|
|
|
|
|
ITEM 2.
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following management’s discussion and analysis of financial condition and results of operations
(“MD&A”) of Resolute Forest Products Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “Resolute Forest Products,” “we,” “our,”
“us” or the “Company”) provides information that we believe is useful in understanding our results of operations, cash flows and financial condition for the three and six months ended June 30, 2012. This discussion should be
read in conjunction with, and is qualified in its entirety by reference to, our unaudited interim consolidated financial statements and related notes appearing in Item 1 of this Quarterly Report on Form 10-Q (“Unaudited Interim
Consolidated Financial Statements”). On November 7, 2011, we began doing business as Resolute Forest Products. At the annual meeting of shareholders on May 23, 2012, the shareholders approved an amendment to our certificate of
incorporation to change our corporate name from AbitibiBowater Inc. to Resolute Forest Products Inc., effective May 24, 2012. The ticker symbol for our common stock was changed from “ABH” to “RFP” on the New York Stock
Exchange on May 24, 2012 and on the Toronto Stock Exchange on May 28, 2012.
Cautionary Statements Regarding Forward-Looking
Information and Use of Third-Party Data
Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) 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; our business outlook; our assessment of market conditions; our liquidity outlook (including the impact of the solvency deficit
in certain of our Canadian pension plans), our prospects, growth strategies and strategies for achieving our goals generally, including the strategies described under “Business Strategy and Outlook” below; and the industry in which we
operate. 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 Forest Products’ 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 our actual future financial condition, results of operations and performance to differ materially from those expressed or implied in this Form 10-Q include risks associated with our acquisition of Fibrek Inc. (“Fibrek”), including
that the businesses of Resolute and Fibrek may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected and disruption from the transaction making it more difficult to maintain relationships
with customers, employees and suppliers and the risks enumerated under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the United States Securities and Exchange
Commission (the “SEC”) on February 29, 2012 (the “2011 Annual Report”).
All forward-looking statements in this Form
10-Q are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the SEC and the Canadian securities regulatory authorities. We disclaim 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.
Market and
industry data
Information about industry or general economic conditions contained in this Form 10-Q is derived from third-party
sources and certain trade publications (“Third-Party Data”) that we believe are widely accepted and accurate; however, we have not independently verified this information and cannot provide assurances of its accuracy.
Business Strategy and Outlook
We are
guided by our vision and values, focusing on safety, profitability, accountability, sustainability and teamwork. As a result of aggressive cost reductions and mill rationalizations, today we compete as a leading, lower-cost North American producer,
counting on efficient operations, strong economies of scale and access to competitive sources of energy and fiber. Our corporate strategy includes, on the one hand, a gradual retreat from certain paper grades, and on the other, using our strong
financial position to act on opportunities to diversify and grow. That strategy focuses on three core themes: operational excellence, disciplined use of capital and strategic initiatives.
28
RESOLUTE FOREST PRODUCTS INC.
Operational excellence
We aim to improve our performance and margins by: (i) leveraging our lower-cost position, (ii) maintaining a stringent focus on reducing costs and optimizing our diversified asset base, (iii) maximizing
the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber, (iv) pursuing our strategy of not building inventory and (v) capitalizing on our economical access to international markets to compensate for the
secular decline in North American newsprint demand.
Corporate initiatives
We make capital management a priority. Building on our focus to reduce manufacturing costs, we will continue our efforts to decrease overhead and spend
our capital in a disciplined, strategic and focused manner, concentrated on our most successful sites.
Reducing debt and associated interest
charges is one of our primary financial goals. We believe this improves our financial flexibility and supports the implementation of our strategic objectives.
On May 22, 2012, our board approved a share repurchase program of up to 10% of our common stock, for an aggregate purchase price of up to $100 million. During the three months ended June 30,
2012, we repurchased 1.1 million shares of our common stock pursuant to this share repurchase program at a cost of $12 million.
Strategic initiatives
We
believe there will be continued consolidation in the paper and forest products industry as we and our competitors continue to explore ways to increase efficiencies and grow into more favorable markets. We believe in taking an opportunistic approach
to strategic opportunities, pursuing only those that reduce our cost position, improve our product diversification, provide synergies or allow us to expand into future growth markets.
On December 15, 2011, we announced an offer to purchase all of the issued and outstanding shares of Fibrek, a producer and marketer of virgin and recycled kraft pulp, operating three mills. As of
May 17, 2012, the offer expiry date, we had acquired approximately 74.6% of the then outstanding Fibrek shares, and, as aggregate consideration for the shares, 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. On July 31, 2012, we completed the second step transaction for the remaining 25.4% of the outstanding
Fibrek shares. We distributed aggregate additional consideration of approximately 0.5 million shares and Cdn$10 million ($10 million, based on the exchange rate in effect on July 31, 2012). The remaining portion of the consideration,
approximately 0.4 million shares and Cdn$8 million ($8 million, based on the exchange rate in effect on July 31, 2012), will only be distributed or paid out upon settlement or judicial determination of the fair value of claims by dissenting
shareholders of Fibrek. For additional information regarding our acquisition of Fibrek, see Note 2, “Acquisition of Fibrek Inc.,” to our Unaudited Interim Consolidated Financial Statements.
Business and Financial Review
Overview
Through our subsidiaries, we manufacture newsprint, coated and specialty papers,
market pulp and wood products. We operate pulp and paper manufacturing facilities in Canada, the United States and South Korea, as well as wood products manufacturing facilities in Canada and hydroelectric facilities in Quebec, Canada.
As discussed further below, newsprint, coated papers and specialty papers, particularly supercalendered high gloss papers and lightweight and directory
grades, experienced decreases in North American demand in the first six months of 2012 compared to the same period of 2011. Global shipments of market pulp increased during the first six months of 2012 compared to the same period of 2011,
particularly in China, but market pricing fell substantially. Our wood products segment benefited from a significant increase in market pricing in the second quarter of 2012 compared to the second quarter of 2011.
The average value of the Canadian dollar was US$0.99 for both the three and six months ended June 30, 2012 compared to US$1.03 and US$1.02 for the
three and six months ended June 30, 2011, respectively.
Fibrek’s results of operations have been included in our Unaudited Interim
Consolidated Financial Statements beginning May 2, 2012, which is the date on which we acquired a controlling interest, and are included in the market pulp segment. The amount of Fibrek’s sales, operating income and net income included in
our Consolidated Statements of Operations included in our Unaudited Interim Consolidated Financial Statements (“Consolidated Statements of Operations”) for both the three and six months ended June 30, 2012 were $74 million, $1 million
and $2 million, respectively.
29
RESOLUTE FOREST PRODUCTS INC.
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
(Unaudited, in millions, except per share amounts)
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
Sales
|
|
$
|
1,168
|
|
|
$
|
1,200
|
|
|
$
|
(32
|
)
|
|
$
|
2,222
|
|
|
$
|
2,385
|
|
|
$
|
(163
|
)
|
|
Operating (loss) income
|
|
|
(36
|
)
|
|
|
52
|
|
|
|
(88
|
)
|
|
|
(10
|
)
|
|
|
79
|
|
|
|
(89
|
)
|
|
Net (loss) income attributable to Resolute Forest
Products Inc.
|
|
|
(20
|
)
|
|
|
61
|
|
|
|
(81
|
)
|
|
|
3
|
|
|
|
91
|
|
|
|
(88
|
)
|
|
Net (loss) income per share attributable to Resolute Forest
Products Inc. – basic
|
|
|
(0.20
|
)
|
|
|
0.63
|
|
|
|
(0.83
|
)
|
|
|
0.03
|
|
|
|
0.94
|
|
|
|
(0.91
|
)
|
|
Net (loss) income per share attributable to Resolute Forest Products Inc. –
diluted
|
|
|
(0.20
|
)
|
|
|
0.63
|
|
|
|
(0.83
|
)
|
|
|
0.03
|
|
|
|
0.94
|
|
|
|
(0.91
|
)
|
|
|
|
|
|
|
|
|
|
Significant items that (unfavorably) favorably impacted operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing and foreign exchange – excluding Fibrek
|
|
|
|
|
|
|
|
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(9
|
)
|
|
Shipments – excluding Fibrek
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
(228
|
)
|
|
Sales – Fibrek
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
Change in sales
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested – excluding
Fibrek
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
|
Cost of sales, excluding depreciation, amortization and cost of timber harvested –
Fibrek
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
Change in depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Change in distribution costs
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Change in selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Change in closure costs, impairment and other related charges
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
Change in net gain on disposition of assets
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(89
|
)
|
Three months ended June 30, 2012 versus June 30, 2011
Sales
Excluding Fibrek’s sales of $74 million in the second quarter of 2012, sales on a comparable basis decreased $106 million, or 8.8%, from $1,200
million in the second quarter of 2011 to $1,094 million in the second quarter of 2012. The decrease was primarily due to lower shipments in all of our product lines, an unfavorable currency exchange on our Canadian dollar denominated sales and lower
transaction prices for newsprint, coated papers and market pulp, largely offset by higher transaction prices for specialty papers and wood products. The impact of each of these items is discussed further below under “Segment Results of
Operations.”
Operating (loss) income
Operating (loss) income decreased $88 million to an operating loss of $36 million in the second quarter of 2012 compared to operating income of $52 million in the second quarter of 2011. The above table
presents the major items that impacted operating (loss) income. A brief explanation of these major items follows.
30
RESOLUTE FOREST PRODUCTS INC.
Excluding Fibrek’s results, cost of sales, excluding depreciation, amortization and cost of timber
harvested, on a comparable basis decreased $87 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to lower volumes ($53 million), a favorable currency exchange ($24 million, primarily due to the Canadian
dollar) and lower costs for fuel ($7 million), labor and benefits ($11 million, primarily due to mill-level restructuring initiatives), timing of annual maintenance outages ($11 million), offset by higher costs for regular maintenance ($6 million)
and energy ($13 million, primarily due to a retroactive energy rebate credit in the second quarter of 2011). In the second quarter of 2011, we were approved for participation in the Northern Industrial Electricity Rate Program (“NIER
Program”) in which we earn rebates on electricity purchased and consumed by our paper mills in the province of Ontario from April 1, 2010 through March 31, 2013, provided we comply with the conditions of the program. During the second
quarter of 2011, we recorded a rebate of approximately $19 million, of which approximately $14 million represented a retroactive rebate from April 1, 2010 through the first quarter of 2011.
Distribution costs decreased $8 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to lower shipment volumes,
partially offset by Fibrek’s distribution costs of $7 million.
Selling, general and administrative costs increased $1 million in the
second quarter of 2012 compared to the second quarter of 2011, primarily due to $3 million of transaction costs in connection with our acquisition of Fibrek and $3 million of Fibrek’s selling, general and administrative expenses. These higher
costs were offset by a $2 million refund in the second quarter of 2012 of certain group benefit premiums paid in prior years and $3 million of corporate employee termination costs recorded in the second quarter of 2011.
We recorded $88 million of closure costs, impairment and other related charges in the second quarter of 2012 compared to $4 million in the second quarter
of 2011. We recorded a net gain on disposition of assets of $1 million in the second quarter of 2012 compared to $3 million in the second quarter of 2011. These items are discussed further below under “Segment Results of Operations –
Corporate and Other.”
Net (loss) income attributable to Resolute Forest Products Inc.
Net (loss) income attributable to Resolute Forest Products Inc. in the second quarter of 2012 was $20 million of net loss, or $0.20 per common share, a
decrease of $81 million, or $0.83 per diluted common share, compared to $61 million of net income, or $0.63 per diluted common share, in the second quarter of 2011. The decrease was due to the decrease in operating income, as discussed above, as
well as an increase in other expense, net and a decrease in the income tax benefit, which are discussed below, partially offset by a decrease in interest expense, as discussed below, and an increase in net loss attributable to noncontrolling
interests. The increase in net loss attributable to noncontrolling interests was primarily due to our partner’s share of the impairment, severance and other charges related to the assets held for sale for our interest in Bowater Mersey Paper
Company Limited (our “Mersey operations”) and the indefinite idling of its Mersey newsprint mill.
Six months ended June 30,
2012 versus June 30, 2011
Sales
Excluding Fibrek’s
sales of $74 million in the first six months of 2012, sales on a comparable basis decreased $237 million, or 9.9%, from $2,385 million in the first six months of 2011 to $2,148 million in the same period of 2012. The decrease was primarily due to
lower shipments in all of our product lines, an unfavorable currency exchange on our Canadian dollar denominated sales and lower transaction prices for newsprint, coated papers and market pulp, largely offset by higher transaction prices for
specialty papers and wood products. The impact of each of these items is discussed further below under “Segment Results of Operations.”
Operating (loss) income
Operating (loss) income decreased $89 million to an
operating loss of $10 million in the first six months of 2012 compared to operating income of $79 million in the first six months of 2011. The above table presents the major items that impacted operating (loss) income. A brief explanation of these
major items follows.
Excluding Fibrek’s results, cost of sales, excluding depreciation, amortization and cost of timber harvested, on a
comparable basis decreased $173 million in the first six months of 2012 compared to the same period of 2011, primarily due to lower volumes ($134 million), a favorable currency exchange ($32 million, primarily due to the Canadian dollar) and lower
costs for fuel ($13 million), labor and benefits ($14 million, primarily due to mill-level restructuring initiatives), timing of annual maintenance outages ($2 million) and other favorable cost variances. These lower costs were offset by higher
costs for energy ($16 million, primarily due to the $14 million NIER Program retroactive rebate in the second quarter of 2011 and the lost income from the hydroelectric facilities of ACH Limited Partnership (“ACH”), which were sold in the
second quarter of 2011), chemicals ($4 million) and regular maintenance ($5 million).
Distribution costs decreased $20 million in the first
six months of 2012 compared to the same period of 2011, primarily due to lower shipment volumes, partially offset by Fibrek’s distribution costs of $7 million.
31
RESOLUTE FOREST PRODUCTS INC.
Selling, general and administrative costs decreased $4 million in the first six months of 2012 compared
to the same period of 2011, primarily due to an $11 million refund in the first six months of 2012 of certain group benefit premiums paid in prior years and $7 million of corporate employee termination costs recorded in the same period of 2011.
These lower costs were partially offset by $7 million of transaction costs in connection with our acquisition of Fibrek, $3 million of Fibrek’s selling, general and administrative expenses and $2 million of employee termination costs in the
first six months of 2012.
We recorded $93 million of closure costs, impairment and other related charges in the first six months of 2012
compared to $17 million in the same period of 2011. We recorded a net gain on disposition of assets of $24 million in the first six months of 2012 compared to $4 million in the same period of 2011. These items are discussed further below under
“Segment Results of Operations – Corporate and Other.”
Net income attributable to Resolute Forest Products Inc.
Net income attributable to Resolute Forest Products Inc. in the first six months of 2012 was $3 million, or $0.03 per diluted common
share, a decrease of $88 million, or $0.91 per diluted common share, compared to $91 million, or $0.94 per diluted common share, in the same period of 2011. The decrease was due to the decrease in operating income, as discussed above, as well as a
decrease in other income, net and a decrease in the income tax benefit, which are discussed below, partially offset by a decrease in interest expense, as discussed below, and an increase in net loss attributable to noncontrolling. The increase in
net loss attributable to noncontrolling interests was primarily due to our partner’s share of the impairment, severance and other charges related to the assets held for sale for our interest in our Mersey operations and the indefinite idling of
its Mersey newsprint mill.
Non-operating items – three and six months ended June 30, 2012 versus June 30, 2011
Interest expense
Interest expense decreased $10 million from $28 million in the second quarter of 2011 to $18 million in the second quarter of 2012.
Interest expense decreased $24 million from $58 million in the first six months of 2011 to $34 million in the same period of 2011. These decreases were primarily due to the redemption of $264 million of the 2018 Notes (as defined under
“Liquidity and Capital Resources”) in the second and fourth quarters of 2011.
Other (expense) income, net
Other expense, net in the second quarter of 2012 and 2011 was $10 million and $2 million, respectively, primarily comprised of foreign currency exchange
losses of $9 million and foreign currency exchange gains of $2 million, respectively, and costs for the resolution and settlement of disputed creditor claims and other post-emergence activities associated with the creditor protection proceedings of
$3 million and $11 million, respectively. Other income, net in the first six months of 2012 and 2011 was $3 million and $17 million, respectively, primarily comprised of foreign currency exchange gains of $3 million and $30 million, respectively,
and costs for the resolution and settlement of disputed creditor claims and other post-emergence activities associated with the creditor protection proceedings of $5 million and $22 million, respectively. Other (expense) income, net for both the
second quarter and first six months of 2011 also included net gains on extinguishment of debt of $4 million.
Income tax (provision)
benefit
In the second quarter and first six months of 2012, an income tax provision of $1 million and an income tax benefit of $9
million, respectively, were recorded on loss before income taxes of $64 million and $41 million, respectively, resulting in an effective tax rate of (2)% and 22%, respectively. Our effective tax rate in the second quarter of 2012 was impacted by an
increase in our valuation allowance related to costs associated with the indefinite idling of our Mersey operations where we do not recognize tax benefits, favorable reorganization-related adjustments, as well as foreign exchange related items. Our
effective tax rate in the first six months of 2012 was also impacted by favorable adjustments related to research and development tax incentives. In the second quarter and first six months of 2011, an income tax benefit of $39 million and $53
million, respectively, was recorded on income before income taxes of $22 million and $38 million, respectively, resulting in an effective tax rate of (177)% and (139)%, respectively. Our effective tax rate in the second quarter of 2011 was primarily
impacted by tax benefits of $44 million related to the settlement of uncertain tax positions. Our effective tax rate in the first six months of 2011 was also impacted by a $10 million favorable reorganization-related adjustment, as well as foreign
exchange related items. For additional information, see Note 13, “Income Taxes,” to our Unaudited Interim Consolidated Financial Statements.
32
RESOLUTE FOREST PRODUCTS INC.
Our effective tax rate varies frequently and substantially from the weighted-average effect of both
domestic and foreign statutory tax rates, primarily as a result of the tax treatment on foreign currency gains and losses. We have foreign subsidiaries whose unconsolidated local currency foreign exchange gains and losses are taxed in the local
country. Upon consolidation, such gains and losses are eliminated, but the related local tax impacts remain. We also have foreign exchange gains and losses on the conversion of foreign currency denominated items, for which no tax expense or benefit
is recorded. Due to the variability and volatility of foreign exchange rates, we are unable to estimate the impact of future changes in exchange rates on our effective tax rate.
Segment Results of Operations
We manage our business based on the products that we manufacture. Accordingly, our reportable segments correspond to our primary product lines: newsprint, coated papers, specialty papers, market pulp and
wood products. None of the income or loss items following “Operating (loss) income” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason,
closure costs, impairment and other related charges, employee termination costs, net gain on dispositions of assets and other discretionary charges or credits are not allocated to our segments. Additionally, all selling, general and administrative
expenses, excluding employee termination costs and certain discretionary charges and credits, are allocated to our segments. Depreciation expense is also allocated to our segments. For additional information regarding our segments, see Note 16,
“Segment Information,” to our Unaudited Interim Consolidated Financial Statements.
Newsprint
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
Average price (per metric ton)
|
|
$
|
651
|
|
|
$
|
663
|
|
|
|
$ (12
|
)
|
|
$
|
655
|
|
|
$
|
658
|
|
|
|
$ (3
|
)
|
|
Average cost (per metric ton)
|
|
$
|
601
|
|
|
$
|
625
|
|
|
|
$ (24
|
)
|
|
$
|
613
|
|
|
$
|
625
|
|
|
|
$ (12
|
)
|
|
Shipments (thousands of metric tons)
|
|
|
639
|
|
|
|
697
|
|
|
|
(58
|
)
|
|
|
1,272
|
|
|
|
1,353
|
|
|
|
(81
|
)
|
|
Downtime (thousands of metric tons)
|
|
|
71
|
|
|
|
31
|
|
|
|
40
|
|
|
|
156
|
|
|
|
53
|
|
|
|
103
|
|
|
Inventory at end of period (thousands of metric tons)
|
|
|
82
|
|
|
|
76
|
|
|
|
6
|
|
|
|
82
|
|
|
|
76
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
$
|
416
|
|
|
$
|
462
|
|
|
|
$ (46
|
)
|
|
$
|
832
|
|
|
$
|
891
|
|
|
$
|
(59
|
)
|
|
Segment operating income
|
|
|
32
|
|
|
|
26
|
|
|
|
6
|
|
|
|
53
|
|
|
|
45
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Significant items that (unfavorably) favorably impacted segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing and foreign exchange
|
|
|
|
|
|
|
|
|
|
|
$ (8
|
)
|
|
|
|
|
|
|
|
|
|
|
$ (5
|
)
|
|
Shipments
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(54
|
)
|
|
Change in sales
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Change in depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Change in distribution costs
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Change in selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6
|
|
|
|
|
|
|
|
|
|
|
|
$ 8
|
|
Three months ended June 30, 2012 versus June 30, 2011
Segment sales decreased $46 million, or 10.0%,
from $462 million in the second quarter of 2011 to $416 million in the second quarter of 2012 due to lower shipment volumes and lower transaction prices (largely due to export markets) and an unfavorable currency exchange on our Canadian dollar
denominated sales. Shipments in the second quarter of 2012 decreased 58,000 metric tons, or 8.3%, compared to the second quarter of 2011, primarily related to export markets.
In the second quarter of 2012, downtime at our facilities was primarily market related.
33
RESOLUTE FOREST PRODUCTS INC.
Segment operating income increased $6 million to $32 million in the second quarter of 2012 compared to
$26 million in the second quarter of 2011. The above table presents the items that impacted segment operating income. A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $47 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to lower
volumes ($21 million), a favorable currency exchange ($11 million, primarily due to the Canadian dollar) and lower costs for wood and fiber ($7 million, primarily due to lower recycled newspaper prices), fuel ($3 million), labor and benefits ($5
million, primarily due to mill-level restructuring initiatives) and other favorable cost variances, partially offset by higher costs for energy ($10 million, primarily due to the $9 million NIER Program retroactive rebate in the second quarter of
2011 and the lost income from the hydroelectric facilities of ACH, which were sold in the second quarter of 2011).
Segment distribution costs
decreased $7 million in the second quarter of 2012 compared to the second quarter of 2011 due to lower shipment volumes and lower distribution costs per ton.
Six months ended June 30, 2012 versus June 30, 2011
Segment sales decreased $59 million, or 6.6%, from $891 million in the first six months of 2011 to $832 million in the same period of 2012 due to lower
shipment volumes and slightly lower transaction prices on export volumes. Shipments in the first six months of 2012 decreased 81,000 metric tons, or 6.0%, compared to the same period of 2011, primarily related to export markets.
Segment operating income increased $8 million to $53 million in the first six months of 2012 compared to $45 million in the same period of 2011. The
above table presents the items that impacted segment operating income. A brief explanation of the major items follows.
Segment cost of sales,
excluding depreciation, amortization and cost of timber harvested, decreased $63 million in the first six months of 2012 compared to the same period of 2011, primarily due to lower volumes ($29 million), a favorable currency exchange ($15 million,
primarily due to the Canadian dollar) and lower costs for wood and fiber ($12 million, primarily due to lower recycled newspaper prices), fuel ($4 million), labor and benefits ($9 million, primarily due to mill-level restructuring initiatives) and
other favorable cost variances, partially offset by higher costs for energy ($15 million, primarily due to the $9 million NIER Program retroactive rebate in the second quarter of 2011 and the lost income from the hydroelectric facilities of ACH,
which were sold in the second quarter of 2011).
Segment distribution costs decreased $7 million in the first six months of 2012 compared to
the same period of 2011, primarily due to lower shipment volumes.
Newsprint Third-Party Data:
North American newsprint demand declined
1.6% and global newsprint demand declined 2.1% in the first six months of 2012 compared to the same period of 2011. In the first six months of 2012, North American net exports of newsprint were 25.2% lower than the same period of 2011. In
particular, exports to Asia and Latin America from North American producers have fallen 38.4% and 7.6%, respectively. Shipments to Asia from Western European producers were up 42.6%. Inventories for North American mills as of June 30, 2012 were
198,000 metric tons, which is 2.5% lower than as of June 30, 2011. The North American operating rate for newsprint was 92% in the first six months of 2012 compared to 91% in the same period of 2011.
34
RESOLUTE FOREST PRODUCTS INC.
Coated Papers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
Average price (per short ton)
|
|
$
|
782
|
|
|
$
|
822
|
|
|
|
$ (40
|
)
|
|
$
|
786
|
|
|
$
|
808
|
|
|
|
$ (22
|
)
|
|
Average cost (per short ton)
|
|
$
|
756
|
|
|
$
|
682
|
|
|
|
$ 74
|
|
|
$
|
776
|
|
|
$
|
730
|
|
|
|
$ 46
|
|
|
Shipments (thousands of short tons)
|
|
|
154
|
|
|
|
161
|
|
|
|
(7
|
)
|
|
|
316
|
|
|
|
330
|
|
|
|
(14
|
)
|
|
Downtime (thousands of short tons)
|
|
|
5
|
|
|
|
–
|
|
|
|
5
|
|
|
|
17
|
|
|
|
2
|
|
|
|
15
|
|
|
Inventory at end of period (thousands of short tons)
|
|
|
28
|
|
|
|
33
|
|
|
|
(5
|
)
|
|
|
28
|
|
|
|
33
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
$
|
121
|
|
|
$
|
132
|
|
|
|
$ (11
|
)
|
|
$
|
249
|
|
|
$
|
266
|
|
|
|
$ (17
|
)
|
|
Segment operating income
|
|
|
4
|
|
|
|
23
|
|
|
|
(19
|
)
|
|
|
3
|
|
|
|
26
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Significant items that (unfavorably) favorably impacted segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing
|
|
|
|
|
|
|
|
|
|
|
$ (5
|
)
|
|
|
|
|
|
|
|
|
|
|
$ (6
|
)
|
|
Shipments
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
Change in sales
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Change in depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Change in selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ (19
|
)
|
|
|
|
|
|
|
|
|
|
|
$ (23
|
)
|
Three months ended June 30, 2012 versus June 30, 2011
Segment sales decreased $11 million, or 8.3%,
from $132 million in the second quarter of 2011 to $121 million in the second quarter of 2012 due to lower shipment volumes and lower transaction prices.
Segment operating income decreased $19 million to $4 million in the second quarter of 2012 compared to $23 million in the second quarter of 2011. The above table presents the items that impacted segment
operating income. A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of
timber harvested, increased $8 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to higher costs for coating chemicals ($5 million), energy ($1 million), fuel ($1 million) and other unfavorable cost
variances, partially offset by lower volumes ($2 million).
Six months ended June 30, 2012 versus June 30, 2011
Segment sales decreased $17 million, or 6.4%,
from $266 million in the first six months of 2011 to $249 million in the same period of 2012 due to lower shipment volumes and lower transaction prices.
In the first six months of 2012, downtime at our facility was primarily maintenance related, which included a cold mill outage, as well as the installation of an after coater dryer on one of our paper
machines.
Segment operating income decreased $23 million to $3 million in the first six months of 2012 compared to $26 million in the same
period of 2011. The above table presents the items that impacted segment operating income. A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, increased $4 million in the first six months of 2012 compared
to the same period of 2011, primarily due to higher costs for coating chemicals ($4 million), energy ($3 million), chemicals ($2 million) and the cold mill outage ($2 million), offset by lower volumes ($5 million) and lower costs for fuel
($2 million).
35
RESOLUTE FOREST PRODUCTS INC.
Coated Papers Third-Party Data:
North American demand for coated mechanical papers decreased 4.1%
in the first six months of 2012 compared to the same period of 2011. The North American operating rate for coated mechanical papers was 91% in the first six months of 2012 compared to 87% in the same period of 2011. North American coated mechanical
mill inventories were at 17 days of supply as of June 30, 2012 compared to 21 days of supply as of June 30, 2011.
Specialty
Papers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
|
2012
|
|
|
|
2011
|
|
|
|
Change
|
|
|
Average price (per short ton)
|
|
$
|
747
|
|
|
$
|
724
|
|
|
|
$ 23
|
|
|
$
|
748
|
|
|
$
|
710
|
|
|
|
$ 38
|
|
|
Average cost (per short ton)
|
|
$
|
676
|
|
|
$
|
698
|
|
|
|
$ (22
|
)
|
|
$
|
690
|
|
|
$
|
698
|
|
|
|
$ (8
|
)
|
|
Shipments (thousands of short tons)
|
|
|
386
|
|
|
|
442
|
|
|
|
(56
|
)
|
|
|
749
|
|
|
|
915
|
|
|
|
(166
|
)
|
|
Downtime (thousands of short tons)
|
|
|
7
|
|
|
|
26
|
|
|
|
(19
|
)
|
|
|
47
|
|
|
|
58
|
|
|
|
(11
|
)
|
|
Inventory at end of period (thousands of short tons)
|
|
|
80
|
|
|
|
76
|
|
|
|
4
|
|
|
|
80
|
|
|
|
76
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
$
|
288
|
|
|
$
|
320
|
|
|
$
|
(32
|
)
|
|
$
|
560
|
|
|
$
|
650
|
|
|
|
$ (90
|
)
|
|
Segment operating income
|
|
|
27
|
|
|
|
11
|
|
|
|
16
|
|
|
|
42
|
|
|
|
11
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Significant items that favorably (unfavorably) impacted segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing and foreign exchange
|
|
|
|
|
|
|
|
|
|
|
$ 10
|
|
|
|
|
|
|
|
|
|
|
|
$ 28
|
|
|
Shipments
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
Change in sales
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Change in depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Change in distribution costs
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Change in selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 16
|
|
|
|
|
|
|
|
|
|
|
|
$ 31
|
|
Three months ended June 30, 2012 versus June 30, 2011
Segment sales decreased $32 million, or 10.0%,
from $320 million in the second quarter of 2011 to $288 million in the second quarter of 2012 due to lower shipment volumes, partially offset by higher transaction prices.
Segment operating income increased $16 million to $27 million in the second quarter of 2012 compared to $11 million in the second quarter of 2011. The above table presents the items that impacted segment
operating income. A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of
timber harvested, decreased $41 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to lower volumes ($25 million), a favorable Canadian dollar currency exchange ($8 million) and lower costs for fuel ($4
million), labor and benefits ($2 million, primarily due to mill-level restructuring initiatives) and other favorable cost variances. These lower costs were partially offset by higher costs for energy ($1 million, in part due to the $3 million NIER
Program retroactive rebate in the second quarter of 2011).
Segment distribution costs decreased $3 million in the second quarter of 2012
compared to the second quarter of 2011 due to lower shipment volumes, partially offset by higher distribution costs per ton.
36
RESOLUTE FOREST PRODUCTS INC.
Six months ended June 30, 2012 versus June 30, 2011
Segment sales decreased $90 million, or 13.8%,
from $650 million in the first six months of 2011 to $560 million in the same period of 2012 due to lower shipment volumes, partially offset by higher transaction prices. Lower shipment volumes resulted in part from the decision to cease paperboard
production at our Coosa Pines, Alabama paper mill in the first quarter of 2011.
Segment operating income increased $31 million to $42 million
in the first six months of 2012 compared to $11 million in the same period of 2011. The above table presents the items that impacted segment operating income. A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $108 million in the first six months of 2012 compared
to the same period of 2011, primarily due to lower volumes ($80 million), a favorable Canadian dollar currency exchange ($11 million) and lower costs for energy ($2 million, despite the $3 million NIER Program retroactive rebate in the second
quarter of 2011), fuel ($7 million), labor and benefits ($3 million, primarily due to mill-level restructuring initiatives) and other favorable cost variances.
Segment distribution costs decreased $10 million in the first six months of 2012 compared to the second quarter of 2011 due to lower shipment volumes, partially offset by higher distribution costs per
ton.
Specialty Papers Third-Party Data:
In the first six months of 2012 compared to the same period of 2011, North American demand for
supercalendered high gloss papers was down 24.8%, for lightweight or directory grades was down 17.4%, for standard uncoated mechanical papers was down 8.6% and in total for all specialty papers was down 17.0%. The North American operating rate for
all specialty papers was 91% in the first six months of 2012 compared to 87% in the same period of 2011. North American uncoated mechanical mill inventories were at 19 days of supply as of June 30, 2012 compared to 17 days of supply as of
June 30, 2011.
37
RESOLUTE FOREST PRODUCTS INC.
Market Pulp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
Average price (per metric ton)
|
|
$
|
663
|
|
|
$
|
767
|
|
|
$
|
(104)
|
|
|
$
|
652
|
|
|
$
|
751
|
|
|
$
|
(99
|
)
|
|
Average cost (per metric ton)
|
|
$
|
684
|
|
|
$
|
703
|
|
|
$
|
(19)
|
|
|
$
|
707
|
|
|
$
|
670
|
|
|
$
|
37
|
|
|
Shipments (thousands of metric tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Fibrek
|
|
|
211
|
|
|
|
223
|
|
|
|
(12)
|
|
|
|
410
|
|
|
|
462
|
|
|
|
(52
|
)
|
|
Fibrek
|
|
|
107
|
|
|
|
–
|
|
|
|
107
|
|
|
|
107
|
|
|
|
–
|
|
|
|
107
|
|
|
Downtime (thousands of metric tons)
|
|
|
52
|
|
|
|
30
|
|
|
|
22
|
|
|
|
129
|
|
|
|
38
|
|
|
|
91
|
|
|
Inventory at end of period (thousands of metric tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Fibrek
|
|
|
55
|
|
|
|
56
|
|
|
|
(1)
|
|
|
|
55
|
|
|
|
56
|
|
|
|
(1
|
)
|
|
Fibrek
|
|
|
59
|
|
|
|
–
|
|
|
|
59
|
|
|
|
59
|
|
|
|
–
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
$
|
211
|
|
|
$
|
171
|
|
|
$
|
40
|
|
|
$
|
338
|
|
|
$
|
347
|
|
|
$
|
(9
|
)
|
|
Segment operating (loss) income
|
|
|
(7)
|
|
|
|
14
|
|
|
|
(21)
|
|
|
|
(28)
|
|
|
|
37
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
Significant items that (unfavorably) favorably impacted segment operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing and foreign exchange – excluding Fibrek
|
|
|
|
|
|
|
|
|
|
$
|
(24)
|
|
|
|
|
|
|
|
|
|
|
$
|
(44
|
)
|
|
Shipments – excluding Fibrek
|
|
|
|
|
|
|
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
Sales – Fibrek
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
Change in sales
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested – excluding
Fibrek
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
Cost of sales, excluding depreciation, amortization and cost of timber harvested –
Fibrek
|
|
|
|
|
|
|
|
|
|
|
(61)
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Change in depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Change in distribution costs
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Change in selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21)
|
|
|
|
|
|
|
|
|
|
|
$
|
(65
|
)
|
Three months ended June 30, 2012 versus June 30, 2011
Excluding Fibrek’s sales of $74 million in
the second quarter of 2012, segment sales on a comparable basis decreased $34 million, or 19.9%, from $171 million in the second quarter of 2011 to $137 million in the second quarter of 2012 due to lower transaction prices and lower shipment
volumes.
Segment operating (loss) income decreased $21 million to an operating loss of $7 million in the second quarter of 2012 compared to
operating income of $14 million in the second quarter of 2011. The above table presents the items that impacted segment operating (loss) income. A brief explanation of the major items follows.
Excluding Fibrek’s results, segment cost of sales, excluding depreciation, amortization and cost of timber harvested, on a comparable basis
decreased $9 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to lower volumes ($3 million), a favorable Canadian dollar currency exchange ($2 million) and lower costs for labor and benefits ($2 million)
and timing of annual maintenance outages ($11 million), partially offset by higher costs for energy ($1 million, primarily due to the $2 million NIER Program retroactive rebate in the second quarter of 2011), regular maintenance ($4 million),
chemicals ($2 million) and other unfavorable cost variances.
Segment distribution costs increased $5 million in the second quarter of 2012
compared to the second quarter of 2011, primarily due to Fibrek’s distribution costs of $7 million, partially offset by lower shipment volumes, excluding Fibrek.
38
RESOLUTE FOREST PRODUCTS INC.
Six months ended June 30, 2012 versus June 30, 2011
Excluding Fibrek’s sales of $74 million in
the first six months of 2012, segment sales on a comparable basis decreased $83 million, or 23.9%, from $347 million in the first six months of 2011 to $264 million in the same period of 2012 due to lower transaction prices and lower shipment
volumes.
Segment operating (loss) income decreased $65 million to an operating loss of $28 million in the first six months of 2012 compared
to operating income of $37 million in the same period of 2011. The above table presents the items that impacted segment operating (loss) income. A brief explanation of the major items follows.
Excluding Fibrek’s results, segment cost of sales, excluding depreciation, amortization and cost of timber harvested, on a comparable basis
decreased $13 million in the first six months of 2012 compared to the same period of 2011, primarily due to lower volumes ($16 million) and a favorable Canadian dollar currency exchange ($3 million), partially offset by higher costs for energy ($1
million, primarily due to the $2 million NIER Program retroactive rebate in the second quarter of 2011), chemicals ($1 million), labor and benefits ($1 million) and other unfavorable cost variances.
Segment distribution costs increased $3 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to Fibrek’s
distribution costs of $7 million, partially offset by lower shipment volumes, excluding Fibrek.
Market Pulp Third-Party Data:
Overall
demand for chemical market pulp was up 1.6% in the first six months of 2012 compared to the same period of 2011, including a 15% increase in China and a 5.2% increase in Latin America, offset in part by a 5.2% reduction in North America and a 6.1%
reduction in Western Europe (the world’s largest pulp market). Overall softwood and hardwood pulp shipments were up 1.0% and 2.4% respectively, the latter driven mainly by eucalyptus pulp, which increased 3.6%. World market pulp producers
shipped at 92% of capacity in the first six months of 2012 compared to 91% in the same period of 2011. World market pulp producer inventories of softwood and hardwood grades were at 29 days and 40 days, respectively, of supply as of June 30,
2012 compared to 28 days and 42 days, respectively, of supply as of June 30, 2011. World market pulp producer inventories of all grades were at 34 days of supply as of June 30, 2012 compared to 34 days of supply as of June 30, 2011.
39
RESOLUTE FOREST PRODUCTS INC.
Wood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
Average price (per thousand board feet)
|
|
$
|
343
|
|
|
$
|
290
|
|
|
$
|
53
|
|
|
$
|
324
|
|
|
$
|
300
|
|
|
$
|
24
|
|
|
Average cost (per thousand board feet)
|
|
$
|
314
|
|
|
$
|
325
|
|
|
$
|
(11)
|
|
|
$
|
317
|
|
|
$
|
322
|
|
|
$
|
(5)
|
|
|
Shipments (millions of board feet)
|
|
|
384
|
|
|
|
397
|
|
|
|
(13)
|
|
|
|
751
|
|
|
|
772
|
|
|
|
(21)
|
|
|
Downtime (millions of board feet)
|
|
|
201
|
|
|
|
150
|
|
|
|
51
|
|
|
|
366
|
|
|
|
243
|
|
|
|
123
|
|
|
Inventory at end of period (millions of board feet)
|
|
|
116
|
|
|
|
165
|
|
|
|
(49)
|
|
|
|
116
|
|
|
|
165
|
|
|
|
(49)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
$
|
132
|
|
|
$
|
115
|
|
|
$
|
17
|
|
|
$
|
243
|
|
|
$
|
231
|
|
|
$
|
12
|
|
|
Segment operating income (loss)
|
|
|
12
|
|
|
|
(14)
|
|
|
|
26
|
|
|
|
6
|
|
|
|
(17)
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Significant items that favorably (unfavorably) impacted segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing and foreign exchange
|
|
|
|
|
|
|
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
$
|
18
|
|
|
Shipments
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
|
Change in sales
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Change in cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Change in depreciation, amortization and cost of timber harvested
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Change in distribution costs
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Change in selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
$
|
23
|
|
Three months ended June 30, 2012 versus June 30, 2011
Segment sales increased $17 million, or 14.8%,
from $115 million in the second quarter of 2011 to $132 million in the second quarter of 2012 due to significantly higher transaction prices, partially offset by lower shipment volumes and an unfavorable currency exchange on our Canadian dollar
denominated sales.
In the second quarter of 2012, downtime at our facilities was primarily market related.
Segment operating income (loss) improved $26 million to operating income of $12 million in the second quarter of 2012 compared to an operating loss of
$14 million in the second quarter of 2011. The above table presents the items that impacted segment operating income (loss). A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $5 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to lower
volumes ($2 million), a favorable Canadian dollar currency exchange ($2 million) and other favorable cost variances.
Segment distribution
costs decreased $3 million in the second quarter of 2012 compared to the second quarter of 2011, primarily due to farther shipping destinations.
Six months ended June 30, 2012 versus June 30, 2011
Segment sales increased $12 million, or 5.2%, from $231 million in the first six months of 2011 to $243 million in the same period of 2012 due to higher
transaction prices, partially offset by lower shipment volumes and an unfavorable currency exchange on our Canadian dollar denominated sales.
In the first six months of 2012, downtime at our facilities was primarily market related.
40
RESOLUTE FOREST PRODUCTS INC.
Segment operating income (loss) improved $23 million to operating income of $6 million in the first six
months of 2012 compared to an operating loss of $17 million in the same period of 2011. The above table presents the items that impacted segment operating income (loss). A brief explanation of the major items follows.
Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $7 million in the first six months of 2012 compared
to the same period of 2011, primarily due to lower volumes ($4 million) and a favorable Canadian dollar currency exchange ($3 million).
Segment distribution costs decreased $6 million in the first six months of 2012 compared to the same period of 2011, primarily due to farther shipping
destinations.
Wood Products Third-Party Data
: Privately-owned housing starts in the U.S. increased 23.6% to a seasonally-adjusted
annual rate of 760,000 units in June 2012, compared to 615,000 units in June 2011.
Corporate and Other
The following table is included in order to facilitate the reconciliation of our segment sales and segment operating income (loss) to our total sales and
operating (loss) income in our Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
(Unaudited, in millions)
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation, amortization and cost of timber harvested
|
|
|
$ (11)
|
|
|
|
$ (4)
|
|
|
|
$ (7)
|
|
|
|
$ (17)
|
|
|
|
$ (3)
|
|
|
|
$ (14)
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(6)
|
|
|
|
(3)
|
|
|
|
(3)
|
|
|
|
–
|
|
|
|
(7)
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Closure costs, impairment and other related charges
|
|
|
(88)
|
|
|
|
(4)
|
|
|
|
(84)
|
|
|
|
(93)
|
|
|
|
(17)
|
|
|
|
(76)
|
|
|
|
|
|
|
|
|
|
|
Net gain on disposition of assets
|
|
|
1
|
|
|
|
3
|
|
|
|
(2)
|
|
|
|
24
|
|
|
|
4
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
$ (104)
|
|
|
|
$ (8)
|
|
|
|
$ (96)
|
|
|
|
$ (86)
|
|
|
|
$ (23)
|
|
|
|
$(63)
|
|
Cost of sales, excluding depreciation, amortization and cost of timber harvested
Cost of sales, excluding depreciation, amortization and cost of timber harvested, in corporate and other included ongoing costs related to closed mills
and other miscellaneous adjustments. Additionally, in the second quarter of 2012, we recorded charges of $7 million for write-downs of inventory as a result of the indefinite idling of our Mersey newsprint mill.
Selling, general and administrative expenses
In the second quarter and first six months of 2012, we recorded $3 million and $7 million, respectively, of transaction costs in connection with our acquisition of Fibrek. In the second quarter and first
six months of 2012, we also recorded $2 million and $11 million of refunds of certain group benefit premiums paid in prior years. In the second quarter and first six months of 2012, we recorded approximately $1 million and $3 million, respectively,
of corporate employee termination costs. In the second quarter and first six months of 2011, we recorded approximately $3 million and $7 million, respectively, of corporate employee termination costs.
Closure costs, impairment and other related charges
In the second quarter of 2012, we recorded $70 million of long-lived asset impairment charges (including a $7 million writedown of an asset retirement obligation related to environmental liabilities)
related to the assets held for sale for our interest in our Mersey operations and $18 million of severance costs and a pension plan curtailment loss, primarily as a result of the indefinite idling of our Mersey newsprint mill, as well as a pension
plan settlement loss related to a workforce reduction at our Mersey operations in the fourth quarter of 2011. In the first six months of 2012, we also recorded $5 million of severance costs and a pension curtailment loss as a result of a workforce
reduction at our Baie-Comeau paper mill, as well as an adjustment for severance and pension curtailment related to the permanent closure in December 2011 of a paper machine at our Kenogami paper mill.
41
RESOLUTE FOREST PRODUCTS INC.
In the second quarter of 2011, we recorded $4 million of accelerated depreciation related to the
permanent closures of a de-inking line at our Alma, Quebec paper mill and a paper machine and a thermomechanical pulp line at our Baie-Comeau, Quebec paper mill, as well as additional severance costs as a result of the decision to cease paperboard
production at our Coosa Pines paper mill. In the first six months of 2011, we also recorded $13 million of accelerated depreciation, long-lived asset impairment charges, severance costs and an other postretirement benefit plan curtailment loss as a
result of the decision to cease paperboard production at our Coosa Pines paper mill.
For additional information, see Note 3, “Closure
Costs, Impairment and Other Related Charges,” to our Unaudited Interim Consolidated Financial Statements.
Net gain on disposition
of assets
During the second quarter of 2012, we recorded a net gain on disposition of assets of $1 million related to the sale of our
Petit Saguenay, Quebec sawmill, our recycling division’s assets located in Phoenix, Arizona and various other assets. During the first six months of 2012, we also recorded a net gain on disposition of assets of $23 million related to the sale
of a portion of our Mersey timberlands and various other assets. During the second quarter and first six months of 2011, we recorded a net gain on disposition of assets of $3 million and $4 million, respectively, related to the sale of our
investment in ACH and various other assets.
For additional information, see Note 4, “Assets Held for Sale, Liabilities Associated with
Assets Held for Sale and Net Gain on Disposition of Assets,” to our Unaudited Interim Consolidated Financial Statements.
Liquidity
and Capital Resources
Overview
In addition to cash and cash equivalents and net cash provided by operations, our principal external source of liquidity is the ABL Credit Facility, which is defined and discussed below. As of
June 30, 2012, we had cash and cash equivalents of $510 million and had $472 million of availability under the ABL Credit Facility. We believe that these sources provide us with adequate liquidity. In 2012, we anticipate that we may use cash on
hand to redeem 2018 Notes pursuant to existing redemption features in the notes indenture and repurchase shares of our common stock. Subsequent to June 30, 2012, we used cash on hand to repay $97 million of Fibrek’s outstanding
indebtedness, including accrued and unpaid interest (see Note 11, “Long-Term Debt,” to our Unaudited Interim Consolidated Financial Statements for additional information regarding Fibrek’s debt, which we assumed on the acquisition
date). Subsequent to June 30, 2012, we also used $10 million of cash on hand as partial consideration in the second step transaction of the Fibrek acquisition.
10.25% senior secured notes due 2018
Our 10.25% senior secured notes (the
“2018 Notes”) have a maturity date of October 15, 2018. Interest is payable on the notes on April 15 and October 15 of each year until maturity. As of June 30, 2012 and December 31, 2011, the carrying value of the
2018 Notes was $619 million and $621 million, respectively, which included an unamortized premium of $33 million and $35 million, respectively.
ABL Credit Facility
Our senior
secured credit facility (the “ABL Credit Facility”), as amended, has a maturity date of October 28, 2016 and provides an asset-based revolving credit facility of up to $600 million at any time, subject to borrowing base availability.
As of June 30, 2012, we had no borrowings and $50 million of letters of credit outstanding under the ABL Credit Facility. As of June 30, 2012, we had $472 million of availability under the ABL Credit Facility, which was comprised of $253
million for the U.S. borrowers (Resolute FP US Inc. and AbiBow Recycling LLC) and $219 million for the Canadian borrower (Resolute FP Canada Inc.).
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RESOLUTE FOREST PRODUCTS INC.
Flow of funds
Summary of cash flows
A summary of cash flows for the six months ended June 30, 2012
and 2011 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
2012
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|
2011
|
|
Net cash provided by operating activities
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|
|
$
|
173
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|
|
|
$
|
15
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|
|
Net cash provided by investing activities
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|
|
|
13
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|
|
|
|
266
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|
|
Net cash used in financing activities
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|
|
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(45)
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|
|
|
|
(303)
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|
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Net increase (decrease) in cash and cash equivalents
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|
|
$
|
141
|
|
|
|
$
|
(22)
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|
Cash provided by operating activities
The $158 million increase in cash provided by operating activities in the first six months of 2012 compared to the same period of 2011 was primarily related to an increase in cash generated by the changes
in working capital and lower pension contributions in the first six months of 2012 compared to the same period of 2011. The lower pension contributions were primarily due to $25 million of 2012 contributions to our Canadian pension plans that were
prepaid in the third quarter of 2011.
Cash provided by investing activities
The $253 million decrease in cash provided by investing activities in the first six months of 2012 compared to the same period of 2011 was primarily due to lower proceeds from the disposition of assets
(primarily the disposition of our investment in ACH in the first six months of 2011), the cash portion of the consideration paid for the acquisition of Fibrek in the first six months of 2012 and an increase in cash invested in fixed assets in the
first six months of 2012 compared to same period of 2011. These changes were partially offset by a decrease in restricted cash in the first six months of 2012 compared to the same period of 2011, primarily due to the release of a tax indemnity given
in connection with the sale of our interest in Manicouagan Power Company in 2009.
Capital expenditures for both periods include compliance,
maintenance and value-added projects on efficient and lower-cost production facilities.
Cash used in financing activities
The $258 million decrease in cash used in financing activities in the first six months of 2012 compared to the same period of 2011 was primarily due to
lower payments of long-term debt (which was partially related to the disposition of ACH in 2011) and lower dividends and distribution to noncontrolling interests in the first six months of 2012 compared to the same period of 2011, partially offset
by purchases of treasury stock in the first six months of 2012.
Employee Benefit Plans
Canadian pension funding relief
Based on agreements reached before we emerged from the creditor protection proceedings, the provinces of Quebec and Ontario adopted
in 2011 specific regulations, which we refer to as the “funding relief regulations,” to implement funding relief measures with respect to aggregate solvency deficits in our material Canadian registered pension plans, which we refer to as
the “affected plans.” These plans represent approximately 80% of our unfunded pension obligations. The funding relief regulations are described in Note 18, “Pension and Other Postretirement Benefit Plans – Canadian pension
funding relief,” to our consolidated financial statements for the year ended December 31, 2011. The regulations provide that corrective measures would be required if the aggregate solvency ratio in the affected plans falls below a prescribed
level under the target specified by the regulations, as of December 31 in any year through 2014. Thereafter, supplemental contributions would be required if the aggregate solvency ratio in the affected plans falls below a prescribed level under the
target specified by the regulations as of December 31 in any year on or after 2015 for the remainder of the period covered by the regulations.
Upon obtaining actuarial valuations, we determined that the aggregate solvency ratio in the affected plans had not met the minimum solvency level
prescribed in the regulations, as of December 31, 2011. Accordingly, we must adopt, by March 2013, corrective measures designed to attain the target solvency ratio prescribed in the regulations within five years. The difference between the solvency
status as of December 31, 2011 and the target specified under the funding relief regulations represents the portion of the solvency deficit that is subject to corrective measures, and amounts to approximately Cdn$500 million ($500 million, based on
the exchange rate in effect on June 30, 2012). The solvency deficit is highly sensitive to changes in interest rates on government treasury securities; a 1% increase in the applicable discount rate, which is correlated to treasury security yields,
would decrease the solvency deficit by approximately $450 million and vice versa.
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RESOLUTE FOREST PRODUCTS INC.
We will work with other plan stakeholders, including employees, retirees, unions and the provincial
governments of Quebec and Ontario to develop corrective measures. With interest rates currently near historic lows, we will work with these stakeholders to develop corrective measures that balance the need to meet our undertakings to retirees, but
also provide us the funding predictability we need to manage our business.
Recent Accounting Guidance
There is no new accounting guidance issued which we have not yet adopted that is expected to materially impact our results of operations or financial
condition.
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RESOLUTE FOREST PRODUCTS INC.
