MONTREAL - Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) reported a net loss of $2 million for the year ended December 31, 2012, or $0.02 per share, on sales of $4.5 billion. This compares with net income of $41 million, or $0.42 per diluted share, on sales of $4.8 billion in the year ended December 31, 2011. Net loss in the fourth quarter of 2012 was $36 million, or $0.38 per share, on sales of $1.1 billion, compared with a net loss of $6 million, or $0.06 per share, on sales of $1.1 billion in the fourth quarter of 2011.
Excluding $81 million of special items, net income for the full year was $79 million, or $0.81 per diluted share. Excluding special items of $70 million, net income in the fourth quarter was $34 million, or $0.35 per diluted share. For the full year 2011, net income excluding special items was $166 million, or $1.71 per diluted share, and $45 million, or $0.46 per diluted share, in the fourth quarter 2011. All special items and non-GAAP financial measures, such as adjustments for special items and adjusted EBITDA, are described and reconciled below.
"We significantly improved the Company's competitiveness by optimizing our asset base, reducing costs wherever possible and strengthening our financial position this year," said Richard Garneau, president and chief executive officer. "We added pulp assets, committed to growth projects in lumber, invested in power cogeneration plants and further optimized our paper assets, steps that will position us well for the future. At the same time, we returned $67 million to our shareholders in share buybacks, reduced balance sheet working capital by a further $81 million from the end of 2011 and redeemed an additional $85 million of debt."
Operating Income Variance
The Company recorded an operating loss of $30 million in 2012, compared to operating income of $198 million in 2011. This reflects a $134 million increase in closure costs, impairment and other related charges, and $173 million of lower volume, in both cases because of additional market downtime and the Company's ongoing efforts to focus production in its most cost-effective mills and drive better efficiency by restructuring and reducing labor costs. As a result, and in addition to lower energy, recovered paper and fiber costs, manufacturing costs improved by $55 million, excluding the effects of lower volume. The effect of pricing changes in the year was neutral as the increase in lumber pricing offset declines in pulp, while gains in specialty paper offset declines in newsprint and coated papers.
In the fourth quarter, the Company recorded an operating loss of $46 million, compared to operating income of $26 million in the third. This reflects $82 million in closure costs, impairment and other related charges, mainly related to the idling of a pulp mill and specialty paper machine in Fort Frances, Ontario, the closure of a specialty paper machine in Laurentide, Quebec, and costs related to the sale of assets in Mersey, Nova Scotia. The variance also included the unfavorable effects of a $10 million non-cash inventory obsolescence charge for slow-moving spare parts, $10 million unfavorable pricing and $8 million due to lower volume. The Company's asset optimization and restructuring initiatives, as well as more favorable pricing for recovered paper, maintenance timing and a favorable wood products inventory adjustment, led to savings of $25 million in overall manufacturing costs, excluding the effects of lower volume.
SEGMENT DETAILS
Newsprint
The newsprint segment generated operating income of $18 million in the fourth quarter, an $8 million decrease from the third. Average transaction price slipped $6 per metric ton and shipments fell 2% as a result of newsprint export markets pressured by the strong U.S. dollar. There was a $4 million non-cash provision for spare parts obsolescence recorded against operating income in the quarter, but it was offset by lower manufacturing costs and favorable recovered paper pricing.
An 11% reduction in operating costs led to a 9% increase in operating income for the year, to $97 million, despite a 10% reduction in shipments and a 1% decrease in average transaction price. The Company reduced shipments as part of its efforts to manage its exposure to markets affected by the strong U.S. dollar and its steps to optimize its asset base, including the closure and subsequent sale of its interest in the Mersey newsprint mill.
Coated Papers
Operating income in the coated papers segment was unchanged in the fourth quarter compared to the third, at $3 million. Average transaction price rose $18 per short ton, or 2%, but shipments were down 14% as a result of equipment failures, which pushed operating costs per unit up 3%.
Operating income in the coated papers segment was down $48 million in 2012, to $9 million, as a result of a 3% reduction in average transaction price and a 13% reduction in shipments. The Company continued to make progress in its efforts to improve equipment efficiency with a smaller labor force, but operating costs per unit rose by 6% in the year, as the Catawba, South Carolina, mill continues to work toward capturing the expected efficiencies.
Specialty Papers
The specialty papers segment generated operating income of $8 million in the fourth quarter, an $18 million decrease from the previous quarter. Average transaction price was stable but shipments dropped 3% on lower demand. The decrease in operating income includes $4 million in additional costs associated with the Dolbeau, Quebec, facility's ramp-up and a $3 million non-cash provision for spare parts obsolescence.
The restart of the Dolbeau facility is another step in the Company's strategy to optimize its asset base; in the last five quarters, three specialty paper machines, one in each of Laurentide, Fort Frances and Kenogami, Quebec, were closed or idled, and the Company continued its labor restructuring initiatives, most recently in Alma, Quebec. Despite a 16% drop in shipments, consistent with the industry average, operating income rose 23% from 2011 to 2012, to $76 million, as average transaction price increased 3% and the Company improved manufacturing costs, including a $7 million improvement in labor costs and $14 million of favorable power and steam costs.
Market Pulp
Operating income was breakeven in the quarter, a $22 million improvement over the third. Average transaction price dropped $23 per metric ton, or 3%, from its already low levels in the third quarter. Despite indefinitely idling the Fort Frances pulp mill in late November, shipments rose 8% as the Company ran Fibrek's Saint-Felicien, Quebec, facility throughout the quarter, except for four days of downtime to complete the dredging of many years of accumulated sludge in the lagoons. Manufacturing costs improved by $18 million as there was no major maintenance in the quarter.
Operating income in 2012 was $135 million lower than in 2011, reflecting primarily the $82 per metric ton drop in average transaction price (which includes, as of May 2012, the three Fibrek mills), but also an increase of $21 million in operating costs on higher chemicals, maintenance and labor costs. The five-week outage at Saint-Felicien had a $16 million negative impact on operating income.
Wood Products
The wood products segment reported operating income of $14 million in the fourth quarter, $8 million higher than the third. Average transaction price was unchanged but shipments rose 1%. There was a $7 million favorable inventory adjustment as a result of increasing market prices for lumber products.
As a result of stronger market conditions and gradually improving North American housing starts, operating income increased $51 million in the year, to $26 million, and average transaction price rose $53 per thousand board feet, or 18%. Shipments were down 9% as a result of the closure of the Oakhill sawmill in Nova Scotia and downtime in Quebec sawmills. Manufacturing costs rose $16 million mainly because of higher stumpage fees in Quebec, which is tied to lumber pricing.
CORPORATE & FINANCE
The Company used cash on hand to repurchase 1,946,205 shares of common stock during the fourth quarter under its previously announced share repurchase program, at a total cost of $22 million, and to redeem $85 million of its 10.25% senior secured notes due 2018. With $263 million of cash, the Company ended the quarter with $782 million of available liquidity, and $271 million in net debt.
OUTLOOK
Mr. Garneau added: "combined with softening demand and lower exports from North America, recent capacity restarts by competitors are putting pressure on pricing in newsprint and supercalender grades. We have focused our paper production in our most productive sites and drove better efficiency by restructuring mills and reducing labor costs. This gives us confidence in the competitiveness of our improved asset base as we face the challenges ahead. We expect to benefit in 2013 from investments in power cogeneration assets, with Saint-Felicien and Dolbeau now fully operational and Thunder Bay expected to come online by the end of the first quarter. Recent demand and pricing trends are giving us reason for cautious optimism that the pulp market is gradually coming out of its prolonged slump. Wood products should continue to show progress as housing starts build on recent improvements. Our ongoing growth projects - the capacity enhancement in Thunder Bay, in addition to the announced restart of the Ignace sawmill and construction of the new Atikokan sawmill to be completed in 2014 - further enhance our position in the lumber segment for the future."
| DESCRIPTION OF SPECIAL ITEMS | ||||||||
| Special items, net of tax (in millions) |
Fourth quarter 2012 |
Full year 2012 |
Fourth quarter 2011 |
Full year 2011 |
||||
| Charge (gain) on non- cash translation of Canadian dollar net monetary assets |
$ 3 | $ (23) | $ (13) | $ 23 | ||||
| Severance | 1 | 4 | - | 8 | ||||
| Closure costs, impairment and other related charges |
60 | 112 | 6 | 32 | ||||
| Inventory write-downs related to closures |
4 | 7 | 2 | 2 | ||||
| Start-up costs of idled mills |
6 | 10 | - | - | ||||
| Net gain on disposition of assets |
(6) | (22) | - | (2) | ||||
| Post-emergence expenses |
4 | 9 | 9 | 34 | ||||
| Transaction costs related to the acquisition of Fibrek |
1 | 8 | 4 | 4 | ||||
| Other income, net | (6) | (11) | (5) | (14) | ||||
| Non-cash charge (gain) for reorganization-related and other tax adjustments |
3 | (13) | 48 | 38 | ||||
| Total | $ 70 | $ 81 | $ 51 |
$ 125 |
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| RESOLUTE FOREST PRODUCTS INC. | ||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||
| (Unaudited, in millions except per share amounts) | ||||||||||||
| Three Months | Three Months | Twelve Months | Twelve Months | |||||||||
| Ended December 31, | Ended December 31, | Ended December 31, | Ended December 31, | |||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||
| Sales | $ | 1,128 | $ | 1,147 | $ | 4,503 | $ | 4,756 | ||||
| Costs and expenses: | ||||||||||||
| Cost of sales, excluding depreciation, amortization and cost of timber harvested | 876 | 864 | 3,492 | 3,590 | ||||||||
| Depreciation, amortization and cost of timber harvested | 59 | 56 | 233 | 220 | ||||||||
| Distribution costs | 129 | 132 | 514 | 547 | ||||||||
| Selling, general and administrative expenses | 35 | 36 | 149 | 158 | ||||||||
| Closure costs, impairment and other related charges (2) | 82 | 12 | 180 | 46 | ||||||||
| Net gain on disposition of assets (3) | (7) | - | (35) | (3) | ||||||||
| Operating (loss) income | (46) | 47 | (30) | 198 | ||||||||
| Other (expense) income: | ||||||||||||
| Interest expense | (15) | (18) | (66) | (95) | ||||||||
| Foreign currency translation (loss) gain (4) | (4) | 9 | 17 | (21) | ||||||||
| Other, net | 4 | (6) | 5 | (27) | ||||||||
| (Loss) income before income taxes | (61) | 32 | (74) | 55 | ||||||||
| Income tax benefit (provision) (5) | 26 | (42) | 38 | (16) | ||||||||
| Net (loss) income including noncontrolling interests | (35) | (10) | (36) | 39 | ||||||||
| Net (income) loss attributable to noncontrolling interests | (1) | 4 | 34 | 2 | ||||||||
| Net (loss) income attributable to Resolute Forest Products Inc. | $ | (36) | $ | (6) | $ | (2) | $ | 41 | ||||
| Net (loss) income per share attributable to Resolute Forest Products Inc. common shareholders: (6) | ||||||||||||
| Basic | $ | (0.38) | $ | (0.06) | $ | (0.02) | $ | 0.42 | ||||
| Diluted | $ | (0.38) | $ | (0.06) | $ | (0.02) | $ | 0.42 | ||||
| Weighted-average number of Resolute Forest Products Inc. common shares outstanding: (6) | ||||||||||||
| Basic | 95.7 | 97.1 | 97.4 | 97.1 | ||||||||
| Diluted | 96.0 | 97.1 | 97.5 | 97.1 | ||||||||
| RESOLUTE FOREST PRODUCTS INC. | |||||||
| CONSOLIDATED BALANCE SHEETS | |||||||
| (Unaudited, in millions) | |||||||
| December 31 | December 31, | ||||||
| 2012 | 2011 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 263 | $ | 369 | |||
| Accounts receivable trade, net | 576 | 582 | |||||
| Accounts receivable other | 121 | 168 | |||||
| Inventories, net | 545 | 475 | |||||
| Assets held for sale | - | 7 | |||||
| Deferred income tax assets | 56 | 109 | |||||
| Other current assets | 58 | 59 | |||||
| Total current assets | 1,619 | 1,769 | |||||
| Fixed assets, net | 2,440 | 2,502 | |||||
| Amortizable intangible assets, net | 69 | 18 | |||||
| Deferred income tax assets | 2,002 | 1,749 | |||||
| Other assets | 194 | 260 | |||||
| Total assets | $ | 6,324 | $ | 6,298 | |||
| Liabilities and equity | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 581 | $ | 544 | |||
| Current portion of long-term debt | 2 | - | |||||
| Total current liabilities | 583 | 544 | |||||
| Long-term debt, net of current portion | 532 | 621 | |||||
| Pension and other postretirement benefit obligations | 1,946 | 1,524 | |||||
| Deferred income tax liabilities | 75 | 75 | |||||
| Other long-term liabilities | 72 | 57 | |||||
| Total liabilities | 3,208 | 2,821 | |||||
| Commitments and contingencies | |||||||
| Equity: | |||||||
| Common stock | - | - | |||||
| Additional paid-in capital | 3,730 | 3,687 | |||||
| Retained earnings | 38 | 41 | |||||
| Accumulated other comprehensive loss | (614) | (311) | |||||
| Treasury stock at cost | (61) | - | |||||
| Total Resolute Forest Products Inc. shareholders' equity | 3,093 | 3,417 | |||||
| Noncontrolling interests | 23 | 60 | |||||
| Total equity | 3,116 | 3,477 | |||||
| Total liabilities and equity | $ | 6,324 | $ | 6,298 | |||
| RESOLUTE FOREST PRODUCTS INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited, in millions) | ||||||||
| Twelve Months | Twelve Months | |||||||
| Ended December 31, | Ended December 31, | |||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income including noncontrolling interests | $ | (36) | $ | 39 | ||||
| Adjustments to reconcile net (loss) income including noncontrolling interests to net cash provided by operating activities: | ||||||||
| Share-based compensation | 5 | 3 | ||||||
| Depreciation, amortization and cost of timber harvested | 233 | 220 | ||||||
| Closure costs, impairment and other related charges | 161 | 41 | ||||||
| Write-downs of inventory | 12 | 3 | ||||||
| Deferred income taxes | (35) | 19 | ||||||
| Net pension contributions | (95) | (175) | ||||||
| Net gain on disposition of assets | (35) | (3) | ||||||
| (Gain) loss on translation of foreign currency denominated deferred income taxes | (37) | 25 | ||||||
| Loss (gain) on translation of foreign currency denominated pension and other postretirement benefit obligations | 30 | (15) | ||||||
| Premium related to debt redemptions | (5) | (16) | ||||||
| Dividends received from equity method investees in excess of income | 2 | 9 | ||||||
| Leasehold improvement incentive received from lessor | 5 | - | ||||||
| Other, net | (3) | (3) | ||||||
| Changes in working capital: | - | |||||||
| Accounts receivable | 91 | 87 | ||||||
| Inventories | (21) | (39) | ||||||
| Other current assets | 5 | 31 | ||||||
| Accounts payable and accrued liabilities | (11) | (28) | ||||||
| Net change in working capital | 64 | 51 | ||||||
| Net cash provided by operating activities | 266 | 198 | ||||||
| Cash flows from investing activities: | ||||||||
| Cash invested in fixed assets | (169) | (97) | ||||||
| Disposition of investment in ACH Limited Partnership | - | 296 | ||||||
| Disposition of our interest in Bowater Mersey Paper Company Limited, net of cash | 14 | - | ||||||
| Disposition of other assets | 36 | 19 | ||||||
| Acquisition of Fibrek Inc., net of cash acquired (1) | (24) | - | ||||||
| Proceeds from holdback related to disposition of investment in MPCo | - | 29 | ||||||
| Proceeds from insurance settlements | - | 8 | ||||||
| Decrease (increase) in restricted cash | 76 | (2) | ||||||
| Increase in deposit requirements for letters of credit, net | (12) | (8) | ||||||
| Other investing activities, net | 4 | - | ||||||
| Net cash (used in) provided by investing activities | (75) | 245 | ||||||
| Cash flows from financing activities: | ||||||||
| Purchases of treasury stock | (67) | - | ||||||
| Dividends and distribution to noncontrolling interests | (5) | (21) | ||||||
| Acquisition of noncontrolling interest (1) | (27) | (15) | ||||||
| Payments of debt | (198) | (354) | ||||||
| Payments of financing and credit facility fees | - | (3) | ||||||
| Net cash used in financing activities | (297) | (393) | ||||||
| Net decrease (increase) in cash and cash equivalents | (106) | 50 | ||||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | 369 | 319 | ||||||
| End of period | $ | 263 | $ | 369 | ||||
| RESOLUTE FOREST PRODUCTS INC. | |||||||||
| STATEMENTS OF OPERATING INCOME AND NET INCOME ADJUSTED FOR SPECIAL ITEMS | |||||||||
| A reconciliation of our operating income, net income and net income per share reported before special items is presented in the tables below. See Note 7 to the Unaudited Consolidated Financial Statement Information regarding our use of non-GAAP measures. |
|||||||||
| Three Months Ended December 31, 2012 (unaudited, in millions except per share amounts) |
Operating income (loss) |
Net income (loss) | EPS | ||||||
| |
|
||||||||
| GAAP as reported | $ | (46) | $ | (36) | $ | (0.38) | |||
| Adjustments for special items: | |||||||||
| Foreign currency translation loss | - | 3 | 0.03 | ||||||
| Severance | 2 | 1 | 0.01 | ||||||
| Closure costs, impairment and other related charges | 82 | 60 | 0.63 | ||||||
| Inventory write-downs related to closures | 5 | 4 | 0.04 | ||||||
| Start up costs of idled mill | 8 | 6 | 0.06 | ||||||
| Net gain on disposition of assets | (7) | (6) | (0.06) | ||||||
| Post-emergence costs | - | 4 | 0.04 | ||||||
| Transaction costs | 1 | 1 | 0.01 | ||||||
| Other income, net | - | (6) | (0.06) | ||||||
| Reorganization-related and other tax adjustments | - | 3 | 0.03 | ||||||
| GAAP as adjusted for special items | $ | 45 | $ | 34 | $ | 0.35 | |||
| Three Months Ended December 31, 2011 (unaudited, in millions except per share amounts) |
Operating income (loss) |
Net income (loss) | EPS | ||||||
| |
|||||||||
| GAAP as reported | $ | 47 | $ | (6) | $ | (0.06) | |||
| Adjustments for special items: | |||||||||
| Foreign currency translation gain | - | (13) | (0.13) | ||||||
| Closure costs, impairment and other related charges | 12 | 6 | 0.06 | ||||||
| Inventory write-downs related to closures | 2 | 2 | 0.02 | ||||||
| Post-emergence costs | - | 9 | 0.09 | ||||||
| Transaction costs | 5 | 4 | 0.04 | ||||||
| Other income, net | - | (5) | (0.05) | ||||||
| Reorganization-related and other tax adjustments | - | 48 | 0.49 | ||||||
| GAAP as adjusted for special items | $ | 66 | $ | 45 | $ | 0.46 | |||
| Twelve Months Ended December 31, 2012 (unaudited, in millions except per share amounts) |
Operating income (loss) |
Net income (loss) | EPS | ||||||
| GAAP as reported | $ | (30) | $ | (2) | $ | (0.02) | |||
| Adjustments for special items: | |||||||||
| Foreign currency translation gain | - | (23) | $ | (0.24) | |||||
| Severance | 5 | 4 | $ | 0.04 | |||||
| Closure costs, impairment and other related charges | 180 | 112 | $ | 1.15 | |||||
| Inventory write-downs related to closures | 12 | 7 | $ | 0.07 | |||||
| Start up costs of idled mill | 13 | 10 | $ | 0.10 | |||||
| Net gain on disposition of assets | (35) | (22) | $ | (0.22) | |||||
| Post-emergence costs | - | 9 | $ | 0.09 | |||||
| Transaction costs | 8 | 8 | $ | 0.08 | |||||
| Other income, net | - | (11) | $ | (0.11) | |||||
| Reorganization-related and other tax adjustments | - | (13) | $ | (0.13) | |||||
| GAAP as adjusted for special items | $ | 153 | $ | 79 | $ | 0.81 | |||
| Twelve Months Ended December 31, 2011 (unaudited, in millions except per share amounts) |
Operating income (loss) |
Net income (loss) | EPS | ||||||
| |
|
||||||||
| GAAP as reported | $ | 198 | $ | 41 | $ | 0.42 | |||
| Adjustments for special items: | |||||||||
| Foreign currency translation loss | - | 23 | 0.24 | ||||||
| Severance | 12 | 8 | 0.08 | ||||||
| Closure costs, impairment and other related charges | 46 | 32 | 0.33 | ||||||
| Inventory write-downs related to closures | 3 | 2 | 0.02 | ||||||
| Net gain on disposition of assets | (3) | (2) | (0.02) | ||||||
| Post-emergence costs | - | 34 | 0.35 | ||||||
| Transaction costs | 5 | 4 | 0.05 | ||||||
| Other income, net | - | (14) | (0.15) | ||||||
| Reorganization-related and other tax adjustments | - | 38 | 0.39 | ||||||
| GAAP as adjusted for special items | $ | 261 | $ | 166 | $ | 1.71 | |||
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| RESOLUTE FOREST PRODUCTS INC. | ||||||||||||||||||||
| STATEMENTS OF EBITDA AND ADJUSTED EBITDA | ||||||||||||||||||||
| A reconciliation of our net income including noncontrolling interests to EBITDA and Adjusted EBITDA is presented in the tables below. | ||||||||||||||||||||
| See Note 7 to the Unaudited Consolidated Financial Statement Information regarding our use of non-GAAP measures EBITDA and Adjusted EBITDA | ||||||||||||||||||||
| Three Months Ended December 31, 2012 (unaudited, in millions) |
Newsprint | Coated papers | Specialty papers |
Market pulp | Wood products | Corporate and other |
Total | |||||||||||||
| Net income (loss) including noncontrolling interests | $ | 18 | $ | 3 | $ | 8 | $ | - | $ | 14 | $ | (78) | $ | (35) | ||||||
| Interest expense, net | 15 | 15 | ||||||||||||||||||
| Income tax benefit | (26) | (26) | ||||||||||||||||||
| Depreciation, amortization and cost of timber harvested | 18 | 9 | 11 | 13 | 8 | 59 | ||||||||||||||
| EBITDA | 36 | 12 | 19 | 13 | 22 | (89) | 13 | |||||||||||||
| Foreign currency translation loss | 4 | 4 | ||||||||||||||||||
| Severance | 2 | 2 | ||||||||||||||||||
| Closure costs, impairment and other related charges | 82 | 82 | ||||||||||||||||||
| Inventory write-downs related to closures | 5 | 5 | ||||||||||||||||||
| Start up costs of idled mill | 8 | 8 | ||||||||||||||||||
| Net gain on disposition of assets | (7) | (7) | ||||||||||||||||||
| Post-emergence costs | 4 | 4 | ||||||||||||||||||
| Transaction costs | 1 | 1 | ||||||||||||||||||
| Other income, net | (8) | (8) | ||||||||||||||||||
| Adjusted EBITDA | $ | 36 | $ | 12 | $ | 19 | $ | 13 | $ | 22 | $ | 2 | $ | 104 | ||||||
| Three Months Ended December 31, 2011 (unaudited, in millions) |
Newsprint | Coated papers | Specialty papers |
Market pulp | Wood products | Corporate and other |
Total | |||||||||||||
| Net income (loss) including noncontrolling interests | $ | 26 | $ | 13 | $ | 24 | $ | 12 | $ | (5) | $ | (80) | $ | (10) | ||||||
| Interest expense, net | 18 | 18 | ||||||||||||||||||
| Income tax provision | 42 | 42 | ||||||||||||||||||
| Depreciation, amortization and cost of timber harvested | 18 | 9 | 13 | 8 | 8 | 56 | ||||||||||||||
| EBITDA | 44 | 22 | 37 | 20 | 3 | (20) | 106 | |||||||||||||
| Foreign currency translation gain | (9) | (9) | ||||||||||||||||||
| Closure costs, impairment and other related charges | 12 | 12 | ||||||||||||||||||
| Inventory write-downs related to closures | 2 | 2 | ||||||||||||||||||
| Post-emergence costs | 12 | 12 | ||||||||||||||||||
| Transaction costs | 5 | 5 | ||||||||||||||||||
| Other income, net | (6) | (6) | ||||||||||||||||||
| Adjusted EBITDA | $ | 44 | $ | 22 | $ | 37 | $ | 20 | $ | 3 | $ | (4) | $ | 122 | ||||||
| Twelve Months Ended December 31, 2012 (unaudited, in millions) |
Newsprint | Coated papers | Specialty papers |
Market pulp | Wood products | Corporate and other |
Total | |||||||||||||
| Net income (loss) including noncontrolling interests | $ | 97 | $ | 9 | $ | 76 | $ | (50) | $ | 26 | $ | (194) | $ | (36) | ||||||
| Interest expense, net | 66 | 66 | ||||||||||||||||||
| Income tax benefit | (38) | (38) | ||||||||||||||||||
| Depreciation, amortization and cost of timber harvested | 72 | 37 | 46 | 44 | 34 | 233 | ||||||||||||||
| EBITDA | 169 | 46 | 122 | (6) | 60 | (166) | 225 | |||||||||||||
| Foreign currency translation gain | (17) | (17) | ||||||||||||||||||
| Severance | 5 | 5 | ||||||||||||||||||
| Closure costs, impairment and other related charges | 180 | 180 | ||||||||||||||||||
| Inventory write-downs related to closures | 12 | 12 | ||||||||||||||||||
| Start up costs of idled mill | 13 | 13 | ||||||||||||||||||
| Net gain on disposition of assets | (35) | (35) | ||||||||||||||||||
| Post-emergence costs | 11 | 11 | ||||||||||||||||||
| Transaction costs | 8 | 8 | ||||||||||||||||||
| Other income, net | (16) | (16) | ||||||||||||||||||
| Adjusted EBITDA | $ | 169 | $ | 46 | $ | 122 | $ | (6) | $ | 60 | $ | (5) | $ | 386 | ||||||
| Twelve Months Ended December 31, 2011 (unaudited, in millions) |
Newsprint | Coated papers | Specialty papers |
Market pulp | Wood products | Corporate and other |
Total | |||||||||||||
| Net income (loss) including noncontrolling interests | $ | 89 | $ | 57 | $ | 62 | $ | 85 | $ | (25) | $ | (229) | $ | 39 | ||||||
| Interest expense, net | 95 | 95 | ||||||||||||||||||
| Income tax provision | 16 | 16 | ||||||||||||||||||
| Depreciation, amortization and cost of timber harvested | 73 | 35 | 49 | 30 | 33 | 220 | ||||||||||||||
| EBITDA | 162 | 92 | 111 | 115 | 8 | (118) | 370 | |||||||||||||
| Foreign currency translation loss | 21 | 21 | ||||||||||||||||||
| Severance | 12 | 12 | ||||||||||||||||||
| Closure costs, impairment and other related charges | 46 | 46 | ||||||||||||||||||
| Inventory write-downs related to closures | 3 | 3 | ||||||||||||||||||
| Net gain on disposition of assets | (3) | (3) | ||||||||||||||||||
| Post-emergence costs | 47 | 47 | ||||||||||||||||||
| Transaction costs | 5 | 5 | ||||||||||||||||||
| Other income, net | (20) | (20) | ||||||||||||||||||
| Adjusted EBITDA | $ | 162 | $ | 92 | $ | 111 | $ | 115 | $ | 8 | $ | (7) | $ | 481 | ||||||
RESOLUTE FOREST PRODUCTS INC.
Notes to the Unaudited Consolidated Financial Statement Information
| 1. | Acquisition of Fibrek Inc. |
| On December 15, 2011, we announced an offer to purchase all of the issued and outstanding shares of Fibrek Inc. ("Fibrek"), a producer and marketer of virgin and recycled kraft pulp, operating three mills. Our acquisition of Fibrek has been achieved in stages. In connection with the offer, as of April 23, 2012, we had taken up and accepted for payment approximately 48.8% of the then outstanding Fibrek shares. On May 2, 2012, we took up and accepted for payment additional shares of Fibrek, after which we owned a controlling interest (approximately 50.1% of the then outstanding Fibrek shares) and Fibrek became a consolidated subsidiary. We subsequently acquired additional shares of Fibrek and, as of May 17, 2012 (the date the offer expired), we owned approximately 74.6% of the then outstanding Fibrek shares. On July 31, 2012, we completed the second step transaction for the remaining 25.4% of the outstanding Fibrek shares. | |
| As aggregate consideration for all of the Fibrek shares purchased, we distributed approximately 3.3 million shares of our common stock and Cdn$63 million ($63 million, based on the exchange rates in effect on each of the dates we acquired the shares of Fibrek) in cash. In connection with the Fibrek shareholder vote on the arrangement, 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 may be paid to former holders of Fibrek shares in connection with the proceedings, but we have reserved approximately Cdn$14 million ($14 million, based on the exchange rate in effect on December 31, 2012) for the eventual payment of those claims. The results reported for the year ended December 31, 2012 include the financial results of Fibrek for the period from May 2, 2012 to December 31, 2012. Fibrek's results of operations are included in the market pulp segment. | |
| 2. | Closure costs, impairment and other related charges for the years ended December 31, 2012 and 2011 were comprised of the following: |
| (In millions) | Impairment of assets |
Accelerated depreciation |
Pension and OPEB plan curtailment and settlement losses |
Severance and other costs |
Total | |||||
| Indefinite idlings: | ||||||||||
| Bowater Mersey Paper Company Limited in Nova Scotia (1) | $ 72 | $ - | $ 8 | $ 15 | $ 95 | |||||
| Kraft mill and paper machine in Fort Frances, Ontario (2) | 31 | 2 | 1 | 6 | 40 | |||||
| Paper machine in Catawba, South Carolina (2) | 1 | - | - | - | 1 | |||||
| Permanent closure: | ||||||||||
| Paper machine in Laurentide, Quebec | - | 18 | - | 4 | 22 | |||||
| Restructuring initiatives: | ||||||||||
| Catawba paper mill | - | - | - | 4 | 4 | |||||
| Baie-Comeau, Quebec paper mill | - | - | 3 | 1 | 4 | |||||
| Lump-sum payments to vested terminated participants | - | - | 7 | - | 7 | |||||
| Other | 2 | 1 | 2 | 2 | 7 | |||||
| 2012 Total | $ 106 | $ 21 | $ 21 | $ 32 | $ 180 | |||||
| 2011 Total | $ 16 | $ 8 | $ 8 | $ 14 | $ 46 | |||||
| (1) | During 2012, we recorded long-lived asset impairment charges (including a $7 million write-down of an asset retirement obligation for environmental liabilities) related to the sale of our interest in Bowater Mersey Paper Company Limited to reduce the carrying value of our net assets to fair value less costs to sell. |
| (2) | During 2012, we recorded long-lived assets impairment charges to reduce the carrying value of the assets to their estimated fair value, which was determined based on the assets' estimated salvage values. |
| 3. | During 2012, we sold two parcels of land in Gatineau, our Petit Saguenay sawmill, our recycling division's assets located in Phoenix, Arizona, our interest in our Mersey operations and various other assets for total consideration of $55 million, comprised of a note receivable of $5 million and net cash proceeds of $50 million, resulting in a net gain on disposition of assets of $35 million. |
| 4. | During 2012, we recorded a foreign currency translation gain of $17 million. This gain is a result of the stronger Canadian dollar relative to the U.S. dollar at December 31, 2012 and its impact on the translation of our Canadian dollar net monetary assets in the Company's principal Canadian operating subsidiary. |
| 5. | During 2012, we recorded an income tax benefit of $38 million. The income tax benefit reflects favorable reorganization-related and other tax adjustments, as well as foreign exchange impacts, primarily offset by a net increase in our valuation allowances. |
| 6. | For the calculation of basic and diluted income per share for the year ended December 31, 2012 and 2011, no adjustments to net income attributable to Resolute Forest Products were necessary. |
| 7. | Tables represent a reconciliation of certain financial statement line items reported under generally accepted accounting principles ("GAAP") to our use of non-GAAP measures of operating income (loss), net income (loss) and net income (loss) per share, in each case adjusted for special items, as well as EBITDA and adjusted EBITDA, in each case by reportable segment. We believe that these measures are useful because they allow the reader to more easily compare our ongoing operations, financial performance and EPS from period to period. They are also consistent with the indicators management uses internally to measure our performance. These non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance calculated and presented in accordance with GAAP in our consolidated statement of operations in our filings with the Securities and Exchange Commission. Consequently, readers should rely on GAAP operating income (loss), operating income (loss) by reportable segment, net income (loss) and net income (loss) per share. Non-GAAP measures included in our press release include: |
| Operating income (loss) adjusted for special items - is defined as operating income (loss) from our Consolidated Statements of Operations excluding special items, such as closure costs, impairment and other related charges, severance costs, inventory write-downs, start up costs of idled mills, gains and losses on dispositions of assets, transaction costs and other charges or credits that are excluded from our segment's performance from GAAP operating income (loss). | |
| Net income (loss) adjusted for special items - is defined as net income (loss) from our Consolidated Statements of Operations excluding the same items as under operating income (loss) adjusted for the special items, in addition to the effects of foreign currency translation, post-emergence costs, other income (expense) and reorganization-related and other tax adjustments. | |
| Net income (loss) per share (EPS) adjusted for special items - is defined as diluted EPS calculated based on the net income (loss) adjusted for special items as described above. | |
| EBITDA by reportable segment - is defined as net income (loss) including noncontrolling interests from our Consolidated Statements of Operations, allocated to each of our reportable segments (newsprint, coated papers, specialty papers, market pulp and wood products) in accordance with FASB ASC 290, "Segment Reporting," and adjusted for depreciation, amortization and cost of timber harvested. EBITDA for the corporate and other segment is defined as net income (loss) including noncontrolling interests from our Consolidated Statements of Operations after the allocation to reportable segments, adjusted for interest expense, income taxes and depreciation, amortization and cost of timber harvested. | |
| Adjusted EBITDA - is defined as EBITDA excluding the special items described above. | |
| Certain prior period amounts within these measures have been reclassified to conform to the 2012 presentation. |
Source: Resolute Forest Products Inc.
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