased to 17.87%, 17.10% of which was not based on any countervailable subsidy we received, but rather on a punitive application of “adverse facts available.” We are required to continue making cash deposits at the 17.87% rate until Commerce sets a countervailing duty rate in an administrative review or a new rate is set through a remand determination of a NAFTA binational panel. We were selected as a mandatory respondent in the first administrative review, which Commerce commenced on February 13, 2017. On January 3, 2018, Commerce announced its preliminary results in this administrative review, whereby it determined that we received countervailable subsidies of 1.79% that benefited our Canadian production of SC paper during the relevant period (from August 3, 2015 to December 31, 2015). Our countervailing duty rate for our SC paper exported to the U.S. market in 2015, if any, will be based on Commerce’s final results in this administrative review. Following the initial administrative review, we may remain subject to annual administrative reviews until December 2020, or possibly later, and the duty rate, if any, applicable to our SC paper exported to the U.S. market during periods subsequent to December 31, 2015, will be based on Commerce’s results in such future administrative reviews. The results in each administrative review are subject to appeal. 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 would be converted into actual countervailing duties.
Following Commerce’s rate determination in October 2015, we appealed that determination to a binational panel under the NAFTA (or the “Panel”). On April 13, 2017, the Panel issued its decision, remanding the matter to Commerce and upholding several of Commerce’s determinations, including among others its application of adverse facts available in setting our 17.87% subsidy rate. Notwithstanding the Panel’s decision, Commerce’s prior determination of adverse facts available does not apply in an administrative review. In addition, the Panel’s decision can be challenged by the Canadian government to an Extraordinary Challenge Committee, although not before the conclusion of the remand process. The Canadian government’s separate World Trade Organization challenge to Commerce’s countervailing duty determination in the SC paper investigation has produced a

15


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

decision, however, at the request of the U.S. government, by mutual consent of the Canadian and U.S. governments, the release of the report has been postponed.
On March 21, 2018, Verso Corporation, the sole remaining U.S. SC paper petitioner, filed a request with Commerce for a changed circumstances review to revoke the countervailing duty order, retroactive to August 3, 2015, and for Commerce to refund all countervailing duty deposits with interest. On May 8, 2018, Commerce announced the initiation of a changed circumstances review to consider the possible revocation of the countervailing duty order on SC paper from Canada. Commerce may revoke an order in whole or in part if it determines that the producers accounting for substantially all of the production of the domestic like products have expressed a lack of interest in the order. Commerce has determined that changed circumstances sufficient to warrant review exist. Should Commerce grant Verso Corporation’s request in its entirety, we would receive a refund of all outstanding cash deposits made on our U.S. imports of SC paper produced at our Canadian mills, plus interest, and no further cash deposits would be required going forward. In addition, this would result in the termination of the pending administrative reviews. Commerce reported to the NAFTA binational panel that it anticipated completion of the changed circumstances review within 60 days of its initiation.
Through March 31, 2018, our cumulative cash deposits totaled $54 million, and based on our current operating parameters, could be as high as $25 million per year. We are not presently able to determine the ultimate resolution of this matter, but we believe it is not probable that we will ultimately be assessed with significant countervailing duties, if any, on our Canadian-produced SC paper. Accordingly, no contingent loss was recorded in respect of this petition in our Consolidated Statement of Operations for the three months ended March 31, 2018. These cash deposits were recorded in “Other assets” in our Consolidated Balance Sheets.
Jedson Case
On March 9, 2017, Jedson Engineering, Inc. and Jedson C.M., Inc. (or the “Jedson plaintiffs”) filed a complaint against our subsidiary, Resolute FP US Inc., and other defendants in state court in Tennessee. The complaint alleged breach of contract and violation of Tennessee’s Prompt Pay Act for failure to pay for services in connection with the design and construction of our Calhoun (Tennessee) tissue project, and sought a recovery of, and enforcement of mechanic’s liens for, approximately $10 million, plus interest and cost of litigation. On April 17, 2017, we filed an answer and counterclaim alleging, among other things, breach of contract and professional negligence by the Jedson plaintiffs and seeking recovery for, among other things, resulting costs on the project. On April 4, 2017, the Jedson plaintiffs also filed a motion for an injunction under the Prompt Pay Act seeking immediate payment of monies claimed and, on April 20, 2017, a motion to abate Resolute FP US Inc.’s counterclaim, both of which we opposed and have not been heard by the court. On August 25, 2017, the Jedson plaintiffs amended their complaint. As amended, the complaint includes allegations of fraud, intentional and negligent misrepresentation, unjust enrichment, and a claim for punitive damages in an amount of up to approximately $20 million. Effective February 20, 2018, the parties entered into an agreement to submit their disputes to binding private arbitration. On February 23, 2018, the state court issued an order staying the consolidated court proceedings pending completion of the arbitration subject to limited exceptions regarding certain defined procedural matters. The Company disputes the plaintiffs’ allegations, and intends to vigorously defend the action. The lawsuit is at a preliminary stage. Accordingly, we are not presently able to determine the ultimate resolution of this matter or to reasonably estimate the potential impact on our Consolidated Financial Statements.
Modification of U.S. OPEB plan
Effective January 1, 2015, we modified our U.S. OPEB plan so that unionized participants, upon reaching Medicare eligibility, are provided Medicare coverage via a Medicare Exchange program rather than via a Company-sponsored medical plan. On March 2, 2016, a proposed class action lawsuit (Reynolds, et al v. Resolute Forest Products Inc., Resolute FP US Inc., Resolute FP US Health and Resolute Welfare Benefit Plan) was filed in the United States District Court for the Eastern District of Tennessee (or the “District Court”) on behalf of certain Medicare-eligible retirees who were previously unionized employees of our Calhoun, Catawba (South Carolina), and Coosa Pines (Alabama) mills, and their spouses and dependents (or the “proposed class”). The plaintiffs allege that the modifications described above breach the collective bargaining agreements and plan covering the members of the proposed class in the lawsuit. Plaintiffs seek reinstatement of the health care benefits as in effect before January 1, 2015, for the proposed class in the lawsuit. On May 23, 2016, the Company filed a motion to dismiss the complaint. The motion to dismiss was denied by the District Court on March 1, 2017. On June 28, 2017, a settlement agreement in principle was reached between the parties to the lawsuit. Because the settlement will resolve the claims of the proposed class, court approval of the settlement will be required. A final settlement order issued by the court would result in an amendment of our U.S. OPEB plan and a corresponding increase to both “Pension and other postretirement benefit obligations” and “Accumulated other comprehensive loss” in our Consolidated Balance Sheet, with any such increase to be recorded at the date

16


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

the plan amendment is adopted. We do not expect that the resulting increase would have a material impact on our Consolidated Financial Statements.
Fibrek acquisition
Effective July 31, 2012, we completed the final step of the transaction pursuant to which we acquired the remaining 25.4% of the outstanding Fibrek Inc. (or “Fibrek”) shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the issuance of a final order of the Quebec Superior Court in Canada approving the arrangement on July 27, 2012. Certain former shareholders of Fibrek exercised (or purported to exercise) rights of dissent in respect of the transaction, asking for a judicial determination of the fair value of their claim under the Canada Business Corporations Act. No consideration has to date been paid to the former Fibrek shareholders who exercised (or purported to exercise) rights of dissent. Any such consideration will only be paid out upon settlement or judicial determination of the fair value of their claims and will be paid entirely in cash. Accordingly, we cannot presently determine the amount that ultimately will be paid to former holders of Fibrek shares in connection with the proceedings, but we have accrued approximately Cdn $14 million ($11 million, based on the exchange rate in effect on March 31, 2018) for the eventual payment of those claims. The hearing in this matter is expected to occur in 2019.
Partial wind-ups of pension plans
On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (or the “CCAA Creditor Protection Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the CCAA Creditor Protection Proceedings. We contend, among other things, that any such declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended, and the terms of our emergence from the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to Cdn $150 million ($120 million, based on the exchange rate in effect on March 31, 2018), would have to be funded if we do not obtain the relief sought. The hearing in this matter is expected to occur in 2018.
Environmental matters
We are subject to a variety of federal or national, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. Environmental regulations promulgated in the future could require substantial additional expenditures for compliance and could have a material impact on us, in particular, and the industry in general.
We may be a “potentially responsible party” with respect to a hazardous waste site that is being addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund). We believe we will not be liable for any significant amounts at this site.
We have recorded $8 million of environmental liabilities as of both March 31, 2018 and December 31, 2017, 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 of asset retirement obligations as of both March 31, 2018 and December 31, 2017, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets. These liabilities are included in “Other liabilities” in our Consolidated Balance Sheets.

17


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

Note 11. Segment Information
We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our principal product lines: market pulp, tissue, wood products, newsprint, and specialty papers.
None of the income or loss items following “Operating income (loss)” 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 months ended March 31, 2018 and 2017, was as follows:
(Unaudited,
in millions)
Market Pulp (1)
Tissue
Wood Products (2)
Newsprint
Specialty
Papers
Segment
Total
Corporate
and Other
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First three months
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
$
257

 
$
22

 
$
209

 
$
198

 
$
188

 
$
874

 
$

 
$
874

 
2017
 
209

 
 
20

 
 
177

 
 
226

 
 
240

 
 
872

 
 

 
 
872

 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First three months
 
 
 
 
 
 
 
 
2018
$
7

 
$
1

 
$
8

 
$
16

 
$
12

 
$
44

 
$
9

 
$
53

 
2017
 
8

 
 
1

 
 
9

 
 
16

 
 
12

 
 
46

 
 
5

 
 
51

 
Operating income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First three months
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
$
33

 
$
(1
)
 
$
53

 
$
(4
)
 
$
(7
)
 
$
74

 
$
(26
)
 
$
48

 
2017
 
7

 
 

 
 
20

 
 
(4
)
 
 
4

 
 
27

 
 
(36
)
 
 
(9
)
 
(1) 
Inter-segment sales of $10 million and $9 million, which are transacted at cost, were excluded from market pulp sales for the three months ended March 31, 2018 and 2017, respectively.
(2) 
Wood products sales to our joint ventures, which are transacted at arm’s length negotiated prices, were $8 million and $4 million for the three months ended March 31, 2018 and 2017, respectively.

18


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, 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 months ended March 31, 2018 and 2017, the Balance Sheets as of March 31, 2018 and December 31, 2017, and the Statements of Cash Flows for the three months ended March 31, 2018 and 2017 for the Parent, the Guarantor Subsidiaries on a combined basis, and the Non-guarantor Subsidiaries also on a combined basis. The condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries and Non-guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-guarantor Subsidiaries, using the equity method of accounting. The principal consolidating adjustments are entries to eliminate the investments in subsidiaries and intercompany balances and transactions.
 
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2018
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Sales
$

 
$
809

 
$
592

 
$
(527
)
 
$
874

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

 
 
771

 
 
366

 
 
(523
)
 
 
614

 
Depreciation and amortization
 

 
 
20

 
 
33

 
 

 
 
53

 
Distribution costs
 

 
 
39

 
 
79

 
 
(2
)
 
 
116

 
Selling, general and administrative expenses
 
5

 
 
17

 
 
21

 
 

 
 
43

 
Operating (loss) income
 
(5
)
 
 
(38
)
 
 
93

 
 
(2
)
 
 
48

 
Interest expense
 
(23
)
 
 
(3
)
 
 
(3
)
 
 
16

 
 
(13
)
 
Non-operating pension and other postretirement benefit credits
 

 
 
4

 
 
9

 
 

 
 
13

 
Other income (expense), net
 

 
 
14

 
 
(5
)
 
 
(16
)
 
 
(7
)
 
Equity in income of subsidiaries
 
38

 
 
21

 
 

 
 
(59
)
 
 

 
Income (loss) before income taxes
 
10

 
 
(2
)
 
 
94

 
 
(61
)
 
 
41

 
Income tax provision
 

 
 

 
 
(32
)
 
 
1

 
 
(31
)
 
Net income (loss) including noncontrolling interests
 
10

 
 
(2
)
 
 
62

 
 
(60
)
 
 
10

 
Net income attributable to noncontrolling interests
 

 
 

 
 

 
 

 
 

 
Net income (loss) attributable to Resolute Forest Products Inc.
$
10

 
$
(2
)
 
$
62

 
$
(60
)
 
$
10

 
Comprehensive income (loss) attributable to Resolute Forest Products Inc.
$
13

 
$
(5
)
 
$
68

 
$
(63
)
 
$
13

 
 
 

19


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, 2017
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Sales
$

 
$
709

 
$
550

 
$
(387
)
 
$
872

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

 
 
678

 
 
381

 
 
(388
)
 
 
671

 
Depreciation and amortization
 

 
 
19

 
 
32

 
 

 
 
51

 
Distribution costs
 

 
 
41

 
 
69

 
 

 
 
110

 
Selling, general and administrative expenses
 
9

 
 
17

 
 
16

 
 

 
 
42

 
Closure costs, impairment and other related charges
 

 
 

 
 
7

 
 

 
 
7

 
Operating (loss) income
 
(9
)
 
 
(46
)
 
 
45

 
 
1

 
 
(9
)
 
Interest expense
 
(20
)
 
 
(1
)
 
 
(3
)
 
 
13

 
 
(11
)
 
Non-operating pension and other postretirement benefit credits
 

 
 
1

 
 
2

 
 

 
 
3

 
Other income, net
 

 
 
13

 
 

 
 
(13
)
 
 

 
Equity in (loss) income of subsidiaries
 
(18
)
 
 
1

 
 

 
 
17

 
 

 
(Loss) income before income taxes
 
(47
)
 
 
(32
)
 
 
44

 
 
18

 
 
(17
)
 
Income tax provision
 

 
 

 
 
(29
)
 
 

 
 
(29
)
 
Net (loss) income including noncontrolling interests
 
(47
)
 
 
(32
)
 
 
15

 
 
18

 
 
(46
)
 
Net income attributable to noncontrolling interests
 

 
 

 
 
(1
)
 
 

 
 
(1
)
 
Net (loss) income attributable to Resolute Forest Products Inc.
$
(47
)
 
$
(32
)
 
$
14

 
$
18

 
$
(47
)
 
Comprehensive (loss) income attributable to Resolute Forest Products Inc.
$
(38
)
 
$
(33
)
 
$
24

 
$
9

 
$
(38
)
 

20


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

CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2018
(Unaudited, in millions)
Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
8

 
$
5

 
$

 
$
13

 
Accounts receivable, net
 

 
 
315

 
 
146

 
 

 
 
461

 
Accounts receivable from affiliates
 

 
 
540

 
 
745

 
 
(1,285
)
 
 

 
Inventories, net
 

 
 
246

 
 
342

 
 
(11
)
 
 
577

 
Note, advance and interest receivable from parent
 

 
 
552

 
 

 
 
(552
)
 
 

 
Notes and interest receivable from affiliates
 

 
 
31

 
 

 
 
(31
)
 
 

 
Other current assets
 

 
 
9

 
 
23

 
 

 
 
32

 
Total current assets
 

 
 
1,701

 
 
1,261

 
 
(1,879
)
 
 
1,083

 
Fixed assets, net
 

 
 
677

 
 
1,007