COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS AND CONTINGENT LIABILITIES

ENVIRONMENTAL AND LEGAL PROCEEDINGS

The Company is subject to environmental remediation laws and regulations in the countries in which we operate. Remediation costs are recorded in the consolidated and combined financial statements when they become probable and reasonably estimable. The Company has estimated the probable liability associated with these environmental remediation matters to be approximately $16 million in the aggregate as of December 31, 2021.

In 2018, the Company discovered and voluntarily disclosed to the Russian environmental agency, Rosprirodnadzor (“RPN”) the presence of mercury contamination in sediment in a river tributary that traverses the Company’s mill property in Svetogorsk,

Russia, and the authorities initiated an investigation. The mercury contamination resulted from the operations of a former chlor-alkali manufacturing plant on the mill site. Remediation of the river tributary was completed in 2020. The Company is presently remediating soil and groundwater contamination associated with the old chlor-alkali plant. The Company has estimated the probable liability associated with this environmental matter to be $12 million as of December 31, 2021.

Subsequent to December 31, 2021, the Company received from RPN a damage claim in the amount of approximately $9 million relating to continued mercury discharges into the river in 2019 from the contaminated sediment at the Svetogorsk mill site. The damage claim also alleged discharge of aluminum and lignin in 2019. The Company intends to dispute and defend against this claim. The Company will record a charge of approximately $1 million in the first quarter of 2022 for the portion of the claim that is estimable and probable. The Company is having expert sampling and testing conducted for the presence of the claimed pollutants in the area of the river at issue. The Company will reassess the amount to reserve for the claim when the test results become available.

TAXES OTHER THAN PAYROLL TAXES

In 2017, the Brazilian Federal Supreme Court decided that the state value-added tax (“VAT”) should not be included in the basis of federal VAT calculations. In 2018 and 2019, the Brazilian tax authorities published both an internal consultation and a normative ruling with a narrow interpretation of the effects of the case. Based upon the best information available to us, we have determined an estimated refund was probable of being realized. Until March 31, 2021, we had recognized a receivable of $11 million based upon the Brazilian authorities’ narrow interpretation. On May 13, 2021 the Brazilian Federal Supreme Court ruled again on the case. This ruling provided a much broader definition of the state VAT, which increased the exclusion amount from the Federal VAT calculations. Therefore, we recognized an additional receivable of $70 million during the three months ended June 30, 2021. The $70 million of income recognized during the second quarter of 2021 included income of $42 million in cost of products sold and income of $28 million in interest (income) expense, net in the accompanying audited consolidated and combined statement of operations. A portion of this receivable has been consumed by offsetting various taxes payable. After giving effect to this offset, the ending balance of the total receivable is $35 million as of December 31, 2021. The VAT matter has been fully resolved, and no further ruling by either the Brazilian Supreme Court nor the Brazilian tax authorities is expected.

See Note 10 Income Taxes for a discussion of a goodwill amortization tax matter in Brazil.

We have other open tax matters awaiting resolution in Brazil, which are at various stages of review in various administrative and judicial proceedings. We routinely assess these tax matters for materiality and probability of loss or gain, and appropriate amounts have been recorded in our financial statements for any open items where the risk of loss is deemed probable. We currently do not consider any of these other tax matters to be material individually. However, it is reasonably possible that settlement of any of these matters concurrently could result in a material loss or that over time a matter could become material, for example, if interest were accruing on the amount at issue for a significant period of time. Also, future exchange rate fluctuations could be unfavorable to the U.S. dollar and significant enough to cause an open matter to become material. The expected timing for resolution of these open matters ranges from one year to 10 years.

GENERAL

The Company is involved in various other inquiries, administrative proceedings and litigation relating to environmental and safety matters, taxes (including VAT), personal injury, product liability, labor and employment, contracts, sales of property, intellectual property, and other matters, some of which allege substantial monetary damages. Assessments of lawsuits and claims can involve a series of complex judgments about future events, can rely heavily on estimates and assumptions, and are otherwise subject to significant uncertainties. As a result, there can be no certainty that the Company will not ultimately incur charges in excess of presently recorded liabilities. The Company believes that loss contingencies arising from pending matters, including the matters described herein, will not have a material effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending or threatened legal matters, some of which are beyond the Company's control, and the large or indeterminate damages sought in some of these matters, a future adverse ruling, settlement, unfavorable development, or increase in accruals with respect to these matters, could result in future charges that could be material to the Company's results of operations or cash flows in any particular reporting period.