Resolute Forest Products Inc. [RFP] Filings

10-Q 1 rfp-20220331.htm 10-Q rfp-20220331

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022


			☐			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)

1010 De La Gauchetière Street West

Suite 400

Montreal

Quebec

Canada

H3B 2N2

(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)

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


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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of April 29, 2022, there were 76,796,573 shares of Resolute Forest Products Inc. common stock, $0.001 par value, outstanding.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

TABLE OF CONTENTS


			Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:

Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021			1

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021			2

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021			3

Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2022 and 2021			4

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021			5

Notes to Unaudited Interim Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19

Item 3. Quantitative and Qualitative Disclosures About Market Risk			38

Item 4. Controls and Procedures			38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			39

Item 1A. Risk Factors			39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39



Item 6. Exhibits			40

SIGNATURES			41

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended March 31,
	2022		2021
Sales	$	945	$	873
Costs and expenses:
Cost of sales, excluding depreciation, amortization and distribution costs		547		522
Depreciation and amortization		32		41
Distribution costs		92		84
Selling, general and administrative expenses		36		46
Closure costs, impairment and other related charges		4		3
Net gain on disposition of assets		(1)		—
Operating income		235		177
Interest expense		(5)		(6)
Non-operating pension and other postretirement benefit (costs) credits		(7)		2
Other income (expense), net (Note 3)		45		(45)
Income before income taxes		268		128
Income tax provision (Note 11)		(58)		(40)
Net income including noncontrolling interest		210		88
Net income attributable to noncontrolling interest		—		(1)
Net income attributable to Resolute Forest Products Inc.	$	210	$	87
Net income per share attributable to Resolute Forest Products Inc. common shareholders (Note 5):
Basic	$	2.71	$	1.07
Diluted	$	2.68	$	1.06
Weighted-average number of Resolute Forest Products Inc. common shares outstanding:
Basic		77.4		81.2
Diluted		78.2		81.9

See accompanying notes to unaudited interim Consolidated Financial Statements.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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


	Three Months Ended March 31,
	2022		2021
Net income including noncontrolling interest	$	210	$	88
Other comprehensive income:
Unamortized prior service costs
Change in unamortized prior service costs (Note 4)		—		(1)
Income tax provision		—		—
Change in unamortized prior service costs, net of tax		—		(1)
Unamortized actuarial losses
Change in unamortized actuarial losses (Note 4)		29		49
Income tax provision		(4)		(12)
Change in unamortized actuarial losses, net of tax		25		37
Foreign currency translation		1		—
Other comprehensive income, net of tax		26		36
Comprehensive income including noncontrolling interest		236		124




Comprehensive income attributable to noncontrolling interest		—		(1)
Comprehensive income attributable to Resolute Forest Products Inc.	$	236	$	123

See accompanying notes to unaudited interim Consolidated Financial Statements.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED BALANCE SHEETS

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


	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	162	$	112
Accounts receivable, net:
Trade		301		257
Other		56		56
Inventories, net (Note 6)		595		510

Other current assets		55		54
Total current assets		1,169		989
Fixed assets, less accumulated depreciation of $1,783 and $1,752 as of March 31, 2022 and December 31, 2021, respectively		1,261		1,270
Amortizable intangible assets, less accumulated amortization of $38 and $37 as of March 31, 2022 and December 31, 2021, respectively		56		57
Goodwill (Note 2)		104		31
Deferred income tax assets		600		653
Operating lease right-of-use assets		58		54
Other assets (Note 7)		516		484
Total assets	$	3,764	$	3,538
Liabilities and equity
Current liabilities:
Accounts payable and other (Note 8)	$	442	$	421
Current portion of long-term debt (Note 9)		2		2
Current portion of operating lease liabilities		8		8

Total current liabilities		452		431
Long-term debt, net of current portion (Note 9)		300		300
Pension and other postretirement benefit obligations		1,124		1,151

Operating lease liabilities, net of current portion		55		51
Other liabilities		81		88
Total liabilities		2,012		2,021
Commitments and contingencies (Note 12)
Equity:
Resolute Forest Products Inc. shareholders’ equity:
Common stock, $0.001 par value. 121.3 million shares issued and 76.8 million shares outstanding as of March 31, 2022; 121.2 million shares issued and 76.8 million shares outstanding as of December 31, 2021		—		—
Additional paid-in capital		3,808		3,807
Deficit		(799)		(1,009)
Accumulated other comprehensive loss (Note 4)		(1,036)		(1,062)
Treasury stock at cost, 44.5 million shares and 44.4 million shares as of March 31, 2022 and December 31, 2021, respectively		(224)		(222)
Total Resolute Forest Products Inc. shareholders’ equity		1,749		1,514
Noncontrolling interest		3		3
Total equity		1,752		1,517
Total liabilities and equity	$	3,764	$	3,538

See accompanying notes to unaudited interim Consolidated Financial Statements.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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


	Three Months Ended March 31, 2022
	Resolute Forest Products Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Non-controlling Interest		Total Equity
Balance as of December 31, 2021	$	—	$	3,807	$	(1,009)	$	(1,062)	$	(222)	$	3	$	1,517
Share-based compensation, net of withholding taxes		—		1		—		—		—		—		1
Net income		—		—		210		—		—		—		210
Purchases of treasury stock (0.1 million shares) (Note 13)		—		—		—		—		(2)		—		(2)

Stock unit awards vested and stock options exercised (0.1 million shares), net of shares forfeited for employee withholding taxes		—		—		—		—		—		—		—
Other comprehensive income, net of tax		—		—		—		26		—		—		26
Balance as of March 31, 2022	$	—	$	3,808	$	(799)	$	(1,036)	$	(224)	$	3	$	1,752


	Three Months Ended March 31, 2021
	Resolute Forest Products Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Non- controlling Interest		Total Equity
Balance as of December 31, 2020	$	—	$	3,804	$	(1,235)	$	(1,314)	$	(174)	$	1	$	1,082
Share-based compensation, net of withholding taxes		—		(2)		—		—		—		—		(2)
Net income		—		—		87		—		—		1		88
Purchases of treasury stock (1.7 million shares) (Note 13)		—		—		—		—		(17)		—		(17)
Stock unit awards vested and stock options exercised (0.4 million shares), net of shares forfeited for employee withholding taxes		—		—		—		—		—		—		—
Other comprehensive income, net of tax		—		—		—		36		—		—		36
Balance as of March 31, 2021	$	—	$	3,802	$	(1,148)	$	(1,278)	$	(191)	$	2	$	1,187

See accompanying notes to unaudited interim Consolidated Financial Statements.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income including noncontrolling interest	$	210	$	88
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:
Share-based compensation		2		2
Depreciation and amortization		32		41
Closure costs, impairment and other related charges		(2)		—

Deferred income taxes		56		40
Net pension contributions and other postretirement benefit payments		(8)		(23)
Gain on previously-held equity investments (Note 2)		(41)		—
Net gain on disposition of assets		(1)		—
Gain on translation of foreign currency denominated deferred income taxes		(6)		(12)
Loss on translation of foreign currency denominated pension and other postretirement benefit obligations		9		16
(Gain) loss on commodity contracts (Note 3)		(2)		14

Net planned major maintenance amortization (payments)		7		(3)

Changes in working capital:
Accounts receivable		(36)		(51)
Inventories		(67)		(50)
Other current assets		(7)		—
Accounts payable and other		13		2
Other, net		(12)		10
Net cash provided by operating activities		147		74
Cash flows from investing activities:
Cash invested in fixed assets		(13)		(14)
Acquisition of business, net of cash acquired (Note 2)		(43)		—
Disposition of assets		4		—

Increase in countervailing and anti-dumping duty cash deposits on softwood lumber (Note 7)		(43)		(32)




Other investing activities, net		—		3
Net cash used in investing activities		(95)		(43)
Cash flows from financing activities:

Issuance of long-term debt (Note 9)		—		300



Repayments of debt (Note 9)		—		(376)
Purchases of treasury stock (Note 13)		(2)		(17)
Payments of financing fees		—		(6)

Net cash used in financing activities		(2)		(99)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash		—		—
Net increase (decrease) in cash and cash equivalents, and restricted cash	$	50	$	(68)
Cash and cash equivalents, and restricted cash:
Beginning of period	$	152	$	159
End of period	$	202	$	91
Cash and cash equivalents, and restricted cash at end of period:
Cash and cash equivalents	$	162	$	33
Restricted cash (included in “Other current assets”)	$	—	$	18
Restricted cash (included in “Other assets”)	$	40	$	40

See accompanying notes to unaudited interim Consolidated Financial Statements.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 1. Organization and Basis of Presentation

Nature of operations

Resolute Forest Products Inc. (with its subsidiaries, either individually or collectively, unless otherwise indicated, referred to as “Resolute Forest Products,” “we,” “our,” “us,” “Parent,” or the “Company”) is incorporated in Delaware. We are a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood products and paper, which are marketed in over 60 countries. We own or operate some 40 facilities as well as power generation assets, in the U.S. and Canada.

Financial statements

Our unaudited interim consolidated financial statements and accompanying notes (or, the “Consolidated Financial Statements”) have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (or, the “SEC”) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles (or, “GAAP”) may be condensed or omitted. In our opinion, all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the 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, 2022, are not necessarily indicative of the results to be expected for the full year. These Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.

New accounting pronouncement adopted in 2022

ASU 2021-08 “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”

Effective January 1, 2022, we adopted ASU 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” issued by the Financial Accounting Standards Board in 2021, which revises the accounting for acquired revenue contracts with customers in a business combination. The adoption of this accounting guidance, which was applied prospectively, did not impact our Consolidated Financial Statements and disclosures.

Note 2. Business Acquisition

On March 4, 2022 (or, the “Acquisition Date”), we acquired control of Resolute-LP Engineered Wood Larouche Inc. and Resolute-LP Engineered Wood St-Prime Limited Partnership (or, “Larouche and St-Prime”), that were previously held as 50% owned joint ventures, by acquiring the remaining 50% equity interests from Louisiana-Pacific Canada Ltd., a wholly-owned subsidiary of Louisiana-Pacific Corporation, for a cash consideration of $51 million (including $1 million of working capital adjustment, and net of cash acquired of $8 million), subject to post-closing adjustments. Larouche and St-Prime, which are engineered wood product facilities located in Quebec, produce I-joists for the construction industry. This acquisition solidifies our presence in the engineered wood product segment.

We accounted for our previously held equity investments in Larouche and St-Prime using the equity method of accounting since we had joint control prior to acquiring a controlling interest on the Acquisition Date.

We accounted for the acquisition of Larouche and St-Prime as a business combination in accordance with the acquisition method of accounting, which requires us to record the identifiable assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired is recorded as goodwill. We have commenced the appraisals necessary to assess the fair values of the assets acquired, including amortizable intangible assets identified related to customer relationships, and liabilities assumed and the amount of goodwill to be recognized as of the Acquisition Date. The fair value assessment process of the assets acquired and liabilities assumed is ongoing. Our preliminary allocation of the purchase price is based on the corresponding book values of Larouche and St-Prime as of the Acquisition Date, except for the inventories, which are recorded at their fair values. The amount by which the purchase price exceeds these values was recorded in “Goodwill” in our Consolidated Balance Sheet. This allocation is preliminary in nature and thus, could yield significant adjustments of the values allocated upon completion of the fair value assessment process. The final determination of the fair values of the assets acquired and liabilities assumed will be completed within the measurement period of up to one year from the Acquisition Date permitted under GAAP.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

The following table summarizes our preliminary allocation of the purchase price of assets acquired and liabilities assumed at the Acquisition Date:


(Unaudited, in millions)
Cash and cash equivalents	$	16
Accounts receivable		11
Inventories		16

Current assets acquired	$	43
Fixed assets	$	6

Goodwill (1)		73
Deferred income tax assets		1
Total assets acquired and goodwill	$	123
Accounts payable and other	$	4
Current liabilities assumed		4
Pension and other postretirement benefit obligations		1
Total liabilities assumed	$	5
Net assets acquired	$	118
Cash consideration transferred		59
Fair value of the previously held interests in Larouche and St-Prime		59
Total fair value of consideration	$	118

(1)The preliminary purchase price allocation resulted in the recognition of an amount of goodwill of $73 million. As explained above, the allocation process of assets acquired and liabilities assumed is ongoing and, as a result, the value allocated to goodwill could change significantly following the completion of the purchase price allocation.

At the Acquisition Date, our previously-held equity investments of $18 million were remeasured at a fair value of $59 million, which resulted in a gain of $41 million. The gain was recorded in “Other income (expense), net” in our Consolidated Statements of Operations for the three months ended March 31, 2022.

We applied an income approach, specifically the discounted cash flow (or, the “DCF”) method, to measure the fair value of our equity interest in Larouche and St-Prime, as of immediately prior to the business acquisition. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, discount rate and tax rate. The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, existing firm orders, long term business plans and recent operating performance. The discount rate utilized in the DCF analysis is based on the respective company’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the Company.

We ceased applying the equity method for our investments in Larouche and St-Prime and the net assets acquired and results of operations are consolidated from the Acquisition Date and are included in the wood products segment.

From the Acquisition Date to March 31, 2022, our consolidated financial results included sales of $14 million and net income of nil attributable to Larouche and St-Prime.

The following unaudited pro forma information for the three months ended March 31, 2022, represents our results of operations as if the acquisition of Larouche and St-Prime had occurred on January 1, 2021. This pro forma information does not purport to be indicative of the results that would have occurred for the periods presented or that may be expected in the future.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements


	Three Months Ended March 31,
(Unaudited, in millions)		2022		2021
Sales	$	965	$	887
Net income attributable to Resolute Forest Products Inc. (1)	$	182	$	120

(1)For the pro forma information, the gain on previously-held equity investments of $41 million was considered realized in the three months ended March 31, 2021, and deducted from the three months ended March 31, 2022.

Note 3. Other Income (Expense), Net

Other income (expense), net for the three months ended March 31, 2022 and 2021, was comprised of the following:


	Three Months Ended March 31,
(Unaudited, in millions)	2022		2021
Foreign exchange loss	$	(3)	$	(5)

Gain (loss) on commodity contracts (1)		2		(37)
Income from equity method investments (2)		6		—
Gain on previously-held equity investments (Note 2)		41		—
Miscellaneous expense		(1)		(3)
	$	45	$	(45)

(1) For the three months ended March 31, 2021, the loss was principally related to lumber futures contracts, of which a $14 million loss was unrealized; none of these contracts were outstanding as of March 31, 2022.

(2)Principally related to the equity investment in Larouche and St-Prime in which we acquired a controlling interest during the three months ended March 31, 2022. See Note 2, “Business Acquisition” for more information.

Note 4. Accumulated Other Comprehensive Loss

The change in our accumulated other comprehensive loss by component (net of tax) for the three months ended March 31, 2022 and 2021, was as follows:


(Unaudited, in millions)	Unamortized Prior Service Costs		Unamortized Actuarial Losses		Foreign Currency Translation		Total
Balance as of December 31, 2021	$	(5)	$	(1,051)	$	(6)	$	(1,062)
Other comprehensive income before reclassifications (1)		—		10		1		11
Amounts reclassified from accumulated other comprehensive loss		—		15		—		15
Net current period other comprehensive income		—		25		1		26
Balance as of March 31, 2022	$	(5)	$	(1,026)	$	(5)	$	(1,036)


(Unaudited, in millions)	Unamortized Prior Service Costs		Unamortized Actuarial Losses		Foreign Currency Translation		Total
Balance as of December 31, 2020	$	(1)	$	(1,307)	$	(6)	$	(1,314)
Other comprehensive income before reclassifications (2)		—		22		—		22
Amounts reclassified from accumulated other comprehensive loss		(1)		15		—		14
Net current period other comprehensive (loss) income		(1)		37		—		36
Balance as of March 31, 2021	$	(2)	$	(1,270)	$	(6)	$	(1,278)

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

(1) The indefinite idling of pulp and paper operations at our Calhoun (Tennessee) mill triggered pension special termination benefit costs and remeasurement of the pension and other postretirement benefit (or, “OPEB”) obligations related to its plans as of January 31, 2022, resulting in a loss of $4 million and an actuarial gain of $14 million, totaling a net gain of $10 million ($10 million net of tax).

(2) The indefinite idling of the Amos and Baie-Comeau (Quebec) mills triggered curtailment and remeasurement of the pension and OPEB obligations related to their plans as of March 31, 2021, resulting in a curtailment gain of $8 million and an actuarial gain of $22 million, totaling $30 million ($22 million net of tax).

The reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021, were comprised of the following:


	Three Months Ended March 31,
(Unaudited, in millions)	2022		2021		Affected Line in the Consolidated Statements of Operations
Unamortized Prior Service Costs or Credits
Amortization of prior service costs	$	—	$	—		Non-operating pension and other postretirement benefit (costs) credits (1)
Curtailment gain		—		(1)		Non-operating pension and other postretirement benefit (costs) credits (1)
Income tax effect of the above		—		—		Income tax provision
Net of tax		—		(1)
Unamortized Actuarial Losses
Amortization of actuarial losses		16		19		Non-operating pension and other postretirement benefit (costs) credits (1)
Other items		3		—		Non-operating pension and other postretirement benefit (costs) credits (1)
Income tax effect of the above		(4)		(4)		Income tax provision
Net of tax		15		15
Total Reclassifications	$	15	$	14

(1)These items are included in the computation of net periodic benefit cost (credit) related to our pension and OPEB plans summarized in Note 10, “Employee Benefit Plans.”

Note 5. Net Income Per Share

The reconciliation of the basic and diluted net income per share for the three months ended March 31, 2022 and 2021, was as follows:


	Three Months Ended March 31,
(Unaudited, in millions, except per share amounts)	2022		2021
Numerator:
Net income attributable to Resolute Forest Products Inc.	$	210	$	87
Denominator:
Weighted-average number of Resolute Forest Products Inc. common shares outstanding		77.4		81.2
Dilutive impact of nonvested stock unit awards and stock options		0.8		0.7
Diluted weighted-average number of Resolute Forest Products Inc. common shares outstanding		78.2		81.9
Net income per share attributable to Resolute Forest Products Inc. common shareholders:
Basic	$	2.71	$	1.07
Diluted	$	2.68	$	1.06

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

The weighted-average number of outstanding stock options and nonvested equity-classified restricted stock units, deferred stock units and performance stock units (collectively, “stock unit awards”) that were excluded from the calculation of diluted net income per share, as their impact would have been antidilutive, for the three months ended March 31, 2022 and 2021, was as follows:


	Three Months Ended March 31,
(Unaudited, in millions)	2022	2021
Stock options	0.3	0.8
Stock unit awards	—	—

Note 6. Inventories, Net

Inventories, net as of March 31, 2022 and December 31, 2021, were comprised of the following:


(Unaudited, in millions)	March 31, 2022		December 31, 2021
Raw materials	$	174	$	159
Work in process		62		57
Finished goods		205		148
Mill stores and other supplies		154		146
	$	595	$	510

Note 7. Other Assets

Other assets as of March 31, 2022 and December 31, 2021, were comprised of the following:


(Unaudited, in millions)	March 31, 2022		December 31, 2021
Countervailing duty cash deposits on softwood lumber (Note 12)	$	365	$	339
Anti-dumping duty cash deposits on softwood lumber (Note 12)		75		58
Equity method investments		11		22
Restricted cash		40		40
Other		25		25
	$	516	$	484

Note 8. Accounts Payable and Other

Accounts payable and other as of March 31, 2022 and December 31, 2021, were comprised of the following:


(Unaudited, in millions)	March 31, 2022		December 31, 2021
Trade accounts payable	$	308	$	262
Accrued compensation		62		89
Accrued interest		2		6
Pension and other postretirement benefit obligations		14		14

Accrued provision related to Fibrek Inc. litigation (Note 12)		22		21
Income and other taxes payable		5		4




Other		29		25
	$	442	$	421

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 9. Long-Term Debt

Overview

Long-term debt, including current portion, as of March 31, 2022 and December 31, 2021, was comprised of the following:


(Unaudited, in millions)	March 31, 2022		December 31, 2021
4.875% senior unsecured notes due 2026:
Principal amount	$	300	$	300
Deferred financing costs		(5)		(5)
Total 4.875% senior unsecured notes due 2026		295		295








Finance lease obligations		6		6
Other debt		1		1
Total debt		302		302

Less: Current portion of finance lease obligations and other debt		(2)		(2)
Long-term debt, net of current portion	$	300	$	300

Debt availabilities


(Unaudited, in millions)	March 31, 2022		December 31, 2021
Term Loan Facility	$	180	$	180
Revolving Credit Facility		180		180
ABL Credit Facility (1)		377		307
Secured delayed draw term loan facility (C$220 million as of March 31, 2022 and December 31, 2021)		176		174
Total availability	$	913	$	841

(1)The availability as of March 31, 2022, was $377 million, net of $73 million of ordinary course letters of credit outstanding, of which $53 million were to guarantee surety bonds of $83 million related to the U.S. softwood lumber cash deposits. The availability as of December 31, 2021, was $307 million, net of $73 million of ordinary course letters of credit outstanding, of which $53 million were to guarantee surety bonds of $83 million related to the U.S. softwood lumber cash deposits.

Senior Unsecured Notes

2026 Notes

On February 2, 2021, we issued $300 million aggregate principal amount of 4.875% senior unsecured notes due 2026 (or, the “2026 Notes”) at an issue price of 100%, pursuant to an indenture as of that date (or, the “Indenture”). Upon their issuance, the 2026 Notes were recorded at their fair value of $300 million. Interest on the 2026 Notes is payable semi-annually on March 1 and September 1 of each year, beginning on September 1, 2021, until their maturity date of March 1, 2026. In connection with the issuance of the 2026 Notes, we incurred financing costs of $6 million, which were deferred and recorded as a reduction of the principal. Deferred financing costs are 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 2026 Notes (Level 1) was $289 million as of March 31, 2022.

2023 Notes

On February 2, 2021, we placed the net proceeds from the issuance of the 2026 Notes together with additional cash, into trust for the benefit of the holders of the 5.875% senior unsecured notes due 2023 (or, the “2023 Notes”) to redeem all of the $375 million outstanding aggregate principal amount of the 2023 Notes (or, the “Redemption”) at a price of 100% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. The Redemption occurred on February 18, 2021. As a result of the repurchase, we recorded a net loss on extinguishment of debt of

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

$3 million in “Other income (expense), net” in our Consolidated Statement of Operations for the three months ended March 31, 2021.

Senior Secured Credit Facility

On April 19, 2021 (or, the “Effective Date”), we entered into a first amendment to the amended and restated senior secured credit facility (or, the “Senior Secured Credit Facility”). The amount available under the Senior Secured Credit Facility remains unchanged for up to $360 million and is comprised of a term loan facility of up to $180 million with a delayed draw period of up to three years and the choice of maturities of six to ten years from the date of drawing (or, the “Term Loan Facility”); and a six-year revolving credit facility of up to $180 million (or, the “Revolving Credit Facility”). On the Effective Date, we repaid our $180 million term loans under the amended and restated senior secured credit facility with a combination of proceeds of borrowings under the Revolving Credit Facility and cash on hand. The amendment then reinstated the full amount of the Term Loan Facility. There is also an uncommitted option to increase the Senior Secured Credit Facility by up to an additional $360 million, subject to certain terms and conditions.

The obligations under the Senior Secured Credit Facility are guaranteed by certain material U.S. subsidiaries of the Company and are secured by a first priority mortgage on the real property of the Company’s facility in Calhoun and a first priority security interest on the fixtures and equipment located therein. On March 2, 2022, the Company entered into agreements to provide the following additional security under the Senior Secured Credit Facility: (i) a first priority mortgage on the real property of the Company’s sawmill facilities in Glenwood and El Dorado (Arkansas) and a first priority security interest on the fixtures and equipment located therein, and (ii) a first priority security interest on the fixtures and equipment at the Company’s sawmill facility in Cross City (Florida).

ABL Credit Facility

On May 14, 2019, we entered into an amended senior secured asset-based revolving credit facility (or, the “ABL Credit Facility”) with an aggregate lender commitment of up to $500 million at any time outstanding, subject to borrowing base availability based on specified advance rates, eligibility criteria and customary reserves.

Effective January 21, 2021, we reduced the commitment under the Canadian tranche of our senior secured asset-based revolving credit facility by $50 million, to $250 million, resulting in an aggregate commitment of $450 million, subject to borrowing base limitations. The obligations under the ABL Credit Facility are guaranteed by certain of our material subsidiaries.

On December 15, 2021, we entered into an amendment to the credit agreement, which reset the facility and extended the maturity date to December 15, 2026. The agreement also contains hardwired benchmark replacement provisions for future transition of LIBOR and may be amended based on agreed upon Environmental, Social and Governance (or, “ESG”) key performance indicators as described in the credit agreement.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 10. Employee Benefit Plans

Pension and other postretirement benefit plans

The components of net periodic benefit costs (credits) relating to our pension and OPEB plans for the three months ended March 31, 2022 and 2021, were as follows:

Pension Plans:


	Three Months Ended March 31,
(Unaudited, in millions)	2022		2021
Interest cost	$	36	$	33
Expected return on plan assets		(49)		(54)
Amortization of actuarial losses		17		21
Amortization of prior service credits		—		—
Non-operating pension costs		4		—
Service cost		3		4
Net periodic benefit costs before special events		7		4
Other loss (gain)		3		(1)
	$	10	$	3

OPEB Plans:


	Three Months Ended March 31,
(Unaudited, in millions)	2022		2021
Interest cost	$	1	$	1
Amortization of actuarial gains		(1)		(2)

Non-operating other postretirement benefit credits		—		(1)
Service cost		—		—
Net periodic benefit credits before special events		—		(1)
Curtailment gain		—		—
	$	—	$	(1)

Defined contribution plans

Our expense for the defined contribution plans totaled $5 million for the three months ended March 31, 2022 and 2021.

Table of Contents

RESOLUTE FOREST PRODUCTS INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 11. Income Taxes

The income tax provision attributable to income before income taxes differs from the amounts computed by applying the U.S. federal statutory income tax rate of 21% for the three months ended March 31, 2022 and 2021, as a result of the following:


	Three Months Ended March 31,
(Unaudited, in millions)	2022		2021
Income before income taxes	$	268	$	128
Income tax provision:
Expected income tax provision		(56)		(27)
Changes resulting from:

Valuation allowance		33		8


Foreign exchange		2		2
U.S. tax on non-U.S. earnings		(29)		(18)
State income taxes, net of federal income tax benefit		(1)		2
Foreign tax rate differences		(13)		(8)
Other, net		6