UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20152016
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)
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 x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ |
|
| (do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
At October 30, 2015, 62,849,936July 29, 2016, 62,585,337 shares of the issuer’s voting common stock were outstanding.
FORM 10-Q
For the Quarterly Period Ended SeptemberJune 30, 20152016
INDEX
PART I. | 3 | |
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ITEM 1. | 3 | |
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|
|
| CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS) | 3 |
|
|
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| 4 | |
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| 5 | |
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| 6 | |
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| 7 | |
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| 8 | |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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PART II |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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PART PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS) INCOME
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
|
| For the three months ended |
|
| For the nine months ended |
|
| For the three months ended |
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| For the six months ended |
| ||||||||||||||||||||
|
| September 30, |
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| September 30, |
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| September 30, |
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| September 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
| ||||||||
|
| 2015 |
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| 2014 |
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| 2015 |
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| 2014 |
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| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
| ||||||||
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| (Unaudited) |
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| (Unaudited) |
| ||||||||||||||||||||||||||
|
| $ |
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| $ |
|
| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
| ||||||||
Sales |
|
| 1,292 |
|
|
| 1,405 |
|
|
| 3,950 |
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|
| 4,184 |
|
|
| 1,267 |
|
|
| 1,310 |
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|
| 2,554 |
|
|
| 2,658 |
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Operating expenses |
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Cost of sales, excluding depreciation and amortization |
|
| 1,026 |
|
|
| 1,105 |
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|
| 3,140 |
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|
| 3,316 |
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|
| 1,013 |
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|
| 1,052 |
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|
| 2,063 |
|
|
| 2,114 |
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Depreciation and amortization |
|
| 89 |
|
|
| 96 |
|
|
| 270 |
|
|
| 291 |
|
|
| 87 |
|
|
| 91 |
|
|
| 176 |
|
|
| 181 |
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Selling, general and administrative |
|
| 95 |
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|
| 99 |
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|
| 294 |
|
|
| 313 |
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|
| 104 |
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|
| 99 |
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|
| 207 |
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|
| 199 |
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Impairment and write-down of property, plant and equipment (NOTE 12) |
|
| 20 |
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|
| — |
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|
| 57 |
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|
| — |
| ||||||||||||||||
Closure and restructuring costs (NOTE 12) |
|
| 1 |
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| 2 |
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|
| 3 |
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| 3 |
| ||||||||||||||||
Other operating income, net (NOTE 7) |
|
| — |
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|
| (17 | ) |
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| (8 | ) |
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| (17 | ) | ||||||||||||||||
Impairment of property, plant and equipment (NOTE 11) |
|
| 3 |
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|
| 18 |
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| 24 |
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|
| 37 |
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Closure and restructuring costs (NOTE 11) |
|
| 21 |
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|
| 1 |
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|
| 23 |
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|
| 2 |
| ||||||||||||||||
Other operating loss (income), net (NOTE 6) |
|
| — |
|
|
| (13 | ) |
|
| 4 |
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|
| (8 | ) | ||||||||||||||||
|
|
| 1,231 |
|
|
| 1,285 |
|
|
| 3,756 |
|
|
| 3,906 |
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|
| 1,228 |
|
|
| 1,248 |
|
|
| 2,497 |
|
|
| 2,525 |
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Operating income |
|
| 61 |
|
|
| 120 |
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|
| 194 |
|
|
| 278 |
|
|
| 39 |
|
|
| 62 |
|
|
| 57 |
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|
| 133 |
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Interest expense, net |
|
| 64 |
|
|
| 25 |
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|
| 115 |
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|
| 76 |
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|
| 15 |
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|
| 25 |
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|
| 32 |
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|
| 51 |
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(Loss) earnings before income taxes |
|
| (3 | ) |
|
| 95 |
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|
| 79 |
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|
| 202 |
| ||||||||||||||||
Income tax benefit |
|
| (14 | ) |
|
| (186 | ) |
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| (6 | ) |
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| (158 | ) | ||||||||||||||||
Earnings before income taxes |
|
| 24 |
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| 37 |
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|
| 25 |
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| 82 |
| ||||||||||||||||
Income tax expense (benefit) (NOTE 7) |
|
| 6 |
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| (1 | ) |
|
| 3 |
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| 8 |
| ||||||||||||||||
Net earnings |
|
| 11 |
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|
| 281 |
|
|
| 85 |
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|
| 360 |
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|
| 18 |
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|
| 38 |
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| 22 |
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|
| 74 |
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Per common share (in dollars) (NOTE 5) |
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Per common share (in dollars) (NOTE 4) |
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Net earnings |
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Basic |
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| 0.17 |
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| 4.34 |
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|
| 1.34 |
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| 5.55 |
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|
| 0.29 |
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|
| 0.60 |
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|
| 0.35 |
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|
| 1.16 |
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Diluted |
|
| 0.17 |
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|
| 4.33 |
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|
| 1.34 |
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|
| 5.54 |
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|
| 0.29 |
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| 0.60 |
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|
| 0.35 |
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| 1.16 |
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Weighted average number of common shares outstanding (millions) |
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Basic |
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| 62.9 |
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| 64.8 |
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|
| 63.4 |
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| 64.9 |
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|
| 62.6 |
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| 63.6 |
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| 62.7 |
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| 63.7 |
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Diluted |
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| 63.0 |
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| 64.9 |
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| 63.5 |
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| 65.0 |
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| 62.7 |
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| 63.7 |
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| 62.8 |
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| 63.8 |
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Cash dividends per common share |
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| 0.40 |
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|
| 0.28 |
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| 1.18 |
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|
| 0.55 |
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| 0.40 |
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| 0.40 |
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|
| 0.80 |
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|
| 0.78 |
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Net earnings |
|
| 11 |
|
|
| 281 |
|
|
| 85 |
|
|
| 360 |
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|
| 18 |
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|
| 38 |
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|
| 22 |
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|
| 74 |
|
Other comprehensive income (loss) (NOTE 14): |
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Net derivative losses on cash flow hedges: |
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Net losses arising during the period, net of tax of $(13) and $(24), respectively (2014 - $(7) and $(4), respectively) |
|
| (19 | ) |
|
| (10 | ) |
|
| (35 | ) |
|
| (5 | ) | ||||||||||||||||
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(5) and $(13), respectively (2014 - nil and $(3), respectively) |
|
| 7 |
|
|
| 2 |
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|
| 18 |
|
|
| 5 |
| ||||||||||||||||
Other comprehensive income (loss) (NOTE 12): |
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|
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Net derivative gains (losses) on cash flow hedges: |
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| ||||||||||||||||
Net gains (losses) arising during the period, net of tax of $(5) and $(18), respectively (2015 - $2 and $(11), respectively) |
|
| 9 |
|
|
| 2 |
|
|
| 29 |
|
|
| (16 | ) | ||||||||||||||||
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(3) and $(8), respectively (2015 - $(4) and $(8), respectively) |
|
| 5 |
|
|
| 6 |
|
|
| 13 |
|
|
| 11 |
| ||||||||||||||||
Foreign currency translation adjustments |
|
| (58 | ) |
|
| (118 | ) |
|
| (182 | ) |
|
| (130 | ) |
|
| (30 | ) |
|
| 43 |
|
|
| 55 |
|
|
| (124 | ) |
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $1 and $(2), respectively (2014 - $1 and $(1), respectively) |
|
| 1 |
|
|
| (1 | ) |
|
| 5 |
|
|
| 4 |
| ||||||||||||||||
Other comprehensive loss |
|
| (69 | ) |
|
| (127 | ) |
|
| (194 | ) |
|
| (126 | ) | ||||||||||||||||
Comprehensive (loss) income |
|
| (58 | ) |
|
| 154 |
|
|
| (109 | ) |
|
| 234 |
| ||||||||||||||||
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) and $(2), respectively (2015 - nil and $(1), respectively) |
|
| 2 |
|
|
| 2 |
|
|
| 3 |
|
|
| 4 |
| ||||||||||||||||
Other comprehensive (loss) income |
|
| (14 | ) |
|
| 53 |
|
|
| 100 |
|
|
| (125 | ) | ||||||||||||||||
Comprehensive income (loss) |
|
| 4 |
|
|
| 91 |
|
|
| 122 |
|
|
| (51 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
3
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
|
| At |
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| At |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2015 |
|
| 2014 |
|
| 2016 |
|
| 2015 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 128 |
|
|
| 174 |
|
|
| 111 |
|
|
| 126 |
|
Receivables, less allowances of $10 and $6 |
|
| 617 |
|
|
| 628 |
| ||||||||
Inventories (NOTE 9) |
|
| 751 |
|
|
| 714 |
| ||||||||
Receivables, less allowances of $6 and $6 |
|
| 608 |
|
|
| 627 |
| ||||||||
Inventories (NOTE 8) |
|
| 753 |
|
|
| 766 |
| ||||||||
Prepaid expenses |
|
| 25 |
|
|
| 25 |
|
|
| 55 |
|
|
| 21 |
|
Income and other taxes receivable |
|
| 17 |
|
|
| 54 |
|
|
| 31 |
|
|
| 14 |
|
Deferred income taxes |
|
| 82 |
|
|
| 75 |
| ||||||||
Total current assets |
|
| 1,620 |
|
|
| 1,670 |
|
|
| 1,558 |
|
|
| 1,554 |
|
Property, plant and equipment, at cost |
|
| 8,714 |
|
|
| 8,909 |
| ||||||||
Accumulated depreciation |
|
| (5,842 | ) |
|
| (5,778 | ) | ||||||||
Net property, plant and equipment |
|
| 2,872 |
|
|
| 3,131 |
| ||||||||
Goodwill (NOTE 10) |
|
| 546 |
|
|
| 567 |
| ||||||||
Intangible assets, net of amortization (NOTE 11) |
|
| 616 |
|
|
| 661 |
| ||||||||
Property, plant and equipment, net |
|
| 2,906 |
|
|
| 2,835 |
| ||||||||
Goodwill (NOTE 9) |
|
| 543 |
|
|
| 539 |
| ||||||||
Intangible assets, net (NOTE 10) |
|
| 598 |
|
|
| 601 |
| ||||||||
Other assets |
|
| 135 |
|
|
| 156 |
|
|
| 163 |
|
|
| 125 |
|
Total assets |
|
| 5,789 |
|
|
| 6,185 |
|
|
| 5,768 |
|
|
| 5,654 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
| 1 |
|
|
| 10 |
|
|
| 1 |
|
|
| — |
|
Trade and other payables |
|
| 721 |
|
|
| 721 |
|
|
| 693 |
|
|
| 720 |
|
Income and other taxes payable |
|
| 23 |
|
|
| 26 |
|
|
| 24 |
|
|
| 27 |
|
Long-term debt due within one year |
|
| 42 |
|
|
| 169 |
|
|
| 64 |
|
|
| 41 |
|
Total current liabilities |
|
| 787 |
|
|
| 926 |
|
|
| 782 |
|
|
| 788 |
|
Long-term debt |
|
| 1,245 |
|
|
| 1,181 |
|
|
| 1,237 |
|
|
| 1,210 |
|
Deferred income taxes and other |
|
| 744 |
|
|
| 810 |
|
|
| 681 |
|
|
| 654 |
|
Other liabilities and deferred credits |
|
| 354 |
|
|
| 378 |
|
|
| 352 |
|
|
| 350 |
|
Commitments and contingencies (NOTE 16) |
|
|
|
|
|
|
|
| ||||||||
Shareholders' equity |
|
|
|
|
|
|
|
| ||||||||
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 shares |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Treasury stock (NOTE 15) $0.01 par value; 2,153,170 and 991,017 shares |
|
| — |
|
|
| — |
| ||||||||
Treasury stock $0.01 par value; 2,415,767 and 2,151,168 shares |
|
| — |
|
|
| — |
| ||||||||
Additional paid-in capital |
|
| 1,966 |
|
|
| 2,012 |
|
|
| 1,959 |
|
|
| 1,966 |
|
Retained earnings |
|
| 1,154 |
|
|
| 1,145 |
|
|
| 1,157 |
|
|
| 1,186 |
|
Accumulated other comprehensive loss |
|
| (462 | ) |
|
| (268 | ) |
|
| (401 | ) |
|
| (501 | ) |
Total shareholders' equity |
|
| 2,659 |
|
|
| 2,890 |
|
|
| 2,716 |
|
|
| 2,652 |
|
Total liabilities and shareholders' equity |
|
| 5,789 |
|
|
| 6,185 |
|
|
| 5,768 |
|
|
| 5,654 |
|
The accompanying notes are an integral part of the consolidated financial statements.
4
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
|
| 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 |
|
| 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) |
|
| (Unaudited) |
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Balance at December 31, 2014 |
|
| 64.0 |
|
|
| 1 |
|
|
| 2,012 |
|
|
| 1,145 |
|
|
| (268 | ) |
|
| 2,890 |
| ||||||||||||||||||||||||
Balance at December 31, 2015 |
|
| 62.8 |
|
|
| 1 |
|
|
| 1,966 |
|
|
| 1,186 |
|
|
| (501 | ) |
|
| 2,652 |
| ||||||||||||||||||||||||
Stock-based compensation, net of tax |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 0.1 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 85 |
|
|
| — |
|
|
| 85 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
Net derivative losses on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net losses arising during the period, net of tax of $(24) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35 | ) |
|
| (35 | ) | ||||||||||||||||||||||||
Less: Reclassification adjustments for losses included in net earnings, net of tax of $(13) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| 18 |
| ||||||||||||||||||||||||
Net derivative gains on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net gains arising during the period, net of tax of $(18) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| 29 |
| ||||||||||||||||||||||||
Less: Reclassification adjustments for losses included in net earnings, net of tax of $(8) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 13 |
| ||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (182 | ) |
|
| (182 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Stock repurchase |
|
| (1.2 | ) |
|
| — |
|
|
| (50 | ) |
|
| — |
|
|
| — |
|
|
| (50 | ) |
|
| (0.3 | ) |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Cash dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (76 | ) |
|
| — |
|
|
| (76 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (51 | ) |
Balance at September 30, 2015 |
|
| 62.8 |
|
|
| 1 |
|
|
| 1,966 |
|
|
| 1,154 |
|
|
| (462 | ) |
|
| 2,659 |
| ||||||||||||||||||||||||
Balance at June 30, 2016 |
|
| 62.6 |
|
|
| 1 |
|
|
| 1,959 |
|
|
| 1,157 |
|
|
| (401 | ) |
|
| 2,716 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
|
| For the nine months ended |
|
| For the six months ended |
| ||||||||||
|
| September 30, 2015 |
|
| September 30, 2014 |
|
| June 30, 2016 |
|
| June 30, 2015 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
| 85 |
|
|
| 360 |
|
|
| 22 |
|
|
| 74 |
|
Adjustments to reconcile net earnings to cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 270 |
|
|
| 291 |
|
|
| 176 |
|
|
| 181 |
|
Deferred income taxes and tax uncertainties |
|
| (50 | ) |
|
| (202 | ) |
|
| (5 | ) |
|
| (32 | ) |
Impairment and write-down of property, plant and equipment |
|
| 57 |
|
|
| — |
| ||||||||
Net gains on disposal of property, plant and equipment |
|
| (15 | ) |
|
| — |
| ||||||||
Impairment of property, plant and equipment |
|
| 24 |
|
|
| 37 |
| ||||||||
Net gains on disposals of property, plant and equipment |
|
| — |
|
|
| (15 | ) | ||||||||
Stock-based compensation expense |
|
| 5 |
|
|
| 3 |
|
|
| 3 |
|
|
| 3 |
|
Other |
|
| 4 |
|
|
| 1 |
|
|
| (4 | ) |
|
| — |
|
Changes in assets and liabilities, excluding the effects of acquisition of business |
|
|
|
|
|
|
|
| ||||||||
Changes in assets and liabilities, excluding effect of acquisition of business |
|
|
|
|
|
|
|
| ||||||||
Receivables |
|
| (11 | ) |
|
| 21 |
|
|
| 25 |
|
|
| — |
|
Inventories |
|
| (70 | ) |
|
| (22 | ) |
|
| 18 | �� |
|
| (23 | ) |
Prepaid expenses |
|
| (3 | ) |
|
| (4 | ) |
|
| (13 | ) |
|
| (10 | ) |
Trade and other payables |
|
| 8 |
|
|
| (22 | ) |
|
| (8 | ) |
|
| (18 | ) |
Income and other taxes |
|
| 30 |
|
|
| 22 |
|
|
| (16 | ) |
|
| 46 |
|
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense |
|
| 2 |
|
|
| — |
|
|
| (3 | ) |
|
| 3 |
|
Other assets and other liabilities |
|
| 4 |
|
|
| — |
|
|
| (4 | ) |
|
| 3 |
|
Cash flows provided from operating activities |
|
| 316 |
|
|
| 448 |
|
|
| 215 |
|
|
| 249 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (202 | ) |
|
| (157 | ) |
|
| (219 | ) |
|
| (136 | ) |
Proceeds from disposals of property, plant and equipment and sale of business |
|
| 35 |
|
|
| 1 |
| ||||||||
Proceeds from disposals of property, plant and equipment |
|
| — |
|
|
| 7 |
| ||||||||
Acquisition of business, net of cash acquired |
|
| — |
|
|
| (546 | ) |
|
| (1 | ) |
|
| — |
|
Other |
|
| 9 |
|
|
| 5 |
|
|
| — |
|
|
| 9 |
|
Cash flows used for investing activities |
|
| (158 | ) |
|
| (697 | ) |
|
| (220 | ) |
|
| (120 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments |
|
| (75 | ) |
|
| (60 | ) |
|
| (50 | ) |
|
| (50 | ) |
Stock repurchase |
|
| (50 | ) |
|
| (19 | ) |
|
| (10 | ) |
|
| (30 | ) |
Net change in bank indebtedness |
|
| (9 | ) |
|
| (13 | ) |
|
| 1 |
|
|
| (9 | ) |
Change in revolving bank credit facility |
|
| 75 |
|
|
| (160 | ) |
|
| (50 | ) |
|
| — |
|
Proceeds from receivables securitization facilities |
|
| — |
|
|
| 90 |
| ||||||||
Payments on receivables securitization facilities |
|
| — |
|
|
| (108 | ) | ||||||||
Issuance of long-term debt |
|
| 300 |
|
|
| — |
| ||||||||
Repayment of long-term debt |
|
| (439 | ) |
|
| (4 | ) | ||||||||
Proceeds from receivables securitization facility |
|
| 120 |
|
|
| — |
| ||||||||
Repayments of receivables securitization facility |
|
| (20 | ) |
|
| — |
| ||||||||
Repayments of long-term debt |
|
| (1 | ) |
|
| (2 | ) | ||||||||
Other |
|
| 1 |
|
|
| 4 |
|
|
| (1 | ) |
|
| 1 |
|
Cash flows used for financing activities |
|
| (197 | ) |
|
| (270 | ) |
|
| (11 | ) |
|
| (90 | ) |
Net decrease in cash and cash equivalents |
|
| (39 | ) |
|
| (519 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
|
| (16 | ) |
|
| 39 |
| ||||||||
Impact of foreign exchange on cash |
|
| (7 | ) |
|
| (2 | ) |
|
| 1 |
|
|
| (6 | ) |
Cash and cash equivalents at beginning of period |
|
| 174 |
|
|
| 655 |
|
|
| 126 |
|
|
| 174 |
|
Cash and cash equivalents at end of period |
|
| 128 |
|
|
| 134 |
|
|
| 111 |
|
|
| 207 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (including $40 million of redemption premiums in 2015) |
|
| 121 |
|
|
| 70 |
| ||||||||
Interest |
|
| 32 |
|
|
| 48 |
| ||||||||
Income taxes paid, net |
|
| 16 |
|
|
| 32 |
|
|
| 27 |
|
|
| 2 |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 | 8 | |
|
|
|
NOTE 2 | 9 | |
|
|
|
NOTE 3 |
| |
| DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT | 11 |
|
|
|
NOTE | 16 | |
|
|
|
NOTE | 17 | |
|
|
|
NOTE | 18 | |
NOTE 7 | 19 | |
|
|
|
NOTE 8 | 20 | |
|
|
|
NOTE 9 | 21 | |
|
|
|
NOTE 10 | 22 | |
|
|
|
NOTE 11 |
| |
|
| |
NOTE |
| |
|
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT |
24 |
NOTE 13 | 26 | |
NOTE 14 | 27 | |
|
|
|
NOTE 15 |
| |
|
|
|
NOTE 16 |
|
|
|
|
|
|
| |
|
|
|
|
|
7
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
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 ninesix months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements 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, 2014,2015, as filed with the Securities and Exchange Commission. The December 31, 20142015 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.
8
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING CHANGES IMPLEMENTED
DISCONTINUED OPERATIONSPRESENTATION OF DEBT ISSUANCE COSTS
In April 2014,2015, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting StandardsStandard Update (“ASU”) 2014-08,2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB also issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which allows debt issuance costs associated with line-of-credit arrangements to be presented as an update on Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the requirements for reporting discontinued operations and require additional disclosures for both disposal transactions that meet the criteria for a discontinued operation and disposals that do not meet these criteria. The objective of this update is to reach a greater convergence between the FASB’s and IASB’s reporting requirements for discontinued operations.asset.
The Company adopted the new requirementrequirements on January 1, 2016 with retrospective application. The effect of this change in accounting policy on our Consolidated Balance Sheet as at December 31, 2015 was as a reduction of $9 million in Other assets and Long-term debt.
CLOUD COMPUTING ARRANGEMENTS
In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in Cloud Computing Arrangements,” which clarifies the circumstances under which a cloud computing customer would account for a cloud computing arrangement as a license of internal-use software under Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments provide customers with guidance on determining whether or not a cloud computing arrangement includes a software license that should be accounted as internal-use software.
The Company adopted the new requirements prospectively on January 1, 2016 with no material impact on the Company’s consolidated financial statements, as no triggering event occurred throughout the period.statements.
FUTURE ACCOUNTING CHANGES
REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the FASB issued ASU 2014-09, an update on revenue“Revenue from contractsContracts with customers.Customers.” The core principal of this guideline is that an entity should recognize revenue, to depict the transfer of promised goods or services to customers, in an amount that reflects the consideration for which the entity is entitled to, in exchange for those goods and services. Guidance in this section supersedes the revenue recognition requirements found in topic 605.
In August 2015, the FASB issued ASU 2015-14, which defers by one year ASU 2014-09’s effective date. The amendment2014-09 will be effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period. Early adoption is permitted only for annual and interim periods beginning after December 15, 2016.
The Company is currently evaluating these changes to determine whetherhow they have anwill impact on the presentation of the consolidated financial statements.
CLOUD COMPUTING ARRANGEMENTS
In April 2015, the FASB issued ASU 2015-05, which clarifies the circumstances under which a cloud computing customer would account for a cloud computing arrangement as a license of internal-use software under Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments provide customers with guidance on determining whether or not, a cloud computing arrangement includes a software license that should be accounted as an internal-use software.INVENTORY
The amendments in this update are effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The Company does not expect this additional guidance to have a material impact on the consolidated financial statements.
INVENTORY
In July 2015, the FASB issued ASU 2015-11, an update on Inventory. The amendments in“Simplifying the Measurement of Inventory,” which simplifies the measurement of inventories valued under FIFO – first-in, first-out – and moving average methods. Under this update require entities to measure most inventory at the lower of cost and net realizable value, therefore simplifying the currentnew guidance, inventories valued under which an entity must measure inventorythese methods would be valued at the lower of cost or market, which in this context, wasnet realizable value. Net realizable value is defined as one of three different measures and was unnecessarily complex. The amendmentthe estimated selling costs less reasonable costs to sell the inventory. This ASU does not apply to inventory that has beenchange the measurement principles for inventories valued usingunder the Last-in First-out (“LIFO”) method or the Retail inventory method (“RIM”).
LIFO – last-in, first-out – method. The amendments in thisthe update are effective for interim and annual periods beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted.
The Company does not expect this additionalnew guidance to have a material impact on the consolidated financial statements.
9
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments.
The amendments in this update are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. To adopt the amendments, the Company will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. Early adoption is permitted.
The Company does not expect this new guidance to have a material impact on the consolidated financial statements.
LEASES
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to recognize a right-of-use asset and a lease liability for all of their leases with a lease term greater than 12 months while continuing to recognize expenses in the statement of earnings in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.
9
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company is currently evaluating the impact of this guidance on the consolidated financial statements.
SEPTEMBER 30, 2015SHARE-BASED PAYMENTS
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.
The Company does not expect this new guidance to have a material impact on the consolidated financial statements.
DERIVATIVES AND HEDGING
In March 2016, the FASB issued ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,” which clarifies that "a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument" or "a change in a critical term of the hedging relationship." As long as all other hedge accounting criteria in ASC 815 are met, a hedging relationship in which the hedging derivative instrument is novated would not be discontinued or require redesignation. This clarification applies to both cash flow and fair value hedging relationships. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.
The Company does not expect this new guidance to have a material impact on the consolidated financial statements.
_________________
ACQUISITION OF BUSINESS
Acquisition of Laboratorios Indas
On January 2, 2014, Domtar Corporation completed the acquisition of 100% of the outstanding shares of Laboratorios Indas, S.A.U. (“Indas”), primarily a branded incontinence products manufacturer and marketer in Spain. Indas has approximately 570 employees and operates two manufacturing facilities in Spain. The results of Indas’ operations have been included in the Personal Care reportable segment as of January 2, 2014. The purchase price was $546 million (€399 million) in cash, net of cash acquired of $46 million (€34 million). The acquisition was accounted for as a business combination under the acquisition method of accounting, in accordance with the Business Combinations Topic of FASB Accounting Standards Codification (“ASC”).
The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value.
The table below illustrates the purchase price allocation:
Fair value of net assets acquired at the date of acquisition |
|
|
|
|
|
|
|
|
Receivables |
|
|
|
|
| $ | 101 |
|
Inventory |
|
|
|
|
|
| 28 |
|
Income and other taxes receivable |
|
|
|
|
|
| 3 |
|
Property, plant and equipment |
|
|
|
|
|
| 72 |
|
Intangible assets |
|
|
|
|
|
|
|
|
Customer relationships (1) |
|
| 142 |
|
|
|
|
|
Trade names (2) |
|
| 140 |
|
|
|
|
|
Catalog rights (2) |
|
| 46 |
|
|
|
|
|
|
|
|
|
|
|
| 328 |
|
Goodwill |
|
|
|
|
|
| 234 |
|
Deferred income tax assets |
|
|
|
|
|
| 16 |
|
Total assets |
|
|
|
|
|
| 782 |
|
|
|
|
|
|
|
|
|
|
Less: Liabilities |
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
|
| 71 |
|
Income and other taxes payable |
|
|
|
|
|
| 3 |
|
Long-term debt (including short-term portion) |
|
|
|
|
|
| 42 |
|
Deferred income tax liabilities |
|
|
|
|
|
| 119 |
|
Other liabilities and deferred credits |
|
|
|
|
|
| 1 |
|
Total liabilities |
|
|
|
|
|
| 236 |
|
Fair value of net assets acquired at the date of acquisition |
|
|
|
|
|
| 546 |
|
|
|
|
|
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is attributable to the general reputation of the business, the assembled workforce, the expected synergies and the expected future cash flows of the business. Goodwill is not deductible for tax purposes.
10
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
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 ineffective portion of the qualifying instrument is immediately recognized to earnings. The amount of ineffectiveness recognized was immaterial for all yearsperiods presented. 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 SeptemberJune 30, 2015,2016, one of Domtar’s Pulp and Paper segment customers located in the United States represented 14%12% ($8576 million) (2014(2015 – 10%12% ($6478 million)) of the Company’s receivables.
The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company minimizesattempts 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, bank credit facility 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. In December 2014, the Company entered into a $100 million notional 2.5 year fixed to floating interest rate swap to receive fixed (1.0225%) and pay the 3 month LIBOR. This swap was designated as a fair value hedge for a portion of its 10.75% notes due June 2017. The changes in fair value of both the hedging and the hedged item were immediately recognized in interest expense. Gains (losses) related to the ineffectiveness portion of the hedges were not material for this reporting period. In August 2015, the Company terminated this swap simultaneously with the redemption of $215 million of its 10.75% notes, with no significant impact on net earnings.
COST RISK
Cash flow hedges:
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
11
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
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 2760 months.
11
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 4. 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 SeptemberJune 30, 20152016 to hedge forecasted purchases:
Commodity |
| Notional contractual quantity under derivative contracts |
|
|
|
| Notional contractual value under derivative contracts (in millions of dollars) |
|
| Percentage of forecasted purchases under derivative contracts |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 (1) |
|
| 2,490,000 |
|
| MMBTU (2) |
| $ | 10 |
|
|
| 56% |
| ||||||||||||
2016 |
|
| 9,300,000 |
|
| MMBTU (2) |
| $ | 37 |
|
|
| 45% |
| ||||||||||||
2016 (1) |
| 8,535,000 |
|
| $ | 27 |
|
|
|
| 80% |
| ||||||||||||||
2017 |
|
| 3,015,000 |
|
| MMBTU (2) |
| $ | 12 |
|
|
| 15% |
|
| 8,980,000 |
|
| $ | 28 |
|
|
|
| 34% |
|
2018 |
| 4,275,000 |
|
| $ | 13 |
|
|
|
| 16% |
| ||||||||||||||
2019 |
| 3,375,000 |
|
| $ | 10 |
|
|
|
| 13% |
| ||||||||||||||
2020 |
| 3,375,000 |
|
| $ | 11 |
|
|
|
| 13% |
| ||||||||||||||
2021 |
| 2,060,000 |
|
| $ | 7 |
|
|
|
| 15% |
|
(1) | Represents the remaining |
(2) | MMBTU: Millions of British thermal units |
The natural gas derivative contracts were fully effective as of SeptemberJune 30, 2015.2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) Income for the three and ninesix months ended SeptemberJune 30, 20152016 resulting from hedge ineffectiveness (three and ninesix months ended SeptemberJune 30, 20142015 – nil).
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 the 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. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdon’s June 23, 2016 referendum in which voters approved the United Kingdom’s exit from the European Union, commonly referred to as “Brexit.” 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 itsthe Company’s Canadian subsidiary over the next 24 months. Derivatives are used to hedge a portion of forecasted sales by its USU.S. subsidiaries in Euros over the next 15 months and in British pounds over the next three12 months. Derivatives are also used to hedge a portion of forecasted sales in British pounds and Norwegian krone and forecasted purchasesa portion of Swedish krona over the next 12 months and forecasted purchases in USU.S. dollars over the next 15 monthsand Swedish krona by its European subsidiaries.subsidiaries over a period of between 12 to 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.
12
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 4.3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
The following table presents the currency values under significant contractscurrency positions pursuant to currency optionsderivatives outstanding as of SeptemberJune 30, 20152016 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 | |
| ||||||||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
|
|
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
CDN/USD |
| Pulp and Paper |
|
|
|
|
|
|
|
|
| 1 USD = |
| 1 USD = |
USD/Euro |
| Personal Care |
|
|
|
|
|
|
|
|
| 1 Euro = |
| 1 Euro = |
Euro/USD |
| Pulp and Paper |
|
|
|
|
|
|
|
|
| 1 Euro = |
| 1 Euro = |
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
CDN/USD |
| Pulp and Paper |
|
|
|
|
|
|
|
|
| 1 USD = |
| 1 USD = |
USD/Euro | Personal Care | 39 USD | 54% | 1 Euro = 1.1368 | 1 Euro = 1.1368 | |||||||||
Euro/USD | Pulp and Paper | 19 EUR | 50% | 1 Euro = 1.1370 | 1 Euro = 1.1370 | |||||||||
2018 | ||||||||||||||
CDN/USD | Pulp and Paper | 103 CDN | 13% | 1 USD = 1.2951 | 1 USD = 1.3629 | |||||||||
USD/Euro | Personal Care | 14 USD | 19% | 1 Euro = 1.1532 | 1 Euro = 1.1532 |
The foreign exchange derivative contracts were fully effective as of SeptemberJune 30, 2015.2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) Income for the three and ninesix months ended SeptemberJune 30, 20152016 resulting from hedge ineffectiveness (three and ninesix months ended SeptemberJune 30, 20142015 - nil).
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. |
13
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 4.3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
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 (c) below) at SeptemberJune 30, 20152016 and December 31, 2014,2015, 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, 2015 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
|
| Balance sheet classification |
| June 30, 2016 |
|
| 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 under the Derivatives and Hedging Topic of FASB ASC: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Asset derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 21 |
|
|
| — |
|
|
| 21 |
|
|
| — |
| (a) | Prepaid expenses |
Natural gas swap contracts |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Prepaid expenses | ||||||||||||||||||
Currency derivatives |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
| (a) | Other assets |
Natural gas swap contracts |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| (a) | Other assets | ||||||||||||||||||
Total Assets |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
|
|
| 41 |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 37 |
|
|
| — |
|
|
| 37 |
|
|
| — |
| (a) | Trade and other payables |
|
| 15 |
|
|
| — |
|
|
| 15 |
|
|
| — |
| (a) | Trade and other payables |
Natural gas swap contracts |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Trade and other payables | ||||||||||||||||||
Currency derivatives |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Natural gas swap contracts |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
| (a) | Trade and other payables | ||||||||||||||||||
Natural gas swap contracts |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Total Liabilities |
|
| 66 |
|
|
| — |
|
|
| 66 |
|
|
| — |
|
|
|
|
| 28 |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed notes ("ABN") |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| (b) | Other assets |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| (b) | Other assets |
Long-term debt |
|
| 1,301 |
|
|
| — |
|
|
| 1,301 |
|
|
| — |
| (c) | Long-term debt |
|
| 1,369 |
|
|
| — |
|
|
| 1,369 |
|
|
| — |
| (c) | Long-term debt |
The cumulative lossgain recorded in Other comprehensive loss relating to natural gas contracts of $17 million at September 30, 2015, will be recognized in Cost of sales upon maturity of the derivatives over the next 27 months at the then prevailing values, which may be different from those at September 30, 2015.
14
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
The cumulative loss recorded in Other comprehensive lossincome (loss) relating to currency options and forwards hedging forecasted purchases of $42$13 million at SeptemberJune 30, 2015,2016, will be recognized in Cost of sales or Sales upon maturity of the derivatives over the next 24 months at the then prevailing values, which may be different from those at SeptemberJune 30, 2015.2016.
14
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
Fair Value of financial instruments at: |
| December 31, 2014 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
|
| Balance sheet classification |
| December 31, 2015 |
|
| 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 under the Derivatives and Hedging Topic of FASB ASC: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Asset derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Prepaid expenses |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Prepaid expenses | ||||||||||||||||||
Currency derivatives |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| (a) | Other assets |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Other assets | ||||||||||||||||||
Total Assets |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
| (a) | Trade and other payables |
|
| 39 |
|
|
| — |
|
|
| 39 |
|
|
| — |
| (a) | Trade and other payables |
Natural gas swap contracts |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
| (a) | Trade and other payables | ||||||||||||||||||
Currency derivatives |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Natural gas swap contracts |
|
| 13 |
|
|
| — |
|
|
| 13 |
|
|
| — |
| (a) | Trade and other payables | ||||||||||||||||||
Natural gas swap contracts |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Total Liabilities |
|
| 42 |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
|
|
| 67 |
|
|
| — |
|
|
| 67 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed notes |
|
| 11 |
|
|
| — |
|
|
| 10 |
|
|
| 1 |
| (b) | Other assets |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| (b) | Other assets |
Long-term debt |
|
| 1,475 |
|
|
| — |
|
|
| 1,475 |
|
|
| — |
| (c) | Long-term debt |
|
| 1,261 |
|
|
| — |
|
|
| 1,261 |
|
|
| — |
| (c) | 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) | ABN are reported at fair value utilizing Level |
(c) | Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. |
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
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
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 |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||||||
Net earnings |
| $ | 11 |
|
| $ | 281 |
|
| $ | 85 |
|
| $ | 360 |
|
| $ | 18 |
|
| $ | 38 |
|
| $ | 22 |
|
| $ | 74 |
|
Weighted average number of common shares outstanding (millions) |
|
| 62.9 |
|
|
| 64.8 |
|
|
| 63.4 |
|
|
| 64.9 |
|
|
| 62.6 |
|
|
| 63.6 |
|
|
| 62.7 |
|
|
| 63.7 |
|
Effect of dilutive securities (millions) |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Weighted average number of diluted common shares outstanding (millions) |
|
| 63.0 |
|
|
| 64.9 |
|
|
| 63.5 |
|
|
| 65.0 |
|
|
| 62.7 |
|
|
| 63.7 |
|
|
| 62.8 |
|
|
| 63.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per common share (in dollars) |
| $ | 0.17 |
|
| $ | 4.34 |
|
| $ | 1.34 |
|
| $ | 5.55 |
|
| $ | 0.29 |
|
| $ | 0.60 |
|
| $ | 0.35 |
|
| $ | 1.16 |
|
Diluted net earnings per common share (in dollars) |
| $ | 0.17 |
|
| $ | 4.33 |
|
| $ | 1.34 |
|
| $ | 5.54 |
|
| $ | 0.29 |
|
| $ | 0.60 |
|
| $ | 0.35 |
|
| $ | 1.16 |
|
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, |
| ||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||
Options |
|
| 110,219 |
|
|
| 399,059 |
|
|
| 137,191 |
|
|
| 263,012 |
|
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Options |
|
| 314,287 |
|
|
| 220,406 |
|
|
| 412,372 |
|
|
| 137,521 |
|
16
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS
DEFINED CONTRIBUTION PLANS
The Company has several defined contribution plans and two Canadian multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the three and ninesix months ended SeptemberJune 30, 2015,2016, the related pension expense was $9$8 million and $24$18 million, respectively (2014 -(2015 – $7 million and $22$15 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 JuneJanuary 1, 20001998 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. Most unionizedUnionized and non-union hourly employees in the U.S. and all U.S. non-hourly employees thatwho 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 |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| September 30, 2015 |
|
| September 30, 2015 |
|
| June 30, 2016 |
|
| June 30, 2016 |
| ||||||||||||||||||||
|
| Pension plans |
|
| Other post-retirement benefit plans |
|
| Pension plans |
|
| Other post-retirement benefit plans |
|
| Pension plans |
|
| Other post-retirement benefit plans |
|
| Pension plans |
|
| Other post-retirement benefit plans |
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Service cost |
|
| 9 |
|
|
| — |
|
|
| 27 |
|
|
| 2 |
|
|
| 8 |
|
|
| 1 |
|
|
| 16 |
|
|
| 1 |
|
Interest expense |
|
| 16 |
|
|
| 1 |
|
|
| 49 |
|
|
| 3 |
|
|
| 13 |
|
|
| 1 |
|
|
| 25 |
|
|
| 2 |
|
Expected return on plan assets |
|
| (23 | ) |
|
| — |
|
|
| (70 | ) |
|
| — |
|
|
| (20 | ) |
|
| — |
|
|
| (39 | ) |
|
| — |
|
Amortization of net actuarial loss |
|
| 1 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Amortization of prior year service costs |
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Net periodic benefit cost |
|
| 4 |
|
|
| 1 |
|
|
| 13 |
|
|
| 5 |
|
|
| 3 |
|
|
| 2 |
|
|
| 6 |
|
|
| 3 |
|
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 |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| September 30, 2014 |
|
| September 30, 2014 |
|
| June 30, 2015 |
|
| June 30, 2015 |
| ||||||||||||||||||||
|
| Pension plans |
|
| Other post-retirement benefit plans |
|
| Pension plans |
|
| Other post-retirement benefit plans |
|
| Pension plans |
|
| Other post-retirement benefit plans |
|
| Pension plans |
|
| Other post-retirement benefit plans |
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Service cost |
|
| 9 |
|
|
| 1 |
|
|
| 27 |
|
|
| 2 |
|
|
| 9 |
|
|
| 1 |
|
|
| 18 |
|
|
| 2 |
|
Interest expense |
|
| 20 |
|
|
| — |
|
|
| 60 |
|
|
| 3 |
|
|
| 17 |
|
|
| 1 |
|
|
| 33 |
|
|
| 2 |
|
Expected return on plan assets |
|
| (27 | ) |
|
| — |
|
|
| (79 | ) |
|
| — |
|
|
| (23 | ) |
|
| — |
|
|
| (47 | ) |
|
| — |
|
Amortization of net actuarial loss |
|
| 2 |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
Amortization of prior year service costs |
|
| 2 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Net periodic benefit cost |
|
| 6 |
|
|
| 1 |
|
|
| 18 |
|
|
| 5 |
|
|
| 5 |
|
|
| 2 |
|
|
| 9 |
|
|
| 4 |
|
For the three and six months ended June 30, 2016, the Company contributed $5 million and $9 million, respectively (2015 – $3 million and $6 million, respectively) to the pension plans and $1 million and $2 million, respectively (2015 – $2 million and $3 million, respectively) to the other post-retirement benefit plans.
17
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 2015
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 6. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
The Company contributed $5 million and $11 million for the three and nine months ended September 30, 2015, respectively (2014 – nil and $19 million, respectively) to the pension plans. The Company also contributed $1 million and $4 million for the three and nine months ended September 30, 2015, respectively (2014 - $1 million and $4 million, respectively) to the other post-retirement benefit plans.
18
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
OTHER OPERATING INCOME,LOSS (INCOME), NET
Other operating income,loss (income), net is an aggregate of both recurring and occasional loss or income items and, as a result, can fluctuate from period to period. The Company’s other operating income,loss (income), net includes the following:
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Alternative fuel tax credits |
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) |
Gain on sale of property, plant and equipment(1) |
|
| — |
|
|
| — |
|
|
| (15 | ) |
|
| — |
|
Bad debt expense |
|
| (1 | ) |
|
| — |
|
|
| 4 |
|
|
| — |
|
Environmental provision |
|
| 4 |
|
|
| 1 |
|
|
| 4 |
|
|
| 1 |
|
Foreign exchange (gain) loss |
|
| (3 | ) |
|
| 1 |
|
|
| (3 | ) |
|
| — |
|
Other |
|
| — |
|
|
| (1 | ) |
|
| 2 |
|
|
| — |
|
Other operating income, net |
|
| — |
|
|
| (17 | ) |
|
| (8 | ) |
|
| (17 | ) |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Gain on sale of property, plant and equipment (1) |
|
| — |
|
|
| (14 | ) |
|
| — |
|
|
| (15 | ) |
Bad debt expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Litigation settlement |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Foreign exchange loss |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
Other |
|
| (2 | ) |
|
| 1 |
|
|
| (2 | ) |
|
| 2 |
|
Other operating loss (income), net |
|
| — |
|
|
| (13 | ) |
|
| 4 |
|
|
| (8 | ) |
| (1) | Effective June 23, 2015, Domtar finalized the previously announced sale of its Gatineau properties. Payment of $26 million (CDN $32 million) was received on July 3, 2015. As a result, the Company recorded a gain on sale of property, plant and equipment of $10 million (CDN $12 million) |
1918
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INCOME TAXES
In
For the thirdsecond quarter of 2015,2016, the Company’s income tax benefitexpense was $14$6 million, consisting of a current income tax expense of $4$8 million and a deferred income tax benefit of $18$2 million. This compares to an income tax benefit of $186$1 million in the thirdsecond quarter of 2014,2015, consisting of a current income tax expense of $10$16 million and a deferred income tax benefit of $196$17 million. The Company made incomeeffective tax payments, netrate was 25% compared with an effective tax rate of refunds, of $14 million during(3)% in the thirdsecond quarter of 2015. The effective tax rate was 467 % compared with an effective tax rate of -196% in the third quarter of 2014. The effective tax rates for both the third quarter of 2015 and the third quarter of 2014 were impacted by the recognition of additional tax benefits related to the finalization of certain estimates in connection with the filing of the Company’s 2014 and 2013 income tax returns, respectively. Additionally, the effective tax rate for the thirdsecond quarter of 2015 was impacted by enacted law changes in several U.S. states and by the impairment and write-down of property, plant, and equipment charges occurring in a high-tax jurisdiction. Also, for the third quarter of 2014, the effective tax rate was impacted by the recognition of previously unrecognized tax benefits of approximately $204 million as a result of the closure of U.S. federal tax audits for tax years 2009 through 2011, as well as the impact of recognizing $18 million of Alternative Fuel Tax Credits (“AFTC”) income in the third quarter of 2014 with no related tax expense.
For the nine months of 2015, the Company’s income tax benefit amounted to $6 million, consisting of a current tax expense of $44 million and a deferred tax benefit of $50 million. This compares to an income tax benefit of $158 million in the first nine months of 2014, consisting of a current income tax expense of $44 million and a deferred tax benefit of $202 million. The Company made income tax payments, net of refunds, of $16 million during the first nine months of 2015. The Company’s effective tax rate was negative in the first nine months of both 2015 and 2014. The effective tax rate for the first nine months of 2015 was impacted by the recognition of additional tax benefits related to the finalization of certain estimates in connection with the filing of the Company’s 2014 tax returns, by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations, by enacted law changes in several U.S. states, by the favorable tax treatment of certain gains on property dispositions and by the impairment and write-down of property, plant, and equipment charges occurring in a high-tax jurisdiction.
For the first half of 2016, the Company’s income tax expense amounted to $3 million, consisting of a current income tax expense of $8 million and a deferred income tax benefit of $5 million. This compares to an income tax expense of $8 million in the first half of 2015, consisting of a current income tax expense of $40 million and a deferred income tax benefit of $32 million. The effective tax rate was 12% compared to an effective tax rate of 10% in the first half of 2015. The effective tax rate for the first nine monthshalf of 20142016 was impacted by the approval of a state tax credit in the U.S. The effective tax rate for the first half of 2015 was impacted by the recognition of previously unrecognized tax benefits due to the expiration of approximately $204 million ascertain statutes of limitations, by enacted law changes in several U.S. states, by the favorable tax treatment of certain gains on property dispositions and by the impairment of property, plant, and equipment charges occurring in a resulthigh-tax jurisdiction.
19
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INVENTORIES
The following table presents the components of the closure of U.S. federal tax audits for tax years 2009 through 2011, as well as the impact of recognizing $18 million of AFTC income with no related tax expense.inventories:
|
| June 30, |
|
| December 31, | |
|
| 2016 |
|
| 2015 | |
|
| $ |
|
| $ | |
Work in process and finished goods |
|
| 409 |
|
| 432 |
Raw materials |
|
| 135 |
|
| 130 |
Operating and maintenance supplies |
|
| 209 |
|
| 204 |
|
|
| 753 |
|
| 766 |
20
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INVENTORIES
The following table presents the components of inventories:
|
| September 30, |
|
| December 31, | |
|
| 2015 |
|
| 2014 | |
|
| $ |
|
| $ | |
Work in process and finished goods |
|
| 416 |
|
| 395 |
Raw materials |
|
| 138 |
|
| 123 |
Operating and maintenance supplies |
|
| 197 |
|
| 196 |
|
|
| 751 |
|
| 714 |
21
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
GOODWILL
The carrying value and any changes in the carrying value of goodwill are as follows:
|
|
|
| |
|
| $ |
| |
Balance at December 31, |
|
|
|
|
Effect of foreign currency exchange rate change |
|
|
|
|
Balance at end of period |
|
|
|
|
|
|
|
|
|
The goodwill at SeptemberJune 30, 20152016 is entirely related to the Personal Care segment.
2221
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INTANGIBLE ASSETS
The following table presents the components of intangible assets:
|
|
|
| September 30, |
|
|
|
|
|
| December 31, |
|
|
|
|
|
| June 30, |
|
| December 31, |
| ||||||||||||||||||||||||||
|
|
|
| 2015 |
|
|
|
|
|
| 2014 |
|
|
|
|
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||||||||
|
| Estimated useful lives (in years) |
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net |
|
| Gross carrying amount |
| Accumulated amortization |
|
| Net |
| Estimated useful lives (in years) |
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net |
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net |
| ||||||||||
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| $ |
|
| $ |
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Definite-lived intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Water rights |
| 40 |
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
| 8 |
|
| (1 | ) |
| 7 |
| 40 |
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
Customer relationships |
| 10 - 40 |
|
| 358 |
|
|
| (42 | ) |
|
| 316 |
|
| 374 |
|
| (32 | ) |
| 342 |
| 10 - 40 |
|
| 357 |
|
|
| (54 | ) |
|
| 303 |
|
|
| 354 |
|
|
| (46 | ) |
|
| 308 |
|
Technology |
| 7 - 20 |
|
| 8 |
|
|
| (2 | ) |
|
| 6 |
|
| 8 |
|
| (2 | ) |
| 6 |
| 7 - 20 |
|
| 8 |
|
|
| (3 | ) |
|
| 5 |
|
|
| 8 |
|
|
| (2 | ) |
|
| 6 |
|
Non-Compete |
| 9 |
|
| 1 |
|
|
| - |
|
|
| 1 |
|
| 1 |
|
| — |
|
| 1 |
| 9 |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
License rights |
| 12 |
|
| 28 |
|
|
| (5 | ) |
|
| 23 |
|
| 29 |
|
| (4 | ) |
| 25 |
| 12 |
|
| 28 |
|
|
| (7 | ) |
|
| 21 |
|
|
| 28 |
|
|
| (6 | ) |
|
| 22 |
|
|
|
|
|
| 402 |
|
|
| (50 | ) |
|
| 352 |
|
| 420 |
|
| (39 | ) |
| 381 |
|
|
|
| 401 |
|
|
| (65 | ) |
|
| 336 |
|
|
| 398 |
|
|
| (55 | ) |
|
| 343 |
|
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Indefinite-lived intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Trade names |
|
|
|
| 220 |
|
|
| - |
|
|
| 220 |
|
| 233 |
|
| — |
|
| 233 |
|
|
|
| 218 |
|
|
| — |
|
|
| 218 |
|
|
| 215 |
|
|
| — |
|
|
| 215 |
|
License rights |
|
|
|
| 6 |
|
|
| - |
|
|
| 6 |
|
| 6 |
|
| — |
|
| 6 |
|
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Catalog rights |
|
|
|
| 38 |
|
|
| - |
|
|
| 38 |
|
| 41 |
|
| — |
|
| 41 |
|
|
|
| 38 |
|
|
| — |
|
|
| 38 |
|
|
| 37 |
|
|
| — |
|
|
| 37 |
|
Total |
|
|
|
| 666 |
|
|
| (50 | ) |
|
| 616 |
|
| 700 |
|
| (39 | ) |
| 661 |
|
|
|
| 663 |
|
|
| (65 | ) |
|
| 598 |
|
|
| 656 |
|
|
| (55 | ) |
|
| 601 |
|
Amortization expense related to intangible assets for the three and ninesix months ended SeptemberJune 30, 20152016 was $5$4 million and $14$9 million, respectively (2014(2015 – $5$4 million and $16$9 million, respectively).
Amortization expense for the next five years related to intangible assets is expected to be as follows:
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Amortization expense related to intangible assets |
|
| 19 |
|
|
| 19 |
|
|
| 19 |
|
|
| 19 |
|
|
| 18 |
|
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Amortization expense related to intangible assets |
|
| 19 |
|
|
| 19 |
|
|
| 19 |
|
|
| 18 |
|
|
| 18 |
|
2322
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT AND WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT
The Company regularly reviews its overall production capacity with the objective of aligning its production capacity with anticipated long-term demand, which in some cases could result in closure or impairment costs being recorded in earnings.
As a result of the Company’s previous withdrawal from its U.S. multiemployer plans, the total provision for the withdrawal liabilities is $59 million at September 30, 2015. Of the $59 million provision, $9 million is subject to limited measurement uncertainty as the Company remains exposed to potential additional withdrawal liabilities to the fund in the event of a mass withdrawal occurring before the end of 2015.
Ashdown, Arkansas mill
On December 10, 2014, the Company announced that its Board of Directors approved a $160 million capital project to convert a paper machine at the Ashdown, Arkansas mill to a high quality fluff pulp line used in absorbent applications such as baby diapers, feminine hygiene and adult incontinence products. The planned conversion work commenced during the second quarter of 2016. The fluff pulp line is expectedscheduled to come onlinestartup by the third quarter of 2016 and will allow for the production of up to 516,000 metric tons of fluff pulp per year once the machine is in full operation. The project will also resultresulted in the permanent reduction of 364,000 short tons of annual uncoated freesheet production capacity in the second quarter ofon March 31, 2016.
The conversion work is expected to commence during the second quarter of 2016 and the fluff pulp line is scheduled to startup by the third quarter of 2016. The cost of conversion will be approximately $160 million of which $40 million is expected to beCompany also invested in 2015 and $120 million in 2016. The Company will also invest $40 million in a pulp bale line that will provide flexibility to manufacture papergrade softwood pulp, contingent on market conditions.
The aggregate pre-tax earnings charge in connection with this conversion is estimated to be $120 million which includes an estimated $117 million in non-cash charges relating to accelerated depreciation of the carrying amounts of the manufacturing equipment as well as the write-off of related spare parts. Of the estimated pre-tax charge of $120 million,Company recorded $3 million relates to estimated cash severance, employee benefits and training. Of the estimated total pre-tax charge of $120 million, $113 million is expected to be incurred during 2015 and 2016. As a result of the 2014 fourth quarter decision to convert a paper machine to a fluff pulp line at its Ashdown, Arkansas mill, the Company recorded $20 million and $57$24 million for the three and ninesix months ended SeptemberJune 30, 2015,2016, respectively, of accelerated depreciation under Impairment and write-down of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss) Income. For. The Company also recorded $21 million of costs related to the threefluff pulp conversion outage under Closure and nine months ended September 30, 2015,restructuring costs during the second quarter of 2016. During the first quarter of 2016, the Company recorded $1 million and $2 million, respectively of severance and termination cost.costs under Closure and restructuring costs.
The Company recorded $18 million and $37 million for the three and six months ended June 30, 2015, respectively, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). The Company also recorded $1 million of severance and termination costs under Closure and restructuring costs during the second quarter of 2015.
Other costs
For the three and ninesix months ended SeptemberJune 30, 2016, other costs related to previous and ongoing closures include nil and $1 million, respectively, of severance and termination costs related to Pulp and Paper.
For the three and six months ended June 30, 2015, other costs related to previous and ongoing closures include nil and $1 million, respectively, of severance and termination costs related to Personal Care.
For the three and nine months ended SeptemberAt June 30, 2014, other costs related to previous and ongoing closures include $2 and $2 million, respectively of severance and termination costs related to Pulp and Paper and nil and $1 million respectively of severance and termination costs related to Personal Care.
At September 30, 2015,2016, the Company’s provision for closure and restructuring costs is $3 million. This provision is comprised of severance and termination costs, all related to Pulp and Paper.
24
23
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
LONG-TERM DEBT
The Company redeemed on August 20, 2015, (the redemption date), $55 million in aggregate principal amount of its 9.5% Notes due 2016, representing approximately 59% of the outstanding notes, and $215 million in aggregate principal amount of its 10.75% Notes due 2017, representing approximately 77% of the outstanding notes. The redemption price for the notes was equal to 100% of the principal amount of such notes, plus accrued and unpaid interest, plus a make-whole premium. Debt refinancing costs of $42 million were incurred in the third quarter of 2015.
In addition, the Company’s 7.125% notes, in the aggregate principal amount of $167 million matured on August 15, 2015.
The above-noted redemptions and repayment of notes were funded through a combination of cash on hand, borrowings under the Company’s credit facilities and proceeds from a new $300 million 10-year term loan agreement with a syndicate of bank lenders.
TERM LOAN
On July 20, 2015, a wholly owned subsidiary of Domtar entered into a $300 million Term Loan Agreement that matures on July 20, 2025. The facility was fully drawn down on August 19, 2015.
Borrowings under the Term Loan Agreement bear interest at LIBOR plus a margin of 1.875%.
The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement that must be maintained at a level of not greater than 3.75 to 1.
All borrowings under the Term Loan are unsecured. The Company and certain domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement.
25
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
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 monthsperiods ended SeptemberJune 30, 20152016 and 2014:December 31, 2015:
|
| Net derivative gains (losses) on cash flow hedges |
|
| Pension items(2) |
|
| Post-retirement benefit items(2) |
|
| Foreign currency items |
|
| Total |
|
| Net derivative (losses) gains on cash flow hedges |
|
| Pension items(2) |
|
| Post-retirement benefit items(2) |
|
| Foreign currency items |
|
| Total |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Balance at December 31, 2014 |
|
| (15 | ) |
|
| (192 | ) |
|
| (13 | ) |
|
| (48 | ) |
|
| (268 | ) |
|
| (15 | ) |
|
| (192 | ) |
|
| (13 | ) |
|
| (48 | ) |
|
| (268 | ) |
Natural gas swap contracts |
|
| (6 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (6 | ) |
|
| (8 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (8 | ) | ||||||
Currency options |
|
| (33 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (33 | ) |
|
| (40 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (40 | ) | ||||||
Forward contracts |
|
| 4 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 4 |
| |||||||||||||||||||||||
Forward exchange forward contracts |
|
| 7 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 7 |
| |||||||||||||||||||||||
Net (gain) loss |
| N/A |
|
|
| (5 | ) |
|
| 3 |
|
| N/A |
|
|
| (2 | ) | ||||||||||||||||||||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (182 | ) |
|
| (182 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (223 | ) |
|
| (223 | ) | ||||||
Net gain |
| N/A |
|
|
| — |
|
|
| — |
|
| N/A |
|
|
| — |
| ||||||||||||||||||||||
Other comprehensive loss before reclassifications |
|
| (35 | ) |
|
| — |
|
|
| — |
|
|
| (182 | ) |
|
| (217 | ) | ||||||||||||||||||||
Other comprehensive (loss) income before reclassifications |
|
| (41 | ) |
|
| (5 | ) |
|
| 3 |
|
|
| (223 | ) |
|
| (266 | ) | ||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss |
|
| 18 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| 26 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
Net current period other comprehensive (loss) income |
|
| (17 | ) |
|
| 5 |
|
|
| — |
|
|
| (182 | ) |
|
| (194 | ) |
|
| (15 | ) |
|
| 2 |
|
|
| 3 |
|
|
| (223 | ) |
|
| (233 | ) |
Balance at September 30, 2015 |
|
| (32 | ) |
|
| (187 | ) |
|
| (13 | ) |
|
| (230 | ) |
|
| (462 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at December 31, 2013 |
|
| — |
|
|
| (210 | ) |
|
| (7 | ) |
|
| 152 |
|
|
| (65 | ) | ||||||||||||||||||||
Balance at December 31, 2015 |
|
| (30 | ) |
|
| (190 | ) |
|
| (10 | ) |
|
| (271 | ) |
|
| (501 | ) | ||||||||||||||||||||
Natural gas swap contracts |
|
| 1 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 1 |
|
|
| 4 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 4 |
| ||||||
Net investment hedge |
|
| (1 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (1 | ) | |||||||||||||||||||||||
Currency options |
|
| (7 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (7 | ) |
|
| 13 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 13 |
| ||||||
Forward contracts |
|
| 1 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 1 |
| |||||||||||||||||||||||
Forward exchange forward contracts |
|
| 13 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 13 |
| |||||||||||||||||||||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (130 | ) |
|
| (130 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 55 |
|
|
| 55 |
| ||||||
Remeasurement of pension plan obligation |
| N/A |
|
|
| (3 | ) |
| N/A |
|
| N/A |
|
|
| (3 | ) | |||||||||||||||||||||||
Other comprehensive loss before reclassifications |
|
| (5 | ) |
|
| (3 | ) |
|
| — |
|
|
| (130 | ) |
|
| (138 | ) | ||||||||||||||||||||
Other comprehensive income before reclassifications |
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| 84 |
| ||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss |
|
| 5 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 13 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Net current period other comprehensive income (loss) |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| (130 | ) |
|
| (126 | ) | ||||||||||||||||||||
Balance at September 30, 2014 |
|
| — |
|
|
| (206 | ) |
|
| (7 | ) |
|
| 22 |
|
|
| (191 | ) | ||||||||||||||||||||
Net current period other comprehensive income |
|
| 42 |
|
|
| 3 |
|
|
| — |
|
|
| 55 |
|
|
| 100 |
| ||||||||||||||||||||
Balance at June 30, 2016 |
|
| 12 |
|
|
| (187 | ) |
|
| (10 | ) |
|
| (216 | ) |
|
| (401 | ) |
(1) | All amounts are after tax. Amounts in parenthesis indicate losses. |
(2) | The accrued benefit obligation is actuarially determined on an annual basis as of December 31. |
26
24
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20152016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 14.12. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)
The following tables presenttable presents reclassifications out of Accumulated other comprehensive loss:
Details about Accumulated other comprehensive loss components |
| Amount reclassified from Accumulated other comprehensive loss |
|
|
| Amount reclassified from Accumulated other comprehensive loss |
|
| ||||||||||
|
| For the three months ended |
|
|
| For the three months ended |
|
| ||||||||||
|
| September 30, 2015 |
|
| September 30, 2014 |
|
|
| June 30, 2016 |
|
| June 30, 2015 |
|
| ||||
Net derivative gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas swap contracts |
|
| 2 |
|
|
| — |
| (1) |
|
| 5 |
|
|
| 5 |
| (1) |
Currency options and forwards |
|
| 10 |
|
|
| 2 |
| (1) |
|
| 3 |
|
|
| 5 |
| (1) |
Total before tax |
|
| 12 |
|
|
| 2 |
|
|
|
| 8 |
|
|
| 10 |
|
|
Tax expense |
|
| (5 | ) |
|
| — |
|
|
|
| (3 | ) |
|
| (4 | ) |
|
Net of tax |
|
| 7 |
|
|
| 2 |
|
|
|
| 5 |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 2 |
|
|
| 4 |
| (2) |
|
| 3 |
|
|
| 2 |
| (2) |
Tax expense |
|
| (1 | ) |
|
| (2 | ) |
|
|
| (1 | ) |
|
| — |
|
|
Net of tax |
|
| 1 |
|
|
| 2 |
|
|
|
| 2 |
|
|
| 2 |
|
|
Details about Accumulated other comprehensive loss components |
| Amount reclassified from Accumulated other comprehensive loss | |||||||
|
| For the six months ended | |||||||
|
| June 30, 2016 |
|
| June 30, 2015 | ||||
Net derivative gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
Natural gas swap contracts |
|
| 10 |
|
|
| 9 |
| (1) |
Currency options and forwards |
|
| 11 |
|
| 10 |
| (1) | |
Total before tax |
|
| 21 |
|
| 19 |
|
| |
Tax expense |
|
| (8 | ) |
|
| (8 | ) |
|
Net of tax |
|
| 13 |
|
| 11 |
|
| |
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 5 |
|
| 5 |
| (2) | |
Tax expense |
|
| (2 | ) |
|
| (1 | ) |
|
Net of tax |
|
| 3 |
|
| 4 |
|
|
Details about Accumulated other comprehensive loss components |
| Amount reclassified from Accumulated other comprehensive loss | |||||||
|
| For the nine months ended | |||||||
|
| September 30, 2015 |
|
| September 30, 2014 | ||||
Net derivative gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
Natural gas swap contracts |
|
| 11 |
|
|
| (3 | ) | (1) |
Currency options and forwards |
|
| 20 |
|
| 11 |
| (1) | |
Total before tax |
|
| 31 |
|
| 8 |
|
| |
Tax expense |
|
| (13 | ) |
|
| (3 | ) |
|
Net of tax |
|
| 18 |
|
| 5 |
|
| |
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 7 |
|
| 10 |
| (2) | |
Tax expense |
|
| (2 | ) |
|
| (3 | ) |
|
Net of tax |
|
| 5 |
|
| 7 |
|
|
(1) | These amounts are included in Cost of Sales in the Consolidated Statements of Earnings and Comprehensive Income (Loss) |