UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 31, 2019

 

 

RESOLUTE FOREST PRODUCTS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-33776   98-0526415

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

Resolute Forest Products Inc.

111 Robert-Bourassa Blvd., Suite 5000

Montreal, Quebec, Canada H3C 2M1

(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code: (514) 875-2160

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

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

 

 

 


ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On January 31, 2019, Resolute Forest Products Inc. (the “Company”) reported its earnings for the quarter and year ended December 31, 2018. A copy of the press release containing the information is furnished as exhibit 99.1 and is incorporated herein by reference.

The information contained and incorporated in Item 2.02 of this Current Report on Form 8-K is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

ITEM 5.02. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.

Appointment of Suzanne Blanchet as director of the Company

On January 31, 2019, pursuant to the Company’s by-laws, the board of directors of the Company appointed Suzanne Blanchet to serve on the Company’s board as a non-employee director. Ms. Blanchet spent over 30 years with Cascades Inc., including as senior vice president, Corporate Development, from 2014 to 2017. From 1997 to 2014, she was president and chief executive officer of Cascades Tissue Group. Ms. Blanchet is a graduate of the Directors Education Program of the Institute of Corporate Directors and currently serves as a director of Agropur, GDI Integrated Facility Services Inc. (TSX), and other private company boards. Ms. Blanchet may be appointed to serve as a member of one or more of the committees of the board of directors at a later date.

As a director, Ms. Blanchet will receive an annual retainer fee of $75,000, payable in cash in equal quarterly installments. She will also receive, at the same time as the annual grant of equity awards to other non-employee directors of the Company, a cash-settled equity award in the form of deferred stock units (“DSUs”) with an aggregate grant date fair value of $75,000 under FASB ASC Topic 718, subject to the Resolute Forest Products Equity Incentive Plan. The Company will determine the number of shares by dividing the award value by the volume weighted average of the highest and lowest prices per share at which the Company’s common stock was traded on the NYSE on each of the five business days immediately before the grant date. The equity award will vest in 25% tranches on the last day of each calendar quarter of 2019, and will contain the same terms for other vesting triggers and settlement as those set forth in the annual equity award agreement for non-employee directors of the Company, as further described in the Company’s definitive proxy statement on Schedule 14A as filed with the SEC on April 6, 2018 under the heading “Director Compensation—Equity Component” and incorporated herein by reference. Ms. Blanchet will be eligible to participate in and defer any of her cash fees to the Resolute Forest Products Outside Director Deferred Compensation Plan, as further described in the Company’s definitive proxy statement on Schedule 14A as filed with the SEC on April 6, 2018 under the heading “Director Compensation—Cash Component” and incorporated herein by reference.

Summary of terms for Mr. Richard Garneau – Amendment to Agreement as Special Advisor to CEO

Role as Special Advisor. On February 1, 2018, Mr. Garneau began to serve as a Special Advisor to Mr. Laflamme, the Company’s president and chief executive officer. This role began immediately following Mr. Garneau’s resignation as president and chief executive officer on January 31, 2018 pursuant to a letter agreement between the Company and Mr. Garneau dated February 1, 2018 (the “Letter Agreement”). The principal terms of the Letter Agreement were summarized in a Current Report on Form 8-K as filed with the Securities and Exchange Commission (the “SEC”) on February 6, 2018 and the Letter Agreement was filed as Exhibit 10.53 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on March 1, 2018. Per the terms of the Letter Agreement, Mr. Garneau’s term as Special Advisor was scheduled to end January 31, 2019. The Company and Mr. Garneau have agreed to amend the Letter Agreement as described below.

Salary. Mr. Garneau will continue to be an employee of the Company and receive a monthly base salary of $20,000 per month, paid pursuant to the Company’s currency policy. For 2019, 61.3% of his base salary will be denominated in Canadian dollars and 38.7% will be denominated in U.S. dollars.

Retirement Benefits. In 2018, Mr. Garneau was able to continue to participate in the Company’s registered defined contribution retirement plan and the DC Make-Up Program, which allow for the accumulation of retirement benefits. Under the amended agreement, in 2019, Mr. Garneau will cease earning additional benefits in the tax-qualified retirement plan and the DC Make-Up Program as Canadian law requires participation to end after the year in which a participant attains age 71.


Termination of Agreement. The Letter Agreement does not have a specified expiration date, but is subject to termination by either party upon three months’ notice.

Except for the amended terms described above, all other terms and conditions of the Letter Agreement remain in full force and effect.

2019 STIP

Upon the recommendation of its human resources and compensation/nominating and governance committee, the independent members of the board of directors the Company adopted on January 30, 2019 the material terms of the 2019 Resolute Forest Products Inc. Short-Term Incentive Plan (the “2019 STIP”). The 2019 STIP provides that participating employees, including each of the Company’s named executive officers, are eligible to receive cash incentive awards expressed as a percentage of their base salaries, based on certain quantitative Company performance goals and individual performance over the 2019 annual period. In respect of the Company’s named executive officers, the threshold, target and maximum incentive awards are 42.5%, 100% and 172.5% of base salary, with no applicable minimum, respectively. The applicable performance metrics are: income from operations; selling, general and administrative expenses (the “SG&A”); frequency rate and severity rate of safety incidents; and environmental incidents. For Mr. John Lafave, the foregoing performance metrics apply, but given his position as senior vice president, pulp and paper sales and marketing, Mr. Lafave is subject to additional performance metrics of profits per metric ton, improvement of payment terms and improvement of days sales outstanding. To account for these additional metrics, the SG&A expense metric weighting is lowered for Mr. Lafave.

To determine the full STIP payout, two amounts are determined—one amount is attributable to achievement of Company performance goals and a second amount is attributable to individual performance. The two amounts are added together for a final STIP payout amount.

To determine the amount attributable to achievement of the Company performance goals, each eligible employee’s STIP compensation target is first multiplied by the actual percentage payout for the Company performance metrics that apply to the employee. This amount is further multiplied by 85% to determine the portion of the STIP attributable to achievement of business objectives.

To determine the amount, if any, attributable to individual performance, the employee’s STIP compensation target is multiplied by the actual percentage payout for the Company performance metrics that apply to the employee and by a percentage up to 30% reflecting the employee’s individual payout factor. The individual payout factor is qualitative and will be based on the employee’s achievement of goals, exceptional personal or team contribution or results, level of demonstrated effectiveness in the role and remarkable initiatives and certain limits relating to the size of the overall individual performance STIP pool.

The allocation of individual performance STIP payouts from the individual performance pool to eligible employees cannot result in the total aggregate STIP awards paid exceeding the sum of all eligible employees’ base salary multiplied by their respective STIP target percentage and the actual percentage payout for the Company performance metrics. Moreover, the aggregate amount payable under the 2019 STIP for all eligible employees is limited to 7% of the Company’s 2019 free cash flow (defined as net cash provided by operating activities less maintenance capital expenditures, adjusted for special items). Awards, if granted, are expected to be made in the first quarter of 2020.

Employees remain eligible for prorated awards if they retire during the year or are terminated other than for cause after July 1, 2019. Employees who voluntarily resign or are terminated for cause before payment is made will not be eligible. The Company may adjust financial and cost metrics, and may adjust any and all awards in its discretion. Awards are discretionary and subject to modification until they are made, including increases, decreases, cancellations, deferrals and other conditions, even if performance levels have been met.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

Exhibits

 

Exhibit No.

  

Description

99.1    Resolute Forest Products press release dated January 31, 2019 containing financial information for its quarter and year ended December 31, 2018.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    RESOLUTE FOREST PRODUCTS INC.
Date: January 31, 2019     By:   /s/ Jacques P. Vachon
     

Name:   Jacques P. Vachon

     

Title:   Senior Vice President and Chief Legal Officer

Exhibit 99.1

 

LOGO

US $

Resolute Reports Preliminary Fourth Quarter and 2018 Results

 

   

Q4 GAAP net income of $36  million / $235  million for 2018

   

Adjusted EBITDA of $105  million in the quarter / $574  million for the full year

   

Completed Catawba and Fairmont mill sales for approximately $360  million

   

Net debt to adjusted EBITDA falls to 0.6x

   

Repurchased $225  million of senior notes after year-end

MONTRÉAL, CANADA, January  31, 2019 – Resolute Forest Products Inc. (NYSE: RFP) (TSX: RFP) today reported net income for the quarter ended December 31, 2018, of $36 million, or $0.38 per diluted share, compared to $13 million, or $0.14 per diluted share, in the same period in 2017. Sales were $932 million in the quarter, an increase of $34 million from the year-ago period. Excluding special items, the company reported net income of $4 million, or $0.04 per diluted share, compared to $14 million, or $0.15 per diluted share, in the fourth quarter of 2017.

For the year, the company reported GAAP net income of $235 million, or $2.52 per diluted share, compared to a net loss of $84 million, or $0.93 per share, in 2017. Sales were $3.8 billion, up 7%, from the previous year. Excluding special items, the company reported net income of $183 million, or $1.96 per diluted share, compared to $12 million, or $0.13 per diluted share, in 2017.

With our optimized asset base, we were able to deliver strong annual performance with the positive market dynamics in the year, despite cost headwinds and a soft lumber market in the fourth quarter ,” said Yves Laflamme, president and chief executive officer . “We experienced significantly weaker pricing for lumber in the quarter, unforeseen operational disruptions, planned maintenance, as well as higher energy and wood costs. Despite these challenges, we generated $435  million of cash from operations in 2018, monetized the Catawba and Fairmont assets at attractive valuations, returned $136  million of capital to shareholders through a special dividend and further reduced our leverage shortly after year-end. Our stronger balance sheet improves our financial strength and flexibility and positions us well for future growth opportunities .”

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

Operating Income Variance Against Prior Period

Consolidated

The company reported operating income of $75 million in the quarter, compared to $135 million in the third quarter of 2018. Overall pricing had an unfavorable impact of $33 million because of the $110 per thousand board feet drop in the average transaction price for wood products, which more than offset the increase in market pulp and paper prices. Manufacturing costs were also higher in the quarter, by $45 million, mostly due to production disruptions, planned maintenance, seasonally higher energy costs, as well as higher wood costs attributable to extremely wet weather, mainly in the U.S. Southeast.


In the fourth quarter, the company recorded a non-cash impairment charge of $120 million against the goodwill and long-lived assets originally recorded at the time of the acquisition of Atlas Paper Holdings Inc. in 2015, to reduce the carrying value of these assets to their estimated fair value. We also recorded a $141 million gain on disposition of assets in the quarter, following the sale of the Fairmont (West Virginia) and Catawba (South Carolina) facilities.

The company generated $379 million of operating income in 2018, compared to $42 million in 2017, mostly due to higher average transaction prices across all business segments. The average transaction price increased by 19% for market pulp, 17% for newsprint, 13% for wood products and 9% for specialty papers. Operating results also benefited from gains on disposition of assets of $145 million, compared to a $15 million gain recorded in 2017 mostly related to the disposition of the assets at the Mokpo (South Korea) paper mill.

Manufacturing costs rose by $152 million this year, largely due to higher energy costs and market-related fiber and chemical expenses, as well as additional maintenance, while freight costs increased by $59 million, or 13%, because of higher rates and longer shipping distances. Lower sales volumes, reflecting weaker lumber markets ($23 million), the fluctuation of the Canadian dollar ($19 million), as well as higher impairment and closure-related charges ($14 million) also unfavorably impacted the company’s results.

Market Pulp

Operating income in the market pulp segment was $41 million, a reduction of $16 million when compared to the previous quarter. The average transaction price continued to rise across most grades, up a further $25 per metric ton this quarter to $809. Shipments decreased by 25,000 metric tons, mostly due to scheduled maintenance downtime, operational disruptions and the reduction in recycled pulp capacity following the sale of the Fairmont facility. The operating cost per unit (the “delivered cost”) rose by $59 to $688 per metric ton, due to production outages, as well as weather-related wood shortages in the U.S. Southeast, and an increase in energy costs. Consequently, EBITDA realized this quarter decreased to $46 million or, $136 per metric ton.

For 2018, the segment generated operating income of $172 million, a $93 million improvement over the previous year. The average transaction price rose by $123 per metric ton, while shipments remained relatively unchanged, despite the extended investment-related downtime at the Saint-Félicien (Quebec) mill in 2018. The delivered cost, however, increased by $57 per metric ton, mostly a result of higher energy and recovered paper prices, additional maintenance and a rise in freight rates, offset in part by lower fiber costs. Higher selling prices more than compensated for the increased costs, leading to an 81% improvement in EBITDA, to $199 million, or $140 per metric ton, compared to $77 per metric ton in 2017.


Tissue

The tissue segment incurred an operating loss of $9 million in the quarter, relatively unchanged from the previous period, with EBITDA remaining at negative $5 million.

For the year, the segment reported an operating loss of $30 million, compared to a loss of $6 million in 2017, as the results of the Calhoun (Tennessee) facility were not included in the segment until April 1, 2018. While overall sales volumes grew compared to last year, the delivered cost remained elevated, as the company continues to ramp up the production of the tissue machine and converting lines at Calhoun. EBITDA for the segment was negative $15 million.

Wood Products

The wood products segment recorded an operating loss of $8 million in the quarter, compared to an operating income of $45 million in the third quarter, almost entirely due to weaker pricing. The average transaction price fell to $347 per thousand board feet this quarter, down 24%, or $110. The delivered cost increased by $11 to $366 per thousand board feet, reflecting higher maintenance and log costs. Despite market and weather-related production curtailment in the quarter, shipments increased by 7 million board feet. EBITDA for the segment dropped to $1 million, compared to $53 million in the prior quarter and finished goods inventory remained elevated at 157 million board feet.

Operating income for the year was $169 million in the segment, $17 million lower than in 2017. The delivered cost rose by $50 to $354 per thousand board feet, as a result of higher market-driven fiber costs and an increase in transportation expenses. Shipments were also lower by 165 million board feet, largely due to lower production volumes and weaker market conditions in the latter part of the year. Offsetting in part these unfavorable elements was the increase in average transaction price, which rose by $50 per thousand board feet this year, to $446. EBITDA for the segment declined to $201 million, or $109 per thousand board feet, compared to $219 million in 2017, reflecting EBITDA margins of 24% and 27%, respectively.

Newsprint

At $28 million in the fourth quarter, newsprint’s operating income declined by $4 million compared to the previous quarter. Sales were 6% higher, driven by a $5 per metric ton rise in the average transaction price, to $634, and a 17,000 metric ton increase in shipments, due to the timing of export sales and seasonality. Higher sales were more than offset by a $19 per metric ton increase in delivered cost, largely attributable to the lower contribution from the Thunder Bay (Ontario) cogeneration assets, following a turbine failure. EBITDA decreased by $3 million to $45 million for the quarter, equivalent to $116 per metric ton.

Newsprint recorded operating income of $74 million in 2018, compared to an operating loss of $23 million in 2017. The improvement reflects the rise in average transaction price, up $88 per metric ton to $602, partially offset by an increase in costs. Higher spending on maintenance, energy and freight exceeded lower fiber costs, leading to a $24 per metric ton increase in delivered cost, to $552. Pricing gains largely outweighed higher costs and lower volumes from capacity closures in 2017, resulting in EBITDA of $140 million, or $93 per metric ton, an increase from $43 million in 2017. EBITDA margin rose from 5% in 2017 to 15% in 2018.


Specialty Papers

The specialty papers segment generated operating income of $18 million in the quarter, compared to $26 million in the previous quarter. Pricing rose by $19 per short ton to $756, while shipments remained relatively unchanged at 287,000 short tons, as higher seasonal demand for supercalendered papers was largely offset by a decrease in volumes of other grades due to lower productivity. Operational disruptions, combined with lower contribution from the Dolbeau (Quebec) cogeneration assets during their planned outage, higher wood costs in the U.S. Southeast, and an increase in energy costs, pushed the delivered cost up $50 to $697 per short ton. EBITDA decreased to $28 million, or $95 per short ton, compared to $38 million in the previous quarter. Finished goods inventory at year-end decreased by 24,000 short tons, in part due to the sale of the Catawba facility.

The segment reported an operating income of $40 million during the year, compared to an operating loss of $9 million in 2017. Operating results in 2018 were supported by higher pricing, up $61 per short ton, and lower fiber costs, more than offsetting higher freight costs, which led to an $18 per short ton increase in delivered cost. Despite the 213,000 short tons decrease in shipments from the capacity closures in Catawba and Calhoun in 2017, EBITDA increased by $51 million to $87 million in 2018.

Consolidated Quarterly Operating Income Variance Against Year-Ago Period

The company’s operating income improved by $22 million, compared to the fourth quarter of 2017. Overall pricing added $72 million to the results, as the average transaction price increased by 21% for newsprint, 19% for market pulp and 15% for specialty papers, offsetting the 21% drop in lumber prices. The improvement in operating income also included the favorable impact of the weaker Canadian dollar of $11 million and an increase in the gain on the disposition of assets of $128 million, mostly due to the $141 million gain recorded in the fourth quarter of 2018 following the sale of the Fairmont and Catawba facilities.

These favorable items were largely offset by the $120 million impairment charge recorded in the quarter and an increase in manufacturing costs of $57 million, mainly resulting from higher energy and maintenance expenses and market-driven fiber and chemical costs. Results were also impacted by lower sales volume of $16 million, mainly due to the timing of scheduled pulp outages, and a 10%, or $11 million, rise in freight expense.

Corporate and Finance

During the fourth quarter, the company generated $84 million of cash from operations and completed the sale of its Fairmont and Catawba facilities for net proceeds of $333 million. Following the revocation of the countervailing duty order on supercalendered paper, substantially all of the $61 million of cash deposits were refunded, with $35 million received in the quarter. After returning capital to shareholders with a dividend payment of $1.50 per share, or $136 million, as well as making $61 million of capital expenditures and $15 million of lumber duty deposits, cash rose to $304 million and liquidity stood at $821 million at year-end. Subsequent to year-end, the company reduced its total debt of $645 million by repurchasing $225 million of senior notes. Net debt to adjusted EBITDA fell to 0.6x.


Cumulative duty deposits of $110 million were recorded on the balance sheet, including $103 million for softwood lumber and $6 million for uncoated groundwood papers. The uncoated groundwood duty deposits of $6 million will be refunded, with interest.

Despite an increase in the applicable discount rate and ongoing pension contributions, the net pension and other postretirement benefit liability on the balance sheet increased by $182 million in the quarter, to $1.3 billion, largely the result of the negative equity market returns late in the year.

On January 7, 2019, Standard & Poor’s Global Ratings revised the company’s outlook from stable to positive and affirmed the BB- long-term corporate rating.

Outlook

After reaching historical highs in the first half of the year, lumber prices dropped to multi-year lows in the fourth quarter. Nevertheless, favorable economic conditions and recent production curtailments among Canadian producers, including ourselves, make us cautiously optimistic that markets will gradually improve in 2019. Accordingly, our long-term view for lumber is unchanged; we believe in the underlying fundamentals and growth prospects for this market. Despite recent softening in Chinese buying activity, we expect the fundamentals for market pulp to remain positive, given the limited capacity additions over the medium term. For paper, given lower seasonal demand, as well as the continued structural decline, we expect our shipments to be lower in the first quarter. We are now making progress in stepping-up the productivity of Calhoun tissue operations, leading us to target positive earnings generation in the first half of 2019. We remain optimistic with the long-term growth prospects of our tissue business,” added Mr. Laflamme .

Board Appointment

The company’s board of directors today appointed Suzanne Blanchet to serve on the company’s board. Ms. Blanchet spent over 30 years with Cascades Inc., including as senior vice president, Corporate Development, from 2014 to 2017. From 1997 to 2014, she was president and chief executive officer of Cascades Tissue Group. Ms. Blanchet is a graduate of the Directors Education Program of the Institute of Corporate Directors and currently serves as a director of Agropur, GDI Integrated Facility Services Inc. (TSX), and other boards of private companies.

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 (877) 223-4471 at least fifteen minutes before its scheduled start time. A simultaneous webcast 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 February 14, 2019, by dialing (800) 585-8367, conference number 5358344.


Description of Special Items

 

     2018     2017  

Special items

(in millions)

   Fourth
quarter
   

Full

Year

    Fourth
quarter
    Full
Year
 

Foreign currency translation loss (gain)

   $ —       $ 2     $ 1     $ (9

Closure costs, impairment and other related charges

     120       121       2       82  

(Reversal of) inventory write-downs related to closures

     —         (1     —         24  

Start-up costs

     —         8       9       27  

Net gain on disposition of assets

     (141     (145     (13     (15

Non-operating pension and OPEB credits

     (12     (50     (1     (7

Other (income) expense, net

     (1     (7     4       3  

Income tax effect of special items

     2       20       (1     (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (32   $ (52   $ 1     $ 96  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cautionary Statements Regarding Forward-Looking Information

Statements in this press release and the earnings conference call and webcast referred to above that are not reported financial results or other historical information of Resolute Forest Products Inc. (with its subsidiaries, “we,” “our,” “us” or the “company”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements included in the Outlook section of this press release and statements relating to our: efforts and initiatives to reduce costs and increase revenues and profitability; business and operating outlook; assessment of market conditions; growth strategies and prospects, and the growth potential of the company and the industry in which we operate; liquidity; future cash flows; 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 our 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 press release and the earnings conference call and webcast referred to above include, but are not limited to, the impact of: developments in non-print media, and the effectiveness of our responses to these developments; intense competition in the forest products industry; any inability to offer products certified to globally recognized forestry management and chain of custody standards; any inability to successfully implement our strategies to increase our earnings power; the possible failure to successfully integrate acquired businesses with ours or to realize the anticipated benefits of acquisitions, such as Atlas Paper Holdings, Inc. and its subsidiaries, or divestitures or other strategic transactions or projects, such as our Calhoun tissue operations; uncertainty or changes in political or economic conditions in the United States, Canada or other countries in which we sell our products; global economic conditions; the highly cyclical nature of the forest products industry; any difficulties in obtaining timber or wood fiber at favorable prices, or at all; changes in the cost of purchased energy and other raw materials; physical and financial risks associated with


global, regional and local weather conditions and climate change; any disruption in operations or increased labor costs due to labor disputes; difficulties in our employee relations or retention; disruptions to our supply chain, operations or the delivery of our products; cybersecurity risks; risks related to the operation and transition of legacy system applications; negative publicity, even if unjustified; currency fluctuations; any increase in the level of required contributions to our pension plans, including as a result of any increase in the amount by which they are underfunded; our ability to maintain adequate capital resources to provide for all of our substantial capital requirements; the terms of our outstanding indebtedness, which could restrict our current and future operations; losses that are not covered by insurance; any additional closure costs and long-lived asset impairment or accelerated depreciation charges; any need to record additional valuation allowances against our recorded deferred income tax assets; our exports from one country to another country becoming or remaining subject to duties, cash deposit requirements, border taxes, quotas or other trade remedies or restrictions; countervailing or anti-dumping duties on imports to the U.S. of most of our paper products and substantially all of our softwood lumber products produced at our Canadian mills; any failure to comply with laws or regulations generally; any additional environmental or health and safety liabilities; any violation of trade laws, export controls or other laws relating to our international sales and operations; adverse outcomes of legal proceedings or disputes in which we are involved; the actions of holders of a significant percentage of our common stock; and the potential risks and uncertainties described under the heading “Risk Factors” in Part I, Item 1A of the company’s annual report on Form 10-K for the year ended December 31, 2017.

All forward-looking statements in this press release and in the conference call and webcast referred to above are expressly qualified by the cautionary statements contained or referred to above and in the company’s other filings with the U.S. Securities and Exchange Commission and the Canadian securities regulatory authorities. The company 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 market pulp, tissue, wood products, newsprint and specialty papers, which are marketed in close to 70 countries. The company owns or operates some 40 facilities, as well as power generation assets, in the United States and Canada. Resolute has third-party certified 100% of its managed woodlands to internationally recognized 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 has received regional, North American and global recognition for its leadership in corporate social responsibility and sustainable development, as well as for its business practices. Visit resolutefp.com for more information.

- 30 -

Contacts

 

Investors

Silvana Travaglini

Treasurer and Vice President, Investor Relations

514 394-2217

ir@resolutefp.com

  

Media and Others

Seth Kursman

Vice President, Corporate Communications,

Sustainability and Government Affairs

514 394-2398

seth.kursman@resolutefp.com


RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions except per share amounts)

 

 

     Three Months     Years  
     Ended December 31,     Ended December 31,  
     2018     2017     2018     2017  

Sales

   $ 932     $ 898     $ 3,756     $ 3,513  

Costs and expenses:

        

Cost of sales, excluding depreciation, amortization and distribution costs

     668       643       2,549       2,588  

Depreciation and amortization

     51       51       212       204  

Distribution costs

     119       114       475       442  

Selling, general and administrative expenses

     40       48       165       170  

Closure costs, impairment and other related charges (1)

     120       2       121       82  

Net gain on disposition of assets (2)

     (141     (13     (145     (15
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     75       53       379       42  

Interest expense

     (11     (13     (47     (49

Non-operating pension and other postretirement benefit credits (5)

     12       1       50       7  

Other income (expense), net

     1       (5     5       6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     77       36       387       6  

Income tax provision

     (41     (21     (152     (84
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) including noncontrolling interests

     36       15       235       (78

Net income attributable to noncontrolling interests

     —         (2     —         (6
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Resolute Forest Products Inc.

   $ 36     $ 13     $ 235       $ (84
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 0.39     $ 0.14     $ 2.57     $ (0.93

Diluted

     0.38       0.14       2.52       (0.93
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

     91.6       90.7       91.3       90.5  

Diluted

     94.4       93.0       93.3       90.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to the Unaudited Consolidated Financial Statement Information


RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions)

 

     December 31,     December 31,  
     2018     2017  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 304     $ 6  

Accounts receivable, net:

    

Trade

     347       399  

Other

     102       80  

Inventories, net

     508       526  

Other current assets

     43       33  
  

 

 

   

 

 

 

Total current assets

     1,304       1,044  
  

 

 

   

 

 

 

Fixed assets, net

     1,515       1,716  

Amortizable intangible assets, net

     50       65  

Goodwill

     —         81  

Deferred income tax assets

     876       1,076  

Other assets

     190       165  
  

 

 

   

 

 

 

Total assets

   $ 3,935     $ 4,147  
  

 

 

   

 

 

 

Liabilities and equity

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 427     $ 420  

Current portion of long-term debt (3)

     223       1  
  

 

 

   

 

 

 

Total current liabilities

     650       421  
  

 

 

   

 

 

 

Long-term debt, net of current portion (3)

     422       788  

Pension and other postretirement benefit obligations

     1,257       1,257  

Deferred income tax liabilities

     —         13  

Other liabilities

     71       68  
  

 

 

   

 

 

 

Total liabilities

     2,400       2,547  
  

 

 

   

 

 

 

Commitments and contingencies

    

Equity:

    

Resolute Forest Products Inc. shareholders’ equity:

    

Common stock

     —         —    

Additional paid-in capital

     3,802       3,793  

Deficit (4)

     (1,198     (1,294

Accumulated other comprehensive loss

     (950     (780

Treasury stock at cost

     (120     (120
  

 

 

   

 

 

 

Total Resolute Forest Products Inc. shareholders’ equity

     1,534       1,599  
  

 

 

   

 

 

 

Noncontrolling interests

     1       1  
  

 

 

   

 

 

 

Total equity

     1,535       1,600  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,935     $ 4,147  
  

 

 

   

 

 

 

See Notes to the Unaudited Consolidated Financial Statement Information


RESOLUTE FOREST PRODUCTS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

 

     Years  
     Ended December 31,  
     2018     2017  

Cash flows from operating activities:

    

Net income (loss) including noncontrolling interests

   $ 235     $ (78

Adjustments to reconcile net income (loss) including noncontrolling interests to net cash provided by operating activities:

    

Share-based compensation

     12       15  

Depreciation and amortization

     212       204  

Closure costs, impairment and other related charges

     120       66  

(Reversal of) inventory write-downs related to closures

     (1     24  

Deferred income taxes

     164       80  

Net pension contributions and other postretirement benefit payments

     (144     (109

Net gain on disposition of assets

     (145     (15

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

     75       (71

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

     (63     58  

Net planned major maintenance (payments) amortization

     (20     3  

Changes in working capital:

    

Accounts receivable

     (19     (37

Inventories

     (46     23  

Other current assets

     1       1  

Accounts payable and accrued liabilities

     38       (17

Other, net

     16       11  
  

 

 

   

 

 

 

Net cash provided by operating activities

     435       158  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Cash invested in fixed assets

     (155     (164

Disposition of assets

     336       21  

Decrease (increase) in countervailing duty cash deposits on supercalendered paper, net

     48       (22

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

     (77     (26

Increase in countervailing duty cash deposits on uncoated groundwood paper

     (6     —    
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     146       (191
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net (repayments) borrowings under revolving credit facilities

     (144     19  

Payment of special dividend (4)

     (136     —    

Payments of debt

     —         (1

Payments of financing and credit facility fees

     (1     —    

Acquisition of noncontrolling interest in Donohue Malbaie Inc.

     —         (15
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (281     3  
  

 

 

   

 

 

 

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

     (4     6  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents, and restricted cash

     296       (24

Cash and cash equivalents, and restricted cash:

    

Beginning of period

     49       73  
  

 

 

   

 

 

 

End of period

   $ 345     $ 49  
  

 

 

   

 

 

 

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

    

Cash and cash equivalents

   $ 304     $ 6  

Restricted cash (included in “Other current assets” and “Other assets”)

     41       43  
  

 

 

   

 

 

 

See Notes to the Unaudited Consolidated Financial Statement Information


RESOLUTE FOREST PRODUCTS INC.

RECONCILIATION OF OPERATING INCOME AND NET INCOME ADJUSTED FOR SPECIAL ITEMS

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

 

Three months ended December 31, 2018

(unaudited, in millions, except per share amounts)

   Operating
income
(loss)
    Net income
(loss)
    EPS  

GAAP, as reported

   $ 75     $ 36     $ 0.38  

Adjustments for special items:

      

Closure costs, impairment and other related charges

     120       120       1.27  

Net gain on disposition of assets

     (141     (141     (1.49

Non-operating pension and OPEB credits

     —         (12     (0.13

Other income, net

     —         (1     (0.01

Income tax effect of special items

     —         2       0.02  
  

 

 

   

 

 

   

 

 

 

Adjusted for special items

   $ 54     $ 4     $ 0.04  

Three months ended December 31, 2017

(unaudited, in millions, except per share amounts)

   Operating
income
(loss)
    Net income
(loss)
    EPS  

GAAP, as reported

   $ 53     $ 13     $ 0.14  

Adjustments for special items:

      

Foreign exchange loss

     —         1       0.01  

Closure costs, impairment and other related charges

     2       2       0.02  

Start-up costs

     9       9       0.10  

Net gain on disposition of assets

     (13     (13     (0.14

Non-operating pension and OPEB credits

     —         (1     (0.01

Other expense, net

     —         4       0.04  

Income tax effect of special items

     —         (1     (0.01
  

 

 

   

 

 

   

 

 

 

Adjusted for special items

   $ 51     $ 14     $ 0.15  

Year ended December 31, 2018

(unaudited, in millions, except per share amounts)

   Operating
income
(loss)
    Net income
(loss)
    EPS  

GAAP, as reported

   $ 379     $ 235     $ 2.52  

Adjustments for special items:

      

Foreign exchange loss

     —         2       0.02  

Closure costs, impairment and other related charges

     121       121       1.30  

Reversal of inventory write-downs related to closures

     (1     (1     (0.01

Start-up costs

     8       8       0.09  

Net gain on disposition of assets

     (145     (145     (1.55

Non-operating pension and OPEB credits

     —         (50     (0.54

Other income, net

     —         (7     (0.08

Income tax effect of special items

     —         20       0.21  
  

 

 

   

 

 

   

 

 

 

Adjusted for special items

   $ 362     $ 183     $ 1.96  

Year ended December 31, 2017

(unaudited, in millions, except per share amounts)

   Operating
income
(loss)
    Net income
(loss)
    EPS  

GAAP, as reported

   $ 42     $ (84   $ (0.93

Adjustments for special items:

      

Foreign exchange gain

     —         (9     (0.10

Closure costs, impairment and other related charges

     82       82       0.91  

Inventory write-downs related to closures

     24       24       0.27  

Start-up costs

     27       27       0.30  

Net gain on disposition of assets

     (15     (15     (0.17

Non-operating pension and OPEB credits

     —         (7     (0.08

Other expense, net

     —         3       0.03  

Income tax effect of special items

     —         (9     (0.10
  

 

 

   

 

 

   

 

 

 

Adjusted for special items

   $ 160     $ 12     $ 0.13  


RESOLUTE FOREST PRODUCTS INC.

RECONCILIATION 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 1 to the Reconciliations of Non-GAAP Measures regarding our use of the non-GAAP measures EBITDA and Adjusted EBITDA.

 

Three months ended December 31, 2018
(unaudited, in millions)                        

   Market
pulp
     Tissue  (2)     Wood
products
    Newsprint     Specialty
papers
    Corporate
and other
    Total  

Net income (loss) including noncontrolling interests

   $ 41      $ (9   $ (8   $ 28     $ 17     $ (33   $ 36  

Interest expense

                11       11  

Income tax provision

                41       41  

Depreciation and amortization

     5        4       9       17       11       5       51  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 46      $ (5   $ 1     $ 45     $ 28     $ 24     $ 139  

Closure costs, impairment and other related charges

                120       120  

Net gain on disposition of assets

                (141     (141

Non-operating pension and OPEB credits

                (12     (12

Other income, net

                (1     (1
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 46      $ (5   $ 1     $ 45     $ 28     $ (10   $ 105  

Three months ended December 31, 2017
(unaudited, in millions)                        

   Market
pulp
     Tissue     Wood
products
    Newsprint     Specialty
papers
    Corporate
and other
    Total  

Net income (loss) including noncontrolling interests

   $ 37      $ (2   $ 57     $ (6   $ (13   $ (58   $ 15  

Interest expense

                13       13  

Income tax provision

                21       21  

Depreciation and amortization

     7        1       8       17       11       7       51  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 44      $ (1   $ 65     $ 11     $ (2   $ (17   $ 100  

Foreign exchange loss

                1       1  

Closure costs, impairment and other related charges

                2       2  

Start-up costs

                9       9  

Net gain on disposition of assets

                (13     (13

Non-operating pension and OPEB credits

                (1     (1

Other expense, net

                4       4  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 44      $ (1   $ 65     $ 11     $ (2   $ (15   $ 102  

Year ended December 31, 2018
(unaudited, in millions)                        

   Market
pulp
     Tissue (2)     Wood
products
    Newsprint     Specialty
papers
    Corporate
and other
    Total  

Net income (loss) including noncontrolling interests

   $ 172      $ (30   $ 169     $ 74     $ 40     $ (190   $ 235  

Interest expense

                47       47  

Income tax provision

                152       152  

Depreciation and amortization

     27        15       32       66       47       25       212  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 199      $ (15   $ 201     $ 140     $ 87     $ 34     $ 646  

Foreign exchange loss

                2       2  

Closure costs, impairment and other related charges

                121       121  

Reversal of inventory write-downs related to closures

                (1     (1

Start-up costs

                8       8  

Net gain on disposition of assets

                (145     (145

Non-operating pension and OPEB credits

                (50     (50

Other income, net

                (7     (7
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 199      $ (15   $ 201     $ 140     $ 87     $ (38   $ 574  

Year ended December 31, 2017
(unaudited, in millions)                        

   Market
pulp
     Tissue     Wood
products
    Newsprint     Specialty
papers
    Corporate
and other
    Total  

Net income (loss) including noncontrolling interests

   $ 79      $ (6   $ 186     $ (23   $ (9   $ (305   $ (78

Interest expense

                49       49  

Income tax provision

                84       84  

Depreciation and amortization

     31        5       33       66       45       24       204  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 110      $ (1   $ 219     $ 43     $ 36     $ (148   $ 259  

Foreign exchange gain

                (9     (9

Closure costs, impairment and other related charges

                82       82  

Inventory write-downs related to closures

                24       24  

Start-up costs

                27       27  

Net gain on disposition of assets

                (15     (15

Non-operating pension and OPEB credits

                (7     (7

Other expense, net

                3       3  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 110      $ (1   $ 219     $ 43     $ 36     $ (43   $ 364  

See Notes to the Reconciliation of Non-GAAP Measures


RESOLUTE FOREST PRODUCTS INC.

Notes to the Unaudited Consolidated Financial Statement Information

 

1.

Closure costs, impairment and other related charges were $121 million for the year ended December 31, 2018, including $120 million of impairment charges for the three months ended December 31, 2018, related to the assets from the 2015 acquisition of Atlas Paper Holdings Inc. and its subsidiaries (“Atlas”).

Goodwill impairment charge

Following our 2018 annual impairment test of goodwill, we determined that the carrying value of the tissue reporting unit exceeded its estimated fair value. As a result, we recorded a goodwill impairment charge of $81 million for the three months and year ended December 31, 2018, representing the entire goodwill amount. This impairment charge resulted from cumulative losses of the tissue business and lower-than-expected projected cash flows, driven by operational and market-related factors. The fair value of the reporting unit was determined based on the present value of estimated future cash flows.

Long-lived assets impairment charges

As a result of the deterioration of estimated future cash flows of Atlas, we recorded for the three months and year ended December 31, 2018, fixed assets impairment charges of $29 million, and intangible assets impairment charges of $10 million, to reduce the carrying value of these assets to their estimated fair value. The fair value of fixed assets was estimated using the market approach, by reference to estimated selling prices for similar assets, less costs to sell. The fair value of intangible assets was estimated using the income approach. Projected discounted cash flows utilized under the income approach included estimates regarding future revenues and expenses attributable to Atlas, projected capital expenditures and a discount rate of 12%. These fair value measurements are considered Level 3 measurements due to the significance of their unobservable inputs.

 

2.

During the three months and year ended December 31, 2018, we recorded a net gain on disposition of assets of $141 million and $145 million, respectively, which included: the sale of our paper and pulp mill at Catawba (South Carolina) for total cash consideration of $280 million (subject to final working capital adjustments), resulting in a net gain of $101 million; and the sale of our recycled bleached kraft pulp mill at Fairmont (West Virginia) for total cash consideration of $62 million, resulting in a net gain of $40 million.

 

3.

On January 3, 2019 (the “closing date”), we repurchased $225 million in aggregate principal amount of 5.875% senior unsecured notes due 2023, pursuant to a notes purchase agreement entered into on December 21, 2018, with certain noteholders, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the closing date. As a result of the repurchase, we recorded a net loss on extinguishment of debt of $3 million in “Other income, net” in our Consolidated Statements of Operations in the first quarter of 2019.

 

4.

We declared and paid a special dividend of $1.50 per share ($136 million) on our common stock in the three months and year ended December 31, 2018.

 

5.

In March 2017, the Financial Accounting Standards Board (or the “FASB”) issued Accounting Standards Update (or “ASU”) 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires employers that present a measure of operating income in their statements of earnings to disaggregate and present only the service cost component of net periodic pension and other postretirement benefit (or “OPEB”) cost in operating expenses (together with other employee compensation costs arising during the period). The other components of


RESOLUTE FOREST PRODUCTS INC.

Notes to the Unaudited Consolidated Financial Statement Information

 

  net periodic pension and OPEB cost (or “Non-operating pension and OPEB costs”) are reported separately outside any subtotal of operating income. This update is effective retrospectively for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted this ASU on January 1, 2018.

The effect of this ASU on our Consolidated Statements of Operations for the three months ended December 31, 2018 and 2017 was as follows:

 

     Three Months Ended
December 31, 2018
     Three Months Ended
December 31, 2017
 

(Unaudited, in millions)

   Before
ASU
     Effect of
Change
    As
Reported
     As
Previously
Reported
     Effect of
Change
    As
Adjusted
 

Cost of sales, excluding depreciation, amortization and distribution cost

   $ 655      $ 13     $ 668      $ 638      $ 5     $ 643  

Selling, general and administrative expenses

     41        (1     40        49        (1     48  

Closure costs, impairment and other related charges

     120        —         120        5        (3     2  

Operating income

     87        (12     75        54        (1     53  

Non-operating pension and other postretirement benefit credits

     —          12       12        —          1       1  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The effect of this ASU on our Consolidated Statements of Operations for the years ended December 31, 2018 and 2017 was as follows:

 

     Year Ended
December 31, 2018
     Year Ended
December 31, 2017
 

(Unaudited, in millions)

   Before
ASU
     Effect of
Change
    As
Reported
     As
Previously
Reported
     Effect of
Change
    As
Adjusted
 

Cost of sales, excluding depreciation, amortization and distribution costs

   $ 2,497      $ 52     $ 2,549      $ 2,574      $ 14     $ 2,588  

Selling, general and administrative expenses

     167        (2     165        172        (2     170  

Closure costs, impairment and other related charges

     121        —         121        87        (5     82  

Operating income

     429        (50     379        49        (7     42  

Non-operating pension and other postretirement benefit credits

     —          50       50        —          7       7  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 


RESOLUTE FOREST PRODUCTS INC.

Notes to the Reconciliations of Non-GAAP Measures

 

 

1.

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

We calculate operating income (loss), as adjusted for special items, as operating income (loss) from our consolidated statements of operations, adjusted for items such as closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, and other charges or credits that are excluded from our segment’s performance from GAAP operating income (loss).

We calculate net income (loss), as adjusted for special items, as net income (loss) from our consolidated statements of operations, adjusted for the same special items applied to operating income (loss), in addition to foreign exchange gains and losses, non-operating pension and OPEB costs and credits, other income (expense), net, and the income tax effect of special items.

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

EBITDA by reportable segment is calculated as net income (loss) including noncontrolling interests from the consolidated statements of operations, allocated to each of our reportable segments, adjusted for depreciation and amortization. EBITDA for corporate and other is calculated as net income (loss) including noncontrolling interests from the consolidated statements of operations, after the allocation to reportable segments, adjusted for interest expense, income taxes, and depreciation and amortization.

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

EBITDA margin is calculated as EBITDA divided by sales.

Net debt is calculated as total debt less cash and cash equivalents.

Liquidity is calculated as cash and cash equivalents from our consolidated balance sheets, and availability under our revolving credit facilities.

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

 

2.

The operating results of our Calhoun (Tennessee) tissue operations, previously recorded under corporate and other, have been recorded in our tissue segment since April 1, 2018.