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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to_______

COMMISSION FILE NUMBER 001-33164

 

DOMTAR CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5901152

(State of Incorporation)

 

(I.R.S. Employer

Identification No.)

234 Kingsley Park Drive, Fort Mill, SC 29715

(Address of principal executive offices)

(zip code)

(803) 802-7500

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the New York Stock Exchange; trading symbol UFS.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      NO  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  

At October 31, 2019, 57,273,106 shares of the issuer’s common stock were outstanding.

 

 

 


DOMTAR CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2019

INDEX

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

3

 

 

 

 

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

3

 

 

 

 

CONSOLIDATED BALANCE SHEETS

4

 

 

 

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

5

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

7

 

 

 

 

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8

 

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

41

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

52

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

52

 

 

 

PART II

OTHER INFORMATION

52

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

52

 

 

 

ITEM 1A.

RISK FACTORS

52

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

53

 

 

 

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

54

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

54

 

 

 

ITEM 5.

OTHER INFORMATION

54

 

 

 

ITEM 6.

EXHIBITS

55

 

 

 

 

 


PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)

 

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

Three months ended

 

 

Three months ended

 

 

Nine months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales

 

 

1,283

 

 

 

1,367

 

 

 

3,976

 

 

 

4,065

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

1,041

 

 

 

1,059

 

 

 

3,172

 

 

 

3,239

 

Depreciation and amortization

 

 

72

 

 

 

75

 

 

 

219

 

 

 

233

 

Selling, general and administrative

 

 

94

 

 

 

115

 

 

 

322

 

 

 

343

 

Impairment of long-lived assets (NOTE 11)

 

 

33

 

 

 

 

 

 

58

 

 

 

 

Closure and restructuring costs (NOTE 11)

 

 

11

 

 

 

 

 

 

23

 

 

 

 

Other operating loss (income), net (NOTE 6)

 

 

3

 

 

 

4

 

 

 

4

 

 

 

(3

)

 

 

 

1,254

 

 

 

1,253

 

 

 

3,798

 

 

 

3,812

 

Operating income

 

 

29

 

 

 

114

 

 

 

178

 

 

 

253

 

Interest expense, net

 

 

12

 

 

 

15

 

 

 

38

 

 

 

47

 

Non-service components of net periodic benefit cost (NOTE 5)

 

 

(2

)

 

 

(4

)

 

 

(7

)

 

 

(13

)

Earnings before income taxes and equity loss

 

 

19

 

 

 

103

 

 

 

147

 

 

 

219

 

Income tax (benefit) expense (NOTE 7)

 

 

(1

)

 

 

3

 

 

 

28

 

 

 

22

 

Equity loss, net of taxes

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Net earnings

 

 

20

 

 

 

99

 

 

 

118

 

 

 

196

 

Per common share (in dollars) (NOTE 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

0.33

 

 

 

1.57

 

 

 

1.89

 

 

 

3.12

 

Diluted

 

 

0.32

 

 

 

1.57

 

 

 

1.88

 

 

 

3.11

 

Weighted average number of common shares

   outstanding (millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

61.5

 

 

 

62.9

 

 

 

62.5

 

 

 

62.8

 

Diluted

 

 

61.7

 

 

 

63.2

 

 

 

62.7

 

 

 

63.1

 

Cash dividends per common share

 

 

0.46

 

 

 

0.44

 

 

 

1.33

 

 

 

1.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

20

 

 

 

99

 

 

 

118

 

 

 

196

 

Other comprehensive (loss) income (NOTE 12):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net derivative (losses) gains on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (losses) gains arising during the period, net of tax of

   $4 and $(1), respectively (2018 – $(2) and $3,

   respectively)

 

 

(9

)

 

 

7

 

 

 

5

 

 

 

(9

)

Less: Reclassification adjustment for losses (gains)

   included in net earnings, net of tax of $(1) and $(2),

   respectively (2018 – $(1) and nil, respectively)

 

 

3

 

 

 

 

 

 

5

 

 

 

(2

)

Foreign currency translation adjustments

 

 

(34

)

 

 

12

 

 

 

(12

)

 

 

(49

)

Change in unrecognized gains and prior service cost related to

   pension and post-retirement benefit plans, net of tax of

   $(1) and $(3), respectively (2018 – nil and $(2), respectively)

 

 

2

 

 

 

2

 

 

 

7

 

 

 

6

 

Other comprehensive (loss) income

 

 

(38

)

 

 

21

 

 

 

5

 

 

 

(54

)

Comprehensive (loss) income

 

 

(18

)

 

 

120

 

 

 

123

 

 

 

142

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

3

 


DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

At

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

$

 

 

$

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

98

 

 

 

111

 

Receivables, less allowances of $8 and $6

 

 

618

 

 

 

670

 

Inventories (NOTE 8)

 

 

798

 

 

 

762

 

Prepaid expenses

 

 

33

 

 

 

24

 

Income and other taxes receivable

 

 

53

 

 

 

22

 

Total current assets

 

 

1,600

 

 

 

1,589

 

Property, plant and equipment, net

 

 

2,499

 

 

 

2,605

 

Operating lease right-of-use assets (NOTE 9)

 

 

77

 

 

 

 

Intangible assets, net (NOTE 10)

 

 

568

 

 

 

597

 

Other assets

 

 

140

 

 

 

134

 

Total assets

 

 

4,884

 

 

 

4,925

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Bank indebtedness

 

 

1

 

 

 

 

Trade and other payables

 

 

646

 

 

 

757

 

Income and other taxes payable

 

 

28

 

 

 

25

 

Operating lease liabilities due within one year (NOTE 9)

 

 

26

 

 

 

 

Long-term debt due within one year

 

 

1

 

 

 

1

 

Total current liabilities

 

 

702

 

 

 

783

 

Long-term debt

 

 

938

 

 

 

853

 

Operating lease liabilities (NOTE 9)

 

 

68

 

 

 

 

Deferred income taxes and other

 

 

479

 

 

 

476

 

Other liabilities and deferred credits

 

 

258

 

 

 

275

 

Commitments and contingencies (NOTE 14)

 

 

 

 

 

 

 

 

Shareholders' equity (NOTE 13)

 

 

 

 

 

 

 

 

Common stock $0.01 par value; authorized 2,000,000,000 shares;

   issued 65,001,104 and 65,001,104 shares

 

 

1

 

 

 

1

 

Treasury stock $0.01 par value; 5,977,255 and 2,086,535 shares

 

 

 

 

 

 

Additional paid-in capital

 

 

1,842

 

 

 

1,981

 

Retained earnings

 

 

1,058

 

 

 

1,023

 

Accumulated other comprehensive loss

 

 

(462

)

 

 

(467

)

Total shareholders' equity

 

 

2,439

 

 

 

2,538

 

Total liabilities and shareholders' equity

 

 

4,884

 

 

 

4,925

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

4

 


DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

For the three months ended

 

 

 

September 30, 2019

 

 

 

Issued and outstanding common shares

(millions of shares)

 

 

Common stock, at par

 

 

Additional paid-in capital

 

 

Retained

earnings

 

 

Accumulated other comprehensive loss

 

 

Total shareholders' equity

 

 

 

(Unaudited)

 

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at June 30, 2019

 

 

62.9

 

 

 

1

 

 

 

1,977

 

 

 

1,065

 

 

 

(424

)

 

 

2,619

 

Stock-based compensation, net of tax

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Net derivative losses on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net losses arising during the period,

   net of tax of $4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

Less: Reclassification adjustment for losses

   included in net earnings, net of tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(34

)

Change in unrecognized gains and prior service cost

   related to pension and post-retirement benefit

   plans, net of tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Stock repurchase

 

 

(3.9

)

 

 

 

 

 

(137

)

 

 

 

 

 

 

 

 

(137

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

 

(27

)

Balance at September 30, 2019

 

 

59.0

 

 

 

1

 

 

 

1,842

 

 

 

1,058

 

 

 

(462

)

 

 

2,439

 

 

 

 

For the nine months ended

 

 

 

September 30, 2019

 

 

 

Issued and outstanding common shares

(millions of shares)

 

 

Common stock, at par

 

 

Additional paid-in capital

 

 

Retained

earnings

 

 

Accumulated other comprehensive loss

 

 

Total shareholders' equity

 

 

 

(Unaudited)

 

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at December 31, 2018

 

 

62.9

 

 

 

1

 

 

 

1,981

 

 

 

1,023

 

 

 

(467

)

 

 

2,538

 

Stock-based compensation, net of tax

 

 

0.2

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

118

 

Net derivative gains on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains arising during the period,

   net of tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

5

 

Less: Reclassification adjustment for losses

   included in net earnings, net of tax of $(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

5

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

Change in unrecognized gains and prior service cost

   related to pension and post-retirement benefit

   plans, net of tax of $(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Stock repurchase

 

 

(4.1

)

 

 

 

 

 

(145

)

 

 

 

 

 

 

 

 

(145

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(83

)

 

 

 

 

 

(83

)

Balance at September 30, 2019

 

 

59.0

 

 

 

1

 

 

 

1,842

 

 

 

1,058

 

 

 

(462

)

 

 

2,439

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5

 


DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

For the three months ended

 

 

 

September 30, 2018

 

 

 

Issued and outstanding common shares

(millions of shares)

 

 

Common stock, at par

 

 

Additional paid-in capital

 

 

Retained

earnings

 

 

Accumulated other comprehensive loss

 

 

Total shareholders' equity

 

 

 

(Unaudited)

 

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at June 30, 2018

 

 

62.9

 

 

 

1

 

 

 

1,977

 

 

 

891

 

 

 

(411

)

 

 

2,458

 

Stock-based compensation, net of tax

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

 

 

 

99

 

Net derivative gains on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains arising during the period,

   net of tax of $(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Less: Reclassification adjustment for losses

   included in net earnings, net of tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

12

 

Change in unrecognized gains and prior service cost

   related to pension and post-retirement benefit

   plans, net of tax of nil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

 

(27

)

Balance at September 30, 2018

 

 

62.9

 

 

 

1

 

 

 

1,979

 

 

 

963

 

 

 

(390

)

 

 

2,553

 

 

 

 

 

For the nine months ended

 

 

 

September 30, 2018

 

 

 

Issued and outstanding common shares

(millions of shares)

 

 

Common stock, at par

 

 

Additional paid-in capital

 

 

Retained

earnings

 

 

Accumulated other comprehensive loss

 

 

Total shareholders' equity

 

 

 

(Unaudited)

 

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at December 31, 2017

 

 

62.7

 

 

 

1

 

 

 

1,969

 

 

 

849

 

 

 

(336

)

 

 

2,483

 

Stock-based compensation, net of tax

 

 

0.2

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

196

 

 

 

 

 

 

196

 

Net derivative losses on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net losses arising during the period,

   net of tax of $3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

Less: Reclassification adjustment for gains

   included in net earnings, net of tax of nil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

(49

)

Change in unrecognized gains and prior service cost

   related to pension and post-retirement benefit

   plans, net of tax of $(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(82

)

 

 

 

 

 

(82

)

Balance at September 30, 2018

 

 

62.9

 

 

 

1

 

 

 

1,979

 

 

 

963

 

 

 

(390

)

 

 

2,553

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

6

 


DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS OF DOLLARS)

 

 

 

For the nine months ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

 

(Unaudited)

 

 

 

$

 

 

$

 

Operating activities

 

 

 

 

 

 

 

 

Net earnings

 

 

118

 

 

 

196

 

Adjustments to reconcile net earnings to cash flows from operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

219

 

 

 

233

 

Deferred income taxes and tax uncertainties

 

 

1

 

 

 

3

 

Impairment of long-lived assets

 

 

58

 

 

 

 

Net gains on disposals of property, plant and equipment

 

 

 

 

 

(4

)

Stock-based compensation expense

 

 

7

 

 

 

7

 

Equity loss, net

 

 

1

 

 

 

1

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Receivables

 

 

50

 

 

 

(7

)

Inventories

 

 

(34

)

 

 

(23

)

Prepaid expenses

 

 

(4

)

 

 

(4

)

Trade and other payables

 

 

(111

)

 

 

(6

)

Income and other taxes

 

 

(27

)

 

 

(16

)

Difference between employer pension and other post-retirement

   contributions and pension and other post-retirement expense

 

 

(3

)

 

 

(46

)

Other assets and other liabilities

 

 

7

 

 

 

3

 

Cash flows from operating activities

 

 

282

 

 

 

337

 

Investing activities

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(157

)

 

 

(111

)

Proceeds from disposals of property, plant and equipment

 

 

1

 

 

 

4

 

Other

 

 

 

 

 

(6

)

Cash flows used for investing activities

 

 

(156

)

 

 

(113

)

Financing activities

 

 

 

 

 

 

 

 

Dividend payments

 

 

(83

)

 

 

(81

)

Stock repurchase

 

 

(139

)

 

 

 

Net change in bank indebtedness

 

 

2

 

 

 

 

Change in revolving credit facility

 

 

45

 

 

 

 

Proceeds from receivables securitization facility

 

 

150

 

 

 

 

Repayments of receivables securitization facility

 

 

(110

)

 

 

(25

)

Repayments of long-term debt

 

 

(1

)

 

 

 

Other

 

 

(1

)

 

 

1

 

Cash flows used for financing activities

 

 

(137

)

 

 

(105

)

Net (decrease) increase in cash and cash equivalents

 

 

(11

)

 

 

119

 

Impact of foreign exchange on cash

 

 

(2

)

 

 

(2

)

Cash and cash equivalents at beginning of period

 

 

111

 

 

 

139

 

Cash and cash equivalents at end of period

 

 

98

 

 

 

256

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Net cash payments for:

 

 

 

 

 

 

 

 

Interest

 

 

39

 

 

 

48

 

Income taxes

 

 

55

 

 

 

40

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

7

 


INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1

BASIS OF PRESENTATION

9

 

 

 

NOTE 2

RECENT ACCOUNTING PRONOUNCEMENTS

10

 

 

 

NOTE 3

DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

12

 

 

 

NOTE 4

EARNINGS PER COMMON SHARE

16

 

 

 

NOTE 5

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

17

 

 

 

NOTE 6

OTHER OPERATING LOSS (INCOME), NET

19

 

 

 

NOTE 7

INCOME TAXES

20

 

 

 

NOTE 8

INVENTORIES

21

 

 

 

NOTE 9

LEASES

22

 

 

 

NOTE 10

INTANGIBLE ASSETS

25

 

 

 

NOTE 11

CLOSURE AND RESTRUCTURING COSTS AND IMPAIRMENT OF LONG-LIVED ASSETS

26

 

 

 

NOTE 12

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

27

 

 

 

NOTE 13

SHAREHOLDERS’ EQUITY

30

 

 

 

NOTE 14

COMMITMENTS AND CONTINGENCIES

31

 

 

 

NOTE 15

SEGMENT DISCLOSURES

33

 

 

 

NOTE 16

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

34

 

 

 

 

 

 

 

 

 

8

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 1.

_________________

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. Results for the first nine months of the year may not necessarily be indicative of full-year results. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Domtar Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission. The December 31, 2018 Consolidated Balance Sheet, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

On January 1, 2019, upon the adoption of ASU 2016-02, “Leases”, the Company’s accounting policy related to leases became as follows:

LEASES

At inception of an arrangement, the Company determines whether the arrangement contains a lease. A lease conveys the right to control the use of identified property, plant, or equipment (asset) for a period of time in exchange for consideration. Control over the use of the identified asset means that the Company has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

For each lease arrangement that has an original lease term of more than 12 months, a right-of-use asset and a lease liability are recorded in the Consolidated Balance Sheets. The right-of-use asset represents the Company’s right to use an underlying asset for the lease term while the lease liability represents the obligation to make lease payments arising from the lease. The right-of-use asset and the lease liability are initially recorded at the same amount at the lease commencement date based on the present value of the remaining lease payments discounted using the rate implicit in the lease when readily determined or, in most cases, the Company’s incremental borrowing rate. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The right-of-use asset is tested for impairment in accordance with ASC 360 – “Property, Plant and Equipment”.

The terms of a lease arrangement determine how a lease is classified (operating or finance), the resulting recognition pattern in the Consolidated Statements of Earnings and Comprehensive Income (Loss) and the classification in the Consolidated Balance Sheets.

Finance lease expense is represented by the interest on the lease liability determined using the effective interest method and the amortization of the finance lease right-of-use asset calculated using the straight-line method over the estimated useful life of the identified asset. Finance lease related balances are included in the Consolidated Balance Sheets in Property, plant and equipment, net, Long-term debt due within one year and Long-term debt.

Operating lease expense is recorded on a straight-line basis over the lease term by adding interest expense determined using the effective interest method to the amortization of the right-of-use asset. Operating lease related balances are included in the Consolidated Balance Sheets in Operating lease right-of-use assets, Operating lease liabilities due within one year and Operating lease liabilities. Operating lease right-of-use assets are reduced by previously recognized liabilities relating to unfavorable terms of leases acquired as part of a business combination and impairments.

For operating lease arrangements with lease and non-lease components, the Company accounts for the lease and non-lease components as a single lease component.

 

 

9

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 2.

_________________

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

LEASES

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires lessees to recognize right-of-use assets and lease liabilities for all of their operating leases while continuing to recognize expenses in the Consolidated Statement of Earnings and Comprehensive Income (Loss) in a manner similar to previous accounting standards. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For a more complete discussion of the standard, see Note 1 “Basis of Presentation”.

The Company elected to initially apply the new leases standard as of January 1, 2019 with certain available practical expedients which are discussed below. No cumulative-effect adjustments on retained earnings were necessary as of January 1, 2019. The most significant impact of adopting the new standard was the recognition of right-of-use assets and lease liabilities for operating leases. The accounting for finance leases remains substantially unchanged.

In transitioning to the new standard, the Company elected to use the practical expedient package. Accordingly, the Company did not reassess the following:

 

 

Whether existing or expired contracts are, or contained, a lease (including executory contracts).

 

The lease classification of existing or expired leases previously made by management.

 

Whether initial direct costs for existing leases would qualify under the new standard.

Furthermore, the Company elected to use the hindsight practical expedient in determining the lease term and assessing impairment of the right-of-use assets.

For all comparative periods prior to the adoption of the new leases standard, the Company will continue to report operating leases in the consolidated financial statements under ASC 840 “Leases” and provide the related required disclosures.

COMPREHENSIVE INCOME

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, regarding the reclassification of certain income tax effects reported in accumulated comprehensive income (loss) in response to the U.S. Tax Cuts and Jobs Acts (“U.S. Tax Reform”) enacted on December 22, 2017. For businesses, one of the main provisions of the U.S. Tax Reform was the reduction in the corporate federal income tax rate to 21% from 35%. Under current income tax accounting requirements, an entity was required to remeasure applicable U.S. deferred tax assets and deferred tax liabilities at the 21% tax rate effective on the U.S. Tax Reform enactment date. This remeasurement was required to be recognized in an entity’s income tax provision in its income statement. However, certain of these deferred tax assets and deferred tax liabilities relate to income tax effects initially recognized at the 35% tax rate through other comprehensive income (loss) on items reported within accumulated other comprehensive income (loss) on an entity’s balance sheet. Consequently, an entity’s financial statements will reflect an inconsistency between the deferred tax assets and deferred tax liabilities measured at 21% and the related income tax effects in accumulated other comprehensive income (loss) recorded at 35%. Accordingly, this guidance provides a one-time option to remeasure the income tax effects within accumulated other comprehensive income (loss) at the 21% income tax rate. The impact from this remeasurement is to be recorded directly in retained earnings on an entity’s balance sheet.

This guidance became effective for the Company on January 1, 2019. The Company has decided not to elect this option, as permitted in the new guidance.

 

10

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

FUTURE ACCOUNTING CHANGES

IMPLEMENTATION COSTS FOR CLOUD COMPUTING ARRANGEMENTS

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. Under the guidance, implementation costs for cloud computing arrangements (“CCA”) should be evaluated for capitalization using the same approach as implementation costs associated with internal-use software and expensed over the term of the hosting arrangement. The ASU also provides the following guidance on presentation and disclosure:

Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted CCA service, if any (generally as an “other asset”).

The amortization of capitalized implementation costs should be presented in the same statement of earnings line item as the fees associated with the hosted CCA service. Accordingly, the amortization of capitalized implementation costs should not be included with depreciation or amortization expense related to property, plant, and equipment or intangible assets.

Cash flows related to capitalized implementation costs should be presented as operating activities, consistent with the presentation of cash flows for the fees related to the hosted CCA service.

Entities are required to disclose the nature of the hosting arrangements that are service contracts and significant judgments made when applying the guidance. Additionally, companies are required to provide quantitative disclosures, including amounts capitalized, amortized, and impaired.

This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

While the Company is still evaluating the impact of adopting the new standard, it does not expect this new guidance to have a material impact on the consolidated financial statements.

 

11

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 3.

________________

DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

HEDGING PROGRAMS

The Company is exposed to market risk, such as changes in currency exchange rates, commodity prices, and interest rates. To the extent the Company decides to manage the volatility related to these exposures, the Company may enter into various financial derivatives that are accounted for under the derivatives and hedging guidance. These transactions are governed by the Company's hedging policies which provide direction on acceptable hedging activities, including instrument type and acceptable counterparty exposure.

Upon inception, the Company formally documents the relationship between hedging instruments and hedged items. At inception and quarterly thereafter, the Company formally assesses whether the financial instruments used in hedging transactions are effective at offsetting changes in either the cash flow or the fair value of the underlying exposures. The Company does not hold derivative financial instruments for trading purposes.

CREDIT RISK

The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of September 30, 2019, two of Domtar’s Pulp and Paper segment customers located in the U.S. represented 14% or $87 million, and 11% or $70 million, respectively, of the Company’s receivables (December 31, 2018 – one Pulp and Paper segment customer located in the U.S. represented 10% or $67 million).

The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored.

INTEREST RATE RISK

The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, revolving credit facility and securitization, term loan and long-term debt. The Company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts, whereby it agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.

COST RISK

Cash flow hedges:

The Company is exposed to price volatility for raw materials and energy used in its manufacturing process. The Company manages its exposure to cost risk primarily through the use of supplier contracts. The Company purchases natural gas at the prevailing market price at the time of delivery. To reduce the impact on cash flow and earnings due to pricing volatility, the Company may utilize derivatives to fix the price of forecasted natural gas purchases. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Cost of sales in the period during which the hedged transaction affects earnings. Current contracts are used to hedge a portion of forecasted purchases over the next 51 months.

 

12

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

 

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of September 30, 2019 to hedge forecasted purchases:

 

Commodity

 

Notional contractual quantity

under derivative contracts

MMBtu(2)

 

 

Notional contractual value

under derivative contracts

(in millions of dollars)

 

Percentage of forecasted

purchases under

derivative contracts

 

Natural gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 (1)

 

 

3,915,000

 

 

 

$

12

 

 

 

53%

 

2020

 

 

11,165,000

 

 

 

$

34

 

 

 

40%

 

2021

 

 

9,270,000

 

 

 

$

27

 

 

 

33%

 

2022

 

 

9,270,000

 

 

 

$

25

 

 

 

33%

 

2023

 

 

4,210,000

 

 

 

$

11

 

 

 

15%

 

 

(1)

Represents the remaining three months of 2019

(2)

MMBtu: Millions of British thermal units

The natural gas derivative contracts were effective as of September 30, 2019.

FOREIGN CURRENCY RISK

Cash flow hedges:

The Company has manufacturing operations in the United States, Canada and Europe. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. Accordingly, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and European currencies. The Company’s European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates.

Derivatives are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian subsidiary over the next 24 months. Such derivatives are designated as cash flow hedges. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Sales or Cost of sales in the period during which the hedged transaction affects earnings.

The following table presents the currency values under significant currency positions pursuant to currency derivatives outstanding as of September 30, 2019 to hedge forecasted purchases and sales:

 

Currency exposure hedged

 

Business Segment

 

Year of

maturity

 

Notional

contractual value

 

Percentage of

forecasted net

exposures under

contracts

 

 

Average

Protection rate

 

Average

Obligation rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAD/USD

 

Pulp and Paper

 

2019 (1)

 

174 CAD

 

77%

 

 

1 USD = 1.2945

 

1 USD = 1.3152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAD/USD

 

Pulp and Paper

 

2020

 

557 CAD

 

62%

 

 

1 USD = 1.2966

 

1 USD = 1.3155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAD/USD

 

Pulp and Paper

 

2021

 

237 CAD

 

26%

 

 

1 USD = 1.3185

 

1 USD = 1.3185

 

(1)Represents the remaining three months of 2019 

 

The foreign exchange derivative contracts were effective as of September 30, 2019.

13

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

 

FAIR VALUE MEASUREMENT

The accounting standards for fair value measurements and disclosures, establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

Level 2

Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3

Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (b) below) at September 30, 2019 and December 31, 2018, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

 

Fair Value of financial instruments at:

 

September 30, 2019

 

 

Quoted prices in

active markets for

identical assets

(Level 1)

 

 

Significant

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

 

Balance sheet classification

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

Derivatives designated as

   hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency derivatives

 

 

2

 

 

 

 

 

 

2

 

 

 

 

(a)

Prepaid expenses

Currency derivatives

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Other assets

Total Assets

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency derivatives

 

 

8

 

 

 

 

 

 

8

 

 

 

 

(a)

Trade and other payables

Natural gas swap contracts

 

 

7

 

 

 

 

 

 

7

 

 

 

 

(a)

Trade and other payables

Currency derivatives

 

 

2

 

 

 

 

 

 

2

 

 

 

 

(a)

Other liabilities and deferred credits

Natural gas swap contracts

 

 

7

 

 

 

 

 

 

7

 

 

 

 

(a)

Other liabilities and deferred credits

Total Liabilities

 

 

24

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation -

   liability awards

 

 

6

 

 

 

6

 

 

 

 

 

 

 

 

Trade and other payables

Stock-based compensation -

   liability awards

 

 

16

 

 

 

16

 

 

 

 

 

 

 

 

Other liabilities and deferred credits

Long-term debt

 

 

960

 

 

 

 

 

 

960

 

 

 

 

(b)

Long-term debt

 

The net cumulative loss recorded in Accumulated other comprehensive loss relating to natural gas contracts is $14 million at September 30, 2019, of which a loss of $7 million will be recognized in Cost of sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at September 30, 2019.

14

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

 

The net cumulative loss recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases is $8 million at September 30, 2019, of which a loss of $6 million will be recognized in Cost of sales or Sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at September 30, 2019.

 

Fair Value of financial instruments at:

 

December 31, 2018

 

 

Quoted prices in

active markets for

identical assets

(Level 1)

 

 

Significant

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

 

Balance sheet classification

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

Derivatives designated as

   hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency derivatives

 

 

1

 

 

 

 

 

 

1

 

 

 

 

(a)

Prepaid expenses

Natural gas swap contracts

 

 

1

 

 

 

 

 

 

1

 

 

 

 

(a)

Prepaid expenses

Total Assets

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency derivatives

 

 

19

 

 

 

 

 

 

19

 

 

 

 

(a)

Trade and other payables

Natural gas swap contracts

 

 

2

 

 

 

 

 

 

2

 

 

 

 

(a)

Trade and other payables

Currency derivatives

 

 

11

 

 

 

 

 

 

11

 

 

 

 

(a)

Other liabilities and deferred credits

Natural gas swap contracts

 

 

5

 

 

 

 

 

 

5

 

 

 

 

(a)

Other liabilities and deferred credits

Total Liabilities

 

 

37

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation -

   liability awards

 

 

6

 

 

 

6

 

 

 

 

 

 

 

 

Trade and other payables

Stock-based compensation -

   liability awards

 

 

17

 

 

 

17

 

 

 

 

 

 

 

 

Other liabilities and deferred credits

Long-term debt

 

 

858

 

 

 

 

 

 

858

 

 

 

 

(b)

Long-term debt

 

(a)

Fair value of the Company’s derivatives are classified under Level 2 (inputs that are observable; directly or indirectly) as it is measured as follows:

 

-

For currency derivatives: Fair value is measured using techniques derived from the Black-Scholes pricing model. Interest rates, forward market rates and volatility are used as inputs for such valuation techniques.

 

-

For natural gas contracts: Fair value is measured using the discounted difference between contractual rates and quoted market future rates.

(b)

Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at September 30, 2019 and December 31, 2018. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $939 million and $854 million at September 30, 2019 and December 31, 2018, respectively.

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, receivables, bank indebtedness, trade and other payables and income and other taxes approximate their fair values.

 

 

 

15

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 4.

_________________

EARNINGS PER COMMON SHARE

The following table provides the reconciliation between basic and diluted earnings per common share:

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings

 

$

20

 

 

$

99

 

 

$

118

 

 

$

196

 

Weighted average number of common shares

   outstanding (millions)

 

 

61.5

 

 

 

62.9

 

 

 

62.5

 

 

 

62.8

 

Effect of dilutive securities (millions)

 

 

0.2

 

 

 

0.3

 

 

 

0.2

 

 

 

0.3

 

Weighted average number of diluted common shares

   outstanding (millions)

 

 

61.7

 

 

 

63.2

 

 

 

62.7

 

 

 

63.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per common share (in dollars)

 

$

0.33

 

 

$

1.57

 

 

$

1.89

 

 

$

3.12

 

Diluted net earnings per common share (in dollars)

 

$

0.32

 

 

$

1.57

 

 

$

1.88

 

 

$

3.11

 

 

The following table provides the securities that could potentially dilute basic earnings per common share in the future, but were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive:

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Options to purchase common shares

 

 

398,869

 

 

 

201,599

 

 

 

325,757

 

 

 

201,599

 

 

 

 

16

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 5.

_________________

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

The Company has several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the three and nine months ended September 30, 2019, the pension expense was $10 million and $33 million, respectively (2018 – $18 million and $40 million, respectively).

DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

The Company sponsors both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. Non-unionized employees in Canada joining the Company after January 1, 1998 participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. Unionized and non-union hourly employees in the U.S. who are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.

Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30, 2019

 

 

September 30, 2019

 

 

 

Pension plans

 

 

Other post-retirement benefit plans

 

 

Pension plans

 

 

Other post-retirement benefit plans

 

 

 

$

 

 

$

 

 

$

 

 

$

 

Service cost

 

 

6

 

 

 

 

 

 

21

 

 

 

1

 

Interest expense

 

 

14

 

 

 

 

 

 

41

 

 

 

1

 

Expected return on plan assets

 

 

(19

)

 

 

 

 

 

(59

)

 

 

 

Amortization of net actuarial loss (gain)

 

 

2

 

 

 

 

 

 

7

 

 

 

(1

)

Amortization of prior year service costs

 

 

1

 

 

 

 

 

 

4

 

 

 

 

Net periodic benefit cost

 

 

4

 

 

 

 

 

 

14

 

 

 

1

 

 

Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

Pension plans

 

 

Other post-retirement benefit plans

 

 

Pension plans

 

 

Other post-retirement benefit plans

 

 

 

$

 

 

$

 

 

$

 

 

$

 

Service cost

 

 

8

 

 

 

 

 

 

25

 

 

 

1

 

Interest expense

 

 

14

 

 

 

1

 

 

 

41

 

 

 

2

 

Expected return on plan assets

 

 

(22

)

 

 

 

 

 

(65

)

 

 

 

Amortization of net actuarial loss

 

 

2

 

 

 

 

 

 

6

 

 

 

 

Amortization of prior year service costs

 

 

1

 

 

 

 

 

 

4

 

 

 

(1

)

Net periodic benefit cost

 

 

3

 

 

 

1

 

 

 

11

 

 

 

2

 

 

 

17

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 5. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

 

The components of net periodic benefit cost for pension plans and other post-retirement benefits plans, other than service cost, are presented in Non-service components of net periodic benefit cost on the Consolidated Statement of Earnings and Comprehensive Income (Loss).

 

For the three and nine months ended September 30, 2019, the Company contributed $7 million and $14 million, respectively (2018 – $48 million and $55 million, respectively) to the pension plans and $1 million and $3 million, respectively (2018 – $1 million and $3 million, respectively) to the other post-retirement benefit plans.

 

 

 

 

18

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 6.

_________________

OTHER OPERATING LOSS (INCOME), NET

Other operating loss (income), net is an aggregate of both recurring and non-recurring loss or income items and, as a result, can fluctuate from period to period. The Company’s other operating loss (income), net includes the following:

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

$

 

 

$

 

 

$

 

 

$

 

Gain on sale of property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

(4

)

Bad debt expense

 

 

1

 

 

 

 

 

 

2

 

 

 

1

 

Environmental provision

 

 

1

 

 

 

2

 

 

 

2

 

 

 

2

 

Foreign exchange loss (gain)

 

 

1

 

 

 

2

 

 

 

3

 

 

 

(1

)

Other

 

 

 

 

 

 

 

 

(3

)

 

 

(1

)

Other operating loss (income), net

 

 

3

 

 

 

4

 

 

 

4

 

 

 

(3

)

 

 

 

19

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 7.

_________________

INCOME TAXES

For the third quarter of 2019, the Company’s income tax benefit was $1 million, consisting of a current income tax benefit of $3 million and a deferred income tax expense of $2 million. This compares to an income tax expense of $3 million in the third quarter of 2018, consisting of a current income tax benefit of $5 million and a deferred income tax expense of $8 million. The Company made income tax payments, net of refunds, of $5 million during the third quarter of 2019. The effective tax rate was -5% compared with an effective tax rate of 3% in the third quarter of 2018. The effective tax rate for the third quarter of 2019 was favorably impacted by additional R&D tax credits in the U.S. and Spain. The effective tax rate for the third quarter of 2018 was favorably impacted by the income tax effects of the U.S. Tax Reform, including the benefit related to an additional pension contribution, as well as the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations. The effective tax rates for both the third quarter of 2019 and the third quarter of 2018 were favorably impacted by the finalization of certain estimates in connection with the filing of the Company’s 2018 and 2017 income tax returns, respectively.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate and then making adjustments for discrete items arising in that quarter. In each interim quarter the Company updates its estimate of the annual effective tax rate and, if the estimated annual tax rate changes, makes a cumulative adjustment in that quarter. The effective tax rate for the third quarter of 2019 was favorably impacted by such an adjustment.

For the first nine months of 2019, the Company’s income tax expense was $28 million, consisting of a current income tax expense of $27 million and a deferred income tax expense of $1 million. This compares to an income tax expense of $22 million in the first nine months of 2018, consisting of a current income tax expense of $19 million and a deferred income tax expense of $3 million. The Company made income tax payments, net of refunds, of $55 million during the first nine months of 2019. The effective tax rate was 19% compared to an effective tax rate of 10% in the first nine months of 2018. The effective tax rate for the first nine months of 2019 was favorably impacted by the recognition of additional R&D credits in the U.S. and Spain and by an enacted law change in the state of Arkansas, which were mostly offset by the recording of a valuation allowance against certain state tax credit carryforwards. The effective tax rate for the first nine months of 2018 was favorably impacted by the income tax effects of the U.S. Tax Reform, including the benefit related to an additional pension contribution, the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations, as well as by enacted law changes in Sweden and several U.S. states. The effective tax rates for both the first nine months of 2019 and the first nine months of 2018 were favorably impacted by the finalization of certain estimates in connection with the filing of the Company’s 2018 and 2017 income tax returns, respectively.

During the second quarter of 2019, the Internal Revenue Service (the “IRS”) proposed additional Global Intangible Low-Taxed Income (“GILTI”) regulations, which are still pending approval. While the Company is still evaluating the impact, it does not expect those proposed regulations to have a material impact on the consolidated financial statements.

 

 

 

20

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 8.

_________________

INVENTORIES

The following table presents the components of inventories:

 

 

 

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

 

$

 

 

$

Work in process and finished goods

 

 

423

 

 

410

Raw materials

 

 

143

 

 

126

Operating and maintenance supplies

 

 

232

 

 

226

 

 

 

798

 

 

762

 

 

 

21

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 9.

_________________

LEASES

In the normal course of business, the Company enters into operating and finance leases mainly for manufacturing and warehousing facilities, corporate offices, motor vehicles, mobile equipment and manufacturing equipment.

While the Company’s lease payments are generally fixed over the lease term, some leases may include price escalation terms that are fixed at the lease commencement date.

The Company has remaining lease terms ranging from 1 year to 14 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year.

 

During the second quarter of 2019, the Company recorded $9 million of impairment of operating lease right-of-use assets under Impairment of long-lived assets on the Consolidated Statement of Earnings and Comprehensive Income (Loss).

 

The components of lease expense were as follows:

 

 

 

 

 

 

 

For the three

months ended

 

 

For the nine

months ended

 

 

 

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

 

 

 

2019

 

 

2019

 

 

 

 

 

 

 

 

$

 

 

$

 

 

Operating lease expense

 

8

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

Finance lease expense:

 

 

 

 

 

 

 

 

   Amortization of right-of-use assets

 

1

 

 

 

1

 

 

   Interest on lease liabilities

 

 

 

 

 

 

Total finance lease expense

 

1

 

 

 

1

 

 

 

For the three and nine months ended September 30, 2018, total operating lease expense amounted to $8 million and $22 million, respectively.

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

 

 

 

 

 

 

For the nine

months ended

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

$

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

 

 

23

 

 

 

Operating cash flows from finance leases

 

 

 

1

 

 

 

Financing cash flows from finance leases

 

 

 

1

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease liabilities:

 

 

 

 

 

 

 

Operating leases

 

 

 

24

 

 

 

Finance leases

 

 

 

 

 

 

 

 

22

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 9. LEASES (CONTINUED)

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

$

 

 

Operating leases

 

 

 

 

 

 

 

Operating leases right-of-use assets

 

 

 

77

 

 

 

 

 

 

 

 

 

 

 

Lease liabilities due within one year

 

 

 

26

 

 

 

Operating lease liabilities

 

 

 

68

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

14

 

 

 

Accumulated depreciation

 

 

 

(6

)

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

Long-term debt due within one year

 

 

 

1

 

 

 

Long-term debt

 

 

 

9

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term

 

 

 

 

 

 

 

 

Operating leases

 

 

5 years

 

 

 

 

Finance leases

 

 

10.2 years

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

 

 

 

 

 

 

Operating leases

 

 

 

4.5

%

 

 

 

Finance leases

 

 

 

6.7

%

 

 

 


23

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 9. LEASES (CONTINUED)

 

Maturities of lease liabilities at September 30, 2019 were as follows:

 

 

 

 

 

Operating leases

 

 

Finance leases

 

 

 

 

 

$

 

 

$

 

 

 

2019 (1)

 

 

8

 

 

 

 

 

 

2020

 

 

26

 

 

 

2

 

 

 

2021

 

 

22

 

 

 

2

 

 

 

2022

 

 

16

 

 

 

2

 

 

 

2023

 

 

12

 

 

 

1

 

 

 

Thereafter

 

 

22

 

 

 

7

 

 

 

Total lease payments

 

 

106

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Imputed interest

 

 

12

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total lease liabilities

 

 

94

 

 

 

10

 

 

 

(1)

Represents the remaining three months of 2019.

 

As of September 30, 2019, the Company has an additional $3 million of operating leases, primarily for office space and manufacturing equipment, which have not yet commenced. These operating leases will commence between 2019 and 2020, with terms between 3 and 5 years.

 

Maturities of lease commitments at December 31, 2018 were as follows:

 

 

 

 

 

Operating leases

 

 

Capital leases

 

 

 

 

 

$

 

 

$

 

 

 

2019

 

 

26

 

 

 

2

 

 

 

2020

 

 

21

 

 

 

2

 

 

 

2021

 

 

17

 

 

 

2

 

 

 

2022

 

 

12

 

 

 

1

 

 

 

2023

 

 

10

 

 

 

1

 

 

 

Thereafter

 

 

17

 

 

 

7

 

 

 

Total lease payments

 

 

103

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Imputed interest

 

N/A

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total lease liabilities

 

N/A

 

 

 

11

 

 

 

24

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 10.

_________________

INTANGIBLE ASSETS

The following table presents the components of intangible assets:

 

 

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Estimated useful lives

(in years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net

 

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Definite-lived intangible

   assets subject

   to amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Water rights

 

40

 

 

3

 

 

 

(1

)

 

 

2

 

 

 

3

 

 

 

(1

)

 

 

2

 

Customer relationships

 

10 – 40

 

 

375

 

 

 

(103

)

 

 

272

 

 

 

384

 

 

 

(94

)

 

 

290

 

Technology

 

7 – 20

 

 

8

 

 

 

(5

)

 

 

3

 

 

 

8

 

 

 

(4

)

 

 

4

 

Non-Compete

 

9

 

 

1

 

 

 

(1

)

 

 

 

 

 

1

 

 

 

(1

)

 

 

 

License rights

 

12

 

 

29

 

 

 

(15

)

 

 

14

 

 

 

28

 

 

 

(13

)

 

 

15

 

 

 

 

 

 

416

 

 

 

(125

)

 

 

291

 

 

 

424

 

 

 

(113

)

 

 

311

 

Indefinite-lived intangible

   assets not subject

   to amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Water rights

 

 

 

 

4

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

Trade names

 

 

 

 

230

 

 

 

 

 

 

230

 

 

 

238

 

 

 

 

 

 

238

 

License rights

 

 

 

 

6

 

 

 

 

 

 

6

 

 

 

6

 

 

 

 

 

 

6

 

Catalog rights

 

 

 

 

37

 

 

 

 

 

 

37

 

 

 

38

 

 

 

 

 

 

38

 

Total

 

 

 

 

693

 

 

 

(125

)

 

 

568

 

 

 

710

 

 

 

(113

)

 

 

597

 

 

Amortization expense related to intangible assets for the three and nine months ended September 30, 2019 was $5 million and $14 million, respectively (2018 – $4 million and $14 million, respectively).

Amortization expense for the next five years related to intangible assets is expected to be as follows:

 

 

 

2019

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

 

$

 

$

 

 

$

 

 

$

 

 

$

 

Amortization expense related to intangible assets

 

21 (1)

 

 

21

 

 

 

21

 

 

 

20

 

 

 

20

 

 

 

(1)

Represents twelve months of amortization

 

 

 

25

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 11.

_________________

CLOSURE AND RESTRUCTURING COSTS AND IMPAIRMENT OF LONG-LIVED ASSETS

Ashdown, Arkansas mill and Port Huron, Michigan mill

On September 27, 2019, the Company’s Board of Directors approved the decision to permanently shut down two paper machines, which was announced on October 3, 2019. The closures will take place at the Ashdown, Arkansas pulp and paper mill and the Port Huron, Michigan paper mill. These measures will reduce the Company’s annual uncoated freesheet paper capacity by approximately 204,000 short tons, and will result in a workforce reduction of approximately 100 employees.

The Ashdown mill will continue to operate one paper machine with an annual uncoated freesheet paper production capacity of 200,000 short tons. Additionally, the mill operates a fluff pulp machine with the flexibility to produce softwood pulp depending on market conditions. As a result of the closure of the paper machine, the mill will produce an incremental 70,000 ADMT of softwood and fluff pulp, which will ramp up over the next 12 months.

The closure of the Port Huron paper machine will take effect by mid-November. The Port Huron mill will continue to produce a variety of technical and specialty papers for a broad range of customers utilizing three machines with a total annual production capacity of 95,000 short tons.

During the third quarter of 2019, the Company recorded $32 million of accelerated depreciation under Impairment of long-lived assets on the Consolidated Statement of Earnings and Comprehensive Income (Loss). Additionally, the Company recorded $1 million of severance and termination costs and $4 million of inventory obsolescence, under Closure and restructuring costs.

Waco, Texas facility

On November 1, 2018, the Company announced a margin improvement plan within the Personal Care Division. As part of this plan, the Board of Directors approved the permanent closure of its Waco, Texas Personal Care manufacturing and distribution facility, the relocation of certain of its manufacturing assets and a workforce reduction across the division. The Waco, Texas facility ceased operations during the second quarter of 2019.

For the three and nine months ended September 30, 2019, the Company recorded $1 million of accelerated depreciation and $26 million of accelerated depreciation and impairment of operating lease right-of-use assets, respectively, under Impairment of long-lived assets on the Consolidated Statement of Earnings and Comprehensive Income (Loss). For the three and nine months ended September 30, 2019, the Company also recorded $1 million and $5 million, respectively, of severance and termination costs; $1 million and $2 million, respectively, of inventory obsolescence; and $4 million and $11 million, respectively, of asset relocation and other costs, under Closure and restructuring costs.


26

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 12.

_________________

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following table presents the changes in Accumulated other comprehensive loss by component(1) for the nine months ended September 30, 2019 and the year ended December 31, 2018:

 

 

 

Net derivative

gains (losses) on

cash flow hedges

 

 

Pension items(2)

 

 

Post-retirement

benefit items(2)

 

 

Foreign currency

items

 

 

Total

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at December 31, 2017

 

 

8

 

 

 

(218

)

 

 

6

 

 

 

(132

)

 

 

(336

)

Natural gas swap contracts

 

 

1

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

1

 

Currency options

 

 

(12

)

 

N/A

 

 

N/A

 

 

N/A

 

 

 

(12

)

Foreign exchange forward contracts

 

 

(19

)

 

N/A

 

 

N/A

 

 

N/A

 

 

 

(19

)

Net (gain) loss

 

N/A

 

 

 

(23

)

 

 

6

 

 

N/A

 

 

 

(17

)

Foreign currency items

 

N/A

 

 

N/A

 

 

N/A

 

 

 

(91

)

 

 

(91

)

Other comprehensive (loss) income

   before reclassifications

 

 

(30

)

 

 

(23

)

 

 

6

 

 

 

(91

)

 

 

(138

)

Amounts reclassified from Accumulated

   other comprehensive loss

 

 

(2

)

 

 

10

 

 

 

(1

)

 

 

 

 

 

7

 

Net current period other comprehensive

   (loss) income

 

 

(32

)

 

 

(13

)

 

 

5

 

 

 

(91

)

 

 

(131

)

Balance at December 31, 2018

 

 

(24

)

 

 

(231

)

 

 

11

 

 

 

(223

)

 

 

(467

)

Natural gas swap contracts

 

 

(8

)

 

N/A

 

 

N/A

 

 

N/A

 

 

 

(8

)

Currency options

 

 

4

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

4

 

Foreign exchange forward contracts

 

 

9

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

9

 

Foreign currency items

 

N/A

 

 

N/A

 

 

N/A

 

 

 

(12

)

 

 

(12

)

Other comprehensive income (loss)

   before reclassifications

 

 

5

 

 

 

 

 

 

 

 

 

(12

)

 

 

(7

)

Amounts reclassified from Accumulated

   other comprehensive loss

 

 

5

 

 

 

8

 

 

 

(1

)

 

 

 

 

 

12

 

Net current period other comprehensive

   income (loss)

 

 

10

 

 

 

8

 

 

 

(1

)

 

 

(12

)

 

 

5

 

Balance at September 30, 2019

 

 

(14

)

 

 

(223

)

 

 

10

 

 

 

(235

)

 

 

(462

)

 

(1)

All amounts are after tax. Amounts in parentheses indicate losses.

(2)

The accrued benefit obligation is actuarially determined on an annual basis as of December 31.

 

 

27

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 12. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

The following tables present reclassifications out of Accumulated other comprehensive loss for the three and nine months ended September 30, 2019 and 2018:

 

Details about Accumulated other comprehensive loss components

 

Amounts reclassified from

Accumulated other

comprehensive loss(1)

 

 

 

For the three months ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

 

$

 

 

$

 

Net derivative gains on cash flow hedge

 

 

 

 

 

 

 

 

Natural gas swap contracts (2)

 

 

2

 

 

 

 

Currency options and forwards (2)

 

 

2

 

 

 

1

 

Total before tax

 

 

4

 

 

 

1

 

Tax expense

 

 

(1

)

 

 

(1

)

Net of tax

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of defined benefit pension items

 

 

 

 

 

 

 

 

Amortization of net actuarial loss (3)

 

 

2

 

 

 

2

 

Amortization of prior year service cost (3)

 

 

1

 

 

 

1

 

Total before tax

 

 

3

 

 

 

3

 

Tax expense

 

 

(1

)

 

 

(1

)

Net of tax

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Amortization of other post-retirement benefit items

 

 

 

 

 

 

 

 

Amortization of net actuarial loss (3)

 

 

 

 

 

 

Amortization of prior year service cost (3)

 

 

 

 

 

 

Total before tax

 

 

 

 

 

 

Tax benefit

 

 

 

 

 

 

Net of tax

 

 

 

 

 

 

 


28

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 12. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

 

 

 

Amounts reclassified from

Accumulated other

comprehensive loss(1)

 

 

 

For the nine months ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

 

$

 

 

$

 

Net derivatives gains (losses) on cash flow hedge

 

 

 

 

 

 

 

 

Natural gas swap contracts (2)

 

 

2

 

 

 

 

Currency options and forwards (2)

 

 

5

 

 

 

(2

)

Total before tax

 

 

7

 

 

 

(2

)

Tax expense

 

 

(2

)

 

 

 

Net of tax

 

 

5

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Amortization of defined benefit pension items

 

 

 

 

 

 

 

 

Amortization of net actuarial loss (3)

 

 

7

 

 

 

6

 

Amortization of prior year service cost (3)

 

 

4

 

 

 

4

 

Total before tax

 

 

11

 

 

 

10

 

Tax expense

 

 

(3

)

 

 

(3

)

Net of tax

 

 

8

 

 

 

7

 

 

 

 

 

 

 

 

 

 

Amortization of other post-retirement benefit items

 

 

 

 

 

 

 

 

Amortization of net actuarial loss (3)

 

 

(1

)

 

 

 

Amortization of prior year service cost (3)

 

 

 

 

 

(1

)

Total before tax

 

 

(1

)

 

 

(1

)

Tax benefit

 

 

 

 

 

 

Net of tax

 

 

(1

)

 

 

(1

)

 

(1)

Amounts in parentheses indicate losses.

(2)

These amounts are included in Cost of Sales in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

(3)

These amounts are included in the computation of net periodic benefit cost (see Note 5 “Pension Plans and Other Post-Retirement Benefit Plans” for more details).

 

 

 

 

29

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 13.

_________________

SHAREHOLDERS’ EQUITY

DIVIDENDS

On February 19, 2019, May 8, 2019, and August 6, 2019, the Company’s Board of Directors approved a quarterly dividend of $0.435, $0.455, and $0.455 per share, respectively, to be paid to holders of the Company’s common stock. Dividends aggregating $28 million were paid on each of April 15, 2019, and July 16, 2019, and dividends aggregating $27 million were paid on October 15, 2019, to shareholders of record on April 2, 2019, July 2, 2019, and October 2, 2019, respectively.

On November 5, 2019, the Company’s Board of Directors approved a quarterly dividend of $0.455 per share to be paid to holders of the Company’s common stock. This dividend is to be paid on January 15, 2020, to shareholders of record on January 2, 2020.

STOCK REPURCHASE PROGRAM

The Company’s Board of Directors has authorized a stock repurchase program (the “Program”) of up to $1.3 billion. At September 30, 2019, the Company had approximately $178 million of remaining availability under the Program. On November 5, 2019, the Company’s Board of Directors approved an increase to the Program from $1.3 billion to $1.6 billion. Under the Program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions, which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

During the first nine months of 2019, the Company repurchased 4,076,723 shares at an average price of $35.47 for a total cost of $145 million.

During the first nine months of 2018, there were no shares repurchased under the Program.

 

 

30

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 14.

_________________

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.

In connection with contamination of a site bordering Burrard Inlet in North Vancouver, on February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan International Ltd. and the Company, in order to define and implement an action plan to address soil, sediment and groundwater issues. Construction began in January 2017 and was completed in the first quarter of 2019. The Company previously recorded an environmental reserve to address its estimated exposure.

A former owner of the Company’s Dryden, Ontario manufacturing site (the "Dryden Property") operated a chlor-alkali plant during the 1960s and 1970s, during which time, mercury and other pollutants were used and discharged into the natural environment. In conjunction with the sale and redevelopment of the Dryden Property, the Province of Ontario (the “Province”) provided a broad indemnity (the "Indemnity") in 1985 to the then purchaser of the Dryden Property and its successors and assigns with respect to the discharge of any pollutant, including mercury, by the historical operators of the Dryden Property. This Indemnity was subsequently assigned to the Company in connection with its 2007 purchase of the Dryden Property.

As the current owner of the Dryden Property, Domtar is actively engaged with the Province with respect to the management of the historical contamination.

The Province has challenged whether certain owners of the Dryden Property prior to Domtar can benefit from the Indemnity in relation to the historic contamination. The Province was unsuccessful in the lower courts and has appealed to the Supreme Court of Canada, whose decision is pending.

The Province may also challenge whether Domtar has the benefit of the Indemnity. Should it be determined that Domtar does not have the benefit of the Indemnity, Domtar may be exposed to future costs that could have a material financial impact on the Company’s results of operations and financial condition.

The following table reflects changes in the reserve for environmental remediation and asset retirement obligations:

 

 

 

September 30, 2019

 

 

 

$

 

Balance at beginning of year

 

 

37

 

Additions and other changes

 

 

3

 

Environmental spending

 

 

(5

)

Effect of foreign currency exchange rate change

 

 

 

Balance at end of period

 

 

35

 

 

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.

 

31

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

Climate change regulation

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.

On July 8, 2019, the EPA published a final rule to repeal the Clean Power Plan and replace it with the “Affordable Clean Energy” (“ACE”) rule. Unlike the Clean Power Plan, which would have required significant changes across the entire power sector, ACE only requires states to develop plans for efficiency improvements at coal-fired electric utility generating units. The rule was immediately challenged in the U.S. Court of Appeals for the D.C. Circuit. Regardless of the outcome for the Clean Power Plan and ACE, 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 gases (“GHG”) cap-and-trade systems with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. 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 in provinces that do not already impose a cost on carbon emissions. The Government of Canada will be imposing its carbon pricing program for regulating GHG emissions in Ontario. This regulatory system took effect in Ontario on January 1, 2019. To reduce GHG emissions and recognize the unique circumstances of the province’s diverse economy, Ontario recently finalized its own GHG Emission Performance Standards regulation. The Ontario Government is in discussions with the Canadian Government to replace the federal program in Ontario with its provincial program. Additional environmental costs may result from this effort which cannot be reasonably estimated at this time.

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 September 30, 2019, 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.

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, 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 September 30, 2019, 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 September 30, 2019, the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

 

 

 

32

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 15.

_________________

SEGMENT DISCLOSURES

The Company’s two reportable segments described below also represent its two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of the Company’s reportable segments:

Pulp and Paper – consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

Personal Care – consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

An analysis and reconciliation of the Company’s business segment information to the respective information in the financial statements is as follows:

 

 

 

For the three months ended

 

 

For the nine months ended

 

SEGMENT DATA

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pulp and Paper

 

 

1,071

 

 

 

1,146

 

 

 

3,314

 

 

 

3,369

 

Personal Care

 

 

227

 

 

 

237

 

 

 

711

 

 

 

746

 

Total for reportable segments

 

 

1,298

 

 

 

1,383

 

 

 

4,025

 

 

 

4,115

 

Intersegment sales

 

 

(15

)

 

 

(16

)

 

 

(49

)

 

 

(50

)

Consolidated sales

 

 

1,283

 

 

 

1,367

 

 

 

3,976

 

 

 

4,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales by product group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communication papers

 

 

635

 

 

 

639

 

 

 

1,963

 

 

 

1,904

 

Specialty and packaging papers

 

 

159

 

 

 

181

 

 

 

490

 

 

 

536

 

Market pulp

 

 

262

 

 

 

310

 

 

 

812

 

 

 

879

 

Absorbent hygiene products

 

 

227

 

 

 

237

 

 

 

711

 

 

 

746

 

Consolidated sales

 

 

1,283

 

 

 

1,367

 

 

 

3,976

 

 

 

4,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pulp and Paper

 

 

56

 

 

 

58

 

 

 

171

 

 

 

180

 

Personal Care

 

 

16

 

 

 

17

 

 

 

48

 

 

 

53

 

Total for reportable segments

 

 

72

 

 

 

75

 

 

 

219

 

 

 

233

 

Impairment of long-lived assets - Pulp and Paper

 

 

32

 

 

 

 

 

 

32

 

 

 

 

Impairment of long-lived assets - Personal Care

 

 

1

 

 

 

 

 

 

26

 

 

 

 

Consolidated depreciation and amortization and

   impairment of long-lived assets

 

 

105

 

 

 

75

 

 

 

277

 

 

 

233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pulp and Paper

 

 

31

 

 

 

135

 

 

 

237

 

 

 

290

 

Personal Care

 

 

2

 

 

 

(3

)

 

 

(24

)

 

 

7

 

Corporate

 

 

(4

)

 

 

(18

)

 

 

(35

)

 

 

(44

)

Consolidated operating income

 

 

29

 

 

 

114

 

 

 

178

 

 

 

253

 

Interest expense, net

 

 

12

 

 

 

15

 

 

 

38

 

 

 

47

 

Non-service components of net periodic benefit cost

 

 

(2

)

 

 

(4

)

 

 

(7

)

 

 

(13

)

Earnings before income taxes and equity loss

 

 

19

 

 

 

103

 

 

 

147

 

 

 

219

 

Income tax (benefit) expense

 

 

(1

)

 

 

3

 

 

 

28

 

 

 

22

 

Equity loss, net of taxes

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Net earnings

 

 

20

 

 

 

99

 

 

 

118

 

 

 

196

 

 

 

33

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16.

_________________

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The following information is presented as required under Rule 3-10 of Regulation S-X, in connection with the Company’s issuance of debt securities that are fully and unconditionally guaranteed by Domtar’s significant 100% owned domestic subsidiaries, including Domtar Paper Company, LLC, Domtar Industries LLC (and subsidiaries, excluding Domtar Funding LLC), Domtar A.W. LLC, Attends Healthcare Products Inc., EAM Corporation, Associated Hygienic Products LLC and Home Delivery Incontinent Supplies Co., (“Guarantor Subsidiaries”), on a joint and several basis. The Guaranteed Debt is not guaranteed by certain of Domtar’s foreign and non-significant domestic subsidiaries, all 100% owned, (collectively the “Non-Guarantor Subsidiaries”). A subsidiary’s guarantee may be released in certain customary circumstances, such as if the subsidiary is sold or sells all of its assets, if the subsidiary’s guarantee of the Credit Agreement is terminated or released and if the requirements for legal defeasance to discharge the indenture have been satisfied.

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at September 30, 2019 and December 31, 2018, the Statements of Earnings and Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 and the Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.

 

 

 

For the three months ended

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

 

 

 

 

 

Guarantor

 

 

Guarantor

 

 

Consolidating

 

 

 

 

 

AND COMPREHENSIVE INCOME (LOSS)

 

Parent

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales

 

 

 

 

 

1,060

 

 

 

459

 

 

 

(236

)

 

 

1,283

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

 

 

 

891

 

 

 

386

 

 

 

(236

)

 

 

1,041

 

Depreciation and amortization

 

 

 

 

 

51

 

 

 

21

 

 

 

 

 

 

72

 

Selling, general and administrative

 

 

 

 

 

59

 

 

 

35

 

 

 

 

 

 

94

 

Impairment of long-lived assets

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

33

 

Closure and restructuring costs

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Other operating loss, net

 

 

 

 

 

1

 

 

 

2

 

 

 

 

 

 

3

 

 

 

 

 

 

 

1,046

 

 

 

444

 

 

 

(236

)

 

 

1,254

 

Operating income

 

 

 

 

 

14

 

 

 

15

 

 

 

 

 

 

29

 

Interest expense (income), net

 

 

18

 

 

 

18

 

 

 

(24

)

 

 

 

 

 

12

 

Non-service components of net periodic benefit cost

 

 

 

 

 

1

 

 

 

(3

)

 

 

 

 

 

(2

)

(Loss) earnings before income taxes

 

 

(18

)

 

 

(5

)

 

 

42

 

 

 

 

 

 

19

 

Income tax (benefit) expense

 

 

(4

)

 

 

(2

)

 

 

5

 

 

 

 

 

 

(1

)

Share in earnings of equity accounted investees

 

 

34

 

 

 

37

 

 

 

 

 

 

(71

)

 

 

 

Net earnings

 

 

20

 

 

 

34

 

 

 

37

 

 

 

(71

)

 

 

20

 

Other comprehensive loss

 

 

(38

)

 

 

(37

)

 

 

(33

)

 

 

70

 

 

 

(38

)

Comprehensive (loss) income

 

 

(18

)

 

 

(3

)

 

 

4

 

 

 

(1

)

 

 

(18

)

 

 

34

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

 

 

 

For the nine months ended

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

 

 

 

 

 

Guarantor

 

 

Guarantor

 

 

Consolidating

 

 

 

 

 

AND COMPREHENSIVE INCOME

 

Parent

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales

 

 

 

 

 

3,268

 

 

 

1,478

 

 

 

(770

)

 

 

3,976

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

 

 

 

2,746

 

 

 

1,196

 

 

 

(770

)

 

 

3,172

 

Depreciation and amortization

 

 

 

 

 

155

 

 

 

64

 

 

 

 

 

 

219

 

Selling, general and administrative

 

 

7

 

 

 

170

 

 

 

145

 

 

 

 

 

 

322

 

Impairment of long-lived assets

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

58

 

Closure and restructuring costs

 

 

 

 

 

21

 

 

 

2

 

 

 

 

 

 

23

 

Other operating (income) loss, net

 

 

 

 

 

(3

)

 

 

7

 

 

 

 

 

 

4

 

 

 

 

7

 

 

 

3,147

 

 

 

1,414

 

 

 

(770

)

 

 

3,798

 

Operating (loss) income

 

 

(7

)

 

 

121

 

 

 

64

 

 

 

 

 

 

178

 

Interest expense (income), net

 

 

52

 

 

 

60

 

 

 

(74

)

 

 

 

 

 

38

 

Non-service components of net periodic benefit cost

 

 

 

 

 

1

 

 

 

(8

)

 

 

 

 

 

(7

)

(Loss) earnings before income taxes and equity loss

 

 

(59

)

 

 

60

 

 

 

146

 

 

 

 

 

 

147

 

Income tax (benefit) expense

 

 

(13

)

 

 

12

 

 

 

29

 

 

 

 

 

 

28

 

Equity loss, net of taxes

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share in earnings of equity accounted investees

 

 

164

 

 

 

116

 

 

 

 

 

 

(280

)

 

 

 

Net earnings

 

 

118

 

 

 

164

 

 

 

116

 

 

 

(280

)

 

 

118

 

Other comprehensive income (loss)

 

 

5

 

 

 

11

 

 

 

(8

)

 

 

(3

)

 

 

5

 

Comprehensive income

 

 

123

 

 

 

175

 

 

 

108

 

 

 

(283

)

 

 

123

 

 

 

 

For the three months ended

 

 

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

 

 

 

 

 

Guarantor

 

 

Guarantor

 

 

Consolidating

 

 

 

 

 

AND COMPREHENSIVE INCOME

 

Parent

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales

 

 

 

 

 

1,115

 

 

 

559

 

 

 

(307

)

 

 

1,367

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

 

 

 

954

 

 

 

412

 

 

 

(307

)

 

 

1,059

 

Depreciation and amortization

 

 

 

 

 

53

 

 

 

22

 

 

 

 

 

 

75

 

Selling, general and administrative

 

 

4

 

 

 

31

 

 

 

80

 

 

 

 

 

 

115

 

Other operating (income) loss, net

 

 

 

 

 

(1

)

 

 

5

 

 

 

 

 

 

4

 

 

 

 

4

 

 

 

1,037

 

 

 

519

 

 

 

(307

)

 

 

1,253

 

Operating (loss) income

 

 

(4

)

 

 

78

 

 

 

40

 

 

 

 

 

 

114

 

Interest expense (income), net

 

 

15

 

 

 

23

 

 

 

(23

)

 

 

 

 

 

15

 

Non-service components of net periodic benefit cost

 

 

 

 

 

1

 

 

 

(5

)

 

 

 

 

 

(4

)

(Loss) earnings before income taxes

 

 

(19

)

 

 

54

 

 

 

68

 

 

 

 

 

 

103

 

Income tax (benefit) expense

 

 

(11

)

 

 

 

 

 

14

 

 

 

 

 

 

3

 

Equity loss, net of taxes

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share in earnings of equity accounted investees

 

 

107

 

 

 

53

 

 

 

 

 

 

(160

)

 

 

 

Net earnings

 

 

99

 

 

 

107

 

 

 

53

 

 

 

(160

)

 

 

99

 

Other comprehensive income

 

 

21

 

 

 

21

 

 

 

13

 

 

 

(34

)

 

 

21

 

Comprehensive income

 

 

120

 

 

 

128

 

 

 

66

 

 

 

(194

)

 

 

120

 

 

35

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

 

 

 

For the nine months ended

 

 

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

 

 

 

 

 

Guarantor

 

 

Guarantor

 

 

Consolidating

 

 

 

 

 

AND COMPREHENSIVE INCOME

 

Parent

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales

 

 

 

 

 

3,287

 

 

 

1,671

 

 

 

(893

)

 

 

4,065

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

 

 

 

 

2,840

 

 

 

1,292

 

 

 

(893

)

 

 

3,239

 

Depreciation and amortization

 

 

 

 

 

164

 

 

 

69

 

 

 

 

 

 

233

 

Selling, general and administrative

 

 

11

 

 

 

99

 

 

 

233

 

 

 

 

 

 

343

 

Other operating income, net

 

 

 

 

 

(2

)

 

 

(1

)

 

 

 

 

 

(3

)

 

 

 

11

 

 

 

3,101

 

 

 

1,593

 

 

 

(893

)

 

 

3,812

 

Operating (loss) income

 

 

(11

)

 

 

186

 

 

 

78

 

 

 

 

 

 

253

 

Interest expense (income), net

 

 

47

 

 

 

68

 

 

 

(68

)

 

 

 

 

 

47

 

Non-service components of net periodic benefit cost

 

 

 

 

 

1

 

 

 

(14

)

 

 

 

 

 

(13

)

(Loss) earnings before income taxes

 

 

(58

)

 

 

117

 

 

 

160

 

 

 

 

 

 

219

 

Income tax (benefit) expense

 

 

(19

)

 

 

12

 

 

 

29

 

 

 

 

 

 

22

 

Equity loss, net of taxes

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share in earnings of equity accounted investees

 

 

235

 

 

 

130

 

 

 

 

 

 

(365

)

 

 

 

Net earnings

 

 

196

 

 

 

235

 

 

 

130

 

 

 

(365

)

 

 

196

 

Other comprehensive loss

 

 

(54

)

 

 

(54

)

 

 

(47

)

 

 

101

 

 

 

(54

)

Comprehensive income

 

 

142

 

 

 

181

 

 

 

83

 

 

 

(264

)

 

 

142

 

 

 

36

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

 

Guarantor

 

 

Consolidating

 

 

 

 

 

CONDENSED CONSOLIDATING BALANCE SHEET

 

Parent

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Assets

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

4

 

 

 

99

 

 

 

(5

)

 

 

98

 

Receivables

 

 

 

 

 

148

 

 

 

470

 

 

 

 

 

 

618

 

Inventories

 

 

 

 

 

555

 

 

 

243

 

 

 

 

 

 

798

 

Prepaid expenses

 

 

9

 

 

 

15

 

 

 

9

 

 

 

 

 

 

33

 

Income and other taxes receivable

 

 

59

 

 

 

12

 

 

 

27

 

 

 

(45

)

 

 

53

 

Intercompany accounts

 

 

436

 

 

 

465

 

 

 

155

 

 

 

(1,056

)

 

 

 

Total current assets

 

 

504

 

 

 

1,199

 

 

 

1,003

 

 

 

(1,106

)

 

 

1,600

 

Property, plant and equipment, net

 

 

 

 

 

1,693

 

 

 

806

 

 

 

 

 

 

2,499

 

Operating lease right-of-use assets

 

 

 

 

 

63

 

 

 

14

 

 

 

 

 

 

77

 

Intangible assets, net

 

 

 

 

 

248

 

 

 

320

 

 

 

 

 

 

568

 

Investments in affiliates

 

 

3,821

 

 

 

2,705

 

 

 

 

 

 

(6,526

)

 

 

 

Intercompany long-term advances

 

 

5

 

 

 

1

 

 

 

1,684

 

 

 

(1,690

)

 

 

 

Other assets

 

 

20

 

 

 

35

 

 

 

113

 

 

 

(28

)

 

 

140

 

Total assets

 

 

4,350

 

 

 

5,944

 

 

 

3,940

 

 

 

(9,350

)

 

 

4,884

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank indebtedness

 

 

5

 

 

 

1

 

 

 

 

 

 

(5

)

 

 

1

 

Trade and other payables

 

 

58

 

 

 

371

 

 

 

217

 

 

 

 

 

 

646

 

Intercompany accounts

 

 

245

 

 

 

222

 

 

 

589

 

 

 

(1,056

)

 

 

 

Income and other taxes payable

 

 

2

 

 

 

45

 

 

 

26

 

 

 

(45

)

 

 

28

 

Operating lease liabilities due within one year

 

 

 

 

 

20

 

 

 

6

 

 

 

 

 

 

26

 

Long-term debt due within one year

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total current liabilities

 

 

310

 

 

 

659

 

 

 

839

 

 

 

(1,106

)

 

 

702

 

Long-term debt

 

 

838

 

 

 

 

 

 

100

 

 

 

 

 

 

938

 

Operating lease liabilities

 

 

 

 

 

59

 

 

 

9

 

 

 

 

 

 

68

 

Intercompany long-term loans

 

 

733

 

 

 

956

 

 

 

1

 

 

 

(1,690

)

 

 

 

Deferred income taxes and other

 

 

 

 

 

351

 

 

 

156

 

 

 

(28

)

 

 

479

 

Other liabilities and deferred credits

 

 

30

 

 

 

98

 

 

 

130

 

 

 

 

 

 

258

 

Shareholders' equity

 

 

2,439

 

 

 

3,821

 

 

 

2,705

 

 

 

(6,526

)

 

 

2,439

 

Total liabilities and shareholders' equity

 

 

4,350

 

 

 

5,944

 

 

 

3,940

 

 

 

(9,350

)

 

 

4,884

 

 

37

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

 

Guarantor

 

 

Consolidating

 

 

 

 

 

CONDENSED CONSOLIDATING BALANCE SHEET

 

Parent

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

111

 

 

 

 

 

 

111

 

Receivables

 

 

 

 

 

146

 

 

 

524

 

 

 

 

 

 

670

 

Inventories

 

 

 

 

 

525

 

 

 

237

 

 

 

 

 

 

762

 

Prepaid expenses

 

 

6

 

 

 

12

 

 

 

6

 

 

 

 

 

 

24

 

Income and other taxes receivable

 

 

1

 

 

 

3

 

 

 

18

 

 

 

 

 

 

22

 

Intercompany accounts

 

 

498

 

 

 

392

 

 

 

35

 

 

 

(925

)

 

 

 

Total current assets

 

 

505

 

 

 

1,078

 

 

 

931

 

 

 

(925

)

 

 

1,589

 

Property, plant and equipment, net

 

 

 

 

 

1,802

 

 

 

803

 

 

 

 

 

 

2,605

 

Intangible assets, net

 

 

 

 

 

256

 

 

 

341

 

 

 

 

 

 

597

 

Investments in affiliates

 

 

3,645

 

 

 

2,611

 

 

 

 

 

 

(6,256

)

 

 

 

Intercompany long-term advances

 

 

5

 

 

 

1

 

 

 

1,569

 

 

 

(1,575

)

 

 

 

Other assets

 

 

18

 

 

 

26

 

 

 

104

 

 

 

(14

)

 

 

134

 

Total assets

 

 

4,173

 

 

 

5,774

 

 

 

3,748

 

 

 

(8,770

)

 

 

4,925

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

 

52

 

 

 

464

 

 

 

241

 

 

 

 

 

 

757

 

Intercompany accounts

 

 

125

 

 

 

264

 

 

 

536

 

 

 

(925

)

 

 

 

Income and other taxes payable

 

 

1

 

 

 

12

 

 

 

12

 

 

 

 

 

 

25

 

Long-term debt due within one year

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Total current liabilities

 

 

178

 

 

 

740

 

 

 

790

 

 

 

(925

)

 

 

783

 

Long-term debt

 

 

793

 

 

 

 

 

 

60

 

 

 

 

 

 

853

 

Intercompany long-term loans

 

 

636

 

 

 

938

 

 

 

1

 

 

 

(1,575

)

 

 

 

Deferred income taxes and other

 

 

 

 

 

335

 

 

 

155

 

 

 

(14

)

 

 

476

 

Other liabilities and deferred credits

 

 

28

 

 

 

116

 

 

 

131

 

 

 

 

 

 

275

 

Shareholders' equity

 

 

2,538

 

 

 

3,645

 

 

 

2,611

 

 

 

(6,256

)

 

 

2,538

 

Total liabilities and shareholders' equity

 

 

4,173

 

 

 

5,774

 

 

 

3,748

 

 

 

(8,770

)

 

 

4,925

 

 

The Company has revised the Receivables balance within the December 31, 2018 Guarantor Subsidiaries column (decreased) and Non-Guarantor Subsidiaries column (increased) by $198 million, respectively, as receivables from third parties for the Guarantor Subsidiaries were netted with intercompany receivables.

 

38

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

 

 

 

For the nine months ended

 

 

 

September 30, 2019

 

CONDENSED CONSOLIDATING STATEMENT OF

   CASH FLOWS

 

Parent

 

 

Guarantor

Subsidiaries

 

 

Non-

Guarantor

Subsidiaries

 

 

Consolidating

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

118

 

 

 

164

 

 

 

116

 

 

 

(280

)

 

 

118

 

Changes in operating and intercompany assets and

   liabilities and non-cash items, included in net earnings

 

(20

)

 

 

(122

)

 

 

26

 

 

 

280

 

 

 

164

 

Cash flows from operating activities

 

 

98

 

 

 

42

 

 

 

142

 

 

 

 

 

 

282

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

 

 

 

(92

)

 

 

(65

)

 

 

 

 

 

(157

)

Proceeds from disposals of property, plant and equipment

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Cash flows used for investing activities

 

 

 

 

 

(91

)

 

 

(65

)

 

 

 

 

 

(156

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend payments

 

 

(83

)

 

 

 

 

 

 

 

 

 

 

 

(83

)

Stock repurchase

 

 

(139

)

 

 

 

 

 

 

 

 

 

 

 

(139

)

Net change in bank indebtedness

 

 

5

 

 

 

1

 

 

 

1

 

 

 

(5

)

 

 

2

 

Change in revolving credit facility

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

45

 

Proceeds from receivables securitization facility

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

150

 

Repayments of receivables securitization facility

 

 

 

 

 

 

 

 

(110

)

 

 

 

 

 

(110

)

Repayments of long-term debt

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Increase in long-term advances to related parties

 

 

 

 

 

 

 

 

(127

)

 

 

127

 

 

 

 

Decrease in long-term advances to related parties

 

 

75

 

 

 

52

 

 

 

 

 

 

(127

)

 

 

 

Other

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Cash flows (used for) provided from financing activities

 

 

(98

)

 

 

53

 

 

 

(87

)

 

 

(5

)

 

 

(137

)

Net increase (decrease) in cash and cash equivalents

 

 

 

 

 

4

 

 

 

(10

)

 

 

(5

)

 

 

(11

)

Impact of foreign exchange on cash

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Cash and cash equivalents at beginning of period

 

 

 

 

 

 

 

 

111

 

 

 

 

 

 

111

 

Cash and cash equivalents at end of period

 

 

 

 

 

4

 

 

 

99

 

 

 

(5

)

 

 

98

 

39

 


DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2019

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

 

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

 

 

 

 

For the nine months ended

 

 

 

September 30, 2018

 

CONDENSED CONSOLIDATING STATEMENT OF

   CASH FLOWS

 

Parent

 

 

Guarantor

Subsidiaries

 

 

Non-

Guarantor

Subsidiaries

 

 

Consolidating

Adjustments

 

 

Consolidated

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

196

 

 

 

235

 

 

 

130

 

 

 

(365

)

 

 

196

 

Changes in operating and intercompany assets and

   liabilities and non-cash items, included in net earnings

 

(376

)

 

 

202

 

 

 

(50

)

 

 

365

 

 

 

141

 

Cash flows (used for) provided from operating activities

 

 

(180

)

 

 

437

 

 

 

80

 

 

 

 

 

 

337

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

 

 

 

(73

)

 

 

(38

)

 

 

 

 

 

(111

)

Proceeds from disposals of property, plant and equipment

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Other

 

 

 

 

 

(2

)

 

 

(4

)

 

 

 

 

 

(6

)

Cash flows used for investing activities

 

 

 

 

 

(75

)

 

 

(38

)

 

 

 

 

 

(113

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend payments

 

 

(81

)

 

 

 

 

 

 

 

 

 

 

 

(81

)

Repayments of receivables securitization facility

 

 

 

 

 

 

 

 

(25

)

 

 

 

 

 

(25

)

Increase in long-term advances to related parties

 

 

 

 

 

(368

)

 

 

(61

)

 

 

429

 

 

 

 

Decrease in long-term advances to related parties

 

 

429

 

 

 

 

 

 

 

 

 

(429

)

 

 

 

Other

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Cash flows provided from (used for) financing activities

 

 

349

 

 

 

(368

)

 

 

(86

)

 

 

 

 

 

(105

)

Net increase (decrease) in cash and cash equivalents

 

 

169

 

 

 

(6

)

 

 

(44

)

 

 

 

 

 

119

 

Impact of foreign exchange on cash

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Cash and cash equivalents at beginning of period

 

 

3

 

 

 

14

 

 

 

122

 

 

 

 

 

 

139

 

Cash and cash equivalents at end of period

 

 

172

 

 

 

8

 

 

 

76

 

 

 

 

 

 

256

 

 


40

 


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q. This MD&A should also be read in conjunction with the historical financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on February 22, 2019. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refer to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.

The information contained on our website, www.domtar.com, is not incorporated by reference into this Form 10-Q and should in no way be construed as a part of this or any other report that we file with or furnish to the SEC.

In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the three and nine months ended September 30, 2019 and 2018. The three month and nine month periods are also referred to as the third quarter and first nine months of 2019 and 2018. References to notes refer to footnotes to the consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q.

This MD&A is intended to provide investors with an understanding of our recent performance, financial condition and outlook. Topics discussed and analyzed include:

 

Overview

 

Highlights for the three month and nine month periods ended September 30, 2019

 

Outlook

 

Consolidated Results of Operations and Segment Review

 

Liquidity and Capital Resources

In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires lessees to recognize right-of-use assets and lease liabilities for all of their operating leases while continuing to recognize expenses in the Consolidated Statement of Earnings and Comprehensive Income (Loss) in a manner similar to previous accounting standards. We elected to initially apply the new leases standard as of January 1, 2019 with certain available practical expedients. No cumulative-effect adjustments on retained earnings were necessary as of January 1, 2019. The most significant impact of adopting the new standard was the recognition of right-of-use assets and lease liabilities for operating leases. The accounting for finance leases remains substantially unchanged. For all comparative periods prior to the adoption of the new leases standard, we will continue to report operating leases in the consolidated financial statements under ASC 840 “Leases” and provide the related required disclosures.

For more details, refer to Note 2 “Recent Accounting Pronouncements” and Note 9 “Leases” of the financial statements in this Quarterly Report on Form 10-Q.  

OVERVIEW

We design, manufacture, market and distribute a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of our business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. More than 50% of our pulp production is consumed internally to manufacture paper and other consumer products, with the balance sold as market pulp. We are the largest integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end users. We are also a marketer and producer of a broad line of incontinence care products as well as infant diapers. To learn more, visit www.domtar.com.


41

 


 

We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments.

Pulp and Paper: Our Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

Personal Care: Our Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2019

 

Operating income and net earnings decreased by 75% and 80%, respectively, from the third quarter of 2018

 

Sales decreased by 6% from the third quarter of 2018. Net average selling prices for pulp were down while net average selling prices for paper were up from the third quarter of 2018. Our manufactured paper volume was down while our pulp volume was up when compared to the third quarter of 2018. Our Personal Care business had lower volume when compared to third quarter of 2018

 

Recognition of a closure and restructuring charge and accelerated depreciation associated with our decision to permanently close two paper machines within our Pulp and Paper segment of $5 million and $32 million, respectively

 

We repurchased $131 million of our common stock (cash portion) and paid $28 million in dividends

HIGHLIGHTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2019  

 

Operating income and net earnings decreased by 30% and 40%, respectively, from the first nine months of 2018

 

Sales decreased by 2% from the first nine months of 2018. Net average selling prices for paper were up whereas net average selling prices for pulp were down from the first nine months of 2018. Our manufactured paper volume was down and our Personal Care business had lower volume when compared to the first nine months of 2018

 

Recognition of a closure and restructuring charge and accelerated depreciation associated with our decision to permanently close two paper machine within our Pulp and Paper segment in the third quarter of 2019, of $5 million and $32 million, respectively

 

We repurchased $139 million of our common stock (cash portion) and paid $83 million in dividends

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

 

Variance

 

FINANCIAL HIGHLIGHTS

 

September 30, 2019

 

 

September 30, 2018

 

 

$

 

 

%

 

 

September 30, 2019

 

 

September 30, 2018

 

 

$

 

 

%

 

(In millions of dollars, unless otherwise noted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

1,283

 

 

$

1,367

 

 

 

(84

)

 

 

-6

%

 

$

3,976

 

 

$

4,065

 

 

 

(89

)

 

 

-2

%

Operating income

 

29

 

 

 

114

 

 

 

(85

)

 

 

-75

%

 

 

178

 

 

 

253

 

 

 

(75

)

 

 

-30

%

Net earnings

 

 

20

 

 

 

99

 

 

 

(79

)

 

 

-80

%

 

 

118

 

 

 

196

 

 

 

(78

)

 

 

-40

%

Net earnings per common share

   (in dollars)1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

1.57

 

 

 

(1.24

)

 

 

-79

%

 

$

1.89

 

 

$

3.12

 

 

 

(1.23

)

 

 

-39

%

Diluted

 

$

0.32

 

 

$

1.57

 

 

 

(1.25

)

 

 

-80

%

 

$

1.88

 

 

$

3.11

 

 

 

(1.23

)

 

 

-40

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2019

 

 

At December 31, 2018

 

Total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,884

 

 

$

4,925

 

Total long-term debt, including current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

939

 

 

$

854

 

 

1

See Note 4 “Earnings per Common Share” of the financial statements in this Quarterly Report on Form 10-Q for more information on the calculation of net earnings per common share.

42

 


 

OUTLOOK

For the fourth quarter, maintenance is expected to be higher while paper is expected to be negatively impacted in part by a seasonally unfavorable mix. We anticipate some volatility in softwood and fluff pulp markets while Personal Care is expected to benefit from our margin improvement plan and increased sales driven by a stronger order book.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

This section presents a discussion and analysis of our third quarter and first nine months of 2019 and 2018 sales, operating income (loss) and other information relevant to the understanding of our results of operations.

 

 

ANALYSIS OF NET SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Business Segment

 

Three months ended

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

$

 

 

%

 

 

September 30, 2019

 

 

September 30, 2018

 

 

$

 

 

%

 

Pulp and Paper

 

$

1,071

 

 

$

1,146

 

 

 

(75

)

 

-7%

 

 

$

3,314

 

 

$

3,369

 

 

 

(55

)

 

-2%

 

Personal Care

 

 

227

 

 

 

237

 

 

 

(10

)

 

-4%

 

 

 

711

 

 

 

746

 

 

 

(35

)

 

-5%

 

Total for reportable segments

 

 

1,298

 

 

 

1,383

 

 

 

(85

)

 

-6%

 

 

 

4,025

 

 

 

4,115

 

 

 

(90

)

 

-2%

 

Intersegment sales

 

 

(15

)

 

 

(16

)

 

 

1

 

 

 

 

 

 

 

(49

)

 

 

(50

)

 

 

1

 

 

 

 

 

Consolidated

 

 

1,283

 

 

 

1,367

 

 

 

(84

)

 

-6%

 

 

 

3,976

 

 

 

4,065

 

 

 

(89

)

 

-2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shipments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paper – manufactured

(in thousands of ST)

 

 

672

 

 

 

727

 

 

 

(55

)

 

-8%

 

 

 

2,089

 

 

 

2,250

 

 

 

(161

)

 

-7%

 

Communication Papers

 

 

563

 

 

 

596

 

 

 

(33

)

 

-6%

 

 

 

1,745

 

 

 

1,851

 

 

 

(106

)

 

-6%

 

Specialty and Packaging

 

 

109

 

 

 

131

 

 

 

(22

)

 

-17%

 

 

 

344

 

 

 

399

 

 

 

(55

)

 

-14%

 

Paper - sourced from third parties (in thousands of ST)

 

 

25

 

 

 

30

 

 

 

(5

)

 

-17%

 

 

 

69

 

 

 

84

 

 

 

(15

)

 

-18%

 

Paper - total (in thousands of ST)

 

 

697

 

 

 

757

 

 

 

(60

)

 

-8%

 

 

 

2,158

 

 

 

2,334

 

 

 

(176

)

 

-8%

 

Pulp (in thousands of ADMT)

 

 

416

 

 

 

390

 

 

 

26

 

 

7%

 

 

 

1,135

 

 

 

1,141

 

 

 

(6

)

 

-1%

 

 

 

ANALYSIS OF CHANGES IN SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Business Segment

 

Third quarter of 2019 versus Third quarter of 2018

 

 

First nine months of 2019 versus First nine months of 2018

 

 

 

% Change in Net Sales due to

 

 

% Change in Net Sales due to

 

 

 

Net Price

 

 

Volume / Mix

 

 

Currency

 

 

Total

 

 

Net Price

 

 

Volume / Mix

 

 

Currency

 

 

Total

 

Pulp and Paper

 

 

-3

%

 

 

-4

%

 

 

-

%

 

 

-7

%

 

 

4

%

 

 

-6

%

 

 

-

%

 

 

-2

%

Personal Care

 

 

-

%

 

 

-2

%

 

 

-2

%

 

 

-4

%

 

 

-

%

 

 

-2

%

 

 

-3

%

 

 

-5

%

Consolidated sales

 

 

-2

%

 

 

-3

%

 

 

-1

%

 

 

-6

%

 

 

3

%

 

 

-4

%

 

 

-1

%

 

 

-2

%

 

 

ANALYSIS OF OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Nine months ended

 

By Business Segment

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

September 30, 2019 (a)

 

 

September 30, 2018

 

 

$

 

 

%

 

 

September 30, 2019 (b)

 

 

September 30, 2018

 

 

$

 

 

%

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pulp and Paper

 

$

31

 

 

$

135

 

 

 

(104

)

 

 

-77

%

 

$

237

 

 

$

290

 

 

 

(53

)

 

 

-18

%

Personal Care

 

 

2

 

 

 

(3

)

 

 

5

 

 

 

167

%

 

 

(24

)

 

 

7

 

 

 

(31

)

 

 

-443

%

Corporate

 

 

(4

)

 

 

(18

)

 

 

14

 

 

 

78

%

 

 

(35

)

 

 

(44

)

 

 

9

 

 

 

20

%

Consolidated operating income

 

 

29

 

 

 

114

 

 

 

(85

)

 

 

-75

%

 

 

178

 

 

 

253

 

 

 

(75

)

 

 

-30

%

 

43

 


 

(a)

Includes closure and restructuring charges as well as accelerated depreciation under Impairment of long-lived assets, related to our announced margin improvement plan within our Personal Care segment, of $6 million and $1 million, respectively. Includes closure and restructuring charges as well as accelerated depreciation under Impairment of long-lived assets, related to our paper machine closures within our Pulp and Paper segment, of $5 million and $32 million, respectively.

(b)

Includes closure and restructuring charges as well as accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets, related to our announced margin improvement plan within our Personal Care segment, of $18 million and $26 million, respectively. Includes closure and restructuring charges as well as accelerated depreciation under Impairment of long-lived assets, related to our paper machine closures within our Pulp and Paper segment, of $5 million and $32 million, respectively.

 

Third quarter of 2019 versus Third quarter of 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ Change in Segmented Operating Income (Loss) due to

 

 

 

Volume/Mix

 

 

Net Price

 

 

Input Costs (a)

 

 

Operating

Expenses  (b)

 

 

Currency

 

Depreciation/

Impairment (c)

 

 

Restructuring (d)

 

 

Other Income/

Expense (e)

 

 

Total

 

Pulp and Paper

 

 

(6

)

 

 

(31

)

 

 

(18

)

 

 

(16

)

 

 

2

 

 

(30

)

 

 

(5

)

 

 

 

 

 

(104

)

Personal Care

 

 

2

 

 

 

 

 

 

8

 

 

 

1

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

5

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

14

 

Consolidated operating income (loss)

 

 

(4

)

 

 

(31

)

 

 

(10

)

 

 

(2

)

 

 

2

 

 

(30

)

 

 

(11

)

 

 

1

 

 

 

(85

)

 

(a)

Includes raw materials (such as fiber, chemicals, nonwovens and super absorbent polymers) and energy costs.

(b)

Includes maintenance, freight costs, selling, general and administrative (“SG&A”) expenses and other costs.

(c)

Depreciation charges were lower by $3 million in the third quarter of 2019, excluding foreign currency impact. In the third quarter of 2019, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets related to our decision to permanently close two paper machines in our Pulp and Paper segment and $1 million of accelerated depreciation under Impairment of long-lived asset, related to our margin improvement plan in our Personal Care segment.

(d)

We recorded $5 million of inventory obsolescence, $4 million of asset relocation and other costs and $2 million of severance and termination costs under Closure and restructuring costs in the third quarter of 2019 related to our announced margin improvement plan within the Personal Care segment as well as our decision to permanently close two paper machines in our Pulp and Paper segment. There were no restructuring charges in the third quarter of 2018.

(e)

Third quarter of 2019 other operating

income/expense includes:

Third quarter of 2018 other operating

income/expense includes:

- Bad debt expense ($1 million)

- Environmental provision ($1 million)

- Foreign currency loss on working capital items

  ($1 million)

- Environmental provision ($2 million)

- Foreign currency loss on working capital items

  ($2 million)

Commentary –Third quarter of 2019 compared to Third quarter of 2018

Interest Expense, net

We incurred $12 million of net interest expense in the third quarter of 2019, a decrease of $3 million compared to net interest expense of $15 million in the third quarter of 2018. The net interest expense was impacted by the repayment of the $300 million Term Loan in the fourth quarter of 2018.

Income Taxes

For the third quarter of 2019, our income tax benefit was $1 million, consisting of a current income tax benefit of $3 million and a deferred income tax expense of $2 million. This compares to an income tax expense of $3 million in the third quarter of 2018, consisting of a current income tax benefit of $5 million and a deferred income tax expense of $8 million. We made income tax payments, net of refunds, of $5 million during the third quarter of 2019. The effective tax rate was -5% compared with an effective tax rate of 3% in the third quarter of 2018. Our effective tax rate for the third quarter of 2019 was favorably impacted by additional R&D tax credits in the U.S. and Spain. Our effective tax rate for the third quarter of 2018 was favorably impacted by the income tax effects of the U.S. Tax Cuts and Jobs Act (the “U.S. Tax Reform”), including the benefit related to an additional pension contribution, as well as the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations. The effective tax rates for both the third quarter of 2019 and the third quarter of 2018 were favorably impacted by the finalization of certain estimates in connection with the filing of our 2018 and 2017 income tax returns, respectively.

44

 


 

Our tax provision for interim periods is determined using an estimate of our annual effective tax rate and then making adjustments for discrete items arising in that quarter. In each interim quarter, we update our estimate of the annual effective tax rate and, if our estimated annual tax rate changes, we make a cumulative adjustment in that quarter. The effective tax rate for the third quarter of 2019 was favorably impacted by such an adjustment.

 

 

 

First nine months of 2019 versus First nine months of 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ Change in Segmented Operating Income (Loss) due to

 

 

 

Volume/Mix

 

 

Net Price

 

 

Input Costs (a)

 

 

Operating

Expenses  (b)

 

 

Currency

 

 

Depreciation/

Impairment (c)

 

 

Restructuring (d)

 

 

Other Income/

Expense (e)

 

 

Total

 

Pulp and Paper

 

 

(32

)

 

 

123

 

 

 

(54

)

 

 

(61

)

 

 

9

 

 

 

(24

)

 

 

(5

)

 

 

(9

)

 

 

(53

)

Personal Care

 

 

(3

)

 

 

1

 

 

 

9

 

 

 

7

 

 

 

(5

)

 

 

(21

)

 

 

(18

)

 

 

(1

)

 

 

(31

)

Corporate

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

9

 

Consolidated operating income (loss)

 

 

(35

)

 

 

124

 

 

 

(45

)

 

 

(48

)

 

 

4

 

 

 

(45

)

 

 

(23

)

 

 

(7

)

 

 

(75

)

 

(a)

Includes raw materials (such as fiber, chemicals, nonwovens and super absorbent polymers) and energy costs.

(b)

Includes maintenance, freight costs, SG&A expenses and other costs.

(c)

Depreciation charges were lower by $13 million in the first nine months of 2019, excluding foreign currency impact. In the first nine months of 2019, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets related to our decision to permanently close two paper machines in our Pulp and Paper segment and $26 million of accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long-lived assets, related to our margin improvement plan in our Personal Care segment.

(d)

We recorded $11 million of asset relocation and other costs, $6 million of severance and termination costs and $6 million of inventory obsolescence under Closure and restructuring costs in the first nine months of 2019 related to our announced margin improvement plan within the Personal Care segment as well as our decision to permanently close two paper machines in our Pulp and Paper segment. There were no restructuring charges in the first nine months of 2018.

(e)

First nine months of 2019 other operating income/

expense includes:

First nine months of 2018 other operating income/

expense includes:

- Foreign exchange loss on working capital items ($3 million)

- Environmental provision ($2 million)

- Bad debt expense ($2 million)

- Other income ($3 million)

- Gain on sale of property, plant and equipment ($4 million)

- Foreign exchange gain on working capital items ($1 million)

- Environmental provision ($2 million)

- Bad debt expense ($1 million)

- Other income ($1 million)

Commentary – First nine months of 2019 compared to first nine months of 2018

Interest Expense, net

We incurred $38 million of net interest expense in the first nine months of 2019, a decrease of $9 million compared to net interest expense of $47 million in the first nine months of 2018. The net interest expense was impacted by the repayment of the $300 million Term Loan in the fourth quarter of 2018.  

Income Taxes

For the first nine months of 2019, our income tax expense was $28 million, consisting of a current income tax expense of $27 million and a deferred income tax expense of $1 million. This compares to an income tax expense of $22 million in the first nine months of 2018, consisting of a current income tax expense of $19 million and a deferred income tax expense of $3 million. We made income tax payments, net of refunds, of $55 million during the first nine months of 2019. The effective tax rate was 19% compared to an effective tax rate of 10% in the first nine months of 2018. Our effective tax rate for the first nine months of 2019 was favorably impacted by the recognition of additional R&D credits in the U.S. and Spain and by an enacted law change in the state of Arkansas, which were mostly offset by the recording of a valuation allowance against certain state tax credit carryforwards. Our effective tax rate for the first nine months of 2018 was favorably impacted by the income tax effects of the U.S. Tax Reform, including the benefit related to an additional pension contribution, the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations, as well as by enacted law changes in Sweden and several U.S. states. The effective tax rates for both the first nine months of 2019 and the first nine months of 2018 were favorably impacted by the finalization of certain estimates in connection with the filing of our 2018 and 2017 income tax returns, respectively.

 

45

 


 

During the second quarter of 2019, the IRS proposed additional GILTI regulations, which are still pending approval. While we are still evaluating the impact, we do not expect those proposed regulations to have a material impact on our consolidated financial statements.

Commentary – Segment Review

Pulp and Paper Segment

Sales in our Pulp and Paper segment decreased by $75 million, or 7%, when compared to sales in the third quarter of 2018. This decrease in sales is mostly due to a decrease in net average selling prices for pulp as well as a decrease in our paper sales volumes. This decrease was partially offset by an increase in net average selling prices for paper and increase in pulp sales volumes.

Operating income in our Pulp and Paper segment amounted to $31 million in the third quarter of 2019, a decrease of $104 million, when compared to operating income of $135 million in the third quarter of 2018. Our results were negatively impacted by:

 

Lower net average selling prices for pulp partially offset by higher net average selling prices for paper ($31 million)

 

Higher depreciation/impairment charges ($30 million) mostly due to our decision to permanently close two paper machines

 

Higher input costs ($18 million) mostly related to higher costs of fiber due to unfavorable market conditions

 

Higher operating expenses ($16 million) mostly due to higher maintenance and fixed costs due to timing of major maintenance and lower production, partially offset by lower freight costs when compared to the third quarter of 2018

 

Lower volume/mix ($6 million)

 

Higher restructuring charges ($5 million) due to our decision to permanently close two paper machines

 

These decreases were partially offset by:

 

Positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($2 million)

Sales in our Pulp and Paper segment decreased by $55 million, or 2%, when compared to sales in the first nine months of 2018. This decrease in sales is mostly due to decrease in our paper sales volumes as well as a decrease in net average selling prices for pulp. This decrease was partially offset by an increase in net average selling prices for paper.

Operating income in our Pulp and Paper segment amounted to $237 million in the first nine months of 2019, a decrease of $53 million, when compared to operating income of $290 million in the first nine months of 2018. Our results were negatively impacted by:

 

Higher operating expenses ($61 million) mostly related to higher maintenance and fixed costs due to timing of major maintenance and lower production when compared to the first nine months of 2018

 

Higher input costs ($54 million) mostly related to higher costs of fiber due, in part, to wet weather in the first nine months of 2019 as well as unfavorable market conditions, partially offset by lower chemicals and energy costs

 

Lower volume/mix ($32 million)

 

Higher depreciation/impairment charges ($24 million) due to our decision to permanently close two paper machines, partially offset by certain assets being fully depreciated

 

Higher other expense ($9 million)

 

Higher restructuring charges ($5 million)

These decreases were partially offset by:

 

Higher net average selling prices for paper, partially offset by lower net average selling prices for pulp ($123 million)

 

Positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($9 million)

The markets in which our pulp and paper business operate are highly competitive with well-established domestic and foreign manufacturers. Most of our products are commodities that are widely available from other producers as well. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. We also compete on the basis of product quality, breadth of offering and service

46

 


 

solutions. Further, we compete against electronic transmission and document storage alternatives. As a result of such competition, we are experiencing ongoing decreasing demand for most of our existing paper products.

 

The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively priced pulp products.

 

For the fourth quarter, maintenance is expected to be higher while paper is expected to be negatively impacted in part by a seasonally unfavorable mix. We anticipate some volatility in softwood and fluff pulp markets.

Paper machine closures

On September 27, 2019, our Board of Directors approved the decision to permanently shut down two paper machines, which was announced on October 3, 2019. The closures will take place at our Ashdown, Arkansas pulp and paper mill and our Port Huron, Michigan paper mill. These measures will reduce our annual uncoated freesheet paper capacity by approximately 204,000 short tons, and will result in a workforce reduction of approximately 100 employees.

 

Our Ashdown mill will continue to operate one paper machine with an annual uncoated freesheet paper production capacity of 200,000 short tons. Additionally, the mill operates a fluff pulp machine with the flexibility to produce softwood pulp depending on market conditions. As a result of the closure of the paper machine, the mill will produce an incremental 70,000 ADMT of softwood and fluff pulp, which will ramp up over the next 12 months.

 

The closure of our Port Huron paper machine will take effect by mid-November. The Port Huron mill will continue to produce a variety of technical and specialty papers for a broad range of customers utilizing three machines with a total annual production capacity of 95,000 short tons.

 

During the third quarter of 2019, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets on the Consolidated Statement of Earnings and Comprehensive Income (Loss). Additionally, we recorded $1 million of severance and termination costs and $4 million of inventory obsolescence, under Closure and restructuring costs.

Personal Care Segment

Sales in our Personal Care segment decreased by $10 million, or 4%, when compared to sales in the third quarter of 2018. This decrease was mainly driven by lower volume and unfavorable foreign exchange, partially offset by favorable mix when compared to the third quarter of 2018.

Operating income increased by $5 million, in the third quarter of 2019 compared to the third quarter of 2018. Our results were positively impacted by:

 

Favorable input costs ($8 million) mostly due to lower raw material pricing

 

Favorable mix partially offset by lower sales volume ($2 million)

 

Lower operating expenses ($1 million)

These increases were partially offset by:

 

Higher closure and restructuring charges ($6 million) related to our margin improvement plan

Sales in our Personal Care segment decreased by $35 million, or 5%, when compared to sales in the first nine months of 2018. This decrease in sales was driven by lower volume as well as unfavorable foreign exchange, mostly due to the fluctuation between the U.S. dollar and the Euro, partially offset by favorable mix.

Operating income decreased by $31 million, in the first nine months of 2019 when compared to the first nine months of 2018. Our results were negatively impacted by:

 

Higher depreciation/impairment charge ($21 million) mostly due to the non-cash impairment of long-lived assets charge of $26 million recorded in the first nine months of 2019, related to our margin improvement plan

 

Higher closure and restructuring charges ($18 million) related to our margin improvement plan

 

Lower sales volume partially offset by favorable mix ($3 million)

 

Unfavorable foreign exchange ($5 million) mostly between the Euro and the U.S. dollar, net of our hedging program

 

Higher other expense ($1 million)

47

 


 

These decreases were partially offset by:

 

Favorable input costs ($9 million) mostly due to lower raw material pricing as well as insourcing initiatives

 

Lower operating expenses ($7 million) mostly due to lower SG&A expenses

 

Higher net average selling prices ($1 million)

In our absorbent hygiene products business, we compete in an industry with fundamental drivers for long-term growth; however, competitive market pressures in the healthcare and retail markets have grown significantly in recent years. Although the impact of such pressures presents some uncertainties, we expect them to result in lower than previously anticipated sales and operating margins.

While we expect to benefit from the overall increase in healthcare spending due to an aging population, the pressures to limit spending on healthcare may impact overall consumption or the channels in which consumption occurs. Additionally, excess industry capacity has increased pricing pressure in all markets and instigated a shift in the infant and adult private label retail space as competitors historically almost absent in our markets have increased their presence in such markets.

The principal methods and elements of competition remain brand recognition and loyalty, product innovation, quality and performance, price and marketing and distribution capabilities.

For the fourth quarter, Personal Care is expected to benefit from our margin improvement plan and increased sales driven by a stronger order book.

Margin Improvement Plan

On November 1, 2018, we announced a margin improvement plan within our Personal Care segment. As part of this plan, our Board of Directors approved the permanent closure of our Waco, Texas Personal Care manufacturing and distribution facility, the relocation of certain of our manufacturing assets and a workforce reduction across the division. The Waco, Texas facility ceased operations during the second quarter of 2019.

 

For the three and nine months ended September 30, 2019, we recorded $1 million of accelerated depreciation and $26 million of accelerated depreciation and impairment of operating lease right-of-use, respectively, under Impairment of long-lived assets on the Consolidated Statement of Earnings and Comprehensive Income (Loss). For the three and nine months ended September 30, 2019, we also recorded $1 million and $5 million, respectively, of severance and termination costs; $1 million and $2 million, respectively, of inventory obsolescence; and $4 million and $11 million, respectively, of asset relocation and other costs, under Closure and restructuring costs.

STOCK-BASED COMPENSATION EXPENSE

For the first nine months of 2019, stock-based compensation expense recognized in our results of operations was $17 million for all outstanding awards which includes the mark-to-market expense related to liability awards of $4 million. This compares to a stock-based compensation expense of $19 million for all outstanding awards which includes the mark-to-market expense related to liability awards of $7 million in the first nine months of 2018. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt and income tax payments. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed $700 million credit facility, of which $655 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which $2 million is currently undrawn and available. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See “Capital Resources” below.

Our ability to make payments on the requirements mentioned above will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit and receivable securitization facilities and debt indentures impose various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

48

 


 

Operating Activities

Our operating cash flow requirements are primarily for salaries and benefits, the purchase of raw materials, including fiber and energy, and other expenses such as income tax and property taxes.

Cash flows from operating activities totaled $282 million in the first nine months of 2019, a $55 million decrease compared to cash flows from operating activities of $337 million in the first nine months of 2018. This decrease in cash flows from operating activities is primarily due to a decrease in profitability as well as an increase in working capital requirements. We made income tax payments, net of refunds, of $55 million in the first nine months of 2019 compared to income tax payments, net of refunds, of $40 million during the first nine months of 2018. We paid $3 million of employer pension and other post-retirement contribution in excess of pension and other post-retirement expense in the first nine months of 2019 compared to $46 million in the first nine months of 2018.   

Investing Activities

Cash flows used for investing activities in the first nine months of 2019 amounted to $156 million, a $43 million increase compared to cash flows used for investing activities of $113 million in the first nine months of 2018.

The use of cash in the first nine months of 2019 was attributable to additions to property, plant and equipment of $157 million. This use of cash was partially offset by proceeds from disposals of property, plant and equipment of $1 million.

The use of cash in the first nine months of 2018 was attributable to additions to property, plant and equipment of $111 million. Also, in the first nine months of 2018, we made an additional investment of $4 million in our joint venture CelluForce (a company that develops and manufactures nanocrystalline cellulose, a recyclable and renewable nanomaterial) and a $2 million investment in Prisma Renewable Composites, LLC (a company focused on developing advanced materials from lignin and other natural resources). These uses of cash were partially offset by proceeds of disposals of property, plant and equipment of $4 million.

Our capital expenditures for 2019 are expected to be between $210 million and $230 million.

Financing Activities

Cash flows used for financing activities totaled $137 million in the first nine months of 2019 compared to cash flows used for financing activities of $105 million in the first nine months of 2018.

The use of cash in the first nine months of 2019 was primarily the result of the repurchase of our common stock ($139 million) and dividend payments ($83 million). This was partially offset by the net increase of borrowings under our credit facilities (revolver and receivable securitization) ($85 million).

The use of cash in the first nine months of 2018 was primarily the result of dividend payments ($81 million) and the net repayments of borrowings under our receivable securitization ($25 million).

Capital Resources

Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was $842 million as of September 30, 2019 compared to $743 million as of December 31, 2018. 

Revolving Credit Facility

In August 2018, we amended and restated our unsecured revolving credit facility (the “Credit Agreement”) with certain domestic and foreign banks, extending the Credit Agreement’s maturity date from August 18, 2021 to August 22, 2023. The amount available under the Credit Agreement remained at $700 million.  

Borrowings by the Company under the Credit Agreement are guaranteed by our significant domestic subsidiaries. Borrowings by foreign borrowers under the Credit Agreement are guaranteed by the Company, our significant domestic subsidiaries and certain of our foreign significant subsidiaries.

Borrowings under the Credit Agreement bear interest at the LIBOR, EURIBOR, Canadian bankers’ acceptance or prime rate, as applicable, plus a margin linked to our credit rating.  In addition, we pay facility fees quarterly at rates dependent on our credit ratings.

49

 


 

The Credit Agreement contains customary covenants and events of default for transactions of this type, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not greater than 3.75 to 1 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). At September 30, 2019  , we were in compliance with these financial covenants, and borrowings under the Credit Agreement amount to $45 million (September 30, 2018 – nil). At September 30, 2019, we had no outstanding letters of credit, leaving $655 million unused and available under this facility (September 30, 2018 – $700 million).

 Receivables Securitization

We have a $150 million receivables securitization facility that matures in November 2021. 

At September 30, 2019, borrowings under the receivables securitization facility amounted to $90 million, and we had $50 million of letters of credit under the program (September 30, 2018 – nil and $52 million, respectively). The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the Credit Agreement or our failure to repay or satisfy material obligations. At September 30, 2019, we had $2 million unused and available under the receivable securitization facility.

Term Loan

In the fourth quarter of 2018, we repaid the $300 million unsecured Term Loan that had been entered into in 2015 by a wholly-owned subsidiary of Domtar with certain domestic banks.

Common Stock

On February 19, 2019, May 8, 2019 and August 6, 2019, our Board of Directors approved a quarterly dividend of $0.435, $0.455 and $0.455 per share, respectively, to be paid to holders of our common stock. Dividends aggregating $28 million were paid on each of April 15, 2019 and July 16, 2019, and dividends aggregating $27 million were paid on October 15, 2019, to shareholders of record on April 2, 2019, July 2, 2019, and October 2, 2019, respectively.

On November 5, 2019, our Board of Directors approved a quarterly dividend of $0.455 per share to be paid to holders of our common stock. This dividend is to be paid on January 15, 2020, to shareholders of record on January 2, 2020.

GUARANTEES

Indemnifications

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in 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 September 30, 2019, we were 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 significant expenses in the past.

Pension Plans

We have indemnified and held harmless the trustees of our 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 us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At September 30, 2019, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.  

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 “Recent Accounting Pronouncements,” of the financial statements in this Quarterly Report on Form 10-Q.

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, assumptions and choices amongst acceptable accounting methods that affect our reported results of operations and financial position. Critical accounting estimates pertain to matters that contain a significant level of management estimates about future events, encompass the most complex and subjective judgments and are subject to a fair degree of measurement uncertainty. On an ongoing basis, management reviews its estimates, including those related to environmental matters and asset retirement obligations, impairment and useful lives of long-lived assets, closure and restructuring costs, intangible assets impairment, pension and other post-retirement benefit plans, income taxes, and contingencies related to legal claims. These critical accounting estimates and policies have been reviewed with the Audit Committee of our Board of Directors. We believe these accounting policies, and others, should be reviewed as they are essential to understanding our results of operations, cash flows and financial condition. Actual results could differ from those estimates.

For more details on critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2018.

There has not been any material change to our policies since December 31, 2018 except for the adoption of ASU 2016-02, “Leases” on January 1, 2019. For more details, refer to Note 2 “Recent Accounting Pronouncements” of the financial statements in this Quarterly Report on Form 10-Q.  

FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q, contains forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance, liquidity and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate”, “believe”, “expect”, “intend”, “aim”, “target”, “plan”, “continue”, “estimate”, “project”, “may”, “will”, “should” and similar expressions. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occurs, what effect they will have on Domtar Corporation’s results of operations or financial condition. These factors include, but are not limited to:

 

continued decline in usage of fine paper products in our core North American market;

 

our ability to implement our business diversification initiatives, including repurposing of assets and strategic acquisitions;

 

product selling prices;

 

raw material prices, including wood fiber, chemical and energy;

 

conditions in the global capital and credit markets, and the economy generally, particularly in the U.S., Canada and Europe;

 

performance of Domtar Corporation’s manufacturing operations, including unexpected maintenance requirements;

 

the level of competition from domestic and foreign producers;

 

cyberattack or other security breaches;

 

the effect of, or change in, forestry, land use, environmental and other governmental regulations and accounting regulations;

 

the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters;

 

transportation costs;

 

the loss of current customers or the inability to obtain new customers;

 

legal proceedings;

 

changes in asset valuations, including impairment of property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons;

 

changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar and European currencies;

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the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation;

 

performance of pension fund investments and related derivatives, if any; and

 

the other factors described under “Risk Factors”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2018.

You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Quarterly Report on Form 10-Q. Unless specifically required by law, Domtar Corporation disclaims any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, 2018. There has not been any material change in our exposure to market risk since December 31, 2018. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 3 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.

 

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2019, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the period covered by this report.

 

 

PART II OTHER INFORMATION

See Note 14 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for the discussion regarding legal proceedings.

For a description of previously reported legal proceedings refer to Part I, Item 3, “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, 2018, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. There were no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2018.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share repurchase activity under our share repurchase program was as follows during the three-month period ended September 30, 2019:

Period

 

(a) Total Number of

Shares Purchased

 

 

(b) Average Price Paid

per Share

 

 

(c) Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

 

 

(d) Approximate

Dollar Value of Shares

that May Yet be

Purchased under the

Plans or Programs

(in 000s)

 

July 1 through July 31, 2019

 

 

322,813

 

 

$

41.61

 

 

 

322,813

 

 

$

300,925

 

August 1 through August 31, 2019

 

 

1,918,000

 

 

$

34.39

 

 

 

1,918,000

 

 

$

234,971

 

September 1 through September 30, 2019

 

 

1,641,503

 

 

$

34.73

 

 

 

1,641,503

 

 

$

177,968

 

 

 

 

3,882,316

 

 

$

35.13

 

 

 

3,882,316

 

 

 

 

 

During the third quarter, we repurchased 3,882,316 shares at an average price of $35.13 per share, for a total cost of approximately $137 million under our stock repurchase program (the “Program”). As of September 30, 2019, we had approximately $178 million of remaining availability under our Program. On November 5, 2019, our Board of Directors approved an increase to the Program from $1.3 billion to $1.6 billion. The Program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the Program. The Program has no set expiration date. We repurchase our common stock, from time to time, in part to reduce the dilutive effects of our stock options and awards and to improve shareholders’ returns. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions, availability under the program as well as corporate and regulatory considerations. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share. During October 2019, we repurchased 1,751,643 shares at an average price of $34.27 per share, for a total cost of approximately $60 million.

 

During 2018, there were no shares repurchased under the Program. As of December 31, 2018, the approximate dollar value of shares that may yet be purchased under the Program was $323 million.


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ITEM 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.


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ITEM 6. EXHIBITS

 

 

 

 

 

    Incorporated  by reference to:

Exhibit

Number

 

Exhibit Description

 

Form

Exhibit

Filing Date

 

 

 

31.1

 

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1

 

Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

 

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

Inline XBRL Extension Presentation Linkbase

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

 

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

 

DOMTAR CORPORATION

 

 

Date: November 7, 2019

 

 

By:

/s/ Daniel Buron

 

Daniel Buron

 

Senior Vice-President and Chief Financial Officer

 

 

By:

/s/ Razvan L. Theodoru

 

Razvan L. Theodoru

 

Vice-President, Corporate Law and Secretary

 

 

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