Resolute Reports Third Quarter 2022 Results

Special items

Third quarter

(in millions)

2022

2021

Closure costs, impairment and other related charges 

$

(1)

$

-

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

3

(3)

Other income, net

(37)

(20)

Income tax effect of special items                  

33

10

      Total

$

(2)

$

(13)

RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions of U.S. dollars, except per share amounts)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2022

2021

2022

2021

Sales

$

974

$

817

$

2,977

$

2,830

Costs and expenses:

Cost of sales, excluding depreciation, amortization and distribution costs

653

554

1,847

1,642

Depreciation and amortization

34

42

101

123

Distribution costs

107

87

310

264

Selling, general and administration expenses

57

32

133

114

Closure costs, impairment and other related charges

(1)

—

8

2

Net loss on disposition of assets

—

—

2

—

Operating income

124

102

576

685

Interest expense

(5)

(5)

(16)

(16)

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

(3)

3

(13)

8

Other income (expense), net ⁽⁴⁾

37

20

95

(74)

Income before income taxes

153

120

642

603

Income tax provision ⁽⁵⁾

(66)

(40)

(89)

(167)

Net income including noncontrolling interest

87

80

553

436

Net income attributable to noncontrolling interest

—

—

—

(1)

Net income attributable to Resolute Forest Products Inc.

$

87

$

80

$

553

$

435

Net income per share attributable to Resolute Forest Products Inc.
   common shareholders:

Basic

$

1.12

$

1.00

$

7.14

$

5.44

Diluted

$

1.11

$

0.99

$

7.07

$

5.39

Weighted-average number of Resolute Forest Products Inc.
   common shares outstanding:

Basic

77.5

79.4

77.4

80.0

Diluted

78.4

80.1

78.2

80.8

See Notes to the Unaudited Consolidated Financial Statement Information

RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions of U.S. dollars)

September 30,

December 31,

2022

2021

Assets

Current assets:

Cash and cash equivalents

$

446

$

112

Accounts receivable, net:

Trade

297

257

Other

60

56

Inventories, net

609

510

Other current assets

49

54

Total current assets

1,461

989

Fixed assets, net

1,275

1,270

Amortizable intangible assets, net

57

57

Goodwill ⁽²⁾

85

31

Deferred income tax assets

515

653

Operating lease right-of-use assets

54

54

Other assets

606

484

Total assets

$

4,053

$

3,538

Liabilities and equity

Current liabilities:

Accounts payable and other

$

493

$

421

Current portion of long-term debt

1

2

Current portion of operating lease liabilities

8

8

Total current liabilities

502

431

Long-term debt, net of current portion

300

300

Pension and other postretirement benefit obligations

991

1,151

Deferred income tax liabilities

2

—

Operations lease liabilities, net of current portion

48

51

Other liabilities

91

88

Total liabilities

1,934

2,021

Equity:

Resolute Forest Products Inc. shareholders' equity:

Common stock

—

—

Additional paid-in capital

3,811

3,807

Deficit

(456)

(1,009)

Accumulated other comprehensive loss

(1,015)

(1,062)

Treasury stock at cost

(224)

(222)

Total Resolute Forest Products Inc. shareholders' equity

2,116

1,514

Noncontrolling interest

3

3

Total equity

2,119

1,517

Total liabilities and equity

$

4,053

$

3,538

See Notes to the Unaudited Consolidated Financial Statement Information 

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

Nine Months Ended

September 30,

2022

2021

Cash flows from operating activities:

Net income including noncontrolling interest

$

553

$

436

Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:

Share-based compensation

6

3

Depreciation and amortization

101

123

Deferred income taxes

85

167

Net pension contributions and other postretirement benefit payments

(34)

(71)

Gain on previously-held equity investments ⁽²⁾

(42)

—

Net loss on disposition of assets

2

—

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

42

(7)

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

(70)

6

Net planned major maintenance amortization (payments)

19

(15)

Changes in working capital:

Accounts receivable

(39)

(45)

Inventories

(81)

(48)

Other current assets

(19)

(11)

Accounts payable and other

48

34

Other, net

20

8

Net cash provided by operating activities

591

580

Cash flows from investing activities:

Cash invested in fixed assets

(68)

(79)

Cash invested in intangible assets

(3)

—

Acquisitions of businesses, net of cash acquired ^{(2) (3)}

(49)

—

Disposition of assets

5

—

Increase in countervailing and anti-dumping duty cash deposits on softwood lumber

(138)

(128)

Other investing activities, net

—

3

Net cash used in investing activities

(253)

(204)

Cash flows from financing activities:

Issuance of long-term debt

—

300

Payment of special dividend

—

(79)

Repayments of debt

(2)

(557)

Purchases of treasury stock

(2)

(34)

Payments of financing fees

—

(7)

Other financing activities, net

—

2

Net cash used in financing activities

(4)

(375)

Effect of exchange rate changes on cash and cash equivalents, and restricted cash

(7)

(1)

Net increase in cash and cash equivalents, and restricted cash

$

327

$

—

Cash and cash equivalents, and restricted cash:

Beginning of period

$

152

$

159

End of period

$

479

$

159

Cash and cash equivalents, and restricted cash at end of period:

Cash and cash equivalents

$

446

$

119

Restricted cash (included in "Other assets")

$

33

$

40

See Notes to the Unaudited Consolidated Financial Statement Information

RESOLUTE FOREST PRODUCTS INC.
RECONCILIATION OF OPERATING INCOME AND NET INCOME ADJUSTED FOR SPECIAL ITEMS 

A reconciliation of our operating income, net income and net income per diluted share reported before special items is presented in the tables
below. See Note 1 to the Reconciliations of Non-GAAP Measures regarding our use of non-GAAP measures. 

Three months ended September 30, 2022

Operating
income

Net income

EPS

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

GAAP, as reported

$

124

$

87

$

1.11

Adjustments for special items:

Closure costs, impairment and other related charges

(1)

(1)

(0.01)

Non-operating pension and other postretirement benefit costs

—

3

0.04

Other income, net

—

(37)

(0.47)

Income tax effect of special items

—

33

0.41

Adjusted for special items

$

123

$

85

$

1.08

Three months ended September 30, 2021

Operating
income

Net income

EPS

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

GAAP, as reported

$

102

$

80

$

0.99

Adjustments for special items:

Non-operating pension and other postretirement benefit credits

—

(3)

(0.04)

Other income, net

—

(20)

(0.24)

Income tax effect of special items

—

10

0.13

Adjusted for special items

$

102

$

67

$

0.84

Nine months ended September 30, 2022

Operating
income

Net income

EPS

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

GAAP, as reported

$

576

$

553

$

7.07

Adjustments for special items:

Closure costs, impairment and other related charges

8

8

0.10

Net loss on disposition of assets

2

2

0.03

Non-operating pension and other postretirement benefit costs

—

13

0.17

Other income, net

—

(95)

(1.21)

U.S. deferred income tax asset valuation allowance reversal

—

(105)

(1.34)

Income tax effect of special items

—

41

0.51

Adjusted for special items

$

586

$

417

$

5.33

Nine months ended September 30, 2021

Operating
income

Net income

EPS

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

GAAP, as reported

$

685

$

435

$

5.39

Adjustments for special items:

Closure costs, impairment and other related charges

2

2

0.02

Non-operating pension and other postretirement benefit credits

—

(8)

(0.10)

Other expense, net

—

74

0.92

Income tax effect of special items

—

(17)

(0.22)

Adjusted for special items

$

687

$

486

$

6.01

RESOLUTE FOREST PRODUCTS INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA 

A reconciliation of our net income including noncontrolling interest to EBITDA and Adjusted EBITDA is presented in the tables below.
See Note 1 to the Reconciliations of Non-GAAP Measures regarding our use of the non-GAAP measures EBITDA and Adjusted EBITDA. 

Three months ended September 30, 2022

Market

pulp

Tissue

Wood

products

Paper

Corporate

and other

Total

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

Net income (loss) including noncontrolling interest

$      81

$    (12)

$      42

$      52

$    (76)

$      87

Interest expense

5

5

Income tax provision

66

66

Depreciation and amortization

5

4

11

10

4

34

EBITDA

$      86

$       (8)

$      53

$      62

$       (1)

$    192

Closure costs, impairment and other related charges

(1)

(1)

Non-operating pension and other postretirement benefit costs

3

3

Other income, net

(37)

(37)

Adjusted EBITDA

$      86

$       (8)

$      53

$      62

$    (36)

$    157

Three months ended September 30, 2021

Market

pulp

Tissue

Wood

products

Paper

Corporate

and other

Total

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

Net income (loss) including noncontrolling interest

$      46

$       (9)

$      64

$      16

$    (37)

$      80

Interest expense

5

5

Income tax provision

40

40

Depreciation and amortization

6

5

11

15

5

42

EBITDA

$      52

$       (4)

$      75

$      31

$      13

$    167

Non-operating pension and other postretirement benefit credits

(3)

(3)

Other income, net

(20)

(20)

Adjusted EBITDA

$      52

$       (4)

$      75

$      31

$    (10)

$    144

Nine months ended September 30, 2022

Market

pulp

Tissue

Wood

products

Paper

Corporate

and other

Total

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

Net income (loss) including noncontrolling interest

$    144

$     (30)

$    441

$    114

$   (116)

$    553

Interest expense

16

16

Income tax provision

89

89

Depreciation and amortization

16

13

33

29

10

101

EBITDA

$    160

$     (17)

$    474

$    143

$       (1)

$    759

Closure costs, impairment and other related charges

8

8

Net loss on disposition of assets

2

2

Non-operating pension and other postretirement benefit costs

13

13

Other income, net

(95)

(95)

Adjusted EBITDA

$    160

$     (17)

$    474

$    143

$    (73)

$    687

Nine months ended September 30, 2021

Market

pulp

Tissue

Wood

products

Paper

Corporate

and other

Total

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

Net income (loss) including noncontrolling interest

$      80

$     (18)

$    690

$     (15)

$   (301)

$    436

Interest expense

16

16

Income tax provision

167

167

Depreciation and amortization

18

14

32

46

13

123

EBITDA

$      98

$       (4)

$    722

$      31

$   (105)

$    742

Closure costs, impairment and other related charges

2

2

Non-operating pension and other postretirement benefit credits

(8)

(8)

Other expense, net

74

74

Adjusted EBITDA

$      98

$       (4)

$    722

$      31

$    (37)

$    810

1.

On July 5, 2022, Resolute and Paper Excellence Group, through its wholly-owned subsidiary Domtar Corporation (or, "Domtar"), entered into a business combination agreement (or, the "Transaction") under which Domtar will acquire all of the issued and outstanding common shares of Resolute for $20.50 per share, in cash, without interest, and one contractual contingent value right per share (or, the "CVR").

Under the CVR, stockholders will receive any refunds on approximately $500 million of deposits on softwood lumber duties paid by Resolute through June 30, 2022, including any interest thereon, net of certain expenses and of applicable taxes. Any proceeds attributable to the CVR will be distributed proportionally to the CVR holders, and the value will ultimately be determined by the terms and timing of the resolution of the softwood lumber dispute between Canada and the United States. The terms and timing of such resolution is uncertain.

On October 31, 2022, Resolute's stockholders approved the Transaction. The Transaction, which is subject to applicable regulatory approvals and the satisfaction of certain other customary closing conditions, is expected to close in the first half of 2023.

2.

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). 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.

At the Acquisition Date, our previously-held equity investments of $17 million were remeasured at a fair value of $59 million, which resulted in a gain of $42 million. The gain was recorded in "Other income (expense), net" in our Consolidated Statements of Operations for the nine months ended September 30, 2022.

3.

On April 1, 2022, we acquired a 34.5 megawatt power generation facility in Senneterre (Quebec) for $8 million, including a contingent consideration. With this acquisition, we will maximize the use of biomass from our regional operations.

4.

Other income (expense), net for the three and nine months ended September 30, 2022 and 2021, was comprised of the following:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Unaudited, in millions)

2022

2021

2022

2021

Foreign exchange gain

$

37

$

12

$

45

$

1

Gain (loss) on commodity contracts ⁽¹⁾

—

1

1

(85)

Income from equity method investments 

—

8

7

12

Gain on previously-held equity investments (see Note 2 above)

—

—

42

—

Miscellaneous expense

—

(1)

—

(2)

$

37

$

20

$

95

$

(74)

The loss for the nine months ended September 30, 2021, was principally related to lumber futures contracts; none of these contracts were outstanding as of September 30, 2022 and 2021.

5.

During the second quarter of 2022, after evaluating all available positive and negative evidence, although realization is not assured, we determined that it is more likely than not that the $105 million of the U.S. deferred income tax assets released during the second quarter, will be realized in the future prior to expiration.

6.

On October 6, 2022, a fire started at our Menominee (Michigan) recycled pulp mill, which resulted in the temporary idling of the facility. We cannot yet estimate the extent of the losses, but aim to restart the mill in the coming months. We maintain insurance coverage for the mill, which is subject to customary deductible and limits.

1.

Operating income, net income and net income per diluted share (or, "EPS"), in each case as adjusted for special items, as well as earnings before interest expense, income taxes, and depreciation and amortization (or, "EBITDA"), and adjusted EBITDA, in each case by reportable segment (market pulp, tissue, wood products and paper) in accordance with the Financial Accounting Standards Board Accounting Standards Codification 290, "Segment Reporting," are not financial measures recognized under generally accepted accounting principles (or, "GAAP").

We calculate operating income, as adjusted for special items, as operating income from our Consolidated Statements of Operations, adjusted for items such as closure costs, impairment and other related charges and gains or losses on disposition of assets that are excluded from our segment's performance from GAAP operating income.

We calculate net income, as adjusted for special items, as net income from our Consolidated Statements of Operations, adjusted for the same special items applied to operating income, in addition to non-operating pension and other postretirement benefit costs and credits, other income and expense, net, U.S. deferred income tax asset valuation allowance reversal (to offset future projected tax implications of the global intangible low-taxed income inclusion), and the income tax effect of special items.

EPS, as adjusted for special items, is calculated as net income, as adjusted for special items, per diluted share.

EBITDA by reportable segment is calculated as net income (loss) including noncontrolling interest from the Consolidated Statements of Operations, allocated to each of our reportable segments, adjusted for depreciation and amortization. Net income (loss) including non-controlling interest is equal to operating income (loss) for the segments. EBITDA for corporate and other is calculated as net income (loss) including noncontrolling interest from the Consolidated Statements of Operations, after the allocation to reportable segments, adjusted for interest expense, income taxes, and depreciation and amortization.

Adjusted EBITDA means EBITDA, excluding the same special items (excluding tax items) applied to net income (loss).

We define net cash as cash and cash equivalents less total debt.

Liquidity is calculated as cash and cash equivalents from our Consolidated Balance Sheets, and availability under our credit facilities.

We believe that using these non-GAAP measures is useful because they are consistent with the indicators management uses internally to measure the Company's performance, and it allows the reader to compare our operations and financial performance from period to period. Operating income, net income, and EPS, in each case as adjusted for special items, as well as EBITDA, adjusted EBITDA, and EBITDA margin are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP in our Consolidated Statements of Operations in our filings with the Securities and Exchange Commission.