UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneSeptember 30, 2016
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)
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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:
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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 July 29, 2016, 62,585,337 shares of the issuer’s common stock were outstanding.
FORM 10-Q
For the Quarterly Period Ended June 30, 2016
INDEX
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ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
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 ☒ 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 ☒ 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 ☒ | 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 ☒
At October 31, 2016, 62,585,337 shares of the issuer’s common stock were outstanding.
FORM 10-Q
For the Quarterly Period Ended September 30, 2016
INDEX
PART I. | 3 | |
ITEM 1. | 3 | |
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS) | 3 | |
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 41 |
ITEM 3. | 51 | |
ITEM 4. | 51 | |
PART II | 52 | |
ITEM 1. | 52 | |
ITEM 1A. | 52 | |
ITEM 2. | 53 | |
ITEM 3. | 54 | |
ITEM 4. | 54 | |
ITEM 5. | 54 | |
ITEM 6. | 54 |
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
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| For the three months ended |
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| For the six months ended |
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| For the three months ended |
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| For the nine months ended |
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| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| September 30, |
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| September 30, |
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| September 30, |
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| September 30, |
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| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
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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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| $ |
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| $ |
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| $ |
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Sales |
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| 1,267 |
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| 1,310 |
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| 2,554 |
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| 2,658 |
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| 1,270 |
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| 1,292 |
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| 3,824 |
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| 3,950 |
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Operating expenses |
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Cost of sales, excluding depreciation and amortization |
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| 1,013 |
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| 1,052 |
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| 2,063 |
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| 2,114 |
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| 969 |
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| 1,026 |
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| 3,032 |
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| 3,140 |
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Depreciation and amortization |
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| 87 |
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| 91 |
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| 176 |
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| 181 |
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| 87 |
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| 89 |
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| 263 |
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| 270 |
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Selling, general and administrative |
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| 104 |
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| 99 |
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| 207 |
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| 199 |
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| 107 |
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| 95 |
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| 314 |
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| 294 |
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Impairment of property, plant and equipment (NOTE 11) |
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| 3 |
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| 18 |
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| 24 |
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| 37 |
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| 5 |
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| 20 |
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| 29 |
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| 57 |
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Closure and restructuring costs (NOTE 11) |
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| 21 |
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| 1 |
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| 23 |
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| 2 |
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| 10 |
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| 1 |
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| 33 |
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| 3 |
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Other operating loss (income), net (NOTE 6) |
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| — |
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| (13 | ) |
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| 4 |
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| (8 | ) |
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| — |
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| 4 |
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| (8 | ) |
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| 1,228 |
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| 1,248 |
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| 2,497 |
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| 2,525 |
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| 1,178 |
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| 1,231 |
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| 3,675 |
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| 3,756 |
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Operating income |
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| 39 |
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| 62 |
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| 57 |
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| 133 |
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| 92 |
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| 61 |
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| 149 |
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| 194 |
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Interest expense, net |
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| 15 |
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| 25 |
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| 32 |
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| 51 |
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| 17 |
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| 64 |
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| 49 |
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| 115 |
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Earnings before income taxes |
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| 24 |
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| 37 |
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| 25 |
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| 82 |
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Earnings (loss) before income taxes |
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| 75 |
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| (3 | ) |
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| 100 |
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| 79 |
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Income tax expense (benefit) (NOTE 7) |
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| 6 |
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| (1 | ) |
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| 3 |
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| 8 |
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| 16 |
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| (14 | ) |
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| 19 |
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| (6 | ) |
Net earnings |
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| 18 |
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| 38 |
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| 22 |
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| 74 |
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| 59 |
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| 11 |
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| 81 |
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| 85 |
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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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| 0.29 |
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| 0.60 |
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| 0.35 |
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| 1.16 |
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| 0.94 |
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| 0.17 |
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| 1.29 |
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| 1.34 |
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Diluted |
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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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| 0.94 |
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| 0.17 |
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| 1.29 |
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| 1.34 |
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Weighted average number of common shares outstanding (millions) |
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Basic |
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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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| 62.6 |
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| 62.9 |
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| 62.6 |
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| 63.4 |
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Diluted |
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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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| 62.7 |
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| 63.0 |
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| 62.7 |
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| 63.5 |
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Cash dividends per common share |
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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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| 0.42 |
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| 0.40 |
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| 1.22 |
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| 1.18 |
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Net earnings |
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| 18 |
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| 38 |
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| 22 |
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| 74 |
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| 59 |
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| 11 |
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| 81 |
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| 85 |
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Other comprehensive income (loss) (NOTE 12): |
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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) |
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| 9 |
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| 2 |
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| 29 |
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| (16 | ) | ||||||||||||||||
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(3) and $(8), respectively (2015 - $(4) and $(8), respectively) |
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| 5 |
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| 6 |
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| 13 |
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| 11 |
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Other comprehensive income (loss) (NOTE 13): |
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Net derivative (losses) gains on cash flow hedges: |
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Net (losses) gains arising during the period, net of tax of $4 and $(14), respectively (2015 - $13 and $24, respectively) |
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| (6 | ) |
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| (19 | ) |
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| 23 |
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| (35 | ) | ||||||||||||||||
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(2) and $(10), respectively (2015 - $(5) and $(13), respectively) |
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| 1 |
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| 7 |
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| 14 |
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| 18 |
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Foreign currency translation adjustments |
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| (30 | ) |
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| 43 |
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| 55 |
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| (124 | ) |
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| 6 |
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| (58 | ) |
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| 61 |
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| (182 | ) |
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) |
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| 2 |
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| 2 |
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| 3 |
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| 4 |
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Other comprehensive (loss) income |
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| (14 | ) |
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| 53 |
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| 100 |
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| (125 | ) | ||||||||||||||||
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $nil and $(2), respectively (2015 - $(1) and $(2), respectively) |
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| 2 |
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|
| 1 |
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| 5 |
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| 5 |
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Other comprehensive income (loss) |
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| 3 |
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| (69 | ) |
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| 103 |
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| (194 | ) | ||||||||||||||||
Comprehensive income (loss) |
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| 4 |
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| 91 |
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| 122 |
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| (51 | ) |
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| 62 |
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|
| (58 | ) |
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| 184 |
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|
| (109 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
DOMTAR CORPORATION
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
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| At |
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| September 30, |
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| December 31, |
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| 2016 |
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| 2015 |
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| (Unaudited) |
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| $ |
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| $ |
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Assets |
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Current assets |
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Cash and cash equivalents |
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| 168 |
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| 126 |
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Receivables, less allowances of $6 and $6 |
|
| 616 |
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| 627 |
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Inventories (NOTE 8) |
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| 770 |
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| 766 |
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Prepaid expenses |
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| 46 |
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| 21 |
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Income and other taxes receivable |
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| 33 |
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| 14 |
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Total current assets |
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| 1,633 |
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| 1,554 |
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Property, plant and equipment, net |
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| 2,887 |
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| 2,835 |
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Goodwill (NOTE 9) |
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| 548 |
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| 539 |
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Intangible assets, net (NOTE 10) |
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| 600 |
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| 601 |
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Other assets |
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| 162 |
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| 125 |
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Total assets |
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| 5,830 |
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| 5,654 |
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Liabilities and shareholders' equity |
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Current liabilities |
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Trade and other payables |
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| 645 |
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| 720 |
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Income and other taxes payable |
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| 25 |
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| 27 |
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Long-term debt due within one year |
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| 63 |
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| 41 |
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Total current liabilities |
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| 733 |
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| 788 |
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Long-term debt |
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| 1,309 |
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| 1,210 |
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Deferred income taxes and other |
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| 692 |
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|
| 654 |
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Other liabilities and deferred credits |
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| 342 |
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| 350 |
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Commitments and contingencies (NOTE 15) |
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Shareholders' equity (NOTE 14) |
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Common stock $0.01 par value; authorized 2,000,000,000 shares; issued: 65,001,104 shares |
|
| 1 |
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| 1 |
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Treasury stock $0.01 par value; 2,415,767 and 2,151,168 shares |
|
| — |
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|
| — |
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Additional paid-in capital |
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| 1,961 |
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| 1,966 |
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Retained earnings |
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| 1,190 |
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| 1,186 |
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Accumulated other comprehensive loss |
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| (398 | ) |
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| (501 | ) |
Total shareholders' equity |
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| 2,754 |
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| 2,652 |
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Total liabilities and shareholders' equity |
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| 5,830 |
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| 5,654 |
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The accompanying notes are an integral part of the consolidated financial statements.
DOMTAR CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
|
| Issued and outstanding common shares (millions of shares) |
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| Common stock, at par |
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| Additional paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
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| Total shareholders' equity |
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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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| $ |
| |||||
Balance at December 31, 2015 |
|
| 62.8 |
|
|
| 1 |
|
|
| 1,966 |
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|
| 1,186 |
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|
| (501 | ) |
|
| 2,652 |
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Stock-based compensation, net of tax |
|
| 0.1 |
|
|
| — |
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|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 81 |
|
|
| — |
|
|
| 81 |
|
Net derivative gains on cash flow hedges: |
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|
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|
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Net gains arising during the period, net of tax of $(14) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| 23 |
|
Less: Reclassification adjustments for losses included in net earnings, net of tax of $(10) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| 14 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| 61 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 5 |
|
Stock repurchase |
|
| (0.3 | ) |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Cash dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (77 | ) |
|
| — |
|
|
| (77 | ) |
Balance at September 30, 2016 |
|
| 62.6 |
|
|
| 1 |
|
|
| 1,961 |
|
|
| 1,190 |
|
|
| (398 | ) |
|
| 2,754 |
|
The accompanying notes are an integral part of the consolidated financial statements.
DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
|
| For the nine months ended |
| |||||
|
| September 30, 2016 |
|
| September 30, 2015 |
| ||
|
| (Unaudited) |
| |||||
|
| $ |
|
| $ |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net earnings |
|
| 81 |
|
|
| 85 |
|
Adjustments to reconcile net earnings to cash flows from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 263 |
|
|
| 270 |
|
Deferred income taxes and tax uncertainties |
|
| 6 |
|
|
| (50 | ) |
Impairment of property, plant and equipment |
|
| 29 |
|
|
| 57 |
|
Net gains on disposals of property, plant and equipment |
| �� | — |
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|
| (15 | ) |
Stock-based compensation expense |
|
| 5 |
|
|
| 5 |
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Other |
|
| (3 | ) |
|
| 4 |
|
Changes in assets and liabilities, excluding effect of acquisition of business |
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Receivables |
|
| 19 |
|
|
| (11 | ) |
Inventories |
|
| 6 |
|
|
| (70 | ) |
Prepaid expenses |
|
| (5 | ) |
|
| (3 | ) |
Trade and other payables |
|
| (53 | ) |
|
| 8 |
|
Income and other taxes |
|
| (18 | ) |
|
| 30 |
|
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense |
|
| (16 | ) |
|
| 2 |
|
Other assets and other liabilities |
|
| (4 | ) |
|
| 4 |
|
Cash flows provided from operating activities |
|
| 310 |
|
|
| 316 |
|
Investing activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (302 | ) |
|
| (202 | ) |
Proceeds from disposals of property, plant and equipment |
|
| — |
|
|
| 35 |
|
Acquisition of business, net of cash acquired |
|
| (1 | ) |
|
| — |
|
Other |
|
| 1 |
|
|
| 9 |
|
Cash flows used for investing activities |
|
| (302 | ) |
|
| (158 | ) |
Financing activities |
|
|
|
|
|
|
|
|
Dividend payments |
|
| (76 | ) |
|
| (75 | ) |
Stock repurchase |
|
| (10 | ) |
|
| (50 | ) |
Net change in bank indebtedness |
|
| 1 |
|
|
| (9 | ) |
Change in revolving bank credit facility |
|
| 60 |
|
|
| 75 |
|
Proceeds from receivables securitization facility |
|
| 140 |
|
|
| — |
|
Repayments of receivables securitization facility |
|
| (40 | ) |
|
| — |
|
Issuance of long-term debt |
|
| — |
|
|
| 300 |
|
Repayments of long-term debt |
|
| (40 | ) |
|
| (439 | ) |
Other |
|
| (3 | ) |
|
| 1 |
|
Cash flows provided from (used for) financing activities |
|
| 32 |
|
|
| (197 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 40 |
|
|
| (39 | ) |
Impact of foreign exchange on cash |
|
| 2 |
|
|
| (7 | ) |
Cash and cash equivalents at beginning of period |
|
| 126 |
|
|
| 174 |
|
Cash and cash equivalents at end of period |
|
| 168 |
|
|
| 128 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Net cash payments for: |
|
|
|
|
|
|
|
|
Interest (including $40 million of redemption premiums in 2015) |
|
| 50 |
|
|
| 121 |
|
Income taxes paid, net |
|
| 37 |
|
|
| 16 |
|
The accompanying notes are an integral part of the consolidated financial statements.
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
|
| At |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2016 |
|
| 2015 |
| ||
|
| (Unaudited) |
| |||||
|
| $ |
|
| $ |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 111 |
|
|
| 126 |
|
Receivables, less allowances of $6 and $6 |
|
| 608 |
|
|
| 627 |
|
Inventories (NOTE 8) |
|
| 753 |
|
|
| 766 |
|
Prepaid expenses |
|
| 55 |
|
|
| 21 |
|
Income and other taxes receivable |
|
| 31 |
|
|
| 14 |
|
Total current assets |
|
| 1,558 |
|
|
| 1,554 |
|
Property, plant and equipment, net |
|
| 2,906 |
|
|
| 2,835 |
|
Goodwill (NOTE 9) |
|
| 543 |
|
|
| 539 |
|
Intangible assets, net (NOTE 10) |
|
| 598 |
|
|
| 601 |
|
Other assets |
|
| 163 |
|
|
| 125 |
|
Total assets |
|
| 5,768 |
|
|
| 5,654 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Bank indebtedness |
|
| 1 |
|
|
| — |
|
Trade and other payables |
|
| 693 |
|
|
| 720 |
|
Income and other taxes payable |
|
| 24 |
|
|
| 27 |
|
Long-term debt due within one year |
|
| 64 |
|
|
| 41 |
|
Total current liabilities |
|
| 782 |
|
|
| 788 |
|
Long-term debt |
|
| 1,237 |
|
|
| 1,210 |
|
Deferred income taxes and other |
|
| 681 |
|
|
| 654 |
|
Other liabilities and deferred credits |
|
| 352 |
|
|
| 350 |
|
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 |
|
Treasury stock $0.01 par value; 2,415,767 and 2,151,168 shares |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 1,959 |
|
|
| 1,966 |
|
Retained earnings |
|
| 1,157 |
|
|
| 1,186 |
|
Accumulated other comprehensive loss |
|
| (401 | ) |
|
| (501 | ) |
Total shareholders' equity |
|
| 2,716 |
|
|
| 2,652 |
|
Total liabilities and shareholders' equity |
|
| 5,768 |
|
|
| 5,654 |
|
The accompanying notes are an integral part of the consolidated financial statements.
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 |
| ||||||
|
| (Unaudited) |
| |||||||||||||||||||||
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Balance at December 31, 2015 |
|
| 62.8 |
|
|
| 1 |
|
|
| 1,966 |
|
|
| 1,186 |
|
|
| (501 | ) |
|
| 2,652 |
|
Stock-based compensation, net of tax |
|
| 0.1 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Stock repurchase |
|
| (0.3 | ) |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Cash dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (51 | ) |
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
|
| For the six months ended |
| |||||
|
| June 30, 2016 |
|
| June 30, 2015 |
| ||
|
| (Unaudited) |
| |||||
|
| $ |
|
| $ |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net earnings |
|
| 22 |
|
|
| 74 |
|
Adjustments to reconcile net earnings to cash flows from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 176 |
|
|
| 181 |
|
Deferred income taxes and tax uncertainties |
|
| (5 | ) |
|
| (32 | ) |
Impairment of property, plant and equipment |
|
| 24 |
|
|
| 37 |
|
Net gains on disposals of property, plant and equipment |
|
| — |
|
|
| (15 | ) |
Stock-based compensation expense |
|
| 3 |
|
|
| 3 |
|
Other |
|
| (4 | ) |
|
| — |
|
Changes in assets and liabilities, excluding effect of acquisition of business |
|
|
|
|
|
|
|
|
Receivables |
|
| 25 |
|
|
| — |
|
Inventories |
|
| 18 | �� |
|
| (23 | ) |
Prepaid expenses |
|
| (13 | ) |
|
| (10 | ) |
Trade and other payables |
|
| (8 | ) |
|
| (18 | ) |
Income and other taxes |
|
| (16 | ) |
|
| 46 |
|
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense |
|
| (3 | ) |
|
| 3 |
|
Other assets and other liabilities |
|
| (4 | ) |
|
| 3 |
|
Cash flows provided from operating activities |
|
| 215 |
|
|
| 249 |
|
Investing activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (219 | ) |
|
| (136 | ) |
Proceeds from disposals of property, plant and equipment |
|
| — |
|
|
| 7 |
|
Acquisition of business, net of cash acquired |
|
| (1 | ) |
|
| — |
|
Other |
|
| — |
|
|
| 9 |
|
Cash flows used for investing activities |
|
| (220 | ) |
|
| (120 | ) |
Financing activities |
|
|
|
|
|
|
|
|
Dividend payments |
|
| (50 | ) |
|
| (50 | ) |
Stock repurchase |
|
| (10 | ) |
|
| (30 | ) |
Net change in bank indebtedness |
|
| 1 |
|
|
| (9 | ) |
Change in revolving bank credit facility |
|
| (50 | ) |
|
| — |
|
Proceeds from receivables securitization facility |
|
| 120 |
|
|
| — |
|
Repayments of receivables securitization facility |
|
| (20 | ) |
|
| — |
|
Repayments of long-term debt |
|
| (1 | ) |
|
| (2 | ) |
Other |
|
| (1 | ) |
|
| 1 |
|
Cash flows used for financing activities |
|
| (11 | ) |
|
| (90 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (16 | ) |
|
| 39 |
|
Impact of foreign exchange on cash |
|
| 1 |
|
|
| (6 | ) |
Cash and cash equivalents at beginning of period |
|
| 126 |
|
|
| 174 |
|
Cash and cash equivalents at end of period |
|
| 111 |
|
|
| 207 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Net cash payments for: |
|
|
|
|
|
|
|
|
Interest |
|
| 32 |
|
|
| 48 |
|
Income taxes paid, net |
|
| 27 |
|
|
| 2 |
|
The accompanying notes are an integral part of the consolidated financial statements.
INDEX FOR NOTES TO CONSOLIDATEDCONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 | 8 | |
|
|
|
NOTE 2 | 9 | |
|
|
|
NOTE 3 | DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT |
|
|
|
|
NOTE 4 |
| |
|
|
|
NOTE 5 |
| |
|
|
|
NOTE 6 |
| |
|
|
|
NOTE 7 |
| |
|
|
|
NOTE 8 |
| |
|
|
|
NOTE 9 |
| |
|
|
|
NOTE 10 |
| |
|
|
|
NOTE 11 | CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT |
|
| ||
NOTE 12 |
|
|
|
|
|
NOTE 13 |
| 26 |
|
|
|
NOTE 14 |
| |
|
|
|
NOTE 15 |
| |
|
|
|
NOTE 16 |
|
|
|
|
|
NOTE 17 | 33 | |
|
|
|
NOTE 18 | 40 |
7
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(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 sixnine 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, 2015, as filed with the Securities and Exchange Commission. The December 31, 2015 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
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING CHANGES IMPLEMENTED
PRESENTATION OF DEBT ISSUANCE COSTS
In April 2015, the FASB issued Accounting Standard Update (“ASU”) 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 asset.
The Company adopted the new requirements 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 consolidated financial statements.
FUTURE ACCOUNTING CHANGES
REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with 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 supersedesThis new guidance will supersede the revenue recognition requirements found in topic 605.
ASU 2014-09 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 how they will impact the consolidated financial statements.
INVENTORY
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which simplifies the measurement of inventories valued under FIFO – first-in, first-out – and moving average methods. Under this new guidance, inventories valued under these methods would be valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling costs less reasonable costs to sell the inventory. This ASU does not change the measurement principles for inventories valued under the LIFO – last-in, first-out – method. The amendments in the 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 new guidance to have a material impact on the consolidated financial statements.
9
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 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.
The Company is currently evaluating the impact of this guidance on the consolidated financial statements.
SHARE-BASED PAYMENTS
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.
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
CLASSIFICATION OF CASH FLOWS
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows” which amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The guidance must be applied retrospectively to all periods presented but it may be applied prospectively if retrospective application would be impracticable. Early adoption is permitted.
The Company does not expect this new guidance to have a material impact on the consolidated financial statements.
11
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(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 periods 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 JuneSeptember 30, 2016, one of Domtar’s Pulp and Paper segment customers located in the United States represented 12% ($7677 million) (2015 – 12% ($78 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 attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored.
INTEREST RATE RISK
The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, 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.
12
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
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 60 months.
The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of JuneSeptember 30, 2016 to hedge forecasted purchases:
Commodity |
| Notional contractual quantity under derivative contracts MMBTU(2) |
| Notional contractual value under derivative contracts (in millions of dollars) |
| Percentage of forecasted purchases under derivative contracts |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 (1) |
| 8,535,000 |
|
| $ | 27 |
|
|
|
| 80% |
|
| 4,620,000 |
|
| $ | 14 |
|
|
|
| 80% |
|
2017 |
| 8,980,000 |
|
| $ | 28 |
|
|
|
| 34% |
|
| 8,980,000 |
|
| $ | 28 |
|
|
|
| 34% |
|
2018 |
| 4,275,000 |
|
| $ | 13 |
|
|
|
| 16% |
|
| 5,085,000 |
|
| $ | 15 |
|
|
|
| 19% |
|
2019 |
| 3,375,000 |
|
| $ | 10 |
|
|
|
| 13% |
|
| 6,560,000 |
|
| $ | 20 |
|
|
|
| 25% |
|
2020 |
| 3,375,000 |
|
| $ | 11 |
|
|
|
| 13% |
|
| 5,750,000 |
|
| $ | 18 |
|
|
|
| 22% |
|
2021 |
| 2,060,000 |
|
| $ | 7 |
|
|
|
| 15% |
|
| 2,930,000 |
|
| $ | 10 |
|
|
|
| 15% |
|
(1) | Represents the remaining |
(2) | MMBTU: Millions of British thermal units |
The natural gas derivative contracts were fully effective as of JuneSeptember 30, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the three and sixnine months ended JuneSeptember 30, 2016 resulting from hedge ineffectiveness (three and sixnine months ended JuneSeptember 30, 2015 – 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 the Company’s Canadian subsidiary over the next 24 months. Derivatives are used to hedge a portion of forecasted sales by its U.S. subsidiaries in Euros and in British pounds over the next 12 months. Derivatives are also used to hedge a portion of forecasted sales in British pounds and Norwegian krone and a portion of forecasted purchases in U.S. dollars and Swedish krona by its European 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
13
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
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
JUNE 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
The following table presents the currency values under significant currency positions pursuant to currency derivatives outstanding as of JuneSeptember 30, 2016 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 |
|
|
|
|
|
|
|
|
| 1 Euro = |
| 1 Euro = |
Euro/USD |
| Pulp and Paper |
|
|
| 19 EUR |
|
| 50% |
|
| 1 Euro = 1.1370 |
| 1 Euro = 1.1370 |
|
|
|
| 2018 |
|
|
|
|
|
|
|
|
|
|
CDN/USD |
| Pulp and Paper |
|
|
|
|
|
|
|
|
| 1 USD = |
| 1 USD = |
USD/Euro |
| Personal Care |
|
|
| 14 USD |
|
|
|
|
| 1 Euro = 1.1532 |
| 1 Euro = 1.1532 |
The foreign exchange derivative contracts were fully effective as of JuneSeptember 30, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the three and sixnine months ended JuneSeptember 30, 2016 resulting from hedge ineffectiveness (three and sixnine months ended JuneSeptember 30, 2015 - 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. |
1314
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3.3 – 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 JuneSeptember 30, 2016 and December 31, 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: |
| 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 |
| September 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 as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 21 |
|
|
| — |
|
|
| 21 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 18 |
|
|
| — |
|
|
| 18 |
|
|
| — |
| (a) | Prepaid expenses |
Natural gas swap contracts |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| (a) | Prepaid expenses |
Currency derivatives |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
| (a) | Other assets |
|
| 8 |
|
|
| — |
|
|
| 8 |
|
|
| — |
| (a) | Other assets |
Natural gas swap contracts |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| (a) | Other assets |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
Total Assets |
|
| 41 |
|
|
| — |
|
|
| 41 |
|
|
| — |
|
|
|
|
| 31 |
|
|
| — |
|
|
| 31 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 15 |
|
|
| — |
|
|
| 15 |
|
|
| — |
| (a) | Trade and other payables |
|
| 12 |
|
|
| — |
|
|
| 12 |
|
|
| — |
| (a) | Trade and other payables |
Natural gas swap contracts |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Trade and other payables |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Trade and other payables |
Currency derivatives |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Natural gas swap contracts |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Total Liabilities |
|
| 28 |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
|
|
|
| 25 |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed notes ("ABN") |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| (b) | Other assets | ||||||||||||||||||
Long-term debt |
|
| 1,369 |
|
|
| — |
|
|
| 1,369 |
|
|
| — |
| (c) | Long-term debt |
|
| 1,446 |
|
|
| — |
|
|
| 1,446 |
|
|
| — |
| (c) | Long-term debt |
The cumulative loss recorded in Other comprehensive income (loss) relating to natural gas contracts of $4 million at September 30, 2016, will be recognized in Cost of sales upon maturity of the derivatives over the next 60 months at the then prevailing values, which may be different from those at September 30, 2016.
The cumulative gain recorded in Other comprehensive income (loss) relating to currency options and forwards hedging forecasted purchases of $13$10 million at JuneSeptember 30, 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 JuneSeptember 30, 2016.
14
15
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3.3 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
Fair Value of financial instruments at: |
| 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 |
| 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 as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Prepaid expenses |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Prepaid expenses |
Currency derivatives |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Other assets |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Other assets |
Total Assets |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 39 |
|
|
| — |
|
|
| 39 |
|
|
| — |
| (a) | Trade and other payables |
|
| 39 |
|
|
| — |
|
|
| 39 |
|
|
| — |
| (a) | Trade and other payables |
Natural gas swap contracts |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
| (a) | Trade and other payables |
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
| (a) | Trade and other payables |
Currency derivatives |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Natural gas swap contracts |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Total Liabilities |
|
| 67 |
|
|
| — |
|
|
| 67 |
|
|
| — |
|
|
|
|
| 67 |
|
|
| — |
|
|
| 67 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed notes |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| (b) | Other assets | ||||||||||||||||||
Asset backed notes ("ABN") |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| (b) | Other assets | ||||||||||||||||||
Long-term debt |
|
| 1,261 |
|
|
| — |
|
|
| 1,261 |
|
|
| — |
| (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 3 inputs. Fair value of ABN reported under Level 3 is based on the value of the collateral investments held in the conduit issuer, reduced by the negative value of credit default derivatives, with an additional discount applied for illiquidity. These ABN are held outside of the Company’s pension plans. |
(c) | Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at |
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.
1516
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(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 six months ended |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||||||
Net earnings |
| $ | 18 |
|
| $ | 38 |
|
| $ | 22 |
|
| $ | 74 |
|
| $ | 59 |
|
| $ | 11 |
|
| $ | 81 |
|
| $ | 85 |
|
Weighted average number of common shares outstanding (millions) |
|
| 62.6 |
|
|
| 63.6 |
|
|
| 62.7 |
|
|
| 63.7 |
|
|
| 62.6 |
|
|
| 62.9 |
|
|
| 62.6 |
|
|
| 63.4 |
|
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) |
|
| 62.7 |
|
|
| 63.7 |
|
|
| 62.8 |
|
|
| 63.8 |
|
|
| 62.7 |
|
|
| 63.0 |
|
|
| 62.7 |
|
|
| 63.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per common share (in dollars) |
| $ | 0.29 |
|
| $ | 0.60 |
|
| $ | 0.35 |
|
| $ | 1.16 |
|
| $ | 0.94 |
|
| $ | 0.17 |
|
| $ | 1.29 |
|
| $ | 1.34 |
|
Diluted net earnings per common share (in dollars) |
| $ | 0.29 |
|
| $ | 0.60 |
|
| $ | 0.35 |
|
| $ | 1.16 |
|
| $ | 0.94 |
|
| $ | 0.17 |
|
| $ | 1.29 |
|
| $ | 1.34 |
|
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 six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Options |
|
| 314,287 |
|
|
| 220,406 |
|
|
| 412,372 |
|
|
| 137,521 |
|
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Options |
|
| 412,372 |
|
|
| 110,219 |
|
|
| 412,372 |
|
|
| 137,191 |
|
1617
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(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 multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the three and sixnine months ended JuneSeptember 30, 2016, the pension expense was $8$11 million and $18$29 million, respectively (2015 – $7$9 million and $15$24 million, respectively).
DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company sponsors both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. Non-unionized employees in Canada joining the Company after January 1, 1998 participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. Unionized and non-union hourly employees in the U.S. who are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.
Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:
|
| For the three months ended |
|
| For the six months ended |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||||||||||||
|
| June 30, 2016 |
|
| June 30, 2016 |
|
| September 30, 2016 |
|
| September 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 |
|
| 8 |
|
|
| 1 |
|
|
| 16 |
|
|
| 1 |
|
|
| 7 |
|
|
| 1 |
|
|
| 23 |
|
|
| 2 |
|
Interest expense |
|
| 13 |
|
|
| 1 |
|
|
| 25 |
|
|
| 2 |
|
|
| 12 |
|
|
| — |
|
|
| 37 |
|
|
| 2 |
|
Expected return on plan assets |
|
| (20 | ) |
|
| — |
|
|
| (39 | ) |
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
| (58 | ) |
|
| — |
|
Amortization of net actuarial loss |
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Amortization of prior year service costs |
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
Net periodic benefit cost |
|
| 3 |
|
|
| 2 |
|
|
| 6 |
|
|
| 3 |
|
|
| 3 |
|
|
| 1 |
|
|
| 9 |
|
|
| 4 |
|
Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:
|
| For the three months ended |
|
| For the six months ended |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||||||||||||
|
| June 30, 2015 |
|
| June 30, 2015 |
|
| September 30, 2015 |
|
| September 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 |
|
|
| 18 |
|
|
| 2 |
|
|
| 9 |
|
|
| — |
|
|
| 27 |
|
|
| 2 |
|
Interest expense |
|
| 17 |
|
|
| 1 |
|
|
| 33 |
|
|
| 2 |
|
|
| 16 |
|
|
| 1 |
|
|
| 49 |
|
|
| 3 |
|
Expected return on plan assets |
|
| (23 | ) |
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| (23 | ) |
|
| — |
|
|
| (70 | ) |
|
| — |
|
Amortization of net actuarial loss |
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
Amortization of prior year service costs |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Net periodic benefit cost |
|
| 5 |
|
|
| 2 |
|
|
| 9 |
|
|
| 4 |
|
|
| 4 |
|
|
| 1 |
|
|
| 13 |
|
|
| 5 |
|
For the three and sixnine months ended JuneSeptember 30, 2016, the Company contributed $5$18 million and $9$27 million, respectively (2015 – $3$5 million and $6$11 million, respectively) to the pension plans and $1 million and $2$3 million, respectively (2015 – $2$1 million and $3$4 million, respectively) to the other post-retirement benefit plans.
1718
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
OTHER OPERATING LOSS (INCOME), NET
Other operating 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 loss (income), net includes the following:
|
| For the three months ended |
|
| For the six months ended |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Gain on sale of property, plant and equipment (1) |
|
| — |
|
|
| (14 | ) |
|
| — |
|
|
| (15 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15 | ) |
Bad debt expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| 4 |
|
Environmental provision |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
| ||||||||||||||||
Litigation settlement |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Foreign exchange loss |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
| ||||||||||||||||
Foreign exchange loss (gain) |
|
| 1 |
|
|
| (3 | ) |
|
| 5 |
|
|
| (3 | ) | ||||||||||||||||
Other |
|
| (2 | ) |
|
| 1 |
|
|
| (2 | ) |
|
| 2 |
|
|
| (1 | ) |
|
| — |
|
|
| (3 | ) |
|
| 2 |
|
Other operating loss (income), net |
|
| — |
|
|
| (13 | ) |
|
| 4 |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| 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). |
1819
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INCOME TAXES
ForIn the secondthird quarter of 2016, the Company’s income tax expense was $6$16 million, consisting of a current income tax expense of $8$5 million and a deferred income tax benefitexpense of $2$11 million. This compares to an income tax benefit of $1$14 million in the secondthird quarter of 2015, consisting of a current income tax expense of $16$4 million and a deferred income tax benefit of $17$18 million. The effective tax rate was 25%21% compared with an effective tax rate of (3)%467% in the secondthird quarter of 2015. The effective tax rates for both the third quarter of 2016 and the third quarter of 2015 were impacted by the finalization of certain estimates in connection with the filing of our 2015 and 2014 income tax returns, respectively. Additionally, the effective tax rate for the secondthird quarter of 2015 was impacted by enacted law changes in several U.S. states and by the impairment of property, plant, and equipment charges occurring in a high-tax jurisdiction.
In the first nine months of 2016, the Company’s income tax expense was $19 million, consisting of current income tax expense of $13 million and deferred income tax expense of $6 million. This compares to an income tax benefit of $6 million in the first nine months of 2015, consisting of a current income tax expense of $44 million and a deferred income tax benefit of $50 million. The effective tax rate was 19% compared to an effective tax rate of (8)% in the first nine months of 2015. The effective tax rates for both the first nine months of 2016 and the first nine months of 2015 were impacted by the finalization of certain estimates in connection with the filing of our 2015 and 2014 income tax returns, respectively. Additionally, the effective tax rate for the first nine months of 2016 was impacted by the approval of a state tax credit in the U.S. The effective tax rate for the first nine months of 2015 was impacted 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 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 half of 2016 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 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 of property, plant, and equipment charges occurring in a high-tax jurisdiction.
19
20
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INVENTORIES
The following table presents the components of inventories:
|
| June 30, |
|
| December 31, |
| September 30, |
|
| December 31, | ||
|
| 2016 |
|
| 2015 |
| 2016 |
|
| 2015 | ||
|
| $ |
|
| $ |
| $ |
|
| $ | ||
Work in process and finished goods |
|
| 409 |
|
| 432 |
|
| 417 |
|
| 432 |
Raw materials |
|
| 135 |
|
| 130 |
|
| 141 |
|
| 130 |
Operating and maintenance supplies |
|
| 209 |
|
| 204 |
|
| 212 |
|
| 204 |
|
|
| 753 |
|
| 766 |
|
| 770 |
|
| 766 |
2021
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(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, 2015 |
|
| 539 |
|
Effect of foreign currency exchange rate change |
|
|
|
|
Balance at end of period |
|
|
|
|
|
|
|
|
|
The goodwill at JuneSeptember 30, 2016 is entirely related to the Personal Care segment.
2122
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INTANGIBLE ASSETS
The following table presents the components of intangible assets:
|
|
|
| June 30, |
|
| December 31, |
|
|
|
| September 30, |
|
| December 31, |
| ||||||||||||||||||||||||||||||||||||
|
|
|
| 2016 |
|
| 2015 |
|
|
|
| 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 |
| ||||||||||||
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||||
Definite-lived intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water rights |
| 40 |
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
| 40 |
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
|
| 7 |
|
|
| (1 | ) |
|
| 6 |
|
Customer relationships |
| 10 - 40 |
|
| 357 |
|
|
| (54 | ) |
|
| 303 |
|
|
| 354 |
|
|
| (46 | ) |
|
| 308 |
|
| 10 - 40 |
|
| 360 |
|
|
| (58 | ) |
|
| 302 |
|
|
| 354 |
|
|
| (46 | ) |
|
| 308 |
|
Technology |
| 7 - 20 |
|
| 8 |
|
|
| (3 | ) |
|
| 5 |
|
|
| 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 |
|
|
| (7 | ) |
|
| 21 |
|
|
| 28 |
|
|
| (6 | ) |
|
| 22 |
|
| 12 |
|
| 28 |
|
|
| (7 | ) |
|
| 21 |
|
|
| 28 |
|
|
| (6 | ) |
|
| 22 |
|
|
|
|
|
| 401 |
|
|
| (65 | ) |
|
| 336 |
|
|
| 398 |
|
|
| (55 | ) |
|
| 343 |
|
|
|
|
| 404 |
|
|
| (69 | ) |
|
| 335 |
|
|
| 398 |
|
|
| (55 | ) |
|
| 343 |
|
Indefinite-lived intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
| 218 |
|
|
| — |
|
|
| 218 |
|
|
| 215 |
|
|
| — |
|
|
| 215 |
|
|
|
|
| 221 |
|
|
| — |
|
|
| 221 |
|
|
| 215 |
|
|
| — |
|
|
| 215 |
|
License rights |
|
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Catalog rights |
|
|
|
| 38 |
|
|
| — |
|
|
| 38 |
|
|
| 37 |
|
|
| — |
|
|
| 37 |
|
|
|
|
| 38 |
|
|
| — |
|
|
| 38 |
|
|
| 37 |
|
|
| — |
|
|
| 37 |
|
Total |
|
|
|
| 663 |
|
|
| (65 | ) |
|
| 598 |
|
|
| 656 |
|
|
| (55 | ) |
|
| 601 |
|
|
|
|
| 669 |
|
|
| (69 | ) |
|
| 600 |
|
|
| 656 |
|
|
| (55 | ) |
|
| 601 |
|
Amortization expense related to intangible assets for the three and sixnine months ended JuneSeptember 30, 2016 was $4$5 million and $9$14 million, respectively (2015 – $4$5 million and $9$14 million, respectively).
Amortization expense for the next five years related to intangible assets is expected to be as follows:
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Amortization expense related to intangible assets |
|
| 19 |
|
|
| 19 |
|
|
| 19 |
|
|
| 18 |
|
|
| 18 |
|
2223
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT 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.
Plymouth, North Carolina mill
On September 23, 2016, the Company announced a plan to optimize fluff pulp manufacturing at the Plymouth, North Carolina mill. The restructuring, which is expected to be completed by mid-2017, includes the permanent closure of a pulp dryer and idling of related assets, in addition to a workforce reduction of approximately 100 positions. The streamlining process will also right-size the mill to an annualized production target of approximately 380,000 metric tons of fluff pulp. The Company recorded $5 million of severance and termination costs under Closure and restructuring costs during the third quarter of 2016.
Ashdown, Arkansas mill
On December 10, 2014, the Company announced a 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 Company also invested in a pulp bale line that will provide flexibility to manufacture papergrade softwood pulp, contingent on market conditions. The conversion work commenced during the second quarter of 2016 and the production of bale softwood pulp began in the third quarter of 2016. The fluff qualification period is set to begin in the fourth quarter of 2016. The fluff pulp line is scheduled to startup 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 resulted in the permanent reduction of 364,000 short tons of annual uncoated freesheet production capacity on March 31, 2016.
The Company also invested in a pulp bale line that will provide flexibility to manufacture papergrade softwood pulp, contingent on market conditions.
The Company recorded $3$5 million and $24$29 million for the three and sixnine months ended JuneSeptember 30, 2016, 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 $21$5 million and $26 million of costs related to the fluff pulp conversion outage under Closure and restructuring costs duringfor the second quarter ofthree and nine months ended September 30, 2016. During the first quarter of 2016, the Company recorded $1 million of severance and termination costs under Closure and restructuring costs.
The Company recorded $18$20 million and $37$57 million for the three and sixnine months ended JuneSeptember 30, 2015, respectively, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). TheFor the three and nine months ended September 30, 2015, the Company also recorded $1 million and $2 million, respectively, of severance and termination costs under Closure and restructuring costs during the second quarter of 2015.costs.
Other costs
For the three and sixnine months ended JuneSeptember 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 sixnine months ended JuneSeptember 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.
At JuneSeptember 30, 2016, the Company’s provision for closure and restructuring costs is $3$8 million. This provision is comprised of severance and termination costs, all related to Pulp and Paper.
23
24
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 12.
_________________
BANK FACILITY
On August 18, 2016, the Company amended and restated its existing unsecured Amended and Restated Credit Agreement, dated October 3, 2014 (the “Existing Credit Agreement”; as so amended and restated, the “2016 Credit Agreement”), among the Company and certain of its subsidiaries (including certain Canadian and European subsidiaries that were not borrowers under the Existing Credit Agreement) as borrowers, and the lenders and agents party thereto. The 2016 Credit Agreement matures on August 18, 2021.
The maximum aggregate amount of availability under the 2016 Credit Agreement is $700 million, an increase of $100 million from the Existing Credit Agreement of $600 million. Borrowings under the 2016 Credit Agreement will bear interest at the same rates as borrowings under the Existing Credit Agreement.
Borrowings by U.S. borrowers under the 2016 Credit Agreement are guaranteed by the Company and its significant domestic subsidiaries. Borrowings by foreign borrowers under the 2016 Credit Agreement are guaranteed by the Company, the Company’s significant domestic subsidiaries and certain of the Company’s foreign significant subsidiaries. Unlike the Existing Credit Agreement, no insignificant subsidiaries guarantee obligations of the borrowers under the 2016 Credit Agreement.
The 2016 Credit Agreement contains customary covenants and events of default for transactions of this type, including two financial covenants: (i) an interest coverage ratio, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio that must be maintained at a level of not greater than 3.75 to 1 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). The other terms of the 2016 Credit Agreement are generally consistent with the terms of the Existing Credit Agreement.
TERM LOAN
On August 18, 2016, the Company entered into an amendment (the “Amendment”) to its Term Loan Agreement, dated July 20, 2015, pursuant to which, among other things, certain subsidiaries of the Company were designated as “insignificant subsidiaries” and were released from their guarantees of the borrower’s obligations under the Term Loan Agreement, as amended by the Amendment.
UNSECURED NOTES
The Company’s 9.5% Notes, in the aggregate principal amount of $39 million, matured on August 1, 2016.
25
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(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 periods ended JuneSeptember 30, 2016 and December 31, 2015:
|
| Net derivative (losses) gains 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 |
|
| (8 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (8 | ) |
|
| (8 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (8 | ) | ||||||
Currency options |
|
| (40 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (40 | ) |
|
| (40 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (40 | ) | ||||||
Forward exchange forward contracts |
|
| 7 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 7 |
| |||||||||||||||||||||||
Foreign exchange forward contracts |
|
| 7 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 7 |
| |||||||||||||||||||||||
Net (gain) loss |
| N/A |
|
|
| (5 | ) |
|
| 3 |
|
| N/A |
|
|
| (2 | ) |
| N/A |
|
|
| (5 | ) |
|
| 3 |
|
| N/A |
|
|
| (2 | ) | ||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (223 | ) |
|
| (223 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (223 | ) |
|
| (223 | ) | ||||||
Other comprehensive (loss) income before reclassifications |
|
| (41 | ) |
|
| (5 | ) |
|
| 3 |
|
|
| (223 | ) |
|
| (266 | ) |
|
| (41 | ) |
|
| (5 | ) |
|
| 3 |
|
|
| (223 | ) |
|
| (266 | ) |
Amounts reclassified from Accumulated other comprehensive loss |
|
| 26 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| 26 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
Net current period other comprehensive (loss) income |
|
| (15 | ) |
|
| 2 |
|
|
| 3 |
|
|
| (223 | ) |
|
| (233 | ) |
|
| (15 | ) |
|
| 2 |
|
|
| 3 |
|
|
| (223 | ) |
|
| (233 | ) |
Balance at December 31, 2015 |
|
| (30 | ) |
|
| (190 | ) |
|
| (10 | ) |
|
| (271 | ) |
|
| (501 | ) |
|
| (30 | ) |
|
| (190 | ) |
|
| (10 | ) |
|
| (271 | ) |
|
| (501 | ) |
Natural gas swap contracts |
|
| 4 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 4 |
|
|
| — |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| — |
| ||||||
Net investment hedge |
|
| (1 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (1 | ) |
|
| (1 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (1 | ) | ||||||
Currency options |
|
| 13 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 13 |
|
|
| 12 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 12 |
| ||||||
Forward exchange forward contracts |
|
| 13 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 13 |
| |||||||||||||||||||||||
Foreign exchange forward contracts |
|
| 12 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 12 |
| |||||||||||||||||||||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 61 |
|
|
| 61 |
| ||||||
Other comprehensive income before reclassifications |
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| 84 |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| 84 |
|
Amounts reclassified from Accumulated other comprehensive loss |
|
| 13 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| 14 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Net current period other comprehensive income |
|
| 42 |
|
|
| 3 |
|
|
| — |
|
|
| 55 |
|
|
| 100 |
|
|
| 37 |
|
|
| 5 |
|
|
| — |
|
|
| 61 |
|
|
| 103 |
|
Balance at June 30, 2016 |
|
| 12 |
|
|
| (187 | ) |
|
| (10 | ) |
|
| (216 | ) |
|
| (401 | ) | ||||||||||||||||||||
Balance at September 30, 2016 |
|
| 7 |
|
|
| (185 | ) |
|
| (10 | ) |
|
| (210 | ) |
|
| (398 | ) |
(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. |
2426
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2016
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 12.13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)
The following table 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 |
|
| ||||||||||
|
| June 30, 2016 |
|
| June 30, 2015 |
|
|
| September 30, 2016 |
|
| September 30, 2015 |
|
| ||||
Net derivative gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas swap contracts |
|
| 5 |
|
|
| 5 |
| (1) |
|
| 2 |
|
|
| 2 |
| (1) |
Currency options and forwards |
|
| 3 |
|
|
| 5 |
| (1) |
|
| 1 |
|
|
| 10 |
| (1) |
Total before tax |
|
| 8 |
|
|
| 10 |
|
|
|
| 3 |
|
|
| 12 |
|
|
Tax expense |
|
| (3 | ) |
|
| (4 | ) |
|
|
| (2 | ) |
|
| (5 | ) |
|
Net of tax |
|
| 5 |
|
|
| 6 |
|
|
|
| 1 |
|
|
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 3 |
|
|
| 2 |
| (2) |
|
| 2 |
|
|
| 2 |
| (2) |
Tax expense |
|
| (1 | ) |
|
| — |
|
|
|
| — |
|
|
| (1 | ) |
|
Net of tax |
|
| 2 |
|
|
| 2 |
|
|
|
| 2 |
|
|
| 1 |
|
|
Details about Accumulated other comprehensive loss components |
| Amount reclassified from Accumulated other comprehensive loss |
| Amount reclassified from Accumulated other comprehensive loss | ||||||||||||||
|
| For the six months ended |
| For the nine months ended | ||||||||||||||
|
| June 30, 2016 |
|
| June 30, 2015 |
| September 30, 2016 |
|
| September 30, 2015 | ||||||||
Net derivative gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas swap contracts |
|
| 10 |
|
|
| 9 |
| (1) |
|
| 12 |
|
|
| 11 |
| (1) |
Currency options and forwards |
|
| 11 |
|
| 10 |
| (1) |
|
| 12 |
|
|
| 20 |
| (1) | |
Total before tax |
|
| 21 |
|
| 19 |
|
|
|
| 24 |
|
|
| 31 |
|
| |
Tax expense |
|
| (8 | ) |
|
| (8 | ) |
|
|
| (10 | ) |
|
| (13 | ) |
|
Net of tax |
|
| 13 |
|
| 11 |
|
|
|
| 14 |
|
|
| 18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 5 |
|
| 5 |
| (2) |
|
| 7 |
|
|
| 7 |
| (2) | |
Tax expense |
|
| (2 | ) |
|
| (1 | ) |
|
|
| (2 | ) |
|
| (2 | ) |
|
Net of tax |
|
| 3 |
|
| 4 |
|
|
|
| 5 |
|
|
| 5 |
|
|
(1) | These amounts are included in Cost of Sales in the Consolidated Statements of Earnings and Comprehensive Income (Loss). |