RESOLUTE FOREST PRODUCTS INC. The following management's discussion and analysis is intended to help the reader understandResolute 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 1, "Financial Statements," of this Quarterly Report on Form 10-Q (or, "Form 10-Q").
When we refer to "
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF THIRD-PARTY DATA
Statements in this Form 10-Q that are not reported financial results or other historical information ofResolute Forest Products are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to the potential benefits of the proposed transaction betweenResolute Forest Products andDomtar Corporation ; the prospective performance and outlook of our business, performance and opportunities; the ability of the parties to complete the proposed transaction and the expected timing of completion of the proposed transaction; the impact of the coronavirus (or, "COVID-19") pandemic and resulting economic conditions on our business, results of operations and market price of our securities; the impact on our future business results of the price volatility of our products; the logistics and transportation network constraints and the levels of inventory; and to our: efforts and initiatives to reduce costs and increase revenues and profitability; business and operating outlook; future pension 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; estimated capital expenditures; environmental, social and governance (or, "ESG") reporting; and strategies for achieving our goals generally. Forward-looking statements may be identified by the use of forward-looking terminology such as the words "should," "would," "could," "will," "may," "expect," "believe," "continue," "maintain," "remain," "estimate," "aim" and other terms with similar meaning indicating possible future events or potential impact on our business orResolute Forest Products' shareholders. The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. These statements are based on management's current assumptions, beliefs, and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. The potential risks and uncertainties that could cause our actual future financial condition, results of operations, and performance to differ materially from those expressed or implied in this Form 10-Q include, but are not limited to: uncertainties as to the timing of the proposed transaction withDomtar Corporation ; the risk that the proposed transaction withDomtar Corporation may not be completed in a timely manner or at all; the possibility that competing offers or acquisition proposals will be made; the possibility that any or all of the various conditions to the consummation of the proposed transaction may not be satisfied or waived, including the failure to receive any required regulatory approvals from any applicable governmental entities (or any conditions, limitations or restrictions placed on such approvals); the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, including in circumstances that would require us to pay a termination fee or other expenses; the inability to recover softwood lumber duty refunds in a timely manner or at all; the effect of the pendency of the proposed transaction on our ability to retain and hire key personnel, our ability to maintain relationships with our customers, suppliers and others with whom we do business and our business generally or our stock price; risks related to diverting management's attention from our ongoing business operations; the impact of the COVID-19 pandemic on our business and resulting economic conditions; developments in non-print media, including changes in consumer habits, 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 or divestitures or other strategic transactions or projects, including loss of synergies following business divestitures; uncertainty or changes in political or economic conditions in theU.S. ,Canada or other countries in which we sell our products, including the effects of pandemics; global economic and political conditions; the highly cyclical nature of the forest products industry; any difficulties in obtaining timber or wood fiber at favorable prices, or at all; impacts of inflation on the price of goods and services, including changes in the cost of purchased energy and other raw materials; any loss of important customers and resulting accounts receivable credit risk exposure; physical, financial, regulatory, transitional and litigation risks associated with global, regional, and local weather conditions, and climate change; financial, litigation, liability and reputational risks associated with ESG reporting; any disruption in operations or increased labor costs due to labor disputes or occupational health and safety issues; difficulties in our employee relations or in employee attraction or retention, and workforce shortages; disruptions to our supply chain, operations, or the delivery of our products, including due to public health epidemics and workforce shortages; disruptions to our information technology systems including 22
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cybersecurity and privacy incidents; 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; increases of interest rates and changes relating to theLondon Interbank Offered Rate, which could impact our borrowings under our credit facilities; losses that are not covered by insurance; any additional closure costs and long-lived asset impairment or goodwill impairment or accelerated depreciation charges; any need to record additional valuation allowances against our recorded deferred income tax assets or any limitation of our use of certain tax attributes; 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 and anti-dumping duties on imports to theU.S. of the vast majority of our softwood lumber products produced at our Canadian sawmills; 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, claims and governmental inquiries, investigations, and other disputes in which we are involved; the actions of holders of a significant percentage of our common stock; and the potential risks and uncertainties set forth under Part II, Item 1A, "Risk Factors," in this quarterly report on Form 10-Q and Part I, Item 1A, "Risk Factors," of our annual report on Form 10-K for the year endedDecember 31, 2021 , filed with theU.S. Securities and Exchange Commission (or, the "SEC") onMarch 1, 2022 (or, the "2021 Annual Report"), which have been heightened by the COVID-19 pandemic, including related governmental responses and economic impacts, market disruptions and resulting changes in consumer habits. All forward-looking statements in this Form 10-Q are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with theSEC 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-Q 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.
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 and paper, which are marketed in over 60 countries. The Company owns or operates some 40 facilities, as well as power generation assets, in theU.S. andCanada . We are a large and growing North American producer of wood products, the largest producer of uncoated mechanical papers inNorth America , a competitive pulp producer inNorth America , and a leading global producer of newsprint. Resolute has third-party certified 100% of its managed woodlands to internationally recognized sustainable forest management standards. We report our activities in four business segments: market pulp, tissue, wood products and paper. We believe an integrated approach maximizes value creation for our Company and stakeholders.
We are guided by our vision and values, focusing on safety, sustainability, profitability, accountability, and teamwork. We believe we can be distinguished by the following competitive strengths:
•Competitive cost structure combined with diversified and integrated asset base
-harvesting rights for the majority of fiber needs in
-sophisticated infrastructure to manage fiber flows from harvesting through transformation into a range of end-products to maximize resource utilization and process efficiency;
-nearly 100% of our products sourced from high-quality virgin fiber; and
-large-scale and cost-effective operations, including significant internal energy production from cogeneration and hydroelectric facilities, which support our value proposition.
•Strong balance sheet
-favorable pricing and flexibility under borrowing agreements together with our
liquidity levels support our ability to weather challenging market cycles and to
continue to execute our transformation strategy;
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-significant tax assets to defer cash income taxes and provide synergies to execute this strategy; and
-customers benefit from a financially stable and reliable business partner in a challenging industry.
•Seasoned management team and strong culture of commitment
-deep industry expertise, with influential leaders in forestry, operations, environmental risk management and public policy;
-culture of accountability, encouraging transparency and straightforwardness; and
-core identity tied to renewable resources we harvest in a truly sustainable manner.
•Deep-seated commitment to fundamental principles of sustainability
-ambitious targets and governance to back it up;
-unwavering focus on safety; and
-transparent communications.
Our Business
For information relating to our products, strategy and highlights, sustainable development and performance, and power generation assets, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - Our Business" in our 2021 Annual Report.
Third Quarter and Year-to-Date Overview
Impact of global economic conditions
There continues to be a measure of uncertainty because of global geopolitical and economic conditions. While we benefit from strong market conditions for our pulp and paper segment and an overall improvement to logistic constraints, our operations and our financial results remain negatively affected by cost inflation. In addition, rising interest rates and reduced demand has adversely influenced our wood products segment.
Business combinations
Potential acquisition by Paper Excellence
OnJuly 5, 2022 ,Resolute and Paper Excellence Group , through its wholly-owned subsidiaryDomtar Corporation (or, "Domtar"), entered into a business combination agreement (or, the "Transaction") under which Domtar will acquire all of the issued and outstanding common shares of Resolute for$20.50 per share, in cash, without interest, and one contractual contingent value right per share (or, the "CVR"). Under the CVR, stockholders will receive any refunds on approximately$500 million of deposits on softwood lumber duties paid by Resolute throughJune 30, 2022 , including any interest thereon, net of certain expenses and of applicable taxes. Any proceeds attributable to the CVR will be distributed proportionally to the CVR holders, and the value will ultimately be determined by the terms and timing of the resolution of the softwood lumber dispute betweenCanada andthe United States . The terms and timing of such resolution is uncertain. OnOctober 31, 2022 , Resolute's stockholders approved the Transaction. The Transaction, which is subject to applicable regulatory approvals and the satisfaction of certain other customary closing conditions, is expected to close in the first half of 2023. See Note 16, "Subsequent Events" to our Consolidated Financial Statements.
Acquisition of a power generation facility
OnApril 1, 2022 , we acquired a 34.5 megawatt power generation facility inSenneterre (Quebec ) for$8 million , including a contingent consideration. With this acquisition, we will maximize the use of biomass from our regional operations, generating green power and providing a platform for future growth and enhanced competitiveness in the Abitibi-Témiscamingue region.
Acquisition of
OnMarch 4, 2022 , we acquired control ofResolute-LP Engineered Wood Larouche Inc. andResolute-LP Engineered Wood St-Prime Limited Partnership (or, "Larouche andSt-Prime "), that were previously held as 50% owned joint ventures, by acquiring 24
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the remaining 50% equity interests fromLouisiana-Pacific Canada Ltd. , a wholly-owned subsidiary of Louisiana-Pacific Corporation, for a cash consideration of$51 million (including$1 million of working capital adjustment, and net of cash acquired of$8 million ).Larouche andSt-Prime , which are engineered wood product facilities located inQuebec , produce I-joists for the construction industry. This acquisition solidifies our presence in the engineered wood product segment with assets we know well, and downstream integrates over 60 million board feet of lumber capacity.
For more information, see Note 2, "Business Combinations," to our Consolidated Financial Statements.
Indefinite idling of pulp and paper operations at
InDecember 2021 , we announced the indefinite idling of pulp and paper operations at ourCalhoun (Tennessee ) mill. During the first quarter of 2022, pulp and paper operations ceased. During the nine-month period endedSeptember 30, 2022 , we have revised our expected 2022 additional cash closure costs, disclosed in ourDecember 31, 2021 Consolidated Financial Statements, from$32 million to$12 million , due to lower than expected chemical disposal costs. We already have incurred$7 million of these costs in the first nine months of 2022.Menominee fire OnOctober 6, 2022 , a fire started at ourMenominee (Michigan ) recycled pulp mill, which resulted in the temporary idling of the facility. We cannot yet estimate the extent of the losses, but aim to restart the mill in the coming months. We maintain insurance coverage for the mill, which is subject to customary deductible and limits.
Three months ended
Our operating income was$124 million in the quarter, compared to an operating income of$102 million in the third quarter of 2021. Excluding special items, our operating income was$123 million , compared to an operating income of$102 million in the year-ago period. Our net income in the quarter was$87 million , or$1.11 per diluted share, compared to a net income of$80 million , or$0.99 per diluted share, in the year-ago period. Our net income in the quarter, excluding special items, was$85 million , or$1.08 per diluted share, compared to a net income of$67 million , or$0.84 per diluted share, in the year-ago period. Special items are described below. Three Months EndedSeptember 30, 2022 (Unaudited, in millions, except per share amounts) Operating Income Net Income EPS GAAP, as reported$ 124 $ 87 $ 1.11
Adjustments for special items:
Closure costs, impairment and other related charges (1) (1) (0.01) Non-operating pension and other postretirement benefit costs - 3 0.04 Other income, net - (37) (0.47) Income tax effect of special items - 33 0.41 Adjusted for special items (1)$ 123 $ 85 $ 1.08 Three Months EndedSeptember 30, 2021 (Unaudited, in millions, except per share amounts) Operating Income Net Income EPS GAAP, as reported$ 102 $ 80 $ 0.99
Adjustments for special items:
Non-operating pension and other postretirement benefit credits - (3) (0.04) Other income, net - (20) (0.24) Income tax effect of special items - 10 0.13 Adjusted for special items (1)$ 102 $ 67 $ 0.84 (1)Operating income, net income and net income per diluted share (or, "EPS"), in each case as adjusted for special items, are not financial measures recognized underU.S. generally accepted accounting principles (or, "GAAP"). We calculate operating income, as adjusted for special items, as operating income from our Consolidated Statements of Operations, adjusted for items such as closure costs, impairment, and other related charges, and gains and losses on disposition of 25
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assets that are excluded from our segment's performance from GAAP operating income. We calculate net income, as adjusted for special items, as net income from our Consolidated Statements of Operations, adjusted for the same special items applied to operating income, in addition to non-operating pension and other postretirement benefit (or, "OPEB") costs and credits, other income and expense, net,U.S. deferred income tax asset valuation allowance reversal (to offset future projected tax implications of the global intangible low-taxed income (or, "GILTI") inclusion), and the income tax effect of the special items. EPS, as adjusted for special items, is calculated as net income, 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 compare our operations and financial performance from period to period. Operating income, net income and EPS, in each case as adjusted for special items, are internal 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.
Nine months ended
Our operating income was
Our net income in the first nine months of the year was$553 million , or$7.07 per diluted share, compared to net income of$435 million , or$5.39 per diluted share, in the year-ago period. Our net income in the period, excluding special items, was$417 million , or$5.33 per diluted share, compared to net income of$486 million , or$6.01 per diluted share, in the year-ago period. Nine Months EndedSeptember 30, 2022 (Unaudited, in millions, except per share amounts) Operating Income Net Income EPS GAAP, as reported$ 576 $ 553 $ 7.07
Adjustments for special items:
Closure costs, impairment and other related charges 8 8 0.10 Net loss on disposition of assets 2 2 0.03 Non-operating pension and other postretirement benefit costs - 13 0.17 Other income, net - (95) (1.21)
- (105) (1.34)
Income tax effect of special items - 41 0.51
Adjusted for special items (1) $ 586 $ 417 $ 5.33
Nine Months Ended September 30, 2021
(Unaudited, in millions, except per share amounts) Operating Income Net Income EPS
GAAP, as reported $ 685 $ 435 $ 5.39 Adjustments for special items:
Closure costs, impairment and other related charges 2 2 0.02 Non-operating pension and other postretirement benefit credits - (8) (0.10) Other expense, net - 74 0.92 Income tax effect of special items - (17) (0.22) Adjusted for special items (1)$ 687 $ 486 $ 6.01 (1)Operating income, net income 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 - Third Quarter and Year-to-Date Overview" above. 26
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Table of Contents RESULTS OF OPERATIONS Consolidated Results
Selected financial information
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions, except per share
amounts) 2022 2021 2022 2021
Sales $ 974 $ 817 $ 2,977 $ 2,830
Operating income (loss) per segment:
Market pulp $ 81 $ 46 $ 144 $ 80
Tissue (12) (9) (30) (18)
Wood products 42 64 441 690
Paper 52 16 114 (15)
Segment total 163 117 669 737
Corporate and other (39) (15) (93) (52)
Operating income $ 124 $ 102 $ 576 $ 685
Net income attributable to Resolute Forest
Products Inc. $ 87 $ 80 $ 553 $ 435
Net income per common share attributable to
Resolute Forest Products Inc. common
shareholders:
Basic $ 1.12 $ 1.00 $ 7.14 $ 5.44
Diluted $ 1.11 $ 0.99 $ 7.07 $ 5.39
Adjusted EBITDA (1) $ 157 $ 144 $ 687 $ 810
September 30,
(Unaudited, in millions) 2022 December 31, 2021
Cash and cash equivalents $ 446 $ 112
Total assets $ 4,053 $ 3,538
(1)Earnings before interest expense, income taxes, and depreciation and
amortization (or, "EBITDA") and adjusted EBITDA are not financial measures
recognized under GAAP. EBITDA is calculated as net income (loss) including
noncontrolling interest from the Consolidated Statements of Operations, adjusted
for interest expense, income taxes, and depreciation and amortization. Adjusted
EBITDA means EBITDA, excluding special items, such as closure costs, impairment
and other related charges, gains and losses on disposition of assets,
non-operating pension and OPEB costs and credits, and other income and expense,
net. We believe that using non-GAAP measures such as EBITDA and adjusted EBITDA
is useful because they are consistent with the indicators management uses
internally to measure the Company's performance and it allows the reader to
compare our operations and financial performance from period to period. EBITDA
and adjusted EBITDA are internal 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.
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Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Net income including noncontrolling
interest $ 87 $ 80 $ 553 $ 436
Interest expense 5 5 16 16
Income tax provision 66 40 89 167
Depreciation and amortization 34 42 101 123
EBITDA $ 192 $ 167 $ 759 $ 742
Closure costs, impairment and other
related charges (1) - 8 2
Net loss on disposition of assets - - 2 -
Non-operating pension and other
postretirement benefit costs (credits) 3 (3) 13 (8)
Other (income) expense, net (37) (20) (95) 74
Adjusted EBITDA $ 157 $ 144 $ 687 $ 810 Three months ended
Operating income variance analysis
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Sales
Sales increased by$157 million compared to the year-ago period, to$974 million . After removing the effects of the indefinite idling of theCalhoun pulp and paper operations during the first quarter of 2022 and the weaker Canadian dollar, pricing had a favorable impact of$119 million , as a result of an increase in the average transaction price for paper, market pulp, and tissue, up by 24%, 24% and 21% respectively, partly offset by lower prices in the wood products segment due to market conditions, down by 2%. Higher volume increased sales by$98 million , mainly reflecting higher shipments across all segments.
Cost of sales, excluding depreciation, amortization and distribution costs
Cost of sales, excluding depreciation, amortization and distribution costs (or, "COS") increased by$99 million compared to the year-ago period. After removing the effects of the indefinite idling of theCalhoun pulp and paper operations, the higher volume and the weaker Canadian dollar, COS increased by$105 million , largely due to: •higher fiber costs ($46 million ), mainly reflecting an increase in stumpage fees (which are based on higher benchmark lumber selling prices reflecting a time lag in the stumpage system), higher harvesting costs (including fuel) and higher price for log purchases for the wood products segment; higher market pulp prices for the tissue segment; as well as higher price of recycled furnish for the market pulp segment; 28
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•unfavorable maintenance and other operating costs ($25 million ) as a result of higher costs, scope and timing of maintenance work, and higher labor and outside services costs;
•higher energy costs (
•higher chemical costs (
Distribution costs
After removing the impact of volume, including the favorable impact ($6 million ) of the indefinite idling of theCalhoun pulp and paper operations, and the weaker Canadian dollar, distribution costs increased by$24 million , mainly due to higher freight rates and limited flexibility of mode of transportation.
Depreciation and amortization
Depreciation and amortization was
Selling, general and administrative expenses
Selling, general and administrative (or, "SG&A") expenses increased by
Indefinite idling of the
During the three months endedSeptember 30, 2022 , the indefinite idling ofCalhoun pulp and paper operations had a favorable impact of$7 million on our operating income. This included a decrease in sales of$59 million , in COS of$52 million (net of asset preservation costs of$2 million ) and in distribution costs of$6 million , all reflecting the lower volume of 66,000 metric tons compared to the year-ago period; and lower SG&A of$5 million and depreciation of$3 million . Net income variance analysis
Non-operating pension and other postretirement benefit (costs) credits
We recorded non-operating pension and OPEB costs of$3 million in the quarter, compared to credits of$3 million in the year-ago period. The difference mainly reflects lower expected return on plan assets ($4 million ) in the current period.
Other income, net
We recorded other income, net, of$37 million in the quarter, compared to other income, net, of$20 million , in the year-ago period. The difference mainly reflects a foreign exchange gain of$37 million in the current period, compared to a foreign exchange gain of$12 million and income from equity method investments of$8 million in the year-ago period.
Income taxes
We recorded an income tax provision of$66 million in the quarter on income before income taxes of$153 million , compared to an expected income tax provision of$32 million based on theU.S. federal statutory income tax rate of 21%. The difference mainly reflects:U.S. tax on non-U.S. earnings ($34 million ); foreign exchange items ($27 million ); and foreign tax rate differences ($9 million ); partly offset by an income tax benefit for our valuation allowance related to ourU.S. operations ($33 million ) where we recognized a full valuation allowance against our deferred income tax assets as ofJanuary 1, 2022 . During the three months endedSeptember 30, 2022 , we released$33 million of the$673 million valuation allowance on ourU.S. deferred income tax assets that existed atJanuary 1, 2022 , mainly to offset tax implications relating to the GILTI inclusion. In the third quarter of 2021, we recorded an income tax provision of$40 million , on income before income taxes of$120 million , compared to an expected income tax provision of$26 million based on theU.S. federal statutory income tax rate of 21%. The difference mainly reflects:U.S. tax on non-U.S. earnings ($13 million ); foreign tax rate differences ($6 million ); and foreign exchange items ($5 million ); partly offset by a decrease in our valuation allowance related to ourU.S. operations ($11 million ) where we recognized a full valuation allowance against our deferred income tax assets. 29
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The$11 million decrease in our valuation allowance for the three months endedSeptember 30, 2021 , was to offset the tax implications relating to the GILTI inclusion.
Nine months ended
Operating income variance analysis
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Sales
Sales increased by$147 million compared to the year-ago period, to$2,977 million . After removing the effects of the indefinite idling of theCalhoun pulp and paper operations and the weaker Canadian dollar, pricing had a favorable impact of$233 million , mainly as a result of an increase in the average transaction price for paper, market pulp, and tissue, up by 25%, 23% and 13% respectively, partly offset by a decrease in the average transaction price for wood products, down by 10%. Higher volume increased sales by$51 million , mainly reflecting higher shipments in tissue ($18 million ), and wood products ($33 million ) due to the acquisition of the remaining 50% equity interests inLarouche andSt-Prime , partly offset by logistic constraints as a result of limited rail car availability.
Cost of sales, excluding depreciation, amortization and distribution costs
COS increased by$205 million in the period. After removing the effects of the indefinite idling of theCalhoun pulp and paper operations, the weaker Canadian dollar and volume, COS increased by$288 million , largely reflecting: •higher fiber costs ($133 million ), mainly reflecting an increase in stumpage fees (which are based on higher benchmark lumber selling prices reflecting a time lag in the stumpage system), higher harvesting costs (including fuel) and higher price for log purchases for the wood products segment; higher price of recycled furnish for the market pulp segment; as well as higher market pulp prices for the tissue segment; •higher energy costs ($68 million ) due to higher prices of natural gas and power, as well as lower internal power generation, mainly as a result of a seven-month turbine failure at the Saint-Félicien (Quebec ) mill which was back in operation during the second quarter of 2022; •unfavorable maintenance and other operating costs ($67 million ) as a result of higher costs, scope and timing of maintenance work, and higher labor and outside services costs; and
•higher chemical costs (
Distribution costs
After removing the impact of volume, including the favorable impact ($14 million ) of the indefinite idling of theCalhoun pulp and paper operations, and the weaker Canadian dollar, distribution costs increased by$65 million , mainly due to higher freight rates and limited flexibility of mode of transportation. 30
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Depreciation and amortization
Depreciation and amortization was
Selling, general and administrative expenses
SG&A expenses increased by
Closure costs, impairment and other related charges
In the first nine months of 2022, we recorded additional closure costs, impairment and other related charges of$8 million , related to the indefinite idling of ourCalhoun pulp and paper operations, and additional costs for theBaie-Comeau (Quebec ) paper mill. This compares to$2 million of closure costs, impairment and other related charges in the year-ago period, related to the indefinite idling of ourBaie-Comeau paper mill.
Indefinite idling of the
In the first nine months of 2022, the indefinite idling of ourCalhoun pulp and paper operations had a favorable impact of$22 million on our operating income. This included a decrease in sales of$135 million , in COS of$130 million (net of asset preservation costs of$15 million ) and in distribution costs of$14 million , all reflecting the lower volume of 166,000 metric tons compared to the year-ago period; and lower depreciation of$7 million and SG&A of$6 million .
Net income variance analysis
Non-operating pension and other postretirement benefit (costs) credits
We recorded non-operating pension and OPEB costs of$13 million in the first nine months of 2022, compared to credits of$8 million in the year-ago period. The difference reflects: in the current period, lower expected return on plan assets ($15 million ), higher interest cost ($6 million ), and pension special termination benefit cost ($3 million ) related to the indefinite idling of our pulp and paper operations at ourCalhoun mill; partly offset by lower amortization of actuarial losses ($6 million ).
Other income, net
We recorded other income, net, of$95 million in the first nine months of 2022, compared to other expense, net, of$74 million in the year-ago period. The difference mainly reflects a foreign exchange gain of$45 million , a gain on previously-held equity investments of$42 million (see Note 2, "Business Combinations" to our Consolidated Financial Statements), and income from equity method investments of$7 million in the current period, compared to a foreign exchange gain of$1 million , a loss on commodity contracts of$85 million , principally related to lumber futures contracts and income from equity method investments of$12 million in the year-ago period. There were no lumber futures contracts outstanding as ofSeptember 30, 2022 and 2021.
Income taxes
We recorded an income tax provision of$89 million in the first nine months of 2022 on income before income taxes of$642 million , compared to an expected income tax provision of$135 million based on theU.S. federal statutory income tax rate of 21%. The difference mainly reflects: an income tax benefit for our valuation allowance related to ourU.S. operations ($219 million ) where we recognized a full valuation allowance against our deferred income tax assets as ofJanuary 1, 2022 ; partly offset byU.S. tax on non-U.S. earnings ($106 million ); foreign exchange items ($34 million ); and foreign tax rate differences ($33 million ). During the nine months endedSeptember 30, 2022 , we released$219 million of the$673 million valuation allowance on ourU.S. deferred income tax assets that existed atJanuary 1, 2022 . Of the released amount,$105 million was to offset future projected tax implications of the GILTI inclusion, which impacted the overall effective tax rate. The remaining amount released was mainly to offset tax implications relating to the GILTI inclusion for the nine months endedSeptember 30, 2022 . At each reporting period, we assess whether it is more likely than not that the deferred income tax assets will be realized, based on the review of all available positive and negative evidence, including future reversals of existing taxable temporary differences, estimates of future taxable income, past operating results, and prudent and feasible tax planning strategies. 31
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In our evaluation process, we give the most weight to historical income or losses. During the second quarter of 2022, after evaluating all available positive and negative evidence, although realization is not assured, we determined that it is more likely than not that the$105 million of theU.S. deferred income tax assets released during the second quarter, will be realized in the future prior to expiration. The key factor contributing to the conclusion that the positive evidence ultimately outweighed existing negative evidence is the continuing GILTI inclusion. The rapidly changing dynamics in the wood products, pulp and paper segments resulted or are expected to result in significant GILTI inclusions for 2021, 2022 and some future years. These significant GILTI inclusions have created or are expected to createU.S. taxable income, which has been, or is expected to be entirely offset by existingU.S. tax attributes included in deferred income tax assets that have been fully reserved. In the first nine months of 2021, we recorded an income tax provision of$167 million , on income before income taxes of$603 million , compared to an expected income tax provision of$127 million based on theU.S. federal statutory income tax rate of 21%. The difference mainly reflects:U.S. tax on non-U.S. earnings ($96 million ); foreign tax rate differences ($33 million ); partly offset by a net decrease in our valuation allowance related to ourU.S. operations ($89 million ) where we recognized a full valuation allowance against our deferred income tax assets.
The
Segment Earnings
We manage our business based on the products we manufacture. Our reportable segments correspond to our principal product lines: market pulp, tissue, wood products and paper.
We do not allocate any of the income or loss items following "operating income"
in our Consolidated Statements of Operations to our segments because those items
are reviewed separately by management. Similarly, we do not allocate to the
segments: closure costs, impairment and other related charges; gains and losses
on disposition of assets; as well as other discretionary charges or credits.
We allocate depreciation and amortization expense to our segments, although the
related fixed assets and amortizable intangible assets are not allocated to
segment assets. Additionally, all SG&A expenses are allocated to our segments,
with the exception of certain discretionary charges and credits, which we
present under "corporate and other."
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MARKET PULP
Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions, except where
otherwise stated) 2022 2021 2022 2021
Sales $ 265 $ 234 $ 687 $ 609
Operating income (1) $ 81 $ 46 $ 144 $ 80
EBITDA (2) $ 86 $ 52 $ 160 $ 98
(In thousands of metric tons)
Shipments 260 283 741 808
Downtime 2 28 33 76
September 30,
(Unaudited, in thousands of metric tons) 2022 2021
Finished goods inventory 67 52
(1)Net income including noncontrolling interest is equal to operating income in this segment.
(2)EBITDA, a non-GAAP financial measure, is reconciled below. For more
information on the calculation and reasons we include this measure, see note 1
under "Results of Operations - Consolidated Results - Selected financial
information" above.
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Net income including noncontrolling
interest $ 81 $ 46 $ 144 $ 80
Depreciation and amortization 5 6 16 18
EBITDA $ 86 $ 52 $ 160 $ 98
Industry trends
[[Image Removed: rfp-20220930_g3.jpg]]
World demand for chemical pulp increased by 2.8% in the first eight months of 2022 compared to the year-ago period, reflecting an increase inNorth America andWestern Europe of 3.1% and 5.9%, respectively, whileChina decreased by 2.8%. In the first eight months of 2022, world capacity increased by 3.0% compared to the year-ago period. 33
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World demand for softwood pulp fell by 1.9% in the first eight months of 2022, with a decrease of 14.0% inChina , whileNorth America andWestern Europe increased by 4.1% and 2.2%, respectively. The shipment-to-capacity ratio was 86%.
In the same period, world demand for hardwood pulp increased by 5.3%, with
shipments to
Three months ended
Operating income variance analysis
[[Image Removed: rfp-20220930_g4.jpg]]
Sales
Sales were$31 million higher, or 13%, in the quarter to$265 million . After removing the effects of the indefinite idling of theCalhoun pulp operations, pricing contributed to a$51 million increase due to higher realized prices in all pulp grades as the average transaction price rose by$199 per metric ton, or 24%.
Cost of sales, excluding depreciation, amortization and distribution costs
COS decreased by$3 million compared to the year-ago period. After removing the effects of the indefinite idling of theCalhoun pulp operations, higher volume, and the weaker Canadian dollar, COS increased by$17 million , largely reflecting:
•higher energy costs (
•higher fiber costs (
•higher chemical costs (
Distribution costs
After removing the effect of volume including the favorable impact of the indefinite idling of theCalhoun pulp operations, and of the weaker Canadian dollar, distribution costs increased by$4 million , mainly due to higher freight rates and limited flexibility of mode of transportation. 34
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Nine months ended
Operating income variance analysis
[[Image Removed: rfp-20220930_g5.jpg]]
Sales
Sales were$78 million higher, or 13%, to$687 million in the first nine months of the year. After removing the effects of the indefinite idling of theCalhoun pulp operations, pricing increased sales by$123 million , reflecting an increase in the average transaction price of$176 per metric ton, or 23%, due to higher realized prices in all pulp grades.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the effects of the indefinite idling of theCalhoun pulp operations, higher volume and the weaker Canadian dollar, manufacturing costs increased by$69 million , largely reflecting:
•higher energy costs (
•higher fiber costs (
•higher chemical costs (
•unfavorable maintenance and labor costs (
Distribution costs
After removing the effect of volume including the favorable impact of the
indefinite idling of the
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TISSUE
Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions, except where
otherwise stated) 2022 2021 2022 2021
Sales $ 50 $ 38 $ 150 $ 115
Operating loss (1) $ (12) $ (9) $ (30) $ (18)
EBITDA (2) $ (8) $ (4) $ (17) $ (4)
(In thousands of short tons)
Shipments (3) 24 23 75 65
Downtime 2 3 2 10
September 30,
(Unaudited, in thousands of short tons) 2022 2021
Finished goods inventory (3) 5 6
(1)Net loss including noncontrolling interest is equal to operating loss in this segment.
(2)EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons we include this measure, see note 1 under "Results of Operations - Consolidated Results - Selected financial information" above.
(3)Tissue converted products, which are measured in cases, are converted to
short tons.
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Net loss including noncontrolling interest $ (12) $ (9) $ (30) $ (18)
Depreciation and amortization 4 5 13 14
EBITDA $ (8) $ (4) $ (17) $ (4)
Industry trends
[[Image Removed: rfp-20220930_g6.jpg]]
TotalU.S. tissue consumption rose by 4.5% in the first eight months of 2022, compared to the year-ago period. Converted product shipments increased by 3.9%, where at-home shipments increased by 3.7%, and away-from-home shipments increased by 4.2%. 36
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U.S. parent roll production rose by 4.0% in the first eight months of 2022, and the average industry production-to-capacity ratio increased to 94%, up from 90% in the year-ago period.
Three months ended
Operating loss variance analysis
[[Image Removed: rfp-20220930_g7.jpg]]
Sales
Sales were$12 million higher, or 32%, to$50 million in the quarter, reflecting an increase in the average transaction price of$363 per short ton, or 21%, due to a favorable product mix and a rise in tissue pricing, and an increase in shipments by 1,000 short tons, or 4%, following better conditions in the retail and away-from-home markets.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effect of higher volume, our manufacturing costs increased by
•higher fiber costs ($9 million ) due to higher market pulp prices, including the loss of pulp integration following the indefinite idling of theCalhoun pulp and paper operations; and
•higher energy costs (
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Nine months ended
Operating loss variance analysis
[[Image Removed: rfp-20220930_g8.jpg]]
Sales
Sales were$35 million higher, or 30%, to$150 million in the first nine months of the year, due to an increase in shipments by 10,000 short tons, or 15%, following better conditions in the retail and away-from-home markets, and an increase in pricing of$228 per short ton, or 13%, due to favorable product mix and a rise in tissue pricing.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effect of higher volume, our manufacturing costs increased by
•higher fiber costs ($21 million ) due to higher market pulp prices, including the loss of pulp integration following the indefinite idling of theCalhoun pulp and paper operations;
•higher energy costs (
•unfavorable maintenance and labor costs (
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WOOD PRODUCTS
Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions, except where
otherwise stated) 2022 2021 2022 2021
Sales $ 379 $ 293 $ 1,324 $ 1,387
Operating income (1) $ 42 $ 64 $ 441 $ 690
EBITDA (2) $ 53 $ 75 $ 474 $ 722
(In millions board feet)
Shipments (3) 606 511 1,577 1,578
Downtime 22 47 72 112
September 30,
(Unaudited, in millions board feet) 2022 2021
Finished goods inventory (3) 168 129
(1)Net income including noncontrolling interest is equal to operating income in this segment.
(2)EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons we include this measure, see note 1 under "Results of Operations - Consolidated Results - Selected financial information" above.
(3)Includes wood pellets measured by mass, converted to board feet using a density-based conversion ratio, as well as engineered wood products measured by linear feet, converted to board feet.
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Net income including noncontrolling
interest $ 42 $ 64 $ 441 $ 690
Depreciation and amortization 11 11 33 32
EBITDA $ 53 $ 75 $ 474 $ 722
Industry trends
[[Image Removed: rfp-20220930_g9.jpg]]
U.S. housing starts were 1.6 million on a seasonally adjusted basis in the first nine months of 2022, up by 1.8% from the same period last year, which reflects a 5.1% decrease in single-family starts and an increase of 17.9% in multi-family starts. 39
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2x4 - Random Length (or "RL") #1-2Kiln Dried Great Lakes (or "KD GL") price fell by 1.5% in the first nine months of 2022 compared to the year ago period, and the 2x4x8 Stud KD GL price rose by 2.4%. The 2x4 - RL #2 KD Southern Pine (Eastside) price decreased by 0.1%, and the 2x4 - RL #2 KD Southern Pine (Westside) price was down by 0.2%.
Three months ended
Operating income variance analysis
[[Image Removed: rfp-20220930_g10.jpg]]
Sales
Sales were$86 million higher, or 29%, to$379 million in the quarter. Volume increased sales by$92 million reflecting an increase in shipments of 95 million board feet, or 19%, due to softer lumber market conditions in the prior period. Pricing resulted in a$6 million decrease in sales.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effects of the weaker Canadian dollar, and of the higher
volume, which included higher manufacturing costs related to the
•higher log costs ($26 million ), primarily due to an increase in stumpage fees (which are based on higher benchmark lumber selling prices reflecting a time lag in the stumpage system), as well as fuel and higher external log cost; and
•unfavorable sawmill operating costs (
Distribution costs
After removing the effect of higher volume, and of the weaker Canadian dollar, distribution costs increased by$8 million , mainly due to higher freight rates and limited flexibility of mode of transportation. 40
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Nine months ended
Operating income variance analysis
[[Image Removed: rfp-20220930_g11.jpg]]
Sales
Sales were$63 million lower, or 5%, to$1,324 million in the first nine months of the year mainly reflecting lower prices due to market conditions, partly offset by the acquisition of the remaining 50% equity interests inLarouche andSt-Prime . Pricing decreased sales by$96 million , reflecting a lower average transaction price of$90 per thousand board feet, or 10%. Sales volume was$33 million higher, due to the acquisition of the remaining 50% equity interests inLarouche andSt-Prime , partly offset by logistic constraints as a result of limited rail car availability.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effects of the weaker Canadian dollar, and of the higher
volume, which included higher manufacturing cost related to the
•higher log costs ($79 million ), primarily due to an increase in stumpage fees (which are based on higher benchmark lumber selling prices reflecting a time lag in the stumpage system), harvesting costs, fuel and higher external log cost; and
•unfavorable sawmill operating costs (
Distribution costs
After removing the effect of volume, and the weaker Canadian dollar,
distribution costs increased by
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PAPER
Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions, except where
otherwise stated) 2022 2021 2022 2021
Sales $ 280 $ 252 $ 816 $ 719
Operating income (loss) (1) $ 52 $ 16 $ 114 $ (15)
EBITDA (2) $ 62 $ 31 $ 143 $ 31
(In thousands of metric tons)
Shipments 327 364 1,020 1,124
Downtime 32 36 96 229
September 30,
(Unaudited, in thousands of metric tons) 2022 2021
Finished goods inventory 74 72
(1)Net income (loss) including noncontrolling interest is equal to operating income (loss) in this segment.
(2)EBITDA, a non-GAAP financial measure, is reconciled below. For more
information on the calculation and reasons we include this measure, see note 1
under "Results of Operations - Consolidated Results - Selected financial
information" above.
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Net income (loss) including noncontrolling
interest $ 52 $ 16 $ 114 $ (15)
Depreciation and amortization 10 15 29 46
EBITDA $ 62 $ 31 $ 143 $ 31
Industry trends
[[Image Removed: rfp-20220930_g12.jpg]]
North American newsprint demand fell by 8.4% in the first eight months of the
year compared to the same period last year. Demand from newspaper publishers
fell by 6.4% and demand from commercial printers fell by 11.4%. The North
American shipment-to-capacity ratio was 90%, compared to 95% in the
year-ago-period.
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Global demand for newsprint fell by 2.6% in the first eight months of 2022, withNorth America ,Western Europe , andAsia down by 8.4%, 0.7%, and 1.7%, respectively. The shipment-to-capacity ratio increased to 89%, up from 86% in the year-ago period. North American demand for uncoated mechanical papers rose by 8.4% in the first eight months of 2022, compared to the year-ago period, reflecting a 6.7% increase in supercalendered grades, and a 9.8% increase in standard grades. The shipment-to-capacity ratio for all uncoated mechanical papers was 92%, compared to 91% in the year-ago period.
Three months ended
Operating income variance analysis
[[Image Removed: rfp-20220930_g13.jpg]]
Sales
Sales increased by$28 million , or 11%, to$280 million in the quarter. After adjusting for the effects of the indefinite idling of theCalhoun paper operations, volume, and the Canadian dollar fluctuation, pricing contributed to a$65 million increase in sales, due to higher prices across all paper grades reflecting a rise in the average transaction price of$167 per metric ton, or 24%.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the effects of the indefinite idling of theCalhoun paper operations, and the weaker Canadian dollar, manufacturing costs increased by$30 million , largely reflecting:
•higher energy costs (
•higher fiber costs (
•higher chemical costs (
•unfavorable maintenance costs (
Distribution costs
After removing the effect of volume, distribution costs increased by
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Depreciation and amortization
Depreciation and amortization was
Nine months ended
Operating income (loss) variance analysis
[[Image Removed: rfp-20220930_g14.jpg]]
Sales
Sales rose by$97 million , or 13%, to$816 million in the first nine months of the year. After adjusting for the effects of the indefinite idling of theCalhoun paper operations and the Canadian dollar fluctuation, pricing contributed to a$189 million increase in sales, due to an increase in the average transaction price of$160 per metric ton, or 25%, due to higher prices across all paper grades and lower volume decreased sales by$4 million due to logistic constraints.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by$66 million after adjusting for the effects of volume, the indefinite idling of theCalhoun paper operations, and the weaker Canadian dollar, largely reflecting:
•higher energy costs (
•higher chemical costs (
•higher fiber costs (
•unfavorable maintenance costs (
Distribution costs
After removing the impact of volume, including the favorable impact of the
indefinite idling of the
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Depreciation and amortization
Depreciation and amortization was$17 million lower compared to the year-ago period, primarily due to fully depreciated assets and the decrease in depreciation related to the indefinite idling of theCalhoun paper operations, whose assets were fully impaired in the fourth quarter of 2021. 45
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Corporate and Other
Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Cost of sales, excluding depreciation,
amortization and distribution costs $ (5) $ (3) $ (21) $ (5)
Depreciation and amortization (4) (5) (10) (13)
Selling, general and administrative
expenses (31) (7) (52) (32)
Closure costs, impairment and other related
charges 1 - (8) (2)
Net loss on disposition of assets - - (2) -
Operating loss (39) (15) (93) (52)
Interest expense (5) (5) (16) (16)
Non-operating pension and other
postretirement benefit (costs) credits (3) 3 (13) 8
Other income (expense), net 37 20 95 (74)
Income tax provision (66) (40) (89) (167)
Net loss including noncontrolling interest $ (76) $ (37) $ (116) $ (301)
The table below shows the reconciliation of net loss including noncontrolling
interest to EBITDA and adjusted EBITDA, which are non-GAAP financial measures.
For more information on the calculation and reasons we include these measures,
see note 1 under "Results of Operations - Consolidated Results - Selected
financial information" above.
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in millions) 2022 2021 2022 2021
Net loss including noncontrolling interest $ (76) $ (37) $ (116) $ (301)
Interest expense 5 5 16 16
Income tax provision 66 40 89 167
Depreciation and amortization 4 5 10 13
EBITDA (1) 13 (1) (105)
Closure costs, impairment and other
related charges (1) - 8 2
Net loss on disposition of assets - - 2 -
Non-operating pension and other
postretirement benefit costs (credits) 3 (3) 13 (8)
Other (income) expense, net (37) (20) (95) 74
Adjusted EBITDA $ (36) $ (10) $ (73) $ (37) Three and nine months ended
Cost of sales, excluding depreciation, amortization and distribution costs
COS increased compared to the year-ago period principally due to asset
preservation costs, mainly related to our indefinitely idled
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LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
We rely on cash and cash equivalents, cash flows provided by operations, and our credit facilities to: fund our operations; make pension contributions; and to finance our working capital, capital expenditures, duty cash deposits and opportunities in support of our growth and transformation strategy. In addition, from time to time we may use available cash to reduce debt and to return capital to stockholders, including through share repurchases or special dividends. As ofSeptember 30, 2022 , we had cash and cash equivalents of$446 million and availability of$874 million under our credit facilities.
Based on our current projections, we expect to have sufficient financial resources available to finance our business plan, make pension contributions, meet working capital and duty cash deposit requirements, and maintain an appropriate level of capital spending.
Third Quarter and Year-to-Date Overview
Credit rating risk
December 31,
Current 2021
Standard & Poor's
Senior unsecured debt (1) B B
Long-term corporate credit rating (1) B+ B+
Outlook (1) CreditWatch Stable
Moody's Investors Service
Senior unsecured debt (1) (2) B1 B2
Corporate family rating (1) (2) Ba3 B1
Outlook (1) Under Review Stable
Liquidity rating SGL-1 SGL-1
(1)On July 7, 2022 , following the announcement of the Transaction, Standard &
Poor's changed the Positive Outlook to CreditWatch with positive implications.
Additionally, Moody's changed the Stable Outlook to Under Review for downgrade.
(2)On
Although our debt agreements do not include any provision that would require material changes in payment schedules or terminations as a result of a credit rating downgrade, we believe our access to capital markets at a reasonable cost is determined in part by credit quality. A credit rating downgrade could impact our ability to access capital markets at a reasonable cost. These ratings reflect the views of the rating agencies only. An explanation of the significance of these ratings can be obtained from each rating agency. The ratings are not a recommendation to buy, sell or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.
Senior Secured Credit Facility
The obligations under the Senior Secured Credit Facility (as defined in Note 10, "Long-Term Debt" to our Consolidated Financial Statements) are guaranteed by certain materialU.S. subsidiaries of the Company and are secured by a first priority mortgage on the real property of the Company's facility inCalhoun and a first priority security interest on the fixtures and equipment located therein. Following the indefinite idling of theCalhoun pulp and paper operations, the Company entered into agreements, onMarch 2, 2022 , to provide the following additional security under the Senior Secured Credit Facility: (i) a first priority mortgage on the real property of the Company's sawmill facilities inGlenwood andEl Dorado (Arkansas ) and a first priority security interest on the fixtures and equipment located therein, and (ii) a first priority security interest on the fixtures and equipment at the Company's sawmill facility inCross City (Florida ). 47
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Table of Contents Flow of Funds Summary of cash flows A summary of cash flows for the nine months endedSeptember 30, 2022 and 2021, was as follows: Nine Months Ended September 30, (Unaudited, in millions) 2022 2021 Net cash provided by operating activities$ 591 $ 580 Net cash used in investing activities (253) (204) Net cash used in financing activities (4) (375)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
(7) (1)
Net increase in cash and cash equivalents, and restricted cash
$ -
Nine months ended
Net cash provided by operating activities
We generated$591 million of cash from operating activities in the first nine months of 2022, compared to$580 million in the year-ago period. The increase is primarily driven by a decrease in planned major maintenance payments, as well as pension contributions, partly offset by lower profitability and an unfavorable working capital variance in the current period.
Net cash used in investing activities
We used$253 million of cash in investing activities in the current period, compared to$204 million in the year-ago period. The difference mostly reflects the acquisitions, net of cash acquired, ofLarouche andSt-Prime and of a power generation facility inSenneterre ($49 million ).
Net cash used in financing activities
Net cash used in financing activities was$4 million in the first nine months of 2022, compared to$375 million in the year-ago period. The difference mostly reflects the repayment of the 5.875% senior unsecured notes due 2023 of$375 million partly offset by the issuance of the 4.875% senior unsecured notes due 2026 of$300 million , as well as the repayment of$180 million in term loans in the year-ago period. In addition, in the current year, we repurchased$2 million of shares, compared to the year-ago period when we repurchased$34 million , and paid a special dividend of$1 per share, or$79 million .
Outlook
While headwinds from inflationary pressure and rising interest rates influenced building materials demand and prices in the third quarter, we expect lumber prices to stabilize as the market finds supply-demand balance. The paper segment should continue to benefit from favorable prices. We expect market conditions to soften marginally in market pulp, while the temporary idling of theMenominee recycled pulp mill will result in lower shipments. With transportation challenges easing, we expect to continue to normalize inventory in wood products and paper segments. Share Repurchase Program OnDecember 7, 2021 , we announced a new share repurchase program, authorized by our board of directors, of up to ten million shares of our common stock or$100 million , whichever occurs first. We repurchased no shares during the three months endedSeptember 30, 2022 , and 125,482 shares at an average price of$11.34 for a total of$2 million during the nine months endedSeptember 30, 2022 . OnMarch 2, 2020 , our board of directors authorized a share repurchase program of up to 15% of our common stock, for an aggregate consideration of up to$100 million . During the three and nine months endedSeptember 30, 2021 , we repurchased 1,248,251 shares at an average price of$10.95 for a total of$14 million and 3,340,599 shares at an average price of$10.22 for a total of$34 million , respectively. This share repurchase program was completed inDecember 2021 . 48
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Dividends
We did not declare or pay any dividends on our common stock during the three and nine months endedSeptember 30, 2022 . We declared a special dividend of$1.00 per share ($79 million ) on our common stock during the nine months endedSeptember 30, 2021 . The dividend was paid to shareholders onJuly 7, 2021 . 49
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RESOLUTE FOREST PRODUCTS INC.
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