Business Acquisition

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Business Acquisition

Note 3. Business Acquisition

2020 Acquisition

On February 1, 2020 (or, the “Acquisition Date”), we acquired from Conifex Timber Inc. all of the equity securities and membership interests in certain of its subsidiaries, the business of which consists mainly in the operation of three sawmills and related assets in Cross City (Florida) and in Glenwood and El Dorado (Arkansas) (or, the “U.S. Sawmill Business”). The U.S. Sawmill Business acquired produces construction-grade dimensional lumber and decking products from locally sourced southern yellow pine for distribution within the U.S. This acquisition diversified our lumber production, and increased our operating capacity in the U.S. South.

The fair value of the consideration, paid in cash, for the U.S. Sawmill Business acquired was $173 million. The acquisition was structured as an asset purchase for tax purposes, but treated as a business combination for accounting purposes.

The following table summarizes our final allocation of the purchase price to the fair values of assets acquired and liabilities assumed at the Acquisition Date:

(In millions)
Current assets (1)	$	19
Fixed assets		114
Amortizable intangible assets (2)		21
Operating lease right-of-use assets		2
Goodwill (3)		31
Total assets acquired and goodwill	$	187
Current liabilities	$	11
Long-term debt, net of current portion		2
Operating lease liabilities, net of current portion		1
Total liabilities assumed	$	14
Net assets acquired	$	173
Fair value of consideration transferred	$	173

(1)Includes cash and cash equivalents of $1 million.

(2)Amortizable intangible assets identified relate to customer relationships, which have a weighted-average useful life of 10 years. The fair value of the customer relationships was determined using the income approach through an excess earnings analysis discounted at a rate of 12.6%.

(3)Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized and is mostly attributable to the U.S. Sawmill Business’s assembled workforce and synergies expected from combining our operations with the U.S. Sawmill Business. Goodwill is deductible for tax purposes.

The allocation of the purchase price was based on management’s estimate of the fair values of the acquired identifiable assets and assumed liabilities using valuation techniques including income, cost and market approaches (Level 3). We utilized both the cost and market approaches to value fixed assets, which consider external transactions and other comparable transactions, estimated replacement and reproduction costs, and estimated useful lives and consideration for physical, functional and economic obsolescence. We utilized the income approach to value intangible assets, which considers the present value of the net cash flows expected to be generated by the intangible assets, and excluding cash flows related to contributory assets.

From the Acquisition Date to the year ended December 31, 2020, our consolidated financial results included sales of $137 million and net income of $43 million attributable to the U.S. Sawmill Business. The U.S. Sawmill Business results of operations are included in the wood products segment, except for the El Dorado sawmill for the period it was idled (from the acquisition date until it was restarted in the fourth quarter of 2020). In connection with the acquisition of the U.S. Sawmill Business, we also recognized transaction costs of $3 million in “Other expense, net” in our Consolidated Statement of Operations for the year ended December 31, 2020.

The following unaudited pro forma information for the years ended December 31, 2020 and 2019, represents our results of operations as if the acquisition of the U.S. Sawmill Business had occurred on January 1, 2019, excluding the results of operations of the El Dorado sawmill that had been idled since October 2019 and restarted in the fourth quarter of 2020. This pro forma information does not purport to be indicative of the results that would have occurred for the periods presented or that may be expected in the future.

(Unaudited, in millions)	2020		2019
Sales	$	2,808	$	3,021
Net income (loss) attributable to Resolute Forest Products Inc.	$	13	$	(70)