| Commitments and Contingencies | NOTE 20. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL MATTERS The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities. The Company may also incur substantial costs in relation to enforcement actions (including orders requiring corrective measures, installation of pollution control equipment or other remedial actions) as a result of violations of, or liabilities under, environmental laws and regulations applicable to its past and present properties. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with such properties may result in additional environmental costs and liabilities which cannot be reasonably estimated at this time. The Company has environmental liabilities of $ 64 million recorded as of December 31, 2023 primarily related to environmental remediation related to closed sites. The amount of these liabilities represents management’s estimate of the ultimate settlement based on an assessment of relevant factors and assumptions and could be affected by changes in facts or assumptions not currently known to management for which the outcome cannot be reasonably estimated at this time. The Company also has asset retirement obligations of $ 60 million recorded as of December 31, 2023, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets. Additionally, the Company has asset retirement obligations with indeterminate settlement dates. The fair value of these liabilities cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligation. The Company will recognize liability in the period in which sufficient information becomes available. These asset retirement obligations relate mainly to disposal of potentially hazardous materials that may be required if the Company undergoes major maintenance, renovation or demolition, and to closure of retention ponds that may be required if it ceases its operations. For the year ended December 31, 2023, the Company’s operating expenses for environmental matters amounted to $ 101 million ( 2022 – $ 75 million; 2021 – $ 5 million and $ 56 million for the 1 month ended December 31, and the 11 months ended November 30, respectively). The Company made capital expenditures for environmental matters of $ 18 million during the year ended December 31, 2023 ( 2022 – $ 10 million; 2021 – $ 1 million and $ 4 million for the 1 month ended December 31, and the 11 months ended November 30, respectively). The following table reflects changes in the reserve for environmental remediation and asset retirement obligations :
December 31, December 31,
2023 2022
$ $
Balance at beginning of year 49 50
Additions and other changes 17 3
Environmental spending ( 6 ) ( 3 )
Acquisition of business 63 —
Effect of foreign currency exchange rate change 1 ( 1 )
Balance at end of year (1) 124 49 (1) At December 31, 2023 , $ 13 million is shown in Trade and other payables and $ 111 million is shown in Other liabilities and deferred credits in the Consolidated Balance Sheets . At December 31, 2023, anticipated undiscounted payments in each of the next five years are as follows:
2024 2025 2026 2027 2028 Thereafter Total
$ $ $ $ $ $ $
Environmental provision and asset 13 11 5 16 10 177 232 The U.S. Environmental Protection Agency (the “EPA”) and/or various state agencies have notified the Company that it may be a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as “Superfund”, and similar state laws with respect to other hazardous waste sites as to which no proceedings have been instituted against the Company. The Company continues to take remedial action under its Care and Control Program at its former wood preserving sites, and at a number of operating sites, due to possible soil, sediment or groundwater contamination. CONTINGENCIES In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at December 31, 2023, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. OTHER COMMERCIAL COMMITMENTS The Company has commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are excluded from the table below. Any amounts for which the Company is liable under purchase orders are reflected in the Consolidated Balance Sheets as Trade and other payables . Minimum future payments under these other commercial commitments, determined at December 31, 2023 , were as follows:
2024 2025 2026 2027 2028 Thereafter Total
$ $ $ $ $ $ $
Other commercial commitments 175 37 29 22 8 9 280 INDEMNIFICATIONS In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, compliance with laws, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At December 31, 2023 , the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past. Pension Plans The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At December 31, 2023 the Company has no t recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications. CLIMATE CHANGE AND AIR QUALITY REGULATIONS Various national and local laws and regulations relating to climate change have been established or are emerging in jurisdictions where the Company currently has, or may have in the future, manufacturing facilities or investments. In 2019, the EPA repealed the Clean Power Plan and replaced it with the “Affordable Clean Energy” (“ACE”) rule. The ACE rule was legally challenged in the U.S. Court of Appeals for the D.C. Circuit. The Court vacated the ACE rule and, the repeal of the Clean Power Plan, but the court stayed its mandate as to the Clean Power Plan repeal to avoid reinstating that now outdated rule. However, on June 30, 2022, the Supreme Court reversed the D.C. Circuit’s decision, holding that the Clean Power Plan was an “extraordinary” case of an agency claiming transformative power over a “major question” of policy without a clear statement from Congress. The decision does not completely bar the EPA from regulating greenhouse gas emissions from the power sector but prohibits the EPA from imposing standards based on “generation shifting” away from coal-fired power plants to natural gas plants and renewable resources. On May 23, 2023, the EPA proposed a new climate change rule for existing power plants and repealed the ACE rule. The new rule requires, by 2030, all coal-fired power plants to choose between carbon capture and sequestration, natural gas-co-firing, or retirement by 2032 (or 2035 with a 20 % operating limit). The new rule also applies to all new gas combustion turbines and existing turbines that are large and frequently operated, requiring carbon capture and sequestration or the co-firing of or conversion to hydrogen in lieu of natural gas. While the rule, if finalized as proposed, would dramatically change the electric power sector, the Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates. The province of Quebec has a greenhouse gas (“GHG”) cap-and-trade system with reduction targets. Ontario has its GHG Emission Performance Standards regulation and the province of British Columbia has its own carbon tax programs. The Company does not expect its facilities to be disproportionately affected by these measures compared to the other pulp and paper producers located in these provinces. The Government of Canada has established a federal carbon pricing system that took effect in 2019. The Federal program is a backstop and takes effect if a province does not have a carbon pricing program or if a provincial program is not rigorous enough to meet federal requirements. The EPA finalized amendments revising certain aspects of its Industrial Boiler Maximum Achievable Control Technology Standard (“MACT”), or Boiler MACT. The revised rule responded to two court decisions that remanded certain issues for further review by the EPA, and it includes revisions to 34 different emission limitations that could apply to some of the Company’s facilities. Although the EPA has indicated that a small number of facilities may need to reduce emissions further compared to the current limits, the EPA does not expect additional costs to be significant and the Company does not expect its facilities to be disproportionately affected compared to other U.S. pulp and paper producers. LEGAL MATTERS The Company becomes involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the normal course of business, including matters related to contracts, torts, commercial and trade disputes, taxes, environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting and disclosure obligations, corporate governance, Indigenous peoples’ claims, antitrust, governmental regulations, and other matters. Although the final outcome is subject to many variables and cannot be predicted with any degree of certainty, the Company regularly assesses the status of the matters and establishes provisions (including legal costs expected to be incurred) when it believes an adverse outcome is probable, and the amount can be reasonably estimated. Any recovery from litigation or settlement of claims that is a gain contingency is recognized if, and when, realized or realizable. Except as described below and for claims that cannot be assessed due to their preliminary nature, the Company believes that the ultimate disposition of these matters outstanding or pending as of December 31, 2023, will not have a material adverse effect on the Company's Consolidated Financial Statements. ASBESTOS-RELATED LAWSUITS The Company is involved in a number of asbestos-related lawsuits filed primarily in U.S. state courts, including certain cases involving multiple defendants. These lawsuits principally allege direct or indirect personal injury or death resulting from exposure to asbestos-containing premises. While the Company disputes the plaintiffs’ allegations and intends to vigorously defend these claims, the ultimate resolution of these matters cannot be determined at this time. These lawsuits frequently involve claims for unspecified compensatory and punitive damages, and the Company is unable to reasonably estimate a range of possible losses, which may not be covered in whole or in part by its insurance coverage. However, unfavorable rulings, judgments or settlement terms could materially impact the Consolidated Financial Statements. Hearings for certain of these matters are scheduled to occur in the next twelve months. COUNTERVAILING DUTY AND ANTI-DUMPING INVESTIGATIONS ON SOFTWOOD LUMBER On November 25, 2016, countervailing duty and anti-dumping petitions were filed with the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“ITC”) by certain U.S. softwood lumber products producers and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin softwood lumber products exported to the U.S. One of the Company’s subsidiaries was identified in the petitions as being a Canadian exporting producer of softwood lumber products to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in the countervailing and anti-dumping duty investigations, in the first administrative review of the countervailing and anti-dumping duty orders, and in the second and third administrative reviews of the countervailing duty order. The Company was not selected as a respondent by Commerce in other administrative reviews of the countervailing and anti-dumping duty orders, in which the Company’s subject imports were assigned the rate applicable to non-selected importers. The cash deposit rates on account of countervailing and anti-dumping duties paid for the Company’s subject imports of Canadian-origin softwood lumber products into the United States are as follows:
Effective dates for deposits on account of countervailing duties Cash deposit rates
Initial Investigation
April 28 2017 – November 7, 2017 (Preliminary Determination) 12.82 %
November 8, 2017 – November 30, 2020 (Final Determination) 14.70 %
First Administrative Review
December 1, 2020 – December 1, 2021 19.10 %
Second Administrative Review
December 2, 2021 – August 8, 2022 18.07 %
Third Administrative Review
August 9, 2022 – July 31, 2023 10.10 %
Fourth Administrative Review
August 1, 2023 – Present 1.79 % Commerce is expected to issue its final determination in the fifth administrative review of the countervailing investigation in the third quarter of 2024, at which time a new rate will take effect for the Company; this new rate was estimated at 6.71 % for the Company in a non-binding, preliminary determination issued on January 31, 2024, which is subject to modification in the upcoming final determination.
Effective dates for deposits on account of anti-dumping duties Cash deposit rates
Initial Investigation
June 30, 2017 – November 7, 2017 (Preliminary Determination) 4.59 %
November 8, 2017 – November 29, 2020 (Final Determination) 3.20 %
First Administrative Review
November 30, 2020 – December 1, 2021 1.15 %
Second Administrative Review
December 2, 2021 – August 8, 2022 11.59 %
Third Administrative Review
August 9, 2022 – July 31, 2023 4.76 %
Fourth Administrative Review
August 1, 2023 – September 6, 2023 6.20 %
September 7, 2023 – Present (Corrected) 6.26 % Commerce is expected to issue its final determination in the fifth administrative review of the anti-dumping investigation in the third quarter of 2024, at which time a new rate will take effect for the Company; this new rate was estimated at 7.15 % for the Company in a non-binding, preliminary determination issued on January 31, 2024, which is subject to modification in the upcoming final determination. Ongoing Administrative Reviews Following Commerce’s completion of the Canadian softwood lumber investigation and the first, second, third, and fourth administrative reviews, the fifth administrative review remains pending. On March 14, 2023, Commerce published a notice initiating the fifth administrative review of the countervailing duty and anti-dumping orders on softwood lumber products from Canada; in decisions published on April 19, and 20, 2023, the Company was not selected as a mandatory respondent in the countervailing and anti-dumping proceedings, respectively. Ongoing Appellate Reviews On December 14, 2017 and January 4, 2018, the Company filed complaints supporting appellate reviews of the final results of Commerce’s countervailing and anti-dumping investigations on softwood lumber from Canada, respectively, before a binational panel formed pursuant to the North American Free Trade Agreement or United States-Mexico-Canada Agreement, as the case may be (“Panel”). The Panel issued its decision in the anti-dumping appellate review on October 5, 2023, finding that Commerce's methodology was inconsistent with applicable legal principles and ordering a remand to Commerce, as the Company now awaits Commerce's decision on remand. The hearing for the countervailing appellate review took place from September 27 to 29, 2023 and the Company now awaits a ruling by the Panel. On January 6, 2021 and January 19, 2021, the Company filed its complaints supporting appellate Panel reviews of the final results in the countervailing and anti-dumping first administrative reviews. The Company filed similar complaints with respect to the second administrative reviews on January 12, 2022, and with respect to the third administrative reviews on September 16, 2022. On May 8, 2023, the Company filed with the U.S. Court of International Trade ("CIT") a complaint supporting an appellate review of Commerce's final results in the sunset review of the anti-dumping order. On October 12, 2023, the Company joined the complaint filed by Canadian parties supporting an appellate Panel review of the final results in the countervailing fourth administration review, and also filed a summons before the CIT to initiate an appellate review of the final results in the anti-dumping fourth administrative review. All appellate reviews described above remain pending. Sunset Reviews In parallel, on December 1, 2022, Commerce and the ITC published notices that automatically initiated five-year “sunset” reviews to determine whether revocation, for the future, of the anti-dumping and countervailing duty orders on softwood lumber products from Canada would likely lead to continuation or recurrence of dumping or subsidies (Commerce) and of material injury (ITC). Commerce released final results in the sunset reviews of the countervailing and anti-dumping orders on March 27 and April 3, 2023, respectively, finding that revocation of the orders would be likely to lead to continuation or recurrence of countervailable subsidies and of dumping. On November 30, 2023, the ITC voted that revocation of the orders would be likely to lead to a continuation or recurrence of material injury to the U.S. industry within a reasonably foreseeable time. World Trade Organization Appeal In addition, on August 24, 2020, the World Trade Organization’s (the “WTO”) dispute panel issued a report (the “Panel Report”) in the case brought by the government of Canada in “United States — Countervailing Measures on Softwood Lumber from Canada” (DS533), concluding, among other things, that Commerce acted inconsistently with the Agreement on Subsidies and Countervailing Measures on most of the matters. On September 28, 2020, the U.S. notified the WTO’s Dispute Settlement Body of its decision to appeal the Panel Report. The appeal remains pending. Financial assurance The Company is required by U.S. Customs to provide surety bonds to secure the payment of its cash deposits. As of December 31, 2023, the Company had $ 110 million of surety bonds outstanding in favor of U.S. Customs, of which $ 62 million were secured by letters of credit. As of December 31, 2023, a total of $ 602 million of countervailing and anti-dumping duty cash deposits on estimated softwood lumber duties were paid. Of this amount, $ 563 million of deposits ($ 443 million of countervailing and $ 120 million of antidumping duties) were paid at acquisition date and were included in the purchase price allocation (refer to Note 3 “Acquisition of businesses”). These deposits are measured, since the acquisition, using a model based on the assumptions that a settlement would be reached and that a certain percentage of the deposits would be recovered after a certain period of time. Deposits are remeasured with that model every reporting date and the variation is recorded under Other operating (income) loss, net on the Consolidated Statement of Earnings (Loss) and Comprehensive Income. The following table reconciles the Company’s cash deposits paid during the period to the amount recorded on the Consolidated Statement of Earnings (Loss) and Comprehensive Income:
For the year ended December 31, 2023
Countervailing duty Anti-dumping duty Total
$ $ $
Cash deposits paid (1) 22 17 39
Cash deposits paid recognized as receivable ( 6 ) ( 4 ) ( 10 )
16 13 29 (1) Deposits paid since the acquisition are recorded as contingent assets with a portion recoverable, using a recovery model and undiscounted figures based on management estimates. The following table outlines the change in duties receivable during the period:
December 31, 2023
Countervailing duty Anti-dumping duty Total
$ $ $
Beginning of period 104 28 132
Cash deposits paid recognized as recoverable 6 4 10
Accretion 13 4 17
Balance at end of year (1) 123 36 159 (1) The balance of $ 159 million is shown i n Other assets in the Consolidated Balance Sheets . FIBREK ACQUISITION Effective July 31, 2012 , the Company completed the final step of the transaction pursuant to which it acquired the remaining 25.40 % of the outstanding Fibrek Inc. shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the issuance of a final order by the Quebec Superior Court in Canada (the “Quebec Superior Court”) approving the arrangement on July 27, 2012. Certain former shareholders of Fibrek exercised rights of dissent in respect of the transaction, asking for a judicial determination of the fair value of their claim under the Canada Business Corporations Act. On September 26, 2019, the Quebec Superior Court rendered a decision fixing the fair value of the shares of the dissenting shareholders at C$ 1.99 per share, or $ 23 million (C$ 31 million) in aggregate, plus interest and an additional indemnity, for a total estimated at $ 33 million (C$ 44 million) payable in cash. Of this amount, $ 14 million (C$ 19 million) was payable immediately and paid on October 2, 2019. The Company has appealed the decisio n, which was reversed by the Court of Appeal in a judgment dated February 2, 2024, fixing the fair value of the shares of the dissenting shareholders at C$ 1.5973 per share, or $ 19 million (C$ 25 million) in aggregate, plus interest and the additional indemnity, and therefore ordering the Company to pay a balance of $ 14 million (C$ 19 million), which was paid on February 7, 2024. This remaining balance was recorded in Trade and other payables in the Consolidated Balance Sheet at December 31, 2023. PARTIAL WIND-UPS OF PENSION PLANS On June 12, 2012, the Company 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) (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. The Company's position is 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 the Company's 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 $ 113 million (C$ 150 million), would have to be funded if the Company does not obtain the relief sought. The hearing in this matter is scheduled for March 2024. SUPERFUND SITE On May 17, 2023, the EPA issued a General Notice of Liability and Demand for Reimbursement of Response Costs Expended at the Barite Hill/Nevada Goldfields Superfund Site (the “Notice of Liability”) to the Company. The Notice of Liability states that the EPA believes that the Company may be liable under Section 107(a) of the Comprehensive, Environmental Response, Compensation, and Liability Act (“CERCLA”) for costs the EPA has incurred at the Barite Hill/Nevada Goldfields Superfund Site (the “Site”). The approximate total response costs identified by the EPA in the Notice of Liability through January 19, 2023 was approximately $ 21 million. The Company believes that the EPA may also seek to hold it responsible for future remediation costs at the Site. The Company is currently assessing its defenses to liability at the Site. The Company recognized a provision of $ 15 million, with respect to the EPA’s cause of action for past costs described in the Notice of Liability, as an environmental liability in Other liabilities in the purchase price allocation. See Note 3 “Acquisition of businesses” for more information. The Company is in the process of evaluating the impact of the Notice of Liability. MENOMINEE FIRE Prior to the Acquisition, on October 6, 2022, a fire in a third-party owned warehouse that the Company leases adjacent to its Menominee recycled pulp mill damaged and, in some cases, destroyed, the warehouse, as well as certain of the Company’s property, plant and equipment and inventories, which resulted in the temporary idling of the facility. The mill was restarted during the first quarter of 2023, operating at limited capacity. The fire incident resulted in third-party damages, costs and expenses, in addition to damages to the Menominee facility. On October 11, 2023 , a complaint was filed in Michigan State Court by the owner of the warehouse alleging damages in the amount in excess of $ 45 million. On November 20, 2023 , a complaint was filed in Michigan State Court by a co-tenant in the warehouse and its insurer, alleging damages in the amount in excess of $ 132 million. The Company currently does not believe it is probable that it will incur any material loss related to third party claims, nor could any possible loss contingency be reasonably estimable at the present time. The Company maintains insurance coverage, subject to customary deductibles and limits. Anticipated insurance recoveries related to losses and incremental costs incurred, in excess of the deductible, are recognized when receipt is probable. The anticipated insurance recoveries related to the fire, in excess of the net book value of the damaged operating assets and related to business interruption, will not be recognized until all contingencies related to the claim have been resolved. Prior to the Acquisition, total costs of $ 32 million, net of deductible, were determined probable to be recovered, of which $ 18 million were received. The balance of $ 14 million was recorded under Receivables on the Consolidated Balance Sheet at the acquisition date. For the year ended December 31, 2023, the Company recognized direct costs of $ 25 million which was determined probable to be recovered and recognized an equivalent amount of recovery in reduction of Cost of sales. The Company also recognized a gain on disposition of property, plant and equipment of $ 3 million for the year ended December 31, 2023, under Other operating (income) loss, net on the Consolidated Statement of Earnings (Loss) and Comprehensive Income. For the year ended December 31, 2023, $30 million was received from the insurer, and as of December 31, 2023, an amount of $ 14 million was recorded under Receivables on the Consolidated Balance Sheet. The Company expects to continue to record additional costs and recoveries until the assessment is completed and insurance claims are fully settled. At this time, the Company expects that its total insurance claim will amount to approximately $ 80 million ($ 70 million, net of deductible). The timing and the amounts of additional insurance recoveries, including for business interruption, are not known at this time. |
