10-K 1 rfp-20171231x10k.htm 10-K Document

 
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, 2017
 
¨
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 Robert-Bourassa Boulevard, Suite 5000; Montréal, Quebec; Canada H3C 2M1
(Address of principal executive offices)    (Zip Code)
(514) 875-2160
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.001 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ¨
Accelerated filer    þ
Non-accelerated filer    ¨ (Do not check if a smaller reporting company)
Smaller reporting company   ¨
Emerging growth company    ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 30, 2017) was approximately $259 million.
As of January 31, 2018, there were 90,196,720 shares of Resolute Forest Products Inc. common stock, $0.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed within 120 days of December 31, 2017, 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.
Item 16.

 
 



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,” “Resolute,” “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 and initiatives to reduce costs and increase revenues and profitability; business and operating outlook; future pension funding obligations; assessment of market conditions; growth strategies and prospects, and the growth potential of the Company and the industry in which we operate; liquidity; future cash flows, including as a result of the changes to our pension funding obligations; 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 – Overview – 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 Resolute Forest Products’ shareholders.
The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. These statements are based on management’s current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. The potential risks and uncertainties that could cause our actual future financial condition, results of operations and performance to differ materially from those expressed or implied in this Form 10-K include, but are not limited to, the impact of: developments in non-print media, and the effectiveness of our responses to these developments; intense competition in the forest products industry; any inability to offer products certified to globally recognized forestry management and chain of custody standards; any inability to successfully implement our strategies to increase our earnings power; the possible failure to successfully integrate acquired businesses with ours or to realize the anticipated benefits of acquisitions, such as Atlas Paper Holdings Inc. and its subsidiaries (“Atlas Tissue”), or divestitures or other strategic transactions or projects, such as our Calhoun (Tennessee) tissue operations; uncertainty or changes in political or economic conditions in the United States, Canada or other countries in which we manufacture or sell our products; global economic conditions; the highly cyclical nature of the forest products industry; any difficulties in obtaining timber or wood fiber at favorable prices, or at all; changes in the cost of purchased energy and other raw materials; physical and financial risks associated with global, regional and local weather and climate conditions and change; any disruption in operations or increased labor costs due to labor disputes; difficulties in our employee relations or retention; disruptions to our supply chain, operations or the delivery of our products; cybersecurity risks; risks related to the operation and transition of legacy system applications; negative publicity, even if unjustified; currency fluctuations; any increase in the level of required contributions to our pension plans, including as a result of any increase in the amount by which they are underfunded; our ability to maintain adequate capital resources to provide for all of our substantial capital requirements; the terms of our outstanding indebtedness, which could restrict our current and future operations; losses that are not covered by insurance; any additional closure costs and long-lived asset or goodwill impairment or accelerated depreciation charges; any need to record additional valuation allowances against our recorded deferred income tax assets; our exports from one country to another country becoming or remaining subject to duties, cash deposit requirements, border taxes, quotas or other trade remedies or restrictions; countervailing or anti-dumping duties on imports to the U.S. of our paper products and substantially all of our softwood lumber products produced at our Canadian mills; any failure to comply with laws or regulations generally; any additional environmental or health and safety liabilities; any violation of trade laws, export controls or other laws relating to our international sales and operations; adverse outcomes of legal proceedings or disputes in which we are involved; the actions of holders of a significant percentage of our common stock; and the potential risks and uncertainties described 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
The information on industry and general economic conditions in this Form 10-K was derived from third-party sources and trade publications we believe to be widely accepted and accurate. We have not independently verified the information and cannot assure you of its accuracy.

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PART I
ITEM 1. BUSINESS
We are a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood products, newsprint and specialty papers. We own or operate some 40 pulp, paper, tissue and wood products facilities, as well as power generation assets in the United States and Canada. Marketing our products in close to 70 countries, we have third-party certified 100% of our managed woodlands to at least one of two internationally recognized forest management standards.
Resolute Forest Products Inc., a Delaware corporation, was formed on January 25, 2007, from the merger of Abitibi-Consolidated Inc. (“Abitibi”) and Bowater Incorporated. Our common stock trades under the stock symbol “RFP” on both the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”).
Executive Officers
The following is information about our executive officers as of March 1, 2018:
Name
Age
Position
Officer Since
Yves Laflamme
61
President and Chief Executive Officer
2007
Steve Boniferro
61
Senior Vice President, Human Resources
2016
Jo-Ann Longworth
57
Senior Vice President and Chief Financial Officer
2011
Patrice Minguez
54
President, Tissue Group
2017
Richard Tremblay
54
Senior Vice President, Pulp and Paper Group
2014
Jacques P. Vachon
58
Senior Vice President, Corporate Affairs and Chief Legal Officer
2007
Mr. Laflamme previously served as senior vice president, wood products, global procurement and information technology, from January 2011 to January 2018, 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.
Mr. Boniferro previously served as vice president, human resources, Ontario operations and project lead strategic organization, from May 2014 to May 2016. Prior to joining Resolute Forest Products, he served as senior vice president, human resources at Catalyst Paper from January 2008 to May 2014 and as vice president, human resources at Algoma Steel from May 1997 to January 2008. Mr. Boniferro also served as staff representative and area coordinator (Northwestern Ontario) for the United Steelworkers Union from May 1988 to May 1997.
Ms. Longworth previously served as special advisor to the former president and chief executive officer, focusing on special mandates, from July 2011 to August 2011. Prior to joining Resolute Forest Products, 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. Minguez previously served as special advisor to the former president and chief executive officer. Prior to joining Resolute, he was founder and former president of Cellynne Holdings, Inc. from January 1989 to August 2012. From September 1986 to January 1989, Mr. Minguez headed SAS, a distribution company he founded, specializing in janitorial supplies and proprietary systems.
Mr. Tremblay previously served as senior vice president, pulp and paper operations from February 2014 to May 2015. He served as interim senior vice president, pulp and paper operations, from November 2013 to January 2014, and as vice president, pulp and paper operations from June 2011 to October 2013. Prior to joining Resolute Forest Products 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: market pulp, tissue, wood products, newsprint and specialty papers. Certain segment and geographical financial information, including sales by segment and by geographic area, operating income (loss) by segment and long-lived assets by

2


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.
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 75% of our virgin pulp capacity is softwood-based: northern bleached softwood kraft (“NBSK”) pulp, southern bleached softwood kraft (“SBSK”) pulp and fluff pulp. We are also the world’s largest producer of recycled bleached kraft (“RBK”) pulp and a competitive producer of northern bleached hardwood kraft (“NBHK”) pulp and southern bleached hardwood kraft (“SBHK”) pulp. Wood pulp is the most commonly used material to make paper and tissue. Pulp not converted into paper or tissue 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 28% of our 2017 market pulp shipments were exported outside of North America, including significant exports to Europe, Asia and Latin America.
Tissue
We produce tissue products at three facilities in North America, located in Florida and Tennessee. With total capacity of 128,000 short tons (116,000 metric tons), which includes our new tissue machine at our facility in Calhoun, we are a fully integrated manufacturer operating four tissue machines and 14 converting lines. We manufacture a range of tissue products for the away-from-home and at-home markets, including recycled and virgin paper products, covering premium, value and economy grades. We also sell parent rolls not converted into tissue products.
Wood products
We operate 14 sawmills in Canada that produce construction-grade lumber sold in North America. Our sawmills produce dimension spruce-pine-fir lumber and provide wood chips to our pulp and paper mills in Canada. Our sawmills also supply wood residue to our other segments, to be used as fuel to produce electricity and steam based on renewable sources. In 2017, we shipped 1.9 billion board feet of construction-grade lumber. We also operate two remanufactured wood products facilities that manufacture bed frame components, finger joints and furring strips, two engineered wood products facilities that manufacture I-joists for the construction industry, and one wood pellet facility, all of which are located in Quebec and Ontario.
Newsprint
We produce newsprint at eight facilities in North America. With total capacity of approximately 1.8 million metric tons, which represents approximately 8% of total worldwide capacity and approximately 43% of total North American capacity, we are the largest producer of newsprint in the world. We sell newsprint to newspaper publishers worldwide and also to commercial printers in North America for uses such as inserts and flyers. In 2017, North American deliveries represented 62% of our total newsprint shipments.
Specialty papers
We produce specialty papers at six facilities in North America. With total capacity of approximately 1.2 million short tons (1.1 million metric tons), our specialty papers segment is composed of uncoated mechanical papers, including supercalendered (“SC”) paper and white paper, as well as coated mechanical papers and uncoated freesheet papers. With 724,000 short tons (657,000 metric tons) of capacity, or approximately 22% of total North American capacity, we are the largest producer of uncoated mechanical papers in North America, and the fourth largest in the world. Also, with 345,000 short tons (313,000 metric tons) of capacity, or approximately 14% 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, bags, and other commercial printing applications. We sell specialty papers to major commercial printers, direct mailers, publishers, catalogers and retailers, mostly in North America.
For additional information on our corporate strategy, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Our Business” of this Form 10-K.
Pulp, tissue and paper manufacturing facilities
The following table lists the pulp, tissue and paper manufacturing facilities and the number of paper and tissue machines we owned or operated as of December 31, 2017, excluding facilities and machines that have been permanently closed or indefinitely idled as of December 31, 2017. The table presents our total 2017 production by product line (which represents all of our reportable segments except wood products), reflecting the impact of any downtime taken in 2017, and our 2018

3


capacity. Total capacity is based on an operating schedule of 360 days. In certain cases, production can exceed capacity, due to changes in the manufacturing properties of the product.
 
Number of Machines
2018
2017
2017 Production By Product Line
(In thousands of metric tons)
Total
Capacity
Total
Production
Market
Pulp
Tissue
Newsprint
Specialty
Papers
Canada
 
 
 
 
 
 
 
 
 
 
 
 
 
Alma (Quebec) (1)
3
360

 
284

 

 

 

 
284

 
Amos (Quebec)
1
195

 
196

 

 

 
196

 

 
Baie-Comeau (Quebec)
2
321

 
274

 

 

 
274

 

 
Clermont (Quebec) (2)
1
223

 
221

 

 

 
221

 

 
Dolbeau (Quebec)
1
142

 
140

 

 

 

 
140

 
Gatineau (Quebec)
1
196

 
196

 

 

 
196

 

 
Kénogami (Quebec)
1
134

 
122

 

 

 

 
122

 
Saint-Félicien (Quebec)
340

 
325

 
325

 

 

 

 
Thunder Bay (Ontario)
1
535

 
505

 
314

 

 
180

 
11

 
United States
 
 
 
 
 
 
 
 
 
 
 
 
 
Augusta (Georgia)
1
218

 
199

 

 

 
199

 

 
Calhoun (Tennessee) (3) (4)
2
391

 
277

 
129

 
21

 

 
127

 
Catawba (South Carolina) (5)
1
546

 
501

 
209

 

 

 
292

 
Coosa Pines (Alabama)
268

 
263

 
263

 

 

 

 
Fairmont (West Virginia)
218

 
138

 
138

 

 

 

 
Grenada (Mississippi)
1
231

 
229

 

 

 
229

 

 
Hialeah (Florida)
2
31

 
29

 

 
29

 

 

 
Menominee (Michigan)
178

 
122

 
122

 

 

 

 
Sanford (Florida)
1
25

 
22

 

 
22

 

 

 
Usk (Washington) (6)
1
226

 
222

 

 

 
222

 

 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
Permanently closed facilities and paper machines (7)
 
 
 
341

 

 

 
110

 
231

 
 
20
4,778

 
4,606

 
1,500

 
72

 
1,827

 
1,207

 
(1) 
On October 16, 2017, we restarted a paper machine in Alma, representing approximately 75,000 metric tons of specialty papers capacity.
(2) 
On December 21, 2017, we acquired the 49% equity interest held by The New York Times Company in Donohue Malbaie Inc. We already owned 51% of the shares of Donohue Malbaie Inc. The amounts in the above table represent the mill’s total capacity and production.
(3) 
On February 28, 2017, we started a tissue machine at our Calhoun facility.
(4) 
On September 30, 2017, we permanently closed two paper machines in Calhoun, representing approximately 255,000 metric tons of specialty papers capacity and 80,000 metric tons of newsprint capacity.
(5) 
On June 30, 2017, we permanently closed a paper machine in Catawba, representing approximately 190,000 metric tons of specialty papers capacity.
(6) 
Ponderay Newsprint Company is located in Usk and is an unconsolidated partnership in which we have a 40% interest. The amounts in the above table represent the mill’s total capacity and production.
(7) 
In 2017, we permanently closed paper machines in Calhoun and Catawba, as well as our paper mill in Mokpo (South Korea). For additional information, see Note 4, “Closure Costs, Impairment and Other Related Charges,” to our Consolidated Financial Statements.

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Wood products facilities
The following table lists the sawmills we owned or operated as of December 31, 2017, excluding facilities that have been permanently closed as of December 31, 2017. The table presents our total 2017 production, reflecting the impact of any downtime taken in 2017, and our 2018 mechanical capacity. We do not have access to enough timber to operate most of the sawmills at their total mechanical capacity. Total capacity is based on an operating schedule of 355 days.
 
 
2018
 
2017
(In million board feet)
 
Total Capacity
 
Total Production
Atikokan (Ontario)
 
145

 
 
107

 
Comtois (Quebec)
 
145

 
 
119

 
Girardville (Quebec)
 
220

 
 
220

 
Ignace (Ontario)
 
115

 
 
79

 
La Doré (Quebec)
 
198

 
 
198

 
La Tuque (Quebec) (1)
 
175

 
 
90

 
Maniwaki (Quebec)
 
204

 
 
111

 
Mistassini (Quebec)
 
203

 
 
200

 
Obedjiwan (Quebec) (2)
 
65

 
 
49

 
Pointe-aux-Outardes (Quebec)
 
175

 
 
123

 
Saint-Félicien (Quebec)
 
174

 
 
149

 
Saint-Thomas (Quebec)
 
93

 
 
61

 
Senneterre (Quebec)
 
155

 
 
121

 
Thunder Bay (Ontario)
 
302

 
 
294

 
 
 
2,369

 
 
1,921

 
(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.
The following table lists the remanufactured wood, engineered wood and wood pellet products facilities we owned or operated as of December 31, 2017, and their respective 2018 capacity and 2017 production. Total capacity is based on an operating schedule of 355 days.
 
 
2018
 
2017
(In million board feet, except where otherwise stated)
 
Total Capacity
 
Total Production
Remanufactured Wood Products Facilities
 
 
 
 
 
 
Château-Richer (Quebec)
 
66

 
 
45

 
La Doré (Quebec)
 
16

 
 
14

 
Total Remanufacturing Wood Facilities
 
82

 
 
59

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

 
 
104

 
Wood Pellet Products Facility
 
 
 
 
 
 
Thunder Bay (Ontario) (in thousands of metric tons)
 
45

 
 
39

 
(1) 
Resolute-LP Engineered Wood Larouche Inc. and Resolute-LP Engineered Wood St-Prime Limited Partnership 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.
Other products
We also sell green power produced from renewable sources, 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.

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Raw Materials
In the manufacture of our paper, tissue, pulp and wood products, our operations consume substantial amounts of raw materials such as wood, chemicals, and recovered paper (primarily sorted office paper), as well as energy. We purchase raw materials and energy sources (to complement internal generation) primarily on the open market. These raw materials are market-priced commodities and as such, are subject to fluctuations in market prices. For additional information about commodity price risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Commodity Price Risk” of this Form 10‑K.
Wood
Our sources of wood include purchases from local producers, including sawmills that supply residual wood chips, wood harvested from government-owned land on which we hold timber supply guarantees or harvesting rights, and property we own or lease. In Quebec, under the Sustainable Forest Development Act, volumes are allocated through timber supply guarantees, which are five years in length and renewable, subject to certain conditions. As of December 31, 2017, we were allocated 4.3 million cubic meters of supply through the timber supply guarantees. In Ontario, we had long-term harvesting rights for approximately 11.5 million acres of government-owned land, as of December 31, 2017. 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.
We depend heavily on harvesting rights and timber supply guarantees over government-owned land in Ontario and Quebec, respectively. The volume of harvest permitted under these licenses is subject to limits, which are generally referred to as the annual allowable cut (“AAC”). The AAC is reviewed regularly, typically every five years in Quebec and every 10 years in Ontario. The chief forester of the province of Quebec ordered significant reductions to the allowable harvest between 2006 and 2018, and announced a preliminary increase of 5.9% to the AAC for the spruce, pine, fir, and larch species that we require, for the period of 2018 to 2023. Also, about 25% of the total allowable harvest in Quebec is allocated through an open auction system.
In addition to the forest management regulations that we must abide with, we have sought out independent certification for 100% of the forests that we manage or on which we hold significant harvesting rights in order to demonstrate our strong belief that it is possible to carefully harvest trees while maintaining biodiversity and protecting the forest; values important to a range of stakeholders. The woodlands that we manage are all independently certified to at least one of two internationally recognized forest management standards: Sustainable Forestry Initiative® (“SFI®”) and Forest Stewardship Council® (“FSC®”). In 2017, we successfully maintained SFI forest management certification for all of our managed woodlands in Quebec and Ontario. One FSC forest management certificate in the Abitibi region of Quebec was not renewed at the end of its five-year term and expired on January 2, 2018. We continue to maintain the other FSC forest management certificates that we held in Quebec and Ontario. In addition, we continue to be one of the largest holders of SFI and FSC forest management certificates in North America.
We have also instituted fiber-tracking systems at all of our North American facilities to ensure that our wood fiber supply comes from acceptable sources such as certified forests and legal harvesting operations, with the exception of our Hialeah tissue mill. These systems are third-party certified according to one or more of three internationally recognized chain of custody standards, namely SFI, FSC and Programme for the Endorsement of Forest Certification (“PEFC”). 100% of our wood and fiber sources is procured through the FSC Controlled Wood standard, the FSC chain of custody certification, the PEFC due diligence requirements or the SFI fiber sourcing requirements, and in some cases a combination of these standards, with the exception of our Hialeah tissue mill, which sources 100% of its recycled fiber supply from our U.S. pulp network.
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.
Chemicals
We use various chemicals in our pulp and paper manufacturing operations including caustic soda, sodium chlorate, hydrogen peroxide, liquid sodium hydrosulfite, and sulfuric acid.
Recovered paper
We are a large consumer of recycled fiber in North America and have de-inking plants that use advanced mechanical and chemical processes to manufacture high quality pulp from recovered paper to produce RBK pulp. The Menominee and Fairmont pulp mills manufacture products containing 100% recycled fiber. In 2017, we used 440,000 metric tons of recovered paper in our production processes.

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Energy
Steam and electrical power constitute the primary forms of energy used in pulp, tissue 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 of our operating sites generate 100% of their own steam requirements. In 2017, our Alma, Calhoun, Catawba, Coosa Pines, Dolbeau, Gatineau, Kénogami, Saint-Félicien and Thunder Bay operations collectively consumed approximately 48% of their electrical requirements from internal sources, notably on-site cogeneration and hydroelectric dams. We purchased the balance of our electrical energy needs from third parties. We have seven sites that operate cogeneration facilities and all of these sites generate primarily “green energy” from renewable biomass. In addition, we utilize alternative fuels such as used oil and tire-derived fuel to reduce consumption of fossil fuels.
We also have one hydroelectric generation and transmission network (Hydro-Saguenay in the Saguenay region of Quebec), which consists of seven generating stations with 170 MW of capacity. The water rights agreements required to operate some of these facilities typically range from 10 to 25 years and, subject to certain conditions, are generally renewable for additional terms. In some cases, the agreements are contingent on the continued operation of the related paper mills and a minimum level of capital spending in the region. For the other facilities, the right to generate hydroelectricity stems from our ownership of the riverbed on which these facilities are located.
Competition
In general, our products, other than tissue, are globally-traded commodities. The markets in which we compete are highly competitive and, aside from quality specifications to meet customer needs, the production of our products, other than tissue, 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. Prices for our products have been and are likely to continue to be highly volatile.
We produce six major grades of market pulp (NBSK, SBSK, NBHK, SBHK, RBK and fluff), for which we compete with a number of major market pulp producers, primarily with operations in North America. Market pulp being a globally-traded commodity, we also 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.
We are an integrated manufacturer of tissue products and compete with several major competitors in the North American tissue market. The key competitive attributes in this market include price, product quality, service and customer relationships. Competition is also significantly affected by geographic location, as freight costs represent a material portion of the costs. We compete with branded and private-label products within North American products.
We compete in North America with both large North American and numerous smaller local lumber producers in a highly competitive market. We also compete with European producers in the North American market during periods of favorable currencies and prices. Because there are few distinctions between lumber from different producers, competition is primarily based on price. Competition is also affected by cost and availability of wood, freight cost and labor.
Newsprint is produced by numerous manufacturers worldwide. In 2017, the five largest North American producers represented approximately 87% of North American newsprint capacity and the five largest global producers represented approximately 32% of global 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, coated mechanical, and uncoated freesheet papers, compete on the basis of price, quality, service and breadth of product line. We compete with numerous uncoated mechanical paper producers, with the five largest North American producers representing 84% of the North American uncoated mechanical papers capacity and the five largest global producers representing 47% of global uncoated mechanical papers capacity in 2017. In addition, imports from overseas accounted for approximately 12% of North American uncoated mechanical paper demand in 2017. We also compete with a number of other coated mechanical paper producers with operations in North America. In 2017, the five largest North American producers represented approximately 93% of North American capacity for coated mechanical papers. Imports of coated mechanical papers accounted for approximately 15% of North American demand in 2017. There are also numerous worldwide suppliers of other grades of paper such as coated freesheet.
Substantially all of our U.S. imports of SC paper, uncoated groundwood (“UGW”) paper, and softwood lumber products produced at our Canadian mills are subject to one or more orders requiring us to pay cash deposits to the U.S. for estimated countervailing or anti-dumping duties. Since October 20, 2015, we have been required to pay cash deposits at a subsidy rate of 17.87% for estimated countervailing duties on our U.S. imports of SC paper produced at our Canadian mills. We also became

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required to pay cash deposits for estimated countervailing duties and anti-dumping duties on our U.S. imports of softwood lumber products produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of December 31, 2017, the rates for such estimated countervailing and anti-dumping duties were 14.7% and 3.2%, respectively. Additionally, since January 16, 2018, we have been required to pay cash deposits to the U.S. at a preliminary rate of 4.42% for estimated countervailing duties on our U.S. imports of UGW paper produced at our Canadian mills. The countervailing duty and anti-dumping investigations of UGW paper produced in Canada are at a preliminary stage, and it is uncertain at the conclusion of those investigations, at what rate, if any, we will be required to pay cash deposits to the U.S. for estimated countervailing or anti-dumping duties on our imports to the U.S. of UGW paper produced at our Canadian mills. During any period in which our U.S. imports of SC paper, UGW paper, or softwood lumber products from our Canadian mills are subject to countervailing duty or anti-dumping cash deposit requirements or duty requirements, our competitive position of those products could be materially affected. For additional information, see Item 1A, “Risk Factors – Legal and Compliance Risk – We are subject to countervailing or anti-dumping duties on our U.S. imports of paper products and substantially all of our U.S. imports of softwood lumber products produced at our Canadian mills, which could materially affect our operations and cash flows,” of this Form 10‑K.
As with other global commodities, the competitive position of our products is significantly affected by fluctuations in foreign currency exchange rates. For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Exchange Risk,” of this Form 10-K.
Trends in non-print media are expected to continue to adversely affect demand for traditional print media, including our newsprint and specialty papers, and those of our customers. For additional information, see Item 1A, “Risk Factors – Strategic Risk – Developments in non-print media are expected to continue to adversely affect the demand for some of our key products, and our responses to these developments may not be successful,” of this Form 10-K.
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 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 standards or 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 adversely affect the marketability of our products and our ability to compete with other producers.
Employees
As of December 31, 2017, we employed approximately 7,700 people, of whom approximately 5,100 were represented by various unions, primarily Unifor, and the Confederation of National Trade Unions (the “CNTU”) in Canada and predominantly by the United Steelworkers International (the “USW”) in the U.S. In the past year, we renewed or entered into a number of agreements with unions, covering approximately 260 employees in Canada. Collective agreements covering approximately 1,300 employees in Canada are scheduled to expire in 2018, affecting certain pulp and paper mills, sawmills and woodlands operations.
While we intend 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. Should we be unable to do so, 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.
Trademarks
We have registrations or pending applications for our key trademarks “RESOLUTE” and “resolute Forest Products & Design” in the countries of our principal markets, as well as “RESOLUTE FOREST PRODUCTS”, “R Design”, and “RESOLUTE TISSUE” in Canada and the United States, and “RÉSOLU” and “Produits forestiers résolu & Design” in Canada. The current registrations of these trademarks are effective for various periods of time and may be renewed periodically, provided that we, as the registered owner, comply with all applicable renewal requirements.
Environmental Matters
We are subject to a variety of federal or national, 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 significant competitive disadvantage with regard to meeting future Canadian or United States standards. For additional information, see Note 16, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

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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 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.
Strategic Risk
Strategic risks relate to our future business plans and strategies, including the risks associated with the global macro-environment in which we operate, trends in our industry, demand for our products, competitive threats, product innovation, public policy developments, resource allocation, and strategic initiatives, including mergers and acquisitions, dispositions, and restructuring activity.
Developments in non-print media are expected to continue to adversely affect the demand for some of our key products, and our responses to these developments may not be successful.
Trends in non-print media are expected to continue to adversely affect demand for traditional print media, including our newsprint and specialty papers, and those of our customers. Neither the timing nor the extent of these trends can be predicted with certainty. Our newspaper, magazine, book and catalog publishing customers could increase their use of, and compete with, non-print media, including video and audio-based advertising and data transmission, non-print storage technologies, and non-print communication platforms such as websites and social media, which could further reduce their consumption of newsprint, commercial printing papers or other products we manufacture. The demand for some of our paper products has weakened significantly over the past decade. For example, over the 10 years ended December 31, 2017, according to industry statistics, North American newsprint demand fell by 65%. This trend, which similarly affects our specialty papers, could continue as a result of developments in non-print media, lower North American newspaper circulation, weaker paper-based advertising, grade substitution and conservation measures taken by publishers and retailers.
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 sizable global producers that have 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 our 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 sizable low-cost hardwood and softwood grade pulp capacity in South America, which continues to grow as a result of ongoing investment and whose costs are thought to be very competitive, and the actions those mills take to gain market share, could continue to adversely affect our competitive position in similar grades. This in turn could affect our sales 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.
If we are unable to offer products certified to globally recognized forestry management and chain of custody standards, it could adversely affect our ability to compete.
Based on market interest, we offer a number of our products, including some paper grades, some grades of market pulp, and wood products, with specific designations to one or more globally recognized 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 standards or 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

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governments. If we are unable to offer certified products, or to meet commitments to supply certified product, it could adversely affect the marketability of our products and our ability to compete with other producers.
We may not be successful in implementing our strategies to increase earnings power.
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. This strategy has three core themes: maximizing value generation from paper, growing in pulp, tissue, and wood products, and integrating our pulp into value-added quality tissue.
The implementation of our corporate strategy is subject to uncertainty, could require significant capital investments, and involves significant capital allocation and financing decisions as well as a substantial number of mills, machines, and personnel. In addition, strategic initiatives could have unintended consequences, including, for example, a loss of certain pulp customers if our tissue segment becomes competitive with tissue products sold by those customers.
As part of our corporate strategy, we pursue acquisitions, divestitures, and other strategic transactions and projects to complement, expand or optimize our business, such as our entry into tissue production and sales through our 2015 acquisition of Atlas Tissue, and our new tissue operations at Calhoun. In connection with any acquisition, divestiture, strategic transaction or project, we may not successfully integrate an acquired business or assets with ours or realize some or all of the anticipated benefits of the acquisition, divestiture, strategic transaction or project. In connection with such transactions, we may face challenges associated with entering into a new market or product category, such as our entry into tissue production and sales, including competition for market share. In addition, we may not be able to successfully negotiate potential acquisitions, divestitures, strategic transactions or projects that we identify, or may not be able to obtain financing that may be needed. Future acquisitions could result in potentially dilutive issuances of equity securities and the incurrence of debt and contingent liabilities, and substantial goodwill. The negotiation of any transaction and its completion may be complex and time consuming. To the extent we are unsuccessful in implementing our corporate strategy or our efforts do not achieve the anticipated outcomes, our results of operations and cash flows may be adversely affected.
Changes in the political or economic conditions in the United States, Canada or other countries in which we sell our products could adversely affect our results of operations.
We manufacture products in the United States and Canada, and we sell products throughout the world. The economic and political policies of each country and region have a significant impact on our costs and the prices of, and demand for, our products. Changes in regional economies and economic policies can affect demand for, and the cost of, manufacturing and distributing our products, as well as pricing, sales volume, and the availability or cost of insurance. These changes, in turn, can affect our results of operations. Changes to regional economies and economic policies that can bring about such effects include, among others, changes in the terms of, or countries that are parties to, bilateral and multi-lateral trade agreements and arrangements, limitations on the ability of potential customers to import products or obtain foreign currency for payment of imported products, and political instability, including significant civil unrest, acts of war or terrorist activities, or unstable or unpredictable governments in countries in which we operate or trade.
Our business is subject to global economic conditions and is highly cyclical; 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 periods of weak or weakening global economic conditions, we would expect any increase in unemployment or lower gross domestic product growth rates to adversely affect demand for our products as our customers delay or reduce their expenditures. For example, during an economic downturn, end consumers may reduce 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 printed magazines and newspapers, including classified advertisements, may also decline. Lower demand for print advertisements leads to fewer or smaller pages in, and may lead to less frequent publication of, printed newspapers, magazines and other advertisement circulars and periodicals, decreasing the demand for our products. In addition, demand for our market pulp products is generally associated with the production rates of paper producers, as well as consumption trends for products such as tissue, toweling and absorbent products.
An economic downturn in the U.S. or Canada may also negatively affect the U.S. or Canadian housing industry, which is a significant driver of demand for our lumber and other wood-based products. For example, a decline in housing starts may create a low level of primary demand for our lumber and other wood-based products, which we would expect to result in our wood products business operating at a lower level until there is a meaningful recovery in new residential construction demand. In addition, with less lumber demand, sawmills generate fewer wood chips that we use in our pulp and paper mills, which leads those 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 and environmental impact.

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The forest products industry is also 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. As described above, end user demand depends at least in part on general economic conditions in North America and the world, and the effect can be significant. In addition to end user demand, we have experienced cyclical changes in prices, sales volume and margins for our commodity 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.
Operational Risk
Operational risks arise from external events, processes, people and systems that affect the operation of our businesses. These include risks affecting, among other things, marketing and sales, woodlands management, production, supply chains, information management, data protection and security, including cybersecurity, human resources, and reputation.
Our manufacturing businesses may have difficulty obtaining timber or 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 – primarily sorted office paper – as fiber sources for our pulp, tissue, and paper mills. Our primary source for wood fiber is timber. Our wood products business is also dependent on our timber supply.
For our timber supply, we depend heavily on harvesting rights and timber supply guarantees over government-owned land in Ontario and Quebec, respectively. The volume of harvest permitted under these licenses is subject to limits, which are generally referred to as the AAC. The AAC is reviewed regularly, typically every five years in Quebec and every 10 years in Ontario. The chief forester of the province of Quebec ordered significant reductions to the allowable harvest between 2006 and 2018, and announced a preliminary increase of 5.9% to the AAC for the spruce, pine, fir, and larch species that we require, for the period of 2018 to 2023. Also, about 25% of the total allowable harvest in Quebec is allocated through an open auction system.
In addition, regulatory developments, activist campaigns and litigation advanced by First Nations groups or other interested parties have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in Canada, or that meet standards required for third-party certifications. Future regulation, particularly by Ontario, Quebec, or the federal Canadian government, as well as litigation, changes in forest management certification standards, and actions taken by activists to influence the availability of timber for commercial harvest could focus on any one or more of:
the use of timberlands;
forest management practices;
forest management and chain of custody certification standards;
consultation with First Nations group;
the protection of habitats, and endangered or other species, including the woodland caribou;
the promotion of forest biodiversity; and
the response to and prevention of catastrophic wildfires.
Increased pressures on the Canadian provincial and federal governments to increase the protection of the woodland caribou, its habitat, and the boreal forest, could impact timber supply. For example, regulations relating to habitats, and endangered or other species, which are proposed for adoption by Ontario, could significantly reduce timber supply in that province, including to our Ontario mills. 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, which could potentially reduce supply and increase prices.
Though timber is our primary source of fiber, wood fiber is a commodity and we also buy a significant portion of our fiber requirements on the open market. Prices for wood fiber are cyclical and subject to market influences, which could be concentrated in one or more regions due to market shifts.
If we are unable to obtain adequate supplies of timber or wood fiber at favorable prices for any of the reasons described above, our business operation could be materially and adversely affected.

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A sustained increase in the cost of purchased energy and other raw materials would lead to higher manufacturing costs, which could reduce our margins.
Our operations consume large 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 processes are wood fiber, chemicals, and recovered paper. The prices for raw materials and energy are volatile and may change rapidly, which impacts our manufacturing costs, directly affects our results of operations and has contributed to earnings volatility.
For our commodity products, the relationship between industry supply and demand, rather than changes in the cost of raw materials, determines 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.
We also generate electricity for our operations at our hydroelectric facilities. There 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 on favorable conditions. The amount of electricity we can generate from our hydroelectric power facilities is also subject to the volume of rain or snowfall and is therefore variable from one year to the next.
We are subject to physical and financial risks associated with global, regional, and local weather conditions, and climate change.
Our operations and the operations of our suppliers are subject to climate variations, which impact the productivity of forests, the frequency and severity of wildfires, the distribution and abundance of species, and the spread of disease or insect epidemics, which in turn 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, ice storms, the spread of disease, and insect infestations. Any of these natural disasters could also affect our woodlands or cause variations in the cost of raw materials, such as virgin fiber. Changes in precipitation resulting in droughts could make wildfires more frequent or more severe, and could adversely affect timber or our hydroelectric production.
To the extent global, regional, or local climate conditions or change impacts raw material availability or our hydroelectric production, it may also impact our costs and revenues.
We could experience disruptions in operations or increased labor costs due to labor disputes.
As of December 31, 2017, we employed approximately 7,700 people, of whom approximately 5,100 were represented by various unions, primarily Unifor, and the CNTU in Canada, and predominantly by the USW in the U.S. In 2017, we renewed or entered into a number of agreements with unions, covering approximately 260 employees in Canada. Collective agreements covering approximately 1,300 employees in Canada are scheduled to expire in 2018, affecting certain pulp and paper mills, sawmills and woodlands operations.
While we intend 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. Should we be unable to do so, 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.
Difficulties in our employee relations or difficulties attracting employees for work in our remote locations could lead to operational delays or increase our costs.
Our ability to achieve our future goals and objectives is dependent, in part, on maintaining good relations with our employees and minimizing employee turnover at our corporate offices, mills, and woodlands operations. Work stoppages, excessive employee turnover, or difficulty in attracting and retaining employees for work in remote locations could lead to operational delays or increased costs.
Disruptions to our supply chain, operations, or the delivery of our products, could 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 our ability to complete construction and maintenance projects on schedule. Interruptions of operations at our facilities, including interruptions caused by the events described below, could materially reduce the productivity and

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profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational difficulties.
Our operations, supply chain, and transportation and delivery services are subject to potential hazards, including explosions, fires, severe weather and natural disasters, mechanical failures, structural failures at any of our dams or hydroelectric facilities, unscheduled downtimes, prolonged power failures, supplier disruptions, labor shortages, including woodland contractors, or other labor difficulties, transportation interruptions, including as a result of shortages of carriers or drivers, remediation complications, discharges or releases of toxic or hazardous substances or gases, other environmental and workplace risks, and terrorist or other violent acts.
Some of these hazards can cause personal injury and loss of life, severe damage to or destruction of property, equipment, or the environment, and can result in, among other things: the suspension of operations; the shutdown of affected facilities; reputational damage; the imposition of civil or criminal penalties; workers’ compensation; and claims against us with respect to workplace exposure, exposure of contractors on our premises, as well as other persons located nearby.
We are subject to cybersecurity 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 cyberattacks by hackers or breaches due to employee error, malfeasance, or other disruptions. Any such breach could result in operational disruptions or the misappropriation of sensitive data and could subject us to civil and criminal penalties, litigation, or have a negative impact on our reputation. We may be required to expend capital and other resources to protect against such security breaches or cyberattacks, or to remediate problems caused by such breaches or attacks. 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. The U.S. and Canadian legislatures also are considering cybersecurity legislation that, if enacted, could impose additional obligations on us and could expand our potential liability in the event of a cybersecurity incident.
We are currently transitioning from certain legacy system applications, and during the transition, such legacy systems may be more vulnerable to attack or failure and implementation of the transition may cause disruptions to our business information systems.
We are currently in the ongoing process of replacing certain legacy system applications with an integrated business management software platform. Prior to the completion of this upgrading process, we may not have supplier or third-party support for legacy systems in the event of failure or required updates, and such legacy systems may be more vulnerable to breakdown, malicious intrusion, and random attack. Prior to the completion of this upgrading process, we may also experience difficulties maintaining or replacing the hardware infrastructure required to operate these legacy systems. Such legacy systems, if not properly functioning prior to their replacement, could adversely affect our business.
During the process of replacing legacy systems, we could experience disruptions to our business information systems and normal operating processes because of the projects’ complexity. The potential adverse consequences could include delays, loss of information, decreased management reporting capabilities, damage to our ability to process transactions, harm to our control environment, diminished employee productivity, and unanticipated increases in costs. Further, our ability to achieve anticipated operational benefits from new platforms is not assured.
Negative publicity, even if unjustified, could have a negative impact on our brand and the marketability of our products.
We believe that we have established a reputation for transparent communications, responsible forestry practices, and overall sustainability leadership. We also believe that our commitment to sustainable and responsible forestry practices extends well beyond strict compliance with applicable forestry regulations, which in Quebec and Ontario are already among the most, if not the most, rigorous in the world. Negative publicity, whether or not justified, relating to our operations could tarnish our reputation or reduce the value of our brand and market demand for our products. In addition, the actions of activists, whether or not justified, could impede or delay our ability to access raw materials or obtain third-party certifications with respect to forest management and chain of custody standards that we seek in order to supply certified products to our customers. In these cases, we may have to incur significant expenses and dedicate additional resources to defend ourselves against activist campaigns, rebuild our reputation, and restore the value of our brand.

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Financial Risk
Financial risks relate to our ability to meet financial obligations and mitigate exposure to broad market risks, including: volatility in foreign currency exchange rates, interest rates and commodity prices; capital structure; and credit and liquidity risk, including risk related to cash management, extension of credit, collections, credit ratings, and availability and cost of funding.
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 and tissue, where we compete primarily 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 Canadian dollar, the euro, and the pound sterling. Changes in the relative strength or weakness of these currencies, particularly the U.S. dollar, could 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 2017, for example, the strength of the U.S. dollar against certain European currencies and the currencies of other paper producing countries, in addition to the weak currencies in a number of paper importing countries, continued to negatively affect the competitive position of North American newsprint producers selling in certain U.S. dollar-denominated international newsprint markets, such as Asia and Latin America. Some of our European competitors were able to price products more aggressively in those markets as a result of the relative weakness of their local currency, which negatively affected our ability to compete.
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 2016 and 2017, the Canadian dollar fluctuated between a low of US$0.69 in January of 2016 and a high of US$0.83 in September of 2017. Based on operating projections for 2018, 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 $17 million, and vice versa.
Furthermore, certain assets and liabilities, including a substantial portion of our net pension and other postretirement benefit obligations and our net deferred income tax assets, are denominated in Canadian dollars. As a result, our earnings can be subject to the potentially significant effect of foreign exchange gains or losses in respect of these Canadian dollar net monetary items. A fluctuation of the Canadian dollar against the U.S. dollar in any given period would generally cause a foreign exchange gain or loss.
The amount by which our pension plans are underfunded could increase the level of required contributions, which could have an adverse impact on our financial condition.
As of December 31, 2017, we had net pension obligations of approximately $1,097 million, of which approximately 70% relates to our Canadian registered pension plans in the provinces of Quebec and Ontario, and approximately 30% of which relates to our U.S. qualified pension plan. See Note 14, “Pension and Other Postretirement Benefit Plans,” to our Consolidated Financial Statements, for a description of our pension plan funding obligations, including our unfunded pension obligations.
The amount by which our pension plans are funded or underfunded varies depending upon the return on pension fund investments, the level of interest rates used to determine minimum funding levels, and other actuarial assumptions and experience. Variations from our assumptions would cause the actual amount of our required contributions to vary from our current estimates. Any additional contributions to our pension funds to fund potential resulting increased deficits would be required to be paid over seven-year or 15-year periods, depending upon the laws applicable to the funding of the specific pension plan, except that plans that are currently subject to 15-year periods will be gradually reduced to maximum 10-year periods by December 31, 2021. Any change to laws and regulations applicable to the funding of our pension plans could also increase or decrease our future funding obligations. Similarly, because we make our Quebec and Ontario pension plan contributions in Canadian dollars, the amount of our contributions as stated in U.S. dollars can be subject to the potentially significant effect of foreign currency exchange rate variations. Any such variations could materially affect our cash flows and financial condition, in each case either positively or negatively depending on the direction and magnitude of the variation. In addition, an increase in our net pension obligations could make it more difficult to obtain financing on favorable terms.
It is also possible that Canadian 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

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provinces. On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA Creditor Protection Proceedings”), seeking an order to prevent pension regulators in each of Quebec, 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 CCAA 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 ($120 million, based on the exchange rate in effect on December 31, 2017), 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.
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, make pension contributions, and finance our working capital, capital expenditures, and duty cash deposits, 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.
The terms of our ABL Credit Facility, our Senior Secured Credit Facility, and the indenture governing our 2023 Notes could restrict our current and future operations.
The credit agreements governing our senior secured asset-based revolving credit facility (the “ABL Credit Facility”), our senior secured credit facility (the “Senior Secured Credit Facility”), and the indenture governing our 5.875% senior notes due 2023 (the “2023 Notes”), 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. For a description of our ABL Credit Facility, Senior Secured Credit Facility, and the indenture governing the 2023 Notes, including the covenants and restrictions they contain, see Note 13, “Long-Term Debt,” to our Consolidated Financial Statements.
A breach of the covenants under the ABL Credit Facility, the Senior Secured Credit Facility, or under the indenture governing the 2023 Notes 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 Credit Facility or the Senior Secured Credit Facility would also allow the lenders to terminate all commitments to extend further credit to us under those facilities. If we were unable to repay amounts due and payable under the ABL Credit Facility or the Senior Secured Credit Facility, the lenders would have the right to proceed against the collateral securing the indebtedness. In any of these events, we may seek to refinance our indebtedness, but be unable to do so on commercially reasonable terms. 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.
We may be subject to losses that might not be covered in whole or in part by our insurance coverage.
We maintain property, business interruption, credit, 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 human error, natural disasters, war risks, or terrorist acts. As is typical in the industry, we also do not maintain insurance for any loss to our access to standing timber from natural disasters, regulatory changes, or other causes. 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, or all, of our cash flow from normal business operations.
We could be required to record significant additional closure costs and long-lived asset impairment or accelerated depreciation charges.
We have responded to the changing market dynamics by optimizing assets and streamlining our production. If demand for any of 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, accelerated depreciation, and cash closure costs for the affected facilities,

15


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. The closure of machines or facilities could also trigger the payment of additional pension contributions or wind-up deficiencies.
Losses related to the impairment of long-lived assets to be held and used are recognized when circumstances, such as continuing losses or demand declines in certain businesses, indicate the carrying value of an asset group may not be recoverable. 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 significant non-cash long-lived asset impairment or accelerated depreciation charges in future periods, which would be recorded as operating expenses and would negatively impact our results of operations.
We also may be disposing of assets or businesses and be required to recognize additional impairment charges based on the excess of the asset group’s carrying value over the expected net proceeds from the sale, which could materially affect our results of operations and financial condition.
We could be required to record goodwill impairment charges on all or a significant amount of the goodwill on our Consolidated Balance Sheet.
We have goodwill of $81 million recorded in our Consolidated Balance Sheet as of December 31, 2017, all of which arose from our acquisition of Atlas Tissue. Goodwill represents the excess of the purchase price of an acquisition over the fair value of identifiable tangible and intangible assets of the acquired business. Future acquisitions that we make may also result in significant amounts of additional goodwill. The determination of goodwill involves a significant level of management estimates about future events, requires complex and subjective judgments, and is subject to a fair degree of measurement uncertainty. The carrying value of goodwill is not amortized, and is reviewed for impairment at the reporting unit level annually, or more frequently, whenever indicators of potential impairment exist. In the event that the net carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized, not to exceed the carrying amount of the goodwill, which would be recorded as operating expenses and would negatively impact our results of operations.
We could be required to record additional valuation allowances against our recorded deferred income tax assets.
We recorded significant deferred income tax assets relating to our Canadian operations in our Consolidated Balance Sheet as of December 31, 2017. If, in the future, we determine that we are unable to recognize these deferred income tax assets 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 is not more likely than not to be realized. Such valuation allowances, if taken, would be recorded as a charge to income tax expense and would negatively impact our results of operations.
Legal and Compliance Risk
Legal and compliance risks arise from governmental and regulatory action, governance and business conduct, and environmental, contractual and other legal liabilities, including risks associated with: international trade regulation; legal proceedings; our shareholder relationships; and compliance with governance policies and procedures, such as those relating to financial reporting, the environment, and health and safety. Governmental and regulatory risk includes the risk that government or regulator actions will impose additional costs on us or cause us to have to change our business models or practices.
Products we produce in one country and export to another may become subject to duties or other international trade remedies or restrictions.
We produce products in the U.S. and Canada, and we sell those products worldwide. Under international agreements and the domestic trade laws of many countries, trade remedies are available to domestic industries where imports are alleged to be “dumped” or “subsidized” and such imports are alleged to cause material injury, or an imminent threat of injury, to a domestic industry. Under such laws, dumping generally involves selling for export a product at a price lower than that at which the same or similar product is sold in the home market of the exporter, or where the export prices are lower than a value that typically must be at or above the full cost of production (including sales and marketing costs) and a reasonable amount for profit. International trade laws also generally provide that subsidies from governments may be subject to trade remedies under certain circumstances. A trade remedy investigation or proceeding may involve allegations of either dumping, subsidization, or both. Where injurious dumping is found, the trade remedy is typically an anti-dumping duty order. Where injurious subsidization is found, the trade remedy is typically a countervailing duty order. In principle, a duty equal to the amount of dumping or subsidization, as applicable, is imposed on the importer of the product. However, whether or not consistent with treaty

16


obligations or other applicable law, authorities have imposed assumed or estimated rates on products that may not be related to actual dumping by a particular producer or may not be based on subsidies actually received by the producer. Anti-dumping and countervailing duty orders do not prevent the export or import of the product, but rather require the importer of the product to pay to the government an anti-dumping duty or countervailing duty, or a deposit on estimated anti-dumping duties or countervailing duties, as applicable. The imposition of additional anti-dumping duties, countervailing duties, deposit requirements in respect of estimated duties, or any other trade remedy on one or more of our products could materially affect our cash flow, and the competitive position of our operations relating to the affected product.
In addition to risks related to the trade remedies discussed above, a country could impose taxes or tariffs on some or all imported products, whether or not consistent with existing trade treaties or agreements, and trade treaties, agreements and arrangements may be renegotiated or terminated, or one or more countries that are parties may withdraw. For example, the U.S. government is seeking to renegotiate the North American Free Trade Agreement (“NAFTA”), to which Canada is a party and which generally provides for free trade of many products and services among the U.S., Canada, and Mexico. There is also uncertainty as to whether the U.S. may unilaterally withdraw from NAFTA altogether. It is uncertain whether a new trade agreement resulting from such ongoing efforts to renegotiate NAFTA, or any unilateral withdrawal from NAFTA by the U.S., will affect the import of any of our Canadian products to the U.S. However, we sell a significant portion of our Canadian produced products in the U.S., and a renegotiated NAFTA or a unilateral withdrawal from NAFTA by the U.S., or similar actions with respect to other trade treaties, agreements, or arrangements taken by other countries where we sell our products internationally, could materially affect our cash flow, and the competitive position of our operations relating to the affected products.
We are subject to countervailing or anti-dumping duties on our U.S. imports of paper products and substantially all of our U.S. imports of softwood lumber products produced at our Canadian mills, which could materially affect our operations and cash flows.
Substantially all of our U.S. imports of SC paper, UGW paper, and softwood lumber products produced at our Canadian mills are subject to one or more orders requiring us to pay cash deposits to the U.S. for estimated countervailing or anti-dumping duties. All of such cash deposit requirements applicable to us are the result of petitions filed by U.S. SC paper, UGW paper, or softwood lumber products producers, as applicable, with the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“ITC”). Each such petition resulted in Commerce and the ITC commencing investigations into all Canadian producers of the applicable products, and, in each investigation, at least one of our Canadian subsidiaries was selected as a mandatory respondent.
In a countervailing duty investigation, when Commerce determines that the Canadian production of the applicable product benefited from government subsidies during the applicable time period it sets an estimated countervailing duty rate for that product. Similarly, in an anti-dumping duty investigation, when Commerce determines that the Canadian product is being dumped in the U.S. market during the applicable time period, it sets an estimated anti-dumping duty rate for that product. A U.S. importer of such products from Canada is then required to pay the cash deposits for estimated countervailing or anti-dumping duties at such rates for an initial period of four months, and will then continue to be required to pay the cash deposits only if, in the applicable investigation, all of the following occur:
Commerce issues final determinations that importers to the U.S. of such products are importing unfairly traded goods from Canadian mills;
the ITC issues a final determination that subject merchandise benefiting from any alleged subsidization or dumping threatens injury to the relevant U.S. industry or causes current injury; and
Commerce issues orders that importers of such products in the U.S. from Canadian mills must pay cash deposits for estimated countervailing or anti-dumping duties, as applicable.
No such deposits paid to the U.S. will be converted into actual countervailing duties or anti-dumping duties unless and until a countervailing duty or anti-dumping rate is later set by Commerce in an administrative review, which is to be based on Commerce’s determination of countervailable subsidies received during, or anti-dumping rates applicable to, a period subsequent to the period reviewed in the original investigation. In those investigations in which we are or become required to pay cash deposits for estimated duties, we will become eligible to request a first administrative review 12 months after the date of any Commerce order implementing a duty deposit requirement, as described above, and in each such investigation, we could remain subject to annual administrative reviews for five or more years following the initial Commerce order. We may also appeal final determinations and deposits cannot be converted into actual duties during the pendency of an appeal.
We have been required to pay cash deposits for estimated countervailing duties on our U.S. imports of SC paper produced at our Canadian mills since August 3, 2015. As of December 31, 2017, the applicable rate for such estimated duties was 17.87%. We also became required to pay cash deposits for estimated countervailing duties and anti-dumping duties on our U.S. imports

17


of softwood lumber products produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of December 31, 2017, the rates for such estimated countervailing and anti-dumping duties were 14.7% and 3.2%, respectively. Additionally, since January 16, 2018, we have been required to pay cash deposits to the U.S. at a preliminary rate of 4.42% for estimated countervailing duties on our U.S. imports of UGW paper produced at our Canadian mills. The countervailing duty and anti-dumping investigations of UGW paper produced in Canada are at a preliminary stage, and it is uncertain at the conclusion of those investigations, at what rate, if any, we will be required to pay cash deposits to the U.S. for estimated countervailing or anti-dumping duties on our imports to the U.S. of UGW paper produced at our Canadian mills. Through December 31, 2017, our aggregate cash deposits paid to the U.S. for all affected products totaled $75 million.
We cannot provide any assurance regarding the estimated or final duty rates that may be determined by Commerce in its investigations or administrative reviews. During any period in which our U.S. imports of SC paper, UGW paper, or softwood lumber products from our Canadian mills are subject to countervailing duty or anti-dumping cash deposit requirements or duty requirements, our cash flows and the competitive position of those products and our related Canadian operations could be materially affected.
Any failure to comply with laws and regulations could require us to record additional liabilities and adversely affect our results of operations.
We are subject to a variety of foreign, federal or national, state, provincial, and local laws and regulations dealing with financial reporting and disclosure obligations, corporate governance, antitrust, customs and trade, employees, contractors, transportation, taxes, timber and water rights, pensions, benefit plans, workplace health and safety, the manufacture and sale of consumer products, the environment, and First Nations, among others. Many of these laws and regulations are complex and subject to differing interpretation, and the requirements of laws and regulations of different countries and jurisdictions in which we operate, have sales or otherwise do business, or in which our securities trade or in which our security holders reside, may differ or be inconsistent with one another. Compliance with these laws and regulations, including changes to them or their interpretations or enforcement, has required in the past, and could require in the future, substantial expenditures by us and adversely affect our results of operations. In addition, noncompliance with laws and regulations, especially those related to the environment and First Nations, could significantly damage, and require us to spend substantial amounts of money to rebuild our reputation.
In addition, our ability to comply with these laws and regulations often depends, at least in part, on compliance by independent third parties, such as contractors and agents we retain to provide services. For example, our compliance with customs requirements for international shipments depends in part on compliance by our customs brokers, sureties, transportation companies, and external advisors, in addition to our own employees and consultants, and we could be liable for noncompliance by any of them, even if inadvertent. Failure to comply with laws and regulations can also be the result of unintended consequences, such as unforeseen consequences of information technology modifications, upgrades, or replacements. Although we strive to comply with laws and regulations applicable to us, no company, including us, can assure that it will successfully prevent, detect, or remediate all potential instances of non-compliance, and any failure to do so could be material, require substantial expenditures, and adversely affect our results of operations.
As an owner of real estate and manufacturing and processing facilities, we could be required to record additional environmental and related health and safety liabilities.
As an owner and operator of real estate and manufacturing and processing facilities, we are subject, in particular, 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, or regulatory or judicial orders enjoining or curtailing operations. This may include liability 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 also be liable under health and safety laws for related exposure of employees, contractors and other persons to 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, we may be required to record additional environmental or related health and safety liabilities.

18


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 required to comply with 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 Corruption of Foreign Public Officials Act (Canada), the United Kingdom Bribery Act 2010 and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign governments or officials and, in some jurisdictions, to other commercial parties. 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 are a party to a number of legal proceedings, and adverse judgments in certain legal proceedings could have a material adverse effect on our financial condition.
We become involved in various legal proceedings and other disputes in the normal course of business. These could include, for example, matters related to contracts, commercial and trade disputes, taxes, environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit plans and obligations, health and safety, financial reporting and disclosure obligations, corporate governance, antitrust, First Nations claims, and other matters. In addition to claims against us and our consolidated subsidiaries, these proceedings and disputes may involve claims asserted by others against unconsolidated partnerships and joint ventures in which we have an interest. Although the final outcome of any legal proceeding or dispute is subject to many variables and cannot be predicted with any degree of certainty, we regularly assess the status of the matters and establish provisions (including legal costs expected to be incurred) when we believe an adverse outcome is probable, and the amount can be reasonably estimated. Legal proceedings that we believe could have a material adverse effect if not resolved in our favor, or that we believe to be significant, are discussed in Item 3 of this Form 10-K and in Note 16, “Commitments and Contingencies – Legal Matters” to our Consolidated Financial Statements. However, our reports do not disclose or discuss all legal proceedings and disputes of which we are aware. If our assessment of the probable outcome or materiality of a legal proceeding or dispute is not correct, we may not have made adequate provision for such loss and our financial condition, cash flows, or results of operations could be adversely impacted.
In addition, if a loss resulting from an adverse outcome in connection with a legal proceeding or dispute were to affect the solvency of certain of our subsidiaries or remain unpaid for certain periods, it could result in a default under the ABL Credit Facility, the Senior Secured Credit Facility and the 2023 Notes. For additional information, see “Financial Risk – The terms of our ABL Credit Facility, our Senior Secured Credit Facility, and the indenture governing our 2023 Notes could restrict our current and future operations” above.
Some legal proceedings and disputes that we may be involved in from time to time result from claims brought by us against third parties, including customers, suppliers, governments or governmental agencies, activists and others. Even if such a legal proceeding or dispute does not involve a claim for damages or other penalty or remedial action against us, such a proceeding or dispute could nevertheless adversely affect our relationships with those and other third parties.
There is a shareholder who owns a substantial percentage of our common stock, and its interests could differ from those of other stockholders, and its actions could affect the price of our common stock.
There is a shareholder who owns a substantial percentage of the outstanding shares of our common stock, and could increase its percentage ownership even further. This shareholder could be in a position to influence the outcome of actions requiring shareholder approval, including, among other things, the election of board members. The concentration of ownership could also facilitate or hinder a negotiated change of control and consequently, impact the value of our common stock. In addition, the possibility that this shareholder 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

19


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 and manufacturing premises, and office equipment, have water rights on certain government-owned waters, and have harvesting rights or timber supply guarantees with respect to certain government-owned land. For additional information, see Note 19, “Operating Leases and Purchase Obligations,” to our Consolidated Financial Statements.
We hold the properties that we own or lease, and the rights and supply guarantees described above, through various operating subsidiaries, including our principal U.S. operating subsidiary, Resolute FP US Inc., our principal Canadian operating subsidiary, Resolute FP Canada Inc., and Resolute Growth Canada Inc., which holds or operates assets related to our growth and diversification initiatives in Canada, including our Ontario sawmills and wood pellet facility, as well as our Saint-Félicien pulp mill. For a list of our subsidiaries, see Exhibit 21.1, “Subsidiaries of the registrant,” of this Form 10-K.
The obligations under the Senior Secured Credit Facility are secured by a first priority mortgage on the real property of our Calhoun facility and a first priority security interest on the fixtures and equipment located therein, and related assets.
ITEM 3. LEGAL PROCEEDINGS
In addition to the proceedings described below, see the description of our material pending legal proceedings in Note 16, “Commitments and Contingencies – Legal matters,” to our Consolidated Financial Statements, which is incorporated in this “Item 3 – Legal Proceedings” by reference.
The Autorité des marchés financiers, the securities regulatory authority in the Province of Quebec (the “AMF”), has authorized Resolute to disclose that the AMF is conducting an investigation of Resolute into the possibility of non-compliance with the Securities Act and its applicable regulations relating to takeover bid rules and the possibility of illegal insider trading and tipping in connection with the December 15, 2011 offer by Resolute to purchase the shares of Fibrek Inc. (the “Offer”). Resolute has been informed by the AMF that the possibility of illegal insider trading does not involve any personal trading by its directors or officers in the shares of Fibrek, nor of Resolute, during the relevant period. Further details concerning the investigation are, by law and by order of the AMF, not permitted to be disclosed. Resolute is fully cooperating with the investigation and is of the view that it complied with all applicable securities laws. However, if the AMF commences legal proceedings against Resolute or any of its officers or directors, no assurance can be given at this time by Resolute as to the outcome.
Resolute adds that allegations concerning the possibility of non-compliance by Resolute with take-over bid rules were made by Fibrek in hearings in January-March 2012 before the Bureau de décision et de révision in the context of Resolute’s applications to cease trade shareholder rights plans (poison pills) and other defensive measures adopted by Fibrek in response to the Offer. The Bureau de décision et de révision is Quebec’s administrative tribunal specialized in financial markets.
On October 13, 2016, Environment Canada charged our subsidiary, Resolute FP Canada Inc., with alleged violations of Section 36(3) of the Fisheries Act (Canada), which prohibits the deposit or discharge of deleterious substances in water frequented by fish. The charges were based on an alleged discharge of bunker fuel into a stream, alleged to have occurred at our Baie-Comeau paper mill on June 19, 2012. On October 12, 2017, the Company settled the case, agreeing to plead guilty to the deposit of a deleterious substance in water frequented by fish and to pay a fine of Cdn $100,000.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

20


PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades under the stock symbol “RFP” on both the NYSE and the TSX.
The high and low prices of our common stock on the NYSE for 2016 and 2017, by quarter, are set forth below.
 
High
Low
2016
 
 
 
 
 
 
First quarter
$
8.40

 
$
3.79

 
Second quarter
 
6.95

 
 
4.55

 
Third quarter
 
6.10

 
 
4.57

 
Fourth quarter
 
5.85

 
 
3.70

 
2017
 
 
 
 
 
 
First quarter
$
5.80

 
$
4.20

 
Second quarter
 
6.75

 
 
4.15

 
Third quarter
 
5.30

 
 
4.10

 
Fourth quarter
 
11.30

 
 
5.04

 
As of January 31, 2018, there were approximately 3,169 holders of record of our common stock.
We did not pay dividends in both 2017 and 2016. 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 and legal restrictions, business prospects and other factors that the board of directors considers relevant. Our debt agreements contain restrictions on our ability to pay dividends and repurchase shares, as further described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Resources,” of this Form 10-K.
There remains $24 million under our $150 million share repurchase program, which was launched in May of 2012. We did not repurchase any shares in 2017 or 2016.
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.

21


The following graph compares the cumulative total return attained by shareholders of our common stock versus the cumulative total returns of the Standard & Poor’s 500 (the “S&P 500”) index and a peer group of five companies since December 31, 2012. The individual companies comprising the peer group are: Domtar Corporation, International Paper Company, UPM-Kymmene Corporation, Verso Corporation and Weyerhaeuser Company. The graph tracks the performance of a $100 investment in our common stock, in the S&P 500 index and in the peer group on December 31, 2012 (with the reinvestment of all dividends) to December 31, 2017. The stock price performance included in the graph is not indicative of future stock price performance.
item5.jpg

22


ITEM 6. SELECTED FINANCIAL DATA
The following table presents a summary of historical consolidated financial information for each of the last five years and should be read in conjunction with Items 7 and 8 of this Form 10-K. The selected financial information for the years ended December 31, 2017, 2016 and 2015, and as of December 31, 2017 and 2016, 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.
 
Years Ended December 31,
(In millions, except per share amounts)
 
2017

 
 
2016

 
 
2015

 
 
2014

 
 
2013

 
Statement of Operations Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
3,513

 
 
$
3,545

 
 
$
3,645

 
 
$
4,258

 
 
$
4,461

 
Operating income (loss)
 
49

 
 
(26
)
 
 
(219
)
 
 
(174
)
 
 
(2
)
 
Net loss including noncontrolling interests
 
(78
)
 
 
(76
)
 
 
(255
)
 
 
(274
)
 
 
(639
)
 
Net loss attributable to Resolute Forest Products Inc.
 
(84
)
 
 
(81
)
 
 
(257
)
 
 
(277
)
 
 
(639
)
 
Basic net loss per share attributable to Resolute Forest Products Inc. common shareholders
 
(0.93
)
 
 
(0.90
)
 
 
(2.78
)
 
 
(2.93
)
 
 
(6.75
)
 
Diluted net loss per share attributable to Resolute Forest Products Inc. common shareholders
 
(0.93
)
 
 
(0.90
)
 
 
(2.78
)
 
 
(2.93
)
 
 
(6.75
)
 
Dividends declared per common share
 

 
 

 
 

 
 

 
 

 
Segment Sales Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market pulp
 
$
911

 
 
$
836

 
 
$
889

 
 
$
974

 
 
$
1,053

 
Tissue
 
81

 
 
89

 
 
11

 
 

 
 

 
Wood products
 
797

 
 
596

 
 
536

 
 
610

 
 
569

 
Newsprint
 
842

 
 
1,009

 
 
1,105

 
 
1,402

 
 
1,473

 
Specialty papers
 
882

 
 
1,015

 
 
1,104

 
 
1,272

 
 
1,366

 
 
 
$
3,513

 
 
$
3,545

 
 
$
3,645

 
 
$
4,258

 
 
$
4,461

 
Statement of Cash Flows Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
158

 
 
$
81

 
 
$
138

 
 
$
186

 
 
$
206

 
Cash invested in fixed assets
 
164

 
 
249

 
 
185

 
 
193

 
 
161

 
 
As of December 31,
(In millions, except otherwise indicated)
 
2017

 
 
2016

 
 
2015

 
 
2014

 
 
2013

 
Financial Position
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed assets, net
 
$
1,716

 
 
$
1,842

 
 
$
1,810

 
 
$
1,985

 
 
$
2,289

 
Total assets
 
4,147

 
 
4,277

 
 
4,220

 
 
4,914

 
 
5,377

 
Total debt (1)
 
789

 
 
762

 
 
591

 
 
590

 
 
591

 
Additional Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of employees
 
7,700

 
 
8,300

 
 
8,000

 
 
7,700

 
 
8,400

 
(1) 
In 2016, we entered into the Senior Secured Credit Facility for up to $185 million, which included a term loan of $46 million. Borrowings under the Senior Secured Credit Facility and ABL Credit Facility were $90 million and $35 million, respectively, in 2016, and $83 million and $61 million, respectively, in 2017. For additional information, see Note 13, “Long-Term Debt,” to our Consolidated Financial Statements.

23


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 (or the “Consolidated Financial Statements”) contained in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (or “Form 10-K”).
When we refer to “Resolute Forest Products,” “we,” “our,” “us” or the “Company,” we mean Resolute Forest Products Inc. with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated.
OVERVIEW
Resolute Forest Products is a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood products, newsprint and specialty papers, which are marketed in close to 70 countries. The company owns or operates some 40 manufacturing facilities, as well as power generation assets, in the U.S. and Canada. We are the largest Canadian producer of wood products east of the Canadian Rockies and one of the most significant pulp producers in North America. By capacity, we are the number one producer of newsprint in the world and the largest producer of uncoated mechanical papers in North America. We are also an emerging tissue producer.
We report our activities in five business segments: market pulp, tissue, wood products, newsprint and specialty papers.
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 and diversified asset base - With our large-scale, efficient and integrated operations, competitive sources of energy and fiber, strategically located mills, and cost-effective management structure, we believe we are well positioned to compete in the global marketplace. We maintain a rigorous focus on reducing costs, optimizing production across our network, adjusting to market dynamics, as well as capitalizing on our access to international markets.
Conservative capital structure - Our low debt, which has favorable pricing and flexibility, and solid liquidity levels are key to our continued transformation to a more sustainable company. In order to maintain financial strength and flexibility, we continue to spend our capital in a disciplined, strategic and focused manner, concentrating on our most competitive sites.
Strategic perspectives - We pursue initiatives that improve our cost position, advance diversification, provide synergies or position us to expand into future growth markets. All are key to our continuing transformation: less paper and more wood products, pulp and tissue. To that end, we take an opportunistic approach that aligns with our strategic plan and that we believe positions us favorably for the long-term evolution of the paper and forest products industry, including bioproducts.
Our Business
Products
We operate seven pulp mills, five in the U.S. and two in Canada, with total capacity of 1.7 million metric tons, or approximately 10% of total North American capacity, making us the third largest pulp producer in North America. Approximately 75% of our virgin pulp capacity is softwood-based: northern bleached softwood kraft (or “NBSK”) pulp, southern bleached softwood kraft (or “SBSK”) pulp and fluff pulp. We are also the world’s largest producer of recycled bleached kraft (or “RBK”) pulp and a competitive producer of northern bleached hardwood kraft (or “NBHK”) pulp and southern bleached hardwood kraft (or “SBHK”) pulp. Wood pulp is the most commonly used material to make paper and tissue. Pulp not converted into paper or tissue 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 28% of our 2017 market pulp shipments were exported outside of North America, including significant exports to Europe, Asia and Latin America.
We produce tissue products at three facilities in North America. With total capacity of 128,000 short tons (116,000 metric tons), which includes our new tissue facility in Calhoun (Tennessee), we are a fully integrated manufacturer operating four tissue machines and 14 converting lines. We manufacture a range of tissue products for the away-from-home and at-home markets, including recycled and virgin paper products, covering premium, value and economy grades. We also sell parent rolls not converted into tissue products.

24


In 2017, we shipped 1.9 billion board feet of construction-grade lumber within North America. Our sawmills produce dimension spruce-pine-fir lumber and provide wood chips to our pulp and paper mills in Canada. Our sawmills also supply wood residue to our other segments, to be used as fuel to produce electricity and steam based on renewable sources. We also operate two remanufactured wood products facilities that manufacture bed frame components, finger joints and furring strips, two engineered wood products facilities that manufacture I-joists for the construction industry, and one wood pellet facility, all of which are located in Quebec and Ontario.
Our 1.8 million metric tons of capacity in newsprint represent approximately 8% of worldwide capacity and 43% of North American capacity. We sell newsprint to newspaper publishers worldwide and also to commercial printers in North America for uses such as inserts and flyers. In 2017, North American deliveries represented 62% of our total newsprint shipments.
We have 1.2 million short tons (1.1 million metric tons) of capacity in specialty papers, which include uncoated mechanical, coated mechanical and uncoated freesheet papers. In total, our 724,000 short tons (657,000 metric tons) of uncoated mechanical papers capacity make us the largest producer in North America, and the fourth largest in the world. With 345,000 short tons (313,000 metric tons) of capacity, we are North America’s third largest producer of coated mechanical papers.
Of our total specialty papers shipments, approximately one third is white paper, including high-bright and super high-bright papers, for general commercial printing, educational textbooks, digital printing and tradebooks. Coated mechanical papers, grades used for magazines, catalogs and advertising inserts, represent approximately 30% of our shipments. High-gloss uncoated mechanical (supercalendered, or “SC”) papers, mainly used for magazines, coupons, retail inserts and newspaper supplements, represent approximately one quarter. Uncoated freesheet papers, bag grades, papers for directories, paperback books and other commercial applications represent approximately 15% of our shipments. We sell our specialty papers almost exclusively in North America, where demand is largely tied to consumer spending and advertising.
Sales distribution by segment for the years ended December 31, 2017, 2016 and 2015 was as follows:
  
Years Ended December 31,
 
2017
2016
2015
Sales
 
 
 
 
 
 
 
 
 
Market pulp
 
26
%
 
 
24
%
 
 
25
%
 
Tissue
 
2
%
 
 
2
%
 
 
%
 
Wood products
 
23
%
 
 
17
%
 
 
15
%
 
Newsprint
 
24
%
 
 
28
%
 
 
30
%
 
Specialty papers
 
25
%
 
 
29
%
 
 
30
%
 
Total (%)
 
100
%
 
 
100
%
 
 
100
%
 
Total sales ($ millions)
$
3,513

 
$
3,545

 
$
3,645

 
Strategy & recent highlights
Since 2011, our corporate strategy has been focused on transforming the company into a more sustainable organization, one that we believe can generate consistent value for shareholders through a competitive portfolio of manufacturing assets and a solid presence in long-term growth markets. This 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. This strategy has three core themes: maximizing value generation from paper, growing in pulp, tissue, and wood products, and integrating our pulp into value-added quality tissue. In order to successfully execute this strategic plan, we also recognize the need to maintain a disciplined approach to capital allocation as well as a level of financial leverage and flexibility that supports the evolution of our transformation.
Maximizing value generation from paper
We compete today as a leading, lower-cost North American paper producer, due to continuous improvement and mill optimization. Maintaining this competitive advantage is a key focus. In order to remain competitive in the demand-challenged markets that our paper operations face, we strive to consistently:
maintain a stringent focus on reducing costs and optimizing our diversified asset base, including divesting idled and non-core assets or unprofitable operations;
maximize the benefits of our access to virgin fiber;
pursue a strategy of managing production and inventory levels and focus production at our most profitable and lower-cost facilities and machines; and

25


optimize our organizational structure to maintain a competitive selling, general and administrative expenses (or “SG&A”) to sales ratio.
Growing in pulp, tissue, and wood products
We believe in taking an opportunistic approach to strategic initiatives, pursuing only those that reduce our cost position, improve our product diversification and provide synergies. We believe that our market pulp, tissue, and wood products segments are aligned with those criteria, will benefit from long-term growth markets, and are therefore critical to our transformation strategy. Since 2011, we have completed a number of strategic initiatives in those segments, leading to a relative shift in our business away from our structurally-challenged paper business (comprised of newsprint and specialty papers) and into those growth markets (comprised of market pulp, tissue and wood products), as illustrated below.
strategygrowth.jpg

26


(1) 
For a reconciliation of net income (loss) including noncontrolling interests to earnings before interest expense, income taxes, and depreciation and amortization, or “EBITDA,” and adjusted EBITDA, see note 1 under “Reconciliations” below.
Integrating our pulp into value-added quality tissue
Consistent with our overall business transformation strategy, we began our entry into the tissue market in 2015 with the announcement of our plan to build a greenfield tissue facility at our Calhoun facility and the acquisition of Atlas Paper Holdings, Inc. and its subsidiaries (or “Atlas Tissue”). This significant strategic decision supports our firm belief in adding value through the integration of our market pulp, particularly as paper utilization continues its steady decline. In addition, we believe that the tissue market will provide a more stable source of revenue and profitability.
Our tissue operations are almost entirely supplied from our pulp mills, creating synergies and effectively minimizing risks associated with market pulp supply. For our Calhoun tissue facility, local pulp production is directly transferred as slush pulp into the tissue operation, reducing process, handling and logistics costs. Equipped with three modern converting lines sized specifically for the tissue machine, we sell converted products from the Calhoun tissue facility, targeting the fast growing premium private-label markets of the U.S.
Our transformation since 2011 is summarized below:
strategytransformation.jpg
(1) 
By acquiring Fibrek Inc., we grew our market pulp capacity by over 70%, increasing our presence in a market that we believe will continue to grow over the long term.
(2) 
We installed a 65 MW steam turbine at our Thunder Bay pulp and paper mill, which reduces the mill’s energy costs as well as maximizes our local woodlands, sawmill, pulp and paper, and energy operations by fully utilizing forest-based biomass to produce green electricity.
(3) 
Our Ignace and Atikokan sawmills in Northern Ontario, as well as the acquisition of a second sawmill in Senneterre and resulting consolidation, have added more than 300 million board feet of annualized wood products capacity.
(4) 
We acquired Atlas Tissue, gaining an immediate position in the North American consumer tissue market and access to a customer base to accelerate the sale and distribution of our Calhoun tissue production.

27


(5) 
We completed a $100 million project to build a continuous pulp digester at the Calhoun pulp and paper mill, increasing our annual pulp capacity by 100,000 metric tons. This incremental capacity serves in part to supply slush pulp to our new Calhoun tissue machine (see note 6 below).
(6) 
The Calhoun facility has a total annualized capacity of 66,000 short tons (60,000 metric tons) of at-home, premium bathroom tissue and toweling products, focused on the growing private-label market. The new tissue machine is expected to attain its targeted operational capacity in mid-2018.
Capital management
We make capital management a priority. Building on our focus to reduce manufacturing costs, we will continue our efforts to decrease overhead, spend our capital in a disciplined, strategic and focused manner, concentrated on our most competitive sites, and to explore divestiture options for idled and non-core assets, as well as unprofitable operations. Maintaining our strong financial position and financial flexibility is one of our primary financial goals.
In 2013, we refinanced the remaining balance of our senior secured notes with 5.875% senior unsecured notes due 2023 (or the “2023 notes”). In addition to adding five years to maturity, the refinancing reduced our annual cash interest burden by $16 million and improves our financial flexibility.
In 2015, we refinanced our senior secured asset-based revolving credit facility (or “ABL credit facility”). The new five-year credit agreement provides more flexible terms and conditions, improves pricing and immediately lowers our cost of capital, to better support the execution of our growth and diversification initiatives.
In 2016, we entered into a senior secured credit facility (or “Senior secured credit facility”) for up to $185 million, comprised of a $46 million nine-year term loan (or “Term loan”) and a $139 million six-year revolving credit facility (or “Revolving credit facility”). This new facility increases our liquidity levels and will further enhance our flexibility in the execution of our growth and diversification strategy.
In 2014, we modified our U.S. other postretirement benefit (or “OPEB”) plans to encourage greater participation in a Medicare Exchange program. In addition to securing high-quality healthcare for participants, this modification, along with similar initiatives undertaken since mid-2013, helped to reduce our U.S. OPEB liability on the balance sheet from $250 million to $77 million as of December 31, 2014.
In 2016 and 2017, we undertook steps to optimize our pension plan contributions, as further discussed below under “Liquidity and Capital Resources – Employee Benefit Plans – Pension Funding,” reducing the volatility as well as the amount of required contributions. When compared to the baseline contributions of 2016, we estimate that pension contributions will drop by approximately $170 million between 2017 and 2020, including $30 million realized in 2017.
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, fuel, and power costs, three significant input costs in our industry;
moving beyond regulatory compliance and environmental incident management to differentiate ourselves as an environmental supplier of choice;
positioning ourselves 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 recent key sustainability achievements include:
Beating our ambitious safety target by achieving an Occupational Safety and Health Administration incident rate of 0.66 in 2017. Safety is our first priority, and we strive for zero injuries.
Achieving a 76% reduction in absolute greenhouse gas (or “GHG”) emissions (scope 1 and 2), below 2000 levels.

28


Joining forces with FPInnovations in a Cdn $21 million project to establish a biorefinery pilot plant hosted at our Thunder Bay pulp and paper mill. The initiative will focus on developing new ways to efficiently produce and commercialize innovative biochemicals derived from wood.
Launching a clean energy project to improve our Thunder Bay mill’s energy efficiency and lower its GHG emissions. The mill plans to reduce its use of natural gas by recovering waste heat from its exhaust streams and optimizing condensate returns by installing efficient steam traps. By mid-2019, the Cdn $12 million project is expected to provide annual natural gas cost savings of more than 35%, while reducing the mill’s overall annual GHG emissions by over 20%, or approximately 43,000 metric tons of CO2 equivalents per year.
Partnering with CO2 Solutions to deploy a CO2 capture unit and ancillary equipment to improve growth rates at Toundra Greenhouse in Saint-Félicien (Quebec), in which we hold a 49% interest.
Maintaining 100% certification of Resolute-owned or managed woodlands to internationally recognized forest management standards. 100% of our managed forests have been certified to one or more of two standards (Sustainable Forestry Initiative®, or “SFI®”, and/or Forest Stewardship Council®, or “FSC®”). Accordingly, our commitments extend well beyond strict compliance with applicable forestry regulations, which in Quebec and Ontario are already among the most, if not the most, rigorous in the world.
Maintaining fiber-tracking systems that allow us to identify the source of the fiber or wood used, all of which have chain of custody certification. 100% of these tracking systems are third-party certified according to one or more of the following internationally recognized chain of custody standards: SFI, Programme for the Endorsement of Forest Certification, and/or FSC.
Continuing to report climate, water and forest disclosures to CDP (formerly the Carbon Disclosure Project). Full disclosures and scores are available on CDP’s website (https://www.cdp.net/), though this information is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.
Continuing to implement our proactive approach to preventing environmental incidents, completing the second year of the second three-year cycle of environmental risk audits at all of our pulp, paper and tissue mills. We recorded 18 environmental incidents (class 1 and 2) in 2017, a 40% improvement compared to 2016.
Active engagement of union officials, employees, mayors and other community leaders, First Nations partners, small community business owners, customers, and representatives of governments at various levels in our ongoing principled stand against activist misinformation.
In addition to developing information resources such as BorealForestFacts.com and The Resolute Blog, we continued engagement on the Forum boréal and Boreal Forum social media platforms. These Quebec and Ontario sites provide a forum for fact-based discussion concerning sustainable forestry practices and they help to ensure that individual and community voices are heard, particularly when it comes to the importance of forestry to Northern communities. The information contained on or connected to BorealForestFacts.com and The Resolute Blog is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.
Other sustainability performance indicators and disclosures prepared in accordance with the Global Reporting Initiative (or “GRI”) guidelines are available on our website (www.resolutefp.com). The GRI framework is considered the gold standard of balanced, transparent sustainability reporting.
Our leadership and our sustainability accomplishments have been recognized by independent organizations. In 2017, we received extensive regional, North American and global recognition for our sustainability achievements. Some of the more noteworthy included:
the International Business Award (known as the “Stevies®”), the world’s premier business awards program, in the Best Health, Safety and Environment Program of the Year for the U.S. and Canada category (August 10, 2017);
the Best in Biz Awards International, the only independent global business awards program judged by prominent members of the press and industry analysts, in the Most Environmentally Responsible Company of the Year category (July 26, 2017);
the Peer Awards for Excellence, celebrating tangible accomplishments and innovative ideas in global business. Finalists present their initiatives for review by fellow finalists, a unique process that allows judging by an audience of peers in the areas of corporate responsibility, customer engagement, and people and performance. Resolute won a

29


Corporate Responsibility Award in the sustainability category, as well as an Industry Sector Award in the manufacturing category (March 24, 2017); and
the Mercure Award for Sustainable Development at the 2017 Mercuriades Awards ceremony. The company earned praise from the jury for its involvement in the Toundra Greenhouse project in Saint-Félicien, an innovative joint venture in which Resolute is one of the main partners. The Mercuriades, created by the Fédération des chambres de commerce du Québec in 1981, is the province’s most prestigious business competition, celebrating the ambition, innovation and performance of Quebec businesses (April 24, 2017).
Power generation
We produce electricity at seven cogeneration facilities and seven hydroelectric dams. The output is consumed internally or sold under contract to third parties. 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.
This table provides a breakdown of the output capacity (based on installed capacity and operating expectations in 2018) available for internal consumption at our existing production facilities:
  
  
Energy
INTERNAL CONSUMPTION
Type
Capacity
(MW)
Consumption
(MWh/Year)
Calhoun (Tennessee)
Cogeneration
64

 
384,000

 
Catawba (South Carolina)
Cogeneration
56

 
337,000

 
Coosa Pines (Alabama)
Cogeneration
30

 
159,000

 
Hydro Saguenay (Quebec) (7 dams)
Hydroelectric
170

 
1,132,000

 
Thunder Bay (Ontario)
Cogeneration
25

 
193,000

 
The approximate annualized cost savings to our operations attributable to internal consumption from our cogeneration assets and hydroelectric facilities is between $45 million and $50 million.
The table below 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 at lower rates for use in our operations:
  
  
Energy
EXTERNAL SALES
Type
Capacity
(MW)
Annualized Sales
(MWh/Year)
Dolbeau (Quebec)
Cogeneration
28

 
194,000

 
Gatineau (Quebec)
Cogeneration
15

 
109,000

 
Saint-Félicien (Quebec)
Cogeneration
43

 
281,000

 
Thunder Bay (Ontario)
Cogeneration
65

 
414,000

 
External sales generated from our cogeneration assets reduced cost of sales, excluding depreciation, amortization and distribution costs (or “COS”), by $40 million, $45 million and $43 million for the years ended December 31, 2017, 2016 and 2015, respectively.

30


Reconciliations
The table below shows the reconciliation of net income (loss) including noncontrolling interests to EBITDA and adjusted EBITDA, which are not financial measures recognized under generally accepted accounting principles, or “GAAP,” for the year ended December 31, 2011. For more information on the calculation and reasons we include these measures, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial Information” below.
Year ended December 31, 2011
Market Pulp
Tissue
Wood Products
Newsprint
Specialty Papers
Segment Total
Corporate and Other
Total
(Unaudited, in millions)
Net income (loss) including noncontrolling interests
$
91

 
$

 
$
(25
)
 
$
89

 
$
122

 
$
277

 
$
(232
)
 
$
45

 
Interest expense
 

 
 

 
 

 
 

 
 

 
 

 
 
95

 
 
95

 
Income tax provision
 

 
 

 
 

 
 

 
 

 
 

 
 
19

 
 
19

 
Depreciation and amortization
 
30

 
 

 
 
33

 
 
73

 
 
84

 
 
220

 
 

 
 
220

 
EBITDA
$
121

 
$

 
$
8

 
$
162

 
$
206

 
$
497

 
$
(118
)
 
$
379

 
Foreign exchange loss
 

 
 

 
 

 
 

 
 

 
 

 
 
21

 
 
21

 
Severance costs
 

 
 

 
 

 
 

 
 

 
 

 
 
12

 
 
12

 
Closure costs, impairment and other related charges
 

 
 

 
 

 
 

 
 

 
 

 
 
46

 
 
46

 
Inventory write-downs related to closures
 

 
 

 
 

 
 

 
 

 
 

 
 
3

 
 
3

 
Net gain on disposition of assets
 

 
 

 
 

 
 

 
 

 
 

 
 
(3
)
 
 
(3
)
 
Non-operating pension and OPEB costs
 

 
 

 
 

 
 

 
 

 
 

 
 
8

 
 
8

 
Acquisition-related costs
 

 
 

 
 

 
 

 
 

 
 

 
 
5

 
 
5

 
Other expense, net
 

 
 

 
 

 
 

 
 

 
 

 
 
27

 
 
27

 
Adjusted EBITDA
$
121

 
$

 
$
8

 
$
162

 
$
206

 
$
497

 
$
1

 
$
498

 
The table below shows the reconciliation of net income (loss) including noncontrolling interests to EBITDA, and adjusted EBITDA, which are not financial measures recognized under GAAP, for the year ended December 31, 2017. For more information on the calculation and reasons we include these measures, see note 1 under “Results of Operations – Consolidated Results – Selected Annual Financial Information” below.
Year ended December 31, 2017
Market Pulp
Tissue
Wood Products
Newsprint
Specialty Papers
Segment Total
Corporate and Other
Total
(Unaudited, in millions)
Net income (loss) including noncontrolling interests
$
79

 
$
(6
)
 
$
186

 
$
(23
)
 
$
(9
)
 
$
227

 
$
(305
)
 
$
(78
)
 
Interest expense
 

 
 

 
 

 
 

 
 

 
 

 
 
49

 
 
49

 
Income tax provision
 

 
 

 
 

 
 

 
 

 
 

 
 
84

 
 
84

 
Depreciation and amortization
 
31

 
 
5

 
 
33

 
 
66

 
 
45

 
 
180

 
 
24

 
 
204

 
EBITDA
$
110

 
$
(1
)
 
$
219

 
$
43

 
$
36

 
$
407

 
$
(148
)
 
$
259

 
Foreign exchange gain
 

 
 

 
 

 
 

 
 

 
 

 
 
(9
)
 
 
(9
)
 
Closure costs, impairment and other related charges
 

 
 

 
 

 
 

 
 

 
 

 
 
87

 
 
87

 
Inventory write-downs related to closures
 

 
 

 
 

 
 

 
 

 
 

 
 
24

 
 
24

 
Start-up costs
 

 
 

 
 

 
 

 
 

 
 

 
 
27

 
 
27

 
Net gain on disposition of assets
 

 
 

 
 

 
 

 
 

 
 

 
 
(15
)
 
 
(15
)
 
Non-operating pension and OPEB credits
 

 
 

 
 

 
 

 
 

 
 

 
 
(12
)
 
 
(12
)
 
Other expense, net
 

 
 

 
 

 
 

 
 

 
 

 
 
3

 
 
3

 
Adjusted EBITDA
$
110

 
$
(1
)
 
$
219

 
$
43

 
$
36

 
$
407

 
$
(43
)
 
$
364

 

31


2017 Overview
2017 vs. 2016
Our operating income was $49 million during the year, compared to an operating loss of $26 million in 2016. Excluding special items, we generated operating income of $160 million, compared to $57 million in 2016. Special items are described below.
Our net loss in 2017 was $84 million, or $0.93 per share, compared to $81 million, or $0.90 per share, in 2016. Our net income for the year, excluding special items, was $12 million, or $0.13 per share, compared to a net loss, excluding special items, of $12 million, or $0.13 per share, in 2016.
Year Ended December 31, 2017
Operating
Income
(Loss)
Net
Income
(Loss)
EPS
 
 
(Unaudited, in millions, except per share amounts)
GAAP, as reported
$
49

 
$
(84
)
 
$
(0.93
)
 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange gain
 

 
 
(9
)
 
 
(0.10
)
 
Closure costs, impairment and other related charges
 
87

 
 
87

 
 
0.96

 
Inventory write-downs related to closures
 
24

 
 
24

 
 
0.27

 
Start-up costs
 
27

 
 
27

 
 
0.30

 
Net gain on disposition of assets
 
(15
)
 
 
(15
)
 
 
(0.17
)
 
Non-operating pension and OPEB credits
 
(12
)
 
 
(12
)
 
 
(0.13
)
 
Other expense, net
 

 
 
3

 
 
0.03

 
Income tax effect of special items
 

 
 
(9
)
 
 
(0.10
)
 
Adjusted for special items (1)
$
160

 
$
12

 
$
0.13

 
Year Ended December 31, 2016
Operating
Income
(Loss)
Net
Income
(Loss)
EPS
 
 
(Unaudited, in millions, except per share amounts)
GAAP, as reported
$
(26
)
 
$
(81
)
 
$
(0.90
)
 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange loss
 

 
 
7

 
 
0.08

 
Closure costs, impairment and other related charges
 
62

 
 
62

 
 
0.69

 
Inventory write-downs related to closures
 
7

 
 
7

 
 
0.08

 
Start-up costs
 
8

 
 
8

 
 
0.09

 
Net gain on disposition of assets
 
(2
)
 
 
(2
)
 
 
(0.02
)
 
Non-operating pension and OPEB costs
 
8

 
 
8

 
 
0.09

 
Other income, net
 

 
 
(14
)
 
 
(0.16
)
 
Income tax effect of special items
 

 
 
(7
)
 
 
(0.08
)
 
Adjusted for special items (1)
$
57

 
$
(12
)
 
$
(0.13
)
 
(1) 
Operating income (loss), net income (loss) and net income (loss) per share (or “EPS”), in each case as adjusted for special items, are not financial measures recognized under GAAP. We calculate operating income (loss), as adjusted for special items, as operating income (loss) from our Consolidated Statements of Operations, adjusted for items such as closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, non-operating pension and OPEB costs and credits, and other charges or credits that are excluded from our segment’s performance from GAAP operating income (loss). We calculate net income (loss), as adjusted for special items, as net income (loss) from our Consolidated Statements of Operations, adjusted for the same special items applied to operating income (loss), in addition to foreign exchange gains and losses, other income (expense), net, and the income tax effect of the special items. EPS, as adjusted for special items, is calculated as net income (loss), as adjusted for special items, per diluted share. We believe that using these non-GAAP measures is useful because they are consistent with the indicators management uses internally to measure the Company’s performance, and it allows the reader to more easily compare our operations and financial performance from period to period. Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items, are internal

32


measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP.
Fourth Quarter Overview
Three months ended December 31, 2017 vs. December 31, 2016
Our operating income was $54 million in the quarter, compared to an operating loss of $18 million in the year-ago period. Excluding special items, we generated operating income of $51 million in the quarter, compared to $14 million in the year-ago period. Special items are described below.
Our net income in the quarter was $13 million, or $0.14 per share, compared to a net loss of $45 million, or $0.50 per share, in the year-ago period. Our net income in the quarter, excluding special items, was $14 million, or $0.15 per share, compared to a net loss, excluding special items, of $7 million, or $0.08 per share, in the year-ago period.
Three Months Ended December 31, 2017
Operating
Income
(Loss)
Net
Income
(Loss)
EPS
 
 
(Unaudited, in millions, except per share amounts)
GAAP, as reported
$
54

 
$
13

 
$
0.14

 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange loss
 

 
 
1

 
 
0.01

 
Closure costs, impairment and other related charges
 
5

 
 
5

 
 
0.05

 
Start-up costs
 
9

 
 
9

 
 
0.10

 
Net gain on disposition of assets
 
(13
)
 
 
(13
)
 
 
(0.14
)
 
Non-operating pension and OPEB credits
 
(4
)
 
 
(4
)
 
 
(0.04
)
 
Other expense, net
 

 
 
4

 
 
0.04

 
Income tax effect of special items
 

 
 
(1
)
 
 
(0.01
)
 
Adjusted for special items (1)
$
51

 
$
14

 
$
0.15

 
Three Months Ended December 31, 2016
Operating
Income
(Loss)
Net
Income
(Loss)
EPS
 
 
(Unaudited, in millions, except per share amounts)
GAAP, as reported
$
(18
)
 
$
(45
)
 
$
(0.50
)
 
Adjustments for special items:
 
 
 
 
 
 
 
 
 
Foreign exchange loss
 

 
 
10

 
 
0.11

 
Closure costs, impairment and other related charges
 
25

 
 
25

 
 
0.28

 
Inventory write-downs related to closures
 
2

 
 
2

 
 
0.02

 
Start-up costs
 
3

 
 
3

 
 
0.03

 
Non-operating pension and OPEB costs
 
2

 
 
2

 
 
0.02

 
Other income, net
 

 
 
(3
)
 
 
(0.03
)
 
Income tax effect of special items
 

 
 
(1
)
 
 
(0.01
)
 
Adjusted for special items (1)
$
14

 
$
(7
)
 
$
(0.08
)
 
(1) 
Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items, are non-GAAP financial measures. For more information on the calculation and reasons we include these measures, see note 1 under “Overview – 2017 Overview” above.

33


Change in the Presentation of Our Non-GAAP Performance Measures
In the first quarter of 2017, we changed our presentation of segment operating income to reallocate the amortization of prior service credits component of pension and OPEB costs from the reportable segments to “corporate and other.” Current service costs will continue to be allocated to the reportable segments. We now also treat the amortization of prior service credits component of pension and OPEB costs as a special item to be adjusted for purposes of establishing our non-GAAP performance measures, as further described above in note 1 under “Overview – 2017 Overview,” and below in note 1 under “Results of Operations Consolidated Results – Selected annual financial information,” together with our non-operating pension and OPEB costs and credits. This approach is consistent with the indicators management uses internally to evaluate performance, including those used by the chief operating decision maker. Prior period amounts have been reclassified to conform to the 2017 presentation.

34


RESULTS OF OPERATIONS
Consolidated Results
Selected annual financial information
  
Years Ended December 31,
(In millions, except per share amounts)
2017
2016
2015
Sales
$
3,513

 
$
3,545

 
$
3,645

 
Operating income (loss) per segment:
 
 
 
 
 
 
 
 
 
Market pulp
 
79

 
 
37

 
 
71

 
Tissue
 
(6
)
 
 
(10
)
 
 
(1
)
 
Wood products
 
186

 
 
69

 
 
2

 
Newsprint
 
(23
)
 
 
(16
)
 
 
(25
)
 
Specialty papers
 
(9
)
 
 
19

 
 
23

 
Segment total
 
227

 
 
99

 
 
70

 
Corporate and other
 
(178
)
 
 
(125
)