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RFP > SEC Filings for RFP > Form 10-Q on 9-Nov-2012All Recent SEC Filings




Quarterly Report


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 nine months ended September 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 Forest Products 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 may make 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.

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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 October 10, 2012, we redeemed $85 million of principal amount of the 2018 Notes (as defined and discussed below under "Liquidity and Capital Resources").

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 and nine months ended September 30, 2012, we repurchased 2.6 million and 3.7 million shares, respectively, at a cost of $33 million and $45 million, respectively.

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 74.6% of the then outstanding Fibrek shares. On July 31, 2012, we completed the second step transaction for the remaining 25.4% of the outstanding Fibrek shares. As aggregate consideration for all of the Fibrek shares purchased, we distributed approximately 3.3 million shares of our common stock and Cdn$63 million ($63 million, based on the exchange rates in effect on each of the dates we acquired the shares of Fibrek) in cash. We expect to pay additional consideration to former holders of Fibrek shares that have exercised dissenters' rights in respect of the transaction. Any such consideration will only be paid out upon settlement or judicial determination of the fair value of claims by dissenting shareholders of Fibrek and was recorded in "Other long-term liabilities" in our Consolidated Balance Sheet included in our Unaudited Interim Consolidated Financial Statements as of September 30, 2012. 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


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 nine months of 2012 compared to the same period of 2011. Global shipments of market pulp increased during the first nine 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 first nine months of 2012 compared to the same period of 2011.

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The average value of the Canadian dollar was US$1.01 and US$1.00 for the three and nine months ended September 30, 2012, respectively, compared to US$1.02 for both the three and nine months ended September 30, 2011.

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 loss and net loss included in our Consolidated Statements of Operations included in our Unaudited Interim Consolidated Financial Statements ("Consolidated Statements of Operations") were $94 million, $13 million and $15 million, respectively, for the three months ended September 30, 2012 and were $168 million, $12 million and $13 million, respectively, for the nine months ended September 30, 2012. Fibrek's operating loss was primarily due to the lost production and costs associated with the Saint-Félicien, Quebec mill's five week outage for annual maintenance and necessary work to improve its operational and environmental performance.

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