ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis is intended to help the reader understand Resolute Forest Products, our results of operations, cash flows and financial condition. The discussion is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes (or, the “ Consolidated Financial Statements ”) contained in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (or, “ Form 10-K ”).
When we refer to “Resolute Forest Products,” “Resolute,” “we,” “our,” “us,” or the “Company,” we mean Resolute Forest Products Inc. with its subsidiaries, either individually or collectively, unless otherwise indicated.
O VERVIEW
Resolute Forest Products is a global leader in the forest products industry with a diverse range of products, including market pulp, tissue, wood products and paper, which are marketed in over 60 countries. The Company owns or operates some 40 facilities, as well as power generation assets, in the U.S. and Canada. We are a large and growing North American producer of wood products, the largest producer of uncoated mechanical papers in North America, a competitive pulp producer in North America, and a leading global producer of newsprint. Resolute has third-party certified 100% of its managed woodlands to internationally recognized sustainable forest management standards.
We report our activities in four business segments: market pulp, tissue, wood products and paper. We believe an integrated approach maximizes value creation for our Company and stakeholders.
We are guided by our vision and values, focusing on safety, sustainability, profitability, accountability, and teamwork. We believe we can be distinguished by the following competitive strengths:
• Competitive cost structure combined with diversified and integrated asset base
– harvesting rights for the majority of fiber needs in Canada;
– sophisticated infrastructure to manage fiber flows from harvesting through transformation into a range of end-products to maximize resource utilization and process efficiency;
– nearly 100% of our products sourced from high-quality virgin fiber; and
– large-scale and cost-effective operations, including significant internal energy production from cogeneration and hydroelectric facilities, which support our value proposition.
• Strong balance sheet
– favorable pricing and flexibility under borrowing agreements together with our liquidity levels support our ability to weather challenging market cycles and to continue to execute our transformation strategy;
– significant tax assets to defer cash income taxes and provide synergies to execute this strategy; and
– customers benefit from a financially stable and reliable business partner in a challenging industry.
• Seasoned management team and strong culture of commitment
– deep industry expertise, with influential leaders in forestry, operations, environmental risk management and public policy;
– culture of accountability, encouraging transparency and straightforwardness; and
– core identity tied to renewable resources we harvest in a truly sustainable manner.
• Deep-seated commitment to fundamental principles of sustainability
– ambitious targets and governance to back it up;
– unwavering focus on safety; and
– transparent communications.
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Our Business
Products
For information on our products, see Part I, Item 1, “Business – Products” of this Form 10-K.
Strategy and highlights
Our corporate strategy is focused on value creation by growing in wood products and pulp, maintaining a disciplined approach to capital allocation and maximizing cash generation from our paper assets, while investing in product innovation. The Company is transitioning away from mature product markets, reviewing its strategic options for its tissue segment, and expanding its presence in long-term growth markets, operating a competitive portfolio of manufacturing assets and enhancing financial performance in a sustainable way over the long run.
Growing in wood products and market pulp
Wood products and market pulp are core segments for the Company, and we believe in their long-term and sustained growth potential. We are confident in our ability to generate attractive returns for shareholders as operators of these assets. Our strategy is to take a disciplined approach to these strategic initiatives:
• spending to improve productivity and/or lower costs;
• investing selectively in organic expansions with high return projections and short projected payback periods; and
• pursuing strategic acquisitions.
For example, in 2021, we continued integrating the three U.S. sawmills acquired in 2020, with combined production capacity of 550 million board feet once ramped-up, giving us immediate scale in an attractive region and providing an opportunity to create additional value for our shareholders. We also announced capital investments of $50 million in our wood products operations to support our continued growth and to lower our costs, which are expected to improve the competitiveness of our wood product segment and generate value across market cycles.
Disciplined approach to capital allocation
As we operate in a capital-intensive and cyclical industry, we believe that the proper allocation of capital is a top priority, and that it should be done in a disciplined manner, with a view to maximize free cash flow through the business cycle and to generate attractive returns for our shareholders. Accordingly, we:
• allocate our capital in a disciplined, strategic and focused manner, concentrating on our most competitive sites and the highest-return projects;
• explore value-creating opportunities for incremental organic growth projects, segment extensions, bolt-on acquisitions, position-repurposing activities, divestitures, investments, joint ventures, capital market transactions and other similar transactions in order to calibrate and maximize the efficiency of our allocation of capital and other resources and optimize the value of our business;
• seek to maintain solid financial liquidity to support the growth strategy;
• based on market conditions, seek to retire, repay or refinance our outstanding indebtedness or credit facilities with a view to reducing costs and enhancing our financial flexibility; and
• seek to return excess capital over time to our shareholders through dividends and share repurchases.
Favorable market conditions contributed to strong cash generation in 2021, which allowed the Company to demonstrate its prudent and disciplined approach to capital allocation by:
• investing $50 million in additional wood products capital projects with high-return projections and short projected payback periods;
• reducing leverage with $258 million in outstanding net debt reimbursement; and
• returning $127 million to shareholders, including share repurchases of $48 million and a special cash dividend of $79 million.
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Maximizing cash generation from paper assets
Our high quality paper assets position us to compete effectively in the industry. Although in secular decline, this segment remains an important part of our business, generating cash to support our growth strategy. In order to remain competitive in the mature and declining markets that our paper operations face, we strive to consistently:
• maintain a stringent focus on controlling costs and optimizing our performance;
• manage production and inventory levels; and
• focus production at our most profitable and lower-cost facilities and machines.
Accordingly, we announced the indefinite idling of our pulp and paper operations in Calhoun to improve our financial performance and to focus on our most profitable assets. Despite this change, we continue our tissue manufacturing and converting activities at the site and the adjacent distribution center remains in full operation. We recently launched a strategic review of our tissue segment in early 2022.
Investing in product innovation
Fiber from trees is renewable, reusable and fossil-free, and we believe that it can serve as a core pillar in the ongoing shift away from fossil-based materials toward renewable alternatives. With our large-scale access to high-quality fiber, our expertise in managing its value-transformation, and our strategically-located manufacturing facilities, we believe in investing in our business to build a competitive forest products company for the future.
For example, today we manufacture wood pellets used in renewable energy production from sawmill byproducts. In early 2020, we also announced the construction of a commercial plant to produce cellulose filaments, a new sustainable biomaterial derived from wood fiber that can be integrated into commercial and consumer products for many industries, including transportation, construction and energy, increasing the resistance and durability of those products. Construction of the facility is expected to be concluded in 2022, and commercial volumes should be available for sale before the end of the year. The cellulose filaments will be marketed with the help of Performance BioFilaments Inc., a joint venture established in 2014 by Resolute and Mercer International Inc., dedicated to the development of non-traditional applications for cellulose filaments.
We see certain megatrends around evolving customer preferences toward more renewable alternatives, urbanization and demographic changes that could open opportunities for our Company in value-added engineered wood products to capitalize on the growing role of wood in multi-family residential and commercial construction, as well as innovative fiber-derived products.
Sustainable development and performance
At Resolute, our business and sustainability strategies have been expressly developed to align our efforts in environmental stewardship and social responsibility with our business objectives. This approach reinforces our vision that profitability and sustainability drive our future. For information on our sustainability strategy, see Part I, Item 1, “Business – Sustainability” of this Form 10-K.
Highlights of our sustainability achievements include:
Environmental
• Achieving an 85.6% reduction in GHG emissions (scope 1 and 2) compared to 2000 levels;
• Sourcing more than 75% of our energy from renewable sources, and producing approximately 45% of the electricity we consume internally;
• Maintaining certification of 100% of Resolute-owned or managed woodlands to at least one internationally recognized forest management standard (SFI and FSC); and
• Maintaining internationally recognized chain of custody certifications at 100% of our certified manufacturing facilities (SFI, FSC, and PEFC), and completing chain of custody certification at our Hagerstown (Maryland) tissue converting facility.
Social
• Achieving world-class safety performance with an OSHA incident rate of 0.47 in 2021, and a severity rate of 21.6. Safety is our first priority, and we strive for zero injuries;
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• Maintaining long-term consultative and business relationships with close to 40 Indigenous communities and organizations, including our 20-year partnership with Fort William First Nation with whom we announced a $13 million investment in our sawmill on their land near Thunder Bay;
• Achieving our annual commitment to providing at least $1 million in community and charitable support by contributing $1.2 million to various community and academic organizations; and
• Completing deployment of our Regional Supplier Registry web portal to support the development of local, regional and Indigenous business.
Governance
• Receiving “A-” for our CDP forests disclosures – the highest score granted in this category for North America-based forest products companies – placing us at the leadership level and reflecting environmental best practices, and actions taken to manage harvest risk and implement monitoring programs. We maintained management level scores for our CDP climate change (increased to a “B”) and water security (“B”) disclosures, reflecting concrete actions we have taken to evaluate and manage our risks in these categories;
• Implementing a board-level diversity policy, striving to maintain a minimum of 25% representation each of men and women, as well as an executive leadership-level diversity policy acknowledging diversity as a key factor in the Company’s talent management strategy. The board has also hired a recruitment firm to assist in its renewal process and in particular, in its search for women nominee candidates with a view to further increase women’s representation on the board to 30% by 2024; and
• Training 100% of all new employees on the Company's code of business conduct, and completing annual reviews of the code and our ethics reporting policy.
In 2021, we received extensive regional, North American and global recognition for excellence and leadership in corporate social responsibility and sustainable development. For a complete list of Resolute’s public sustainability commitments, disclosures, performance indicators and awards, visit our corporate website at www.resolutefp.com/sustainability . The sustainability objectives, disclosures and performance indicators on our website are not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.
Power generation
We produce electricity at five cogeneration facilities and seven hydroelectric dams. The output is consumed internally or sold under contract to third parties. This allows us to reduce our costs by generating energy internally at a lower cost compared to open market purchases, and by producing revenue from external sales.
This table provides a breakdown of the output capacity (based on installed capacity and operating expectations in 2022) available for internal consumption at our existing production facilities:
Energy
INTERNAL CONSUMPTION (1)
Type
Capacity
Consumption
(MWh/Year)
Coosa Pines (Alabama)
Cogeneration
Hydro Saguenay (Quebec) (7 dams)
Hydroelectric
Thunder Bay (Ontario)
Cogeneration
(1) This table excludes the Calhoun cogeneration facility following the announcement of the indefinite idling of the Calhoun pulp and paper operations on December 16, 2021, and its subsequent indefinite idling in early 2022.
We estimate that the approximate annualized cost savings to our operations attributable to internal consumption from our cogeneration assets and hydroelectric facilities is between $32 million and $37 million.
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The table below shows the facilities where we currently produce electricity to sell externally as green power produced from renewable sources at favorable rates, almost all of which we buy back at lower rates for use in our operations:
Energy
EXTERNAL SALES
Type
Capacity
Annualized Sales
(MWh/Year)
Dolbeau (Quebec)
Cogeneration
Gatineau (Quebec)
Cogeneration
Saint-Félicien (Quebec)
Cogeneration
Thunder Bay (Ontario)
Cogeneration
The impact of external sales generated from our cogeneration assets was to reduce the cost of sales, excluding depreciation, amortization and distribution costs (or, “ COS ”), by $33 million, $38 million and $36 million for the years ended December 31, 2021, 2020 and 2019, respectively.
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2021 Overview
Favorable lumber market
Our wood product segment benefited from strong market conditions in 2021. In order to take advantage of the favorable environment, we restarted our El Dorado (Arkansas) and Ignace (Ontario) sawmills during the first quarter. The Company made good progress with the ramp-up of the two sawmills during the year, both of which were running on two shifts at year-end. This decision contributed to increased annual shipments, generating additional value for shareholders.
In June 2021, we announced $50 million in additional investments in our wood products segment to further improve the competitiveness of our business. These capital investments include:
• $22 million to modernize equipment at the Senneterre (Quebec) sawmill to enhance overall efficiency and productivity of the Abitibi regional operations;
• $13 million at the Thunder Bay / Fort William First Nation (Ontario) sawmill to increase capacity by up to 40 million board feet with new equipment and modifications to the fiber flow; and
• $15 million at the Glenwood (Arkansas) and Cross City (Florida) sawmills to support fiber optimization and overall efficiency. The Cross City investment will also increase capacity by up to 20 million board feet.
We expect each of these projects will generate additional value across market cycles.
Impact of rising interest rates on pension obligations
The increase in interest rates in 2021 resulted in higher discount rates, which reduced our pension and other postretirement benefit obligations by $194 million. Our projected pension and other postretirement benefit obligations will fluctuate from year-to-year based on changes in projected interest rates.
Impact of the COVID-19 pandemic
We have sustained operations across all of our business segments through the COVID-19 pandemic, but we had to take certain measures in the face of the dramatic reduction in economic activity, particularly for marketing-dependent products like newspapers, inserts, flyers and commercial paper. In March 2021, we announced the indefinite idling of our Amos and Baie-Comeau (Quebec) paper mills, which had been temporarily idled since spring 2020, as a result of market conditions and the impacts of the pandemic, reducing the run-rate newsprint capacity by 25% (equivalent to 43,000 metric tons per month).
In addition, our operations were negatively affected by cost inflation, workforce availability and logistics constraints related to the pandemic.
During 2021, we revised our capital expenditures to $125 million. Due to supply chain delays and limited contractor availability, our cash invested in fixed assets was $112 million for the year.
Indefinite idling of pulp and paper operations at Calhoun mill
In December 2021, we announced the indefinite idling of the pulp and paper operations at our Calhoun mill, with an annual capacity of 147,000 metric tons of pulp and 149,000 metric tons of paper. The decision was taken due to the accumulation of significant financial losses, even with strong market conditions for both the pulp and uncoated freesheet paper it manufactures, as well as the ongoing significant production upsets. This resulted in our reassessment of the carrying value of the long-lived assets and recognition of an impairment charge of $124 million on fixed assets, recognition of severance and other costs of $18 million (recorded in “Closure costs, impairment and other related charges”), as well as recognition of inventory write-downs of $29 million (recorded in “Cost of sales, excluding depreciation, amortization and distribution costs”) in our Consolidated Statement of Operations for the year ended December 31, 2021. We also expect to incur additional closure costs of approximately $32 million mainly related to decommissioning in 2022. Tissue manufacturing and converting continue at the site, and the adjacent distribution center remains in full operation. Pulp and paper operations at the beginning of 2022.
Despite the lost integration benefit in the tissue segment and on-going costs associated with closed site maintenance, we anticipate an improvement in our overall operating income as a result of the indefinite idling of pulp and paper operations at Calhoun. We recently launched a strategic review of our tissue segment.
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Liquidity and capital resources
ABL Credit Facility
On December 15, 2021, we amended the ABL Credit Facility, which reset the facility and extended the maturity date to December 15, 2026. The applicable margin and fees under the ABL Credit Facility agreement may be adjusted by amendment based on agreed upon ESG key performance indicators as described in the credit agreement.
Amendment to Senior Secured Credit Facility
On April 19, 2021, we amended the Senior Secured Credit Facility agreement in order to repay the $180 million of pre-amended term loans, extend the maturity date of the revolving credit facility from 2025 to 2027, reduce the spread on the term loan facility by up to 10 basis points, and reinstate in full the $180 million term loan facility.
Senior Unsecured Notes
On February 2, 2021, we issued $300 million aggregate principal amount of our 4.875% 2026 Notes at an issue price of 100% pursuant to an indenture as of that date. We used the net proceeds of the 2026 Notes, together with cash on hand, to redeem all of the outstanding $375 million aggregate principal amount of our 5.875% senior notes due 2023, at a price of 100% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. The redemption occurred on February 18, 2021.
See below under “Liquidity and Capital Resources – Capital Resources” for more information.
Dividends
We declared and paid a special dividend on our common stock of $1.00 per share ($79 million) in 2021.
Share repurchase program
On December 7, 2021, we announced a new share repurchase program, authorized by our board of directors, of up to ten million shares of our common stock or $100 million, whichever occurs first. No shares were repurchased under this plan in 2021.
With our repurchase of 4.6 million shares at an average price of $10.64 for a total of $48 million during the year ended December 31, 2021, we completed the share repurchase program, which was launched in March 2020 and authorized the repurchase of shares of up to 15% of our common stock, for an aggregate consideration of up to $100 million. Under this program, we repurchased 11.5 million shares for a total of $78 million, representing 15% of the outstanding shares, including 6.9 million shares purchased in 2020 at an average price of $4.28 for a total of $30 million.
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Our operating income was $584 million during the year, compared to $99 million in 2020. Excluding special items, we generated operating income of $757 million in 2021, compared to $169 million in 2020. Special items are described below.
Our net income in 2021 was $307 million, or $3.83 per diluted share, compared to net income of $10 million, or $0.12 per diluted share, in 2020. Our net income for 2021, excluding special items, was $523 million, or $6.51 per diluted share, compared to net income of $56 million, or $0.65 per diluted share, in 2020.
Year Ended December 31, 2021
Operating Income
Net Income
EPS
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Non-operating pension and other postretirement benefit credits
Other expense, net
Income tax effect of special items
Adjusted for special items (1)
Year Ended December 31, 2020
Operating Income
Net Income
EPS
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Other expense, net
Income tax effect of special items
Adjusted for special items (1)
(1) Operating income (loss), net income (loss) and net income (loss) per share (or, “ EPS ”), in each case as adjusted for special items, are not financial measures recognized under U.S. generally accepted accounting principles (or, “ GAAP ”). We calculate operating income (loss), as adjusted for special items, as operating income (loss) from our Consolidated Statements of Operations, adjusted for items such as closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, and gains and losses on disposition of assets that are excluded from our segment’s performance from GAAP operating income (loss). We calculate net income (loss), as adjusted for special items, as net income (loss) from our Consolidated Statements of Operations, adjusted for the same special items applied to operating income (), in addition to non-operating pension and other postretirement (or, “ OPEB ”) costs and credits, other income and expense, net, and the income tax effect of the special items. EPS, as adjusted for special items, is calculated as net income (), as adjusted for special items, per diluted share. We believe that using these non-GAAP measures is useful because they are consistent with the indicators management uses internally to measure the Company’s performance, and it allows the reader to compare our operations and financial performance from period to period. Operating income (), net income () and EPS, in each case as adjusted for special items, are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP.
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Fourth Quarter Overview
Three months ended December 31, 2021 vs. December 31, 2020
Our operating loss was $101 million in the quarter, compared to operating income of $4 million in the year-ago period. Excluding special items, we generated an operating income of $70 million in the quarter, compared to operating income of $85 million in the year-ago period. Special items are described below.
Our net loss in the quarter was $128 million, or $1.64 per share, compared to net loss of $52 million, or $0.63 per share, in the year-ago period. Our net income in the quarter, excluding special items, was $37 million, or $0.48 per diluted share, compared to net income of $45 million, or $0.55 per diluted share, in the year-ago period.
Three Months Ended December 31, 2021
Operating (Loss) Income
Net (Loss) Income
EPS
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Non-operating pension and other postretirement benefit credits
Other income, net
Income tax effect of special items
Adjusted for special items (1)
Three Months Ended December 31, 2020
Operating Income
Net (Loss) Income
EPS
(In millions, except per share amounts)
GAAP, as reported
Adjustments for special items:
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit costs
Other expense, net
Income tax effect of special items
Adjusted for special items (1)
(1) Operating income (loss), net income (loss) and EPS, in each case as adjusted for special items, are non-GAAP financial measures. For more information on the calculation and reasons we include these measures, see note 1 under “Overview – 2021 Overview” above.
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R ESULTS OF O PERATIONS
Consolidated Results
Selected annual financial information
Years Ended December 31,
(In millions, except per share amounts)
Sales
Operating income (loss) per segment:
Market pulp
Tissue
Wood products
Paper
Segment total
Corporate and other
Operating income
Net income (loss) attributable to Resolute Forest Products Inc.
Net income (loss) per share attributable to Resolute Forest Products Inc. common shareholders:
Basic
Diluted
Adjusted EBITDA (1)
As of December 31,
(In millions)
Cash and cash equivalents
Total assets
(1) Earnings before interest expense, income taxes, and depreciation and amortization (or, “ EBITDA ”) and adjusted EBITDA are not financial measures recognized under GAAP. EBITDA is calculated as net income (loss) including noncontrolling interest from the Consolidated Statements of Operations, adjusted for interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA means EBITDA, excluding special items, such as closure costs, impairment and other related charges, inventory write-downs related to closures, start-up costs, gains and losses on disposition of assets, non-operating pension and OPEB costs and credits, and other income and expense, net. We believe that using non-GAAP measures such as EBITDA and adjusted EBITDA is useful because they are consistent with the indicators management uses internally to measure the Company’s performance and it allows the reader to compare our operations and financial performance from period to period. EBITDA and adjusted EBITDA are internal measures, and therefore may not be comparable to those of other companies. These non-GAAP measures should not be viewed as substitutes to financial measures determined under GAAP.
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Years Ended December 31,
(In millions)
Net income (loss) including noncontrolling interest
Interest expense
Income tax provision
Depreciation and amortization
EBITDA
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit credits
Other expense, net
Adjusted EBITDA
Operating income variance analysis
Sales
Sales were $864 million higher in 2021, or 31%, to $3,664 million. Pricing had a favorable impact of $938 million, mainly as a result of an increase in the average transaction price for wood products, market pulp, and paper up by 62%, 28% and 11% respectively. Lower volume reduced sales by $80 million, mainly reflecting lower shipments in paper ($59 million), market pulp ($33 million) and tissue ($11 million), partly offset by higher shipments of wood products ($23 million).
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Cost of sales, excluding depreciation, amortization and distribution costs
COS increased by $248 million in 2021 to $2,258 million. After removing the effects of lower volume and the stronger Canadian dollar, COS increased by $216 million in 2021, largely reflecting:
• higher fiber costs ($91 million), mainly reflecting an increase in stumpage costs related to higher lumber sale prices and in harvesting costs for the wood products segment;
• higher energy costs ($51 million) due to higher prices as well as lower internal power generation as a result of a turbine failure at the Saint-Félicien mill;
• unfavorable maintenance costs ($25 million) as a result of the timing of scheduled outages, the scope of maintenance work and inflationary cost pressure, partly offset by the indefinite idling of the Amos and Baie-Comeau paper mills;
• higher expenses related to a process improvement project ($12 million);
• higher chemical costs ($8 million), mainly due to higher prices and unfavorable usage;
• Canada Emergency Wage Subsidy (or “ CEWS ”) credit ($10 million) in 2020;
• higher labor expense ($7 million), mainly due to higher compensation expense, partly offset by the indefinite idling of the Amos and Baie-Comeau paper mills; and
• increase in write-downs of mill stores and other supplies inventory associated with the announcement on December 16, 2021, of the indefinite idling of pulp and paper operations at the Calhoun mill compared to the prior year write-downs of mill stores and other supplies inventory associated with the temporary idling of the Amos and Baie-Comeau paper mills ($4 million). The Amos and Baie-Comeau paper mills were indefinitely idled in March 2021.
Distribution costs
After removing the effect of lower volume and the stronger Canadian dollar, distribution costs increased by $18 million, mainly due to higher freight rates.
Depreciation and amortization
Depreciation and amortization was $5 million lower in 2021, primarily due to the decrease in depreciation related to the Amos and Baie-Comeau paper mills, whose assets were fully depreciated in the fourth quarter of 2020 due to the temporary idling of these mills. The mills were indefinitely idled in March 2021.
Selling, general and administrative expenses
Selling, general and administrative (or, “ SG&A ”) expenses increased by $22 million compared to the year-ago period, mainly due to higher stock-based compensation expense, which includes a mark-to-market adjustment based on the stock price appreciation, and higher incentive plan expense, which is based on company performance.
Closure costs, impairment and other related charges
See the corresponding variance analysis under “Corporate and Other” below.
Net gain on disposition of assets
See the corresponding variance analysis under “Corporate and Other” below.
Net income variance analysis
Non-operating pension and other postretirement benefit credits
We recorded non-operating pension and OPEB credits of $11 million for the full year in 2021, compared to nil in the year-ago period. The difference mainly reflects lower interest cost ($19 million) in 2021 and a settlement loss related to the wind-up of the Thorold (Ontario) pension plan ($28 million) in 2020, partly offset by higher amortization of actuarial losses ($15 million), an OPEB curtailment credit in 2020 related to our Augusta (Georgia) mill that was indefinitely idled in 2019 ($14 million), and lower expected return on plan assets ($11 million).
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Interest expense
Interest expense was $13 million lower in 2021 compared to the year-ago period, as a result of the refinancing of the 2023 Notes at a lower interest rate and debt level.
Other expense, net
We recorded other expense, net of $70 million in 2021, mainly reflecting a loss on forward commodities contracts principally related to lumber futures contracts ($85 million), partly offset by income from equity method investments ($19 million). There were no lumber futures contracts outstanding as of December 31, 2021.
In 2020, we recorded other expense, net of $4 million, which included a loss on commodity contracts ($22 million) partly offset by a favorable insurance claim settlement related to our acquisition of Atlas in 2015 ($15 million) and income from equity method investments ($8 million).
Income taxes
We recorded an income tax provision of $195 million in 2021, on income before income taxes of $504 million, compared to an expected income tax provision of $106 million based on the U.S. federal statutory income tax rate of 21%. The difference mainly reflects: U.S. tax on non-U.S. earnings ($115 million); and foreign tax rate differences ($38 million); partly offset by a net decrease in our valuation allowance related to our U.S. operations ($54 million) where we recognize a full valuation allowance against our net deferred income tax assets; and state income taxes ($10 million).
The $54 million net decrease in our valuation allowance for 2021 is to offset the tax implications relating to the global intangible low-taxed income (or, “ GILTI ”) inclusion, which is based on the U.S. system of taxation for non-U.S. earnings, whereby foreign earnings less a qualified deduction for foreign assets are included in U.S. taxable income, in excess of current year U.S. operating losses.
We recorded an income tax provision of $51 million in 2020, on income before income taxes of $61 million, compared to an expected income tax provision of $13 million based on the U.S. federal statutory income tax rate of 21%. The difference reflects: U.S. tax on non-U.S. earnings ($23 million); an increase to our valuation allowance related to our U.S. operations ($11 million) where we recognize a full valuation allowance against our net deferred income tax assets; foreign tax rate differences ($10 million); and foreign exchange items ($6 million); partly offset by state income taxes ($6 million); and other, net ($6 million) mainly related to the settlement of an insurance claim in connection with our acquisition of Atlas.
Operating (loss) income variance analysis
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Sales
Sales increased by $65 million, or 8%, compared to the fourth quarter of 2020, to $834 million. Pricing had a favorable impact of $103 million, mainly as a result of an increase in the average transaction price for market pulp and paper, up by 35% and 23%, respectively. Sales volume was $39 million lower, mainly due to lower shipments of market pulp and paper.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effects of lower volume and the effect of the stronger Canadian dollar, COS increased by $72 million in the quarter, largely reflecting:
• higher energy costs ($26 million) due to higher prices as well as lower internal power generation as a result of a turbine failure at the Saint-Félicien mill and low water levels at Hydro-Saguenay (Quebec) due to weather conditions;
• higher fiber costs ($24 million), mainly reflecting an increase in stumpage costs related to higher lumber sale prices, and in harvesting costs for the wood products segment, and higher price of recycled furnish for the market pulp segment;
• CEWS credit in 2020 ($10 million);
• higher chemical costs ($5 million), mainly due to higher prices and unfavorable usage; and
• increase in write-downs of mill stores and other supplies inventory associated with the announcement on December 16, 2021, of the indefinite idling of pulp and paper operations at the Calhoun mill compared to the prior year write-downs of mill stores and other supplies inventory associated with the temporary idling of the Amos and Baie-Comeau paper mills ($4 million).
Distribution costs
After removing the effect of lower volume and the stronger Canadian dollar, distribution costs increased by $12 million, mainly due to higher freight rates.
Selling, general and administrative expenses
SG&A expenses increased by $9 million in the quarter, mainly due to higher stock-based compensation expense, which includes a mark-to-market adjustment following the stock price appreciation of approximately 30% in the fourth quarter of 2021.
Closure costs, impairment and other related charges
In the fourth quarter of 2021, we recorded closure costs, impairment and other related charges of $142 million, related to the announcement on December 16, 2021, of the indefinite idling of pulp and paper operations at our Calhoun mill, which included: a fixed asset impairment charge of $124 million, additional provisions for severance and other costs of $13 million as well as write-off of other assets of $5 million. This compares to closure costs, impairment and other related charges of $55 million in the year-ago period, mainly due to the temporary idling of our Amos and Baie-Comeau paper mills, including accelerated depreciation charges of $38 million and severance and other costs of $17 million. The mills were indefinitely idled in March 2021.
Net loss variance analysis
Non-operating pension and other postretirement benefit (costs) credits
We recorded non-operating pension and OPEB credits of $3 million in the quarter, compared to a cost of $24 million in the year-ago period. The difference mainly reflects: lower interest cost ($7 million) in the quarter and a settlement loss related to the wind-up of the Thorold pension plan ($28 million) in the year-ago period, partly offset by lower expected return on plan assets ($5 million) and higher amortization of actuarial losses ($4 million).
Other expense, net
We recorded other income, net of $4 million in the fourth quarter of 2021, compared to other expense, net of $28 million in the year-ago period. The difference mostly reflects income from equity method investments ($7 million) and a foreign exchange loss of $3 million in the current quarter compared to a loss on forward commodities contracts of $15 million and a foreign exchange loss of $13 million in the year-ago period.
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Income taxes
We recorded an income tax provision of $28 million in the fourth quarter of 2021, on a loss before income taxes of $99 million, compared to an expected income tax benefit of $21 million based on the U.S. federal statutory income tax rate of 21%. The difference mostly reflects: an increase to our valuation allowance related to our U.S. operations ($35 million); U.S. tax on non-U.S. earnings ($19 million); and foreign tax rate differences ($5 million); partly offset by state income taxes ($9 million).
We recorded an income tax benefit of $4 million in the fourth quarter of 2020, on a loss before income taxes of $56 million, compared to an expected income tax benefit of $12 million based on the U.S. federal statutory income tax rate of 21%. The difference mostly reflects: a decrease to our valuation allowance related to our U.S. operations ($10 million); partly offset by U.S. tax on non-U.S. earnings ($22 million).
For a variance analysis of our 2020 vs. 2019 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Consolidated Results – 2020 vs. 2019,” of our annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021 (or, the “ 2020 Annual Report ”).
Segment Earnings
We manage our business based on the products we manufacture. Our reportable segments correspond to our principal product lines: market pulp, tissue, wood products and paper.
We do not allocate any of the income or loss items following “operating income” in our Consolidated Statements of Operations to our segments because those items are reviewed separately by management. Similarly, we do not allocate to the segments: closure costs, impairment and other related charges; inventory write-downs related to closures; start-up costs; gains and losses on disposition of assets; as well as other discretionary charges or credits.
We allocate depreciation and amortization expense to our segments, although the related fixed assets and amortizable intangible assets are not allocated to segment assets. Additionally, all SG&A expenses are allocated to our segments, with the exception of certain discretionary charges and credits, which we present under “corporate and other.”
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MARKET PULP
Highlights
Years Ended December 31,
(In millions, except where otherwise stated)
Sales
Operating income (loss) (1)
EBITDA (2)
(In thousands of metric tons)
Shipments
Downtime
December 31,
(In thousands of metric tons)
Finished goods inventory
(1) Net income (loss) including noncontrolling interest is equal to operating income (loss) in this segment.
(2) EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected annual financial information” above.
Years Ended December 31,
(In millions)
Net income (loss) including noncontrolling interest
Depreciation and amortization
EBITDA
Industry trends
World demand for chemical pulp fell by 3.2% in 2021 compared to the year-ago period, reflecting a decrease of 9.8% in China and 0.5% in North America, partly offset by an increase of 3.9% in Western Europe. World capacity grew by 1.5% over the same period.
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World demand for softwood pulp fell by 3.9% in 2021, reflecting a decrease of 8.5% and 3.2% in China and North America respectively, while Western Europe increased by 1.5%. The shipment-to-capacity ratio was 87%.
In the same period, demand for hardwood pulp fell by 4.1%, with shipments to China down by 12.1%, while North America and Western Europe were up by 1.0% and 5.0% respectively. The shipment-to-capacity ratio was 89%.
Operating income (loss) variance analysis
Sales
Sales were $145 million higher, or 22%, increasing to $813 million in 2021. Pricing had a favorable impact of $178 million, reflecting an increase in the average transaction price of $168 per metric ton, or 28%, due to a price increase across all pulp grades. Lower volume reduced sales by $33 million, mainly reflecting lower shipments of 56,000 metric tons, or 5%, due to lower productivity.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the effects of lower volume and the stronger Canadian dollar, manufacturing costs increased by $39 million, reflecting:
• higher energy costs ($24 million) due to higher prices as well as lower internal power generation as a result of a turbine failure at the Saint-Félicien mill; and
• higher chemical and labor costs ($7 million).
Distribution costs
After removing the effect of lower volume and the stronger Canadian dollar, distribution costs increased by $6 million, mainly due to higher freight rates.
For a variance analysis of our 2020 vs. 2019 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Market Pulp – 2020 vs. 2019,” of our 2020 Annual Report.
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TISSUE
Highlights
Years Ended December 31,
(In millions, except where otherwise stated)
Sales
Operating loss (1)
EBITDA (2)
(In thousands of short tons)
Shipments (3)
Downtime
December 31,
(In thousands of short tons)
Finished goods inventory (3)
(1) Net loss including noncontrolling interest is equal to operating loss in this segment.
(2) EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected annual financial information” above.
(3) Tissue converted products, which are measured in cases, are converted to short tons.
Years Ended December 31,
(In millions)
Net loss including noncontrolling interest
Depreciation and amortization
EBITDA
Industry trends
Total U.S. tissue consumption decreased by 6.7% in 2021, compared to the year-ago period. Converted product shipments decreased by 3.8%, led by at-home shipments down by 7.6%, while away-from-home shipments increased by 5.9%.
U.S. parent roll production decreased by 4.9% in 2021, contributing to a 92% average industry production-to-capacity ratio, down from 97% in the year-ago period.
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Operating loss variance analysis
Sales
Sales were $12 million lower, or 7%, decreasing to $161 million in 2021, mainly due to difficult market conditions in 2021 resulting in a decrease in shipments of 6,000 short tons and an unfavorable product mix.
Cost of sales, excluding depreciation, amortization and distribution costs
After removing the effect of lower volume, our manufacturing costs increased by $17 million compared to 2020, mainly related to:
• reduced workforce availability and logistics constraints, which challenged our ability to scale production and resulted in higher manufacturing overhead ($8 million), especially for the ramp-up of our Hagerstown converting facility acquired in the fourth quarter of 2020; and
• higher fiber costs ($5 million).
For a variance analysis of our 2020 vs. 2019 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Tissue – 2020 vs. 2019,” of our 2020 Annual Report.
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WOOD PRODUCTS
Highlights
Years Ended December 31,
(In millions, except where otherwise stated)
Sales
Operating income (loss) (1)
EBITDA (2)
(In million board feet)
Shipments (3)
Downtime
December 31,
(In million board feet)
Finished goods inventory (3)
(1) Net income (loss) including noncontrolling interest is equal to operating income (loss) in this segment.
(2) EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected annual financial information” above.
(3) Includes wood pellets measured by mass, converted to board feet using a density-based conversion ratio.
Years Ended December 31,
(In millions)
Net income (loss) including noncontrolling interest
Depreciation and amortization
EBITDA
Industry trends
U.S. housing starts were 1.6 million on a seasonally adjusted basis in 2021, up by 14.4% compared to 2020, which reflects a 12.3% increase in single-family starts and a 20.8% increase in multi-family starts.
The 2x4 – Random Length (or, “ RL ”) #1-2 Kiln Dried Great Lakes (or, “ KD GL ”) price rose by 53.0% in 2021 compared to the year ago period, and the 2x4x8 Stud KD GL price rose by 44.7%. The 2x4 – RL #2 KD Southern Pine (Eastside) price increased by 55.6%, and the 2x4 – RL #2 KD Southern Pine (Westside) price was up by 57.0%.
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Operating income variance analysis
Sales
Sales were $693 million higher, or 68%, increasing to $1,718 million in 2021, due to stronger market conditions. Pricing contributed to a $670 million increase in sales, reflecting a rise in the average transaction price of $309 per thousand board feet, or 62%, and volume increased sales by $23 million due to an increase in shipments of 74 million board feet, or 4%, mainly reflecting new volume from the restart in the first quarter of 2021 of the El Dorado (Arkansas) and Ignace (Ontario) sawmills.
Cost of sales, excluding depreciation, amortization and distribution costs
After adjusting for the effect of higher volume and the stronger Canadian dollar, manufacturing costs increased by $134 million, reflecting:
• higher log costs ($96 million), primarily reflecting an increase in stumpage costs related to higher lumber sale prices, and in harvesting costs, as well as lower by-product revenues from chips;
• unfavorable maintenance costs ($20 million) as a result of the scope of maintenance work and higher cost;
• higher labor expense ($8 million), mainly due to higher compensation expense; and
• CEWS credit ($6 million).
For a variance analysis of our 2020 vs. 2019 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Wood Products – 2020 vs. 2019,” of our 2020 Annual Report.
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PAPER
Highlights
Years Ended December 31,
(In millions, except where otherwise stated)
Sales
Operating (loss) income (1)
EBITDA (2)
(In thousands of metric tons)
Shipments
Downtime
December 31,
(In thousands of metric tons)
Finished goods inventory
(1) Net (loss) income including noncontrolling interest is equal to operating (loss) income in this segment.
(2) EBITDA, a non-GAAP financial measure, is reconciled below. For more information on the calculation and reasons we include this measure, see note 1 under “Results of Operations – Consolidated Results – Selected annual financial information” above.
Years Ended December 31,
(In millions)
Net (loss) income including noncontrolling interest
Depreciation and amortization
EBITDA
Industry trends
North American newsprint demand fell by 6.5% in 2021, compared to 2020. Demand from newspaper publishers fell by 10.1%, while demand from commercial printers also decreased, by 1.2%. The North American shipment-to-capacity ratio was 93%, compared to 84% in the year-ago-period.
Global demand for newsprint fell by 6.6% in 2021, with North America down by 6.5%, Asia down by 9.7%, and Western Europe down by 2.5%. The shipment-to-capacity ratio increased to 86%, up from 77% in 2020.
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North American demand for uncoated mechanical papers rose by 4.6% in 2021 compared to the year-ago-period, reflecting a 1.2% increase in supercalendered (or, “ SC ”) grades, and a 7.7% increase in standard grades. Compared to 2020, the shipment-to-capacity ratio for all uncoated mechanical papers increased from 74% to 87%.
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Operating loss variance analysis
Sales
Sales rose by $38 million, or 4%, to $972 million in 2021. Pricing contributed to a $91 million increase in sales, reflecting a rise in the average transaction price of $66 per metric ton, or 11%, and supported by a favorable product mix. Lower volume decreased sales by $59 million, due to a decrease in shipments of 99,000 metric tons, or 6%, mainly reflecting lower demand levels since the onset of the pandemic and our resulting capacity adjustments.
Cost of sales, excluding depreciation, amortization and distribution costs
Manufacturing costs increased by $25 million after adjusting for the effects of lower volume and the stronger Canadian dollar, reflecting:
• higher energy prices ($27 million);
• higher expenses related to a process improvement project ($5 million);
• higher chemical costs ($4 million), mainly due to unfavorable usage and higher prices; and
• unfavorable maintenance costs ($2 million) as a result of the timing of scheduled outages and the scope of maintenance work, partly offset by the indefinite idling of the Amos and Baie-Comeau paper mills;
partly offset by:
• lower chip costs ($12 million); and
• lower labor costs ($4 million) due to the indefinite idling of the Amos and Baie-Comeau paper mills.
Distribution costs
After removing the effect of lower volume and the stronger Canadian dollar, distribution costs increased by $8 million, mainly due to higher freight rates.
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Depreciation and amortization
Depreciation and amortization was $7 million lower in 2021, primarily due to the decrease in depreciation related to the Amos and Baie-Comeau paper mills, whose assets were fully depreciated in the fourth quarter of 2020 due to the temporary idling of these mills. The mills were indefinitely idled in March 2021.
For a variance analysis of our 2020 vs. 2019 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Segment Earnings – Paper – 2020 vs. 2019,” of our 2020 Annual Report.
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C ORPORATE AND O THER
Highlights
Years Ended December 31,
(In millions)
Cost of sales, excluding depreciation, amortization and distribution costs
Depreciation and amortization
Selling, general and administrative expenses
Closure costs, impairment and other related charges
Net gain on disposition of assets
Operating loss
Interest expense
Non-operating pension and other postretirement benefit credits
Other expense, net
Income tax provision
Net loss including noncontrolling interest
The table below shows the reconciliation of net loss including noncontrolling interest to EBITDA and adjusted EBITDA, which are non-GAAP financial measures. For more information on the calculation and reasons we include these measures, see note 1 under “Results of Operations – Consolidated Results – Selected annual financial information” above.
Years Ended December 31,
(In millions)
Net loss including noncontrolling interest
Interest expense
Income tax provision
Depreciation and amortization
EBITDA
Closure costs, impairment and other related charges
Inventory write-downs related to closures
Start-up costs
Net gain on disposition of assets
Non-operating pension and other postretirement benefit credits
Other expense, net
Adjusted EBITDA
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Cost of sales, excluding depreciation, amortization and distribution costs
COS was $35 million in 2021, mainly reflecting:
• write-downs of inventory ($29 million), principally related to mill stores and other supplies, due to the announcement on December 16, 2021, of the indefinite idling of pulp and paper operations at the Calhoun mill.
In 2020, we incurred COS of $34 million, which included:
• write-downs of mill stores and other supplies inventory ($25 million) related to the temporary idling of our Amos and Baie-Comeau paper mills; and
• start-up costs ($3 million) for the El Dorado sawmill.
Selling, general and administrative expenses
SG&A expenses increased by $10 million in 2021, mainly due to higher stock-based compensation expense, which includes a mark-to-market adjustment based on the stock price appreciation, and higher incentive plan expense, which is based on company performance.
Closure costs, impairment and other related charges
In 2021, we recorded closure costs, impairment and other related charges of $142 million, related to the announcement on December 16, 2021, of the indefinite idling of pulp and paper operations at our Calhoun mill, which included: a fixed asset impairment charge of $124 million, additional provisions for severance and other costs of $13 million, as well as write-off of other assets of $5 million.
This compares to closure costs, impairment and other related charges of $55 million in 2020, related to the temporary idling of our Amos and Baie-Comeau paper mills, including: accelerated depreciation charges of $38 million, a nd severance and other costs of $17 million .
Net gain on disposition of assets
We recorded a net gain of $9 million on the disposition of the Augusta mill in the year-ago period.
For a variance analysis of our 2020 vs. 2019 results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Corporate and Other – 2020 vs. 2019,” of our 2020 Annual Report.
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L IQUIDITY AND C APITAL R ESOURCES
We rely on cash and cash equivalents, cash flows provided by operations, and our credit facilities to: fund our operations; make pension contributions; and to finance our working capital, capital expenditures, duty cash deposits and opportunities for our growth and transformation strategy. In addition, from time to time we may use available cash to reduce debt and to return capital to shareholders, including through share repurchases or special dividends. As of December 31, 2021, we had cash and cash equivalents of $112 million and availability of $841 million under our credit facilities.
(In millions)
Availability
Amount Drawn
ABL Credit Facility (1)
Senior Secured Credit Facility (2)
Loan Facility (C$220 million)
Total
(1) The amount drawn includes $73 million of ordinary course letters of credit outstanding, of which $53 million are to guarantee surety bonds of $83 million related to the U.S. softwood lumber cash deposits.
(2) Includes $180 million of availability under the term loan facility and $180 million of availability under the revolving credit facility.
Based on our current projections, we expect to have sufficient financial resources available to finance our business plan, make pension contributions, meet working capital and duty cash deposit requirements, and maintain an appropriate level of capital spending.
Based on market conditions, we may seek to refinance our credit facilities to optimize our capital structure and enhance our flexibility to continue our transformation.
2021 Overview
Credit Facilities and Notes
ABL Credit Facility
On January 21, 2021, we reduced the commitment under the Canadian tranche of our senior secured asset-based revolving credit facility by $50 million, to $250 million, resulting in an aggregate commitment of $450 million, subject to borrowing base limitations.
On December 15, 2021, we entered into a fourth amendment to the credit agreement dated May 22, 2015, which provides for an extension of the maturity date from May 14, 2024 to December 15, 2026, of the senior secured asset-based revolving credit facility with an aggregate lender commitment of up to $450 million at any time outstanding subject to borrowing base availability based on specified advance rates, eligibility criteria and customary reserves. The $450 million facility continues to include a $60 million swingline sub-facility and a $200 million letter of credit sub-facility. The agreement also contains hardwired benchmark replacement provisions for future transition of LIBOR and may be amended based on agreed upon ESG key performance indicators as described in the credit agreement.
Amendment to Senior Secured Credit Facility
On April 19, 2021, we amended the Senior Secured Credit Facility agreement in order to repay the $180 million of pre-amended term loans, extend the maturity date of the revolving credit facility from 2025 to 2027, reduce the spread on the term loan facility by up to 10 basis points, and reinstate in full the $180 million term loan facility.
Senior Unsecured Notes
On February 2, 2021, we issued $300 million aggregate principal amount of our 4.875% senior notes due 2026 (or, the “ 2026 Notes ”) at an issue price of 100% pursuant to an indenture as of that date. We used the net proceeds of the 2026 Notes, together with cash on hand, to redeem all of the outstanding $375 million aggregate principal amount of our 5.875% senior notes due 2023, at a price of 100% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. The redemption occurred on February 18, 2021.
For more information, see Note 15, “Long-Term Debt” to our Consolidated Financial Statements.
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Share Repurchase Program
On December 7, 2021, we announced a new share repurchase program, authorized by our board of directors, of up to ten million shares of our common stock or $100 million, whichever occurs first. No shares were repurchased under this plan in 2021.
With our repurchase of 4.6 million shares at an average price of $10.64 for a total of $48 million during the year ended December 31, 2021, we completed our $100 million share repurchase program, which was launched in March 2020 and authorized the repurchase of shares of up to 15% of our common stock, for an aggregate consideration of up to $100 million. Under this program, we also repurchased 6.9 million shares at an average price of $4.28 for a total of $30 million in 2020.
Dividends
We declared and paid a special dividend on our common stock of $1.00 per share ($79 million) in 2021.
Flow of Funds
Summary of cash flows
A summary of cash flows for the years ended December 31, 2021, 2020 and 2019 was as follows:
Years Ended December 31,
(In millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
Net (decrease) increase in cash and cash equivalents, and restricted cash
Net cash provided by operating activities
We generated $648 million of cash from operating activities in 2021, compared to $334 million in 2020. The increase is attributable to higher profitability, partly offset by an unfavorable working capital variance and higher major maintenance payments in the current period.
Net cash used in investing activities
We used $262 million of cash in investing activities in 2021, compared to $297 million in the prior year. The difference mostly reflects the acquisition of the three sawmills and related assets in Cross City (Florida) and in Glenwood and El Dorado (Arkansas) (or, the “ U.S. Sawmill Business ”), net of cash acquired, in the year-ago period ($172 million); partly offset by higher countervailing and antidumping duty cash deposits ($73 million), and higher cash invested in fixed assets ($34 million) in the current period, as well as proceeds from an insurance recovery related to our acquisition of Atlas in 2015 ($15 million) in the prior period.
Net cash (used in) provided by financing activities
Net cash used in financing activities was $392 million in 2021, compared to cash provided by financing activities of $78 million in 2020. The difference mostly reflects the repayment of the 2023 Notes of $375 million partly offset by the issuance of the 2026 Notes of $300 million, as well as the repayment of $180 million in term loans in the current period; compared to drawing of $180 million in term loans used to finance the acquisition of the U.S. Sawmill Business, partly offset by the repayment of $71 million in revolving credit facilities in the year-ago period. In the current period, we also paid a special dividend of $1 per share, or $79 million, and repurchased $48 million of shares compared to $30 million in the year-ago period.
For a variance analysis of our 2020 vs. 2019 cash flows, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Flow of Funds – 2020 vs. 2019,” of our 2020 Annual Report.
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Credit rating risk
Although our debt agreements do not include any provision that would require material changes in payment schedules or terminations as a result of a credit rating downgrade, we believe our access to capital markets at a reasonable cost is determined in part by credit quality. A credit rating downgrade could impact our ability to access capital markets at a reasonable cost. These ratings reflect the views of the rating agencies only. An explanation of the significance of these ratings can be obtained from each rating agency. The ratings are not a recommendation to buy, sell or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency.
December 31,
Standard & Poor’s
Senior unsecured debt
Long-term corporate credit rating
Outlook
Stable
Negative
Stable
Moody’s Investors Service
Senior unsecured debt
Corporate family rating
Outlook
Stable
Negative
Stable
Liquidity rating
SGL-1
SGL-2
SGL-1
Countervailing duty and anti-dumping investigations of softwood lumber
We have been required to pay cash deposits for estimated countervailing duties and anti-dumping duties on the vast majority of our U.S. imports of softwood lumber products produced at our Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. As of December 31, 2021, the rates for these estimated countervailing duties and anti-dumping duties were 18.07% and 11.59%, respectively. Based on our current operating parameters, we estimate that the cash deposits could be approximately $166 million per year.
Commerce is expected to issue its final determination in the third administrative review of the countervailing and antidumping investigations in the third or fourth quarters of 2022, following which new rates will take effect for Resolute; these new rates were estimated at 15.48% and 4.76%, respectively, in a non-binding, preliminary determination released on January 31, 2022, but is subject to modification in the upcoming final determination.
For additional information, see Part I, Item 1A, “Risk Factors – Legal and Compliance Risks – We are subject to countervailing and anti-dumping duty orders on the vast majority of our U.S. imports of softwood lumber products produced at our Canadian sawmills, which could materially affect our results of operations and cash flows,” of this Form 10‑K, and Note 18, “Commitments and Contingencies – Legal matters – Countervailing duty and anti-dumping investigations of softwood lumber,” to our Consolidated Financial Statements.
Employee Benefit Plans
Pension and OPEB plans
In 2021, we contributed $86 million to our defined benefit pension plans and $18 million to our defined contribution pension plans, while recognizing a $31 million cost in aggregate, before special events. We also made payments of $11 million to OPEB plans, while recognizing a $6 million credit to the net periodic benefit cost, before special events.
For 2022, we expect to make approximately $77 million of contributions to our defined benefit pension plans, $18 million to our defined contribution pension plans, and $11 million to OPEB plans. The expected $9 million decrease in defined benefit pension plan contributions is mainly the result of a decrease in U.S. pension plan due to changes enacted under the American Rescue Plan Act. The Act also resulted in a prefunding balance of $33 million for the U.S. pension plan, to be used at the Company’s discretion to offset future contribution requirements.
For 2022, we expect to expense approximately $18 million of defined contribution pension plan costs, with a defined benefit pension cost of $28 million and a $3 million credit for our defined benefit OPEB plans. The expected $15 million increase in pension plan expenses from 2021 is mainly explained by a decrease in expected returns on assets for two Canadian plans following a de-risking strategy.
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We fund our pension and OPEB plans as required by applicable laws and regulations; we could, from time to time, make additional contributions.
Pension funding
Quebec plans
The funding of our Quebec pension plans is subject to Quebec’s Supplemental Pension Plans Act (or, the “ SPPA ”), which is the pension plan funding regime generally applicable to pension plans in that province. Our contributions to our Quebec plans are determined on a going concern basis under the Quebec’s SPPA.
Ontario plans
The funding of our Ontario pension plans is subject to the Ontario Pension Benefits Act (or, the “ PBA ”), which is the pension plan funding regime generally applicable to pension plans in that province. The PBA provides for funding pension fund deficits on a going concern basis, or on a solvency basis if the solvency funded status of a pension plan is below 85%.
Funding deficit calculation
The assumptions used to calculate the pension funding deficit are materially different from the assumptions used to determine the net pension obligations for purposes of our Consolidated Financial Statements.
The funding deficit calculation of our Quebec pension plans is subject to Quebec’s SPPA, which provides for the funding of pension deficits on a going concern basis. The funding deficit calculation of our Ontario pension plans is subject to Ontario’s PBA, which provides for the funding of pension fund deficits on a going concern basis, or on a solvency basis if the solvency funded status of a pension plan is below 85%. Under a going concern basis, the liabilities are calculated on the assumption that the plans will continue to operate indefinitely, and the liabilities are discounted using a rate determined by a model that develops an expected long-term return on assets, based on the asset mix of the plans as of the actuarial valuation date. The liabilities also include a provision for adverse deviation. Under a solvency basis, the liabilities are calculated on the assumption that the plans are at the measurement date, and the liabilities are discounted primarily using a specified annuity purchase rate, which is the spot interest rate on government securities in Canada plus a prescribed margin at the measurement date.
The funding of our U.S. pension plan is governed by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code, and is also subject to the Moving Ahead for Progress in the 21st Century Act, the American Rescue Plan Act of 2021, and the Infrastructure Investment and Jobs Act of 2021. Under these regulations, the liabilities are discounted using 25-year average corporate bond rates within a specified corridor. During 2021, regulations were modified to implement a minimum 5% floor on the 25-year average corporate bond rates and to maintain the corridor at 5% through 2030 and then to gradually increase the corridor by 5% each year until it reaches 30% for 2035 and beyond. Under current regulations, funding shortfall is amortized over 15 years for purposes of determining minimum contribution requirements.
By contrast, for purposes of our Consolidated Financial Statements, the discount rate is determined with a model that develops a hypothetical high-quality bond portfolio, where the bonds are theoretically purchased to settle the expected benefit payments of the plans.
The weighted-average discount rate, funded ratio, and deficit of the pension plans for both accounting and funding purposes for the years ended December 31, 2021 and 2020, were as follows:
Accounting
Funding (1)
December 31,
December 31,
( In millions, except percentages )
Discount rate
Funded ratio
Deficit
(1) Excludes surpluses from fully funded plans (changed from previously reported amounts, which were presented net of surpluses, $629 million deficit and 86% funded ratio for 2020). Determined on a going concern basis for Canadian plans, and on a 25-year average interest rate basis for U.S. plans, and assuming actuarial valuations performed for all plans on December 31, 2021 and December 31, 2020, respectively.
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Partial wind-ups of pension plans
On June 12, 2012, we filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (or, the “ CCAA Creditor Protection Proceedings ”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the CCAA Creditor Protection Proceedings. We contend, among other things, that any such declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise , as amended, and the terms of our emergence from the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to C$150 million ($119 million), would have to be funded if we do not obtain the relief sought. The hearing in this matter could occur in the next twelve months.
Contractual Obligations
As of December 31, 2021, the Company’s contractual obligations, including payments due by period, were as follows:
(In millions)
Total
2027 and thereafter
Long-term debt (1)
Non-cancelable operating lease obligations (2)
Purchase obligations (2)
(1) Long-term debt obligations primarily represent interest payments and the payment of the remaining principal balance at maturity of our 2026 Notes, assuming no prior redemptions. Interest on our credit facility borrowings is assumed to remain unchanged from the rates in effect as of December 31, 2021, assuming no additional borrowings or repayments until maturity. Information on our long-term debt can be found in “Note 15, “Long-Term Debt,” to our Consolidated Financial Statements.
(2) Information on our operating leases and purchase obligations can be found in Note 12, “Operating Leases” and Note 18, “Commitments and Contingencies – Commitments,” to our Consolidated Financial Statements.
The above table excludes the following:
• Future obligations under our pension and OPEB plans due to the uncertainty in the timing and amount of future payments. Information on our pension and OPEB plans can be found in “Note 16, “Pension and Other Postretirement Benefit Plans,” to our Consolidated Financial Statements; and
• $36 million of asset retirement obligations due to the uncertain timing related to these potential liabilities. See Note 18, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.
For 2022 and the foreseeable future, based on our current projections, we expect cash flows from operations and from our various sources of financing to be sufficient to meet our contractual obligations and commercial commitments.
OUTLOOK
We anticipate that the inflationary pressures, the labor shortage, global supply chain challenges and logistics constraints experienced at the end of 2021 will continue to impact our business in 2022.
For 2022, we expect to invest $130 million in capital expenditures, net of funding under existing business development programs, including the additional investments related to the wood products capital projects announced in 2021. We also anticipate disbursements of approximately $95 million for pension contributions and up to $45 million in cash closure costs, of which $13 million was recorded in 2021, following the indefinite idling of our pulp and paper operations at Calhoun mill.
On January 31, 2022, Commerce announced preliminary results of its third administrative review related to softwood lumber products. Resolute’s preliminary countervailing and antidumping duty rates total 20.24%, compared to an effective rate of 29.66% as of December 31, 2021. We expect that Commerce will issue the final rates in the second half of 2022, following which the new rates will take effect for the Company.
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R ECENT ACCOUNTING G UIDANCE
See Note 2, “Summary of Significant Accounting Policies,” to our Consolidated Financial Statements for more information.
C RITICAL A CCOUNTING E STIMATES
The preparation of financial statements in conformity with GAAP requires us to make accounting estimates based on assumptions, judgments and projections of future results of operations and cash flows. These estimates and assumptions affect the reported amounts of revenues and expenses during the periods presented and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements.
We base our estimates, assumptions and judgments on a number of factors, including historical experience, recent events, existing conditions, internal budgets and forecasts, projections obtained from industry research firms, and other data that we believe are reasonable under the circumstances. We believe that our accounting estimates are appropriate and that the resulting financial statement amounts are reasonable. Due to the inherent uncertainties in making estimates, actual results could differ materially from these estimates, requiring adjustments to financial statement amounts in future periods.
A summary of our significant accounting policies is disclosed in Note 2, “Summary of Significant Accounting Policies,” to our Consolidated Financial Statements. Based upon a review of our significant accounting policies, we believe the following accounting policies require us to make accounting estimates that can significantly affect the results reported in our Consolidated Financial Statements. We have reported the development, selection and disclosures of our critical accounting estimates to the audit committee of our board of directors, and the audit committee has reviewed the disclosures relating to these estimates.
Pension and OPEB obligations
Description of accounts impacted by the accounting estimates
We record pension and OPEB obligations, net of pension plan assets that may be considered material to our financial position. We also record net periodic benefit cost (credit) associated with these net obligations as our employees render service. As of December 31, 2021, we had pension and OPEB obligations aggregating $5,019 million and accumulated pension plan assets at fair value of $3,856 million. In 2021, we recorded a net periodic benefit cost of $6 million.
Judgments and uncertainties involved in the accounting estimates
The following inputs are used to determine our net obligations and our net periodic benefit cost (credit) each year and the determination of these inputs requires judgment:
• discount rate – used to determine the net present value of our pension and OPEB obligations and to determine the interest cost component of our net periodic benefit cost (credit). The discount rate for our domestic and foreign plans was determined with a model that develops a hypothetical high-quality bond portfolio, where the bonds are theoretically purchased to settle the expected benefit payments of the plans. The discount rate reflects the single rate that produces the same discounted values as the value of the theoretical high-quality bond portfolio;
• return on assets – used to estimate the growth in the value of invested assets that are available to satisfy pension benefit obligations and to determine the expected return on plan assets component of our net periodic pension benefit cost (credit). In determining the expected return on assets, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio;
• life expectancy rate – used to estimate the impact of life expectancy on our pension and OPEB obligations. In determining the life expectancy rate of our domestic and foreign plans, we used the most recent actuarially-determined mortality tables and improvement scales. For the foreign plans, the mortality tables were adjusted with the result of our historical mortality experience study. The rates used are consistent with our future expectations of life expectancy for the employees who participate in our pension and OPEB plans;
• rate of compensation increase – used to calculate the impact future pay increases will have on our pension obligations. In determining the rate of compensation increase, we reviewed historical salary increases and promotions, while considering current industry conditions, the terms of collective bargaining agreements with our employees and the outlook for our industry; and
• health care cost trend rate – used to calculate the impact of future health care costs on our OPEB obligations. For the health care cost trend rate, we considered historical trends for these costs, as well as recently enacted healthcare legislation.
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Effect if actual results differ from assumptions
Variations in assumptions could have a significant effect on the net periodic benefit cost and pension and OPEB obligations reported in our Consolidated Financial Statements. For example, a 25 basis point change in any one of these assumptions would have increased (decreased) our net periodic benefit cost for our pension and OPEB plans and our pension and OPEB obligations as follows:
2021 Net Periodic Benefit Costs
Pension and OPEB Obligations as of December 31, 2021
(In millions)
25 Basis Point Increase
25 Basis Point Decrease
25 Basis Point Increase
25 Basis Point Decrease
Assumption:
Discount rate
Return on assets
Rate of compensation increase
Health care cost trend rate
As of December 31, 2021, the most significant change in our assumptions affecting our pension and OPEB obligations was an increase in the discount rate to 2.8% from 2.5% as of December 31, 2020, resulting in an actuarial gain of $194 million and a corresponding decrease in our pension and OPEB obligations.
The net periodic benefit cost of our pension plans incorporates an expected return on plan assets and not the actual return on plan assets. The difference between the expected and actual return on plan assets resulted in an actuarial gain of $80 million in 2021.
The net actuarial gain of $264 million in 2021, before tax, was recorded in “accumulated other comprehensive loss” and will be amortized into our Consolidated Statements of Operations in future years, including approximately $64 million in 2022.
Deferred income tax assets
Description of accounts impacted by the accounting estimates
We have net deferred income tax assets of $653 million recorded in our Consolidated Balance Sheet as of December 31, 2021, all of which is related to our Canadian operations; and a full valuation allowance is recorded against our U.S. net deferred income tax assets. Our net deferred income tax assets are primarily comprised of:
• deferred income tax assets of $715 million, of which $447 million is for federal and state net operating loss carryforwards expiring between 2022 and 2041; $114 million for federal and state net operating loss and deduction limitation carryforwards with no expiry; and $154 million for other deductible temporary differences, mostly related to pension and OPEB plans;
• deferred income tax liabilities of $42 million, mostly related to tax accelerated depreciation on fixed assets; and
• a valuation allowance of $673 million against the net deferred income tax assets, which are not more likely than not to be realized in the future;
Canada:
• deferred income tax assets of $729 million, comprised of $145 million related to undeducted research and development expenditures with no expiry; $80 million for tax credit carryforwards expiring between 2022 and 2041; $10 million for federal and provincial net operating loss carryforwards expiring between 2028 and 2039; as well as $494 million for other deductible temporary differences, mostly related to fixed asset undepreciated capital costs with no expiry, as well as pension and OPEB plans;
• deferred income tax liabilities of $39 million, mostly related to an investment in a partnership; and
• a valuation allowance of $37 million, virtually all of which is related to net capital loss carryforwards with no expiry.
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Judgments and uncertainties involved in the accounting estimates
At each reporting period, we assess whether it is more likely than not that the deferred income tax assets will be realized, based on the review of all available positive and negative evidence, including future reversals of existing taxable temporary differences, estimates of future taxable income, past operating results, and prudent and feasible tax planning strategies. In our evaluation process, we give the most weight to historical income or losses. The carrying value of our deferred income tax assets reflects our expected ability to generate sufficient future taxable income in certain tax jurisdictions to utilize these deferred income tax assets.
In assessing our ability to realize the deferred income tax assets of our U.S. operations, we reviewed all available evidence, including historical U.S. operating losses, the GILTI inclusion and estimates of future taxable income. Following our assessment, we concluded that the existing negative evidence outweighed the positive evidence. As a result, we recognized a full valuation allowance against our net U.S. deferred income tax assets. A valuation allowance does not reduce our underlying tax attributes, nor hinders our ability to use them in the future.
The rapidly changing dynamics in the wood products segment resulted in a significant GILTI inclusion for the year, creating U.S. taxable income. This taxable income is entirely offset by existing U.S. tax attributes included in deferred income tax assets that have been fully reserved. If current market dynamics are sustained, we could release our valuation allowance in future periods, in full or in part. This may affect our consolidated financial position and results of operations.
For Canadian operations, the positive evidence, which included a review of historical and forecasted earnings, resulted in the conclusion that no significant valuation allowances were required for our deferred income tax assets, as they were determined to be more likely than not to be realized. We continue to maintain a valuation allowance on net capital loss carryforwards of $37 million.
The Company calculates its income tax provision for the period based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on actual filed income tax returns are recorded when identified.
Tax benefits related to uncertain tax positions are recorded when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by the relevant tax authority. The amount of tax benefit recognized may differ from the amount taken or expected to be taken on a tax return. These differences represent unrecognized tax benefits and are reviewed at each reporting period based on facts, circumstances and other available evidence. We have unrecognized tax benefits of $26 million as of December 31, 2021. As income tax legislation and regulations are complex and subject to interpretation, our tax positions could be challenged by tax authorities.
Effect if actual results differ from assumptions
Our forecasted future earnings represent positive evidence in determining the recoverability of our deferred income tax assets. If actual future financial results are not consistent with the assumptions and judgments used, or if additional significant closure-related costs are recorded in future years, we may be required to reduce the carrying value of our net deferred income tax assets by recording additional valuation allowances, resulting in an income tax provision that could be material.
We do not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. However, any adjustments arising from certain ongoing examinations by tax authorities could alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions, and these adjustments could differ from the amount accrued.
Long-lived assets
Description of accounts impacted by the accounting estimates
We have long-lived assets recorded in our Consolidated Balance Sheet of $1,381 million as of December 31, 2021. These long-lived assets include fixed assets, net, amortizable intangible assets, net, and operating lease right-of-use assets. In 2021, we recorded depreciation and amortization of $164 million and, as a result of the indefinite idling of the pulp and paper operations at our Calhoun mill, impairment charges of $124 million on our fixed assets. Depreciation and amortization and impairment charges are based on accounting estimates.
The unit of accounting for impairment testing for long-lived assets is its group, see Note 2, “Summary of Significant Accounting Policies – Impairment of long-lived assets,” to our Consolidated Financial Statements. The unit of accounting for the depreciation and amortization of long-lived assets is at a lower level, either as a group of closely-related assets or at an
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individual asset level. The cost of a long-lived asset is amortized over its estimated remaining useful life, which is subject to change based on events and circumstances or management’s intention for the use of the asset.
Losses related to the impairment of long-lived assets to be held and used are recognized when circumstances indicate the carrying value of an asset group may not be recoverable, such as continuing losses in certain businesses. When indicators that the carrying value of an asset group may not be recoverable are triggered, we evaluate the carrying value of the asset group in relation to its expected undiscounted future cash flows. If the carrying value of an asset group is greater than the expected undiscounted future cash flows to be generated by the asset group, an impairment charge is recognized based on the excess of the asset group’s carrying value over its fair value. If it is determined that the carrying value of an asset group is recoverable, we review and adjust, as necessary, the estimated useful lives of the assets in the group.
Our long-lived asset impairment and accelerated depreciation charges are disclosed in Note 5, “Closure Costs, Impairment and Other Related Charges,” to our Consolidated Financial Statements.
Judgments and uncertainties involved in the accounting estimates
The calculation of depreciation and amortization of long-lived assets requires us to apply judgment in selecting the remaining useful lives of the assets, which must address both physical and economic considerations. The remaining economic life of a long-lived asset is frequently shorter than its physical life. Estimates of future economic conditions for our long-lived assets and therefore, their remaining useful economic lives, require considerable judgment.
Asset impairment for long-lived assets to be held and used is tested at the lowest asset group level having largely independent cash flows. Determining the asset groups for long-lived assets to be held and used requires management’s judgment.
Asset impairment loss calculations require us to apply judgment in estimating asset group fair values and future cash flows, including periods of operation, projections of product pricing, production levels, product costs, market supply and demand, foreign exchange rates, inflation, projected capital spending and, specifically for fixed assets acquired, assigned useful lives, functional obsolescence, asset condition and discount rates. When performing impairment tests, we estimate the fair values of the assets using management’s best assumptions, which we believe would be consistent with the assumptions that a hypothetical marketplace participant would use. Estimates and assumptions used in these tests are evaluated and updated as appropriate. The assessment of whether an asset group should be classified as held for sale requires us to apply judgment in estimating the probable timing of the sale, and in testing for impairment loss, judgment is required in estimating the net proceeds from the sale.
On December 16, 2021, we announced the indefinite idling of pulp and paper operations at the Calhoun mill given the continuing accumulation of significant financial losses, even with strong market conditions for both the pulp and uncoated freesheet paper it manufactured. Tissue manufacturing and converting continue at the site, and the adjacent distribution center remains in full operation.
Following the announcement, new asset groups were identified at that site, which were tested for impairment as the indefinite idling of the pulp and paper operations was considered an impairment indicator for these assets. An impairment charge was recorded in relation with the pulp and paper group of assets at Calhoun as these assets will not generate future cash flows. The impairment charge was calculated as being the difference between the net carrying value of the assets and their fair value.
An impairment test was also performed for the other asset groups at Calhoun. As the undiscounted cash flows exceeded the carrying value of the respective asset groups by a substantial margin, no impairment was recognized.
The remaining useful life of the assets were reassessed and remained unchanged as the indefinite idling of the pulp and paper operations has no impact on the economic life of our other assets.
Effect if actual results differ from assumptions
If our estimate of the remaining useful life changes, such a change is accounted for prospectively in our determination of depreciation and amortization. Actual depreciation and amortization charges for an individual asset may therefore be significantly accelerated if the outlook for its remaining useful life is shortened considerably.
A number of judgments were made in the determination of our asset groups. If a different conclusion had been reached for any one of those judgments, it could have resulted in the identification of asset groups different from those we actually identified, and consequently, could result in a different conclusion when comparing the expected undiscounted future cash flows or the fair value to the carrying value of the asset group.
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Actual asset impairment losses could vary considerably from estimated impairment losses if actual results are not consistent with the assumptions and judgments used in estimating future cash flows and asset fair values. Assets of facilities that are idled have a greater risk of acceleration in depreciation and amortization or additional impairment.
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