RESOLUTE FOREST PRODUCTS INC. (NASDAQ:RFP) Files An 8-K Termination of a Material Definitive Agreement
ITEM1.02
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TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT |
As a result of the companys exit from the Quebec funding relief
regulation as described in Item8.01 of this current report on
Form 8-K, the Agreement Concerning the Pulp and Paper Operations
of Abitibibow Canada in Quebec dated September13, 2010 between
Resolute FP Canada Inc. (RFP Canada) and the
Minister of Economic Development, Innovation and Export Trade, as
amended from time to time, including most recently on December18,
2015 (the Quebec undertaking), will expire in
accordance with its terms on December31, 2016. The expiration of
the Quebec undertaking is described in greater detail under the
heading Expiration of undertakings in Item8.01 of this
report, which description is incorporated in this Item1.02 by
reference.
| ITEM8.01 | OTHER EVENTS |
Ontario and Quebec pension funding relief regulations
On December16, 2016, the province of Ontario amended a special
regulation (the Ontario funding relief
regulation) that, together with a similar special
regulation in force in the province of Quebec (the Quebec
funding relief regulation), provides for aggregate
funding of solvency deficits in respect of the companys material
Canadian pension plans (the affected plans)
through December31, 2020. Under the Ontario and Quebec funding
relief regulations, the company makes an aggregate annual basic
contribution of Cdn$80 million to the Ontario and Quebec affected
plans, plus a supplemental contribution if the plans aggregate
solvency ratio is more than 2% below the target specified in the
regulations for the preceding year, subject to certain
conditions.
The purpose of the amendment to the Ontario funding relief
regulation is to provide that if the company exits the Quebec
funding relief regulation on or before December31, 2016, then
from July 2017 through December 2020, the company will make an
annual basic contribution of Cdn$9 million directly to the
Ontario affected plans instead of making the Cdn$80 million
annual basic contributions to the Ontario and Quebec plans. As
was the case prior to the amendment, the company will also be
required to make a supplemental contribution, payable over a
three-year period, if the Ontario affected plans aggregate
solvency ratio is more than 2% below the target specified in the
Ontario funding relief regulation for the preceding year, subject
to certain conditions. In addition, asaresult of undertakings to
the provinces described below under Expiration of
undertakings, the additional deficit reduction contributions
to the affected plans for past capacity reductions are Cdn$13
million in 2016, and we will be required to make our final
remaining contributions for past capacity reductions of
approximately Cdn$31million, Cdn$21million, Cdn$5 million, and
Cdn$2 million in 2017, 2018, 2019, and 2020, respectively.
Following the expiration of the Ontario funding relief regulation
on December 31, 2020, any then remaining solvency deficit would
be payable under the Ontario Pension Benefits Act, as
currently in effect, over a five year period in equal monthly
instalments beginning on December 31, 2021.
The company is permitted to exit the Ontario funding relief
regulation earlier than December31, 2020, by providing a notice
to that effect to the province of Ontario on December31 of any
year. If the company elects to exit the Ontario funding relief
regulation, its pension plans in Ontario would become subject to
the pension plan funding regime generally applicable at that time
to pension plans in that province.
Following the amendment to the Ontario funding relief regulation,
on December19, 2016, the company provided notice to the Quebec
pension plan regulatory authorities that the company will
voluntarily exit the Quebec funding relief regulation with effect
as of December31, 2016. As a result, beginning on January1, 2017,
the companys pension plans in Quebec will be subject to Quebecs
Supplemental Pension Plans Act, as amended
(SPPA), which is the pension plan funding regime
generally applicable to pension plans in that province. The SPPA
provides for funding pension fund deficits on a going concern
basis, rather than on a solvency basis, which is expected to
lessen the impact of short-term market fluctuations on the Quebec
plans funded status and reduce the volatility in the amount of
the companys contributions.
The following table illustrates, based on the assumptions
described below, the aggregate contributions the company made in
2016 and expects to make to its Canadian and U.S. pension plans
for each year in the period from January1, 2017 through
December31, 2020. Contributions shown for the years 2017 through
2020 give effect to the amendment to the Ontario funding relief
regulation, as well as the companys exit from the Quebec funding
relief regulation. The amounts shown in the following table
reflect pension plan deficit funding contributions only, and do
not include other postretirement benefit plan payments.
| Funding Relief | SPPAAmendedOntarioRegulations | |||||||||||||
| (In millions) | ||||||||||||||
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Total pension contributions(1) |
$162 | $151 | $137 | $112 | $121 |
| (1) |
Amounts shown include contributions for past capacity reductions of Cdn $13 million, Cdn$31million, Cdn$21 million, Cdn$5 million, and Cdn$2 million for 2016, 2017, 2018, 2019, and 2020, respectively. |
The assumptions used for the years 2017 through 2020 were as
follows:
|
Discount rate as of November 30, 2016 on a going |
5.50% | |||
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Estimated rate of return on assets |
7.00% | |||
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Defined contribution plans |
Samelevelofcontributionsasin2016 | |||
|
Canadian dollar |
US$0.75 |
Variations in the assumptions in our discount rate or rate of
return on assets could cause the contribution amounts the company
is required to make to its Canadian and U.S. pension plans for
the period from January1, 2017 through December31, 2020 to vary
significantly from the expected amounts included in the preceding
table. A 25 basis point change in the discount rate or return on
assets would increase or decrease, on average, the contributions
in each of the years for the period from January 1, 2017 through
December 31, 2020, by $4 million and $1 million, respectively.
Similarly, because we make our Canadian 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. For example, a strengthening of the Canadian dollar
against the U.S. dollar of $0.01 would increase the U.S. dollar
amount of our annual pension plan contributions by approximately
$1 million.
Expiration of undertakings
As indicated in Item1.02 of this current report on Form 8-K, the
Quebec undertaking will expire in accordance with its terms
effective as of December31, 2016. RFP Canada originally entered
into the Quebec undertaking, and a similar undertaking with the
government of Ontario (the Ontario undertaking),
in 2010 in connection with the enactment of the Quebec and
Ontario funding relief regulations. The Ontario undertaking
expired in accordance with its terms in December 2015. The Quebec
undertaking provided that it would remain in effect for so long
as RFP Canadas Quebec pension plans remained subject to the
Quebec funding relief regulation.
The Quebec undertaking required the company to, among other
things:
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abide by the compensation plan with respect to salaries, bonuses and severance included in the companys 2010 Companies Creditors Arrangement Act Plan of Reorganization and Compromise; |
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direct at least 60% of the companys maintenance and value-creation investments that are earmarked for its Canadian pulp and paper operations to projects in Quebec; |
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maintain its head office, and the related functions that were in existence in 2010, in Quebec; and |
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make an additional solvency deficit reduction contribution to the affected plans of Cdn$75, payable over four years, for each metric ton of capacity reduced in Quebec, in the event of downtime of more than six consecutive months or nine cumulative months over a period of 18 months. |
Neither the expiration of the Quebec undertaking, nor the
previous expiration of the Ontario undertaking, eliminates
ongoing obligations already incurred by RFP Canada under the
terms of those undertakings prior to their expiration, including
deficit reduction contributions for past capacity reductions, as
described in this Item8.01 under the heading Ontario and
Quebec pension funding relief regulations.
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