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PUBLIC VERSION

IN THE MATTER OF AN ARBITRATION UNDER CHAPTER ELEVEN OF
THE NORTH AMERICAN FREE TRADE AGREEMENT
AND THE 1976 UNCITRAL ARBITRATION RULES

BETWEEN:

RESOLUTE FOREST PRODUCTS INC.

Claimant

AND:

GOVERNMENT OF CANADA

Respondent

PCA CASE No. 2016-13

Expert Report of Peter Steger

April 17, 2019

Summary of Resolute’s [Redacted] [Profit & Loss Statements], 2009-2017 • Kénogami ... 12K

Summary of Resolute’s [Redacted] [Profit & Loss Statements], 2009-2017 • Dolbeau ... 12D

Summary of Resolute’s [Redacted] [Profit & Loss Statements], 2009-2015 • Laurentide ... 12L

Summary of Resolute’s [Redacted] [Profit & Loss Statements], 2010-2015 • Catawba ... 12C

Summary of SC Paper Sales by Volume (000s MT) by Grade, 2011-2015 per Resolute’s [Redacted] Productions (Kénogami, Dolbeau, Laurentide, and Catawba) ... 13

Summary of SC Paper Sales by Volume (MT) by Mill, 2009-2015 (Kénogami, Dolbeau, Laurentide, and Catawba) per Resolute’s [Redacted] and [Redacted] Schedules ... 14A

Summary of SC Paper Sales (USD $000’s) by Mill, 2009-2015 (Kénogami, Dolbeau, Laurentide, and Catawba) per Resolute’s [Redacted] and [Redacted] Schedules ... 14B

Summary of SC Paper Sales (US$) by Grade, 2009-2015 per Resolute’s [Redacted] ... 14C

Summary of SC Paper Sales (MT) by Grade, 2009-2015 per Resolute’s [Redacted] ... 14D

Resolute’s Selling Price (US$/MT) Reconciliation ... 15

Summary of Resolute’s Direct Costs per [Redacted] (P&Ls) Resolute’s Actual Direct Costs as Compared to Hausman Report II ... 16

No schedules ... 17-19

Summary of North American Consumption of SCA and SCB/SNC Shipments (MTs) per [Redacted] 2009-2018 ... 20

[Redacted] 2000-2018 ... 21

Summary of [Redacted] US$/ton (Short Ton) with YoY Change ... 22

Summary of [Redacted] (Tons [Short Tons]) ... 23

No schedule ... 24

[Page 25]

TABLE OF CONTENTS

Summary of [Redacted] ... 25

Summary of [Redacted] ... 26

Summary of Government Assistance as per [Redacted] ... 27

PWCC’s EBITDA Initiatives R-266, [Redacted] (CAN000082) [Redacted] - As Produced ... 28A

PWCC’S EBITDA Initiatives R-266, [Redacted] (CAN000082) [Redacted] Adjusted by CHS ... 28B

PWCC’S EBITDA Initiatives R-266, [Redacted] (CAN000082) [Redacted] ... 28C

Estimate of Port Hawkesbury Paper Sales Net of Cash Costs for the Years Ended December 31, 2012 - 2015 ... 29

Replication of Hausman Report II Damages Calculation (“As Is”) • Summary - All Mills ... 30

Replication of Hausman Report II Damages Calculation (“As Is”) • Kénogami ... 30K

Replication of Hausman Report II Damages Calculation (“As Is”) • Dolbeau ... 30D

Replication of Hausman Report II Damages Calculation (“As Is”) • Laurentide ... 30L

Replication of Hausman Report II Damages Calculation [Redacted] • Summary - All Mills ... 31

Replication of Hausman Report II Damages Calculation [Redacted] Kénogami ... 31K

Replication of Hausman Report II Damages Calculation [Redacted] • Dolbeau ... 31D

Replication of Hausman Report II Damages Calculation [Redacted] Laurentide ... 31L

Replication of Hausman Report II Damages Calculation [Redacted] • Summary - All Mills ... 32

Replication of Hausman Report II Damages Calculation [Redacted] • Kénogami ... 32K

Replication of Hausman Report II Damages Calculation [Redacted] • Dolbeau ... 32D

Replication of Hausman Report II Damages Calculation [Redacted] Laurentide ... 32L

No schedules ... 33-39

Summary of USD:CAD Exchange Rates, 2009-2018 ... 40

Summary of Unit Conversion Factors ... 41

[Page 26]

1.0 INTRODUCTION AND MANDATE

1. I, Peter Steger, of Cohen Hamilton Steger & Co. Inc. (“CHS”), was retained by the Respondent in this matter, Government of Canada (“Canada”), in connection with the claims for damages made by the Claimant, Resolute Forest Products Inc. (“Resolute”), under NAFTA Article 1102 (National Treatment) and Article 1105 (Minimum Standard of Treatment).¹

2. Specifically, Resolute’s claims relate to certain assistance (or “benefits package”)² provided by the Government of Nova Scotia (“GNS”) in connection with the re-opening of the Port Hawkesbury Paper (“PHP”) mill in Nova Scotia under the new ownership of Pacific West Commercial Corporation (“PWCC”)³ in Fall 2012 and the purported financial impact of such on Resolute’s three Canadian paper mills in Québec, being Kénogami, Dolbeau and Laurentide.⁴ Resolute’s three Canadian mills produced super-calendered (“SC”) paper of various grades (or quality), primarily comprising SCA, SCB, and SNC.⁵ [Redacted]

3. In respect of Resolute’s damages claim, I was asked by Canada to:

a) Review and provide my comments on the report prepared for Claimant by Dr. Seth Kaplan dated December 28, 2018 (the “Kaplan Report”), which opines, inter alia: “[t]he PHP mill would not have opened were it not for the entire benefits package [GNS] gave PWCC”⁶ (see Section 5.0 below).

¹ Resolute Forest Products Inc. v. Government of Canada (UNCITRAL) Claimant’s Memorial, 28 December 2019 (“Claimant’s Memorial”). ↩

² Claimant’s Memorial and Claimant’s experts’ reports refer to such GNS assistance alternatively as the “Measures”, “ensemble of benefits”, and “benefits package”. See Claimant’s Memorial, for example, ¶¶ 71, 153-168, 197-202, 219-221, 253-254, 280-287. ↩

³ Pacific West Commercial Corporation is part of the Stern group of companies. ↩

⁴ Resolute operated a fourth paper mill in Catawba, South Carolina, USA, which is not addressed in Claimant’s experts’ reports. ↩

⁵ SNC refers to a “C” grade of SC paper called “soft-nip” or SNC. ↩

⁶ See Expert Witness Report of Seth T. Kaplan, Ph.D. (December 28, 2018) (“Kaplan Report”), ¶ 50. ↩

[Page 27]

b) Review and provide my comments on the report prepared for Claimant by Dr. Jerry Hausman dated December 28, 2018 (the “Hausman Report II”), which opines, inter alia: “[t]he reopening of PHP added 360,000 MT of capacity to the SC Paper market, causing significant financial damage to Resolute’s three [Canadian] SC Paper mills via price declines”⁷ and to prepare a price erosion analysis (see Sections 5.0 and 6.0 below).^{8, 9}

c) Address, if possible, the EBITDA¹⁰ improvements contemplated and achieved by the new owners of PHP (being PWCC), as between the GNS assistance versus PWCC’s own initiatives (see Section 8.0 below).

1.1 Currency and Tonnage

4. Currency amounts herein are expressed in United States dollars (USD or US$) or Canadian dollars (CAD or C$), as indicated. A summary of exchange rates between the two currencies during 2009 – 2018 is provided in Schedule 40.

5. Tonnage is generally expressed herein as metric tonnes (MT), or alternatively as short tons (tons or ST), as noted. A conversion table is provided in Schedule 41.

2.0 STATEMENT OF QUALIFICATIONS AND INDEPENDENCE

6. I am a Canadian Chartered Professional Accountant (CPA) and Chartered Accountant with a specialist designation in Investigative and Forensic Accounting (CA•IFA), as well as a Chartered Business Valuator (CBV), a Certified Fraud Examiner (CFE), and hold a Certification in Financial Forensics (CFF). I am a founding Principal of Cohen Hamilton Steger & Co. Inc., Canada’s largest

⁷ Expert Witness Report of Jerry Hausman, Ph.D. (December 28, 2018) (“Hausman Report II”), ¶ 15. ↩

⁸ Claimant’s Memorial states: “[b]ut for all of the Nova Scotia Measures taken together…[PHP] would not have re-opened, and would not have damaged Resolute” (¶161). Accordingly, I have not been asked to assess damages in relation to any individual measure. ↩

⁹ For purposes of assessing Resolute’s losses, I have assumed that Canada is liable for losses; however, I make no representation as to legal interpretations. If Canada is found not to be liable, then my calculations in respect of Resolute’s losses are not applicable. ↩

¹⁰ EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization. ↩

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boutique firm specializing in damages quantification, business valuation and forensic accounting in litigation and other disputes. I was previously a Managing Director at Navigant Consulting (now part of Ankura) and a Principal at Kroll Lindquist Avey (now part of Duff & Phelps), two international consultancies with operations in similar fields. I have practiced exclusively in these fields for approximately 28 years.

7. I have been retained as an expert witness on hundreds of mandates involving the quantification of losses or the valuation of business interests in breach of contract disputes, patent infringement matters, shareholder disputes, class actions, and other commercial disputes. In the course of my expert witness retainers, I have submitted numerous reports and affidavits, including expert testimony related thereto, in various forums including ICC Arbitrations, domestic arbitrations, several Canadian provincial courts, and the Federal Court of Canada.

8. My loss quantification mandates have spanned many industries including pulp & paper, forest estates and various other manufacturing. I have been recognized as one of Canada’s top cross-border expert witnesses in the Lexpert/American Lawyer annual guides, as well as a leading Forensic Accountant and Quantum of Damages Expert in Who’s Who Legal.

9. My curriculum vitae is attached as Appendix A.

10. My report has been prepared independently and objectively. CHS has no stake, directly or indirectly, in the outcome of this arbitration and CHS’s fees are not contingent on the outcome of this matter in any way.

3.0 SCOPE OF REVIEW

11. For the purpose of preparing this report, I reviewed and relied upon the documents identified in my report herein and the attached schedules.

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3.1 Scope Limitations

12. There are several instances whereby the Hausman Report II references the expectations or information provided by Resolute, but which are uncited.¹¹ In addition, certain of Resolute’s financial productions and comments provided in respect thereof during the first document production phase of this matter are incomplete, unclear or ambiguous. Accordingly, I will be asking Canada to seek clarification on such information during the upcoming additional productions request phase.

13. The production of any additional information and documents may have an impact on my conclusions as set out herein.

4.0 BACKGROUND

4.1 Resolute and PHP’s SC Paper Mills

14. Resolute’s three Canadian SC paper mills are/were located in the province of Québec at Jonquiere (the Kénogami mill), Dolbeau-Mistassini (the Dolbeau mill) and Shawinigan (the Laurentide mill, which closed in 2014).¹² Resolute also operated a coated paper mill at Catawba, South Carolina, USA, that periodically produced minor quantities of SC paper,¹³ and which was sold in January 2019.¹⁴ The PHP mill is located at Port Hawkesbury in the province of Nova Scotia.

15. These Canadian mills (like others in North America and Europe) have gone through a number of closures and re-openings, as follows:

¹¹ See Hausman Report II, ¶¶ 30, 42, 43, 44. ↩

¹² See Claimant’s Memorial, ¶16. ↩

¹³ See Claimant’s Memorial, ¶142 footnote 221. ↩

¹⁴ See R-245, Resolute Forest Products Inc., Annual Report for the Fiscal Year Ended December 31, 2018 (Form 10-K), p. 4. ↩

[Page 30]

Table 1 Summary of Resolute (Canada) and PHP’s SC Paper Mill Closures and Re-openings

4.2 SC Paper Grades

16. Resolute’s three Canadian mills produce(d) SC paper of various grades (or quality), primarily comprising SCA, SCB, and SNC (see Schedule 11).

¹⁵ Resolute’s 10-Ks reported minor changes in the capacities of the mills in certain years (see R-254, Resolute Forest Products Inc., Annual Report for the Fiscal Year Ended Dec. 31, 2009 (Form 10-K); R-255, Dec. 31, 2010; R-246, Dec. 31, 2011; R-247, Dec. 31, 2012; R-248, Dec. 31, 2013; R-249, Dec. 31, 2014; R-250, Dec. 31, 2015; R-251, Dec. 31, 2016; R-252, Dec. 31, 2017; R-245, Dec. 31, 2018). ↩

¹⁶ For Resolute mill capacities, see R-253, [Redacted] RFP0004782: Dolbeau at RFP0004784,86,87,92; Kénogami and Laurentide at RFP0004783. For PHP mill capacity and paper types see C-163, [Redacted] CAN000004, p. 12. ↩

¹⁷ For Resolute paper types, see also Schedules 14 A/B summarizing Resolute’s Supercalendered Paper Sales Data. ↩

¹⁸ For closure/re-open dates, for Dolbeau: see C-023, Ross Marowits, “AbitibiBowater may restart Dolbeau Mill after workers endorse changes, The Canadian Press” (Sept. 23, 2011) and C-255, [Redacted] (RFP0009302); for Kénogami: see Resolute Forest Products Inc. v. Government of Canada (UNCITRAL) Counter-Memorial on Jurisdiction, 22 February 2017, ¶ 44; for Laurentide: see R-014, Resolute Forest Products, News Release, “Resolute Forest Products announces permanent shutdown of paper machine at its Laurentide mill” (Nov. 6, 2012); and R-016, Resolute Forest Products, News Release, “Resolute Announces Permanent Closure of Laurentide Mill in Shawinigan, Québec” (Nov. 6, 2012); for PHP: see C-163, [Redacted], p. 11 and R-100, Article, PaperAge, “Papermaking Rolls Again at Port Hawkesbury Mill in Nova Scotia” (Oct. 5, 2012). ↩

[Page 31]

4.3 Summary of Resolute’s Canadian Mills’ Financial Results 2010 - 2017

17. The following table summarizes Resolute’s reported net profits before tax (in CAD) for its three Canadian mills during 2010 – 2017.¹⁹ During this period, there were several capacity changes that affected Resolute’s three Canadian mills as well as PHP (see Section 4.1 above). Of note, after these changes in capacity, including PHP’s re-opening, Resolute generated its [Redacted] during 2015 – 2017.

Table 2 Summary of Resolute’s Reported Net Profits Before Tax (C$ millions)

* includes losses from “Mill Closure Elements” during the year.
** includes losses from restarted operations during the year.
See Schedules 12K, 12D, 12L

18. The primary reason for Resolute’s [Redacted] is that while selling prices denominated in US$/MT have fallen during 2013 – 2017, the CAD has weakened relative to the USD during this period, such that the USD:CAD exchange rate went from par in 2012 to USD 1:00 = CAD 1.30 in 2015 -2017. Resolute’s [Redacted]

19. The following graphs illustrate the changes in annual USD- and CAD-denominated net sales, cash costs,²⁰ and profit before SG&A allocation²¹ and depreciation (per MT) of Resolute’s three Canadian mills:

¹⁹ Resolute has not produced its 2018 results. ↩

²⁰ Cash costs comprise freight, variable and fixed costs (but excludes SG&A allocation and depreciation). ↩

²¹ SG&A is generally understood to mean selling, general & administrative expenses. ↩

[Page 32]

[Redacted]

See Schedule 12D

[Page 33]

[Redacted]

See Schedule 12L

4.4 Summary of North American SC Paper Volumes 2010 - 2018

20. The following table summarizes the reported shipment volumes for Resolute’s mills and the total North American market (domestic shipments and foreign imports) during 2010 - 2018. As noted above, there were several capacity changes affecting Resolute’s three Canadian mills as well as PHP during this period (see Section 4.1 above). Of note,

a) Since 2013, North American shipments for SCA paper [Redacted], while shipments for [Redacted].

b) Imports of SCA paper [Redacted] while imports for SCB/SNC paper [Redacted].

[Page 34]

c) During 2013 – 2015 (last year of available Resolute data of SC volumes segregated by grade), Resolute’s shipments for SCA paper [Redacted] while shipments for SCB/SNC paper [Redacted].

d) Resolute’s total SCA shipments [Redacted] despite PHP’s absence in 2012 (PHP exited in September 2011 and did not fully re-enter until 2013).²² Conversely, Resolute’s total SCA shipments [Redacted] despite PHP’s full re-entry in 2013.

Table 3 Summary of SCA / SCB/SNC Shipment Volumes (MT 000s)

²² See Kaplan Report, ¶13 footnote 11. ↩

²³ While the Catawba mill is not part of the Claimant’s claim, it is included here for completeness in respect of Resolute’s SC papers produced. Minor rounding reconciliations have been ignored. ↩

[Page 35]

Table 3 (cont’d) Summary of SCA / SCB/SNC Shipment Volumes (MT 000s)

See Schedules 11, 12K, 12D, and 20.

21. The following graph illustrates the above-noted sales tonnages for North American shipments and by Resolute:²⁴

[Redacted]

See Schedule 11 (North America shipments shown)

²⁴ Resolute’s breakdown between SCA and SCB/SNC paper sales volumes has not been produced for 2016-2018. ↩

[Page 36]

4.5 SC Paper Prices 2010 - 2018

22. The following graph summarizes the reported North American pricing for SCA and SCB paper during 2010 – 2018:

[Redacted]

See Schedule 21

5.0 DETAILED COMMENTS IN RESPECT OF THE KAPLAN REPORT

5.1 Summary of Dr. Kaplan’s Conclusions

23. The Kaplan Report opines, inter alia, that:

a) “NSG [Nova Scotia Government] eventually granted PHP over [CAD] $124.5 million in aid.”²⁵

b) “[t]he PHP mill would not have opened were it not for the entire benefits package the NSG gave PWCC.”²⁶

²⁵ See Kaplan Report, ¶24. ↩

²⁶ See Kaplan Report, ¶50. ↩

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c) “The full re-entry²⁷ of the PH mill introduced 360,000 MT of SCP [SC paper] capacity to a declining market with moderately elastic demand. This significant addition of supply was not due to, or met with, a significant increase in demand, thus, prices for SCP fell.”²⁸

d) “The addition of 360,000 MT of capacity of SCP from the low-cost producer led to a substantial price decrease.”²⁹

e) “The NSG’s actions impacted adversely the profitability of Resolute’s three mills.”³⁰

5.2 My Concerns with These Conclusions

24. Regarding Dr. Kaplan’s first two statements that: “NSG eventually granted PHP over [CAD] $124.5 million in aid” and “[t]he PHP mill would not have opened were it not for the entire benefits package the NSG gave PWCC”, my concerns are as follows:

a) Dr. Kaplan does not specify which “aid” comprises his “over [CAD] $124.5 million” figure or what constitutes “the entire benefits package” given by GNS to PWCC. Instead, Dr. Kaplan lists 13 bullets of purported “aid” in the “benefits package” that totals, for those items that include a dollar figure, to approximately C$ 1.164 billion.

b) In contrast, according to my review of [Redacted]

(see Schedule 27).

c) And, [Redacted]

i. [Redacted]

ii. [Redacted]

²⁷ PHP exited in September 2011 and did not “fully re-enter” until 2013 (see Kaplan Report, ¶13 footnote 11). ↩

²⁸ See Kaplan Report, ¶50. ↩

²⁹ See Kaplan Report, ¶48. ↩

³⁰ See Kaplan Report, ¶51. ↩

³¹ PHPLP is the PWCC entity operating the PH mill. ↩

[Page 38]

iii. [Redacted]

iv. [Redacted]

v. [Redacted]

vi. [Redacted]

vii. [Redacted].

viii. [Redacted]³² (see Section 8.3 below)

25. Regarding Dr. Kaplan’s next two statements that: “[t]he full re-entry of the PH mill introduced 360,000 MT of SCP [SC paper] capacity” and that such “led to a substantial price decrease”, my concerns are as follows:

a) Dr. Kaplan refers to PHP’s “capacity”, rather than its actual volumes sold into the North American market. As noted in Section 8.3.1 below, [Redacted]

b) Dr. Kaplan also refers to PHP’s capacity being added generically to the “SCP” market, rather than stratifying such as between the various grades of SC paper. As noted in Section 4.1 and as further described in the 2019 Pöyry Expert Report,³³ the table below summarizes the grades in which PHP and Resolute compete.

³² R-269, [Redacted], CAN000012; C-220, [Redacted], CAN000013, C-225, [Redacted] CAN000014; C-238, [Redacted] CAN000015. ↩

³³ See Expert Report of Pöyry (April 16, 2019) (“Pöyry Report”), Section 2.1. ↩

³⁴ [Redacted] (see Schedule 14D). [Redacted] see R-230 [Redacted] RFP0011677; [Redacted] – see R-272, [Redacted] RFP0011702; and [Redacted] – see R-273, [Redacted] RFP0011595. ↩

[Page 39]

c) Based on the foregoing, [Redacted] Dr. Kaplan makes no inquiry or statement as to the impact of such as related to competition or prices.

d) Regarding the “substantial” price decrease in the first half of 2013 following PHP’s re-opening in October 2012, Dr. Kaplan fails to address the price rebound that occurred in the second half of 2013 to pre-PHP levels. In addition, he fails to address that the existence and reasons for why there was conversely no “substantial” price increase when PHP exited the market in September 2011 (in fact, prices were flat, then declined after PHP’s exit).³⁵

26. Regarding Dr. Kaplan’s fifth statement that: “[t]he NSG’s actions impacted adversely the profitability of Resolute’s three mills”, my concerns are as follows:

a) Dr. Kaplan provides no attempt at quantifying said “adverse impact on Resolute’s profitability” despite providing several “theoretical” supply and demand curves of the “SCP market without PHP”.³⁶

b) Dr. Kaplan does not comment as to any real world events having occurred during 2013 to date, nor any forecasted to occur thereafter, and their impact on SC paper volumes and prices, such as: (i) continued secular reductions in SC demand; (ii) grade substitutions between the coated mechanical (“CM” or “coated”) and SCA+ grades or between SNC and uncoated mechanical (“UM” or generally “improved newsprint”); (iii) Resolute’s re-opening of the Dolbeau mill (machine #05) in October 2012 and close Laurentide machine #10 in November 2012 around the time PHP re-entered in Sept./Oct. 2012; (iv) Resolute’s own deliberations to close the Laurentide mill in October 2014, and to sell the

³⁵ See diagrams in Kaplan Report, ¶ 48. ↩

³⁶ See diagrams in Kaplan Report, ¶¶ 40, 43, 46. ↩

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Catawba mill in January 2019;³⁷ or (v) any other supply or demand factors. In other words, Dr. Kaplan considers no hindsight against his “theoretical” supply and demand curves for actual real world events having occurred or expected to occur with the passage of time since 2012.

6.0 DETAILED COMMENTS IN RESPECT OF THE HAUSMAN REPORT II

6.1 Summary of Dr. Hausman’s Conclusions

27. The Hausman Report II opines, inter alia, that “[t]he reopening of PHP added 360,000 MT of capacity to the SC paper market, causing significant financial damage to Resolute’s three [Canadian] SC Paper mills via price declines.”³⁸ He adds: “[the] analysis does not include PHP’s negative effects on Resolute’s quantities via lowered shipments and market related downtime at its three mills... the damages calculation only includes the price effects (underlining added)”³⁹ In other words, Dr. Hausman’s model is that of a price erosion claim only; such that Resolute’s [Redacted] sold in the real world during 2013 - 2018 (including Resolute’s closure of the Laurentide mill in 2014) are assumed by Dr. Hausman to be the same as his But-for world, resulting in no loss of Resolute volumes due to PHP’s re-entry.⁴⁰

6.2 My Concerns with These Conclusions

28. Similar to Dr. Kaplan,⁴¹ Dr. Hausman states that “[t]he reopening of PHP added 360,000 MT of capacity to the SC paper market.” My concerns with this statement are:

³⁷ Resolute’s productions of its deliberations surrounding the Laurentide closure in 2014 are minimal, contrary to expectation. Further, Resolute has not produced any of its deliberations surrounding the sale of Catawba in 2019. ↩

³⁸ See Hausman Report II, ¶15. ↩

³⁹ See Hausman Report II, ¶22. ↩

⁴⁰ Resolute’s claim in the Damages phase now abandons its prior Article 1110 (Expropriation) claim in respect of the closure of its Laurentide mill in 2014 (Claimant’s Memorial ¶14). As a result, Dr. Hausman’s price erosion damages calculations in respect of Laurentide terminate with its closure in 2014. ↩

⁴¹ See Section 5.0 above. ↩

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a) Dr. Hausman refers to PHP’s “capacity”, rather than its actual volumes sold into the North American market. As noted in Section 8.3.1 below, [Redacted]

b) Dr. Hausman also refers to PHP’s capacity being added generically to the “SC paper market”, rather than stratifying such as between the various grades of SC paper. As noted in Section 4.1 and as further described in the 2019 Pöyry Expert Report,⁴² the table below summarizes the grades in which PHP and Resolute compete.

c) Based on the foregoing, [Redacted] Dr. Hausman makes no inquiry or statement as to the impact of such as related to competition or prices.

6.3 Summary of Dr. Hausman’s Loss Calculations

29. Dr. Hausman then proceeds to calculate Resolute’s losses under two scenarios and two loss periods, culminating in a range from USD $163.7 million (which Hausman concludes is “more conservative” and his “final” amount) to USD $201.9 million⁴³ using the following inputs, each of which I address in Sections 6.4 to 6.10 below.

⁴² See Pöyry Report, Section 2.1. ↩

⁴³ See Hausman Report II, ¶48. ↩

[Page 44]

Table 4 Summary of Hausman’s Model Inputs and Assumptions

6.4 Loss Periods

30. Dr. Hausman splits his analysis into two periods: 2013-2017 and 2018-2028; effectively a “Past Loss period” and a “Future Loss period”. My comments in respect of this assumption are addressed in Sections 6.5 and 6.8 below.

6.5 But-for Selling Prices in the Past Loss Period

31. To determine the purported “price effects” of PHP’s re-entry, Dr. Hausman starts by applying the RISI October 2011 five-year forecast (the “RISI October 2011 Five-Year Forecast”) ⁴⁴ for SCA prices (year-over-year (“YoY”) % changes only) to each of Resolute’s three Canadian mills’ actual average mix of SC prices per MT (i.e. SCA, SCB, and SNC) in 2012, as set out in the table below.

⁴⁴ R-257, [Redacted] p.94. ↩

[Page 49]

Dr. Hausman states that he has used the RISI October 2011 forecast because “this was the last year without price effects from PHP’s reopening.”^{45, 46}

Table 5 RISI October 2011 Five-Year Forecast for SCA Prices (YoY % Change)⁴⁷

32. Dr. Hausman then compares the selling price assumptions (per MT) so derived for his But-for world for 2013 – 2017 versus Resolute’s actual average selling prices for 2013 – 2017, which results in [Redacted] selling price differentials or erosion, purportedly on account of PHP’s re-entry, as follows:⁴⁸

Table 6 Hausman’s Selling Price Erosion (But-for Prices less Actual Prices) 2013 - 2017⁴⁹

See Schedules 30K, 30D, 30L.

⁴⁵ See Hausman Report II, ¶26. ↩

⁴⁶ Dr. Hausman cites the above-noted forecast to a [Redacted] at Hausman Report II, Exhibit 2, 18^th page. He does not reference the [Redacted] (which Resolute produced on February 8, 2019 as R-257, [Redacted] RFP0012034, nor whether he has reviewed and/or considered any of the [Redacted]. ↩

⁴⁷ See Hausman Report II, ¶27 and Exhibit 2, 18^th page. ↩

⁴⁸ In his model, Dr. Hausman presents his loss calculations as: But-for profits (= But-for revenues less But-for variable costs) less Actual profits (= Actual revenues less Actual variable costs). ↩

⁴⁹ See Hausman Report II, page 12, Table 2. ↩

[Page 50]

33. My concerns with Dr. Hausman’s selling price assumption follow.

6.5.1 No Support for PHP’s “Price Effect” Lasting from 2013 to 2017

34. Dr. Hausman’s 2013 – 2017 past loss period assumes that PHP’s re-entry in 2013 had a lasting and increasingly decremental effect on SC prices, without support for such, including that the [Redacted], as follows.

6.5.2 RISI’s [Redacted]

35. The table below compares the RISI October 2011 Five-Year Forecast for SCA prices versus the actuals that occurred. In contrast to the [Redacted] as noted above, the [Redacted], such that [Redacted], culminating in its 2016 forecast of [Redacted] being [Redacted] than actuals of [Redacted], as shown in the table below.

Table 7 Comparison of RISI October 2011 Five-Year Forecast 2012-2016 versus Actuals 2012-2016 for SCA Prices

See Schedule 22 (Forecast); Schedule 21 (Actuals)

[Page 51]

36. Comparing Table 7 pricing differentials above to the price erosion assumed by Dr. Hausman in Table 6 (ranging from [Redacted]), he effectively attributes the majority of the price difference to PHP’s re-entry.

37. However, a closer look at 2013 prices and beyond show that:

a) A price drop did temporarily occur in the first half of 2013 after PHP re-entry, but it was followed by a return to 2012 pricing (before PHP re-entry) in the second half of 2013. As further described in 7.2 below, various contemporaneous industry commentary (including RISI) largely determined [Redacted].

b) In the year prior, during 2012 (when NewPage PH had exited the market), pricing did not exhibit the opposite phenomenon of a price hike over 2011 (with NewPage PH in the market). For example, RISI had forecasted a [Redacted] for 2012 when, in fact, prices [Redacted] (see Schedule 22).

c) The 2019 Pöyry Expert Report similarly concludes that “the impact of PHP’s exit and re-entry on SC-paper market prices was temporary and negligible in the long term.”⁵⁰

d) RISI’s previous February and June 2011 five-year price forecasts (each with New Page PH in the market) predicted [Redacted] (with PHP now out of the market) (see Schedule 22).

e) RISI’s follow-on February/June/November 2013 price forecasts (all with PHP having re-entered) continued to [Redacted] in subsequent years, thereby [Redacted] (see Schedule 22).

6.5.3 RISI’s [Redacted]

38. In addition to forecasted SCA prices, the table below compares the RISI October 2011 Five-Year

⁵⁰ See Pöyry Report, Sections 1.5 and 5.1. ↩

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Forecast for SC volumes⁵¹ versus the market actuals that occurred.⁵² Forecasted pricing is made in conjunction with forecasted volumes, and [Redacted]. For example, [Redacted] without PHP re-entry, [Redacted] with PHP re-entry (see Section 8.3.1).

39. As a result, the RISI forecasted [Redacted] as shown in the table below.

Table 8 Comparison of RISI October 2011 Five-Year Forecast 2012-2016 versus Actuals 2012-2016 for SC Volumes (North American Demand/Consumption)⁵³

See Schedule 23 (Forecast); Schedule 20 (Actuals)

⁵¹ Whereas the [Redacted] (see R-257, [Redacted] RFP0012034, p. 94 and p. 102, respectively. ↩

⁵² The Hausman Report II does not consider sales volumes. ↩

⁵³ North American consumption (or demand) comprises North American shipments plus imports (but excludes exports). ↩

⁵⁴ [Redacted] (see Schedule 23). ↩

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40. Given that the volume levels forecasted by RISI for 2012 - 2016 were [Redacted] by the real world market that unfolded, and given the tied nature of a volume forecast with a price forecast, I consider it inappropriate to use the RISI October 2011 Five-Year Forecast as the basis for the 2013-2017 price forecast as Dr. Hausman has done in his But-for world.

6.5.4 Dr. Hausman’s Model is Flawed

41. In addition to the foregoing, Dr. Hausman’s model itself is flawed, which is best illustrated by the damages figure it calculates if one were to substitute an alternate price forecast for that of Dr. Hausman’s RISI 2011 forecast. As noted in Section 6.5 (Tables 5 and 6) above, Dr. Hausman’s use of RISI’s October 2011 forecasts of YoY percentage changes in SCA prices generated price differentials or erosion ranging from [Redacted] for Kénogami, [Redacted] for Dolbeau, and [Redacted] for Laurentide.

42. In contrast to Dr. Hausman’s price differentials, [Redacted]”⁵⁵

43. In the 2019 Pöyry Expert Report, Pöyry concludes, with retrospect, that [Redacted], and that the July 2013 price increase “is proof of a strong market in 2013 rather than the market weakness that PHP’s re-entry was expected to cause, and it indicates a short-term price impact, if any, of PHP’s re-entry.”⁵⁶

44. Notwithstanding, using Dr. Hausman’s model, if one were to substitute the RISI October 2011 Five Year Forecast with the [Redacted] estimated [Redacted] of what the market (and

⁵⁵ R-161, [Redacted]. ↩

⁵⁶ See Pöyry Report, Section 5.3. ↩

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thus, Resolute’s) selling prices would have been but-for PHP’s re-entry, Dr. Hausman’s loss quantum would change from US$163.7 million to negative US$109.3 million [!], thus negating any loss claim (see Schedule 31). This irrational result clearly renders Dr. Hausman’s model and conclusions as untenable (see also Section 6.6 re: variable costs below).

45. [Redacted]. Resolute also had a 2012 forecast as contained in its [Redacted] which stated: [Redacted]⁷

46. Again, using Dr. Hausman’s model, if one were to substitute the [Redacted] estimated by Resolute in 2012 of what the market (and thus, Resolute’s) selling prices would have been but-for PHP’s re-entry, Dr. Hausman’s loss quantum would change from US$163.7 million to negative US$39.9 million [!], again negating any loss claim (see Schedule 32).

6.5.5 No Hindsight for 2013-2017 Applied and No New Forecasts for 2018-2028

47. Dr. Hausman assumes that the only market changes that would have manifested during his combined loss periods of 16 years would have been: (i) the selling price changes forecasted by RISI in October 2011; (ii) the [Redacted] (see Section 6.6); and (iii) the [Redacted] for 2018 – 2028 (see Section 6.8). This is despite the secular downward trend referenced by Dr. Hausman and Dr. Kaplan, and as evidenced in the 2013 – 2018 shipment volumes showing [Redacted] (as noted in Section 4.4 Table 3 above).

48. Dr. Hausman does not comment as to any real world events having occurred during 2013 – 2017, nor any forecasted to occur during 2018-2028, and their impact on SC paper volumes and prices (across all SC grades of SCA+/++, SCA, SCB and SNC), such as: (i) continued reductions in SC demand; (ii) grade substitutions between the coated mechanical (“CM” or “coated”) and SCA+ grades or between SNC and uncoated mechanical (“UM” or generally “improved newsprint”); (iii)

⁵⁷ R-258, [Redacted] RFP011901. ↩

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Resolute’s re-opening of the Dolbeau mill (machine #05) in October 2012 and close Laurentide machine #10 in November 2012 around the time PHP re-entered in Sept./Oct. 2012; (iv) Resolute’s own deliberations to close the Laurentide mill in October 2014, and to sell the Catawba mill in January 2019;⁵⁸ or (v) any other supply or demand factors. In other words, Dr. Hausman applies no hindsight to his damages calculations for actual real world events having occurred or expected to occur with the passage of time since 2011.

49. Finally, Dr. Hausman makes no reference to real world deliberations expressed in [Redacted], or [Redacted].

6.5.6 Incongruent Selections

50. Dr. Hausman selects RISI’s selling price forecast over Resolute’s own forecasts of the possible selling price impact of a PHP re-opening.⁵⁹ Yet, for his variable costs assumption, Dr. Hausman conversely selects Resolute’s forecasts (for his “final” conclusion) over RISI (see also Section 6.6 below).

6.6 But-for Variable Costs in the Past Loss Period

51. In his first Scenario of the But-for world, Dr. Hausman applies RISI’s October 2011 Five-Year Forecast for US Uncoated Mechanical Paper “variable” costs (YoY % changes only) to each of Resolute’s three Canadian mills’ average “Direct” costs (per MT) in 2012 (for Kénogami) or Q1 2013 (for Dolbeau, Laurentide). In his second Scenario, which his “final” conclusion represents, Dr. Hausman applies Resolute’s purported expectations of a [Redacted] per annum (per MT) to the same 2012 / Q1 2013 bases noted above, as follows:

⁵⁸ Resolute’s productions of its deliberations surrounding the Laurentide closure in 2014 are minimal, contrary to expectation. Further, Resolute has not produced any of its deliberations surrounding the sale of Catawba in 2019. ↩

⁵⁹ See Hausman Report II, ¶ 24 footnote 25 states:“Resolute had some internal forecasts with constant prices for all of their paper products [uncited]; however, RISI prices are a better indicator of the market. RISI is accepted as the industry standard on pricing in the SCP market.[uncited]” ↩

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Table 9 Dr. Hausman’s Variable Costs Scenarios (YoY % Change) 2013 – 2017 ⁶⁰

52. From both of these variable costs (per MT) assumptions in Dr. Hausman’s But-for world for 2013 - 2017, he effectively deducts Resolute’s actual variable costs during 2013 - 2017.⁶¹

53. My concerns with Dr. Hausman’s two alternative variable costs assumptions follow.

6.6.1 Variable Cost Assumption Flawed

54. As noted in Section 6.1 above, Dr. Hausman assumes that Resolute’s [Redacted] in the Real world (with PHP re-entry) would have been the same as with his But-for world (without PHP re-entry). However, he then assumes that Resolute’s variable costs on these identical volumes would have been higher in his But-for world versus the Real world. I consider this a flaw and it is unclear why Dr. Hausman applies this divergence (his report is silent on the issue).

55. While market selling prices and producers’ costs may move somewhat in tandem (albeit with constant changes in producers’ resultant gross margins as they continually adjust to the matrix of increases/decreases in input costs and increases/decreases in selling prices),⁶² it is not clear why Dr. Hausman appears to be claiming that absent PHP’s re-entry: (a) market selling prices would have

⁶⁰ See Hausman Report II, ¶¶ 31-32 and Tables 3, 4, 6 and 7. ↩

⁶¹ In his model, Dr. Hausman presents his loss calculations as: But-for profits (= But-for revenues less But-for variable costs) less Actual profits (= Actual revenues less Actual variable costs). ↩

⁶² According to Resolute’s 10-Ks “Risk Factors” during 2013 – 2018, it states: “For our commodity products, the relationship between industry supply and demand, rather than changes in the cost of raw materials, will determine our ability to increase prices. Consequently, we may be unable to pass along increases in our operating costs to our customers.” See R-248, Resolute Forest Products Inc., Annual Report for the Fiscal Year Ended Dec. 31, 2013 (Form 10-K); R-249, Dec. 31, 2014, R-250, Dec. 31, 2015, R-251, Dec. 31, 2016, R-252, Dec. 31, 2017, R-245, Dec. 31, 2018. ↩

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been higher due to lessened competition; as well as (b) Resolute’s three primary (and Québec-based) input costs of wood fibre, labour and power would have also been higher.⁶³

6.6.2 RISI Forecast for Variable Costs

56. In respect of the RISI forecast for variable costs (first Scenario), [Redacted] and, thus, does not accord with Dr. Hausman’s usage of such to equate to Resolute’s “Direct Costs”. That is [Redacted]⁶⁴, whereas [Redacted]⁶⁵ (see also Section 6.6.4 below).

57. Further, the historical variable cost “actuals” displayed in the RISI forecasts are nonetheless still only an estimate (as RISI is a third-party commentator) and not true actuals as derived from Resolute’s financials. In addition, RISI’s “variable costs” relate to [Redacted] not just SC paper costs,⁶⁶ nor Canadian mills.

58. Dr. Hausman implicitly assumes (but does not affirmatively comment on) that RISI’s variable cost forecasts of YoY % changes apply equally across SCA/SCB/SNC production and across all its mills.

6.6.3 Resolute’s [Redacted]” for Increased Variable Costs

59. In respect of Resolute’s [Redacted] for increased variable costs (second Scenario), Dr. Hausman references no Witness Statement, production, Resolute representative or meeting notes in support of same.

⁶³ As discussed in Section 7.2, I have calculated Resolute’s price erosion loss that reflects the six-month temporary decline in selling prices observed in the first half of 2013 after PHP’s re-entry, while keeping costs constant. ↩

⁶⁴ See R-257, [Redacted] RFP012143, p. 94. ↩

⁶⁵ See Schedules 12K, 12D, 12L. ↩

⁶⁶ [Redacted] – see R-257, [Redacted] RFP012143, p. 102. ↩

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60. In fact, Resolute’s expectation of a [Redacted] by Resolute’s actual “Direct Costs” for 2012/13 - 2017 for each of its Kénogami, Dolbeau and Laurentide mills, which [Redacted] respectively (see Schedule 16).

6.6.4 Resolute’s Fixed versus Variable Costs

61. Dr. Hausman implicitly assumes (but does not affirmatively comment on) that the components of the “Variable Costs” per RISI’s forecast are equivalent to Resolute’s “Direct Costs” per its Profit & Loss Statements (“P&Ls”).⁶⁸ As noted in Section 6.6.2 above, they are [Redacted], whereas [Redacted].

62. Dr. Hausman also makes no reference to querying whether any “Fixed Costs” reported in Resolute’s P&Ls should instead be included in its Direct Costs (the latter of which Dr. Hausman equates to variable costs for his calculations). I note that, on the basis of the names alone of various line items in Resolute’s Fixed Costs, the following may, in whole or in part, be more accurately described as Variable Costs (and which are, as such, included in RISI’s figures):

a) [Redacted],

b) [Redacted]

c) [Redacted],

d) [Redacted],

e) [Redacted]

f) [Redacted], and

g) [Redacted].⁶⁹

⁶⁷ CAGR means compounded annual growth rate. The CAGR in respect of [Redacted] while [Redacted]. ↩

⁶⁸ I refer to Resolute’s [Redacted] as “P&Ls” (or Profit & Loss Statements, which I have summarized at Schedules 12K, 12D, 12L and 12C); whereas Dr. Hausman refers to same as “Scorecards”. ↩

⁶⁹ Further information from Resolute is required to conclude in this regard. ↩

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63. As one example of the foregoing, Resolute’s P&Ls do, in fact, display a [Redacted] which Dr. Hausman overrode and made adjustments to his calculations to exclude such change.

64. As a second example, Resolute’s P&Ls [Redacted] that are unaddressed and, therefore, excluded from the Hausman Report II. Further, Resolute has not produced any supporting documents to describe these [Redacted].

6.6.5 Incongruent Selections

65. By selecting his “Resolute [Redacted]” scenario over the “RISI Oct. 2011 forecast” scenario for his “final” opinion, Dr. Hausman is incongruent in that, for selling prices, he selects RISI over Resolute (see Section 6.5).

6.7 Interest Rate and Compounding in the Past Loss Period

66. Dr. Hausman’s loss calculation of US$ 163.7 million includes interest at the Government of Canada T-Bill rate, compounded annually.⁷⁰

67. My concerns with Dr. Hausman’s interest assumptions are:

a) It is incongruent to apply Canadian T-Bill interest rates to the USD-denominated lost profits that Dr. Hausman calculates (see also Section 6.10 below).

6.8 But-for Profits in Dr. Hausman’s Future Loss Period 2018-2028

68. Dr. Hausman applies a [Redacted] to his 2017 estimated But-for profit levels by mill, as calculated in his Past Loss period, and continuing thereafter until 2028. His purported support for the [Redacted] is that he “understand[s] Resolute expects a [Redacted] in future profits” and with

⁷⁰ Hausman Report II, Appendix A also includes alternative compound interest calculations using (i) Canadian Prime Rate; and (ii) Canadian Prime Rate +1%. ↩

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reference to the [Redacted].⁷¹

69. My concerns with Dr. Hausman’s future period lost profits assumptions follow.

6.8.1 Resolute’s “[Redacted]” Decline in YoY Profits

70. In respect of Resolute’s [Redacted], Dr. Hausman references no Witness Statement, production, Resolute representative or meeting notes in support of same.

71. The [Redacted] is [Redacted] nor the SC market during 2013 – 2018. For example:

a) As noted in Section 4.3 above, Resolute’s Kénogami and Dolbeau mills experienced [Redacted] whereby increasing weakness in the CAD [Redacted] denominated in USD, thus [Redacted]. With the USD:CAD exchange rate differential moderating at approximately 1.00:1.30 since 2015-16, Resolute’s [Redacted].⁷²

b) In addition, as noted in Section 4.4 Table 3 above, overall SC paper market volumes experienced [Redacted]. This secular decline is noted by Dr. Hausman and by Dr. Kaplan.⁷³ Yet, neither expert cites any current date forecasts of Resolute or others in respect of future sales volumes (or selling prices or variable costs).

72. In summary, Dr. Hausman’s adoption of a [Redacted] for 2018 - 2028 translates, in effect, into either a [Redacted] or a [Redacted]

⁷¹ See Hausman Report II, ¶42. ↩

⁷² Resolute has not produced its 2018 results by mill, showing the impact of the 2018 SC price increases. ↩

⁷³ See Hausman Report II, ¶8; Kaplan Report ¶17. ↩

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(or a combination thereof), [Redacted], nor reflects appropriate risk (see also Section 6.9 below).

6.8.2 11-Year Future Loss Period

73. Dr. Hausman states that his future loss period of 2018 - 2028 derives from his “understanding that Resolute has plans to run the Dolbeau and Kénogami mills beyond 2028 without large planned investments” and his “confidence that the SCP industry will exist in its present state in 10 years, but beyond 10 years I am less certain.”⁷⁴ For this, Dr. Hausman references no Witness Statement, production, Resolute representative or meeting notes in support of same.

74. Most important is that Dr. Hausman’s 11-year future loss period assumes that PHP’s full re-entry in the SC paper market in 2013 continues to cause a lasting and permanent decremental effect on SC prices (at least to 2028) without any support for such.

75. The arbitrariness of Dr. Hausman’s 11-year future loss period of 2018 – 2028 and the cut-off at a 2028 terminal year is also shown by how the lost profits calculated by Dr. Hausman suddenly end in 2028 despite his calculations of Resolute nonetheless generating [Redacted].⁷⁵ In my view, this also indicates that Dr. Hausman’s Future Loss period is inappropriate, even on his own theory.

76. Finally, as noted in Section 6.5.5, Dr. Hausman does not comment as to any real world events having occurred during 2013 – 2017, nor any forecasted to occur during 2018 - 2028, and their impact on SC paper volumes and prices such as: (i) continued reductions in SC demand; (ii) grade substitutions; (iii) Resolute’s decision to close the Laurentide mill in October 2014, and to sell the Catawba mill in January 2019; or (iv) any other supply or demand factors.

⁷⁴ See Hausman Report II, ¶43. ↩

⁷⁵ See Hausman Report II, ¶43 and Exhibit 2. ↩

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6.9 Discount Rate in the Future Loss Period

77. Dr. Hausman applies a [Redacted] discount rate to present value his 2018 – 2028 Future Loss period damages to January 1, 2018. He states that the [Redacted] represents “Resolute’s internal weighted average cost of capital (WACC).”⁷⁶

78. My concerns with Dr. Hausman’s future period discount rate assumption are:

a) Dr. Hausman references no Witness Statement, production, Resolute representative or meeting notes in support of same.

b) While unstated, I presume Dr. Hausman is referring to the internal WACC of Resolute Forest Products Inc., being the U.S. parent company, and not necessarily the remaining two Canadian SC paper mills (Kénogami and Dolbeau). In my view, the discounting of the cash flows of the Kénogami and Dolbeau SC paper mills should reflect the higher risks of those two mills alone compared to the more-diversified parent company. For example, Resolute’s total company sales in 2018 were US$ 3.756 billion,⁷⁷ whereas the Kénogami and Dolbeau mills sales were [Redacted].⁷⁸

79. Accordingly, the appropriate discount rate to present value Resolute’s future losses should be significantly higher to reflect:

a) The likelihood of the premise that PHP’s full re-entry in 2013 continues to have a lasting and permanent decremental effect on SC selling prices through to 2028;

b) The risks embedded in Dr. Hausman’s future cash flows as derived from a [Redacted] noted above;

⁷⁶ See Hausman Report II, ¶44. ↩

⁷⁷ R-245, Resolute Forest Products Inc., Annual Report for the Fiscal Year Ended December 31, 2018 (Form 10-K), p. 31. ↩

⁷⁸ Calculated from Resolute’s P&Ls for 2017 (last year available) of [Redacted] respectively (see Schedules 12K and 12D), totaling [Redacted] at 1.2986 F/X rate (see Schedule 40). ↩

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c) The risk of Resolute closing or selling Kénogami or Dolbeau, as it did with Laurentide in 2014 and Catawba in 2019, respectively;

d) The potential for other SC paper producers’ closures or re-starts, as well as changes in foreign imports.

80. Finally, Dr. Hausman employs an “end-of-year” convention to discount his future cash flows to a current date (being January 1, 2018 in the Hausman Report II). By doing so, Dr. Hausman’s model calculates as if Resolute’s (lost) profits were generated at the end of each future year. In my view, this is an error. The use of a “mid-year” convention is generally considered more appropriate in damages quantification.

6.10 Currency

81. Dr. Hausman conducts his analysis of Resolute’s But-for and actual selling prices, variable costs and (lost) profits all in USD.

82. My concerns with Dr. Hausman’s currency assumption are:

a) Resolute’s three Canadian mills reported their financial results [Redacted]

b) As noted in Section 6.7, it is incongruent to calculate USD-denominated lost profits but then apply Canadian T-Bill interest rates thereto.

c) In my view, it is more appropriate to calculate Resolute’s losses in CAD, and convert to USD either annually, or as a lump-sum at the date of judgment.

6.11 Conclusion

83. Based on the foregoing, it is my view that Dr. Hausman’s model, assumptions, and conclusions so derived are inappropriate and untenable. My calculations of Resolute’s price erosion loss are presented in Section 7.2.

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7.0 CALCULATION OF RESOLUTE’S LOST PROFITS FROM PRICE EROSION

7.1 Introduction

84. I have been asked to quantify the price erosion loss incurred by Resolute, if any, using the assumption provided by Canada that the entire benefits package provided by GNS to PWCC breached NAFTA Articles 1102 and 1105, and was the sole reason PHP re-entered the SC paper market.

7.2 Lost Profits from Price Erosion

85. When PHP fully re-entered the SC paper in 2013, there was an observed price decline in the first half of the year, followed by a rebound in the second half of 2013 to the price levels of 2012 before PHP re-entered, as seen in the graph below:

[Redacted]

See Schedule 1

86. The industry commentary prepared at the time in 2013 largely determined the price decline to be temporary and that PHP’s added volumes from re-entry were absorbed in the market with little impact. For example:

a) [Redacted]⁷⁹

⁷⁹ R-236, [Redacted] p. 77. ↩

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b) “...there was not a sustained drop in price that resulted from the Port Hawkesbury resumption. It is true initially there was a small impact, but that was mainly speculative because people remembered what the product mix of NewPage owned PH mill was. However, after it became apparent that the new PH was servicing customers that had been absent from the SC paper market prices came back up.”⁸⁰

c) [Redacted]⁸¹

d) [Redacted]⁸²

e) [Redacted]⁸³

f) [Redacted]⁸⁴

g) [Redacted]⁸⁵

⁸⁰ C-236, Transcript of Proceedings before U.S. International Trade Commission in re Supercalendered Paper from Canada, Inv. No. 701-TA-530 (Oct. 22, 2015), pp. 170-171, Testimony of John Coche, an independent consulting specialist in the paper business for 45 years whose major clients include purchasers of SC paper such as Parade Magazine. ↩

⁸¹ R-259, [Redacted] p. 15. ↩

⁸² R-259, [Redacted] p. 15. ↩

⁸³ R-260, [Redacted], p. 20. ↩

⁸⁴ R-261, [Redacted] p. 24. ↩

⁸⁵ R-262, [Redacted] p. 21. ↩

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h) [Redacted]⁸⁶

i) [Redacted]⁸⁷

j) [Redacted]⁸⁸

k) [Redacted]⁸⁹

87. In contrast to the above, one observation appeared to go against the otherwise consistent commentary:

a) [Redacted]

⁸⁶ R-262, [Redacted] p. 22. ↩

⁸⁷ R-263, [Redacted] p. 23. ↩

⁸⁸ R-263, [Redacted] p. 24. ↩

⁸⁹ R-264, [Redacted] p. 26. ↩

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[Redacted]⁹⁰

88. Based on the foregoing largely consistent commentary in 2013 concluding as to the temporary price effects of PHP’s re-entry, I have calculated a six-month price erosion loss as follows:

a) For the period January to June 2013, I determined the actual volumes sold by Kénogami, Dolbeau and Laurentide; and

b) I applied the estimated selling price differential experienced during January to June 2013 of [Redacted] (calculated as the difference between the lower selling prices in Q1/Q2 2013 compared to the higher prices of Q4 2012 and Q3 2013).

89. The 2019 Pöyry Expert Report similarly concludes that “the impact of PHP’s exit and re-entry on SC-paper market prices was temporary and negligible in the long term.”⁹¹

7.2.1 Price Erosion Conclusion

90. Based on the foregoing, I calculated the lost profits from price erosion at C$9.419 million (see Schedule 1).

7.3 Interest

91. I have been asked by Canada not to include interest.

7.4 Currency

92. Resolute’s three Canadian mills reported their financial results [Redacted]. Accordingly, I have calculated Resolute’s lost profits in 2013 [Redacted].

⁹⁰ R-265, [Redacted] p 25. ↩

⁹¹ See Pöyry Report, Sections 1.5 and 5.1. ↩

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7.5 Conclusion

93. Based on the foregoing, and under the assumption (pursuant to Resolute’s allegations) that, but for the entire benefits package provided by GNS to PWCC, PHP would not have re-entered the SC paper market in 2013 (or ever), I have calculated Resolute’s price erosion loss as follows:

Table 10 Summary of Resolute’s Price Erosion Losses

94. The following table compares my loss quantum conclusions to that of the Hausman Report II:

Table 11 Comparison of Steger’s versus Hausman’s Loss Quantum

8.0 PWCC / PHP – ELECTRICITY AND EBITDA IMPROVEMENTS, AND FINANCIAL RESULTS

8.1 PWCC’s Electricity Initiatives

95. Claimant’s Memorial takes issue with the [Redacted] on electricity that PWCC received as part of the agreement to purchase the PH mill (where it is frequently mentioned as one of the [Redacted]

⁹² Reflects Dr. Hausman’s “final” conclusion (see Hausman Report II, ¶48). ↩

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[Redacted]^{93, 94} While it does appear that [Redacted] compared to previous owner NewPage, the [Redacted] than Claimant’s Memorial would suggest.

96. Electricity [Redacted] under PWCC’s original proposed (but failed) partnership arrangement with NSPI (the “PWCC/NSPI Proposal”) would have been [Redacted] the projected annual [Redacted] from the proposed electricity arrangement in the [Redacted]⁹⁵ were [Redacted] compared to the PH mill’s actual electricity costs under NewPage in 2011.⁹⁶ However, PWCC’s proposed arrangement fell apart in September 2012 when the CRA issued an Advanced Tax Ruling (ATR) rejecting the PWCC/NSPI Proposal.⁹⁷

97. In summary, under the terms of the PWCC/NSPI Proposal:

a) PWCC would acquire control of NewPage Port Hawkesbury (“NPPH”) and enter into agreements that would enable NPPH to self-supply electricity to the PH mill. The self-supply would require a relationship with NSPI whereby certain electricity generation assets were dedicated to the use by a partnership in which each of NPPH and NSPI would initially be limited partners;⁹⁸

⁹³ See Claimant’s Memorial, Sections II-D (1) at pp. 17-20 and II-E (1) at pp. 25-30. ↩

⁹⁴ My review of the electricity issue is to provide context for the [Redacted] in GNS’s assistance and the other EBITDA improvements [Redacted] ↩

⁹⁵ R-266, [Redacted] CAN000082 [Redacted]; R-266, [Redacted] CAN000082 [Redacted] ↩

⁹⁶ The terms of the PWCC/NSPI Proposal are set out in the application that was jointly submitted by NSPI and PWCC for Approval of a Load Retention Rate filed with the Nova Scotia Utility and Review Board (NSUARB) on April 27, 2012 (Claimant’s Memorial Exhibit C-166) (the “Application”). The PWCC/NSPI Proposal addressed, inter alia, the applicants’ proposed arrangement for paying the costs of electricity used by the PH mill. The terms of the PWCC/NSPI Proposal are also generally described in the NSUARB’s subsequent decision approving the Application dated August 20, 2012 (Claimant’s Memorial Exhibit C-184) (the “Decision”), whereby the regulator approved the PWCC/NSPI Proposal pending the Canada Revenue Agency’s (CRA’s) acceptance of the proposed arrangement from a tax perspective. ↩

⁹⁷ The CRA’s ATR has not been produced. NSUARB’s approval of the Application was conditional upon the CRA’s acceptance of the arrangement, for which PWCC and NSPI had jointly filed a request for an Advanced Tax Ruling (“ATR”) (C-166 Application Section 4.1 pg. 17, and C-184 Decision ¶31 pg. 11 and ¶144 pg. 48). ↩

⁹⁸ C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (UARB) (Aug. 20, 2012), ¶ 17 p. 7. ↩

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b) NSPI would subsequently transfer its partnership interest to NPPH in exchange for 30% of the common shares and all of the first and second preferred shares of NPPH;⁹⁹

c) In exchange for dedicated use of NSPI’s electricity generation assets, NSPI would receive weekly preferred share dividends for the after-tax value of electricity consumed by the PH mill. The proposed structure would allow PWCC to utilize tax losses of NPPH, and NSPI to receive inter-corporate dividends which, unlike revenue from the sale of electricity, would not be subject to income tax;¹⁰⁰

d) The Application stated: “NS Power will not receive tariff revenue in respect of the electricity production from the Facilities subject to the DUA [Dedication of Use Agreement]. However, it will receive preferred share dividends, calculated on the basis described above, which will leave NS Power in the same after-tax position as if it had received tariff revenue. It is intended that this structure will be tax-efficient for NPPH given its substantial tax loss carry forwards (this result will be confirmed in the ATR). From the perspective of NS Power, the key aspect of the ATR is to confirm that the payments by NPPH of the preferred share dividends will be treated as tax-free dividends for income tax purposes.”;¹⁰¹ and,

e) Preferred share dividends paid by NPPH to NSPI would be equal to the costs of the partnership’s electricity usage, minus a facilities Operating & Maintenance (O&M) charge of C$10/MWh.¹⁰²

⁹⁹ C-166, April 2012 Application for approval for a LRR for facility at Port Hawkesbury (April 27, 2012), Section 4.1 sub(12) p. 15, and C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (UARB) (Aug. 20, 2012), ¶ 34 sub(11) p. 15. ↩

¹⁰⁰ C-166, April 2012 Application for approval for a LRR for facility at Port Hawkesbury (April 27, 2012), Section 4.1 p. 17, and C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (UARB) (Aug. 20, 2012), ¶ 17 p. 8. ↩

¹⁰¹ C-166, April 2012 Application for approval for a LRR for facility at Port Hawkesbury (April 27, 2012), Section 4.1 p. 17. ↩

¹⁰² C-166, April 2012 Application for approval for a LRR for facility at Port Hawkesbury (April 27, 2012), Section 4.1 sub (9) pg. 14, and C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (UARB) (Aug. 20, 2012), ¶ 34 sub(6) p. 13. ↩

[Page 103]

98. The NSUARB’s Decision included an illustration of the settlement mechanism for electricity in the PWCC/NSPI Proposal.¹⁰³ In the illustration, an assumed total variable electricity rate of C$48.67/MWh (including both usage and capex adder) is reduced by the C$10/MWh O&M charge, and the resultant rate of C$38.67/MWh is then tax-effected at a 31% tax rate to come to a net tax-effected rate of C$26.68/MWh (i.e., a tax-effect = C$11.99/MWh). The C$10/MWh O&M charge is then re-added to the net tax-effected rate of C$26.68/MWh to calculate the final overall variable electricity cost to be settled of C$36.68/MWh:

3.4

Settlement Mechanism

[128]

NPPH has significant tax losses and, accordingly, the earnings of the partnership that flow through it will not attract income tax (subject to a favourable ATR). As such, PHP will be able to pay dividends on the earnings at a tax efficient rate. These dividends are the means within the settlement mechanism to enable the partnership to discharge the liability for the supply of electricity and steam, as illustrated by PWCC for electricity:

PTP inclusive of variable OM&G (perMWh) (for illustration only, will be based on actual cost experienced)	$47.50
Variable Capex adder	1.17
	$48.67
Minus Facilities O&MG	10.00
	$38.67
Minus 31% tax savings (based on 31% Income Tax rate)	$11.99
	$26.68
Add back (since paid to NSPI for facilities OM&G)	10.00
	$36.68

[Exhibit P-3, p. 12]

99. Regarding the fixed component of electricity costs under the PWCC/NSPI Proposal:

a) The NSUARB approved that the partnership: “... make a minimum $2 per MWh contribution towards the Fixed Cost Recovery (FCR) Deferral. This is less than the $4 per MWh contribution to fixed costs in Bowater's LRT. As noted by PWCC and NSPI, Bowater was not assuming the fuel price risk, and hence a higher contribution to fixed

¹⁰³ C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (UARB) (Aug. 20, 2012), ¶ 128 p. 43. ↩

[Page 104]

costs was required. As well, NSPI has the ability to earn more than the $2 per MWh, and even more than the $4 per MWh for the FCR Deferral through its 30% interest in PHP. The dividend policy of PHP will be to pay 60% of the profits to the common shareholders. The business plan projects this to yield, in the near future, more than $4 per MWh.” ¹⁰⁴

b) The NSUARB also stated, “PWCC's acceptance of the fuel risk justifies a lower minimum contribution to fixed costs than under the current load retention rate. There is an expectation that there will be an additional contribution from common share dividends. If the $2 per MWh contribution and the additional common share dividends do not result in a minimum $20 million total contribution to fixed costs, then the rate will be re-opened after five years. The Board believes customers are clearly better off with this contribution than if the PH mill does not operate over the course of the next five to seven and a half years.” ¹⁰⁵

100. The PWCC/NSPI Proposal was rejected by the CRA in September 2012. As a result, the PH mill did not benefit from electricity [Redacted] that PWCC originally contemplated in the [Redacted]¹⁰⁶ of [Redacted]. Instead, the PH mill’s actual electricity [Redacted]¹⁰⁷ or [Redacted] than projected under the PWCC/NSPI Proposal.

101. In contrast, Claimant’s Memorial estimates that the PH mill’s electricity [Redacted]; However, this results from Claimant’s Memorial [Redacted].

¹⁰⁴ C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (NSUARB) (Aug. 20, 2012), ¶ 115 p. 40. ↩

¹⁰⁵ C-184, In re an Application by Pacific West Commercial Corporation and Nova Scotia Power Incorporated, Decision (NSUARB) (Aug. 20, 2012), ¶ 119-120 pp. 41-42. ↩

¹⁰⁶ See R-266, [Redacted] CAN000082 [Redacted]; See R-266, [Redacted] CAN000082 [Redacted] ↩

¹⁰⁷ Claimant’s Memorial estimates PH mill’s actual electricity costs/usage to be approximately [Redacted] with an average annual load of approximately [Redacted] during 2013-2015 (refer to paras. 118-120 of Claimant’s Memorial, Section II-G). An average rate of approximately [Redacted] is [Redacted] than the 2011 rate PH mill paid of [Redacted] indicated in the R-266 [Redacted] CAN000082 [Redacted] which, for an average annual load of approximately [Redacted], represents an annual savings of approximately [Redacted] per year compared to electricity costs under previous owner NewPage in 2011. See also Schedule 28B. ↩

[Page 109]

comparing the PH mill’s estimated actual costs to the higher electricity costs that Claimant claims the PH mill would have paid during 2013-2015 under the LRT “previously given to NewPage-Port Hawkesbury”.¹⁰⁸

102. By virtue of CRA’s ATR, the electricity tariffs received by NSPI from the PH mill are not treated as tax-free receipts for income tax purposes, and NSPI therefore pays tax to GNS in respect of these receipts.

103. Following the CRA’s issuance of its ATR in September 2012, PWCC and GNS [Redacted], such that up to [Redacted] subject to the amount of taxes that NSPI paid on revenues that it earned from PHP’s electricity purchases (i.e., on the electricity tariffs that NSPI collected from PHP, which were now made taxable in NSPI’s hands by virtue of the CRA’s rejection of the PWCC/NSPI Proposal where NSPI would have otherwise received the equivalent value of these tariffs via non-taxable preferred share dividends). The [Redacted] are set out in Item #3 of GNS’ [Redacted] amending the agreement, as follows:¹⁰⁹

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

¹⁰⁸ Claimant’s Memorial, ¶¶ 118-120, Section II-G. I note that the Witness Statement of Murray Coolican (April 17, 2019), ¶ 10, indicated that, while the NSUARB approved the requested amendments to the LRT and a specific LRR for Resolute’s Bowater Mersey mill effective from January 1, 2012, the NSUARB deferred a decision on a LRR for Port Hawkesbury until a new owner came forward since the PH mill had been in creditor protection proceedings under Canada’s Companies’ Creditors Arrangement Act since September 2011 and it was uncertain whether the PH mill would continue as a going concern. ↩

¹⁰⁹ Claimant’s Memorial, Exhibit C-195, [Redacted] ↩

[Page 110]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

[Redacted]

104. Pursuant to the amended terms of the [Redacted], the amount, if forgiven in its entirety, would represent the equivalent of roughly [Redacted] that PWCC lost pursuant to the estimated savings under the original PWCC/NSPI Proposal (i.e., [Redacted]); while GNS would still recoup its [Redacted] investment through the additional taxes that it collects from NSPI, thereby putting GNS in the same position it would have otherwise been in if the original PWCC/NSPI Proposal had been implemented.

105. As stated in the Witness Statement of Jeannie Chow, “... the GNS is only required to forgive as much of the loan as it receives from corresponding tax revenue from NSPI. [Redacted] From the GNS’ perspective, the forgiveness provision effectively offsets the loan because the amount forgiven will correspond with the amount received in additional tax revenue.” ¹¹⁰

¹¹⁰ Witness Statement of Jeannie Chow (April 17, 2019), ¶ 10. ↩

[Page 116]

8.2 PWCC’s EBITDA Initiatives

106. As discussed above, the collapse of the PWCC/NSPI Proposal resulted in [Redacted] of the overall electricity [Redacted] for the PH mill of [Redacted] annually. However, even without the PWCC/NSPI Proposal, [Redacted]¹¹¹ were possible by implementing other initiatives, unrelated to the PWCC/NSPI Proposal, which would take the PH mill from a [Redacted]¹¹² to generating [Redacted] (see Schedules 28A and 28B).^{113, 114}

107. Based on my analysis of [Redacted]¹¹⁵ the [Redacted] (see Schedule 29), reflecting an [Redacted] versus the [Redacted] for PM2 under New Page’s ownership.

108. The [Redacted] actually achieved in just over three years is proximate to the roughly [Redacted] that PWCC projected in the [Redacted] over three years¹¹⁶ when excluding the projected benefits of the PWCC/NSPI Proposal. Thus, it appears that PWCC

¹¹¹ See R-266, [Redacted] CAN000082 [Redacted]; see also Schedule 28B. ↩

¹¹² The [Redacted] - see R-266, [Redacted] CAN000082 [Redacted]: See R-266, [Redacted] CAN000082 [Redacted] ↩

¹¹³ [Redacted] ↩

¹¹⁴ See R-266, [Redacted] CAN000082 [Redacted] (see Schedule 28A), [Redacted] (see Schedule 28B), [Redacted] ↩

¹¹⁵ See Schedule 25 summarizing, R-269, [Redacted], CAN000012; C-220, [Redacted]), CAN000013, C-225, [Redacted] CAN000014; C-238, [Redacted] CAN000015. ↩

¹¹⁶ R-266, [Redacted] CAN000082 [Redacted]: see also Schedule 28B. ↩

[Page 117]

did [Redacted]¹¹⁷ and with comparable results to its projection of [Redacted].

109. Based on my review and analyses of the various planned EBITDA-improvement initiatives set out in the [Redacted] (CAN000082) and the [Redacted] (CAN000004), I segregated the [Redacted] into two groups, as follows (see Schedule 28B):

a) [Redacted] related to [Redacted] initiatives that I estimate are attributable to the GNS measures, including those [Redacted] that were made possible by virtue of the C$24 million Capital Loan (forgivable) to make capital improvements to the PH mill; and,

b) [Redacted] related to [Redacted] initiatives that I estimate were achievable through PWCC’s own efforts and expertise, unrelated to any of the GNS measures. These include:

i. [Redacted]

ii. [Redacted]

iii. [Redacted]

iv. [Redacted]

v. [Redacted]; and,

vi. [Redacted]

110. Based on the foregoing, I estimate that the PH mill’s financial position would have been [Redacted] from an estimated annual [Redacted] for PM2 under NewPage to

¹¹⁷ See C-163, [Redacted] (CAN000004) pp. 10 and 43-44, [Redacted] ↩

[Page 118]

generating [Redacted]¹¹⁸ after implementing the various management-directed initiatives contemplated by PWCC and before any assistance derived from GNS measures.

111. I further note that [Redacted] by similarly [Redacted].¹¹⁹

112. Finally, in conjunction with my estimate of the [Redacted] based solely on management-directed initiatives contemplated by PWCC (and before any assistance derived from GNS measures), I note that the [Redacted] (see Schedule 28C).

8.3 PHP’s Financial Results 2010 - 2015

113. PHP’s financial results are available for the years 2010 – 2015 and are summarized below:

[Redacted]

¹¹⁸ [Redacted] as calculated on Schedule 28B. ↩

¹¹⁹ C-109, Resolute [Redacted]), RFP0004981. ↩

[Page 119]

114. As described in Schedules 25 – 27 and the [Redacted]¹²⁰ of note:

a) [Redacted]

b) [Redacted]

c) [Redacted]

d) [Redacted]

e) [Redacted]:

i. [Redacted]

ii. [Redacted]

iii. [Redacted]

iv. [Redacted]

v. [Redacted]

vi. [Redacted]

vii. [Redacted]

viii. [Redacted]

f) [Redacted]

¹²⁰ R-269, [Redacted] CAN000012; C-220, [Redacted], CAN000013, C-225, [Redacted] CAN000014; C-238, [Redacted] CAN000015. ↩

[Page 120]

8.3.1 PHP’s Capacity versus Actual Production

115. The stated SC paper capacity of PHP is 360,000 MTs, however, its actual annual volumes sold are not known as PHP is a private company and it has not disclosed such directly. However, other sources of information indicate that PHP [Redacted]. For example:

a) The USITC testimony of Mr. Mike Ostrowski, VP of SC Sales for West Linn Paper, which provides sales and marketing services for PHP. In October 2015, Mr. Ostrowski stated: “400,000 tons [360,000 MT], that’s our stated capacity. You can look at the briefs and look at the production for the last two years, it’s a far cry from 400,000 tons [360,000 MT].” ¹²¹

b) In its Initial Questionnaire Responses to the US Department of Commerce’s investigation on Supercalendered Paper, PHP provided is sales and exports figures for 2012 – 2014, as follows: ¹²²

Table 13 Summary of PHP Volumes 2012 - 2014

Year	Total Sales – tons (MTs)	Total Exports – tons (MTs)	Total Exports to U.S. – tons (MTs)
2012	72,000 (65,300)	70,000 (63,500)	60,000 (54,400)
2013	330,000 (299,400) 123	350,000 (317,500)	325,000 (294,800)
2014	375,000 (340,200)	325,000 (294,800)	300,000 (272,200)

c) In [Redacted], calculated as follows: in 2015, PHPLP’s gross revenue was [Redacted]; and, Resolute’s Kénogami mill earned an average selling price of [Redacted] of SCA/SCB paper sold. Applying Kénogami’s

¹²¹ C-236, Transcript of Proceedings before U.S. International Trade Commission in re Supercalendered Paper from Canada, Inv. No. 701-TA-530 (Oct. 22, 2015), pg 164:4-7. I have not found a statement as to PHP’s actual volume figures therein. ↩

¹²² C-046, Port Hawkesbury Paper Initial Questionnaire Response, 27 May 2015, pp. 13-14. ↩

¹²³ The 2013 and 2014 figures appear to be transposed in this column compared to the other two columns. ↩

[Page 121]

average selling price per MT to PHP’s gross revenues, generates a PHP volume figure of approximately [Redacted].

116. Based on the foregoing, the available data for PHP’s actual volumes indicate volumes [Redacted] rather than stated capacity of 360,000 MT.

9.0 ASSUMPTIONS

117. Assumptions used in the preparation of this report are set out in the report and attached schedules.

118. Information indicating assumptions contrary to those noted in this report and the attached schedules would require a review of the conclusions reached herein.

10.0 RESTRICTIONS

119. This report has been prepared only for the purpose described herein and is not intended for general circulation or publication. It is not to be reproduced or used for any other purpose without our prior written permission in each specific instance. CHS does not assume any responsibility or liability for losses occasioned to any party as a result of the circulation, publication, reproduction or use of this report contrary to the provisions of this paragraph.

120. CHS reserves the right (but will be under no obligation) to review and/or revise any and all assumptions and/or calculations included in or referred to in this report, and if considered necessary, to revise this report in light of further information which becomes known after the date of this report.

121. The analysis, calculations and considerations contained herein must be considered as a whole; selecting portions thereof could lead to a misleading view of the conclusions set out in this report.

[Page 122]

Yours truly,

COHEN HAMILTON STEGER & CO. INC.

Signature

Per: Peter Steger CPA, CA‧IFA, CBV, CFE, CFF
Principal

:nm
Encl

[Page 123]

SCHEDULES

[Page 124]

Schedule 1

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Estimate of Resolute’s Lost Profits from Price Erosion

[Page 125]

Schedule 1

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Estimate of Resolute’s Lost Profits from Price Erosion

Notes:
[1] Source: C-262, Kénogami “Cost and Production Analysis with Budgeted Analysis” [Profit & Loss Statement] for 2013 (RFP0009312, Tab act_mnthly).
[2] Source: C-256, Dolbeau “Cost and Production Analysis with Budgeted Analysis” [Profit & Loss Statement] for 2013 (RFP0009303, Tab act_mnthly).
[3] Source: C-253, Laurentide “Cost and Production Analysis with Budgeted Analysis” [Profit & Loss Statement] for 2013 (RFP0009308, Tab act_mnthly).
[4] Calculation of Estimated Selling Price Erosion - January to June 2013:

[Page 126]

Schedule 10

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Resolute’s Sales Tonnages (MT) Reconciliation
Versus PPPC North American Tonnage (MT)

Notes:
[1] The "Cost and Production Analysis with Budgeted Analysis" (P&L's) productions do not provide a breakdown of Total Sales Tonnage by SC paper grade.
[2] The Catawba Mill produces primarily Coated paper. The P&L for Catawba does not provide a breakdown between Coated Paper and SC Paper. Accordingly, Catawba's volumes of SC Paper have been estimated in Schdule 14A.
[3] The sales data for Dolbeau for 2009 as between (i) the P&Ls; (ii) the Sales Ledger and Price and Volume Schedules; and (iii) the 10-Ks do not agree; it is not clear why.
[4] Listing of pulp and paper manufacturing facilities and production information in Resolute's annual 10-Ks (see R-254, Dec. 31, 2009; R-255, Dec. 31, 2010; R-246, Dec. 31, 2011; R-247, Dec. 31, 2012; R-248, Dec. 31, 2013; R-249, Dec. 31, 2014; R-250, Dec. 31, 2015; R-251, Dec. 31, 2016; R-252, Dec. 31, 2017; R-245, Dec. 31, 2018).

[Page 127]

Schedule 11

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Resolute’s Market Share by SC Paper Grade
2009-2018

[Page 128]

Schedule 12K

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2017
• Kénogami

Notes:
[1] Calculated with reference to Sales Tonnage (MT).
[2] The U.S. Dollar to Canadian Dollar average (closing) annual exchange rate is as follows (Sch 40):

Source: Bank of Canada Website
[3] Line added for presentation purposes herein.
[4] Resolute's "Cost and Production Analysis with Budgeted Analysis" do not provide: (i) a breakdown of the amounts of S.G.&A. Allocation and (ii) the allocation methodology.
[5] Cash Cost of Sales is divided into three sub-categories: Direct, Fixed, and COGS [Cost of Goods Sold] Reconciliation, as summarized in Note [5a] and on detailed Note [5b] below:

[Page 129]

Schedule 12K

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2017
• Kénogami
[5b]

[Page 130]

Schedule 12K

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2017
• Kénogami

[6] Calculated with reference to Production Tonnage (MT).

[Page 131]

Schedule 12D

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2017
• Dolbeau

Notes:
[1] Calculated with reference to Sales Tonnage (MT).
[2] The U.S. Dollar to Canadian Dollar average (closing) annual exchange rate is as follows (Sch 40):

Source: Bank of Canada Website
[3] Line added for presentation purposes herein.
[4] [Redacted]
[5] Resolute's "Cost and Production Analysis with Budgeted Analysis" do not provide: (i) a breakdown of the amounts of S.G.&A. Allocation and (ii) the allocation methodology.
[6] Cash Cost of Sales is divided into three sub-categories: Direct, Fixed, and COGS [Cost of Goods Sold] Reconciliation, as summarized in Note [6a] and on detailed Note [6b] below:

[Page 132]

Schedule 12D

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2017
• Dolbeau
[6b]

[Page 133]

Schedule 12D

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2017
• Dolbeau

[7] Calculated with reference to Production Tonnage (MT).

[8] [Redacted]

[Page 134]

Schedule 12L

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2015
• Laurentide

Notes:
[1] Calculated with reference to Sales Tonnage (MT).
[2] The U.S. Dollar to Canadian Dollar average (closing) annual exchange rate is as follows (Sch 40):

Source: Bank of Canada Website
[3] Line added for presentation purposes herein.
[4] [Redacted]
[5] Resolute's "Cost and Production Analysis with Budgeted Analysis" do not provide: (i) a breakdown of the amounts of S.G.&A. Allocation and (ii) the allocation methodology.
[6] Cash Cost of Sales is the total of several cost types. Per the "Cost and Production Analysis with Budgeted Analysis" productions provided, these costs are labelled as either 'Direct' or 'Fixed'. Further, Cash Cost of Sales is the sum of all "Total Manufacturing Cash Costs" and "COGS Reconciliation" items per each year's respective "Cost and Production Analysis with Budgeted Analysis". See below for each year's breakdown of Cash Cost of Sales:

[Page 135]

Schedule 12L

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2015
• Laurentide
[6b]

[Page 136]

Schedule 12L

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2009-2015
• Laurentide

[7] Calculated with reference to Production Tonnage (MT).
[8] [Redacted]

[Page 137]

Schedule 12C

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2010-2015
• Catawba

Notes:
[1] Calculated with reference to Sales Tonnage (MT).
[2] The U.S. Dollar to Canadian Dollar average (closing) annual exchange rate is as follows (Sch 40):

Source: Bank of Canada Website
[3] Line added for presentation purposes herein.
[4] Catawba was in operation in 2009; however, Resolute has not provided a Cost and Production Analysis with Budgeted Analysis production for this year.
[5] Resolute's "Cost and Production Analysis with Budgeted Analysis" do not provide: (i) a breakdown of the amounts of S.G.&A. Allocation and (ii) the allocation methodology.
[6] Cash Cost of Sales is the total of several cost types. Per the "Cost and Production Analysis with Budgeted Analysis" productions provided, these costs are labelled as either 'Direct' or 'Fixed'. Further, Cash Cost of Sales is the sum of all "Total Manufacturing Cash Costs" and "COGS Reconciliation" items per each year's respective "Cost and Production Analysis with Budgeted Analysis". See below for each year's breakdown of Cash Cost of Sales:

[Page 138]

Schedule 12C

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2010-2015
• Catawba
[6b]

[Page 139]

Schedule 12C

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's "Cost and Production Analysis with Budgeted Analysis" [Profit & Loss Statements], 2010-2015
• Catawba

[7] Calculated with reference to Production Tonnage (MT).
[8] Unlike Kénogami, Dolbeau, and Laurentide, Catawba produces coated mechanical paper in addition to producing supercalendered paper. Therefore, the above production and costing information is the aggregate of both coated mechanical and supercalendered paper produced at Catawba. Resolute has not provided the above Cost and Production Analysis with Budgeted Analysis on a supercalendered paper-only basis.

[Page 140]

Schedule 13

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of SC Paper Sales by Volume (000s MT) by Grade, 2011-2015
Per Resolute's "Sales and Operating Planning Review" Productions (Kénogami, Dolbeau, Laurentide, and Catawba) [1]

Note:
[1] Source: Resolute "Sales and Operating Planning Review" productions, as follows:

[1a] Reflects the "2015 Total/Actual" volumes at RFP0007242, though the month of December 2015 is indicated to be "Forecast" volumes.
[2] SCB/SNC sales volumes per above are calculated as the sum of SCB and SNC volume sales per the "Sales and Operating Planning Review" productions noted above.

[Page 141]

Schedule 14A

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of SC Paper Sales by Volume (MT) by Mill, 2009-2015 (Kénogami, Dolbeau, Laurentide, and Catawba)
Per Resolute's "Sales Ledger Data" and "Price and Volume" Schedules

Notes:
[1] Source: Resolute's "Price and Volume" schedules for 2009 to 2015, as follows: R-305 (RFP0009321) for 2009; R-306 (RFP0009320) for 2010; R-307 (RFP0011931) for 2011; R-308 (RFP0011929) for 2012; R-303 (RFP0011932) for 2013; R-304 (RFP0011933) for 2014; and R-299 (RFP0011930) for 2015.
[2] Source: Summarization of Resolute SC paper sales data from R-256 (Resolute Sales Ledger Data for years 2009-2015, RFP00011533) for supercalendered paper sold by mill. See Schedule 14D.
[3] Reflects the difference between total SC paper sales per Resolute's "Price and Volume" Schedules (see Note 1) less the sum of SC paper sales sold by Dolbeau, Kénogami, and Laurentide per Resolute Sales Ledger Data (see Note 2). Catawba's SC paper sales were not included in the Sales Ledger Data at R-256 (RFP00011533) and are assumed to be equal to the difference in SCA paper sales volumes between Resolute's "Price and Volume" Schedules and the Sales Ledger Data at R-256 (RFP00011533); the remaining difference in SCB and SNC paper sales volumes is assumed to relate to other differences in the sales data between Resolute's documents.
[4] The below provides a further breakdown between SC-B and SN-C paper sold from 2009-2015:

[Page 142]

Schedule 14B

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of SC Paper Sales (USD $000's) by Mill, 2009-2015 (Kénogami, Dolbeau, Laurentide, and Catawba)
Per Resolute's "Sales Ledger Data" and "Price and Volume" Schedules

Notes:
[1] Source: Resolute's "Price and Volume" schedules for 2009 to 2015, as follows: R-305 (RFP0009321) for 2009; R-306 (RFP0009320) for 2010; R-307 (RFP0011931) for 2011; R-308 (RFP0011929) for 2012; R-303 (RFP0011932) for 2013; R-304 (RFP0011933) for 2014; and R-299 (RFP0011930) for 2015. All amounts are denominated in $USD.
[2] Source: Summarization of Resolute SC paper sales data from R-256 (Resolute Sales Ledger Data for years 2009-2015, RFP00011533) for supercalendered paper sold by mill. All amounts were converted to $USD based on average monthly noon CAD:USD exchange rate. See Schedule 14C.
[3] Reflects the difference between total SC paper sales per Resolute's "Price and Volume" Schedules (see Note 1) less the sum of SC paper sales sold by Dolbeau, Kénogami, and Laurentide per Resolute Sales Ledger Data (see Note 2). Catawba's SC paper sales were not included in the Sales Ledger Data at R-256 (RFP00011533) and are assumed to be equal to the difference in SCA paper sales volumes between Resolute's "Price and Volume" Schedules and the Sales Ledger Data at R-256 (RFP00011533); the remaining difference in SCB and SNC paper sales volumes is assumed to relate to other differences in the sales data between Resolute's documents.
[4] The below provides a further breakdown between SC-B and SN-C paper sold from 2009-2015:

[Page 143]

Schedule 14C

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of SC Paper Sales (US$) by Grade, 2009-2015
Per Resolute's "Sales Ledger Data" [1] [2] [3]

Notes:
[1] Source: R-256 (Resolute Sales Ledger Data for years 2009-2015, RFP00011533).
[2] I have created a Pivot Table of Resolute Sales Ledger Data at R-256 (RFP00011533, tab "2009-15"). I have grouped data by Mill (J3 = Dolbeau, KN = Kénogami, LA = Laurentide) and by Grade (Product).
[3] Sales were recorded in several currencies in Resolute Sales Ledger Data at R-256 (RFP00011533, tab "2009-15"). I converted all sales to USD using the average monthly CAD:USD FX Rate per the Bank of Canada in the month of each respective invoice.

[Page 144]

Schedule 14D

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of SC Paper Sales (MT) by Grade, 2009-2015
Per Resolute's "Sales Ledger Data" [1] [2]

Notes:
[1] Source: R-256 (Resolute Sales Ledger Data for years 2009-2015, RFP00011533).
[2] I have created a Pivot Table of Resolute Sales Ledger Data at R-256 (RFP00011533, tab "2009-15"). I have grouped data by Mill (J3 = Dolbeau, KN = Kénogami, LA = Laurentide) and by Grade (Product).

[Page 145]

Schedule 15

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Resolute s Selling Price (US$/MT) Reconciliation

Notes:
[1] Source: Resolute's "Price and Volume" schedules for 2009 to 2015, as follows: R-305 (RFP0009321) for 2009; R-306 (RFP0009320) for 2010; R-307 (RFP0011931) for 2011; R-308 (RFP0011929) for 2012; R-303 (RFP0011932) for 2013; R-304 (RFP0011933) for 2014; and R-299 (RFP0011930) for 2015:

[2] The "weighted" average selling price was calculated from total dollar sales for all SC paper grades divided by the volumes sold per grade.
[3] "Net Sales" is the selling price of paper inclusive of any freight costs - see Schedules 12K, 12D, 12L, and 12C.
[4] Revenues and costs per Resolute's "Cost and Production Analysis with Budgeted Analysis" (P&Ls) are recorded in Canadian Dollars. However, prices per Resolute's "Price and Volume" Schedules are in U.S. Dollars and additionally, Resolute's "Sales Ledger" records amounts in multiple currencies. For consistency, all amounts are converted to U.S. Dollars using the average annual USD to CAD foreign exchange rates per Note 4 below.
[5] The U.S. Dollar to Canadian Dollar average (closing) annual exchange rate is as follows (Sch 40):

[Page 146]

Schedule 16

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of Resolute's Direct Costs per "Cost and Production Analysis with Budgeted Analysis" (P&Ls)
Resolute's Actual Direct Costs as Compared to Hausman Report II

Notes:
[1] [Redacted]
[2] [Redacted]

[Page 147]

Schedule 20

GOVERNMENT OF CANADA ATS. RESOLUTE FOREST PRODUCTS INC.
Summary of North American Consumption of SCA and SCB/SNC Shipments (MTs) per PPPC [1]
2009-2018

Notes:
[1] Source: Annual PPPC Data.
[2] [Redacted]

1 MT = 1.10231 ST
1 ST = 0.907185 MT

[Page 148]

PUBLIC VERSION

Schedule 21

SC Prices 2000-2018

[R-274, as provided by Poyry]

Source: RISI

Conversion Factor 0.907184

[Page 149]

PUBLIC VERSION

Schedule 22

for SCA Prices US$/ton (Short Ton) with YoY Change [1]

Comparison to Market Actual Selling Prices

Comparison to Resolute's Actual Selling Prices

Notes

[1] Source: R-275, RISI five-year forecasted per file titled "UGW forecast archives 2011-2015.xls".
The RISI pricing data is per "Ton" (ie. Short Ton). It is assumed this refers to Short Tons given that the RISI report refers to other data in "Tonnes" (ie. Metric Tonnes).

[Page 150]

PUBLIC VERSION

Schedule 23

for SC Volumes (Tons [Short Tons]) [1]

volume forecast is not included
in Hausman Report II
(whereas Pricing forecast is
at Exh 2 pg 18)

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Schedule 23

for SC Volumes (Tons [Short Tons]) [1]

Note:

[1] Source: R-275, RISI five-year forecasted per file titled "UGW forecast archives 2011-2015.xls".
The RISI pricing data is per "Ton" (ie. Short Ton). It is assumed this refers to Short Tons given that the RISI report refers to other data in "Tonnes" (ie. Metric Tonnes).

[2] [Redacted]

[3] Reflects change in classification of Canadian shipments from Imports to U.S. to North American shipments.

[Page 152]

PUBLIC VERSION

Schedule 25

For the Years Ended December 31, 2010 - 2015

[Page 153]

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Schedule 25

For the Years Ended December 31, 2010 - 2015

Notes:

[1] Source: R-266, "Stern Model" (CAN000082) tab: Summary. See also R-276, NewPage Port Hawkesbury Mill Pro Forma (RFP0005440) at RFP0005441 to RFP0005443 for similar figures. Note: not all Income Statement line item categories (i.e. certain expenses) are identified in R-266, (CAN000082) tab: Summary.

[2] The PHP financial results for 2010-2011 per R-266, (CAN000082) tab: Summary reflect slightly different line descriptions than the PHPLP 2012-2015 audited financial statements. I have cross-referenced such via the letters below.

[3] On September 28, 2012, PacificWest Commercial Corporation ("PWCC"), an affiliate of Stern Partners Inc., acquired NewPage Port Hawkesbury Corporation ("NPPH"). Therefore, Fiscal 2012 above represents a stub-year from September 28, 2012 to December 31, 2012 [source: R-269, PHPLP Financial Statements (Dec. 31, 2012) at CAN000012_0007].

[4] According to CICA Handbook Accounting Standards for Private Enterprises (ASPE) Section 3800 - Government Assistance, forgivable loans and other government assistance are recorded when the entity is entitled to receive such (and not upon forgiveness of the loans). The accounting entries are: Dr. Cash (or Receivable) and Cr. either (i) revenue or contra-expense (for non-capital items); or (ii) contra-cost of capital assets. Refer to R-277, ASPE Sections 3800 and 3805 Government Assistance and ITCs (EY).

[Page 154]

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Schedule 26

For the Years Ended As At December 31, 2012 - 2015

[Redacted]

Notes:

[1] According to CICA Handbook Accounting Standards for Private Enterprises (ASPE) Section 3800 - Government Assistance, forgivable loans and other government assistance are recorded when the entity is entitled to receive such (and not upon forgiveness of the loans). The accounting entries are: Dr. Cash (or Receivable) and Cr. either (i) revenue or contra-expense (for non-capital items); or (ii) contra-cost of capital assets. Refer to R-277, ASPE Sections 3800 and 3805 Government Assistance and ITCs (EY).

[2] [Redacted]

[3] On September 28, 2012, PacificWest Commercial Corporation ("PWCC"), an affiliate of Stern Partners Inc., acquired NewPage Port Hawkesbury Corporation ("NPPH"). Therefore, Fiscal 2012 above represents a stub-year from September 28, 2012 to December 31, 2012 [source: R-269, PHPLP Financial Statements (Dec. 31, 2012) at CAN000012_0007].

[Page 155]

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Schedule 27

Summary of Government Assistance as per PHPLP Financial Statements

[Redacted]

[Page 156]

PUBLIC VERSION

Schedule 27

Summary of Government Assistance as per PHPLP Financial Statements

Notes:

[1] Training Assistance figures calculated as:

[2] [Redacted]

[3] [Redacted]

[4] According to CICA Handbook Accounting Standards for Private Enterprises (ASPE) Section 3800 - Government Assistance, forgivable loans and other government assistance are recorded when the entity is entitled to receive such (and not upon forgiveness of the loans). The accounting entries are: Dr. Cash (or Receivable) and Cr. either (i) revenue or contra-expense (for non-capital items); or (ii) contra-cost of capital assets. Refer to R-277, ASPE Sections 3800 and 3805 Government Assistance and ITCs (EY).

[Redacted]

[Page 157]

PUBLIC VERSION

Schedule 28A

PWCC's EBITDA Initiatives [Redacted]

[Redacted]

[Page 158]

PUBLIC VERSION

Schedule 28A

PWCC's EBITDA Initiatives [Redacted]

[Redacted]

[Page 159]

PUBLIC VERSION

Schedule 28B

PWCC's EBITDA Initiatives [Redacted]

[Redacted]

[Page 160]

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Schedule 28B

PWCC's EBITDA Initiatives [Redacted]

Notes:

[Redacted]

[2] I made the following adjustments to the original Stern Model at R-266 (CAN000082) to remove the projected savings related to the PWCC/NSPI Proposal:

(a) [Redacted]

[Redacted]

[Page 161]

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Schedule 28B

PWCC's EBITDA Initiatives [Redacted]

Notes (continued):

[Redacted]

[Page 162]

PUBLIC VERSION

Schedule 28C

PWCC's EBITDA Initiatives

[Redacted]

all figures C$ 000s

[Page 163]

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Schedule 28C

PWCC's EBITDA Initiatives

[Redacted]

Notes:

[1] Source: R-266, [Redacted] (CAN000082) [Redacted]

[2] Source: R-266, CAN000082 [Redacted]

[3] [Redacted]

[4] Source: R-266, CAN000082 [Redacted]

[5] Source: R-266, CAN000082 [Redacted]

[6] Reflects total projected cash flows at R-266, CAN000082 [Redacted]

[7] Source: R-266, CAN000082 [Redacted]

[8] Source: R-266, CAN000082 [Redacted]

[9] Source: R-266, CAN000082 [Redacted]

[10] Refer to adjustments to the [Redacted]

[11] [Redacted]

[12] [Redacted]

[13] [Redacted]

[14] [Redacted]

[Page 164]

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Schedule 29

Estimate of Port Hawkesbury Paper Sales Net of Cash Costs
For the Years Ended December 31, 2012 - 2015

Notes:

[1] [Redacted]

[2] [Redacted]

[Page 165]

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Schedule 30

Replication of Hausman Report II Damages Calculation
• Summary - All Mills

Notes:

[1] Lost Profits for the Past Loss Period include compound interest to December 31, 2017.

[2] Lost Profits for the Future Loss Period are calculated as the present value of future cash flows discounted back to January 1, 2018.

[3] [Redacted]

[Page 166]

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Schedule 30K

Replication of the Hausman Report II Damages Calculation
• Kénogami [Redacted]