Resolute Forest Products Inc. today reported net income of $14 million (excluding special items), or $0.15 per share, for the quarter ended September 30, 2015, compared to net income of $15 million (excluding special items), or $0.16 per share, in the same period in 2014.  Sales were $905 million in the quarter, down $191 million, or 17%, from the third quarter of 2014.  GAAP net loss was $6 million, or $0.07 per share, compared to a net loss of $116 million, or $1.23 per share, in the third quarter of 2014.

We’re executing our strategy toward the Resolute of the future; building on the integration of two sawmills this year, we’re focused on completing the Calhoun continuous pulp digester project,” said Richard Garneau, president and chief executive officer.  “The project remains on track for a late-December start-up.  Once fully operational, we expect that it will grow our market pulp capacity by 100,000 metric tons and will reduce our mill-wide costs.  It will also provide enough slush pulp capacity to meet all of our fiber needs for the next phase in our transformation: the integration of our pulp assets to produce high-quality tissue and towel products.  We will compete in that market as one of only a few integrated producers, using the latest technology.  This repositioning is crucial as we address the challenges facing the paper industry, where we continue to add value because of our focus on costs and operational excellence.

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



The company reported operating income of $6 million in the quarter, compared to $16 million in the second quarter.  The $10 million difference reflects lower selling prices ($25 million), particularly for newsprint and market pulp, and a $4 million increase in manufacturing costs, offset by the favorable effect of the weaker Canadian dollar ($12 million) and lower selling, general and administrative expenses ($6 million).  The change in manufacturing costs is due to higher scheduled maintenance, increased costs for chemicals and seasonally higher power costs, partially offset by lower fiber costs, a property tax adjustment and the recognition of additional tax credits in connection with infrastructure investments.

Market Pulp

The market pulp segment generated operating income of $22 million in the third quarter, $4 million lower than the second.  The decrease reflects a 3%, or $19 per metric ton, drop in the average transaction price, mostly due to customer mix, as well as the unfavorable effect of higher maintenance costs and lower cogeneration contribution due to a scheduled maintenance outage.  But these unfavorable changes to operating income were partly offset by a 9,000 metric ton increase in shipments, to 360,000 metric tons, the weaker Canadian dollar and a favorable property tax adjustment.  Adjusted EBITDA was $100 per metric ton, for a 16% margin, compared to $108 in the previous quarter and a trailing twelve month average of $90 per metric ton.  Finished goods inventory fell to 77,000 metric tons at quarter-end, down by 11,000 metric tons.

Wood Products

Operating income in the wood products segment was $9 million in the quarter, compared to an operating loss of $4 million in the second quarter.  The improvement reflects mainly a 10% improvement in the operating cost per unit (the “delivered cost“), or $33 per thousand board feet, as a result of the favorable effect of the weaker Canadian dollar, lower fiber costs and the recognition of additional tax credits in connection with infrastructure investments.  Shipments rose incrementally, including some additional production from the Atikokan and Ignace sawmills in Northern Ontario, but the company also took downtime in Québec due to fiber shortages.  After a 9% drop in the second quarter, the average transaction price was a further 2% lower in the quarter, or $6 per thousand board feet.  Segment adjusted EBITDA was $18 million in the quarter despite soft market prices for lumber, for a margin of $43 per thousand board feet, or 14%, compared to $12 in the previous quarter and a trailing twelve month average of $39 per thousand board feet.


The newsprint segment generated an operating loss of $10 million in the quarter, compared to income of $3 million in the second quarter.  The average transaction price continued to slide this quarter, falling another 6%, or $30 per metric ton, to $498 per metric ton.  Selling prices are down over $90 per metric ton since the same quarter of 2014, reflecting the continuing challenges for North American producers in the global newsprint business.  The delivered cost of newsprint was essentially unchanged, reflecting the effect of the weaker Canadian dollar, a favorable property tax adjustment and higher contribution from the Thunder Bay power cogeneration facility, offset by higher maintenance and seasonally higher power costs. Shipments were 6% lower, or 31,000 metric tons, mostly due to strategic Ontario mill downtime to avoid coincidental peaks under that province’s electricity rules, thereby saving millions on our annual Ontario electricity bill.  The lower pricing reduced the EBITDA margin to $12 per metric ton, compared to $35 per metric ton in the previous quarter and a trailing twelve month average of $31 per metric ton.

Specialty Papers

Operating income in the specialty papers segment was $9 million in the third quarter, down from $17 million in the second quarter.  Shipments rose by 23,000 short tons, or 6%, because of seasonality and an increase in shipments of the company’s Connect uncoated freesheet grade.  The average transaction price for specialty papers was $8 per short ton lower, or 1%, mostly because of lower selling prices for coated mechanical paper.  Higher chemical and seasonal power costs contributed to a 2%, or $13 per short ton, increase in the delivered cost.  Finished goods inventory fell by 12,000 short tons, or 11%.  Adjusted EBITDA per short ton was $66, for a 9% margin, compared to $93 in the previous quarter and a trailing twelve month average of $66 per short ton.


The company reported operating income of $6 million in the quarter, compared to an operating loss of $40 million in the year-ago period.  Overall, pricing had an unfavorable impact of $103 million, reflecting lower average transaction prices across all segments: 20% for wood products, 16% for newsprint, 9% for market pulp and 3% for specialty papers.  Shipments of newsprint and specialty papers were also lower as a result of the company’s 2014 capacity rationalization initiatives to, among other things, adapt to changing market dynamics.  The weaker Canadian dollar favorably affected operating income by $55 million.

Total pension and other postretirement benefit (“OPEB”) expenses were $14 million higher in the quarter, which is related to the $330 million increase in balance sheet net pension and OPEB liability in 2014.1  Excluding this increase, manufacturing costs were down by $42 million compared to the year-ago period, which reflects the favorable effect of asset optimization initiatives, higher power generation from cogeneration facilities, better mill efficiencies and productivity, a property tax adjustment, the recognition of additional tax credits in connection with infrastructure investments and the absence of inventory write-down costs.

There were $2 million of closure-related costs in the quarter, compared to the third quarter of last year when the company incurred $85 million of accelerated depreciation and other closure-related costs, almost all of which related to the permanent closure of the Laurentide mill.


The company repurchased 2.3 million shares of common stock in the quarter, or 2.5% of the outstanding amount, for aggregate consideration of $22 million.  Cash was $68 million lower at quarter-end, reflecting the share repurchase, a $5 million increase in capital expenditures, to $44 million, and the previously-announced $21 million increase for pension funding in the quarter, to $55 million, due to timing.  Liquidity remains very strong, at $683 million, with net debt low, at $362 million.

The company learned on October 15 that the U.S. Department of Commerce would require cash deposits on estimated and projected duties against Resolute in connection with the investigation of imports of supercalendered papers from Canada.  The 17.87% subsidy rate applied against Resolute reflects a significant increase from the preliminary rate of 2.04% Commerce calculated in July.  The company believes that Commerce’s position for the significant increase is based on a refusal to consider all the information made available during the investigation, an incorrect interpretation of the statute, and the unreasonable application of a subsidy rate determined in an unrelated administrative review decided in 1997 concerning a 1988 investigation into imports of pure and alloy magnesium that has nothing to do with Resolute, or with supercalendered papers.  Nevertheless, the company will be required to make cash deposits of 17.87% on sales of supercalendered paper imports in the U.S. until Commerce’s decision is corrected or finalized, which may not occur until December of 2017.  To the extent the final rate is lower than Commerce’s decision, Resolute will recover excess deposits, plus interest; to the extent the decision is confirmed, the deposits will be converted into actual countervailing duties.

Mr. Garneau added: “We will continue to strongly defend our position.  We’ve consistently said that our production of SC papers in Canada has received negligible, if any, direct or indirect subsidies, and that we should not be subject to countervailing duties.  We’re confident that the facts support our case, and that the legal process will treat the matter fairly.  But until it is resolved, we will be required to make cash deposits at the punitive rate set by Commerce on all SC papers imported to the U.S. Unfortunately, this situation could significantly impact the competitive position of our Dolbeau and Kénogami mills.

Commerce’s decision affects around 250,000 metric tons of supercalendered papers manufactured in Canada at the Dolbeau and Kénogami mills in Québec.


Mr. Garneau added: “Third quarter realized lumber prices dropped to levels not seen since the first quarter of 2012 before bottoming out in September and starting to recover in October.  Markets continue to reflect lower North American lumber exports to Asia, but it appears that the mid-October expiration of the Canada-U.S. Softwood Lumber Agreement is not having a significant impact on supply so far.  As our newest Northwestern Ontario sawmills continue to increase and optimize production, they will help to improve our competitiveness as U.S. housing starts progress along their measured recovery and Western Canadian log supply begins to tighten over time. 

We plan to start-up the new Calhoun pulp digester by late December, with the goal of realizing normal operating efficiency – and higher output of market pulp – toward the end of the first quarter.  We continue to believe in the underlying fundamentals and the growth prospects for market pulp, but our near-term outlook for pricing remains cautious, considering the uncertainty around macroeconomic factors and global commodity prices. 

The accelerating pace of demand decline in North America and the increase of currency-driven imports will continue to play a role in specialty papers markets in North America, with additional uncertainty resulting from the market access hurdles imposed by the U.S. Department of Commerce in connection with its investigation of imports of supercalendered papers from Canada.  Consumption of newsprint shows no sign of improvement, but we still expect to run all of our newsprint machines, as we believe that our asset base gives us a competitive edge to weather the accelerating pace of North American and global decline, and the effect of very low operating rates outside North America and Western Europe.” 


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, or directly.  A replay of the webcast will be archived on the company’s website; a phone replay will also be available until November 12 by dialing (800) 585-8367, conference number 61376819.


Special items Third
(in millions) 2015 2014
Foreign currency translation loss $ 5 $ 17
Closure costs, impairment and other related charges 2 85
Inventory write-downs related to closures 6
Start-up costs 2 1
Non-operating pension and OPEB costs (credits) 13 (2)
Write-down of equity method investment 50
Other income, net (4) (2)
Income tax effect of special items 2 (24)
Total $ 20 $ 131