2014

Resolute Reports Preliminary Second Quarter 2012 Results

US $

  • Second quarter adjusted EBITDA of $120 million, up 69% from first quarter
  • $116 million of cash provided by operating activities
  • Net debt of $212 million
  • Fibrek acquisition complete

MONTREAL, Aug. 1, 2012 /PRNewswire/ - Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP), today reported a net loss of $20 million for the second quarter, or $(0.20) per share, on sales of $1.2 billion. This compares with net income of $61 million, or $0.63 per diluted share, on sales of $1.2 billion in the second quarter of 2011.

Excluding $50 million of special items described below, net income for the quarter was $30 million, or $0.30 per diluted share.  Net income excluding special items for the second quarter of 2011 was $63 million, or $0.65 per diluted share, and included a $44 million income tax benefit from a tax reserve adjustment.

"Resolute's newsprint, specialty papers and wood products segments each delivered their strongest quarterly results in recent history, more than making up for headwinds in the pulp and coated papers segments" said Richard Garneau, president and chief executive officer. "Our cost-focused strategy positions us to continually optimize our diversified asset base and generate cash even in challenging environments."

DESCRIPTION OF SPECIAL ITEMS

Special items incurred in the second quarter of 2012, net of tax, included:

  • $45 million charge related to closure costs, impairment and other related charges on the indefinite idling of our Mersey, Nova Scotia, newsprint mill
  • $13 million non-cash gain related to reorganization tax adjustments
  • $10 million non-cash charge on translation of Canadian dollar net monetary assets
  • $4 million non-cash charge for inventory write-downs on the indefinite idling of our Mersey mill
  • $3 million of transaction costs related to the acquisition of Fibrek
  • A severance charge and post-emergence costs, offset by a gain on disposition of assets and other income

Special items incurred in the second quarter of 2011, net of tax, included:

  • $8 million charge for post-emergence costs
  • $7 million income, net, from a gain on disposition of assets and other income
  • $5 million charge related to closure costs and severance charges
  • $4 million non-cash gain on translation of Canadian dollar net monetary assets

Non-GAAP financial measures, such as adjusted EBITDA and special item adjustments, are reconciled below.

SEGMENT DETAILS

Newsprint

The newsprint segment generated operating income of $32 million, an $11 million increase over the first quarter of 2012, the result of seasonal improvements in power costs, various mill efficiency initiatives and a weaker Canadian dollar, as well as seasonally higher volume.  The increase outweighed a modest decline in transaction price, which is attributable to declining prices in certain export markets, primarily as result of unfavorable currency fluctuations.  The Company announced the indefinite idling of its export-focused mill in Nova Scotia in response to these conditions, which have negatively affected exports to these markets.

Coated Papers 

Operating income in the coated papers segment was $5 million higher in the second quarter than in the first, at $4 million. Operating costs were down $40 per short ton, mainly because of the significant costs associated with an extended outage in the first quarter for maintenance and capital improvements.  Shipments were down 5%, while average transaction price was down only 1%.  In the quarter, as previously reported, the Company announced the idling, for an indeterminate period, of one paper machine at the Catawba mill, as it explores ways to further improve the mill's overall profitability.

Specialty Papers

The specialty papers segment generated operating income of $27 million, a $12 million increase over the previous quarter.  Operating costs were $30 per short ton lower in the quarter, due to seasonal improvements in power costs, various mill efficiency initiatives and a weaker Canadian dollar, as well as seasonally higher volume.

Market Pulp

Operating loss in the market pulp segment was $7 million, a $14 million improvement from the $21 million operating loss in the previous quarter. Not including Fibrek, which contributed $2 million to operating income in the quarter, average transaction price rose 2% in the second quarter and shipments were up 6%.  Shipments increased due in part to annual maintenance in the first quarter at the Coosa Pines and Catawba mills.  As planned, the second quarter included major maintenance at two other mills, while the Company chose to delay the last outage to the third quarter.  Inventory increased over 60,000 metric tons, reflecting the addition of Fibrek.  Starting May 2, Fibrek's northern bleached softwood kraft pulp mill and its two recycled bleached kraft pulp mills have been consolidated within Resolute's market pulp segment.

Wood Products

The wood products segment reported operating income of $12 million in the second quarter, compared to a loss of $6 million in the first quarter. Improving North American housing starts led to a $39 per thousand board feet increase in average transaction price, a 5% increase in shipments and an 11% drop in inventory.

CORPORATE & FINANCE INITIATIVES

The Company used cash on hand to repurchase 1,054,267 shares of its common stock during the quarter, at a total cost of $12 million.  With $510 million of cash, the Company ended the quarter with approximately $1 billion of available liquidity.  Resolute continued to improve working capital, reducing it a further $33 million in the quarter, and also decreased restricted cash by $72 million on the release of a tax indemnity given in connection with the sale of Quebec hydroelectric assets in 2009.

As of June 30, Resolute had acquired 74.6% of the outstanding shares of Fibrek Inc. (TSX: FBK), for aggregate consideration of approximately 2.8 million shares and $53 million.  On July 31, the Company completed the second step transaction for the remaining 25.4% of Fibrek, pursuant to which it distributed aggregate additional consideration of approximately 940,000 shares and $18 million.

OUTLOOK

"We are encouraged by the positive momentum building in U.S. housing starts and pleased with the effect this gradual improvement is having on our wood products segment," said Mr. Garneau.  "Despite challenging environments, the newsprint segment continues to generate consistent margins, including a noteworthy second quarter 12% EBITDA margin. Keeping with our optimization strategy, we will continue to manage our exposure to export markets where unfavorable currency fluctuations have created difficult conditions for North American producers.  We expect a modest improvement in the coated, specialty and newsprint segments as a result of seasonal demand increases, but the impact of recent newsprint and specialty paper mill restart announcements is creating uncertainty.  Based on current conditions, we do not see a meaningful improvement in the pulp segment for the balance of the year."

EARNINGS CONFERENCE CALL

The Company will hold a conference call to discuss the financial results at 9:00 a.m. (ET) today.  The public is invited to join the call at (866) 696-5910 (pass code 6266741) at least fifteen minutes before its scheduled start time.  A simultaneous webcast, with visual presentation, will also be available using the link provided under "Presentations and Webcasts" in the "Investors" section of www.resolutefp.com.  A replay of the webcast will be archived on the Company's website.  A phone replay will also be available until August 15 by dialing (800) 408-3053 with the pass code 9217638.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Statements in this press release and the earnings conference call referred to above that are not reported financial results or other historical information of Resolute Forest Products are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: efforts to continue to reduce costs and increase revenues and profitability, including our cost-reduction initiatives regarding selling, general and administrative expenses; business and operating outlook; assessment of market conditions; prospects, growth strategies and the industry in which we operate; and strategies for achieving our goals generally.  Forward-looking statements may be identified by the use of forward-looking terminology such as the words "should," "would," "could," "will," "may," "expect," "believe," "anticipate," "attempt," "project" and other terms with similar meaning indicating possible future events or potential impact on our business or Resolute's shareholders.

The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance.  These statements are based on management's current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially.  The potential risks and uncertainties that could cause Resolute's actual future financial condition, results of operations and performance to differ materially from those expressed or implied in the presentation referred to above include, but are not limited to, the potential risks and uncertainties set forth under the heading "Risk Factors" in Part I, Item 1A of Resolute's annual report on Form 10-K for the year ended December 31, 2011, filed with the United States Securities and Exchange Commission and Resolute's other filings with the Canadian securities regulatory authorities.

All forward-looking statements in the presentation referred to above are expressly qualified by the cautionary statements contained or referred to above and in Resolute's other filings with the SEC and the Canadian securities regulatory authorities. Resolute disclaims any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

ABOUT RESOLUTE FOREST PRODUCTS

Resolute Forest Products is a global leader in the forest products industry with a diverse range of products, including newsprint, commercial printing papers, market pulp and wood products. The Company owns or operates 21 pulp and paper mills and 22 wood products facilities in the United States, Canada and South Korea. Marketing its products in more than 90 countries, Resolute has third-party certified 100% of its managed woodlands to sustainable forest management standards. The shares of Resolute Forest Products trade under the stock symbol RFP on both the New York Stock Exchange and the Toronto Stock Exchange.

Resolute and other member companies of the Forest Products Association of Canada, as well as a number of environmental organizations, are partners in the Canadian Boreal Forest Agreement. The group works to identify solutions to conservation issues that meet the goal of balancing equally the three pillars of sustainability linked to human activities:  environmental, social and economic. Resolute is also a member of the World Wildlife Fund's Climate Savers program, in which businesses establish ambitious targets to voluntarily reduce greenhouse gas emissions and work aggressively toward achieving them.

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

               
 
 
 
Three Months
Ended June 30,
2012
 
 
 
Three Months
Ended June 30,
2011
 
 
 
Six Months
Ended June 30,
2012
 
 
 
Six Months
Ended June 30,
2011
                       
                       
Sales $ 1,168   $ 1,200   $ 2,222   $ 2,385
Costs and expenses:                      
  Cost of sales, excluding depreciation, amortization and cost of timber harvested   885     911     1,721     1,833
  Depreciation, amortization and cost of timber harvested   58     55     115     109
  Distribution costs   133     141     254     274
  Selling, general and administrative expenses   41     40     73     77
  Closure costs, impairment and other related charges  (2)   88     4     93     17
  Net gain on disposition of assets   (3)   (1)     (3)     (24)     (4)
                       
Operating (loss) income   (36)     52     (10)     79
                       
Other (expense) income:                      
  Interest expense   (18)     (28)     (34)     (58)
  Foreign currency translation (loss) gain  (4)   (9)     2     3     30
  Other, net   (1)     (4)     -     (13)
                       
(Loss) Income before income taxes   (64)     22     (41)     38
                       
Income tax (provision) benefit  (5)   (1)     39     9     53
                       
Net (loss) income including noncontrolling interests   (65)     61     (32)     91
Net loss attributable to noncontrolling interests   45     -     35     -
                       
Net (loss) income attributable to Resolute Forest Products Inc. $ (20)   $ 61   $ 3   $ 91
                       
                       
Net (loss) income per share attributable to Resolute Forest Products Inc. common shareholders: (6)                      
                       
  Basic $ (0.20)   $ 0.63   $ 0.03   $ 0.94
  Diluted $ (0.20)   $ 0.63   $ 0.03   $ 0.94
                       
Weighted-average number of Resolute Forest Products Inc. common shares outstanding: (6)                      
                       
  Basic   98.9     97.1     98.0     97.1
  Diluted   98.9     97.1     98.0     97.1

RESOLUTE FOREST PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions)

     
 
 
 
 
  June 30,
2012
 
 
  December 31,
2011
Assets            
Current assets:            
  Cash and cash equivalents   $ 510   $ 369
  Accounts receivable trade, net     572     582
  Accounts receivable other     109     168
  Inventories, net     512     475
  Assets held for sale (3)     80     7
  Deferred income tax assets     110     109
  Other current assets     66     59
    Total current assets     1,959     1,769
Fixed assets, net     2,500     2,502
Amortizable intangible assets, net     70     18
Deferred income tax assets     1,755     1,749
Other assets     189     260
  Total assets   $ 6,473   $ 6,298
             
Liabilities and equity            
Current liabilities:            
  Accounts payable and accrued liabilities   $ 549   $ 544
  Short-term bank debt     21     -
  Current portion of long-term debt     77     -
  Liabilities associated with assets held for sale (3)     63     -
    Total current liabilities     710     544
Long-term debt, net of current portion     624     621
Pension and other postretirement benefit obligations     1,520     1,524
Deferred income tax liabilities     73     75
Other long-term liabilities     56     57
    Total liabilities     2,983     2,821
             
Commitments and contingencies            
             
Equity:            
Common stock     -     -
Additional paid-in capital     3,726     3,687
Retained earnings     44     41
Accumulated other comprehensive loss     (315)     (311)
Treasury stock at cost     (12)     -
  Total Resolute Forest Products Inc. shareholders' equity     3,443     3,417
Noncontrolling interests     47     60
  Total equity     3,490     3,477
  Total liabilities and equity   $ 6,473   $ 6,298

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

           
 
 
 
Six Months
Ended June 30,
2012
 
 
 
Six Months
Ended June 30,
2011
Cash flows from operating activities:          
Net (loss) income including noncontrolling interests $ (32)   $ 91
  Adjustments to reconcile net (loss) income including noncontrolling
interests to net cash provided by operating activities:
         
  Share-based compensation   3     1
  Depreciation, amortization and cost of timber harvested   115     109
  Closure costs, impairment and other related charges   93     16
  Write-downs of inventory   7     1
  Deferred income taxes   (3)     (53)
  Net pension contributions   (35)     (62)
  Net gain on disposition of assets   (24)     (4)
  Gain on translation of foreign currency denominated deferred income taxes   (6)     (47)
  Loss on translation of foreign currency denominated pension and other postretirement benefit obligations   5     33
  Premium related to debt redemptions   -     (11)
  Dividends received from equity method investees in excess of income   -     3
  Other, net   1     1
  Changes in working capital:          
    Accounts receivable   75     (53)
    Inventories   8     (8)
    Other current assets   2     18
    Accounts payable and accrued liabilities   (36)     (20)
      Net change in working capital   49     (63)
    Net cash provided by operating activities   173     15
           
Cash flows from investing activities:          
Cash invested in fixed assets   (58)     (32)
Disposition of investment in ACH Limited Partnership   -     296
Disposition of other assets   26     8
Acquisition of Fibrek Inc., net of cash acquired (1)   (24)     -
Proceeds from insurance settlement   -     4
Decrease (increase) in restricted cash   76     (3)
Increase in deposit requirements for letters of credit, net   (7)     (7)
    Net cash provided by investing activities   13     266
           
Cash flows from financing activities:          
Purchases of treasury stock   (12)     -
Dividends and distribution to noncontrolling interests   (1)     (19)
Acquisition of noncontrolling interest  (1)   (17)     (15)
Payments of long-term debt   (15)     (269)
    Net cash used in financing activities   (45)     (303)
           
Net increase (decrease) in cash and cash equivalents   141     (22)
Cash and cash equivalents:          
    Beginning of period   369     319
    End of period $ 510   $ 297

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 June 30, 2012
(unaudited, in millions except per share amounts)
  Operating
income (loss)

 
Net
(loss) income
 
EPS
                   
GAAP as reported   $ (36)   $ (20)   $ (0.20)
                   
Adjustments for special items:                  
  Foreign currency translation loss     -     10     0.10
  Severance     1     1     0.01
  Closure costs, impairment and other related charges     88     45     0.45
  Inventory write-downs included in cost of sales     7     4     0.04
  Net gain on disposition of assets     (1)     (1)     (0.01)
  Post-emergence costs     -     2     0.02
  Transaction costs     3     3     0.03
  Other income, net     -     (1)     (0.01)
  Reorganization tax adjustments     -     (13)     (0.13)
                   
GAAP as adjusted for special items   $ 62   $ 30   $ 0.30
                   
Three Months Ended June 30, 2011
(unaudited, in millions except per share amounts)
  Operating
income (loss)
 
 
Net
(loss) income
 
EPS
                   
GAAP as reported   $ 52   $ 61   $ 0.63
                   
Adjustments for special items:                  
  Foreign currency translation gain     -     (4)     (0.04)
  Severance     3     2     0.02
  Closure costs, impairment and other related charges     4     3     0.03
  Net gain on disposition of assets     (3)     (2)     (0.02)
  Post-emergence costs     -     8     0.08
  Other income, net     -     (5)     (0.05)
                   
GAAP as adjusted for special items   $ 56   $ 63   $ 0.65
                 
Six Months Ended June 30, 2012
(unaudited, in millions except per share amounts)
  Operating
income (loss)

 
Net
income (loss)
 
EPS
                   
GAAP as reported   $ (10)   $ 3   $ 0.03
                   
Adjustments for special items:                  
  Foreign currency translation gain     -     (5)     (0.05)
  Severance     3     2     0.02
  Closure costs, impairment and other related charges     93     49     0.50
  Inventory write-downs included in cost of sales     7     4     0.04
  Net gain on disposition of assets     (24)     (13)     (0.13)
  Post-emergence costs     -     3     0.03
  Transaction costs     7     7     0.07
  Other income, net     -     (3)     (0.03)
  Reorganization tax adjustments     -     (10)     (0.10)
                   
GAAP as adjusted for special items   $ 76   $ 37   $ 0.38
                 
Six Months Ended June 30, 2011
(unaudited, in millions except per share amounts)
  Operating
income (loss)

 
Net
(loss) income
 
EPS
                   
GAAP as reported   $ 79   $ 91   $ 0.94
                   
Adjustments for special items:                  
  Foreign currency translation gain     -     (33)     (0.34)
  Severance     7     5     0.05
  Closure costs, impairment and other related charges     17     12     0.12
  Inventory write-downs included in cost of sales     1     1     0.01
  Net gain on disposition of assets     (4)     (3)     (0.03)
  Post-emergence costs     -     16     0.16
  Other income, net     -     (6)     (0.06)
  Reorganization tax adjustments     -     (10)     (0.10)
                   
GAAP as adjusted for special items   $ 100   $ 73   $ 0.75

See Notes to the Unaudited Consolidated Financial Statement Information

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 June 30, 2012
(unaudited, in millions)
  Newsprint Coated
papers
Specialty
papers
Market
pulp
Wood
products
Corporate and
other
Total
                               
Net income (loss) including noncontrolling interests   $ 32 $ 4 $ 27 $ (7) $ 12 $ (133) $ (65)
Interest expense, net                         18   18
Income tax provision                         1   1
Depreciation, amortization and cost of timber harvested     18   9   12   10   9       58
EBITDA     50   13   39   3   21   (114)   12
                               
Foreign currency translation loss                         9   9
Severance                         1   1
Closure costs, impairment and other related charges                         88   88
Inventory write-downs included in cost of sales                         7   7
Net gain on disposition of assets                         (1)   (1)
Post-emergence costs                         3   3
Transaction costs                         3   3
Other income, net                         (2)   (2)
                               
Adjusted EBITDA   $ 50 $ 13 $ 39 $ 3 $ 21 $ (6) $ 120
                               
                               
Three Months Ended June 30, 2011
(unaudited, in millions)
  Newsprint Coated
papers
Specialty
papers
Market
pulp
Wood
products
Corporate
and other
Total
                               
Net income (loss) including noncontrolling interests   $ 26 $ 23 $ 11 $ 14 $ (14) $ 1 $ 61
Interest expense, net                         28   28
Income tax benefit                         (39)   (39)
Depreciation, amortization and cost of timber harvested     17   8   13   7   10   (1)   54
EBITDA     43   31   24   21   (4)   (11)   104
                               
Foreign currency translation gain                         (2)   (2)
Severance                         3   3
Closure costs, impairment and other related charges                         4   4
Net gain on disposition of assets                         (3)   (3)
Post-emergence costs                         11   11
Other income, net                         (7)   (7)
                               
Adjusted EBITDA   $ 43 $ 31 $ 24 $ 21 $ (4) $ (5) $ 110
                               
                               
Six Months Ended June 30, 2012
(unaudited, in millions)
  Newsprint Coated
papers
Specialty
papers
Market
pulp
Wood
products
Corporate
and other
Total
                               
Net income (loss) including noncontrolling interests   53 3 42 (28) 6 (108)  $ (32)
Interest expense, net                         34   34
Income tax benefit                         (9)   (9)
Depreciation, amortization and cost of timber harvested     36   19   24   18   18       115
EBITDA     89   22   66   (10)   24   (83)   108
                               
Foreign currency translation gain                         (3)   (3)
Severance                         3   3
Closure costs, impairment and other related charges                         93   93
Inventory write-downs included in cost of sales                         7   7
Net gain on disposition of assets                         (24)   (24)
Post-emergence costs                         5   5
Transaction costs                         7   7
Other income, net                         (5)   (5)
                               
Adjusted EBITDA   $ 89 $ 22 $ 66 $ (10) $ 24 $ (0) $ 191
                               
                               
Six Months Ended June 30, 2011
(unaudited, in millions)
  Newsprint Coated papers Specialty
papers
Market
pulp
Wood
products
Corporate
and other
Total
                               
Net income (loss) including noncontrolling interests   45 26 11 37 (17) (11) 91
Interest expense, net                         58   58
Income tax benefit                         (53)   (53)
Depreciation, amortization and cost of timber harvested     37   17   24   14   17       109
EBITDA     82   43   35   51   -   (6)   205
                               
Foreign currency translation gain                         (30)   (30)
Severance                         7   7
Closure costs, impairment and other related charges                         17   17
Inventory write-downs included in cost of sales                         1   1
Net gain on disposition of assets                         (4)   (4)
Post-emergence costs                         22   22
Other income, net                         (9)   (9)
                               
Adjusted EBITDA   $ 82 $ 43 $ 35 $ 51 $ - $ (2) $ 209
                               

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. As aggregate consideration for all of the Fibrek shares we purchased, we distributed approximately 2.8 million newly-issued shares of our common stock and Cdn$53 million ($53 million, based on the exchange rates in effect on each of the dates we acquired the shares of Fibrek) in cash. Consequently the results reported for the second quarter of 2012 include the financial results of Fibrek for the period from May 2, 2012 to June 30, 2012.  Fibrek's results of operations are included in the market pulp segment.
   
2. Closure costs, impairment and other related charges for the three and six months ended June 30, 2012 and 2011 were comprised of the following:

                   
  Three Months Ended
June 30,
  Six Months Ended
June 30,
(Unaudited, in millions)   2012   2011     2012   2011
Accelerated depreciation $ - $ 3   $ - $ 4
Impairment of assets held for sale   70   -     70   -
Impairment of long-lived assets   -   -     -   7
Severance and other costs   18   1     23   6
  $ 88 $ 4   $ 93 $ 17





Impairment of assets held for sale

In June 2012, we announced the indefinite idling of our Mersey newsprint mill in Nova Scotia. During the three months ended June 30, 2012, we recorded long-lived asset impairment charges of $70 million (including a $7 million write-down of an asset retirement obligation for environmental liabilities) related to the assets held for sale for our interest in Bowater Mersey Paper Company Limited (our "Mersey operations") to reduce the carrying value of our net assets to fair value less costs to sell.

Severance and other costs

During the three months ended June 30, 2012, we recorded $9 million of severance costs and $7 million for a pension plan curtailment loss as a result of the indefinite idling of our Mersey newsprint mill and $2 million for a pension plan settlement loss related to a workforce reduction at our Mersey Operations in the fourth quarter of 2011.

During the six months ended June 30, 2012, we also recorded $2 million of severance costs and a $2 million pension curtailment loss as a result of a workforce reduction at our Baie-Comeau paper mill, as well as a $1 million credit adjustment for severance costs and a $2 million pension curtailment loss related to the permanent closure in December 2011 of a paper machine at our Kenogami, Quebec paper mill.
   
3 .

During the three months ended June 30, 2012, we sold our Petit Saguenay sawmill, our recycling division's assets located in Phoenix, Arizona and various other assets resulting in a net gain on disposition of assets of approximately $1 million.

During the six months ended June 30, 2012, we also sold a portion of our Mersey timberlands and various other assets for proceeds of $26 million, resulting in a net gain on disposition of assets of $23 million.

As of June 30, 2012, we held for sale our Mersey operations and a parcel of land. The assets held for sale are carried in our Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 at the lower of carrying value or fair value less costs to sell. We expect to complete a sale of all of these assets within the next twelve months for amounts that equal or exceed their individual carrying values.
   
4. During the three months ended June 30, 2012, we recorded a foreign currency translation loss of $9 million. This loss is a result of the weaker Canadian dollar relative to the U.S. dollar at June 30, 2012 and its impact on the translation of our Canadian dollar net monetary assets in the Company's principal Canadian operating subsidiary. During the six months ended June 30, 2012, we recorded a foreign currency translation gain of $3 million as a result of the translation of our Canadian dollar balance sheet amounts.
   
5. During the three months ended June 30, 2012, we recorded an income tax provision of $1 million, which included an increase in the valuation allowance related to costs associated with the indefinite idling of our Mersey operations, a $13 million favorable reorganization-related adjustment, as well as foreign exchange related items. The income tax benefit of $9 million for the six months ended June 30, 2012, also included favorable adjustments related to research and development tax incentives, offset by an unfavorable reorganization-related tax adjustment.
   
6. For the calculation of basic and diluted income per share for the three and six months ended June 30, 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, 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 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.

 

 

 

SOURCE RESOLUTE FOREST PRODUCTS INC.



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