Mr. Yves Laflamme reports

RESOLUTE REPORTS PRELIMINARY FOURTH QUARTER AND 2018 RESULTS

Resolute Forest Products Inc. had net income for the quarter ended Dec. 31, 2018, of $36-million, or 38 cents per diluted share, compared with $13-million, or 14 cents per diluted share, in the same period in 2017. Sales were $932-million in the quarter, an increase of $34-million from the year-ago period. Excluding special items, the company reported net income of $4-million, or four cents per diluted share, compared with $14-million, or 15 cents per diluted share, in the fourth quarter of 2017. All currency figures are in U.S. dollars.

For the year, the company reported GAAP (generally accepted accounting principles) net income of $235-million, or $2.52 per diluted share, compared with a net loss of $84-million, or 93 cents per share, in 2017. Sales were $3.8-billion, up 7 per cent, from the previous year. Excluding special items, the company reported net income of $183-million, or $1.96 per diluted share, compared with $12-million, or 13 cents per diluted share, in 2017.

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

Operating income variance against prior period

Consolidated

The company reported operating income of $75-million in the quarter, compared with $135-million in the third quarter of 2018. Overall pricing had an unfavourable impact of $33-million because of the $110 per 1,000 board feet drop in the average transaction price for wood products, which more than offset the increase in market pulp and paper prices. Manufacturing costs were also higher in the quarter, by $45-million, mostly due to production disruptions, planned maintenance, seasonally higher energy costs, as well as higher wood costs attributable to extremely wet weather, mainly in the U.S. southeast.

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

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

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

Market pulp

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

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

Tissue

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

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

Wood products

The wood products segment recorded an operating loss of $8-million in the quarter, compared with an operating income of $45-million in the third quarter, almost entirely due to weaker pricing. The average transaction price fell to $347 per 1,000 board feet this quarter, down 24 per cent, or $110. The delivered cost increased by $11 to $366 per 1,000 board feet, reflecting higher maintenance and log costs. Despite market and weather-related production curtailment in the quarter, shipments increased by seven million board feet. EBITDA for the segment dropped to $1-million, compared with $53-million in the prior quarter and finished goods inventory remained elevated at 157 million board feet.

Operating income for the year was $169-million in the segment, $17-million lower than in 2017. The delivered cost rose by $50 to $354 per 1,000 board feet, as a result of higher market-driven fibre costs and an increase in transportation expenses. Shipments were also lower by 165 million board feet, largely due to lower production volumes and weaker market conditions in the latter part of the year. Offsetting in part these unfavourable elements was the increase in average transaction price, which rose by $50 per 1,000 board feet this year, to $446. EBITDA for the segment declined to $201-million, or $109 per 1,000 board feet, compared with $219-million in 2017, reflecting EBITDA margins of 24 per cent and 27 per cent, respectively.

Newsprint

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

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

Specialty papers

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

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

Consolidated quarterly operating income variance against year-ago period

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

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

Corporate and finance

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

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

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

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

Outlook

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

Board appointment

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

Earnings conference call

The company will hold a conference call to discuss the financial results at 9 a.m. Eastern Time today. The public is invited to join the call at 877-223-4471 at least 15 minutes before its scheduled start time. A simultaneous webcast will also be available using the link provided under presentations and webcasts in the investors section of the company's website. A replay of the webcast will be archived on the company's website; a phone replay will also be available until Feb. 14, 2019, by dialling 800-585-8367, conference No. 5358344.

About Resolute Forest Products Inc.

Resolute Forest Products is a global leader in the forest product 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. Resolute Forest Products owns or operates about 40 manufacturing facilities, as well as power generation assets, in the United States and Canada. Resolute Forest Products has third party certified 100 per cent of its managed woodlands to internationally recognized sustainable forest management standards.

                                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (in millions except per-share amounts)

                                                                   Three months             Years      
                                                                 ended Dec. 31,    ended Dec. 31,
                                                                  2018     2017     2018     2017

Sales                                                             $932     $898   $3,756   $3,513
Costs and expenses
Cost of sales, excluding
depreciation, amortization and
distribution costs                                                 668      643    2,549    2,588
Depreciation and amortization                                       51       51      212      204
Distribution costs                                                 119      114      475      442
Selling, general and
administrative expenses                                             40       48      165      170
Closure costs, impairment
and other related charges                                          120        2      121       82
Net (gain) on disposition of assets                               (141)     (13)    (145)     (15)
Operating income                                                    75       53      379       42
Interest (expense)                                                 (11)     (13)     (47)     (49)
Non-operating pension and other
postretirement benefit credits                                      12        1       50        7
Other income (expense), net                                          1       (5)       5        6
Income before income taxes                                          77       36      387        6
Income tax (provision)                                             (41)     (21)    (152)     (84)
Net income (loss) including
non-controlling interests                                           36       15      235      (78)
Net income (loss) attributable to
non-controlling interests                                            -       (2)       -       (6)
Net income (loss) attributable
to Resolute Forest Products                                         36       13      235      (84)
Net income (loss) per share
attributable to Resolute Forest
Products common shareholders
Basic (loss)                                                      0.39     0.14     2.57    (0.93)
Diluted (loss)                                                    0.38     0.14     2.52    (0.93)

We seek Safe Harbor.