10-K 1 rfp-20131231x10k.htm 10-K RFP-2013.12.31-10K
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO
COMMISSION FILE NUMBER: 001-33776
RESOLUTE FOREST PRODUCTS INC.
(Exact name of registrant as specified in its charter)
Delaware
 
98-0526415
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
111 Duke Street, Suite 5000; Montréal, Québec; Canada H3C 2M1
(Address of principal executive offices)    (Zip Code)
(514) 875-2515
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
 
New York Stock Exchange
Toronto Stock Exchange
(Title of class)
 
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes þ    No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes ¨    No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    þ
Accelerated filer    ¨
Non-accelerated filer    ¨
Smaller reporting company   ¨
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes ¨    No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 28, 2013) was approximately $864 million.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes þ  No ¨
As of January 31, 2014, there were 94,546,260 shares of Resolute Forest Products Inc. common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed within 120 days of December 31, 2013 are incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.
 



TABLE OF CONTENTS
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
 
 



CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF
THIRD-PARTY DATA
Statements in this Annual Report on Form 10-K (“Form 10-K”) that are not reported financial results or other historical information 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”) 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 reach resolution concerning the funding relief measures related to the material Canadian registered pension plans; efforts to continue to reduce costs and increase revenues and profitability, including our cost reduction initiatives; business and operating outlook; assessment of market conditions; prospects, growth strategies and the industry in which we operate; and strategies for achieving our goals generally, including the strategies described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Business,” of this Form 10-K. 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 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-K include the risks described in Part I, Item 1A, “Risk Factors.”
All forward-looking statements in this Form 10-K are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the United States Securities and Exchange Commission (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
Certain information about industry or general economic conditions contained in this Form 10-K is derived from third-party sources and certain trade publications that we believe are widely accepted and accurate; however, we have not independently verified this information and cannot provide assurances of its accuracy.
PART I
ITEM 1. BUSINESS
We are a global leader in the forest products industry, with a diverse range of products, including newsprint, specialty papers, market pulp and wood products, which are marketed in close to 90 countries. We own or operate over 40 pulp and paper mills and wood products facilities in the United States, Canada and South Korea, and power generation assets in Canada.
Resolute Forest Products Inc., a Delaware corporation, was formed on January 25, 2007, from the merger of Abitibi-Consolidated Inc. (“Abitibi”) and Bowater Incorporated. The ticker symbol for our common stock is “RFP” and trades on both the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”).


1


Executive Officers
The following is information about our executive officers as of March 3, 2014:
Name
Age
Position
Officer Since    
Richard Garneau
66
President and Chief Executive Officer
2011
Pierre Laberge
57
Senior Vice President, Human Resources
2011
John Lafave
49
Senior Vice President, Pulp and Paper Sales and Marketing
2011
Yves Laflamme
57
Senior Vice President, Wood Products, Procurement and Information Technology
2007
Jo-Ann Longworth
53
Senior Vice President and Chief Financial Officer
2011
André Piché
55
Senior Vice President, Pulp and Paper Operations
2014
Richard Tremblay
50
Senior Vice President, Pulp and Paper Operations
2014
Jacques P. Vachon
54
Senior Vice President, Corporate Affairs and Chief Legal Officer
2007
Mr. Garneau joined the board of directors in June 2010. Previously, Mr. Garneau served as president and chief executive officer of Catalyst Paper Corporation from March 2007 to May 2010. Prior to his tenure at Catalyst, Mr. Garneau served as executive vice president, operations at Domtar Corporation. He also held a variety of roles at Norampac Inc. (a joint-venture of Domtar Inc. and Cascades Inc.), Copernic Inc., Future Electronics Inc., St. Laurent Paperboard Inc., Finlay Forest Industries Inc. and Donohue Inc. Mr. Garneau is a member of the Chartered Professional Accountants of Canada.
Mr. Laberge previously served as senior vice president, human resources and public affairs from June 2011 to February 2012 and as vice president, human resources for our Canadian operations from January 2011 to May 2011.
Mr. Lafave previously served as vice president sales, national accounts – paper sales, vice president sales, national accounts – newsprint, vice president sales, commercial printers of Abitibi from 2004 to 2009. He held progressive positions in sales with UPM-Kymmene and Repap Enterprises.
Mr. Laflamme previously served as senior vice president, wood products from October 2007 to January 2011, as senior vice president, woodlands and sawmills of Abitibi from 2006 to October 2007, and as vice president, sales, marketing and value-added wood products operations of Abitibi from 2004 to 2005.
Ms. Longworth previously served as special advisor to the president and chief executive officer, focusing on special mandates, from July 4, 2011 to August 31, 2011. She served as senior vice president and chief accounting officer with World Color Inc. (formerly Quebecor World Inc.) from 2008 to 2010, as chief financial officer with Skyservice Inc. from 2007 to 2008, as vice president and controller with Novelis, Inc. from 2005 to 2006, and held a number of financial and operational roles over a 16-year career with Alcan Inc.
Mr. Piché previously served as interim senior vice president, pulp and paper operations from November 1, 2013 to February 4, 2014. He served as vice president, pulp and paper operations from October 2012 to October 2013, as vice president, operational excellence from November 2007 to September 2012, and as general manager of the Baie-Comeau, Laurentide and Clermont mills between 1996 and 2008.
Mr. Tremblay previously served as interim senior vice president, pulp and paper operations from November 1, 2013 to February 4, 2014. He served as vice president, pulp and paper operations from June 2011 to October 2013. Prior to joining Resolute in June 2011, he served as general manager of several mills at Smurfit Stone Container Corporation between 2002 and 2011.
Mr. Vachon previously served as senior vice president and chief legal officer from January 2011 to February 2012, as senior vice president, corporate affairs and chief legal officer from October 2007 to January 2011, and as senior vice president, corporate affairs and secretary of Abitibi from 1997 to October 2007.
Our Products
We manage our business based on the products we manufacture. Our reportable segments correspond to our principal product lines: newsprint, specialty papers, market pulp and wood products. Certain segment and geographical financial information, including sales by segment and by geographic area, operating income (loss) by segment and long-lived assets by geographic area, can be found in Note 20, “Segment Information” to our consolidated financial statements and related notes (“Consolidated Financial Statements”) appearing in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K (“Item 8”). As of the fourth quarter of 2013, the results from our coated papers operations have been integrated with the specialty papers segment. This better reflects management's internal analysis, given the increasingly high degree of substitution with

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supercalender grades, and the diminishing percentage coated papers represents in our product portfolio. Comparative year information, including the information presented below, has been modified to conform to this revised segment presentation.
In accordance with our values, our environmental vision statement and forestry policies and in the interests of our customers and other stakeholders, we are committed to implementing and maintaining environmental management systems at our pulp, paper, woodlands and wood procurement operations to promote the conservation and sustainable use of forests and other natural resources. We and other member companies of the Forest Products Association of Canada, as well as a number of environmental organizations, are partners in the Canadian Boreal Forest Agreement. The group works to identify solutions to conservation issues that meet the goal of balancing equally the three pillars of sustainability linked to human activities: economic, social and environmental. We are also a member of the World Wildlife Fund’s Climate Savers program, in which businesses establish ambitious targets to voluntarily reduce greenhouse gas emissions and work aggressively toward achieving them.
Newsprint
We produce newsprint at 11 facilities in North America and one facility in South Korea. With total capacity of approximately 2.9 million metric tons, or approximately 10% of total worldwide capacity, we are the largest producer of newsprint in the world by capacity. We are also the largest North American producer of newsprint, with total North American capacity of approximately 2.7 million metric tons, or approximately 38% of total North American capacity. We sell newsprint to newspaper publishers all over the world and also to commercial printers in North America for uses such as inserts and flyers. In 2013, approximately 44% of our total newsprint shipments were to markets outside of North America. Additionally, joint venture partners (partners with us in the ownership of certain mills we operate) purchased approximately 348,000 metric tons of newsprint from our consolidated entities in 2013, which represented approximately 15% of the total newsprint we sold.
Specialty papers
We produce specialty papers at eight facilities in North America. Our specialty papers segment is composed of uncoated mechanical papers, including supercalendered, superbright, high bright, bulky book and directory papers, as well as coated mechanical papers. With total capacity of approximately 1.4 million metric tons, or approximately 34% of total North American capacity, we are the largest producer of uncoated mechanical papers in North America, and the third largest in the world. Also, with 580,000 metric tons of capacity, or approximately 18% of total North American capacity, we are North America’s third largest producer of coated mechanical papers. Our specialty papers are used in books, retail inserts, direct mail, coupons, magazines, catalogs and other commercial printing applications. We sell specialty papers to major commercial printers, direct mailers, publishers, catalogers and retailers, mostly in North America.
Market pulp
We produce market pulp at seven facilities in North America, with total capacity of approximately 1.7 million metric tons, or approximately 10% of total North American capacity, making us the third largest pulp producer in North America. Approximately 80% of our virgin pulp capacity is softwood-based: northern bleached softwood kraft pulp, southern bleached softwood kraft pulp and fluff pulp. We are also a competitive producer of northern bleached hardwood kraft pulp and southern bleached hardwood kraft pulp, and a leading producer of recycled bleached kraft pulp. Wood pulp is the most commonly used material to make paper. Pulp not converted into paper is sold as market pulp, which is used to make a range of consumer products including tissue, packaging, specialty paper products, diapers and other absorbent products. Approximately 32% of our 2013 market pulp shipments were exported outside of North America, including significant exports to Europe (14%), Asia (8%) and Latin America (6%).
Wood products
We operate 16 sawmills in Canada that produce construction-grade lumber sold in North America, mostly on the east coast. Our sawmills produce dimension spruce-pine-fir lumber and are a major source of wood chips for our pulp and paper mills and wood residue we use as fuel in our power cogeneration assets and other operations. In 2013, we shipped 1.5 billion board feet of construction-grade lumber within North America. We also operate two engineered wood products facilities in Canada that produce I-joists for the construction industry and two remanufacturing wood products facilities in Canada that produce bed frame components, finger joints and furring strips.
For additional information on our corporate strategy, see “Our Business” under Item 7.

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Pulp and paper manufacturing facilities
The following table lists the pulp and paper manufacturing facilities and the number of paper machines we owned or operated as of December 31, 2013 (excluding facilities and paper machines that have been permanently closed as of December 31, 2013) and production information by product line (which represents all of our reportable segments except wood products). The table shows actual 2013 production, which reflects the impact of any downtime taken in 2013, and the 2014 capacity. 
  
Number
of Paper
Machines
2014
2013
2013 Production By Product Line
(In 000s of metric tons)
Total Capacity
Total Production
Newsprint
Specialty
Papers
Market Pulp
Canada
 
 
 
 
 
 
 
 
 
 
 
Alma, Québec
3
345

 
330

 

 
330

 

 
Amos, Québec
1
197

 
194

 
194

 

 

 
Baie-Comeau, Québec
3
463

 
434

 
434

 

 

 
Clermont, Québec (1)
2
334

 
311

 
311

 

 

 
Dolbeau, Québec
1
138

 
124

 

 
124

 

 
Fort Frances, Ontario (2)
1
97

 
110

 

 
110

 

 
Gatineau, Québec (3)
1
184

 
103

 
103

 

 

 
Iroquois Falls, Ontario (4)
2
225

 
213

 
185

 
28

 

 
Kénogami, Québec
1
137

 
135

 

 
135

 

 
Laurentide, Québec
1
191

 
173

 

 
173

 

 
Saint-Félicien, Québec
356

 
325

 

 

 
325

 
Thorold, Ontario
1
197

 
145

 
145

 

 

 
Thunder Bay, Ontario
1
560

 
517

 
202

 

 
315

 
United States
 
 
 
 
 
 
 
 
 
 
 
Augusta, Georgia
2
403

 
381

 
381

 

 

 
Calhoun, Tennessee (5)
3
609

 
476

 
42

 
289

 
145

 
Catawba, South Carolina
3
864

 
699

 

 
487

 
212

 
Coosa Pines, Alabama
263

 
261

 

 

 
261

 
Fairmont, West Virginia
218

 
167

 

 

 
167

 
Grenada, Mississippi
1
246

 
229

 
229

 

 

 
Menominee, Michigan
178

 
155

 

 

 
155

 
Usk, Washington (6)
1
244

 
233

 
233

 

 

 
South Korea
 
 
 
 
 
 
 
 
 
 
 
Mokpo, South Korea
1
200

 
195

 
195

 

 

 
 
29
6,649

 
5,910

 
2,654

 
1,676

 
1,580

 
(1) 
Donohue Malbaie Inc. (“DMI”), which owns one of Clermont’s paper machines, is owned 51% by us and 49% by NYT Capital Inc. We manage the facility and wholly own all of the other assets at the site. Manufacturing costs are transferred between us and DMI at agreed-upon transfer costs. DMI’s paper machine produced 212,000 metric tons of newsprint in 2013. The amounts in the above table represent the mill’s total capacity and production including DMI’s paper machine.
(2) 
On January 14, 2014, we announced an extended period of market-related outage for a paper machine in Fort Frances. This outage is expected to last through the first quarter of 2014 at minimum (representing approximately 24,000 metric tons of specialty capacity). The 2014 capacity does not include any capacity from either the indefinitely idled kraft mill nor from the other indefinitely idled specialty paper machine.
(3) 
Our Gatineau facility, which was closed in 2010, was restarted on May 14, 2013.
(4) 
On October 24, 2013, we announced the permanent closure of a paper machine in Iroquois Falls. The closure is expected to take effect within 6 months of the announcement date (representing approximately 45,000 metric tons of capacity).

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(5) 
On March 11, 2013, we acquired the noncontrolling interest in Calhoun Newsprint Company (“CNC”), which was previously owned 51% by us and 49% by Herald Company, Inc. Following the acquisition we indefinitely idled the paper machine previously owned by CNC on March 12, 2013 (representing approximately 215,000 metric tons of newsprint capacity). In 2014, we began to use the machine on an intermittent basis.
(6) 
Ponderay Newsprint Company is located in Usk, Washington and is an unconsolidated partnership in which we have a 40% interest and, through a wholly-owned subsidiary, we are the managing partner. The balance of the partnership is held by affiliates of three newspaper publishers. The amounts in the above table represent the mill’s total capacity and production.
Wood products facilities
The following table lists the sawmills we owned or operated as of December 31, 2013 and their respective 2014 capacity and 2013 production. We do not have access to enough timber to operate the sawmills at their total capacity. This table excludes facilities that have been permanently closed as of December 31, 2013. 
 
 
2014
 
2013
(In million board feet)
 
Total Capacity
 
Total Production
Comtois, Québec
 
145

 
 
41

 
Girardville-Normandin, Québec
 
218

 
 
197

 
La Doré, Québec
 
185

 
 
185

 
La Tuque, Québec (1)
 
175

 
 
99

 
Maniwaki, Québec
 
160

 
 
88

 
Mistassini, Québec
 
175

 
 
164

 
Obedjiwan, Québec (2)
 
65

 
 
42

 
Pointe-aux-Outardes, Québec
 
175

 
 
94

 
Roberval, Québec
 
143

 
 
17

 
Saint-Félicien, Québec
 
160

 
 
128

 
Saint-Fulgence, Québec
 
167

 
 
7

 
Saint-Hilarion, Québec
 
85

 
 
26

 
Saint-Ludger-de-Milot, Québec (3)
 
135

 
 
100

 
Saint-Thomas, Québec
 
75

 
 
68

 
Senneterre, Québec
 
155

 
 
101

 
Thunder Bay, Ontario
 
300

 
 
261

 
 
 
2,518

 
 
1,618

 
(1) 
Forest Products Mauricie L.P. is located in La Tuque and is a consolidated subsidiary in which we have a 93.2% interest. The amounts in the above table represent the mill’s total capacity and production.
(2) 
Sociéte en Commandite Scierie Opitciwan is located in Obedjiwan and is an unconsolidated entity in which we have a 45% interest. The amounts in the above table represent the mill’s total capacity and production.
(3) 
Produits Forestiers Petit-Paris Inc. is located in Saint-Ludger-de-Milot and is an unconsolidated entity in which we have a 50% interest. The amounts in the above table represent the mill’s total capacity and production.

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The following table lists the remanufacturing and engineered wood products facilities we owned or operated as of December 31, 2013 and their respective 2014 capacity and 2013 production. 
 
 
2014
 
2013
(In million board feet, except where otherwise stated)
 
Total Capacity
 
Total Production
Remanufacturing Wood Products Facilities
 
 
 
 
 
 
Château-Richer, Québec
 
66

 
 
66

 
La Doré, Québec
 
16

 
 
16

 
Total Remanufacturing Wood Facilities
 
82

 
 
82

 
Engineered Wood Products Facilities
 
 
 
 
 
 
Larouche and Saint-Prime, Québec (million linear feet) (1)
 
145

 
 
99

 
(1) 
Abitibi-LP Engineered Wood Inc. and Abitibi-LP Engineered Wood II Inc. are located in Larouche and Saint-Prime, respectively, and are unconsolidated entities in which we have a 50% interest in each entity. We operate the facilities and our joint venture partners sell the products. The amounts in the above table represent the mills’ total capacity and production.
On October 12, 2006, an agreement regarding Canada’s softwood lumber exports to the U.S. became effective (the “2006 Softwood Lumber Agreement”). The 2006 Softwood Lumber Agreement provides for, among other things, softwood lumber to be subject to one of two ongoing border restrictions, depending upon the province of first manufacture with several provinces being exempt from these border restrictions. Volume quotas have been established for each company within the provinces of Ontario and Québec based on historical production, and the volume quotas are not transferable between provinces. Quota volume restrictions are lifted if U.S. composite prices rise above $355 composite per thousand board feet. On January 23, 2012, Canada and the U.S. announced a two-year extension to the 2006 Softwood Lumber Agreement, through October 2015.
Other products
We also sell green power produced from renewable sources, recovered paper, wood chips and other wood related products to customers located in Canada and the United States. Sales of these other products are considered a recovery of the cost of manufacturing our primary products.
Raw Materials
Our operations consume substantial amounts of raw materials such as wood, recovered paper, chemicals and energy in the manufacturing of our paper, pulp and wood products. We purchase raw materials and energy sources (except internal generation) primarily on the open market.
Wood
Our sources of wood include property we own or lease, property on which we possess harvesting rights, wood harvested from timber supply guarantees, and purchases from local producers, including sawmills that supply residual wood chips. As of December 31, 2013, we owned or leased approximately 0.1 million acres of timberlands. In Ontario, we had long-term harvesting rights for approximately 22.1 million acres of Crown-owned land. The harvesting rights licenses in Ontario are 20 years in length and automatically renew every five years, contingent upon our continual compliance with environmental performance and reforestation requirements. In Québec, new legislation has replaced the use of timber supply and forest management agreements with timber supply guarantees on Crown-owned land as of April 1, 2013. As a result, we no longer own long-term harvesting rights contracts in Québec but instead are allocated a certain volume of supply through timber supply guarantees. As of April 1, 2013, we were allocated 4.8 million cubic meters of supply through the timber supply guarantees. These guarantees are five years in length and are renewable, subject to certain conditions.
All of our managed forest lands are third-party certified to one or more globally recognized sustainable forest management standards, including those of the Sustainable Forestry Initiative (the “SFI”) and the Forest Stewardship Council (the “FSC”). We have implemented fiber tracking systems at all of our North American mills to ensure that our wood fiber supply comes from acceptable sources such as certified forests and legal harvesting operations. These systems are third-party certified to recognized chain of custody standards.
We depend heavily on harvesting rights and timber supply guarantees over crown land in Ontario and Québec, respectively, which are effectively renewable licenses granted by the provincial governments, subject to certain conditions. In particular, the volume of harvest permitted under these licenses is subject to limits, sometimes referred to as the “annual allowable cut,” which are reviewed regularly, typically every five years. For example, in 2006 the chief forester of the province of Québec ordered a reduction in the allowable harvest, from 2004 levels, of 24% over five years starting in 2008, with a final assessment

6


expected this year. In 2011, the chief forester announced an interim reduction of a further 10% to the allowable harvest over 2013 and 2014. About 25% of the then remaining timber supply guarantees allocated in Québec were transferred to an open auction system that began to be implemented over the course of 2013.
We strive to improve our forest management and wood fiber procurement practices and we encourage our wood and fiber suppliers to demonstrate continual improvement in forest resource management, wood and fiber procurement and third-party certification.
Recovered paper
We are one of the largest recyclers of newspapers and magazines in North America and have a number of recycling plants that use advanced mechanical and chemical processes to manufacture high quality pulp from a mixture of old newspapers, old magazines and sorted office paper, or “recovered paper.” Using recovered paper, we produce, among other things, recycled fiber newsprint and uncoated specialty papers comparable in quality to paper produced with 100% virgin fiber pulp. The Thorold and Mokpo newsprint operations, and the Menominee and Fairmont pulp operations, produce products containing 100% recycled fiber. In 2013, we used 1.1 million metric tons of recovered paper in our production processes and the recycled fiber content in the newsprint we produced averaged 18%.
In 2013, we collected or purchased 1.3 million metric tons of recovered paper. Our Paper Retriever® and ecorewards® programs collect recovered fiber through a combination of community drop-off containers and recycling programs with businesses and commercial offices. The recovered paper that we physically purchase is from suppliers generally within the region of our recycling plants, primarily under long-term agreements.
Energy
Steam and electrical power constitute the primary forms of energy used in pulp and paper production. Process steam is produced in boilers using a variety of fuel sources, as well as heat recovery units in mechanical pulp facilities. All but two of our mills produced 100% of their own steam requirements. In 2013, our Alma, Calhoun, Catawba, Coosa Pines, Dolbeau, Fort Frances, Gatineau, Kénogami, Saint-Félicien and Thunder Bay operations collectively consumed approximately 44% of their electrical requirements from internal sources, notably on-site cogeneration and hydroelectric dams. The balance of our energy needs was purchased from third parties. We have seven sites that operate cogeneration facilities and all of these sites generate “green energy” from carbon-neutral biomass. In addition, we utilize alternative fuels such as methane from landfills, used oil, tire-derived fuel and black liquor to reduce consumption of fossil fuels.
As of December 31, 2013, we had one hydroelectric facility (Hydro Saguenay in Québec), which consisted of seven dams with capacity of 170 MW and generation of 1,165 GWh. The water rights agreements required to operate these dams typically range from 10 to 25 years and are generally renewable, under certain conditions, for additional terms. In some cases, the agreements are contingent on the continued operation of the related paper mill and a minimum level of capital spending in the region.
Competition
In general, our products are globally-traded commodities and are marketed in close to 90 countries. The markets in which we compete are highly competitive and, aside from quality specifications to meet customer needs, the production of our products does not depend upon a proprietary process or formula. Pricing and the level of shipments of our products are influenced by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates. Any material decline in prices for our products or other adverse developments in the markets for our products could have a material adverse effect on our results of operations or financial condition. Prices for our products have been and are likely to continue to be highly volatile.
Newsprint, one of our principal products, is produced by numerous manufacturers worldwide. In 2013, the five largest North American producers represented approximately 79% of North American newsprint capacity and the five largest global producers represented approximately 33% of global newsprint capacity. Our total newsprint capacity is approximately 10% of worldwide newsprint capacity. We face competition from both large global producers and numerous smaller regional producers. Price, quality and customer relationships are important competitive determinants.
Our specialty papers, including uncoated mechanical papers and coated mechanical papers, compete on the basis of price, quality, service and breadth of product line. With approximately 34% of North American uncoated mechanical papers capacity, we are the largest producer of uncoated mechanical papers in North America and the third largest in the world. We compete with numerous uncoated mechanical paper producers, with the five largest North American producers representing 76% of the North American uncoated mechanical papers capacity and the five largest global producers representing 50% of global uncoated mechanical papers capacity in 2013. In addition, imports from overseas accounted for approximately 8% of North American demand in 2013. We also compete with a number of other coated mechanical paper producers with operations in North America. In 2013, the five largest North American producers represented approximately 85% of North American

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capacity for coated mechanical papers. We compete with numerous worldwide suppliers of other grades of paper such as coated freesheet and supercalendered paper. Imports accounted for approximately 11% of North American demand in 2013.
We compete with a number of other major market pulp producers with operations in North America. Market pulp is a globally-traded commodity for which competition exists in all major markets. We produce six major grades of market pulp (northern and southern hardwood, northern and southern softwood, recycled bleached kraft and fluff) and compete with other producers from South America (eucalyptus hardwood and radiata pine softwood), Europe (northern hardwood and softwood) and Asia (mixed tropical hardwood). Price, quality, service and fiber sources are considered the main competitive determinants.
By the end of 2008, we had completed the certification of all of our managed forest lands to globally-recognized sustainable forest management standards, namely the SFI and the Z809 Standard of the CSA. In 2009, to better respond to market demands, we introduced the FSC standard in our certification portfolio by re-certifying two forest units in Québec from CSA to FSC and by dual-certifying one forest in Ontario to FSC (already certified to SFI). Though certification depends on a number of factors, many of which are beyond our control, we remain committed to achieving our goal of FSC certification for at least 80% of the forests we manage or on which we hold significant harvesting rights or timber supply guarantees by 2015.
As with other global commodities, the competitive position of our products is significantly affected by fluctuations in foreign currency exchange rates. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Exchange Risk,” of this Form 10-K.
Trends in advertising, electronic data transmission and storage, and the Internet are expected to have further adverse effects on the demand for traditional print media, including our products and those of our customers. See Item 1A, “Risk Factors – Developments in alternative media are expected to continue to adversely affect the demand for our products, especially in North America, and our responses to these developments may not be successful,” of this Form 10-K.
Emergence From Creditor Protection Proceedings
AbitibiBowater Inc. (our predecessor entity) and all but one of its debtor affiliates successfully emerged from creditor protection proceedings under Chapter 11 of the United States Bankruptcy Code, as amended (“Chapter 11”) and the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”), as applicable (collectively, the “Creditor Protection Proceedings”) on December 9, 2010 (the “Emergence Date”). The wholly-owned subsidiary operating the Mokpo, South Korea operations and almost all of the less than wholly-owned subsidiaries operated outside of the Creditor Protection Proceedings. We refer to AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries as the “Debtors”. We refer to the Chapter 11 Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and the CCAA Debtors’ CCAA Plan of Reorganization and Compromise, in each case as amended and including all exhibits and supplements thereto, together as the “Plans of Reorganization”, each as a “Plan of Reorganization” and individually as the “Chapter 11 Reorganization Plan” and the “CCAA Reorganization Plan”, respectively. The Plans of Reorganization became effective on the Emergence Date. Pursuant to the Plans of Reorganization, we distributed on the Emergence date the shares of our common stock for the benefit of unsecured creditors in the Creditor Protection Proceedings and we established a reserve of shares for the benefit of holders of disputed claims. By the end of 2013, all disputed claims had been definitively resolved, and the distribution of shares from the disputed claim share reserve in respect thereof had been completed. The Debtors’ Chapter 11 cases are closed; we expect imminently the court-appointed monitor for the CCAA proceedings to apply to the court for its discharge in respect of those CCAA cases, bringing them to a close as well.
Employees
As of December 31, 2013, we employed approximately 8,400 people, of whom approximately 6,200 were represented by bargaining units, primarily the Unifor Union and the Confederation of National Trade Unions (the “CNTU”) in Canada and predominantly by the United Steelworkers International in the U.S. The collective agreements covering approximately 2,000 employees in Canada are scheduled to expire in 2014, affecting eight of our pulp and paper operations and approximately 35% of our pulp and paper production. We also have collective agreements covering 750 employees in 13 woodlands and sawmills operations in Canada that have either expired or are scheduled to expire in 2014.
While we intend to negotiate to renew collective agreements, there can be no assurance that we will be able to renew agreements on satisfactory terms, or that we will maintain continuously satisfactory agreements with all of our unionized employees. Given our focus on controlling costs, we expect that labor costs and flexibility in managing our operations will be important topics for discussion in the renewal negotiations. If we are unable to renew the agreements, it could result in strikes, work stoppages or disturbances by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.
On February 17, 2014, we announced a five year renewal of the master collective agreement covering four unionized U.S. pulp and paper mills. The agreement covers about 1,500 employees, represented by the United Steelworkers, the International

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Brotherhood of Electrical Workers and the United Association of Journeymen and Apprentices of the Plumbing, Pipefitting and Sprinkler Fitting Industry of the U.S. and Canada (the “UA”). The four mills, together with our other U.S. pulp and paper operations, none of which has an expiring collective agreement, represent almost half of our pulp and paper production capacity.
Trademarks
We have registrations or pending applications for the trademarks “RESOLUTE” and “resolute Forest Products & Design” in the countries of our principal markets, as well as “RESOLUTE FOREST PRODUCTS” and “R Design” in Canada and the United States, and “RÉSOLU” and “Produits forestiers résolu & Design” in Canada. We consider our interest in the marks and logos to be important and necessary to the conduct of our business.
Environmental Matters
We are subject to a variety of federal, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. While it is impossible to predict future environmental regulations that may be established, we believe that we will not be at a competitive disadvantage with regard to meeting future Canadian, United States or South Korean standards. For additional information, see Note 16, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.
Internet Availability of Information
We make our Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and any amendments to these reports, available free of charge on our website (www.resolutefp.com) as soon as reasonably practicable after we file or furnish such materials to the SEC. The SEC also maintains a website (www.sec.gov) that contains our reports and other information filed with the SEC. In addition, any materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C., 20549. Information on the operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our reports are also available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) website (www.sedar.com).
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Form 10-K, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. In particular, the risks described below could cause actual events to differ materially from those contemplated in the forward-looking statements in this Form 10-K. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially affect our business, financial condition or future results.
Developments in alternative media are expected to continue to adversely affect the demand for our products, especially in North America, and our responses to these developments may not be successful.
Trends in advertising, electronic data transmission and storage, and the Internet are expected to have further adverse effects on the demand for traditional print media, including our products and those of our customers. Neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper, magazine, book and catalog publishing customers could increase their use of, and indeed compete with, other forms of media and advertising and electronic data transmission and storage, such as television, electronic readers and websites. This could then reduce their consumption of newsprint, commercial printing papers or other products we manufacture. The demand for some of our products has weakened significantly over the last several years; for example, according to industry statistics, North American newsprint demand fell by 25% in 2009, 6% in 2010, 7% in 2011, 1% in 2012 and 9% in 2013. This trend, which similarly affects our specialty papers, could continue as a result of developments in alternative media, lower North American newspaper circulation, weaker advertising, grade substitution and conservation measures taken by publishers and retailers. If the trend of consolidation among our customers continues, there could be fewer customers in the market for our products, and our negotiating position with these customers could be weakened.
We have responded to the changing market dynamics by optimizing assets and streamlining our production. If demand for our products continues to decline, or if the pace of decline accelerates, it may be necessary to curtail production even further, or permanently shut down more machines and facilities. In addition to the potential loss of production, curtailments and shutdowns could result in asset impairments and cash closure costs for the affected facilities, including restructuring charges and exit or disposal costs, which could negatively impact our cash flows and materially affect our results of operations and financial condition.

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We could experience disruptions in operations or increased labor costs due to labor disputes.
As of December 31, 2013, we employed approximately 8,400 people, of whom approximately 6,200 were represented by bargaining units, primarily the Unifor Union and the Confederation of National Trade Unions, or the CNTU, in Canada and the United Steelworkers International in the U.S. The collective agreements covering approximately 2,000 employees in Canada are scheduled to expire in 2014, affecting eight of our pulp and paper operations and approximately 35% of our pulp and paper production. We also have collective agreements covering 750 employees in 13 woodlands and sawmills operations in Canada that have either expired or are scheduled to expire in 2014.
While we intend to negotiate to renew collective agreements, there can be no assurance that we will be able to renew agreements on satisfactory terms, or that we will maintain continuously satisfactory agreements with all of our unionized employees. Given our focus on controlling costs, we expect that labor costs and flexibility in managing our operations will be important topics for discussion in the renewal negotiations. If we are unable to renew the agreements, it could result in strikes, work stoppages or disturbances by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.
Currency fluctuations can adversely affect our competitive position, selling prices and manufacturing costs.
We compete with producers from around the world, particularly North America, Europe and South America, in most of our product lines with the exception of wood products, where we compete with other North American producers. We sell our products mainly in transactions denominated in U.S. dollars, but we also sell in certain local currencies, including the euro, the pound sterling and the Canadian dollar. In addition to the impact of product supply and demand, changes in the relative strength or weakness of these currencies, particularly the U.S. dollar, could also affect international trade flows in these products. A stronger U.S. dollar might attract imports, thereby increasing product supply and possibly creating downward pressure on prices. On the other hand, a weaker U.S. dollar might encourage U.S. exports but also increase manufacturing costs in Canadian dollars, or other foreign currencies.
Variations in exchange rates could also significantly affect our competitive position. In 2012, for example, the strength of the U.S. dollar against certain European currencies negatively affected the competitive position of North American newsprint producers selling in certain U.S. dollar-denominated international newsprint markets, like Asia and India. Some of our European competitors were able to price business more aggressively in those markets as a result of the relative weakness of their local currency, which negatively affected our ability to compete, forcing us to take steps to limit our exposure to these markets. Conversely, with the strengthening euro in 2013, particularly against the U.S. dollar, exports from North America rose, while they fell from Western Europe.
We are particularly sensitive to changes in the value of the Canadian dollar versus the U.S. dollar. The actual impact of these changes depends primarily on the proportion of our production and sales that occur in Canada, the proportion of our financial assets and liabilities denominated in Canadian dollars, and the magnitude, direction and duration of changes in the exchange rate. We expect exchange rate fluctuations to continue to impact costs and revenues, but we cannot predict the magnitude or direction of this effect for any period, and there can be no assurance of any future effects. In the last two years, the Canadian dollar fluctuated between a low of US$0.93 in December of 2013 and a high of US$1.03 in September of 2012. Based on operating projections for 2014, if the Canadian dollar strengthens by one cent against the U.S. dollar, we expect that it will decrease our annual operating income by approximately $15 million, and vice versa.
Furthermore, certain other assets and liabilities, including a substantial portion of our net pension and other postretirement benefit, or OPEB, obligations and our deferred income tax assets, are denominated in Canadian dollars. As a result, our earnings can be subject to the potentially significant effect of foreign currency translation gains or losses in respect of these Canadian dollar net monetary assets. In this case, a strengthening of the Canadian dollar against the U.S. dollar in any given period would generally cause a foreign currency translation gain, and a weakening of the Canadian dollar would generally lead to a foreign currency translation loss.
We face intense competition in the forest products industry and the failure to compete effectively could have a material adverse effect on our business, financial condition and results of operations.
We compete with numerous forest products companies, some of which have greater financial resources than we do. The trend toward consolidation in the forest products industry has led to the formation of sizeable global producers, with greater flexibility in pricing and financial resources for marketing, investment and expansion than we do. Because the markets for our products are all highly competitive, actions by competitors can affect our ability to compete and the volatility of prices at which products are sold.
The forest products industry is capital intensive, and requires significant investment to remain competitive. Some of our competitors may be lower-cost producers in some of the businesses in which we operate. In particular, the sizeable investments

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in new, low-cost hardwood grade pulp capacity in South America, whose costs are expected to be very competitive, and the actions those mills take to bring their product to market, could adversely affect our competitive position in similar grades. This in turn could affect our sales, operating income and cash flows, and push us to consider significant capital investments to remain competitive. Failure to compete effectively could have a material adverse effect on our business, financial condition or results of operations.
Based on market interest, we offer a number of our products, particularly market pulp and wood products, with specific designations to one or more globally-recognized sustainable forest management and chain of custody standards. Our ability to conform to new or existing guidelines for certification depends on a number of factors, many of which are beyond our control, such as: changes to the interpretation or the application of the standards; the adequacy of government-implemented conservation measures; and the existence of territorial disputes between First Nations and governments. If we are unable to offer certified products, or to meet commitments to supply certified product, it could affect the marketability of our products and our ability to compete with certain producers.
The forest products industry is highly cyclical; fluctuations in the prices of, and the demand for, our products could result in small or negative profit margins, lower sales volumes and curtailment or closure of operations.
The forest products industry is highly cyclical. The overall levels of demand for the products we manufacture and consequently, our sales and profitability, reflect fluctuations in levels of end-user demand, which depend at least in part on general economic conditions in North America and the world. In addition to end-user demand, we've experienced cyclical changes in prices, sales volume and margins for our products as a result of changing market trends and the effect of capacity fluctuations on supply and demand as well as the relative competitiveness of producers. Because our commodity products have few distinguishing qualities from producer to producer, competition is based mainly on price, which is determined by supply relative to demand, which is in turn affected by the factors described above.
We could be required to make contributions to our Canadian pension plans at levels that could be significantly higher than expected, which could have an adverse impact on our financial condition.
In connection with our emergence from the Creditor Protection Proceedings in 2010, the provinces of Québec and Ontario adopted regulations specific to us, which we refer to as the “funding relief regulations,” to establish parameters concerning the funding of the aggregate solvency deficits in our material Canadian registered pension plans, which we refer to as the “affected plans,” until 2020. These plans represented approximately 75% of our unfunded pension obligations as of December 31, 2013. Because the aggregate solvency ratio in the affected plans was below the minimum solvency level prescribed in the regulations on each of December 31, 2011, and December 31, 2012, the regulations required that we propose corrective measures designed to close the solvency deficit - Cdn$500 million as of December 31, 2011 ($471 million, based on the exchange rate in effect on December 31, 2013), and an additional Cdn$130 million as of December 31, 2012 ($122 million, based on the exchange rate in effect on December 31, 2013) - within five years of the applicable measurement date.
In 2013, we reached an agreement in principle with Company stakeholders in Québec and in Ontario to replace the corrective measures mechanism under the funding relief regulations in favor of set incremental contributions beyond the basic funding under the existing framework. We expect that in the coming months, Québec and Ontario will adopt regulations to implement this revised framework. We cannot currently estimate the additional contributions, if any, that we could be required to make in respect of the corrective measures if the provinces fail to implement the expected regulations and take steps to enforce the current funding relief regulations despite the agreement in principle and the anticipatory additional contributions we made in respect thereof in 2013. In light of the rising interest rate environment, strong asset returns and 2013 funding, when we file the actuarial report in respect of the affected plans in the second quarter of this year, we expect that the solvency deficit as of December 31, 2013, will have decreased significantly from the level at December 31, 2012. Nevertheless, the additional contributions we could be required to make in these circumstances could be material, which would negatively impact our cash flows and materially affect our results of operations or financial condition.
It is also possible that provincial pension regulators could attempt to compel additional funding of certain of our Canadian registered pension plans in respect of plan members associated with sites we formerly operated in their respective provinces. In 2012, we filed a motion for directives with the Québec Superior Court in Canada, the court with jurisdiction in the creditor protection proceedings, seeking an order to prevent pension regulators in each of Québec, New Brunswick and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the creditor protection proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to Cdn$150 million ($141 million, based on the exchange rate in effect on December 31, 2013), would have to be funded if we do not obtain the relief sought. At this time, we cannot estimate the additional contributions, if any, that may be required in future years, but they could be material.

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We could be required to record additional valuation allowances against our recorded deferred income tax assets.
We recorded significant tax attributes (deferred income tax assets) relating to our Canadian operations in our consolidated balance sheet as of December 31, 2013, which attributes would be available to offset future taxable income. If, in the future, we determine that we are unable to recognize the benefit of these tax attributes as a result of sustained cumulative losses in our Canadian operations, we could be required to record additional valuation allowances for the portion of the deferred income tax assets that are not recoverable. Such valuation allowances, if taken, would be recorded as a charge to income tax expense and would negatively impact our results of operations.
The terms of our ABL credit facility and the indenture governing our senior notes could restrict our current and future operations, particularly our ability to respond to changes and to take certain actions.
The indenture governing our 5.875% senior notes due 2023 and the credit agreement governing our senior secured asset-based revolving credit facility, or the “ABL,” contain a number of restrictive covenants that impose operating and financial restrictions on us and could limit our ability to engage in activities that might be in our long-term best interests, including, among other things, restrictions on our ability to: incur, assume or guarantee significant additional indebtedness; issue redeemable stock and preferred stock; pay dividends or make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and investments; incur liens; restrict dividends, loans or asset transfers from our subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to, another person; enter into transactions with affiliates; and enter into new lines of business.
A breach of the covenants under the indenture governing our notes or under the ABL could result in an event of default, which could allow holders and lenders, as the case may be, to accelerate their debt and could result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. An event of default under the ABL would also allow the lenders to terminate all commitments to extend further credit thereunder. If we were unable to repay amounts due and payable under the ABL, the lenders would have the right to proceed against the collateral securing the indebtedness. In any of these events, we and our subsidiaries might not have sufficient assets to repay the indebtedness. As a result, we could be: limited in how we conduct our business; unable to raise additional debt or equity financing to operate during general economic or business downturns; or unable to compete effectively or to take advantage of new business opportunities.
Our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for all of our capital requirements.
Our businesses are capital intensive and require regular capital expenditures in order to maintain our equipment, increase our operating efficiency and comply with environmental laws. If our available cash resources and cash generated from operations are not sufficient to fund our operating needs and capital expenditures, we would either need to borrow or reduce or delay capital expenditures. If we cannot maintain or upgrade our equipment as we require, we may become unable to manufacture products that compete effectively. An inability to make required capital expenditures in a timely fashion could have a material adverse effect on our growth, business, financial condition or results of operations.
We may not be successful in implementing our strategies to increase earnings power.
Our corporate strategy includes, on the one hand, a profitable retreat from certain paper grades, and on the other, using our strong financial position to act on opportunities to diversify and grow. This could require significant capital investments with uncertain return outcomes, as we seek to improve our performance and margins by: leveraging our low-cost position; maintaining a stringent focus on costs; getting the most out of our access to virgin fiber; maximizing the utilization of our most cost-effective mills and streamlining production to adapt to changing market dynamics; and capitalizing on our economical access to international markets to compensate for the secular decline in North American newsprint demand. We also believe in taking an opportunistic approach to strategic initiatives, with a particular focus on reducing our cost position, improving our product diversification, providing synergies or allowing us to expand into future growth markets. There are risks associated with the implementation of these strategies, which are complicated and involve a substantial number of mills, machines, capital and personnel. To the extent we are unsuccessful in achieving these strategies, our results of operations may be adversely affected.
Our manufacturing businesses may have difficulty obtaining wood fiber at favorable prices, or at all.
Wood fiber is the principal raw material we use in our business. We use both virgin fiber - wood chips and logs - and recycled fiber - old newspapers, old magazines and sorted office paper - as fiber sources for our pulp and paper mills. The primary source for wood fiber is timber. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in Canada and the United States.
We depend heavily on harvesting rights and timber supply guarantees over crown land in Ontario and Québec, respectively, which are effectively renewable licenses granted by the provincial governments, subject to certain conditions. In particular, the

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volume of harvest permitted under these licenses is subject to limits, sometimes referred to as the “annual allowable cut,” which are reviewed regularly, typically every five years. For example, in 2006 the chief forester of the province of Québec ordered a reduction in the allowable harvest, from 2004 levels, of 24% over five years starting in 2008, with a final assessment expected this year. In 2011, the chief forester announced an interim reduction of a further 10% to the allowable harvest over 2013 and 2014. About 25% of the then remaining timber supply guarantees allocated in Québec were transferred to an open auction system that began to be implemented over the course of 2013. Accordingly, we cannot at this time estimate the full impact of these reductions to our guaranteed harvest levels, but it has subjected a significant portion of the fiber we need to operate our business to market forces, which could reduce availability and/or increase the costs to supply fiber.
In addition to regulatory constraints, our supply of timber could be affected by future domestic or foreign regulation, litigation advanced by Aboriginal groups or other interested parties, and actions taken by environmental organizations to influence any of the foregoing. These activities could focus on any one or more of: the use of timberlands; forest management practices; sustainable forest management certification standards; the protection of endangered species; the promotion of forest biodiversity and the response to and prevention of catastrophic wildfires. Our access to timber may also be affected by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms, drought, flooding and other natural and man-made causes, thereby potentially reducing supply and increasing prices. As is typical in the industry, we do not maintain insurance for any loss to our access to standing timber from natural disasters or other causes.
Though timber is our primary source of fiber, we buy a significant portion of fiber on the open market as well. Wood fiber is a commodity; prices historically have been cyclical, and subject to market influences, which could be concentrated in any particular region due to market shifts.
A sustained increase in the cost of purchased energy and other raw materials would lead to higher manufacturing costs, thereby reducing our margins.
Our operations consume substantial amounts of energy, such as electricity, natural gas, fuel oil and wood residue, a substantial proportion of which we buy on the open market. The main raw materials we require in our manufacturing process are chemicals, wood fiber and recovered paper. The prices for raw materials and energy are volatile and may change rapidly, directly affecting our results of operations. The availability of raw materials and energy may also be disrupted by many factors outside our control, adversely affecting our operations. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years, and further fluctuations will impact our manufacturing costs and contribute to earnings volatility. The pricing of recycled fiber is also subject to market influences and has experienced significant fluctuations in recent years.
For our commodity products, the relationship between industry supply and demand, rather than changes in the cost of raw materials, will determine our ability to increase prices. Consequently, we may be unable to pass along increases in our operating costs to our customers. Any sustained increase in energy, chemical or raw material prices without any corresponding increase in product pricing would reduce our operating margins and potentially require us to limit or cease operations of one or more of our machines.
There also can be no certainty that we will be able to maintain our water rights, which are necessary for our hydroelectric power generating facilities, or to renew them at conditions comparable to those currently in effect.
Our business is subject to global economic conditions; soft conditions could cause a number of the risks we face to increase in likelihood, magnitude and duration.
Our operations and performance depend significantly on worldwide economic conditions. During the global financial crisis and the slow recovery that has followed, customers across all of our businesses delayed and reduced expenditures in response to deteriorating macroeconomic and industry conditions and uncertainty, which has had a significant negative impact on the demand for our products and therefore, the cash flows of our businesses. If global economic conditions were to soften again, we would expect higher unemployment and lower gross domestic product growth rates to further affect demand for newsprint, specialty papers and pulp. We believe that in the last downturn, many end consumers reduced newspaper and magazine subscriptions as a direct result of their financial circumstances, contributing to lower demand for our products by our customers. Advertising demand in magazines and newspapers, including classified advertisements, and demand from automotive dealerships and real estate agencies was also impacted by higher unemployment, lower automobile sales and the tepid real estate environment. Lower demand for print advertisements leads to fewer pages in newspapers, magazines and other advertisement circulars and periodicals, decreasing the demand for our products. Furthermore, consumer and advertising-driven demand for our paper products could not recover from a downturn, even with an economic recovery, as purchasing habits could permanently change. Demand for our market pulp products is generally associated with production rates with paper producers, as well as consumption trends for products such as tissue, towelling and absorbent products.
The economic downturn had a profoundly negative impact on the U.S. housing industry, which is a significant driver for demand of our lumber and other wood-based products, and could be expected to have a similar effect if global conditions were

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to soften again. According to the U.S. Census Bureau, U.S. housing starts declined from approximately 2.1 million in 2005 to a low of approximately 0.6 million in 2009, reflecting a 71% decline. During these types of conditions, with a low level of primary demand for our lumber and other wood-based products, we would expect our wood products business to operate at a low level until there is a meaningful recovery in new residential construction demand. Furthermore, with less lumber demand, sawmills generate less wood chips that we use in our pulp and paper mills, which leads the pulp and paper mills to increase their supply from the open market, where prices can fluctuate with market conditions. We would also have less wood residue to use internally, which would increase our fossil fuel consumption and, as a result, our costs.
Changes in laws and regulations could adversely affect our results of operations.
We are subject to a variety of foreign, federal, state, provincial and local laws and regulations dealing with trade, employees, transportation, taxes, timber and water rights, pension funding and the environment. Changes in these laws or regulations or their interpretations or enforcement have required in the past, and could require in the future, substantial expenditures by us and adversely affect our results of operations. For example, changes in environmental laws and regulations have in the past, and could in the future, require us to spend substantial amounts to comply with rules and regulations relating to air emissions, wastewater discharge, waste management, landfill sites, including investigation and remediation costs and greenhouse gas regulations. Environmental laws and their enforcement are becoming increasingly stringent. Consequently, our compliance and remediation costs could increase materially.
Changes in the political or economic conditions in Canada, the United States or other countries in which our products are manufactured or sold could adversely affect our results of operations.
We manufacture products in Canada, the United States and South Korea, and we sell products throughout the world. The economic and political climate of each region has a significant impact on our costs and the prices of, and demand for, our products. Changes in regional economies or political instability, including acts of war or terrorist activities, can affect the cost of manufacturing and distributing our products, pricing and sales volume, directly affecting our results of operations. These changes could also affect the availability or cost of insurance.
We may be required to record additional environmental liabilities.
We are subject to a wide range of general and industry-specific laws and regulations relating to pollution and the protection of the environment, including those governing air emissions, wastewater discharges, timber harvesting, the storage, management and disposal of regulated substances and waste, the investigation and clean-up of contaminated sites, landfill and lagoon operation and closure, forestry operations, endangered species habitat and health and safety. Noncompliance with these regulations can result in significant civil or criminal fines or penalties, damage to our reputation, claims by private parties or may require us to spend substantial amounts of money on pollution control equipment or additional wastewater treatment facilities. As an owner and operator of real estate and manufacturing and processing facilities, we may also be liable under environmental laws for cleanup and other costs and damages, including investigation costs, tort liability and damages to natural resources, resulting from past or present spills, releases or threats of releases of regulated substances and waste on or from our current or former properties. We may incur liability under these laws without regard to whether we knew of, were responsible for, or owned the property at the time of, any spill, release or threats of releases of any regulated substances or waste on or from any current or former property, or at properties where we arranged for the disposal of regulated materials. Claims may also arise out of currently unknown environmental conditions or aggressive enforcement efforts by government regulators, public interest groups or private parties. As a result of the above, we may be required to record additional environmental liabilities.
We are subject to physical and financial risks associated with climate change.
Our operations and the operations of our suppliers are subject to climate variations, which impact the productivity of forests, the distribution and abundance of species and the spread of disease or insect epidemics, which may adversely or positively affect timber production. Over the past several years, changing weather patterns and climatic conditions due to natural and man-made causes have added to the unpredictability and frequency of natural disasters such as hurricanes, earthquakes, hailstorms, wildfires, snow and ice storms, which could also affect our woodlands or cause variations in the cost for raw materials, such as fiber. Changes in precipitation resulting in droughts could adversely affect timber or our hydroelectric production, by increasing our energy costs.
To the extent climate change impacts raw material availability or our hydroelectric production, it may also impact our costs and revenues. Furthermore, should financial markets view climate change as a financial risk, our ability to access capital markets or to receive acceptable terms and conditions could be affected.

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We may be required to record additional long-lived asset impairment or accelerated depreciation charges.
Losses related to the impairment of long-lived assets to be held and used are recognized when circumstances indicate the carrying value of an asset group may not be recoverable, such as continuing losses or demand declines in certain businesses. When indicators that the carrying value of an asset group may not be recoverable are triggered, we evaluate the carrying value of the asset group in relation to its expected undiscounted future cash flows. If the carrying value of an asset group is greater than the expected undiscounted future cash flows to be generated by the asset group, an impairment charge is recognized based on the excess of the asset group’s carrying value over its fair value. If it is determined that the carrying value of an asset group is recoverable, we review and adjust, as necessary, the estimated useful lives of the assets in the group. If there were to be a triggering event, it is possible that we could record non-cash long-lived asset impairment or accelerated depreciation charges in future periods, which would be recorded as operating expenses and would directly and negatively impact our reported results of operations.
The occurrence of natural or man-made disasters could disrupt our supply chain and the delivery of our products and adversely affect our financial condition or results of operations.
The success of our businesses is largely contingent on the availability of direct access to raw materials and our ability to ship products on a timely basis. As a result, any event that disrupts or limits transportation or delivery services could materially and adversely affect our business. In addition, our operating results depend on the continued operation of our various production facilities and the ability to complete construction and maintenance projects on schedule. Material operating interruptions at our facilities, including interruptions caused by the events described below, could materially reduce the productivity and profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational difficulties.
Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, our operations are subject to hazards inherent in our business and the transportation of raw materials, products and wastes. These potential hazards include: explosions; fires; severe weather and natural disasters; mechanical failures; unscheduled downtimes; supplier disruptions; labor shortages or other labor difficulties; transportation interruptions; remediation complications; discharges or releases of toxic or hazardous substances or gases; other environmental risks; and terrorist acts.
Some of these hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage and can result in suspension of operations, the shutdown of affected facilities, reputational damage or the imposition of civil or criminal penalties. Furthermore, we will also continue to be subject to present and future claims with respect to workplace exposure, exposure of contractors on our premises, as well as other persons located nearby, workers’ compensation and other matters.
We maintain property, business interruption, product, general liability, casualty and other types of insurance, including pollution and legal liability, that we believe are in accordance with customary industry practices, but we are not fully insured against all potential hazards inherent in our business, including losses resulting from natural disasters, war risks or terrorist acts. Changes in insurance market conditions have caused, and may in the future cause, premiums and deductibles for certain insurance policies to increase substantially and in some instances, for certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms acceptable to us or at all, and might be obligated to divert a significant portion of our cash flow from normal business operations.
There are significant holders of our common stock.
There are several significant holders of our common stock who own a substantial percentage of the outstanding shares of our common stock. These holders could increase their percentage ownership of our common stock and may be in a position to influence the outcome of actions requiring shareholder approval, including, among other things, the election of board members. This concentration of ownership could also facilitate or hinder a negotiated change of control and consequently, impact the value of our common stock. Furthermore, the possibility that one or more of these holders may sell all or a large portion of our common stock in a short period of time may adversely affect the trading price of our common stock.
We are subject to cyber-security risks related to breaches of security pertaining to sensitive company, customer, employee and vendor information as well as breaches in the technology that manages operations and other business processes.
We use information technologies to securely manage operations and various business functions. We rely on various technologies to process, store and report on our business and interact with customers, vendors and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security design and controls, and those of our third party providers, our information technology and infrastructure may be vulnerable to cyber attacks by hackers or breaches due to employee error, malfeasance or other disruptions. Any such breach

15


could result in operational disruptions or the misappropriation of sensitive data that could subject us to civil and criminal penalties, litigation or have a negative impact on our reputation. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not negatively impact our cash flows and materially affect our results of operations or financial condition.
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.
As a result of our international sales and operations, we are subject to trade and economic sanctions and other restrictions imposed by the United States, Canada and other governments or organizations. We are also subject to the U.S. Foreign Corrupt Practices Act, the Canadian Corruption of Foreign Public Officials Act, the United Kingdom Bribery Act 2010 and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign governments or officials. Changes in trade sanctions laws could restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs. Violations of these laws or regulations could result in sanctions including fines, loss of authorizations needed to conduct our international business and other penalties, which could adversely impact our business, operating results and financial condition.
We could pursue acquisitions, divestitures and other strategic transactions, the success of which could impact our results of operations, cash flows and financial condition.
In the past, we have pursued acquisitions to complement or expand our business, divestures and other strategic transactions. Such future transactions are part of our general strategic objectives and may occur. If we identify an acquisition candidate, we may not be able to successfully negotiate or finance the acquisition or integrate the acquired businesses with our existing business and services. Future acquisitions could result in potentially dilutive issuances of equity securities and the incurrence of debt and contingent liabilities, amortization expenses and substantial goodwill. The negotiation of any transaction, its completion, and subsequent integration of any business acquired may be complex and time consuming, involve significant costs and may result in a distraction of management’s attention from on-going business operations. We may be affected materially and adversely if we are unable to successfully integrate businesses that we acquire. Similarly, we may divest portions of our business, which may also have material and adverse effects.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

16


ITEM  2. PROPERTIES
Information regarding our owned properties is included in Item 1, “Business.”
In addition to the properties that we own, we also lease under long-term leases office premises, office and transportation equipment, have water rights on certain government-owned waters and have harvesting rights with respect to certain timberlands. For additional information, see Note 19, “Operating Leases and Purchase Obligations,” to our Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings relating to contracts, commercial disputes, taxes, environmental issues, employment and workers’ compensation claims, Aboriginal claims and other matters. We periodically review the status of these proceedings with both inside and outside counsel. Although the final outcome of any of these matters is subject to many variables and cannot be predicted with any degree of certainty, we establish reserves for a matter (including legal costs expected to be incurred) when we believe an adverse outcome is probable and the amount can be reasonably estimated. We believe that the ultimate disposition of these matters will not have a material adverse effect on our financial condition, but it could have a material adverse effect on our results of operations in any given quarter or year.
Effective July 31, 2012, we completed the second step transaction pursuant to which we acquired the remaining 25.4% of the outstanding Fibrek Inc. (“Fibrek”) shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the issuance of a final order of the Québec Superior Court in Canada (the “Canadian Court”) approving the arrangement on July 27, 2012. Certain former shareholders of Fibrek exercised (or purported to exercise) rights of dissent in respect of the transaction, asking for a judicial determination of the fair value of their claim under the Canada Business Corporations Act. No consideration has to date been paid to the former Fibrek shareholders who exercised (or purported to exercise) rights of dissent. Any such consideration will only be paid out upon settlement or judicial determination of the fair value of their claims and will be paid entirely in cash. Accordingly, we cannot presently determine the amount that ultimately will be paid to former holders of Fibrek shares in connection with the proceedings, but we have reserved approximately Cdn$14 million ($13 million, based on the exchange rate in effect on December 31, 2013) for the eventual payment of those claims.
On June 12, 2012, we filed a motion for directives with the Canadian Court seeking an order to prevent pension regulators in each of Québec, New Brunswick and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the Creditor Protection Proceedings. These plans are subject to the funding relief regulations described in Note 14, “Pension and Other Postretirement Benefit Plans – Canadian pension funding,” to our Consolidated Financial Statements and we contend, among other things, that any such declaration, if issued, would be inconsistent with the Canadian Court’s sanction order confirming the Plan of Reorganization and the terms of our emergence from the Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to Cdn$150 million ($141 million, based on the exchange rate in effect on December 31, 2013), would have to be funded if we do not obtain the relief sought. No hearing date has been set to date.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

17


PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on both the NYSE and the TSX. The ticker symbol for our common stock was changed from “ABH” to “RFP” on the NYSE on May 24, 2012 and on the TSX on May 28, 2012.
The high and low prices of our common stock on the NYSE for 2012 and 2013, by quarter, are set forth below. 
 
High
Low
2012
 
 
 
 
 
 
First quarter
$
16.22

 
$
14.20

 
Second quarter
$
14.40

 
$
10.15

 
Third quarter
$
14.95

 
$
9.02

 
Fourth quarter
$
13.93

 
$
10.40

 
2013
 
 
 
 
 
 
First quarter
$
17.54

 
$
13.26

 
Second quarter
$
16.62

 
$
12.58

 
Third quarter
$
15.80

 
$
12.42

 
Fourth quarter
$
17.08

 
$
12.36

 
As of January 31, 2014, there were approximately 3,730 holders of record of our common stock.
Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent on then-existing conditions, including our financial condition, results of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant. The indenture governing our senior notes due in 2023 (“the 2023 Notes”) and the credit agreement governing our ABL credit facility contain restrictions on our ability to pay dividends and repurchase shares.
On May 22, 2012, our Board of Directors approved a share repurchase program of up to 10% of our common stock, for an aggregate purchase price of up to $100 million. Through December 31, 2012, we repurchased 5.6 million shares at a cost of $67 million. We did not repurchase shares in 2013.
See Part III, Item 12 of this Form 10-K, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for information regarding our equity compensation plan.

18


The following graph compares the cumulative total return attained by shareholders on our common stock versus the cumulative total returns of the S&P 500 index and a peer group of five companies since December 10, 2010, the date our common stock began trading following our emergence from the Creditor Protection Proceedings. The individual companies comprising the peer group are: Domtar Corporation, International Paper Company, UPM – Kymmene Corporation, Verso Paper Corp. and Weyerhaeuser Company. The graph tracks the performance of a $100 investment in our common stock on December 10, 2010, in the S&P 500 index on November 30, 2010 and in the peer group on November 30, 2010 (with the reinvestment of all dividends) to December 31, 2013. The stock price performance included in the graph is not indicative of future stock price performance.


19


ITEM 6. SELECTED FINANCIAL DATA
The following table presents summary historical consolidated financial information for each of the last five years and should be read in conjunction with Items 7 and 8. The selected financial information for the years ended December 31, 2013, 2012 and 2011 and as of December 31, 2013 and 2012 under the captions “Statement of Operations Data,” “Segment Sales Information,” “Statement of Cash Flows Data” and “Financial Position” shown below has been derived from our audited Consolidated Financial Statements. Comparative year segment sales information has been revised to conform to the changes made to our reportable segments.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations”, fresh start accounting was required upon our emergence from the Creditor Protection Proceedings, which we applied effective December 31, 2010. The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements as of December 31, 2010 and for periods subsequent to December 31, 2010 are not comparable to our consolidated financial statements for periods prior to December 31, 2010. References to “Successor” or “Successor Company” refer to the Company on or after December 31, 2010, after giving effect to the implementation of the Plans of Reorganization and the application of fresh start accounting. References to “Predecessor” or “Predecessor Company” refer to the Company prior to December 31, 2010. Additionally, references to periods on or after December 31, 2010 refer to the Successor and references to periods prior to December 31, 2010 refer to the Predecessor.
In accordance with the guidance of FASB ASC 250, “Accounting Changes and Error Corrections,” certain prior year amounts have been adjusted due to our change in accounting policy for planned major maintenance costs, as discussed in Note 1, “Organization and Basis of Presentation - Change in accounting policy for planned major maintenance costs,” to the Consolidated Financial Statements.


20


  
Successor
 
 
Predecessor
 
(In millions, except per share amounts or otherwise indicated)
2013
 
 
2012
 
 
 
2011

 
 
2010

 
 
2009

 
Statement of Operations Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
4,461

 
 
$
4,503

 
 
$
4,756

 
 
$
4,746

 
 
$
4,366

 
Operating (loss) income (1)
 
(2
)
 
 
(28
)
 
 
207

 
 
(164
)
 
 
(374
)
 
Reorganization items, net (2)
 

 
 

 
 

 
 
1,895

 
 
(639
)
 
Net (loss) income including noncontrolling interests
 
(639
)
 
 
(33
)
 
 
45

 
 
2,762

 
 
(1,559
)
 
Net (loss) income attributable to Resolute Forest Products Inc.
 
(639
)
 
 
1

 
 
47

 
 
2,601

 
 
(1,552
)
 
Basic net (loss) income per share attributable to Resolute Forest Products Inc. common shareholders
 
(6.75
)
 
 
0.01

 
 
0.48

 
 
45.07

 
 
(26.90
)
 
Diluted net (loss) income per share attributable to Resolute Forest Products Inc. common shareholders
 
(6.75
)
 
 
0.01

 
 
0.48

 
 
27.49

 
 
(26.90
)
 
Dividends declared per common share
 

 
 

 
 

 
 

 
 

 
Segment Sales Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Newsprint
 
$
1,473

 
 
$
1,627

 
 
$
1,816

 
 
$
1,804

 
 
$
1,802

 
Specialty papers
 
1,366

 
 
1,562

 
 
1,813

 
 
1,803

 
 
1,747

 
Market pulp
 
1,053

 
 
814

 
 
659

 
 
715

 
 
518

 
Wood products
 
569

 
 
500

 
 
468

 
 
424

 
 
290

 
Other
 

 
 

 
 

 
 

 
 
9

 
 
 
$
4,461

 
 
$
4,503

 
 
$
4,756

 
 
$
4,746

 
 
$
4,366

 
Statement of Cash Flows Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
206

 
 
$
266

 
 
$
198

 
 
$
39

 
 
$
46

 
Cash invested in fixed assets
 
161

 
 
169

 
 
97

 
 
81

 
 
101

 
 
Successor
 
Predecessor
 
 
2013

 
 
2012

 
 
2011

 
 
2010

 
 
2009

 
Financial Position
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed assets (3)
 
$
2,289

 
 
$
2,440

 
 
$
2,502

 
 
$
2,641

 
 
$
3,897

 
Total assets
 
5,385

 
 
6,333

 
 
6,304

 
 
7,135

 
 
7,125

 
Long-term debt, including current portion (4) (5)
 
599

 
 
534

 
 
621

 
 
905

 
 
613

 
Total debt (4) (5)
 
599

 
 
534

 
 
621

 
 
905

 
 
1,499

 
Additional Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employees (number)
 
8,400

 
 
9,300

 
 
10,400

 
 
10,500

 
 
12,100

 
(1) 
Operating loss for 2009 included $276 million of alternative fuel mixture tax credits.
(2) 
Represents certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred in the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting.
(3) 
As part of the application of fresh start accounting, fixed assets were adjusted to their fair values as of December 31, 2010.
(4) 
As of the Emergence Date and pursuant to the Plans of Reorganization, all amounts outstanding under our debtor in possession financing arrangements and the Debtors’ pre-petition secured debt obligations were paid in full in cash and certain holders of allowed claims arising from the Debtors’ pre-petition unsecured debt obligations received their pro rata share of the Successor Company’s common stock. Additionally, upon the consummation of the Plans of Reorganization, we assumed the obligations in respect of the $850 million principal amount of our senior secured notes due in 2018 (the “2018 Notes”), issued by an escrow subsidiary of ours. In 2012 and 2011, we redeemed $85 million and $264 million, respectively, of principal amount of the 2018 Notes. In 2013, we issued $600 million aggregate principal of 2023 Notes and used the proceeds to redeem the remaining $501 million of principal amount of the 2018 Notes. For additional information, see Note 13, “Long-Term Debt,” to our Consolidated Financial Statements.

21


(5)
Due to the commencement of the Creditor Protection Proceedings, our consolidated balance sheet as of December 31, 2009 included unsecured pre-petition debt obligations of $4,852 million included in liabilities subject to compromise, secured pre-petition debt obligations of $980 million included in current liabilities and secured pre-petition debt obligations of $34 million included in long-term debt, net of current portion.

22


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis is intended to help the reader understand Resolute Forest Products, our results of operations, cash flows and financial condition. The discussion is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes contained in Item 8 - Financial Statements and Supplementary Data.
OVERVIEW
Resolute Forest Products is a global leader in the forest products industry, with a diverse range of products, including newsprint, specialty papers, market pulp and wood products, which are marketed in close to 90 countries. We own or operate over 40 pulp and paper mills and wood products facilities in the U.S., Canada and South Korea, and power generation assets in Canada. By capacity, we are the largest producer of newsprint in the world, the largest producer of uncoated mechanical papers in North America and the biggest Canadian volume producer of wood products east of the Rockies. We are also a significant North American producer of coated mechanical papers and market pulp.
We report our activities in four business segments: newsprint, specialty papers, market pulp and wood products.
We are guided by our vision and values, focusing on safety, profitability, accountability, sustainability and teamwork. These are the elements that we believe best define us:
Competitive cost structure - as a result of aggressive cost reductions and mill rationalizations, today we compete as a leading, lower-cost North American producer. Maintaining this competitive advantage is our key focus. By challenging ourselves to optimize assets - maximizing the utilization of our most cost-effective mills and streamlining production to adapt to changing market dynamics - we seek to remain an industry cost leader and to maximize shareholder value and earnings power.
Synergistic and diversified asset base - our harvesting rights and extensive network of Canadian sawmills not only makes us a significant lumber producer in eastern North America, but also give us the fiber management advantage of integration from the harvested log through the finished pulp or paper product at more than half of our facilities. In the U.S., we source primarily from the lower-cost southeastern fiber basket. The diversified and complimentary nature of our asset base also provides earnings from multiple products.
Financial strength - we make disciplined capital management a priority; we believe in maintaining a flexible and conservative capital structure.
Our business
Products
Our 2.9 million metric tons of capacity in newsprint represents approximately 10% of worldwide capacity and 38% of North American capacity. We sell newsprint to newspaper publishers all over the world and also to commercial printers in North America for uses such as inserts and flyers. In 2013, international deliveries represented 44% of total newsprint shipments.
We have 2.0 million metric tons of capacity in specialty papers, which include uncoated mechanical and coated mechanical grades. Approximately one third of our production of uncoated mechanical papers is high-gloss (or supercalender) paper, mainly used for magazines, coupons, retail inserts and newspaper supplements. We produce another third of high-bright papers for general commercial printing, educational textbooks, digital printing and tradebooks. The last third includes papers for directories, paperback books and other commercial applications. In total, our 1.4 million metric tons of uncoated mechanical papers capacity makes us the largest producer in North America, and the third largest in the world. We sell uncoated mechanical papers almost exclusively in North America. With 580,000 metric tons of capacity, we are North America’s third largest producer of coated mechanical papers, grades used for magazines, catalogs and advertising inserts. Demand for these products is largely tied to consumer spending and advertising. We sell to major commercial printers, publishers, catalogers and retailers in North America.
We operate seven pulp mills, five in the U.S. and two in Canada, with total capacity of 1.7 million metric tons, making us the third largest pulp producer in North America. Approximately 80% of our virgin pulp capacity is softwood-based, including: northern bleached softwood kraft pulp (or “NBSK”), southern bleached softwood kraft pulp (or “SBSK”) and fluff pulp. We are also a competitive producer of northern bleached hardwood kraft pulp (or “NBHK”) and southern bleached hardwood kraft pulp (or “SBHK”), and a leading producer of recycled bleached kraft pulp (or “RBK”). Our market pulp - the pulp we produce but do not consume internally - is used to make a range of consumer products, like tissue, packaging, specialty paper products, diapers

23


and other absorbent products. Approximately 32% of our 2013 market pulp shipments were exported outside of North America, including significant exports to Europe (14%), Asia (8%) and Latin America (6%).
In 2013, we shipped 1.5 billion board feet of construction-grade lumber within North America, mostly on the east coast. Our sawmills produce dimension spruce-pine-fir (or “SPF”) lumber and provide wood chips to our pulp and paper mills in Canada and wood residue we use as fuel in our power cogeneration assets and other operations. We also produce i-joists for the construction industry and bed frame components, finger joints and furring strips.
  
Years Ended December 31,
 
2013
2012
2011
Sales
 
 
 
 
 
 
 
 
 
Newsprint
 
33
%
 
 
36
%
 
 
38
%
 
Specialty papers
 
31
%
 
 
35
%
 
 
38
%
 
Market pulp
 
23
%
 
 
18
%
 
 
14
%
 
Wood products
 
13
%
 
 
11
%
 
 
10
%
 
Total (%)
 
100
%
 
 
100
%
 
 
100
%
 
Total sales ($ millions)
$
4,461

 
$
4,503

 
$
4,756

 
Strategy
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 is based on three core themes: operational excellence, disciplined use of capital and strategic initiatives.
Operational excellence
We aim to improve our performance and margins by:
leveraging our lower-cost position;
maintaining a stringent focus on reducing costs and optimizing our diversified asset base;
maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber;
pursuing our strategy of managing production and inventory levels and focusing production on our most profitable facilities and machines; and
capitalizing on our economical access to international markets to compensate for the secular decline in North American newsprint demand.
Disciplined use of capital
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.
Maintaining our strong financial position and financial flexibility is one of our primary financial goals. In 2011 and 2012, we redeemed $349 million of principal amount of our then-outstanding 10.25% senior secured notes due 2018 and a $90 million promissory note issued in connection with an acquisition in 2011. In 2012, we also repaid and canceled Fibrek’s term loan and credit facility, for a total of $112 million. In 2013, we refinanced the remaining balance of our senior secured notes with 5.875% senior unsecured notes due 2023. In addition to adding five years to maturity, the refinancing reduced our annual cash interest burden by $16 million and improves our financial flexibility.
Strategic initiatives
We believe in taking an opportunistic approach to strategic initiatives, pursuing only those that reduce our cost position, improve our product diversification, provide synergies or allow us to expand into future growth markets. We anticipate 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.
By acquiring Fibrek in 2012, we grew our market pulp segment, increasing our presence in a market that we believe will grow over the long term. In addition to growing our pulp capacity by over 70%, we’re in the process of building or refurbishing two

24


sawmills in Northern Ontario, Canada. By the time they begin production in early 2015, along with other capacity initiatives we’re working on, we expect our annualized sawmill capacity to be around 1.9 billion board feet, a 30% increase above 2013.
Sustainable performance and development
Our sustainability strategy is based on a balanced approach to environmental, social and economic performance, designed to enhance our competitive position. It is supported by public commitments in a number of key performance areas, focusing primarily on:
improving resource efficiency, which helps control fiber and power costs, two significant input costs in our industry;
adapting to our customers’ procurement policies and striving to anticipate trends in demand for environmentally-conscious forest products, which will enhance the long-term competitiveness of our product offering;
positioning Resolute as a competitive employer in order to attract, engage and retain the best and brightest minds, promoting employee engagement, innovation and longevity; and
building solid community relations to support long-term regional prosperity and our own financial and operational success.
Our key sustainability commitments include:
Achieving an Occupational Safety and Health Administration (or “OSHA”) incident rate of 0.99 or below in 2014, which is slightly below the 1.02 we achieved in 2013. Though we strive to have zero injuries, our 2013 safety performance is generally considered to be world-class.
We’re closing in, ahead of schedule, on the goal we set as a member of the World Wildlife Fund (“WWF”) Climate Savers program to reduce our scope 1 and 2 greenhouse gas (or “GHG”) emissions by 65% by 2015, compared to 2000 levels.
Maintaining 100% certification of Resolute-owned or managed woodlands to sustainable forest management (SFM) certification standards. For over five years now, 100% of managed forests have been certified to either FSC®, SFI® and or CSA.
Through 2015, implementing new human resource practices to support workforce renewal and retention, engage employees in the Company’s sustainability-focused vision and values, and ensure current and future staffing requirements.
Reducing the number of mill environmental incidents in 2014 by 10% compared to 2013.
Power generation
We produce electricity at seven cogeneration facilities and seven hydroelectric dams. The output is consumed internally, sold at contracted fixed prices and/or sold on the spot market. This allows us to reduce our costs by generating energy internally at a lower cost compared to open market purchases, and by producing revenue from external sales of some of the power.
This table provides a breakdown of the output capacity (based on installed capacity and operating expectations in 2014) available for internal consumption at our existing production facilities:
  
  
Energy
INTERNAL CONSUMPTION
Type
Capacity
(MW)
Consumption
(MWh/year)
Calhoun, TN
Cogeneration
64

 
373,000

 
Catawba, SC
Cogeneration
55

 
430,000

 
Coosa Pines, AL
Cogeneration
30

 
105,000

 
Hydro Saguenay, QC (7 dams)
Hydroelectric
170

 
1,050,000

 
Thunder Bay, ON
Cogeneration
51

 
220,000

 

25


This table shows the facilities where we currently produce electricity to sell externally as green power produced from renewable sources at favorable rates, almost all of which we buy back for use in our operations.
  
  
Energy
EXTERNAL SALES
Type
Capacity
(MW)
Annualized sales
(MWh/year)
Dolbeau-Mistassini, QC
Cogeneration
28

 
192,000

 
Gatineau, QC
Cogeneration
15

 
110,000

 
Saint-Félicien, QC
Cogeneration
43

 
300,000

 
Thunder Bay, ON
Cogeneration
65

 
390,000

 
Business Conditions
2013 Highlights
We made significant progress as an organization in 2013, strengthening our financial position, enhancing the efficiency of our operations and improving our performance on safety and sustainability.
We strengthened our financial position in three key ways:
We reached an agreement-in-principle with Company stakeholders in Québec and in Ontario to replace the corrective measures mechanism under the existing funding relief regulations in favor of stable, predictable and balanced pension funding for our Canadian plans, which represented about 75% of our unfunded pension obligations as of December 31, 2013.
The rising interest rate environment, strong asset returns, 2013 funding, the favorable currency impact and amendments to OPEB plans all contributed to the elimination of $672 million of net pension and OPEB liabilities from our balance sheet compared to 2012.
We refinanced, on a very timely basis, all of our outstanding secured debt with $600 million of unsecured notes, at 5.875% interest, reducing our cash interest burden by $16 million annually, adding 5 more years to maturity and improving our financial flexibility.
Concerning operational excellence initiatives:
Since 2012, we optimized newsprint capacity by idling two machines and restarting the Gatineau mill, for a net reduction of about 285,000 metric tons on an annualized basis. In our specialty papers segment, we idled three machines and restarted the Dolbeau mill, for a net reduction of about 220,000 metric tons on an annualized basis.
We restructured manning at two more sites in 2013, eliminating 170 positions, without reducing operating capacity.
We’ve grown our pulp capacity by over 70% with our 2012 acquisition of Fibrek, and by the time our new sawmills in Northern Ontario begin production in early 2015, along with other capacity initiatives we’re working on, we expect our annualized sawmill operating capacity to be around 1.9 billion board feet, a 30% increase above 2013.
In 2013, we finished bringing online all four of our cogeneration assets from which we sell electricity externally - Dolbeau (specialty papers), Gatineau (newsprint), Saint-Félicien (market pulp), and Thunder Bay (newsprint and market pulp). Together, they reduced our costs by approximately $45 million, not including other operational efficiencies realized with the operation of the cogeneration assets, such as labor efficiencies.
We’ve restructured and significantly improved the performance of the three pulp mills we acquired with Fibrek in 2012. After a challenging start because of the extensive catch-up maintenance and environmental work required at the Saint-Félicien mill, we’ve made the three mills more competitive than before we acquired them.
On safety and environment:
We achieved an OSHA incident rate of 1.02 in 2013. Though we strive to have zero injuries, our 2013 safety performance is generally considered to be world-class.
We’re closing in, ahead of schedule, on the goal we set as a member of the WWF Climate Savers program to reduce our GHG emissions by 65% by 2015, compared to 2000 levels.

26


We fell short of our internal commitment to reduce environmental incidents by 10% in 2013 compared to 2012, but we’ve developed an action plan to address gaps and improve performance. For 2014, we set a goal of reducing the number of mill environmental incidents by 10% compared to 2013.
RESULTS OF OPERATIONS
Consolidated Earnings
Selected Annual Financial Information
  
Years Ended December 31,
(in millions, except per share amounts)
2013
2012
2011
Sales (1)
$
4,461

 
$
4,503

 
$
4,756

 
Operating income (loss) per segment
 
 
 
 
 
 
 
 
 
Newsprint
 
40

 
 
97

 
 
89

 
Specialty papers
 
35

 
 
85

 
 
122

 
Market pulp (1)
 
42

 
 
(43
)
 
 
91

 
Wood products
 
41

 
 
26

 
 
(25
)
 
Corporate / other
 
(160
)
 
 
(193
)
 
 
(70
)
 
Total
 
(2
)
 
 
(28
)
 
 
207

 
Net (loss) income (1)
 
(639
)
 
 
1

 
 
47

 
Net (loss) income per common share
 
 
 
 
 
 
 
 
 
Basic
$
(6.75
)
 
$
0.01

 
$
0.48

 
Diluted
 
(6.75
)
 
 
0.01

 
 
0.48

 
Cash and cash equivalents
$
322

 
$
263

 
$
369

 
Total assets
 
5,385

 
 
6,333

 
 
6,304

 
Adjusted EBITDA (2)
$
377

 
$
393

 
$
490

 
Adjusted EBITDA margin (2)
 
8.5
%
 
 
8.7
%
 
 
10.3
%
 
ROE, adjusted for special items (3)
 
2.8
%
 
 
2.6
%
 
 
4.8
%
 
(1) 
We’ve included Fibrek’s results of operations in our consolidated financial statements, in the market pulp segment, as of May 2, 2012, the date we acquired a controlling interest. Fibrek’s sales, operating income and net income in our results for 2013 were $456 million, $40 million and $40 million, respectively. Its sales, operating loss and net loss in our 2012 results were $268 million, $9 million and $9 million, respectively.
(2) 
Earnings before interest expense, income taxes and depreciation, or “EBITDA”, adjusted EBITDA and adjusted EBITDA margin are not financial measures recognized under generally accepted accounting principles, or “GAAP”. EBITDA is calculated as net income (loss) including noncontrolling interests from the consolidated statements of operations, adjusted for interest expense, income taxes and depreciation and amortization. Adjusted EBITDA means EBITDA, excluding special items such as foreign exchange translation gains and losses, severance costs, closure costs, impairment and other related charges, inventory write-downs related to closures, start up costs of idled mills, gains and losses on dispositions of assets, net loss on extinguishment of debt, transaction costs and other charges or credits that are excluded from our segments’ performance from GAAP operating income (loss). Adjusted EBITDA margin is adjusted EBITDA expressed as a percentage of sales. We believe that using measures such as EBITDA, adjusted EBITDA and adjusted EBITDA margin 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.
(3) 
Return on equity, or “ROE”, is a non-GAAP financial measure, calculated by dividing net income (loss), excluding the special items identified below, by adjusted shareholders’ equity. ROE is a measure of profitability that shows how much profit the Company generated as a percentage of shareholder money invested.



27


  
Years ended December 31,
(in millions)
2013
 
 
2012
 
 
2011
 
 
Net (loss) income including noncontrolling interests
$
(639
)
 
$
(33
)
 
$
45

 
Interest expense
 
51

 
 
66

 
 
95

 
Income tax provision (benefit)
 
524

 
 
(39
)
 
 
19

 
Depreciation and amortization
 
243

 
 
233

 
 
220

 
EBITDA
$
179

 
$
227

 
$
379

 
Foreign exchange translation loss (gain)
 
24

 
 
(17
)
 
 
21

 
Severance costs
 

 
 
5

 
 
12

 
Closure costs, impairment and other related charges
 
89

 
 
185

 
 
46

 
Inventory write-downs related to closures
 
11

 
 
12

 
 
3

 
Start up costs of idled mills
 
32

 
 
13

 
 

 
Net gain on disposition of assets
 
(2
)
 
 
(35
)
 
 
(3
)
 
Net loss on extinguishment of debt
 
59

 
 

 
 

 
Transaction costs
 
6

 
 
8

 
 
5

 
Other (income) expense, net
 
(21
)
 
 
(5
)
 
 
27

 
Adjusted EBITDA
$
377

 
$
393

 
$
490

 

  
December 31, 2013
(in millions, except ROE)
Net (loss) income
Shareholders’ equity
ROE (%)
GAAP as reported
$
(639
)
 
$
2,827

 
 
(22.6
)%
 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange translation loss
$
26

 
$
26

 
 
 
 
Severance costs
 

 
 

 
 
 
 
Closure costs, impairment and other related charges
 
59

 
 
59

 
 
 
 
Inventory write-downs related to closures
 
7

 
 
7

 
 
 
 
Start up costs of idled mill
 
23

 
 
23

 
 
 
 
Net gain on disposition of assets
 
(2
)
 
 
(2
)
 
 
 
 
Net loss on extinguishment of debt
 
38

 
 
38

 
 
 
 
Transaction costs
 
5

 
 
5

 
 
 
 
Other income, net
 
(14
)
 
 
(14
)
 
 
 
 
U.S. deferred income tax asset valuation allowance
 
604

 
 
604

 
 
 
 
Cumulative past-year adjustments for special items
 

 
 
210

 
 
 
 
GAAP as adjusted for special items
$
107

 
$
3,783

 
 
2.8
 %
 


28


  
December 31, 2012
(in millions, except ROE)
Net income
Shareholders’ equity
ROE (%)
GAAP as reported
$
1

 
$
3,102

 
 
%
 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange translation gain
$
(23
)
 
$
(23
)
 
 
 
 
Severance costs
 
4

 
 
4

 
 
 
 
Closure costs, impairment and other related charges
 
116

 
 
116

 
 
 
 
Inventory write-downs related to closures
 
7

 
 
7

 
 
 
 
Start up costs of idled mills
 
10

 
 
10

 
 
 
 
Net gain on disposition of assets
 
(22
)
 
 
(22
)
 
 
 
 
Transaction costs
 
8

 
 
8

 
 
 
 
Other income, net
 
(2
)
 
 
(2
)
 
 
 
 
Reorganization-related and other tax adjustments
 
(13
)
 
 
(13
)
 
 
 
 
Cumulative past-year adjustments for special items
 

 
 
125

 
 
 
 
GAAP as adjusted for special items
$
86

 
$
3,312

 
 
2.6
%
 
  
December 31, 2011
(in millions, except ROE)
Net income
Shareholders’ equity
ROE (%)
GAAP as reported
$
47

 
$
3,423

 
 
1.4
%
 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange translation loss
$
23

 
$
23

 
 
 
 
Severance costs
 
8

 
 
8

 
 
 
 
Closure costs, impairment and other related charges
 
32

 
 
32

 
 
 
 
Inventory write-downs related to closures
 
2

 
 
2

 
 
 
 
Net gain on disposition of assets
 
(2
)
 
 
(2
)
 
 
 
 
Transaction costs
 
4

 
 
4

 
 
 
 
Other expense, net
 
20

 
 
20

 
 
 
 
Reorganization-related and other tax adjustments
 
38

 
 
38

 
 
 
 
GAAP as adjusted for special items
$
172

 
$
3,548

 
 
4.8
%
 


29


2013 vs. 2012
Operating loss variance analysis
Sales
Our sales were $4,461 million in 2013, $42 million lower, or 1%, than in 2012. Excluding Fibrek, volume had a $173 million impact, which reflects our efforts to optimize the asset base, maximizing the utilization of our most cost-effective mills and streamlining production to adapt to changing market dynamics. Accordingly, at the end of 2013 we operated four fewer machines overall compared to the start of 2012, not including the three pulp mills we acquired with Fibrek.
Overall pricing fell by $31 million in 2013. The pricing drop in newsprint ($84 million) and specialty papers ($24 million) more than offset higher pricing in wood products ($59 million) and market pulp ($18 million). Currency fluctuations unfavorably affected sales by $19 million.
The former Fibrek mills generated an additional $181 million of sales volume compared to the year-ago period, reflecting their consolidation within our financial statements from only May 2, 2012, onward, and extensive downtime in the third quarter of 2012 to improve the Saint-Félicien pulp mill’s operational and environmental performance.
Compared to 2012, we took approximately 242,000 metric tons less downtime in the newsprint, specialty and market pulp segments, not including downtime at machines later closed or idled and whose production capacity was not replaced.
Cost of sales, excluding depreciation, amortization and distribution costs
Cost of sales, excluding depreciation, amortization and distribution costs, or “COS,” improved by $39 million in 2013, reflecting the favorable effect of the weaker Canadian dollar and lower overall manufacturing costs, partially offset by the unfavorable effects of higher volume, the net result of additional volume from the three former Fibrek pulp mills over the lower non-Fibrek volume.
Manufacturing costs improved as a result of:
asset optimization and mill restructuring initiatives ($42 million);
additional external power sales from new cogeneration facilities ($36 million); and

30


lower power costs ($7 million);
offset in part by:
higher maintenance costs ($19 million);
higher fuel energy costs because of natural gas pricing ($16 million); and
increased overall fiber costs ($6 million).
The net increase in fiber costs reflects higher log costs in the wood products segment and higher wood costs in the U.S. southeast pulp and paper mills due to wet weather, offset in part by more efficient fiber usage, as well as lower chip and recovered paper costs.
Other items that were not production-related but still affected the manufacturing costs variance included:
costs associated with mill restarts net of lower costs for non-operating sites ($8 million);
the timing of the receipt of insurance proceeds ($4 million); and
an increase in the net pension and other postretirement benefit expense ($7 million), due primarily to the amortization of actuarial losses starting in 2013;
which more than offset a non-cash obsolescence provision for slow-moving spare parts taken in 2012 ($10 million).
Depreciation and amortization
Depreciation and amortization increased by $10 million due to the acquisition of the three Fibrek pulp mills.
Selling, general and administrative expenses
Selling, general and administrative expenses, or “SG&A,” were $17 million higher in 2013 largely because of credits we recorded in 2012, including a refund of certain group benefit premiums paid in prior years ($11 million).
Closure costs, impairment and other related charges
See the corresponding variance analysis under “- Segment Earnings - Corporate and Other” below.
Net gain on disposition of assets
Compared to $2 million in 2013, we recognized a net gain on disposition of assets of $35 million in 2012, mainly as a result of the sale of timberlands in Nova Scotia in the first quarter.
Net (loss) income variance analysis
Net loss was $639 million in 2013, or $6.75 per share, compared to net income of $1 million, or $0.01 per share, in 2012.
Interest expense
Interest expense was $51 million in 2013, down by $15 million, reflecting:
the lower principal amount of 10.25% senior secured notes due 2018 following the $85 million redemption in October of 2012; and
the refinancing, in the second quarter of 2013, of the senior secured notes with 5.875% senior unsecured notes due 2023.
Other (expense) income, net
The $62 million we recorded as other expense, net, was the product of:
a net loss on extinguishment of debt ($59 million), which reflects the tender offer premium paid to holders of the 2018 notes ($84 million), net of the write-down of the associated unamortized premium ($25 million); and
a foreign currency loss from the translation of Canadian dollar net monetary assets ($24 million);

31


offset by:
the forgiveness of a note payable in connection with our acquisition of a former joint venture partner’s interest in CNC ($12 million); and
a distribution from the liquidation of a former U.K. subsidiary ($12 million).
By comparison, we recorded other income, net, of $22 million in 2012, including a $17 million foreign exchange gain from the translation of Canadian dollar net monetary assets and other income items of $16 million, partially offset by $11 million of post-emergence costs.
Income taxes
We recorded a $524 million income tax provision in 2013, on a loss before income taxes of $115 million, compared to an expected income tax benefit of $40 million based on the U.S. federal statutory income tax rate of 35%. The difference largely reflects a net valuation allowance increase of $572 million, most of which relates to a $604 million charge recorded to establish a full valuation allowance against our net U.S. deferred income tax assets, partially offset by a tax benefit on the reversal of a $36 million valuation allowance on available U.S. capital losses that we now expect to use in the future because of our acquisition of the noncontrolling interest in CNC.
We recorded a $39 million income tax benefit in 2012, on a loss before income taxes of $72 million, compared to an expected income tax benefit of $25 million based on the U.S. federal statutory income tax rate of 35%. This difference reflects the favorable impacts related to reorganization-related tax adjustments, foreign exchange related items, research and development tax incentives, as well as adjustments to unrecognized tax benefits, offset by a net increase in valuation allowances. This net increase in valuation allowances was primarily due to the costs associated with the idling of our Mersey operations net of the benefits of an internal reorganization of our U.S. Fibrek subsidiaries.
Some of our Canadian subsidiaries, including our principal Canadian operating subsidiary, use the U.S. dollar as functional currency but determine taxable income in Canadian dollars. This can cause frequent and substantial variations to our effective tax rate when compared to the weighted-average of both domestic and foreign statutory tax rates. This is because we compute the foreign exchange component of the income tax provision of our Canadian subsidiaries on a different basis than in our consolidated financial statements. Due to the unpredictability of foreign exchange rates, we are unable to estimate the impact of future changes in exchange rates on our effective tax rate.
Noncontrolling interests
In 2012, we recorded a loss of $34 million attributable to noncontrolling interests, representing our former joint venture partner’s share of the impairment, severance costs and other charges related to the indefinite idling of the Mersey newsprint mill, partially offset by the partner’s share of the gain from the sale of timberlands in Nova Scotia.
Q4 of 2013 vs. Q4 of 2012
Operating income (loss) variance analysis
Operating income improved to $8 million in the fourth quarter, compared to an operating loss of $58 million in the year-ago period. Sales rose by $22 million because of higher shipment volumes of newsprint ($9 million), market pulp ($21 million) and wood products ($12 million), offset in part by lower shipments of specialty papers ($6 million). Overall pricing was down $5 million, as higher selling prices for market pulp ($17 million) and wood products ($5 million) were more than offset by the lower pricing for newsprint ($20 million) and specialty papers ($7 million).
Compared to the fourth quarter of 2012, the Company took approximately 36,000 metric tons less downtime in the newsprint, specialty and market pulp segments, not including downtime at machines later closed or idled and whose production capacity was not replaced.
COS improved by $9 million because of lower manufacturing costs ($3 million) and the favorable effect of the weaker Canadian dollar ($28 million), offset by costs associated with the additional volume ($22 million). The drop in manufacturing costs reflects:
our asset optimization and mill restructuring initiatives and external power sales from cogeneration facilities ($13 million);
more efficient fiber usage, lower usage of coating chemicals, as well as lower chip and recovered paper costs ($12 million);

32


a non-cash obsolescence provision for slow-moving spare parts taken in 2012 ($10 million); and
a favorable power adjustment ($4 million);
offset in part by:
higher maintenance costs ($14 million);
higher log costs in the province of Québec ($9 million), including: higher stumpage fees, most of which was lumber market-price related, and other costs associated with the comprehensive modification of the forest tenure system in the province; and
higher wood costs in the U.S. southeast due to wet weather ($7 million).
Closure costs, impairment and other related charges were $33 million in the fourth quarter of 2013, reflecting costs and charges related to the extended market-related outage at the remaining paper machine in Fort Frances and the impairment of the U.S. recycling assets. By comparison, we recorded $87 million in the same period in 2012 for costs, impairment and charges related to the idling of the Mersey newsprint mill, the idling of a pulp and a paper machine at our Fort Frances mill and the idling of a paper machine at our Laurentide mill.

Net loss variance analysis
Net loss in the fourth quarter of 2013 was $3 million, compared to a net loss of $45 million in the year ago period, a narrowing of $42 million. The change to operating income is described above. Interest expense was $12 million, or $3 million lower, as a result of the refinancing of our senior secured notes in the second quarter. The change in the Canadian dollar compared to the end of the third quarter led to a $15 million foreign exchange loss on the translation of Canadian dollar net monetary assets, compared to a loss of $4 million in the fourth quarter of 2012.
We recorded a $22 million income tax benefit on a loss before taxes of $24 million in the fourth quarter of 2013, compared to a $29 million benefit on a loss before taxes of $73 million in the same period of 2012. The fourth quarter 2013 income tax benefit reflected a favorable adjustment to valuation allowances of $10 million, as well as a decrease in certain state-related deferred income tax liabilities. The fourth quarter 2012 income tax benefit reflected a favorable net adjustment for valuation allowances of $9 million, mainly as a result of an internal reorganization of our U.S. Fibrek subsidiaries.
2012 vs. 2011
Operating (loss) income variance analysis

33


Sales
Sales decreased by $253 million in 2012, or 5.3%, to $4,503 million, led by a $509 million decline in volume across all grades and a net $12 million reduction in pricing, as more fully described in the segment variance analysis below. The decline was partly offset with the inclusion of Fibrek sales ($268 million). In light of challenging market conditions, the non-Fibrek volume decline reflects additional market downtime and our ongoing efforts to focus production in our most cost-effective mills, and drive better efficiency by restructuring and reducing labor costs. This fits into our strategy of managing production and inventory levels, selling only profitable tons, and maintaining world-class operational standards.
Cost of sales, excluding depreciation, amortization and distribution costs
COS improved by $96 million in 2012 compared to 2011, or $59 million net of Fibrek and the volume effects. COS was favorably influenced by the slightly weaker Canadian dollar compared to the U.S. dollar ($24 million) and a net reduction in manufacturing costs ($37 million), including:
lower costs for energy ($44 million) as a result of favorable pricing and our energy saving initiatives;
lower labor and pension costs ($34 million);
favorable recovered paper pricing ($21 million);
the idling of the Mersey facility in June ($18 million);
other operational cost improvements ($17 million); and
favorable inventory adjustment as a result of increasing market prices for lumber products ($6 million).
These favorable effects to COS were offset by costs associated with the start-up of closed mills and our capacity reduction initiatives ($25 million); higher log costs ($23 million), including stumpage fees; and increased coating and chemicals costs ($17 million). Compared to 2011, segment COS was also unfavorably affected by the loss of power sales income as a result of our sale of ACH Limited Partnership, or “ACH”, in 2011 ($19 million), by non-cash inventory obsolescence charges for slow-moving spare parts ($15 million) over the course of the year, offset by the benefit of a 2010 NIER program rebate recorded in 2011 ($8 million).
We joined the Northern Industrial Electricity Rate Program, or “NIER program”, during the second quarter of 2011, retroactive to the program’s April 1, 2010, start date. Under the program, we earned rebates on electricity purchased and consumed by our northern Ontario pulp and paper mills, subject to certain conditions. These rebates, which effectively reduce our energy costs, are available until the program expires in April of 2016. Of the rebates we recorded in 2011, $8 million related to 2010.
Depreciation and amortization
Depreciation and amortization increased by $13 million in 2012, mainly as a result of the acquisition of Fibrek’s assets.
Selling, general and administrative expenses
SG&A was $9 million lower in 2012 compared to 2011, as we collected a refund of certain group benefit premiums paid in prior years ($11 million) and recorded lower severance and transition costs ($8 million). These favorable changes to SG&A were partially offset by higher special project costs ($6 million), including Fibrek, and the SG&A associated with the addition of Fibrek.
Closure costs, impairment and other related charges
We recorded closure costs, impairment and other related charges of $185 million in 2012, $139 million higher than in 2011, as a result of our asset optimization initiatives during the year, including the idling and sale of operations in Mersey, Nova Scotia, the idling of a kraft pulp mill and paper machine in Fort Frances and the closure of a paper machine in Laurentide. Our major initiatives in 2011 included machine closures in Coosa Pines, Baie-Comeau and Kénogami as well as restructurings in our Mokpo and Mersey facilities.
Net gain on disposition of assets
We recognized a net gain on disposition of assets of $35 million in 2012, compared to $3 million in 2011, mainly as a result of the sale of timberlands in Nova Scotia in the first quarter.

34


Net income variance analysis
Net income in 2012 was $1 million, or $0.01 per share, a decrease of $46 million, or $0.47 per share, compared to net income in 2011 of $47 million, or $0.48 per diluted common share.
Interest expense
Interest expense decreased by $29 million, to $66 million, in 2012 from $95 million in 2011. The decrease related to the elimination of ACH’s debt in connection with the sale of our interest ($7 million) and the lower principal amount of senior secured notes as a result of redemptions, including $179 million in June 2011, an additional $85 million in November of that year and $85 million in October of 2012.
Other income (expense), net
Other income, net, was $22 million in 2012, compared to an expense of $48 million in 2011. The change of $70 million includes a foreign exchange gain (compared to a 2011 loss) on the translation of Canadian dollar net monetary assets to U.S. dollars ($38 million) and lower post-emergence costs ($36 million), which represented legal and other professional fees for the resolution and settlement of disputed creditor claims and other post-emergence activities.
Income taxes
We recorded a $39 million income tax benefit in 2012, on a loss before income taxes of $72 million, $14 million more than the expected $25 million benefit calculated using the federal statutory income tax rate of 35%. Our effective tax rate for the year was therefore 54%. This stems from the favorable effects of reorganization-related and other tax adjustments of $13 million, foreign exchange of $10 million, research and development tax incentives of $8 million and adjustments for unrecognized tax benefits of $5 million, offset by a net increase in valuation allowances of $24 million. This net increase in valuation allowances was primarily due to the costs associated with the idling of our Mersey operations before the assets were sold and an internal reorganization of our U.S. Fibrek subsidiaries. In 2011, our income tax provision was $19 million, on income before income taxes of $64 million, resulting in an effective tax rate of 30%. The provision included a favorable adjustment to reserves for unrecognized tax benefits of $63 million on the completion of certain tax authority examinations, mostly offset by the unfavorable effects of prior year reorganization-related tax adjustments of $38 million, foreign exchange of $9 million, and an increase in valuation allowances of $15 million on certain deferred income tax benefits we no longer expected to realize.
Segment Earnings
We manage our business based on the products we manufacture. Our reportable segments correspond to our principal product lines: newsprint, specialty papers, market pulp and wood products. As of the fourth quarter, the results from our coated papers operations have been integrated with the specialty papers segment. This better reflects management’s internal analysis, given the increasingly high degree of substitution with supercalender grades, and the diminishing percentage coated papers represents in our product portfolio. Comparative information has been modified to conform to this revised segment presentation.
We do not allocate any of the income or loss items following “operating (loss) income” in our consolidated statements of operations to our segments because those items are reviewed separately by management. Similarly, we do not allocate to the segments closure costs, impairment and other related charges, severance costs, inventory write-downs related to closures, startup costs of idled mills, net gain on disposition of assets, transaction costs, as well as other discretionary charges or credits. We also exclude certain corporate items from the segments, and present those separately as “corporate and other,” consistent with how management analyzes the results.
We allocate SG&A to the segments, with the exception of severance costs and certain other discretionary charges and credits, which are presented under corporate and other. Depreciation and amortization is also allocated to our segments.

35


NEWSPRINT
Highlights
 
  
Years Ended December 31,
(in millions, except where otherwise stated)
2013
 
 
2012
 
 
2011
 
 
Sales
$
1,473

 
$
1,627

 
$
1,816

 
Operating income (1)
 
40

 
 
97

 
 
89

 
EBITDA (2)
 
113

 
 
169

 
 
162

 
(in thousands of metric tons)
 
 
 
 
 
 
 
 
 
Shipments
 
2,392

 
 
2,491

 
 
2,753

 
Downtime
 
141

 
 
260

 
 
102

 
Inventory at end of period
 
99

 
 
90

 
 
78

 
(1) 
Net income including noncontrolling interests is equal to operating income in this segment.
(2) 
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reason we include this measure, see note 1 under “Results of Operations – Consolidated Earnings – Selected Annual Financial Information” above.
  
Years Ended December 31,
(in millions)
2013
 
 
2012
 
 
2011
 
 
Net income including noncontrolling interests
$
40

 
$
97

 
$
89

 
Depreciation and amortization
 
73

 
 
72

 
 
73

 
EBITDA
 
113

 
 
169

 
 
162

 
Industry trends
Source: Pulp & Paper Products Council (or “PPPC”)
Total North American demand for newsprint fell by 10% in 2013, with a 10% reduction in demand from newspaper publishers and 6% from other users. Globally, demand was down by 5%; Western Europe was down by 6% and Latin America by 7%, but demand was up 7% in India. An 11% increase in exports helped North American producers ship only 4% less overall than last year, with a 31% increase in shipments to Asia and 2% to Latin America. Accordingly, the shipment-to-capacity ratio in North America remained at 92% for the year, compared to the global average of 90%.

36


Operational Performance
2013 vs. 2012
Operating income variance analysis
Sales
Newsprint sales were $1,473 million, down by $154 million, or 9%, as a result of a 6% drop in average transaction price, or $37 per metric ton, and a 4% reduction in shipments, or 99,000 metric tons. The drop in shipments reflects our initiatives to optimize mill assets in response to changing market dynamics. As a result, we’ve reduced our annualized capacity by 285,000 metric tons, representing:
the closure, in the second quarter of 2012, of the Mersey, Nova Scotia, newsprint mill; and
the idling of the Calhoun newsprint machine, net of the corresponding restart of the Gatineau newsprint mill in the second quarter of 2013.
Among other advantages, the Gatineau mill benefits from a more competitive cost position, in part due to its ability to make external power sales from its cogeneration facility.

37


We took 79,000 metric tons less downtime in 2013, not including 2012 downtime at the Mersey mill (40,000 metric tons), which represents a net capacity reduction. Our export volume represented 44% of total shipments, compared to 41% in 2012.
Cost of sales, excluding depreciation, amortization and distribution costs
Segment COS improved by $94 million in 2013. In addition to the effect of lower volume and the weaker Canadian dollar, there was a $36 million improvement in manufacturing costs, which was favorably affected by:
asset optimization initiatives and lower labor costs because of restructuring initiatives ($31 million); and
external sales of power from our new cogeneration facilities, and lower chip and recovered paper pricing ($29 million).
Manufacturing costs were unfavorably affected by:
higher maintenance costs ($8 million);
higher fuel energy costs, mostly because of natural gas pricing ($7 million); and
the receipt of insurance proceeds in 2012 for the 2011 roof collapse at our Clermont mill ($7 million).
Distribution costs
Excluding the effect of volume, distribution costs rose by $9 million, mostly as a result of an increase in our export business from North American mills and the closure of the Calhoun newsprint machine.
Selling, general and administrative expenses
Segment SG&A fell by $5 million as a result of higher allocation to the market pulp segment following the acquisition of Fibrek.
2012 vs. 2011
Operating income variance analysis

38


Sales
In 2012, newsprint sales decreased $189 million, or 10%, to $1,627 million, primarily as a result of a 262,000 metric ton decrease in shipments and a $6 per metric ton reduction in average transaction price.
Shipments were down as a result of our efforts to control finished goods inventory and to manage our exposure to newsprint export markets pressured by the strong U.S. dollar. We took 158,000 metric tons more downtime in 2012 than in 2011, and we indefinitely idled, and subsequently sold, our export-focused Mersey newsprint mill, reducing our annual capacity by approximately 250,000 metric tons.
Cost of sales, excluding depreciation, amortization and distribution costs
Segment COS improved by $173 million in 2012, or $79 million, net of the impact of lower volume and the $11 million positive effect of the weaker Canadian dollar, including:
lower costs of power and fuel on lower natural gas pricing and energy saving initiatives ($22 million);
favorable recovered paper pricing ($20 million);
the idling of the Mersey facility in June ($18 million);
lower labor costs as a result of various restructuring initiatives ($16 million);
other operational cost improvements ($13 million); and
favorable fiber costs, including kraft usage and lower pricing for wood chips ($7 million).
Compared to 2011, segment COS was also favorably affected with the receipt of insurance proceeds ($7 million) for the 2011 roof collapse at our Clermont mill, but it was unfavorably affected by the loss of power sales income as a result of our sale of ACH in 2011 ($19 million), a non-cash obsolescence provision for slow-moving spare parts ($6 million) and the benefit of a 2010 NIER rebate recorded in 2011 ($5 million).
SPECIALTY PAPERS
Highlights
  
Years Ended December 31,
(in millions, except where otherwise stated)
2013
 
 
2012
 
 
2011
 
 
Sales
$
1,366

 
$
1,562

 
$
1,813

 
Operating income (1)
 
35

 
 
85

 
 
122

 
EBITDA (2)
 
112

 
 
168

 
 
206

 
(in thousands of short tons)
 
 
 
 
 
 
 
 
 
Shipments
 
1,837

 
 
2,054

 
 
2,410

 
Downtime
 
188

 
 
192

 
 
96

 
Inventory at end of period
 
96

 
 
82

 
 
94

 
(1) 
Net income including noncontrolling interests is equal to operating income in this segment.
(2) 
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reason we include this measure, see note 1 under “Results of Operations – Consolidated Earnings – Selected Annual Financial Information” above.
  
Years Ended December 31,
(in millions)
2013
 
 
2012
 
 
2011
 
 
Net income including noncontrolling interests
$
35

 
$
85

 
$
122

 
Depreciation and amortization
 
77

 
 
83

 
 
84

 
EBITDA
 
112

 
 
168

 
 
206

 

39


Industry trends 
Source: PPPC
North American demand for uncoated mechanical papers rose by 3% in 2013, with a 14% increase in demand for high-gloss (supercalender) grades, as certain customers substituted down from coated mechanical grades. Demand was down by 3% for standard grades. The industry shipment-to-capacity ratio was 92% for 2013, unchanged from 2012.
Source: PPPC
Demand for coated mechanical grades was down 7% in the year. After being considerably higher through three quarters, imports fell significantly in the fourth quarter, finishing the year down 11% overall. The industry shipment-to-capacity ratio dropped 4% in 2013, to 89%.
Operational Performance

40


2013 vs. 2012
Operating income variance analysis
Sales
Specialty papers sales were $1,366 million in 2013, a $196 million decrease, or 13%, reflecting the unfavorable effect of a 197,000 metric ton (217,000 short tons) decrease in shipments and a 2% drop in average transaction price, or $16 per short ton. The drop in shipments reflects our efforts to optimize the asset base, maximizing the utilization of our most cost-effective mills and streamlining production to adapt to changing market dynamics. As a result, we’ve reduced our annualized capacity by 220,000 metric tons (243,000 short tons), representing:
the indeterminate idling of a coated paper machine at our Catawba mill (June 2012);
the indefinite idling of a high-bright and book paper machine at our Fort Frances mill (November 2012); and
the permanent closure of a high-gloss paper machine at our Laurentide mill, and the corresponding restart of the Dolbeau high-gloss paper machine (October 2012).
Not including 125,000 metric tons (138,000 short tons) of 2012 downtime at Catawba and Fort Frances, which represents net capacity reductions, we took 16,000 metric tons (18,000 short tons) less downtime in 2013.
Cost of sales, excluding depreciation, amortization and distribution costs
Segment COS improved by $125 million in 2013. Other than the effect of volume and the favorable effect of the weaker Canadian dollar, manufacturing costs improved by $21 million as a result of:
external sales of power from our new cogeneration facilities and lower labor costs as a result of restructuring initiatives ($15 million);
more efficient fiber usage and lower chip and recovered paper pricing ($15 million);
lower electricity costs, mostly due to lower consumption in the U.S. southeast ($9 million);
lower usage of coating chemicals ($6 million); and
the receipt in 2013 of a business interruption insurance claim relating to a 2012 fire at our Dolbeau facility ($3 million);

41


partially offset by:
higher unscheduled maintenance and repair costs ($16 million);
higher wood costs in the U.S. southeast, including as a result of wet weather and usage ($6 million); and
higher fuel energy costs, mostly because of higher natural gas prices ($5 million).
Depreciation and amortization
Depreciation and amortization decreased by $6 million, reflecting lower depreciation as a result of the reduced carrying value of idled assets.
2012 vs. 2011
Operating income variance analysis
Sales
Specialty paper sales decreased $251 million, or 14%, to $1,562 million in 2012, reflecting the unfavorable effect of a 323,000 metric ton (356,000 short ton) decrease in shipments ($265 million) and the favorable impact of a $8 per short ton increase in average transaction price ($14 million).
We optimized our asset base in the segment as part of our ongoing efforts to manage production and inventory levels and to focus production in our most cost-effective mills. While we took only 87,000 additional metric tons (96,000 short tons) of downtime in 2012 compared to 2011, we adjusted our network with the following capacity initiatives:
closure of one paper machine at Kénogami (December 2011);
indeterminate idling of one paper machine at Catawba (June 2012);
restart of Dolbeau (October 2012);
closure of one paper machine at Laurentide (November 2012); and
idling of one paper machine at Fort Frances (November 2012).
These adjustments resulted in a net decrease of approximately 222,000 metric tons (246,000 short tons) of operating capacity on an annualized basis.

42


Cost of sales, excluding depreciation, amortization and distribution costs
Segment COS decreased $187 million in 2012. Other than the impact of volume and the weaker Canadian dollar, COS was favorably influenced by the positive effects of:
lower costs for power and steam ($17 million);
lower labor and benefits costs ($10 million) as a result of various restructuring initiatives;
a decline in kraft usage ($4 million); and
lower fiber costs ($3 million)
partially offset by:
higher unscheduled maintenance and repair costs ($18 million);
higher wood costs in the U.S. southeast due to the wet weather ($8 million);
higher costs for coating and other chemicals ($6 million);
a non-cash obsolescence provision for slow-moving spare parts ($5 million);
and additional costs associated with the ramp-up of operations at the Dolbeau facility ($4 million).
Distribution costs
Segment distribution costs decreased $19 million in 2012 as a result of the lower volume, offset by increased unit costs ($8 million) as a result of delays in Dolbeau’s start-up, which led to more costly modes of transportation to meet delivery deadlines.
Selling, general and administrative expenses
We allocated less SG&A to the segment in 2012 due to the reductions in operating capacity as well as the higher allocation to the market pulp segment as a result of the Fibrek acquisition.
MARKET PULP
Highlights
  
Years Ended December 31,
(in millions, except where otherwise stated)
2013
 
 
2012
 
 
2011
 
 
Sales
$
1,053

 
$
814

 
$
659

 
Operating income (loss) (1)
 
42

 
 
(43
)
 
 
91

 
EBITDA (2)
 
94

 
 
1

 
 
121

 
(in thousands of metric tons)
 
 
 
 
 
 
 
 
 
Shipments
 
1,583

 
 
1,254

 
 
902

 
Downtime
 
51

 
 
300

 
 
97

 
Inventory at end of period
 
81

 
 
121

 
 
79

 
(1) 
Net income (loss) including noncontrolling interests is equal to operating income (loss) in this segment.
(2) 
EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reason we include this measure, see note 1 under “Results of Operations – Consolidated Earnings – Selected Annual Financial Information” above.
  
Years Ended December 31,
(in millions)
2013
 
 
2012
 
 
2011
 
 
Net income (loss) including noncontrolling interests
$
42

 
$
(43
)
 
$
91

 
Depreciation and amortization
 
52

 
 
44

 
 
30

 
EBITDA
 
94

 
 
1

 
 
121

 

43


Industry trends
Source: PPPC
The chemical pulp market grew by over 1.5 million tons in 2013, up 3%. Regionally, North American demand was up 5%, China, 9%, while Western Europe was down 1%. Softwood mills operated at a strong 94% ratio in 2013.
Operational Performance

44


2013 vs. 2012
Operating income (loss) variance analysis
Sales
Sales in the market pulp segment were $1,053 million in 2013, an increase of $239 million, or 29%. The average transaction price was 2% higher in 2013, or $16 per metric ton. Shipments rose by 329,000 metric tons, or 26%. 263,000 metric tons of the increase relates to the three former Fibrek pulp mills, reflecting the additional four months of results given the timing of the acquisition, as well as more operating time at the Saint-Félicien mill in light of the extensive downtime taken in 2012 to improve its operational and environmental performance. Shipments from non-Fibrek mills rose by 8% as a result of stronger market conditions.
Not including downtime associated with the Fort Frances pulp mill, which represents a net capacity reduction, we took 147,000 metric tons less downtime in 2013 in light of the stronger market conditions and the extensive 2012 downtime at Saint-Félicien.
We idled the Fort Frances kraft pulp mill in November of 2012, reducing the production available for external sales by 63,000 metric tons on an annualized basis. The mill’s operational configuration was such that we did not believe it could be operated profitably following the loss of its key customer.
Cost of sales, excluding depreciation, amortization and distribution costs
Segment COS increased by $128 million in 2013, mainly as a result of our Fibrek acquisition.
Other than the effect of the weaker Canadian dollar, manufacturing costs improved by $24 million, mostly because of:
lower chip and recovered paper costs ($22 million);
external power sales from the additional cogeneration capacity at the Saint-Félicien and Thunder Bay mills, and lower maintenance costs compared to the extensive catch-up maintenance at the Saint-Félicien mill in 2012 ($18 million);
partially offset by:
higher wood costs in the U.S. southeast due to the wet weather ($8 million); and
higher fuel energy costs, mostly because of higher natural gas prices ($8 million).

45


Depreciation and amortization
Depreciation and amortization rose by $8 million, primarily as a result of the addition of the three Fibrek mills.
Selling, general and administrative expenses
Segment SG&A allocation rose by $5 million as a result of higher allocation to the segment following the acquisition of Fibrek.
2012 vs. 2011
Operating (loss) income variance analysis
Sales
Sales in the market pulp segment increased $155 million, or 24%, to $814 million in 2012. Shipments rose 352,000 metric tons, including the additional volume ($268 million) with our acquisition of Fibrek, which we began to consolidate in our results as of May. Excluding Fibrek, we experienced a $100 per metric ton decrease in average transaction price ($86 million) and a reduction in shipments compared to 2011 ($27 million). Overall, we took over 205,000 metric tons more downtime in the year, as we increased market downtime in response to softer market conditions compared to 2011, and as a result of downtime associated with the extensive maintenance outage and environmental work at Fibrek’s Saint-Félicien mill.We also idled our Fort Frances kraft pulp mill in November.
Cost of sales, excluding depreciation, amortization and distribution costs